At the start of the year, it’s a great time to make a resolution to take care of your financial health. A good start? Review your paystub, employer provided benefits and overall financial plan:
- Will you turn age 50 in 2023? Include the $7,500 annual catch-up contribution in your 401k and 403b salary deferral.
- Will you turn age 55 this year? Include the $1,000 annual catch-up contribution in your Health Savings Account (HSA) contribution.
- Be sure to max your 401k salary deferral throughout the year, $22,500 ($30,000 with catch-up contribution).
- If your salary is paid monthly, then set the deferral to $1,875 ($2,500 with catch-up) per monthly paycheck.
- if your salary is paid bi-weekly, then set the deferral to $865 ($1,154 with catch-up) per bi-weekly paycheck.
- Do you fund the max amount to your IRA each year? For 2023 the contribution limit has increased to $6,500 ($7,500 with catch-up contribution).
- Budget $542 ($625) per month when funding your IRA monthly.
- Have there been any life changing events this past year or expected in the next year – such as a change in marital status or the birth of a child.
- Review your designated beneficiaries listed on your 401k/403b plan and IRA’s and adjust accordingly.
- If you plan to enroll your newborn in a childcare facility, sign up for your company’s pre-tax Dependent Care Flexible Spending Account. The max amount you can fund annually to this employer sponsored plan is $5,000 per family.
- Review if changes need to be made to your company sponsored health insurance plan or other employer benefits offered.
- Do you typically owe significant taxes or receive a significant tax refund each year? You may want to consider adjusting your Form W-4 with your company’s HR. Please contact your tax preparer if you need assistance making changes to your withheld taxes from pay.
- Are you continually putting off funding your child’s 529 plan each year? Set up an amount to fund into your child’s 529 plan via monthly auto withdrawals from your bank account.
- Make a plan to update or create your estate plan (will, healthcare proxy, beneficiary designations, etc.) with an estate attorney.
- Will you be retiring this coming year or turning age 65?
- If retiring this coming year, discuss with your financial planner when it would be best to begin taking Required Minimum Distributions (RMDs) from your retirement accounts and at what age to begin collecting social security benefits.
- When turning age 65 you are eligible to sign up for Medicare. Your “Initial Enrollment Period” lasts for 7 months and begins 3 months before your 65th birthday and ends 3 months after the month your turn 65.
If you pay estimated tax payments, don’t forget that the 2022 4th quarter’s payment is due on Tuesday, January 17, 2023.
If you’re self-employed or have other income without any tax withholding, and you make quarterly estimated tax payments, this is the due date for your final quarterly payment for the 2022 tax year.
Want to pay online? You can pay your Federal Estimates on the IRS’ website at https://www.irs.gov/payments
We recently received this question from a client: My newer dental assistant told me that she is a disabled veteran. I knew she was a veteran, but I did not realize that she was considered “disabled.” She also mentioned that this might be advantageous to me. What are the rules?
Sounds like this practice may be eligible for the Work Opportunity Tax Credit. More info is available at: https://www.irs.gov/businesses/small-businesses-self-employed/work-opportunity-tax-credit.
According to the rules, a “qualified veteran” is a veteran who meets any of the following conditions:
- A member of a family receiving assistance under the Supplemental Nutrition Assistance Program (SNAP) (food stamps) for at least a 3-month period during the 15-month period ending on the hiring date
- Unemployed for periods of time totaling at least 4 weeks (whether or not consecutive) but less than 6 months in the 1-year period ending on the hiring date
- Unemployed for periods of time totaling at least 6 months (whether or not consecutive) in the 1-year period ending on the hiring date
- Entitled to compensation for a service-connected disability and hired not more than 1 year after being discharged or released from active duty in the U.S. Armed Forces or
- Entitled to compensation for a service-connected disability and unemployed for periods of time totaling at least 6 months (whether or not consecutive) in the 1-year period ending on the hiring date
See IRS Notice 2012-13 for more detailed information.
And please note that there is a pre-screening requirement to be eligible for this tax credit as follows:
Pre-screening and Certification
An employer must pre-screen and obtain certification from the appropriate Designated Local Agency (referred to as a State Workforce Agency or SWA) that an employee is a member of a targeted group to claim the credit. To satisfy the requirement to pre-screen a job applicant, on or before the day that a job offer is made, a pre-screening notice (Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit) must be completed by the job applicant and the employer. The Targeted Jobs Tax Credit (TJTC), which preceded WOTC, did not contain a pre-screening requirement. In enacting WOTC to replace the TJTC in 1996, Congress included the requirement that employers pre-screen job applicants before or on the same day the job offer is made. In doing so, Congress emphasized that the WOTC is a subsidy designed to incentivize the hiring and employment of individuals who are members of targeted groups.
On page two of Form 8850, there are four dates that must be provided before Form 8850 can be submitted to a SWA. They are the dates that the job applicant Gave information, Was offered job, Was hired, and Started the job.
To confirm that the employer pre-screens the job applicant, and obtains information provided by the job applicant on the basis of which the employer believes that the job applicant is a member of a targeted group, the date the applicant Gave information about being a targeted group member must be a date that is the same as, or before the date the applicant Was offered job. The dates that the job applicant Was hired and Started the job must be on or after the dates the applicant Gave information and Was offered job. Form 8850 including the dates entered on page two of Form 8850, must be signed under penalties of perjury and must be submitted to the SWA (or postmarked, if mailed) no later than 28 days after the date that the job applicant Started the job.
From the IRS News Article – IR-2022-234, December 29, 2022:
The Internal Revenue Service today issued the 2023 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on January 1, 2023, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
- 5 cents per mile driven for business use, up 3 cents from the midyear increase setting the rate for the second half of 2022.
- 22 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces, consistent with the increased midyear rate set for the second half of 2022.
- 14 cents per mile driven in service of charitable organizations; the rate is set by statute and remains unchanged from 2022.
These rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles.
The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, unless they are members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details see Moving Expenses for Members of the Armed Forces.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
Taxpayers can use the standard mileage rate but generally must opt to use it in the first year the car is available for business use. Then, in later years, they can choose either the standard mileage rate or actual expenses. Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.
The IRS plans to focus on reversing the current trend of deceasing IRS audits that have occurred over the last ten years. The recently passed Inflation Reduction Act provides $79.6 Billion to the IRS to improve its operations and efficiency. The funding is to be spread over the next ten years.
$45.6 Billion (57.3%) of the total funding is to be appropriated to tax enforcement activities that include an increase in hiring and training of enforcement agents as well updating the IRS’s “Investigative IT”. With the increased funding, the IRS plans to step up the number of tax examination audits annually – with the focus being big corporations, pass-through entities (S-corporations and partnership tax returns), and high net worth individuals (taxpayers earning $400K or more annually). Additionally, we assume the IRS will continue to focus a portion of their audits on self-employed (Schedule C) individuals as well.
Only $3.2 Billion (4.0%) will be allocated to improving taxpayer services and customer support. This is an area where the IRS has “dropped the ball” over the past 3 years since the beginning of the pandemic and has yet to fully recover to pre-pandemic efficiency.
But please don’t panic over the IRS’s plans of increasing their tax audits. Currently, the projected total number of IRS employees to be hired is expected to be more than 80,000 new employees. However, hiring that number of qualified candidates will not happen overnight, but more realistically will take place over several years. Plus, once hired, there will be significant time involved in training these newly hired employees while getting them “up to speed”. One other key factor, the IRS anticipates 50,000 staff will be retiring over the next 6 years. Piecing these components together, don’t look for any significant increase in IRS tax audits in the near future.
Personal financial planning is an ongoing process. Financially speaking, 2022 was a challenging year for many of us. For the first time in many years, the stock markets were well off their all-time highs. Real estate prices around the country are teetering from their recent highs. And interest rates and inflation has risen significantly since what we have grown accustomed to over the past few decades.
Hello 2023. No one knows how financially friendly this year will be. For that reason, here are ten prudent steps you can take to keep your personal finances moving on the right track:
- REset your retirement savings: Most people find it easier to max out their retirement contributions by budgeting a set amount each month. Instruct your employer to withhold $1,875 per month for your 401(k) or 403(b) plan to ensure that you hit the “salary deferral” max of $22,500 for 2023. Are you self-employed? If so, you can put away up to $66,000 this year into a SEP, Keogh or Solo 401(k), which equals $5,500 per month. And if you’ll be 50 or older by December 31st, the maximum 2022 contribution jumps to $30,000 for 401(k) and 403(b) salary deferrals and $73,500 for Solo 401(k)’s. Please also reset your salary to $330k which is the maximum salary for retirement plan contributions for 2023.
- REjoice if you have a low home mortgage rate: Mortgage interest rates more than doubled during 2022. For people who purchased a new home or refinanced an existing mortgage with extremely low rates available prior to 2022, please remember that while inflation helps cause your salary to grow, the monthly payment for your fixed-rate mortgage remains constant over the term of the loan, making it easier to make your mortgage payments each month.
- REduce your personal debt: There is still easy access to plenty of debt for most people. Remember, leverage equals risk. Make 2023 a year to pay down some of your personal debt. Perhaps you might also delay the purchase of a new car, scale down your awesome vacation, or settle for an 80-inch flat screen TV.
- REvise your savings and debt reduction goals: Take a few minutes to set (and also write down) new savings goals including how much you’d like to put away towards your retirement, a child’s education, and/or the down payment on a home, and also to reset how much you plan to pay down your student loans, personal debt, and home mortgage by the end of the year. (Please watch Alex Oliver’s recorded webinar on Game of Loans: Income Based Repayment Versus Refinancing.)
- REbalance your investment portfolio: Warren Buffet said it best by stating, “A simple rule dictates my buying: Be fearful when others are greedy and be greedy when others are fearful.” During 2022, the stock market gave back gains realized during the prior year or two. By rebalancing your portfolio to its original or updated asset allocation, move money into sectors that underperformed and soon enough might be poised to catch up.
- REdiscover fixed income investments: Earn a guaranteed and risk-free 6.89% interest rate through April 2022 while also making your portfolio a little more conservative by purchasing I-Bonds, a special type of inflation protected treasury bond issued by the US government.
- REvisit your life and disability insurance needs: As you move through your career and your life, your life and disability needs change. Give some thought to how much of these insurances you need going forward versus how much you currently get through your employer’s benefit package and how much coverage you’ve already purchased for your personal policies.
- REview your overall health insurance costs: Consider switching to a qualified high deductible health insurance plan that allows you to contribute to a Health Savings Account (HSA). HSAs provide for tax-deductible contributions AND tax-free withdrawals. The maximum contribution for 2023 is $3,850 for individuals and $7,750 for people with family plans. Anyone 55 or older can add an additional $1k. Many people with HSAs choose to let the money contributed into their account grow tax-deferred, and instead pay for their family’s healthcare costs out of their household checking account. (Please watch Alex Oliver’s 2/21/20 webinar on Health Savings Accounts.)
- REsolve errors on your credit report: Each year, you’re entitled to three free credit reports, so there’s no excuse to not look at this important financial report annually, especially since errors are not uncommon. Order your free report at annualcreditreport.com.
Hopefully 2023 will be a better year financially than we endured during 2022.