Tax day is coming.
The 2023 income tax filing deadline is April 18, and the tax pros at Hancock Askew, a Savannah-based accounting firm, recently hosted a tax advice call-in day.
Principal Susan Clifford and four of her colleagues – Kristine Pendilla, Robby Skibicki, Emory Nesbit and Will Curry – took questions by phone and email to help taxpayers navigate changes to the tax code and other tax filing challenges.
Taxes 2023:Temporary breaks related to COVID-19 expire and will impact 2022 returns
Here are 12 of those queries and answers to these common tax questions.
Hybrid car and EV credits; energy-efficient home improvements
Question: I purchased a plug-in-hybrid-electric vehicle (PHEV) that the dealer said would qualify for a $7,500 credit. How do I claim the credit?
Answer: “The IRS will acknowledge a manufacturer’s certification that a vehicle meets the standards to qualify for the credit. Taxpayers may rely on such a certification. You should file form 8936 to claim this credit.”
Question: I installed an energy efficient heat pump. How do I take that credit?
Answer: “File form 5695 and enter on line 22a.”
Changes to Georgia law involving personhood
Question: If I was 8 weeks pregnant on December 31, 2022, can I claim a dependent on my Georgia tax return?
Answer: “Georgia will recognize any unborn child with a detectable human heartbeat, as defined in O.C.G.A. § 1-2-1, as eligible for the Georgia individual income tax dependent exemption. The taxpayer may claim a dependent personal exemption in the amount of $3,000. Use description UNBORNDEP for each unborn child. Claim the deduction on Form 500, Schedule 1, Line 12. Taxpayers do not need to attach documents to their tax returns to claim the tax deduction provided by HB 481. Provision of medical documentation is only necessary if audited.”
College student credits
Question: What is an eligible educational institution for purposes of claiming a tax credit related to my dependent being a student in college?
Answer: “An eligible educational institution is a school offering higher education beyond high school. It is any college, university, trade school, or other post-secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education. This includes most accredited public, nonprofit and privately-owned–for-profit postsecondary institutions. If you are not sure if your school is an eligible educational institution:
· Check to see if the student received a Form 1098-T, Tuition Statement. Eligible educational institutions are required to issue students Form 1098-T, Tuition Statement (some exceptions apply).
· Ask your school if it is an eligible educational institution.
· See if your school is on the U.S. Department of Education’s Database of Accredited Post-Secondary Institutions and Programs (DAPIP) or the Federal Student Loan Program list.”
Retirement account contributions
Question: While my husband and I have made deductible contributions to both traditional and Roth IRAs and have done some Roth conversions, I had never heard of Form 8606 and have never filed it. What is it for? And how do I find the information to answer the questions as I may not have our older documents?
Answer: “Form 8606 is used for four purposes: to report nondeductible contributions to a traditional IRA; to report distributions from traditional, SEP or SIMPLE IRAs; to report a Roth conversion; and to report distributions from a Roth IRA. You should have filed this form in the years that you made the Roth conversions. But since you said all your contributions had been deductible, the entire conversion would have been taxable, you would have reported the same amount on the 1040 had you completed the form.
“Since all your contributions to your traditional IRAs were deductible, 100% of the RMDs or other distributions will be taxable. If you have held the Roth IRA for at least five years, none of the distributions from the Roth will be taxable. The fact that you cannot locate all your old documents shouldn’t matter.
“If you file form 8606 to report non-deductible contributions to a traditional IRA, you should retain a copy as it is an excellent way to prove the basis in your traditional IRA when you start making distributions. You do not want to pay tax on the return of your investment.”
Question: Can I still contribute to my IRA after retirement?
Answer: “There is no longer an age limit for contributing to an IRA, but you or your spouse (if married filing jointly) must have earned income (such as wages, commissions, bonuses, tips, net income from self-employment). The combined contribution for both spouses cannot exceed the lesser of the contribution limit ($6,500 in 2023 with an additional $1,000 for those 50 or older) or the amount of earned income.”
Giving or transferring money to family, friends
Question: How much can I give to one person without creating a gift tax return in 2023?
Answer: “The annual gift exclusion for 2023 is $17,000, up from $16,000 in 2022.”
Question: I was told that I would be receiving a Form 1099-K from Venmo, but I only transfer money between family and friends which totaled approximately $4,600 in 2022. How do I access or know if I will be issued a Form 1099-K?
Answer: “Although business income has always been taxable, individuals and the IRS should not receive Form 1099-K unless 2022 payments crossed a threshold of more than 200 transactions worth an aggregate above $20,000. Originally, the threshold for 1099-K reporting was set to change for 2022, dropping to $600 with no minimum transaction threshold. This means many more filers would have received Form 1099-K this season — but the IRS delayed the reporting change until 2023.”
Filing for an extension
Question: I have yet to receive all my tax statements from my investment advisors (and I have checked online—they are not available). How long should I wait before applying for a tax filing extension and how does one do that?
Answer: “You can file an extension at any time before the due date, but if you believe you will owe money, the extension payment needs to be made by April 18. You should certainly have received your forms 1099 by now (they were due to you by January 31, although many brokerage firms are later than that). I suggest you contact your investment advisors as you may need that information to know what to pay with your extension.
“Use form 4868 to file for an extension. This form is available online and can be accessed on the IRS website www.irs.gov. The instructions will tell you where to mail it. Anyone, regardless of income, can use IRS Free File to file their extension electronically (there is an income limit on the ability to use IRS Free File to file your taxes). Go to the IRS website and type Free File Extension into the search browser.”
Georgia income tax rebate
Question: I have several questions about taxation of the $500 (for joint taxpayers) special Georgia Tax Refund that was paid in 2022. Is it a refund for 2020 or 2021 taxes? And is it taxable as 2022 federal income tax? I saw an article in the paper that the IRS recently issued guidance that it is not taxable in Georgia if you did not itemize deductions. We took the standard deduction in both 2020 and 2021. Is it taxable in Georgia? I think I saw a statement in the paper from the tax commissioner that it is not taxable for 2022 Georgia income tax either.
Answer: “This was a payment out of surplus for people who paid Georgia taxes in both 2020 and 2021. It is not taxable in Georgia. It is not taxable by the federal government if you took the standard deduction in 2021 or if you itemized but received no tax benefit. If you itemized and took a deduction for state and local taxes and received a refund larger than you would have with the standard deduction, it is likely taxable. See federal instructions for Schedule 1 or your tax advisor if you need assistance.”
Question: Are state refunds taxable?
Answer: “If the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit (for example, because the $10,000 tax deduction limit applied), the payment is not included in income for federal tax purposes.”