Complete Tax Solutions LLC

It’s back to school season, which is also a good time to remind teachers, principals, and other educators about the educator expense deduction which they may be eligible for. If you are an educator, you may be able to deduct up to $300 of out-of-pocket classroom expenses for 2023 when you file your federal income tax return next year.

This is the same limit that applied in 2022, the first year this provision became subject to inflation adjustment. Before that, the limit was $250. The limit will rise in $50 increments in future years based on inflation adjustments.

This means that you may be able to deduct up to $300 of qualifying expenses paid during the year. If you’re married and file a joint return with another eligible educator, the limit rises to $600. But in this situation, not more than $300 for each spouse.

Who qualifies?

If you’re an eligible educator, you can claim this deduction even if you take the standard deduction. Eligible educators include anyone who is a kindergarten through grade 12 teacher, instructor, counselor, principal or aide who worked in a school for at least 900 hours during the school year. Both public and private school educators qualify.

What’s deductible?

Educators can deduct the unreimbursed cost of:

• Books, supplies and other materials used in the classroom.
• Equipment, including computer equipment, software and services.
• COVID-19 protective items to stop the spread of the disease in the classroom. This includes face masks, disinfectant for use against COVID-19, hand soap, hand sanitizer, disposable gloves, tape, paint or chalk to guide social distancing, physical barriers, such as clear plexiglass, air purifiers and other items recommended by the Centers for Disease Control and Prevention.
• Professional development courses related to the curriculum they teach or the students they teach.

Qualified expenses don’t include the cost of home schooling or for nonathletic supplies for courses in health or physical education. As with all deductions and credits, be sure to keep good records, including receipts, cancelled checks and other documentation.

Separation and divorce are never easy for the couples involved. In addition to all the personal issues at play, separation and divorce can impact the former couple’s tax situation as well.

Am I married for tax purposes?

The IRS considers a couple married for tax filing purposes until they get a final decree of divorce or separate maintenance.

Update tax withholding

When a person divorces or separates, they usually need to update their tax withholding by filing a new Form W-4, Employee’s Withholding Certificate, with their employer. If they receive alimony, they may have to make estimated tax payments.

Tax treatment of alimony and separate maintenance

• Amounts paid to a spouse or a former spouse under a divorce decree, a separate maintenance decree or a written separation agreement may be alimony or separate maintenance for federal tax purposes.
• Certain alimony or separate maintenance payments are deductible by the payer spouse, and the recipient spouse must include it in income.

Rules related to dependent children and support

Generally, the parent with custody of a child can claim that child on their tax return. If parents split custody fifty-fifty and aren’t filing a joint return, they’ll have to decide which parent claims the child. If the parents can’t agree, the IRS provides tie-breaker rules that can be used to resolve the dispute. Child support payments aren’t deductible by the payer and aren’t taxable to the payee.

Not all payments under a divorce or separation instrument—including a divorce decree, a separate maintenance decree or a written separation agreement—are alimony or separate maintenance. Alimony and separate maintenance does not include:

• Child support
• Noncash property settlements, whether in a lump-sum or installments
• Payments that are your spouse’s part of community property income
• Payments to keep up the payer’s property
• Use of the payer’s property
• Voluntary payments

Child support is never deductible and isn’t considered income. Additionally, if a divorce or separation instrument provides for alimony and child support and the payer spouse pays less than the total required, the payments apply to child support first. Only the remaining amount is considered alimony.

Report property transfers, if needed

Usually, if a taxpayer transfers property to their spouse or former spouse because of a divorce, there’s no recognized gain or loss on the transfer. People may have to report the transaction on a gift tax return.

The summer is prime time for buying or selling a house. If you purchased a home this year, here are a few tax deductions and programs that you might be eligible for.

Deductible house-related expenses

Most people take out a mortgage to buy their home and then make monthly payments to the lender. This mortgage payment may include several costs of owning a home that can be deducted, such as:

• state and local real estate taxes, subject to the $10,000 limit.
• home mortgage interest, within limits.

It’s important to note that in order to take advantage of these deductions, you must itemize your deductions (rather than simply taking the standard deduction).

Non-deductible payments and expenses

Unfortunately, not all expenses related to owning a home are deductible. For example, you cannot deduct any of the following:

• Insurance, including fire and comprehensive coverage and title insurance
• Down payments on a mortgage
• Wages paid to housekeepers and other domestic help
• Depreciation
• The cost of utilities, such as gas, electricity or water
• Most settlement or closing costs
• Forfeited deposits, down payments or earnest money
• Internet or Wi-Fi system or service
• Homeowners’ association fees, condominium association fees or common charges
• Home repairs

Mortgage interest credit

The mortgage interest credit helps people with lower income afford home ownership. If you qualify for the mortgage interest credit, you can claim the credit each year for part of the the interest paid on your home mortgage. You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate from your state or local government. An MCC is issued only for a new mortgage for the purchase of a main home.

Homeowners Assistance Fund

The Homeowners Assistance Fund program provides financial assistance to eligible homeowners for paying some expenses related to their principal residence. The goal of the fund is to prevent mortgage delinquencies, defaults, foreclosures, utility shut-offs, and the displacement of homeowners experiencing financial hardship after January 21, 2020.

Minister’s or military housing allowance

If you are a minister or member of the uniformed services and receive a nontaxable housing allowance, you can still deduct your real estate taxes and home mortgage interest. You don’t have to reduce your deductions based on the allowance.

If you have questions about these programs and tax deductions, or if you are wondering if you qualify for any of them, please contact our office. We would be happy to help.

If you’re “tying the knot” this summer, you should review a few tax-related items after the wedding. Big life changes, including a change in marital status, often have tax implications. Here are a few things couples should think about after the wedding.

Name and address changes

People who change their name after marriage should report it to the Social Security Administration as soon as possible. The name on your tax return must match what is on file at the SSA. If it doesn’t, it could delay your tax refund. To update your information, file Form SS-5, Application for a Social Security Card. The form is available on SSA.gov, by calling 800-772-1213 or at a local Social Security Administration office.

If marriage means a change of address for you, the IRS and U.S. Postal Service need to know. To do that, send the IRS Form 8822, Change of Address. You should also notify the postal service to forward your mail by going online at USPS.com or by visiting your local post office.

Double-check withholding

After getting married, couples should consider changing their withholding. Newly married couples must give their employers a new Form W-4, Employee’s Withholding Allowance within 10 days. If both spouses work, they may move into a higher tax bracket or be affected by the additional Medicare tax.

Filing status

Married people can choose to file their federal income taxes jointly or separately each year. For most couples, filing jointly makes the most sense, but you should review your own situation to decide what is best for you. If a couple is married as of December 31, the law says they’re married for the whole year for tax purposes.

As every parent knows, kids are expensive. If you are the parent or caregiver of a child, there are some tax breaks that can help make those expenses a little less painful.

First things first…

If you are a new parent, there are a few things you will want to do before exploring any tax breaks that you may be eligible for. These steps will help make sure you are eligible for tax deductions and credits related to your child, and can help avoid unhappy surprises come next tax season.

• Get a Social Security or Individual Tax Identification number for your child. In order to claim parental tax breaks, you must have your child or dependent’s Social Security number, Adoption Tax Identification Number, or Individual Tax Identification number. Confirming a child’s birth is the only way the IRS can verify that your are eligible for the credits and deductions you claim on your tax return.
• Check your withholding. A new family member might make you eligible for new credits and deductions, which can greatly change your tax liability. If you need to adjust your withholding due to these changes, provide your employer with an updated Form W-4, Employee’s Withholding Certificate, to change how much tax is withheld from your paycheck.

Check eligibility for tax credits and deductions

• Child Tax Credit. If you claim at least one child as your dependent on your tax return, you may be eligible for the Child Tax Credit, which may take thousands of dollars off your tax bill.
• Child and Dependent Care Credit. If you paid someone to take care of your children or another member of your household while your worked, your may qualify for the Child and Dependent Care Credit regardless of your income. For example, you may be eligible to claim up to 35% of your daycare expenses with certain limits.
• Adoption Tax Credit. This credit lets families who are in the adoption process during the tax year claim eligible adoption expenses for each eligible child. You can apply the credit to international, domestic, private and public foster care adoptions.
• Earned Income Tax Credit. The Earned Income Tax Credit helps low- to moderate-income families get a tax break. If you qualify, you can use the credit to reduce the taxes you owe – and maybe increase your tax refund.

Spring and Summer are the height of the real estate sales season. If you’re selling your home this year, you may be able to exclude all or part of any gain from the sale from your income when you file your next tax return.

When selling a home, homeowners should think about:

• Ownership and use. In order to exclude all or part of your capital gains from the sale of your home, you must meet ownership and use tests. During the five-year period ending on the date of the sale, you must have owned the home and lived in it as your main home for at least two years.
• Gains. If you sell your main home for a capital gain, you may be able to exclude up to $250,000 of that gain from your income. If you file a joint return with your spouse, you may be able to exclude up to $500,000. If you can exclude all the gain, you do not need to report the sale on your tax return unless a Form 1099-S was issued.
• Losses.If you find yourself in the unfortunate position of selling your main home for less than you paid for it, this loss is not deductible.
• Multiple homes.If you own more than one home, you can exclude the gain only on the sale of your main home. You must pay taxes on the gain from selling any other home.
• Reported sale. If you don’t qualify to exclude all of the taxable gain from your income, you must report the gain from the sale of your home when your file your tax return. And even if you have no taxable gain, you must report the sale on your tax return if you receive a Form 1099-S, Proceeds from Real Estate Transactions.
• Mortgage debt. Generally, you must report forgiven or canceled debt as income on your tax return. This includes any mortgage workout, foreclosure, or other canceled mortgage debt on your home. If you had debt discharged in whole or in part on a qualified principal residence, you can’t exclude that debt from income unless it was discharged before January 1, 2026, or a written agreement for the debt forgiveness was in place before January 1, 2026.

As with most things tax-related, there are exceptions to the general guidance above. In particular, there are exceptions to these rules for people with a disability, certain members of the military or intelligence community, and Peace Corps workers. If you have questions about the whether any capital gains you received from the sale of your home might be deductible, please contact our office.

Despite the rise of Zoom, Webex, and other video calling software, travel is still an important part of many people’s work life. If you are one of the thousands who travel for work, there may be tax deductions available to help you offset the cost of this travel.

What to know about tax deductions for business travel

Business travel deductions may be available when you travel away from your home or main place of work for business reasons. You are “traveling away from home” when you are away for longer than an ordinary day’s work and you need to sleep in a location other than your home to meet the demands of your work while you’re away.

In order to be deductible, a travel expense must be “ordinary and necessary.” It 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 is less than one year.

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

Deductible travel expenses include:

Travel by plane, train, bus or car between home and a 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

Keep records of your expenses

If you plan to deduct expenses related to business travel, it’s important that you keep records of those expenses. Records such as receipts, canceled checks, credit card bills, and other documents can help you reconstruct your expenses, and support your deductions when it comes time to file your taxes.

If you own a business, you may have been approached by mail, email, or telephone by marketers who claim that they can get you a tidy chunk of government money by preparing your application for the Employee Tax Credit (ERC). While the credit is real, aggressive promoters are wildly misrepresenting and exaggerating who can qualify for the credits.

The IRS has stepped up audit and criminal investigation work involving these claims. Businesses, tax-exempt organizations and others considering applying for this credit need to carefully review the official requirements for this limited program before applying. Those who improperly claim the credit face follow-up action from the IRS.

The Employee Retention Credit (ERC), also sometimes called the Employee Retention Tax Credit or ERTC, is a legitimate tax credit. Many businesses legitimately apply for the pandemic-era credit. But improperly applying for the ERC can land your business in hot water.

Identifying fraudulent and improper ERC applications is an ongoing priority area for the IRS, and the IRS continues to increase compliance work involving ERC. The IRS has trained auditors examining ERC claims posing the greatest risk, and the IRS Criminal Investigation division is working to identify fraud and promoters of fraudulent claims. So realize that improper claims for the ERC are likely to be discovered.

Those who are found to have improperly claimed the ERC will be required pay it back, possibly with penalties and interest. A business or tax-exempt group could find itself in a much worse cash position if it has to pay back the credit than if the credit was never claimed in the first place. So, it’s important to avoid getting scammed.

When properly claimed, the ERC is a refundable tax credit designed for businesses that continued paying employees while shut down due to the COVID-19 pandemic or that had a significant decline in gross receipts during the eligibility periods. The credit is not available to individuals.

Warning signs of aggressive ERC marketing

Many Employee Retention Credit scams have certain characteristics in common. Warning signs to watch out for include:

• Unsolicited calls or advertisements mentioning an “easy application process.”
• Statements that the promoter or company can determine ERC eligibility within minutes.
• Large upfront fees to claim the credit.
• Fees based on a percentage of the refund amount of Employee Retention Credit claimed.
• Aggressive claims from the promoter that the business receiving the solicitation qualifies before any discussion of the group’s tax situation. In reality, the Employee Retention Credit is a complex credit that requires careful review before applying.
• Suggestions from marketers urging businesses to submit the claim because there is nothing to lose. In reality, those improperly receiving the credit could have to repay the credit – along with substantial interest and penalties.

These promoters may lie about eligibility requirements. In addition, using these companies could put you at risk of someone using the credit as a ploy to steal your identity or take a cut of your improperly claimed credit.

How the promoters lure victims

There are a variety of ways that promoters can lure businesses, tax-exempt groups and others into applying for the credit.

• Aggressive marketing. This can be seen in countless places, including radio, television and online as well as phone calls and text messages.
• Direct mailing. Some ERC mills are sending out fake letters to taxpayers from the non-existent groups like the “Department of Employee Retention Credit.” These letters can be made to look like official IRS correspondence or an official government mailing with language urging immediate action.
• Leaving out key details. Third-party promoters of the ERC often don’t accurately explain eligibility requirements or how the credit is computed. They may make broad arguments suggesting that all employers are eligible without evaluating an employer’s individual circumstances.
  • For example, only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021, but promoters fail to explain this limit.
  • Again, the promoters may not inform taxpayers that they need to reduce wage deductions claimed on their business’ federal income tax return by the amount of the Employee Retention Credit. This causes a domino effect of tax problems for the business.
• Payroll Protection Program participation. In addition, many of these promoters don’t tell employers that they can’t claim the ERC on wages that were reported as payroll costs if they obtained Paycheck Protection Program loan forgiveness.

How businesses can protect themselves

There are simple steps that businesses, tax-exempt groups and others being approached by these promoters can take to protect themselves from making an improper Employee Retention Credit application.

• Work with a trusted tax professional. Eligible employers who need help claiming the credit should work with a trusted tax professional. Don’t rely on the advice of those soliciting these credits. Promoters who are marketing this ultimately have a vested interest in making money; in many cases they are not looking out for your best interests.
• Don’t apply unless you believe you are legitimately qualified for this credit. Consult with a trusted tax professional—not someone promoting the credit—to get critical professional advice on the ERC.

There are a lot of reasons why you might make improvements that improve the energy efficiency of your home. They are good for the environment, they can make your home more comfortable, and new equipment can be less prone to breaking down. To this list, you can also add tax credits that can make these improvements more affordable.

The Inflation Reduction Act of 2022 expanded the amounts and types of energy efficiency expenses that can qualify for home energy tax credits. If you are considering energy improvements to your home, it’s worth knowing which credits you might qualify for.

What you need to know

You can claim the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit for the year in which qualifying expenditures are made.

Homeowners who improve their primary residence will find the most opportunities to claim a credit for qualifying expenses. Renters may also be able to claim credits, as well as owners of second homes used as residences. Landlords cannot claim this credit.

Energy Efficient Home Improvement Credit

If you make qualified energy-efficient improvements to your home after January 1, 2023, you may qualify for a tax credit of up to $3,200 for the tax year in which the improvements are made.

As part of the Inflation Reduction Act, beginning January 1, 2023, the credit equals 30% of certain qualified expenses:

• Qualified energy efficiency improvements installed during the year which can include things like:
  • Exterior doors, windows and skylights.
  • Insulation and air sealing materials or systems.
• Residential energy property expenses such as:
  • Central air conditioners.
  • Natural gas, propane or oil water heaters.
  • Natural gas, propane or oil furnaces and hot water boilers.
• Heat pumps, water heaters, biomass stoves and boilers.
• Home energy audits of a main home.

The maximum credit that can be claimed each year is:

• $1,200 for energy property costs and certain energy efficient home improvements, with limits on doors ($250 per door and $500 total), windows ($600) and home energy audits ($150).
• $2,000 per year for qualified heat pumps, biomass stoves or biomass boilers.

The credit is available only for qualifying expenditures to an existing home or for an addition or renovation of an existing home, and not for a newly constructed home. The credit is nonrefundable which means you can’t get back more from the credit than what is owed in taxes and any excess credit cannot be carried to future tax years.

Residential Clean Energy Credit

If you invest in energy improvements for your main home, including solar, wind, geothermal, fuel cells or battery storage, you may qualify for an annual residential clean energy tax credit. You may be able to claim a credit for certain improvements other than fuel cell property expenditures made to a second home that you live in part-time and don’t rent to others.

The Residential Clean Energy Credit equals 30% of the costs of new, qualified clean energy property for a home in the United States installed anytime from 2022 through 2033.

Qualified expenses include the costs of new, clean energy equipment including:

• Solar electric panels.
• Solar water heaters.
• Wind turbines.
• Geothermal heat pumps.
• Fuel cells.
• Battery storage technology (beginning in 2023).

Clean energy equipment must meet the following standards to qualify for the Residential Clean Energy Credit:

• Solar water heaters must be certified by the Solar Rating Certification Corporation or a comparable entity endorsed by the applicable state.
• Geothermal heat pumps must meet Energy Star requirements in effect at the time of purchase.
• Battery storage technology must have a capacity of at least 3 kilowatt hours.

The credit is available for qualifying expenditures incurred for installing new clean energy property in an existing home or for a newly constructed home. This credit has no annual or lifetime dollar limit except for fuel cell property. You can claim this credit each tax year you install eligible property until the credit begins to phase out in 2033.

This is a nonrefundable credit, which means the credit amount received cannot exceed the amount owed in tax. You can carry forward excess unused credit and apply it to any tax owed in future years.

Good recordkeeping

If you think you might be eligible for one of these tax credits, be sure to keep good records of purchases and expenses during the time the improvements are made. This will assist in claiming the applicable credit during tax filing season.

If you have filed your federal tax return and are due a refund, you’re probably pretty eager to get your hands on the money you are owed. If you’re wondering when your refund will arrive, the IRS has an online tool called “Where’s My Refund?” that you can access on their website at https://www.irs.gov/refunds. The status of your refund should be available within 24 hours of receiving notification that the IRS has recevied your e-filed return.

To use the tool, you will need your:

• Social Security number or Individual Taxpayer Identification number
• Filing status
• Exact amount of the refund claimed on your tax return

The tool shows three statuses:

• Return received
• Refund approved
• Refund sent

When the status changes to “refund approved,” the IRS is preparing to send the refund, either as a direct deposit to your bank account or directly to you by check in the mail to the address on your tax return.