Month: March 2023

Many states made special tax refunds or payments related to the pandemic and its associated consequences in 2022. A variety of state programs distributed these payments in 2022 and the rules surrounding their tax treatment are complex. One question was whether income related to these payments was taxable at a federal level. Recently, the IRS has clarified its position on these payments by determining that taxpayers in many states will not need to report these payments on their 2022 tax returns.

During a review, the IRS determined that it will not challenge the taxability of payments related to general welfare and disaster relief. This means that people in the following states do not need to report these state payments on their 2022 tax return: California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. Alaska is in this group as well, but please see below for more nuanced information.

In addition, many people in Georgia, Massachusetts, South Carolina and Virginia also will not include state payments in income for federal tax purposes if they meet certain requirements. For these individuals, state payments will not be included for federal tax purposes 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.

Refund of state taxes paid

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.

Payments from the following states in 2022 fall in this category and will be excluded from income for federal tax purposes unless the recipient received a tax benefit in the year the taxes were deducted.

• Georgia
• Massachusetts
• South Carolina
• Virginia

General welfare and disaster relief payments

If a payment is made for the promotion of the general welfare or as a disaster relief payment, for example related to the outgoing pandemic, it may be excludable from income for federal tax purposes under the General Welfare Doctrine or as a Qualified Disaster Relief Payment. Determining whether payments qualify for these exceptions can be complex, so to simplify the matter, the IRS has detemined that it will not challenge the treatment of the 2022 payment as excludable for income on an original or amended return.

Payments from the following states fall in this category and the IRS will not challenge the treatment of these payments as excludable for federal income tax purposes in 2022.

• Alaska (see below)
• California
• Colorado
• Connecticut
• Delaware
• Florida
• Hawaii
• Idaho
• Illinois (see below)
• Indiana
• Maine
• New Jersey
• New Mexico
• New York (see below)
• Oregon
• Pennsylvania
• Rhode Island

For Alaska, this applies only to for supplemental Energy Relief Payment received in addition to the annual Permanent Fund Dividend.

Illinois and New York issued multiple payments and in each case one of the payments was a refund of taxes, which should be treated as noted above, and one of the payments is in the category of disaster relief payment.

Other payments

Other payments that may have been made by states are generally includable in income for federal income tax purposes. This includes the annual payment of Alaska’s Permanent Fund Dividend and any payments from states provided as compensation to workers.

If you travel for business, you probably know that you can deduct some of the expenses related to that travel from your income taxes. But knowing which expenses are deductible, and under what circumstances might make your head spin. In this article we want make sense of business travel deductions so that you know what records to keep in order to maximize your deduction.

The basics of business travel deductions

In order for expenses related to your business travel to be deductible, your travel must take you away from your tax home or main place of work for business reasons. For the purposes of this deduction, you are “traveling away from home” if you are away for longer than an ordinary day’s work and you need to sleep to meet the demands of your work while away.

Travel expenses must be ordinary and necessary. They can’t be lavish, extravagant or for personal purposes.

Employers can deduct travel expenses paid or incurred during a temporary work assignment if the assignment length does not exceed one year.

Travel expenses for conventions are deductible if attendance benefits the business. There are special rules for conventions held outside North America.

Deductible travel expenses include:

• Travel by airplane, train, bus or car between your home and your business destination.
• Fares for taxis or other types of transportation between an airport or train station and a hotel, or from a hotel to a work location.
• Shipping of baggage and sample or display material between regular and temporary work locations.
• Using a personally owned car for business.
• Lodging and meals.
• Dry cleaning and laundry.
• Business calls and communication.
• Tips paid for services related to any of these expenses.
• Other similar ordinary and necessary expenses related to the business travel.

Travel deductions for the self-employed

If you are self-employed, you can deduct travel expenses on your Schedule C (Form 1040). If you are a farmer, you will need to use Schedule F (Form 1040).

Recordkeeping

If you will be claiming deductions for business travel, it’s important to keep good records of your expenses so that you can support your deductions. Keep receipts, canceled checks, credit card statments, and other evidence that supports your expenses so that you can claim your full dedcution.