by The MDTAXES Network | Jul 5, 2022 | 2022 July news
The IRS recently announced an increase of 4 cents to the optional standard mileage rate due to the increase in gas prices. The new rates are effective July 1, 2022- December 31, 2022:
- Business travel rate is now 62.5 cents per mile
- Deductible medical expenses is now 22 cents per mile
- Moving expenses (available for active-duty members of the military) is now 22 cents per mile
Note – the 14 cents per mile rate for charitable organizations remains unchanged as it’s set by statute.
You can use the optional rate to calculate the deductible costs of operating a car for business and certain other purposes in lieu of tracking actual costs. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.
Midyear increases in the optional mileage rates are rare, the last time the IRS made such an increase was in 2011.
by The MDTAXES Network | Jul 5, 2022 | 2022 July news
It’s summertime and we often get asked about how to handle taxes and forms for a child’s summer job or first job out of college. We’re recapping some tips below:
Completing Form W-4 for summer jobs:
When you child begins their summer job, their new employer will require them to complete a Form W-4, Employee’s Withholding Certificate. The W-4 instructs the employer how to withhold income taxes from your child’s paycheck. For your kids working over the summer consider claiming “Exempt” from withheld federal income taxes on their paychecks. The IRS allows a taxpayer to claim an exemption from federal tax withholdings if they had no federal income tax liability in 2021 and they expect to have no federal income tax liability in 2022. Assuming that your child expects to earn only a small amount of pay this year and did not have a tax liability the prior year, your child can write “Exempt” on line 4(c) of the Form W-4 and no federal income taxes will be withheld from their pay – leaving a larger weekly net paycheck for your child.
Completing Form W-4 for recent college grad’s first job:
When you complete the Form W-4, your employer will withhold income taxes based upon the assumption that earnings will be for an entire calendar year. However, recent college grads beginning full-time employment soon after graduation will only be working a partial calendar year their first working year. The IRS income tax withholding tables are based upon a full year of earned wages. For recent college grads working a partial year, most likely more taxes will be withheld than needed from their weekly paycheck, which may result in a large tax refund the following spring when the tax return is prepared. Instead of waiting until the following spring to receive the refund for the over withheld taxes, employees working a partial year can submit a request in writing to their employer to have less taxes withheld from their weekly paycheck (leaving a larger net take home pay in each paycheck). This “part-year tax withholding method” statement prepared by the employee and given to their employer should include the following:
- The last day of your employment in the calendar year,
- That you use the calendar year for your tax return reporting, and
- That you will be employed no more than 245 days (from all employers in the calendar year)
Is your child being paid as an independent contractor?
Although most employers pay their summer hires as employees and report the income earned and taxes withheld on a W-2, occasionally a company will pay their summer staff as independent contractors issuing a 1099-NEC to your child at year end. When working jobs in sales, social media, and freelance, workers are frequently paid as independent contractors. And although your child’s total income earned for the summer may not require any income tax to be paid, they would be responsible to pay “self-employment” taxes on this income if they are paid more than $400. How can you determine if the employment is as an independent contractor (1099-NEC) or as an employee (W-2)? If social security taxes and Medicare taxes are being withheld from pay, then your child is hired as an employee and will receive a W-2 at year end. However, if no taxes are being withheld, then payment is made as an independent contractor and your child will need to pay self-employment taxes at year end. Be aware, if independent contractor status, then your child will owe 15.3% of their pay for self-employment taxes even if no income taxes are owed and your child will need to file a tax return at year end to pay this tax.
What about Venmo and PayPal sales?
If your child is selling or re-selling items through the internet and receives a 1099—K from Venmo or PayPal at year end, this would be considered self-employment income as well. Additionally, be sure to track the costs of your child’s “business expenses” such as costs of “inventory” being sold in your child’s business plus other selling expenses (web hosting, advertising, postage, etc). These business-related costs are allowed to be deducted from income received. And taxes to be paid are based upon the Net Income of the business (collections less related business costs).
Take advantage of Roth IRA Contributions!!
Even if your child has only a small amount of earned income from a summer job, they will still be eligible to contribute to a Roth IRA under their name. The contribution allowed is limited to the lesser of the child’s earned income and $6,000. The major benefit of funding a Roth IRA early in your child’s career is that the earnings in the Roth IRA grow tax free over your child’s lifetime. The Roth IRA contribution can be funded by parents (or grandparents) as a gift to your child and doesn’t need to come directly from your child’s bank account. And remember, the dollars must be funded into a Roth IRA under your child’s name.
by The MDTAXES Network | Jul 5, 2022 | 2022 July news
From IRS.gov – IRS Tax Tip 2022-98, June 28, 2022
Parents who are divorced, separated, never married or live apart and who share custody of a child with an ex-spouse or ex-partner need to understand the specific rules about who may be eligible to claim the child for tax purposes. This can make filing taxes easier for both parents and avoid errors that may lead to processing delays or costly tax mistakes.
Only one person may be eligible to claim the qualifying child as a dependent
Only one person can claim the tax benefits related to a dependent child who meets the qualifying child rules PDF. Parents can’t share or split up the tax benefits for their child on their respective tax returns.
It’s important that each parent understands who will claim their child on their tax return. If two people claim the same child on different tax returns, it will slow down processing time while the IRS determines which parent’s claim takes priority.
Custodial parents generally claim the qualifying child as a dependent on their return.
- The custodial parent is the parent with whom the child lived for the greater number of nights during the year. The other parent is the noncustodial parent.
- In most cases, because of the residency test, the custodial parent claims the child on their tax return.
- If the child lived with each parent for an equal number of nights during the year, the custodial parent is the parent with the higher adjusted gross income.
Tie-breaker rules may apply if the child is a qualifying child of more than one person
- Although the child may meet the conditions to be a qualifying child of either parent, only one person can actually claim the child as a qualifying child, provided the taxpayer is eligible.
- People should carefully read Publication 504, Divorced or Separated Individuals to understand who is eligible to claim a qualifying child.
Noncustodial parents may be eligible to claim a qualifying child
Special rules apply for a child to be treated as a qualifying child of the noncustodial parent.
For More information, please see:
by The MDTAXES Network | Jul 5, 2022 | 2022 July news
Just a reminder that if your practice had a 401k/Profit Sharing Plan in place during 2021, you are required to file a Form 5500 by 7/31/22 (https://www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/form-5500/2019-sf.pdf). If you aren’t able to submit this paperwork prior to 7/31, please file for an extension using the Form 5558, https://www.irs.gov/pub/irs-pdf/f5558.pdf, giving yourself until 10/15 to file.
There are no taxes due with this form. Instead, the 5500 is an informational filing only. Practices with SEPs and SIMPLEs are exempt from this annual filing requirement. While no taxes are due, the PENALTIES FOR FILING THE FORM 5500 LATE ARE DISGUSTING – A WHOPPING $250 PER DAY!!!
- As a practice owner with a retirement plan, it’s up to you to follow up with your TPA to be completely sure that all the filing deadlines are met. No one is certain how flexible the IRS will be to reduce or waive this onerous late filing penalty. Please do what you can to not need to find out.
- Remember, no one cares more about your practice avoiding this $250 per day late-filing penalty than you do.
by The MDTAXES Network | Jul 5, 2022 | 2022 July news
Practice owners who received Provider Relief Fund (PRF) payments exceeding $10,000 in the aggregate between January 1, 2021 and June 30, 2021 are required to self-report using the PRF Reporting Portal during Reporting Period 3 (RP3) which runs through September 30th. Helpful resources can be found on the PRF Reporting Webpage and their Frequently Asked Questions (FAQs).
Providers who fail to comply with this requirement by September 30th will be deemed out of compliance with the program’s Terms and Conditions and could be subject to forfeiture of the PRF subsidies received. Please check out the Provider Relief Fund Reporting Non-Compliance Fact Sheet at: https://www.hrsa.gov/sites/default/files/hrsa/provider-relief/reporting-non-compliance-fact-sheet.pdf.
