The 10% Penalty on Withdrawals from Retirement Accounts
Dinesen Tax and Accounting
by Jason Dinesen
2w ago
Money you hold in a retirement account may be subject to a 10% penalty if you touch the money before you turn age 59 ½. Sometimes, though, you can withdraw the money and avoid the penalty. Because nothing with taxes is ever easy, the rules are sometimes the same and sometimes different, depending on if the money is in an IRA or in an employer plan such as a 401(k). The distinction between IRA and 401(k) rules is important because it can trip people up. More than once I have helped a client who took money from their 401(k) plan to make a down-payment on a home and assumed it would be penalty fr ..read more
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How to Fix Roth IRA Over-Deposits
Dinesen Tax and Accounting
by Jason Dinesen
3w ago
In a prior post, we covered over-contributions into a Roth IRA. Now, let’s look at what the fixes are.  Fix 1: Withdraw the Over-Contribution This is the fix I see most often, and is usually the best fix. If you catch the over-contribution before you file your tax return, you simply withdraw the over-contribution and it’s as if it never happened. You do need to run an “earnings” calculation, but this is something that the investment platform should be able to handle. Example: In 2023, Jerry maxed out his Roth IRA with a deposit of $6,500. Unfortunately for Jerry, his AGI was beyond all of ..read more
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Residential Energy Credit: Big Changes for 2023
Dinesen Tax and Accounting
by Jason Dinesen
1M ago
The residential energy credit – for things such as purchases of energy efficient appliances, doors and windows – has changed in a big way for 2023 and beyond. Let’s examine. Energy efficient home improvement credit The Way it Used to Be Up through 2022 (including 2022), the credit was a maximum of $500 – and that was a lifetime limit. So if you bought an energy efficient refrigerator and installed a few energy efficient windows in 2009 and claimed the maximum of $500, you could never claim the credit again.  This presented a compliance problem because one needed to track this. Say you cla ..read more
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What’s Going on with Form 1099-K?
Dinesen Tax and Accounting
by Jason Dinesen
1M ago
In November, the IRS announced this it was pushing back the changes to Form 1099-K reporting rules again. Let’s examine. What is Form 1099-K? Form 1099-K is issued by third-party settlement organizations and third-party network transactions for business transactions. A third-party settlement organization is sometimes called a merchant processor. Whatever you call them, they are the back-end processor of credit card transactions. So, if you own a business and you take payment via credit cards, you probably have a merchant processor/third-party settlement organization. That entity will send you ..read more
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Beneficial Ownership Reporting and the Tax Practitioner
Dinesen Tax and Accounting
by Jason Dinesen
1M ago
Let’s talk about beneficial owner reporting. This is a tricky subject for any tax pro to talk about. We are the ones who are on the front lines of telling clients about this, yet we cannot actually do the filing.* *-I know some tax pros are doing the filing, but the continuing education I have taken on this topic indicates that this report is probably the practice of law and so we should not be doing it.  What is it?  This is a required report that you must file with the Financial Crimes Enforcement Network (FinCEN), which is a part of the Treasury Department.  This filing appl ..read more
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Roth IRA Over-Contributions: Common Problem for Average Taxpayers
Dinesen Tax and Accounting
by Jason Dinesen
1M ago
I’ve written about this before but now is a timely time to talk about it again, with tax season underway.  I prepare a lot of individual tax returns, and one of the most-common compliance issues I see is: people contributing too much into their Roth IRA. One-hundred percent of the time, the person had no idea there was a problem. IRAs There are two types of individual retirement accounts you can open – a traditional IRA and a Roth IRA. Traditional IRA: deposits (usually called “contributions”) into the plan are tax deductible (usually); withdrawals are (usually) taxable. Not the use of ..read more
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Refundable Child Tax Credit
Dinesen Tax and Accounting
by Jason Dinesen
2M ago
In the tax bill being debated in Congress, one of the provisions is to expand the child tax credit. The proposal would: Increase the refundable portion child tax credit (known as the “additional child tax credit”), for 2023, by $200, to $1,800. And increase it to $1,900 for 2024 and $2,000 for 2025. Index both the regular child tax credit (currently $2,000) for inflation, starting with 2024 (it’s still $2,000 for 2023; will be something higher [presumably, depending on the inflation adjustment] for 2024 and each year afterwards). In this post I wanted to talk about the refundable portion of ..read more
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How Will Advance Child Tax Credits Affect My Tax Return?
Dinesen Tax and Accounting
by Jason Dinesen
2M ago
Image by Esi Grünhagen from Pixabay Many people are asking what the advance child tax credit payments that start in July will do to their 2021 taxes. The short answer is, it could reduce your refund. Let’s say you have 1 kid. Normally the child tax credit is $2,000. The “enhanced” credit for 2021 is now $3,000 (if the kid is ages 6-18) or $3,600 (ages 5 and under). You’ll receive 1/2 of the credit in advance over the last 6 months of the year. So let’s say you qualify for a $3,000 credit for the kid. The advance is: 3,000 / 12 x 6 = $1,500 ($250 per month from July-December). So when you file ..read more
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ERC and Supply Chain Disruptions
Dinesen Tax and Accounting
by Jason Dinesen
8M ago
On Friday, July 21, the IRS release a Chief Council Memorandum on the subject of whether or not a business qualifies for the employee retention credit (ERC) based on supply chain disruptions. Here is a link to the memorandum: https://www.irs.gov/pub/lanoa/am-2023-005.pdf The short answer is, no, a supply chain disruption does not qualify a business for ERC. The memo analyzes five scenarios. Scenario 1 Here is Scenario 1 from the memo: Employer A was not subject to any governmental orders limiting commerce, travel, or group meetings due to COVID-19 at any time. However, during 2020 and 2021, E ..read more
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Revisiting Form 1099-K and Its Interaction with Other 1099s
Dinesen Tax and Accounting
by Jason Dinesen
1y ago
If you are a business and you pay contract labor, you must issue the contractor a Form 1099-NEC if: The amount you paid to the contractor is $600 or more for the year, and The contractor isn’t taxed as a corporation. If you pay with a credit or debit card, or via a third-party processor such as PayPal, you do NOT issue a 1099-NEC because the payment falls under the 1099-K reporting rules instead. This 1099-K exception has been around for almost a decade, and now is changing for 2022 as per the American Rescue Plan. Reviewing Form 1099-K The first thing to know here is that you do not issue a ..read more
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