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Tag: taxes

  • Paid express lanes grow more popular in once-reluctant South

    Paid express lanes grow more popular in once-reluctant South

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    Trucker Tim Chelette has been making the same twice-daily drive for 16 years hauling empty whiskey barrels from Louisville, Kentucky, to the Jack Daniels distillery in Tennessee, yet his workday keeps getting longer due to time lost in Nashville traffic.

    Although trucks wouldn’t be eligible for the pay-to-use express lanes Republican Gov. Bill Lee is advocating for some of Tennessee’s most-congested highways, Chelette supports them because he thinks enough drivers in the fast-growing state capital would take advantage to benefit everyone.

    “They’re going to have to do something,” said Chelette, of Murfreesboro, Tennessee, who gets paid by distance, not time — even when his 245-mile (394-kilometer) return trip to the Lynchburg distillery spikes by an hour or more during afternoon rush. “When I get stuck in traffic, I lose money.”

    Unlike traditional toll plazas where every vehicle that passes through pays a standard fee, price-managed lanes allow some drivers to pay up to circumvent congestion — and the fee usually increases as the traffic does.

    According to the International Bridge, Tunnel and Turnpike Association (IBTTA), which lobbies on behalf of the projects, 54 of the 89 tolling facilities that opened in the U.S. in the past decade were for price-managed lanes. They can be found across the South in Texas, Florida, Georgia, North Carolina and Virginia, as well as such other places as California, Colorado, Washington and Minnesota.

    Opponents call them “Lexus lanes,” implying that only drivers of expensive cars can afford to use them, but Lee prefers another name: “choice lanes.”

    “I think (the name) is brilliant. I wish I had invented it,” said Robert Poole, director of transportation policy at the libertarian Reason Foundation and a vocal advocate for price-managed lanes.

    The marketing pitch is important, particularly in the conservative South where voters have long resisted anything resembling a tax hike. But with fuel tax revenues and federal infrastructure payments failing to keep up with the need to repair aging roads or add capacity to reduce congestion, the projects are winning favor — even, and perhaps especially, in Republican-led states where “toll” has been considered a four-letter word in more ways than one.

    “All you’re doing is allowing those wealthy enough to use those lanes a quicker ride to work,” said Terri Hall, founder and director of Texans for Toll-free Highways. “It’s like a scapegoat for state legislatures to say, ‘We solved the problem.’ No, you kicked the can down the road.”

    Supporters counter that the lanes are a way to pay for roads without raising taxes, though they acknowledge they’re sometimes a tricky sell — particularly the public-private partnerships that have funded many of the projects.

    “If you have somebody who is anti-tax and pro-free market, they might say it’s a great idea,” said Pat Jones, IBTTA’s executive director and CEO. “Then, if you tell them the company is from Spain or Australia, they’ll say, ‘I don’t want there to be foreigners owning highways.’ You often see opposition to toll facilities before people use them, but once they’re open and people realize they’re getting value … the resistance tends to go down.”

    California’s experience with tolling — both traditional plazas and price-managed lanes — has provided fodder for advocates on both sides of the heated debate.

    A grand jury in Orange County examined a state agency that was created to build three traditional toll roads. Its report, issued in 2021, found that on one hand, California produced “excellent roads with minimal tax dollars.” But on the other, the jurors found ballooning debt and the need to change the initial plans amid financial downturns meant that drivers are on pace to shell out $28 billion by 2053 for roads that cost a tenth of that to build.

    The nation’s first price-managed lane opened in 1995 in Orange County, using a public-private partnership to fund it. Poole, who advised on the project and still calls it a model for others, said officials agreed not to add free lanes on the corridor for 35 years. Surging growth ultimately made that impossible, so the county terminated the contract and paid the company for its lost revenue. New bonds were issued, and the tolls had to stay in place to pay for them.

    “These agencies often become self-fulfilling entities,” said Jay Beeber, director of public policy for the National Motorists Association, which advocates for drivers’ rights. “They have huge organizations with lots of staff members, lots of salaries, huge pensions from the government, and they want to stay in business forever. Nobody wants to legislate themselves out of a job.”

    Tennessee’s governor is seeking legislative support to authorize a public-private partnership for the project — one of 14 states that don’t have tolls on any roads.

    Republican state Sen. Frank Niceley said he expects Lee will get enough votes to pass the plan, but he strongly opposes it — even pointing out that fascist Italian dictator Benito Mussolini liked public-private partnerships, too.

    “We’re not really giving these things to the private sector,” Niceley said. “We’re kind of co-signing the note. And most people who co-sign the note end up paying the note.”

    The governor’s administration brushes off such criticism. Will Reid, chief engineer and deputy commissioner at the Tennessee Department of Transportation, said the state is uniquely positioned to establish a partnership that avoids the financial pitfalls seen in California and elsewhere.

    “We’re one of six no-debt states,” Reid said. “We own every piece of pavement. We own every bridge. We have a strong belief in paying as we go, and paying for the things we decide to build.”

    Mark Burris, professor of civil and environmental engineering at Texas A&M University, researched public sentiment for price-managed lanes in four metro areas: Los Angeles, Dallas, Miami and the Virginia suburbs of Washington, D.C. His review found widespread support from drivers in those areas, with more than three-quarters of those surveyed saying they wanted to see more price-managed lanes open.

    Some of the paid express lanes in Texas have allowed speed limits as much as 10 mph higher than general-purpose lanes, and Hall, with Texans for Toll-free Highways, said the fee can rise to $3 a mile when traffic is busiest. She argues that’s a regressive double-tax that doesn’t alleviate congestion nearly as much as building additional free lanes would — something she contends the state can afford.

    Texas also proves how fleeting the support for these projects can be — even with the same party in control. Former Gov. Rick Perry advocated for price-managed lanes, but his successor, fellow Republican Greg Abbott, has backed a moratorium on new tolls.

    “Fifteen years ago it was all the rage,” Mark Muriello, IBTTA’s director of public policy and government affairs, said of the appetite for the projects in Texas. “The politics tend to change. Nothing stays still.”

    It typically takes 15 years in the U.S. for a road project to open after winning approval, though Tennessee officials are determined to cut that in half. Considering a recent study showing a $34 billion need, Reid — the state transportation official — acknowledges the clock is ticking.

    “As far as whether it works 10, 20, 30 years from now, the proof will be in the pudding,” Reid said. “But one thing is certain — in order to keep pace with the demands on our infrastructure in Tennessee, we’re going to have to find a different way to generate revenue.”

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  • Paid express lanes grow more popular in once-reluctant South

    Paid express lanes grow more popular in once-reluctant South

    [ad_1]

    Trucker Tim Chelette has been making the same twice-daily drive for 16 years hauling empty whiskey barrels from Louisville, Kentucky, to the Jack Daniels distillery in Tennessee, yet his workday keeps getting longer due to time lost in Nashville traffic.

    Although trucks wouldn’t be eligible for the pay-to-use express lanes Republican Gov. Bill Lee is advocating for some of Tennessee’s most-congested highways, Chelette supports them because he thinks enough drivers in the fast-growing state capital would take advantage to benefit everyone.

    “They’re going to have to do something,” said Chelette, of Murfreesboro, Tennessee, who gets paid by distance, not time — even when his 245-mile (394-kilometer) return trip to the Lynchburg distillery spikes by an hour or more during afternoon rush. “When I get stuck in traffic, I lose money.”

    Unlike traditional toll plazas where every vehicle that passes through pays a standard fee, price-managed lanes allow some drivers to pay up to circumvent congestion — and the fee usually increases as the traffic does.

    According to the International Bridge, Tunnel and Turnpike Association (IBTTA), which lobbies on behalf of the projects, 54 of the 89 tolling facilities that opened in the U.S. in the past decade were for price-managed lanes. They can be found across the South in Texas, Florida, Georgia, North Carolina and Virginia, as well as such other places as California, Colorado, Washington and Minnesota.

    Opponents call them “Lexus lanes,” implying that only drivers of expensive cars can afford to use them, but Lee prefers another name: “choice lanes.”

    “I think (the name) is brilliant. I wish I had invented it,” said Robert Poole, director of transportation policy at the libertarian Reason Foundation and a vocal advocate for price-managed lanes.

    The marketing pitch is important, particularly in the conservative South where voters have long resisted anything resembling a tax hike. But with fuel tax revenues and federal infrastructure payments failing to keep up with the need to repair aging roads or add capacity to reduce congestion, the projects are winning favor — even, and perhaps especially, in Republican-led states where “toll” has been considered a four-letter word in more ways than one.

    “All you’re doing is allowing those wealthy enough to use those lanes a quicker ride to work,” said Terri Hall, founder and director of Texans for Toll-free Highways. “It’s like a scapegoat for state legislatures to say, ‘We solved the problem.’ No, you kicked the can down the road.”

    Supporters counter that the lanes are a way to pay for roads without raising taxes, though they acknowledge they’re sometimes a tricky sell — particularly the public-private partnerships that have funded many of the projects.

    “If you have somebody who is anti-tax and pro-free market, they might say it’s a great idea,” said Pat Jones, IBTTA’s executive director and CEO. “Then, if you tell them the company is from Spain or Australia, they’ll say, ‘I don’t want there to be foreigners owning highways.’ You often see opposition to toll facilities before people use them, but once they’re open and people realize they’re getting value … the resistance tends to go down.”

    California’s experience with tolling — both traditional plazas and price-managed lanes — has provided fodder for advocates on both sides of the heated debate.

    A grand jury in Orange County examined a state agency that was created to build three traditional toll roads. Its report, issued in 2021, found that on one hand, California produced “excellent roads with minimal tax dollars.” But on the other, the jurors found ballooning debt and the need to change the initial plans amid financial downturns meant that drivers are on pace to shell out $28 billion by 2053 for roads that cost a tenth of that to build.

    The nation’s first price-managed lane opened in 1995 in Orange County, using a public-private partnership to fund it. Poole, who advised on the project and still calls it a model for others, said officials agreed not to add free lanes on the corridor for 35 years. Surging growth ultimately made that impossible, so the county terminated the contract and paid the company for its lost revenue. New bonds were issued, and the tolls had to stay in place to pay for them.

    “These agencies often become self-fulfilling entities,” said Jay Beeber, director of public policy for the National Motorists Association, which advocates for drivers’ rights. “They have huge organizations with lots of staff members, lots of salaries, huge pensions from the government, and they want to stay in business forever. Nobody wants to legislate themselves out of a job.”

    Tennessee’s governor is seeking legislative support to authorize a public-private partnership for the project — one of 14 states that don’t have tolls on any roads.

    Republican state Sen. Frank Niceley said he expects Lee will get enough votes to pass the plan, but he strongly opposes it — even pointing out that fascist Italian dictator Benito Mussolini liked public-private partnerships, too.

    “We’re not really giving these things to the private sector,” Niceley said. “We’re kind of co-signing the note. And most people who co-sign the note end up paying the note.”

    The governor’s administration brushes off such criticism. Will Reid, chief engineer and deputy commissioner at the Tennessee Department of Transportation, said the state is uniquely positioned to establish a partnership that avoids the financial pitfalls seen in California and elsewhere.

    “We’re one of six no-debt states,” Reid said. “We own every piece of pavement. We own every bridge. We have a strong belief in paying as we go, and paying for the things we decide to build.”

    Mark Burris, professor of civil and environmental engineering at Texas A&M University, researched public sentiment for price-managed lanes in four metro areas: Los Angeles, Dallas, Miami and the Virginia suburbs of Washington, D.C. His review found widespread support from drivers in those areas, with more than three-quarters of those surveyed saying they wanted to see more price-managed lanes open.

    Some of the paid express lanes in Texas have allowed speed limits as much as 10 mph higher than general-purpose lanes, and Hall, with Texans for Toll-free Highways, said the fee can rise to $3 a mile when traffic is busiest. She argues that’s a regressive double-tax that doesn’t alleviate congestion nearly as much as building additional free lanes would — something she contends the state can afford.

    Texas also proves how fleeting the support for these projects can be — even with the same party in control. Former Gov. Rick Perry advocated for price-managed lanes, but his successor, fellow Republican Greg Abbott, has backed a moratorium on new tolls.

    “Fifteen years ago it was all the rage,” Mark Muriello, IBTTA’s director of public policy and government affairs, said of the appetite for the projects in Texas. “The politics tend to change. Nothing stays still.”

    It typically takes 15 years in the U.S. for a road project to open after winning approval, though Tennessee officials are determined to cut that in half. Considering a recent study showing a $34 billion need, Reid — the state transportation official — acknowledges the clock is ticking.

    “As far as whether it works 10, 20, 30 years from now, the proof will be in the pudding,” Reid said. “But one thing is certain — in order to keep pace with the demands on our infrastructure in Tennessee, we’re going to have to find a different way to generate revenue.”

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  • Mistakes to avoid when filing your income taxes this year

    Mistakes to avoid when filing your income taxes this year

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    Mistakes to avoid when filing your income taxes this year – CBS News


    Watch CBS News



    Millions of Americans need to get ready to file their taxes as this year’s deadline fast approaches. Karla Dennis, a tax expert and founder of Karla Dennis and Associates, joined CBS News to go over the biggest mistakes people make and some helpful tips when filing your returns.

    Be the first to know

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  • NOT REAL NEWS: A look at what didn’t happen this week

    NOT REAL NEWS: A look at what didn’t happen this week

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    A roundup of some of the most popular but completely untrue stories and visuals of the week. None of these are legit, even though they were shared widely on social media. The Associated Press checked them out. Here are the facts:

    ___

    Yes, you are legally required to pay your taxes

    CLAIM: There are no laws requiring people to pay their taxes.

    THE FACTS: Title 26 of the U.S. Code requires individuals to pay income taxes. Faulty legal arguments claiming there’s no such law have been around for decades but have not been successful in court. With April’s federal income tax deadline approaching, social media users are sharing a short video compiling interviews from a number of purported experts, including a tax lawyer, a tax advisor and a former IRS agent — all of whom claim they discovered through their own research that Americans aren’t obligated to pay income taxes because it isn’t spelled out in law. But federal officials and tax experts dismiss the arguments as frivolous and say the law is clear. Raphael Tulino, a spokesperson for the IRS, directed the AP to a website it maintains to address many of the common claims made by those opposed to following tax laws. “The requirement to pay taxes is not voluntary,” the IRS’ response on the website reads. “Section 1 of the Internal Revenue Code clearly imposes a tax on the taxable income of individuals, estates, and trusts, as determined by the tables set forth in that section.” The IRS also notes that the obligation to pay income taxes is described in section 6151, which requires taxpayers to submit payment with their tax returns. Jonathan Siegel, a professor at George Washington University’s law school agreed with the agency’s assessment. “No, there isn’t even a grain of truth to the theories in the video, nor does it contain any new or surprising arguments,” he wrote in an email, directing the AP to his personal website breaking down income tax myths. Federal tax laws are contained in the Internal Revenue Code, also known as Title 26 of the United States Code, Siegel explains on his website. The U.S. Code is the compilation of all the laws passed by Congress. Garrett Watson, a senior policy analyst at the Tax Foundation, a nonpartisan tax policy research group in Washington, said tax protesters continue to misinterpret the IRS’ use of the phrase “voluntary compliance” as meaning paying taxes and filing tax returns isn’t legally required. But the term refers to the notion that individuals are responsible for determining and paying the correct amount of tax and filling out the necessary forms, rather than the government determining the tax for them. Watson also noted that legal arguments against paying taxes have been around for decades but have seen little success in courts. In fact, one of the people featured in a widely circulating version of the social media video is Sherry Jackson, a former IRS employee and tax preparer who was convicted of willfully and intentionally failing to file tax returns.

    — Associated Press writer Philip Marcelo in New York contributed this report.

    ___

    US has provided money, not just equipment, to Ukraine

    CLAIM: The U.S. is not providing cash to Ukraine; it only supports the country through donated military equipment.

    THE FACTS: While the U.S. is indeed providing weapons and equipment to Ukraine, it has also provided billions in financial assistance to the country following Russia’s invasion. Former Congressman Adam Kinzinger, a Republican from Illinois, made the inaccurate suggestion recently while taking aim at Republican Rep. Marjorie Taylor Greene, who has been critical of U.S. aid to Ukraine. “People like MTG in re: #Ukraine. The aid is not pallets of cash. It’s in the form of military equipment, assigned a value, that is donated,” Kinzinger wrote in a tweet. “That equipment is usually older and would be replaced in the next few years anyway, at a cost. I’m sure she doesn’t understand this.” But while the U.S. has indeed sent Bradley vehicles, ammunition, weapons and other equipment to Ukraine during its war with Russia, the support doesn’t stop there. “We’re not providing only military assistance,” Tom Graham, a distinguished fellow at the Council on Foreign Relations with expertise on U.S. foreign policy and Ukraine, told the AP. “We are obviously providing financial assistance — budgetary support — and there’s humanitarian assistance as well.” Between January 2022 and January 2023, the U.S. committed more than $26 billion to Ukraine in financial assistance, according to data compiled by the Ukraine Support Tracker at the Kiel Institute for the World Economy, a German think tank. That’s about a third of the roughly $77 billion in total aid noted by Kiel, including humanitarian and military assistance, pledged by the U.S. government. The numbers represent money promised, not entirely distributed. Another tally from the nonpartisan Committee for a Responsible Federal Budget places the total amount of aid approved by Congress in 2022 for supporting the Ukrainian government and allies at about $113 billion. That includes about $27 billion in economic support funds, $7.9 billion for international disaster assistance and $6.6 billion to support and relocate refugees. The U.S. Agency for International Development has in releases and a report to Congress outlined how budgetary support to the Ukrainian government has been used. Some of the funding has been spent, for example, on social assistance payments and salaries for health care workers, first responders and educators. It also helps cover pensions and support Ukrainians displaced by the war. Still, the largest bucket of overall U.S. aid committed to Ukraine — more than $46 billion, according to Kiel’s tracker — is military support. Members of Congress have questioned how closely the U.S. is tracking its aid to Ukraine to ensure that it is not subject to fraud or ending up in the wrong hands. The Pentagon’s inspector general told lawmakers at a Tuesday hearing that his office has found no evidence of such corruption or wrongdoing, but cautioned that investigations are only in their early stages. An AP inquiry to Kinzinger through his group, Country First, was not returned.

    — Associated Press writer Angelo Fichera in Philadelphia contributed this report.

    ___

    WHO ‘pandemic treaty’ draft doesn’t sign over US sovereignty

    CLAIM: A legally-binding World Health Organization “pandemic treaty” will give the organization the authority to control U.S. policies during a pandemic, including those on vaccines, lockdowns, school closures and more.

    THE FACTS: The voluntary treaty, which is in draft form and still far from ratification, does not overrule any nation’s ability to pass individual pandemic-related policies. As the WHO met Monday to discuss the first draft of the treaty, social media users misrepresented the scope of the document to suggest signing onto it would cede U.S. rights to the international body. “Biden is about to give the China-controlled W.H.O. power to control the United States. This will cover lockdowns, supply chains, surveillance, and ‘false news’,” claimed one Instagram post referring to the treaty draft. But this interpretation of what the treaty would do is incorrect, multiple experts agree. “These claims are utterly false,” said Lawrence Gostin, a Georgetown University law professor and director of the university’s WHO Collaborating Center on National and Global Health Law. He’s been involved in the treaty’s draft process. “The United States retains sovereignty to set its own domestic public health policies,” he added. The “zero draft” is designed to protect the world from future pandemics, according to the WHO. The text lays out a vision for building greater equity and effectiveness in pandemic prevention, preparedness and response across the globe through international cooperation. It encourages parties to develop a mechanism to ensure equitable allocation of pandemic-related products such as vaccines and tests while committing to quick and transparent reporting of clinical research and trial results, sharing of information on emerging health threats and recognition of WHO as the coordination authority on international health work. However, it does not overrule any nation’s individual health or domestic policies, the U.S. Department of Health and Human Services confirmed in a statement to the AP. “It is false to claim that the World Health Organization has now, or will have by virtue of these activities, any authority to direct U.S. health policy or national health emergency response actions,” the agency wrote. “The WHO has no such enforcement mechanisms, and its non-binding recommendations to member states are just that: non-binding.” In fact, a section of the draft labeled “Sovereignty” clearly says that states have “the sovereign right to determine and manage their approach to public health,” “pursuant to their own policies and legislation.” Nowhere in the 30-page document are the words lockdown, closures, contact tracing or online speech mentioned, nor are mentions of specific citizen surveillance systems. Further, while the treaty, if ratified, would be considered a legally-binding document, the WHO has no enforcement power, said Dr. David Freedman, professor emeritus of infectious diseases at the University of Alabama at Birmingham.

    — Associated Press writer Sophia Tulp in New York contributed this report.

    __

    Manufacturers need FDA’s approval to alter COVID-19 vaccines

    CLAIM: Up to 49% of the ingredients in COVID-19 vaccines can be changed without the approval of the Federal Drug Administration because they are still manufactured under emergency use authorization.

    THE FACTS: As part of the emergency use authorization process for vaccines, the FDA stipulates in letters to manufacturers that no changes can be made to the description of the product or manufacturing process without notifying and gaining approval from the FDA. The erroneous claims spread online following an early February episode of an online program hosted by political commentator Rochelle “Silk” Richardson, Dr. Sherri Tenpenny, who has been critical of vaccines, stated that emergency use authorizations let drug manufacturers change up to half of the ingredients in COVID-19 vaccines without approval. Neither Richardson nor Tenpenny responded to emails from the AP. An emergency use authorization, or EUA, allows for the use of unapproved medical products, or unapproved uses of approved medical products, during public health crises. The first two doses of Pfizer and Moderna’s COVID-19 vaccines are no longer under EUAs for certain age groups, having been approved by the FDA. EUAs still apply to COVID-19 vaccines produced by Johnson & Johnson and Novavax. But even if a vaccine is available only under an EUA, manufacturers must receive FDA approval before making changes to the product. “The information circulating on social media that asserts manufacturers of COVID-19 vaccines can change up to 49% of the ingredients in their products without FDA approval is completely false,” FDA spokesperson Abby Capobianco wrote in an email to the AP. “No changes can be made to COVID-19 vaccines used under Emergency Use Authorization (EUA) without prior evaluation and authorization from FDA.” As stipulated in the U.S. Code’s Federal Food, Drug, and Cosmetic Act, EUAs come with certain conditions. Vaccine manufacturers are issued a letter of authorization upon receiving an EUA that details the process for making changes to their product. In this case of COVID-19 vaccines, it states: “No changes will be implemented to the description of the product, manufacturing process, facilities, or equipment without notification to and concurrence by the FDA.” Letters containing this language that were issued to Pfizer, Moderna, Johnson & Johnson and Novavax for their COVID-19 vaccines are publicly available on the FDA’s website. Aaron Lottes, an associate professor of engineering practice at Purdue University who researches regulatory science, confirmed that these requirements mean that the COVID-19 vaccines, even those available under an EUA, cannot be adjusted at will.

    — Associated Press writer Melissa Goldin in New York contributed this report.

    ___

    Find AP Fact Checks here: https://apnews.com/APFactCheck

    ___

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  • You can still score a 2022 tax break with pretax IRA contributions — here’s how to qualify

    You can still score a 2022 tax break with pretax IRA contributions — here’s how to qualify

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    There’s still time to make a pretax individual retirement account contribution for 2022 — and possibly trim your tax bill or boost your refund — if you qualify.

    For 2022, the IRA contributions limit was $6,000, with an extra $1,000 for investors age 50 and older, and the tax deadline this year is April 18 for most Americans.

    You can make your 2022 IRA contribution through the April tax deadline in 2023, as long as you designate the deposit for tax year 2022. But you need to know the IRA deductibility rules before making a contribution, experts say.

    More from Smart Tax Planning:

    Here’s a look at more tax-planning news.

    “The deductibility rules for pretax IRA contributions can be confusing,” said certified financial planner Kevin Brady, vice president at Wealthspire Advisors in New York.

    That’s because eligibility depends on three factors: your filing status, modified adjusted gross income and workplace retirement plan participation, he said.

    How to know if you qualify for the tax break

    The 2022 income thresholds for IRA deductibility

    “It’s important to understand there are deductibility limitations,” said Malcolm Ethridge, a CFP and executive vice president of CIC Wealth in Rockville, Maryland. With a workplace plan, some or all of your contributions may not be deductible, depending on earnings.

    For 2022, single investors with a workplace retirement plan may claim a tax break for their entire IRA contribution if their modified adjusted gross income is $68,000 or less.

    Although there’s a partial deduction before reaching $78,000, the tax break disappears after meeting that threshold.

    Even if you maxed out the plan at your current company, your income could still be low enough to make a tax-deductible [IRA] contribution.

    Malcolm Ethridge

    Executive vice president of CIC Wealth

    Married couples filing together can get the full benefit with $109,000 or less in income, and they can receive a partial tax break before hitting $129,000.

    You can see the full IRS chart for 2022 on IRA deductibility here.

    “Even if you maxed out the plan at your current company, your income could still be low enough to make a tax-deductible [IRA] contribution,” Ethridge said.

    How to know if a pretax IRA contribution makes sense

    Of course, just because you qualify for a deduction doesn’t mean you should make the pretax IRA contribution, Hall said.

    Before making the deposit, investors need to weigh their investment goals, along with their current tax brackets versus expected tax bracket in retirement, she said.

    Plus, you may consider your other buckets of retirement savings — and the tax consequences upon withdrawal, such as capital gains, regular income taxes or tax-free income. 

    “Yes, you can benefit from the deduction today,” Hall said. But you may opt for further tax diversification by adding more to another type of account, she said.

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  • 6 Steps to Make Tax Season As Painless as Possible | Entrepreneur

    6 Steps to Make Tax Season As Painless as Possible | Entrepreneur

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    Opinions expressed by Entrepreneur contributors are their own.

    Q1 marks the beginning of a critical time for businesses — tax season. As you know, it can be a busy and stressful time of year for most businesses, regardless of their age, industry or profitability. No one wants any surprises after they file, so it’s important to start preparing sooner rather than later.

    By planning ahead, you’ll ensure your business is organized and ready to file on time. You may never enjoy tax season, but there are ways to make it as painless as possible. Here are six steps to ensure your business is ready — come April 15.

    Related: These 6 Tax Tips Will Help Make Tax Season Easy for Your Business

    1. Prepare throughout the year

    Getting ready for tax season starts long before you’re ready to file your tax return — you should be preparing throughout the year. This starts with having an accounting system in place where you can keep track of your finances.

    There are tons of free and inexpensive options when it comes to accounting software, including QuickBooks, Xero and ZohoBooks. The software is more comprehensive than anything you can do with an Excel spreadsheet, and most give you the option to collaborate with your accountant.

    In addition, businesses should be paying their quarterly tax obligations throughout the year. The exact filing schedule will vary depending on your business entity. Once you get on a schedule, you’ll likely find that paying your taxes as you go will make your life easier and help you avoid any fines or penalties.

    2. Make sure your books are balanced

    You don’t want to run into tax problems because of mistakes or missing transactions. Make sure all of your business transactions are recorded and accurately categorized. Take the time to reconcile your accounts and ensure that your financial software matches what your bank account says.

    You should also make sure that you’re separating your personal and business transactions. Otherwise, you’re going to create a lot of frustration for yourself.

    3. Gather your paperwork

    Start gathering your paperwork together at the beginning of the year. You’ll need to provide receipts for any deductions you took in case your business gets audited. It’s a good idea to digitize your receipts, so you don’t have to worry about anything getting lost or damaged.

    You’ll also need the following documentation to bring to your accountant:

    If you have employees, you’re required to file W-2s with the Social Security Administration by Jan. 31.

    Related: 5 Steps to Tax Season Success

    4. See what tax credits you qualify for

    Next, you want to see what kind of tax credits your business qualifies for. Tax deductions reduce your taxable income, while tax credits reduce your total tax bill. You can look for industry-specific tax credits or see if there are any state-specific tax credits you qualify for.

    One of the most advantageous tax deductions for financing is Section 179, which allows you to write off nearly the entire value of an equipment purchase on the current year’s tax return.

    The IRS provides information on its website about available tax credits and eligibility requirements. It’s a good idea to work with a tax professional to ensure your business actually qualifies for any credits you identify.

    5. Work with an accountant

    If you’re in the early stages of building your business, you may be tempted to file your taxes on your own to save money. However, the short-term benefits often lead to longer-term problems, and most entrepreneurs find more benefits in working with an accountant.

    Tax laws and regulations are constantly changing, and it’s impossible for the average business owner to stay on top of these changes. Accountants understand all of the relevant tax laws and filing requirements and can help you minimize your tax liability.

    Plus, filing your taxes can be time-consuming and tedious, especially if you don’t know what you’re doing. Using an accountant will save you time and help you avoid costly mistakes. Plus, you’ll have peace of mind knowing that your business taxes are filed accurately and on time.

    The upside of working with an accountant extends well beyond tax season; Your accountant can work with you throughout the year to develop strategies to minimize your tax burden.

    Related: 3 Ways to Save Money on Taxes That Most Entrepreneurs Miss

    6. File early if you can

    April 15 is commonly thought of as Tax Day, but the exact filing deadline depends on your business entity. Sole proprietors, single-member LLCs, and corporations that ended their year on Dec. 31 have to file taxes by April 15.

    But if you’re a partnership, multi-member LLC, or S-Corp filing Form 1120-S, you’re required to file by March 15. The IRS begins accepting tax returns beginning in mid to late January, so it’s a good idea to file early if you can.

    By filing early, you’ll avoid processing delays with the IRS and save yourself the stress of attempting to file at the last minute. If you wait too long to get the process started, you may have a hard time getting in with your accountant.

    Scheduling an appointment with your tax pro early ensures you can file on time. Otherwise, you may have to request an extension.

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  • Want to Get the Best Tax Refund This Year? This Bundle Can Help. | Entrepreneur

    Want to Get the Best Tax Refund This Year? This Bundle Can Help. | Entrepreneur

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    Disclosure: Our goal is to feature products and services that we think you’ll find interesting and useful. If you purchase them, Entrepreneur may get a small share of the revenue from the sale from our commerce partners.

    It’s tax season, a time of year very few entrepreneurs look forward to. Considering your tax situation is likely complicated, and refund amounts are down so far this year, you owe it to yourself to set yourself up for success. During our Gear Up for Tax Season campaign, we’re offering a collection of personal and business finance and tax assistance-related products for great prices. Through March 2 at 11:59 p.m. Pacific, you can get your tax ducks in a row and learn everything you need to know to file for a discounted price.

    The Ultimate Guide to Taxes Bundle is available from February 24 through March 2 for just $19.99. This six-course training program covers everything you need to know about maximizing your tax credits for home, family, education, and retirement. The courses are taught by Certified Public Accountant (CPA) Robert Steele. Steele has been teaching and building curriculum since 2009 and has authored five books on accounting, personal finance, and more.

    This bundle is geared both towards business and personal tax returns. You’ll learn about tax credits you can take to lower your taxable income, understand the tax benefits and limits of IRAs, and more. There are several courses on business and personal income tax where you’ll learn how to file a Schedule C for small business income, understand self-employment tax, understand tax changes for small businesses, and more. You’ll learn things like how to use the business use of home deduction and how to file income when selling your home.

    Make filing your taxes a bit easier and more profitable this year. February 24 through March 2, you can get The Ultimate Guide to Taxes Bundle for just $19.99. Don’t miss your chance to save!

    Prices subject to change.

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  • This $35 Business Accounting Bundle Could Help You Prepare for Tax Season | Entrepreneur

    This $35 Business Accounting Bundle Could Help You Prepare for Tax Season | Entrepreneur

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    Disclosure: Our goal is to feature products and services that we think you’ll find interesting and useful. If you purchase them, Entrepreneur may get a small share of the revenue from the sale from our commerce partners.

    One of the most common reasons a business can fail is when an entrepreneur doesn’t have a complete understanding of their finances. Tax season is here, and whether your business is already off the ground or just an idea waiting for its moment, it may be useful to refine your financial skills. The Complete 2023 Business Accounting Master Bundle lets you study up on money management and business accounting on your own time, and it’s only $34.99 through March 2.

    Budgeting for your household and budgeting for your business require very different skills. If you want to start at the beginning, enroll in the Basics of Accounting course led by certified CPA Eric Knight from Skill Success. Study up on Accounts Receivable, business transactions analysis, and Trial Balances before you start looking into the more advanced lessons.

    Advanced Financial Accounting is a 155-lecture course spanning 50 hours and covering a broad range of accounting principles and tools. There is even a detailed course going over the fundamentals of QuickBooks Pro. This course does not come with that accounting software itself, but it could show you the different steps in the accounting cycle and how it’s backed by accounting theory.

    Study all 79.5 hours of accounting instruction included in this bundle whenever you want. Whether you’re still studying your projected finances to make a business plan or getting ready to run payroll, these courses could help you make your business a financial success.

    Study the basics and advanced business finance skills and work toward a more successful future with the Complete 2023 Business Accounting Mastery Bundle. Invest in this bundle by March 2 at 11:59 p.m. PT to get it for just $34.99 (reg. $2,189).

    Prices subject to change.

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  • Is Life Insurance Taxable? Here’s Everything To Know. | Entrepreneur

    Is Life Insurance Taxable? Here’s Everything To Know. | Entrepreneur

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    As people grow older, life insurance is a topic that becomes more and more important, especially for people who have children or dependents. Life insurance is a method for helping the security of others once someone dies.

    Some fast facts about life insurance include:

    • Approximately 172 million Americans own life insurance.
    • 34% of Americans ages 18 to 24 report they own a life insurance policy.
    • 46% of Americans ages 25 to 44 own a life insurance policy.
    • 53% of Americans ages 45 to 64 own a life insurance policy.
    • 57% of Americans ages 65 and older own a life insurance policy.

    With so many people holding life insurance policies, you might wonder: Is life insurance taxable? Read on to find out.

    What is life insurance?

    Life insurance is a contract between a policyholder and an insurance company through which the policy owner agrees to pay a designated beneficiary a sum of money in exchange for a life insurance premium upon the insured’s death.

    Life insurance is an insurance product meant to provide financial security to that beneficiary after the policyholder passes away to help cover expenses such as funeral costs, outstanding debts and other living expenses. The amount of life insurance a person needs will depend on several factors, including income, debt and dependents.

    Related: Busy Parents: Sign up for Life Insurance with This Speedy Provider

    What makes a strong life insurance policy?

    Several factors contribute to a strong life insurance policy, including:

    • Coverage amount: The policyholder should choose an adequate amount for their loved ones’ financial needs. When deciding upon coverage, the policyholder should consider the cost of living, funeral costs, outstanding debts and future expenses like college tuition.
    • Policy type: A policy should always meet the insured person’s needs. For example, if they want affordable coverage for a specific period, term life insurance may be a good option. If they are looking for a long-term investment, whole life or universal life insurance may be a better fit.
    • Premium payments: The policy’s premium payments should always be affordable and within the policyholder’s budget. It’s essential to review the policy terms and conditions to understand the premium payments and any potential increases or decreases in the future.
    • Death benefit: The policyholder should choose a life insurance death benefit that is adequate to meet their loved ones’ financial needs. The death benefit distribution should be consistent with the policyholder’s wishes, whether through an accelerated death benefit or other suitable means.
    • Policy riders: The policyholder should consider adding riders to their policy, such as a living benefit rider or a conversion option, to provide additional protection and flexibility.
    • Insurance company: Always choose a reputable and financially stable insurance company with a history of paying claims.

    Related: Why Life Insurance Has to Be Part of Your Wealth-Building Plan

    What types of life insurance are there?

    There are several types of life insurance, so before choosing one, one must understand what each entails and the positives and negatives of each.

    Term life insurance

    Term life insurance covers a specific term ranging from ten to thirty years.

    With a term life insurance policy, the policyholder pays a premium to the insurance company. If the policyholder dies within the policy’s term, the death benefit is paid to the designated beneficiary.

    If the policyholder does not die within the term, the policy will expire and the premium payments will not be refunded.

    • Pro: Term life insurance is typically the most affordable form, making it accessible to many people. It also provides a straightforward and easy-to-understand way to provide financial protection to loved ones in the event of the policyholder’s death.
    • Con: If the policyholder does not die within the policy’s term, the policy will simply expire and the premium payments will not be refunded. This can make term life insurance less appealing for those looking for a long-term investment component.

    Whole life insurance

    Whole life insurance provides coverage for the policyholder’s entire lifetime as long as the premium gets paid. With this type of life insurance, the policyholder pays a premium to the insurance company, and the policy builds up a cash value component over time.

    In the event of the policyholder’s death, the death benefit gets paid to the designated beneficiary. The policyholder can access the cash value component during their lifetime through loans or withdrawals.

    • Pro: Whole life insurance provides lifelong coverage and a savings component, making it a good option for those looking for a long-term investment. You can also use the cash value component to help cover premium payments or other expenses.
    • Con: Whole life insurance is typically more expensive than term life insurance, and the premium payments are often higher. The returns on the cash value component may also be lower than what could be achieved through other investment options.

    Universal life insurance

    Universal life insurance provides a death benefit and a savings component, with more flexibility in premium payments and death benefit amounts.

    The policyholder pays a premium to the insurance company, and the policy builds up a cash value component over time. The death benefit gets delivered to the designated beneficiary during the policyholder’s death.

    • Pro: Universal life insurance offers more flexibility in terms of premium payments and death benefit amounts, allowing the policyholder to adjust the policy as their needs change. The policy also provides a savings component that you can use to help cover premium payments or other expenses.
    • Con: Universal life insurance can be complex, and there is a chance that the returns on the cash value component may be lower than what could be achieved through other investment options.

    Variable life insurance

    Variable life insurance provides a death benefit linked to the performance of a portfolio of investments. The policyholder pays a premium to the insurance company, and they can choose to allocate their premium payments to different investment options.

    The death benefit is paid to the designated beneficiary if the policyholder dies. Still, the amount of the death benefit will depend on the performance of the investments.

    • Pro: Variable life insurance allows the policyholder to potentially earn higher returns.
    • Con: The policy’s cash value component is subject to market risk. The value of the investments in the portfolio can fluctuate, and if the investments perform poorly, the policyholder’s cash value and the death benefit are susceptible to a negative impact.

    Do you have to pay taxes on life insurance?

    Yes, certain aspects of life insurance can be taxed, but it depends on the type of life insurance policy and how it is structured. Generally, the death benefit from a life insurance policy has an exemption from income taxes for the beneficiaries.

    However, there are some situations where life insurance may incur tax consequences, including:

    • Cash value withdrawals: If a policyholder withdraws money from the cash value of a permanent life insurance policy, such as whole life or universal life policies, the withdrawal may get taxed as ordinary income.
    • Policy loans: If a policyholder takes out a loan against the cash value of a permanent life insurance policy, the loan may be subject to standard tax implications if it exceeds the policy’s cost basis, which is the premium paid into the policy.
    • Premiums: The premiums paid for a life insurance policy may be tax-deductible in certain situations, such as when the policy provides business-related life insurance coverage.
    • Investment gains: If a life insurance policy has a cash value component invested in securities, such as stocks or bonds, any investment gains may be subject to capital gains tax if the policy owner makes withdrawals or loans against the policy.

    Related: How to Put Your Tax Return to Work for You

    What types of taxes apply to life insurance?

    Just like there are different types of life insurance, there are also different types of life insurance taxes. Keep reading to find out more.

    Income tax

    If a policyholder withdraws money from the cash value of a permanent life insurance policy, such as a whole life or universal life policy, the withdrawal may be subject to income tax.

    This means that the withdrawal is treated as regular taxable income and is subject to the same federal and state income tax rates as an individual’s salary or wages.

    Related: What Is Adjusted Gross Income? Everything You Need To Know.

    Capital gains tax

    If a life insurance policy has a cash value component invested in securities, such as stocks or bonds, any investment gains may be subject to capital gains tax if the policyholder makes withdrawals or loans against the policy.

    Capital gains tax is a tax on a policyholder’s profit from the sale of a security. In the case of a life insurance policy, the policyholder realizes a gain when they make a withdrawal or loan from the policy that exceeds the policy’s cost basis, which is the amount of premium paid into the policy.

    Related: Are Unused Travel Card Benefits Actually a Bad Thing?

    Estate tax

    If the death benefit from a life insurance policy gets paid to the policyholder’s estate, it may be subject to federal estate taxes, depending on the size of the estate and applicable federal and state estate tax laws.

    The estate tax, also known as the inheritance tax, is a tax on transferring wealth from one generation to the next. It is calculated based on the policy owner’s estate value at the time of death.

    Related: Why is Estate Planning More Important Now Than Ever Before?

    Premium tax

    Some states impose a tax on the premiums paid for life insurance policies, known as a premium tax. The premium tax is a percentage of the premium that states generally use to fund various insurance-related programs and services.

    The amount of premium tax owed will depend on the state in which the policy is issued and the premium paid.

    Related: How to Make the Most of Tax-Free Money

    Does the type of life insurance payout affect the way it is taxed?

    There are two types of life insurance payments: lump sum and income stream.

    A lump sum payment is the more common of the two, and with this option, the policy’s total death benefit gets paid out in one single payment soon after the policyholder’s death.

    An income stream, like an annuity life insurance policy, will provide a series of payment installments over a set period.

    With a lump sum, the death benefit is generally not taxed as income to the beneficiary or beneficiaries. However, if the policy has a cash value component, such as a permanent life insurance policy, the amount of the death benefit that exceeds the policy’s cash value may be subject to income tax.

    With an income stream, the payments received may get taxed as income to the beneficiary. The taxation of annuity payments depends on several factors, including the type of annuity, the policyholder’s tax bracket and their investment earnings.

    Generally, annuity payments are taxed as income, which means they get taxed at the recipient’s marginal tax rate.

    Related: What Is a Trust Fund and How Do They Work?

    What do you need to know about life insurance taxes?

    If life insurance is on your mind, it can be a great benefit to leave behind once you’re gone.

    While there are some financial considerations to make and some taxes to be aware of, life insurance is an asset to consider. Always consult a tax professional for the very best legal advice.

    For more information on taxes, the IRS or finding the right life insurance company, visit Entrepreneur.com.

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  • Free Webinar | March 22: What Entrepreneurs Should Consider Writing Off | Entrepreneur

    Free Webinar | March 22: What Entrepreneurs Should Consider Writing Off | Entrepreneur

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    Tax season is here (hooray?) and to make sure that you don’t leave a single penny on the table, we have called in our resident tax experts to walk you through the specifics of write-offs for entrepreneurs. Whether you are a full-time small business owner or making extra money with a side hustle, this webinar is essential to making sure you wind up with the best tax bill or refund possible.

    Mark J. Kohler — author, CPA, attorney, and cohost of the podcast “Refresh Your Wealth” — and Mat Sorenson — author, attorney, and CEO of Directed IRA & Directed Trust Company — have been at this for years, and these self-described “tax geeks” have all of the answers to your write-off questions. During this webinar, they’ll teach you:

    • Commonly missed home office deductions
    • Auto and travel write-offs
    • Changes to meals and entertainment rules
    • Red flags that can trigger audits
    • Changing your entity (LLC, S-corp) structure to save taxes
    • And more!

    This free webinar can save you a lot of dough on Tax Day — don’t miss it! Register now and join us on March 22nd at 3:00 PM ET.

    About the Speakers:

    Entrepreneur Press author Mark J. Kohler, CPA, attorney, co-host of the Podcast “Refresh Your Wealth”, and a senior partner at both the law firm KKOS Lawyers and the accounting firm K&E CPAs. Kohler is also the author of “The Tax and Legal Playbook, 2nd Edition”, and “The Business Owner’s Guide to Financial Freedom.

    Mat Sorensen is an attorney, CEO, author, and podcast host. He is the CEO of Directed IRA & Directed Trust Company, a leading company in the self-directed IRA and 401k industry and a partner in the business and tax law firm of KKOS Lawyers. He is the author of The Self-Directed IRA Handbook.

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  • Mormon church fined for scheme to hide $32 billion investment portfolio

    Mormon church fined for scheme to hide $32 billion investment portfolio

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    The Church of Jesus Christ of Latter-day Saints and its investment arm have been fined $5 million for using shell companies to obscure the size of its $32 billion portfolio, which was under church control, the U.S. Securities and Exchange Commission announced Tuesday.

    The faith, known as the Mormon church, maintains billions of dollars of investments in stocks, bonds, real estate and agriculture. Much of its portfolio is controlled by Ensign Peak Advisers, a nonprofit investment manager overseen by ecclesiastical leaders known as its presiding bishopric.

    The Mormon church was allegedly worried that the size of its portfolio, which reached $32 billion by 2018, would lead to “negative consequences,” according to the SEC. Ensign Peak avoided disclosing investments “with the church’s knowledge,” denying the SEC and the public accurate information required under law, Gurbir Grewal, the agency’s enforcement director, said in a statement. 

    The Mormon church “went to great lengths to avoid disclosing the Church’s investments,” Grewal said in the statement.

    The church has agreed to pay $1 million and Ensign Peak will pay $4 million in penalties based on the violation.

    Federal investigators said that, for a period of 22 years, the firm violated agency rules and the Securities Exchange Act by not filing required paperwork that disclosed the value of its assets.

    Instead, they said Ensign Peak filed the forms through 13 shell companies the firm created, even as it maintained decision-making power. Ensign Peak also had “business managers,” most employed by the church, sign the required shell company filings.

    Whistleblower allegations

    Increasingly, the church and its Salt Lake City-based investment arm have faced scrutiny over the fact that tax law largely exempts religious groups from paying U.S. taxes. Ensign Peak is registered as a supporting organization and integrated auxiliary of the church. Investment managers of its size are required to report stock holdings quarterly.

    In 2019, a whistleblower alleged the church had stockpiled nearly $100 billion in funds, rather than directing it toward charitable causes. Ensign Peak has since been a source of intrigue and mystery for the nearly 17-million member Utah-based faith, which encourages members worldwide to give 10% of their income in a practice known as “tithing.”

    Two years later, prominent church member James Huntsman filed a lawsuit against the church alleging it misrepresented how it used donations and, rather than direct them to charitable causes, invested in assets including real estate and an insurance business. A judge dismissed the complaint last year and Huntsman later appealed the decision.

    Earlier this month, the 2019 whistleblower, a former Ensign Peak investment manager named David Nielsen, submitted a 90-page memorandum to the U.S. Senate Finance Committee demanding oversight into the church’s finances.

    In a statement, church officials said over the time period investigated, none of their holdings had gone unreported and all had been disclosed through the separate companies. 

    They said they had “relied upon legal counsel regarding how to comply with its reporting obligations while attempting to maintain the privacy of the portfolio” and noted that Ensign Peak had changed its reporting approach after learning of the SEC’s concerns in 2019.

    “We affirm our commitment to comply with the law, regret mistakes made, and now consider this matter closed,” they said.

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  • Mormon church fined $5M for obscuring size of portfolio

    Mormon church fined $5M for obscuring size of portfolio

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    SALT LAKE CITY — The Church of Jesus Christ of Latter-day Saints and its investment arm have been fined $5 million for using shell companies to obscure the size of the portfolio under church control, the U.S. Securities and Exchange Commission announced Tuesday.

    The faith, widely known as the Mormon church, maintains billions of dollars of investments in stocks, bonds, real estate and agriculture. Much of its portfolio is controlled by Ensign Peak Advisers, a nonprofit investment manager overseen by ecclesiastical leaders known as its presiding bishopric.

    The church has agreed to pay $1 million and Ensign Peak will pay $4 million in penalties based on the violation.

    Ensign Peak avoided disclosing investments “with the church’s knowledge,” denying the SEC and the public of accurate information required under law, Gurbir Grewal, the agency’s enforcement director, said in a statement.

    Federal investigators said for a period of 22 years, the firm violated agency rules and the Securities Exchange Act by not filing paperwork required that disclosed the value of its assets.

    Instead, they said Ensign Peak filed the forms through 13 shell companies they created, even as they maintained decision-making power. They also had “business managers,” most employed by the church, sign the required shell company filings.

    “The Church was concerned that disclosure of its portfolio, which by 2018 grew to approximately $32 billion, would lead to negative consequences,” the SEC said in a statement announcing the charges.

    Increasingly, the church and its Salt Lake City-based investment arm have faced scrutiny over the fact that tax law largely exempts religious groups from paying U.S. taxes. Ensign Peak is registered as a supporting organization and integrated auxiliary of the church. Investment managers of its size are required to report stockholdings quarterly.

    It gained traction in 2019 when a whistleblower alleged the church had stockpiled nearly $100 billion in funds, rather than directing it toward charitable causes. Ensign Peak has since been a source of intrigue and mystery for the nearly 17-million member Utah-based faith, which encourages members worldwide to give 10% of their income in a what is known as “tithing.”

    Two years later, prominent church member James Huntsman filed a lawsuit against the church alleging it misrepresented how it used donations and, rather than direct them to charitable causes, invested in assets including real estate and an insurance business. A judge dismissed the complaint last year and Huntsman later appealed the decision.

    Earlier this month, the 2019 whistleblower, a former Ensign Peak investment manager named David Nielsen, submitted a 90-page memorandum to the U.S. Senate Finance Committee demanding oversight into the church’s finances.

    In a statement, church officials said over the time period investigated, none of their holdings had gone unreported and all had been disclosed through the separate companies. They said they had “relied upon legal counsel regarding how to comply with its reporting obligations while attempting to maintain the privacy of the portfolio” and noted that Ensign Peak had changed its reporting approach after learning of the SEC’s concerns in 2019.

    “We affirm our commitment to comply with the law, regret mistakes made, and now consider this matter closed,” they said.

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  • IRS changed its tax brackets for 2023. Here’s what it means for your taxes.

    IRS changed its tax brackets for 2023. Here’s what it means for your taxes.

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    Americans could save on taxes this year because of historically large inflation adjustments set by the IRS.

    The agency adjusted many of its 2023 tax rules to help taxpayers avoid “bracket creep.” That’s when workers get pushed into higher tax brackets due to the impact of cost-of-living adjustments to offset inflation, despite their standard of living not having changed. On average, the IRS pushed up each provision by about 7% for 2023.

    The changes could mean tax savings for some taxpayers, providing some relief at a time when Americans are still struggling with high inflation that’s eating away at their purchasing power. For instance, some taxpayers could fall into lower tax brackets as a result of the changes, while those who use the standard deduction — relied on by 86% of taxpayers — will be able to deduct more of their income from taxation.

    For instance, a married couple earning $200,000 in both 2022 and 2023 would save $900 in taxes this year because more of their income would be taxed at a lower rate, according to Tim Steffen, director of tax planning with Baird.

    That could be a welcome change given that this year’s tax returns (for the 2022 tax year) are expected to deliver a “tax refund shock” to many Americans due to the expiration of pandemic tax credits. As a result, refunds could be significantly smaller in 2023 compared with a year earlier.

    Still, the tax bracket changes may not save money for everyone, especially those who saw their incomes rise by 7% or more, noted the Tax Policy Center, a think tank that focuses on taxes. 

    “It’s just keeping them from facing higher taxes if their inflation-adjusted incomes (also known as real incomes) rise by 7%,” senior fellow Robert McClelland wrote in a blog post.

    Taxpayers will file their 2023 tax returns in early 2024. 

    Standard deduction

    The standard deduction is used by people who don’t itemize their taxes, and it reduces the amount of income you must pay taxes on. 

    • For married couples filing jointly, the standard deduction is $27,700 for 2023, up from $25,900 in the 2022 tax year. That’s an increase of $1,800, or a 7% bump. 
    • For single taxpayers and married individuals filing separately, the standard deduction is set at $13,850 in 2023, compared with $12,950 last year. That’s an increase of about 6.9%.
    • Heads of households’ standard deduction in 2023 jumps to $20,800 from $19,400 in 2022. That’s an increase of 7.2%. 

    “The flip side of this, though, is that it’s going to be harder to itemize your deductions in 2023,” Steffen said. “That means your tax payments, mortgage interest and charitable contributions are less likely to provide you a tax benefit next year.”

    Most taxpayers take the standard deduction, especially after the 2017 Tax Cuts and Jobs Act enacted a more generous deduction. Only about 14% of taxpayers itemized their taxes after the passage of the tax overhaul, or a 17 percentage-point drop compared with prior to the law, according to the Tax Foundation.

    Tax brackets

    The IRS boosted tax brackets by about 7% for each type of tax filer for 2023, such as those filing separately or as married couples. The top marginal rate, or the highest tax rate based on income, remains 37% for individual single taxpayers with incomes above $578,125 or for married couples with income higher than $693,750. 

    The lowest rate remains 10%, which impacts individuals with incomes of $11,000 or less and married couples earning $22,000 or less. Below are charts with the new tax brackets.

    Tax brackets show the percentage you’ll pay in taxes on each portion of your income. A common misconception is that the highest rate is what you’ll pay on all of your income, but that is incorrect. 

    Take a single taxpayer who earns $110,000. In 2023, she will take a standard deduction of $13,850, reducing her taxable income to $96,150. This year, she’ll pay:

    • 10% tax on her first $11,000 of income, or $1,100 in taxes
    • 12% tax on income from $11,000 to $44,735, or $4,048
    • 22% tax on the portion of income from $44,735 up to $95,375, or $11,140
    • 24% tax on the portion of her income from $95,374 to her limit of taxable income, $96,150, or $775

    Together, she’ll pay the IRS $17,063 in taxes, which amounts to an effective tax rate of 17.7% on her taxable income. 

    Earned Income Tax Credit

    The maximum amount for households who claim the Earned Income Tax Credit will be $7,430 for those who have at least three children, compared with $6,935 in the current tax year, the IRS said.

    Capital gains tax brackets

    Capital gains — the profit from investments or other assets — are taxed using different brackets and rates than earned income. The income thresholds for capital gains taxes were also adjusted due to inflation for 2023.

    For instance, in 2022 single taxpayers who earned below $41,675 were not required to pay capital gains taxes on their investments. In 2023, that threshold is rising by about 7% to $44,625. Single taxpayers who earn above that amount are subject to a 15% capital gains tax, while those who earn above $492,300 in 2023 will be subject to the top capital gains rate of 20%.

    Bigger gift exclusion

    People can also give up to $17,000 in gifts in 2023 without paying taxes on the money, up from $16,000 in the prior year.

    Estate tax limit

    The estates of wealthy Americans will also get a bigger break in 2023. The IRS will exempt up to $12.92 million from the estate tax in the current tax year, up from $12.06 million for people who died in 2022 — an increase of 7.1%.

    Flexible spending accounts

    Flexible spending accounts allow workers to put money, up to the limit allowed by the IRS, in an account that can be used to pay for medical expenses. Because the funds are taken from their accounts on a pre-tax basis, it offers tax savings for many workers. 

    The new IRS limit for FSA contributions for 2023 is $3,050, an increase of about 7% from the current tax year’s threshold of $2,850. 

    However, most employees set their FSA limits in the fall, which means that workers would have had to set the higher amount late last year to take advantage of the higher 2023 limit.

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  • Don’t Sleep on That Tax Refund — 5 Reasons Tax Experts Say to File Early

    Don’t Sleep on That Tax Refund — 5 Reasons Tax Experts Say to File Early

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    Believe it or not, tax season has already begun. Amid the flurry of tax forms flooding inboxes and mailboxes, you might wonder about filing taxes early this year. If you’re expecting an IRS refund, it’s tempting to run out and try to get your return in now. Less enticing is rushing to submit tax documents if you owe money.

    However, early birds in a few states might catch some unappetizing worms this year when it comes to tax returns. The Internal Revenue Service (IRS) finally issued guidance late last week saying most taxpayers who received state payments related to general welfare and disaster relief won’t have to report that income for tax purposes.

    The exceptions to this rule are taxpayers from Georgia, Massachusetts, South Carolina, Virginia and Alaska who will have to consult the IRS and state officials for more nuanced rules about the taxability of relief payments.

    Given this unexpected road bump, we spoke to several tax experts about the best time to pay taxes this year. Should you file earlier if you’re expecting a big return or can you skate along until right before the filing deadline to make an IRS payment? Here’s what they had to say about whether early filers are smart to beat the crowds and any potential risks in filing early.

    When Does Tax Season Begin?

    If it seems like everyone becomes a procrastinator during tax season, you’re not wrong. Technically, the 2023 tax season kicked off Jan. 23, when the IRS website opened to the submission of 2022 taxes electronically. This year’s Tax Day, or the last day to submit online or mail paper returns before incurring late penalties, is Monday, April 18.

    That means Americans have three months to gather tax documents and work with a tax professional or tax software to ensure an accurate tax return. Despite this generous window and a slew of free tax help resources, analysis of IRS data indicates about 30% of Americans still waited until April to file during the most recent tax year. The same data shows only about 12% of Americans are early filers, meaning they file electronically in late January as soon as the window opens.

    Pro Tip

    If you are worried about making mistakes when filing, we highly recommend using tax software like TurboTax, H&R Block or TaxAct.

    How Early Can I File My Federal Tax Return?

    Although the IRS has advised caution to taxpayers in five states to clarify the taxability of state payments before they file, it’s full steam ahead for most taxpayers across the country.

    However, it’s advisable to wait until you receive all your tax documents, including any 1099-Ks from payment platforms like Venmo and PayPal. Because gig workers and self-employed contractors rely on a patchwork of tax documents to ensure a complete and accurate return, this can be a tricky waiting game.

    Robert Persichitte, a certified public accountant and founder of Delagify Financial, likes to remind taxpayers who owe money that they can still file early and pay later.

    “You don’t have to pay when you file,” Persichitte clarifies. “Even if you can’t pay your taxes, you should still file. There are late-filing penalties that you’ll have to add t

    What if you can’t pay your taxes? First, don’t panic. Second, read this article on what steps you should take.

    Do You Get a Bigger Tax Refund if You File Early?

    There’s no evidence that filing early means bigger tax refunds. However, there’s plenty of proof that taking the time to file an accurate return provides a better chance of a larger kickback from Uncle Sam.

    Rushing at the last minute to file means you could overlook eligibility for certain tax credits, like the child tax credit or the earned income credit. And if you don’t wait for all your tax paperwork to arrive, you might miss sources of income you should report such as unemployment income or interest from a savings account.

    One myth we can definitely debunk is whether when you file increases your chances of being audited. Barbara Weltman, an attorney, nationally recognized tax expert and author of “J.K. Lasser’s 1001 Deductions and Tax Breaks 2023,” says when you file has no bearing on whether you’ll be audited. “Filing early or late has no impact on the chances of being audited,” Weltman confirms. “Though some may believe otherwise.”

    5 Reasons to File an Early Tax Return

    1. Avoids processing delays
    2. Limits stress over tax deadlines
    3. Decreases risk of tax identity theft
    4. Provides time to put a payment plan in place
    5. Makes connecting with a tax preparer easier

    1. Filing early avoids processing delays.

    The 2022 tax season was filled with delays. While two-thirds of taxpayers were entitled to an IRS refund that averaged $3,200, those refunds took much longer to process. And for unfortunate taxpayers who had to adjust returns, those adjustments took the IRS an average of 197 days to process.

    Persichitte advises his clients to file as early as they can. “Filing early helps you avoid the rush, fix any issues and understand your taxes. If there is an issue like misspelling a name, the IRS rejects the return. Filing early allows extra time to fix those kinds of problems as they arise.”

    2. Filing early limits stress over tax deadlines.

    Having a deadline hanging over your head is never pleasant. Knowing not only when you’ll get your return back but how much you can expect takes much of the stress out of the tax process. When everyone else is scrambling in April, you can be sailing away to somewhere tropical courtesy of your generous tax return.

    Pro Tip

    Got your filing squared away and looking toward next year’s taxes? Use our guide to 2023 tax brackets to understand how your taxes might change.

    3. Filing early decreases the risk of tax identity theft.

    Tax experts say one of the biggest reasons to file early is that it reduces the risk of someone stealing your tax return. “Early filing is a way to thwart tax identity theft,” Weltman explains. “If you file early, it prevents an identity thief from filing under your Social Security number.”

    Tax refund fraud happens a lot more than you might think. The U.S. Justice Department has an entire task force devoted to this kind of tax fraud and reports millions of Americans have their tax returns stolen every year.

    4. Filing early provides time to put a payment plan in place.

    The longer you wait to file, the less time you’ll have to determine if you owe money. Before that tax bill comes knocking, give yourself a few weeks to devise a plan.

    Persichitte says gig workers are notorious procrastinators. “Typically, they will owe taxes and put it off because they don’t want to pay the bill. Oftentimes, they are shocked by how much they owe in taxes. If they started in February, they’d have more time to prepare, save up the money for the tax bill and have the time they need to gather their documents.”

    5. Filing early makes connecting with a tax preparer easier.

    If you think you’re busy during tax season, wait until you see your accountant’s schedule. Advice from a tax professional on preparing your return is invaluable, but their time comes at a premium in March and April.

    Adjusted gross income. The additional child tax credit. Earned income tax credit. Taxes can be a lot to manage. Seeking out tax tips early this tax season can save money and maximize the return that hits your bank account.

    Preparing returns yourself and need a little tax help? We’ve got you! Check out our complete guide to how to file taxes and maximize your return.

    Are There Any Reasons Not to File Early During Tax Season?

    Unless you live in a state where you need to clarify the taxability of state payments, there’s no good reason not to file early. Weltman says you might need to hit pause if you’re waiting for more tax information, are making a 2022 contribution to an IRA or health savings account, or you’re trying to work with a tax professional on your return.

    Persichitte echoes this advice. “I would only wait to file if you are still waiting on a document. Some documents, like K-1s, might not be available until after the filing deadline. The best action is to file an extension right when you know your documents will be late.”

    Frequently Asked Questions About Filing Taxes Early

    Does Filing Early Affect the Child Tax Credit?

    Weltman says filing early can present a problem for those who qualify for refunds from the earned income credit or the refundable child tax credit. “By law, the IRS cannot issue them before Feb. 15. For returns filed earlier, the IRS says to expect refunds this year by Feb. 28, although it could be earlier.” 

    I Don’t Have All My Tax Documents Yet. What Should I Do?

    Whether you’re missing a 1099 or a W-2, wait until mid-February before you panic. While employers are required to provide these forms by Jan. 31, they can get delayed in the mail. If nothing turns up, you can contact the employer or the IRS (call 1-800-829-1040), and they’ll resolve it. In the meantime, you may be able to estimate your income using your own records.

    How Quickly Will I Get My IRS Refund Through Direct Deposit?

    Good news. If you file electronically, the IRS says 9 out of 10 taxpayers can expect their return to be processed within 21 days. The IRS says to use e-file and choose direct deposit to speed up the refund process. If you prefer to submit a paper return, note that the IRS says you could face delays of up to six months. Within 24 hours of filing online, you should be able to check the status of your refund using the IRS Where’s My Refund? tool.

    Kaz Weida is a senior staff writer at The Penny Hoarder covering saving money and budgeting. As a journalist, she has written about a wide array of topics, including finance, health, politics, education and technology, for the last decade.


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  • This Tax Credit You’ve Never Heard of Could Reduce Your Tax Bill By $2,000

    This Tax Credit You’ve Never Heard of Could Reduce Your Tax Bill By $2,000

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    Believe it or not, the government will pay you to save.

    Seriously. Check this out.

    It’s called the Saver’s Credit, and it’s a valuable — but often overlooked — way to save money on your taxes.

    Saver’s Credits totaling more than $1.7 billion were claimed on about 9.4 million tax returns in tax year 2020, according to the Internal Revenue Service. That’s an average credit of about $186 per return.

    Keep reading to learn who is eligible for the Saver’s Credit and how it works.

    What Is the Saver’s Credit?

    The Saver’s Credit is a way to put money back in your pocket when you save for retirement.

    If you’re a low- or middle-income worker, you can claim the Saver’s Credit — also known as the retirement savings contributions credit — by adding money to a 401(k) or individual retirement account (IRA).

    You may also be eligible for the credit for contributions to an Achieving a Better Life Experience (ABLE) account, if you’re the designated beneficiary.

    The Saver’s Credit is worth up to $1,000 for single filers, or $2,000 for married couples filing jointly.

    Depending on your adjusted gross income and tax filing status, you can claim the credit for 50%, 20% or 10% of the first $2,000 you contribute to a retirement account within a tax year.

    Not only do a lot of people forget about this credit, many low-income workers miss out on the sweet tax benefits of saving for retirement because they worry doing so will strain their tight budgets.

    It’s worth checking to see if you qualify for the Saver’s Credit, especially if you or your spouse were unemployed or experienced a reduction of income in 2022.

    How Do You Qualify for the Saver’s Credit?

    First, you’ll need to meet some basic requirements.

    To be eligible for the Saver’s Credit, you must:

    • Be 18 years or older and file a tax return.
    • Not be claimed as a dependent on someone else’s tax return.
    • Not be a full-time student. (However, you’re still eligible for the Saver’s Credit if you’re enrolled in an online-only school or participating in on-the-job training.)
    • Save some money in a retirement account, like an employer-sponsored 401(k).

    The Saver’s Credit can be claimed by any filing status: married filing jointly, head of household, single, married filing separately or qualifying widow(er).

    The Internal Revenue Service sets maximum adjusted gross income caps for the retirement savings contribution credit each year.

    When you file your 2023 taxes for the 2022 tax year, your adjusted gross income (AGI) must fall below the following thresholds to qualify for the Saver’s Credit:

    • $68,000 for married filing jointly.
    • $51,000 for head of household.
    • $34,000 for a single filer or any other filing status.
    If you earn too much to qualify for the Saver’s Credit, you can still receive a tax deduction by contributing to a traditional IRA.

    How Much Is the Saver’s Tax Credit Worth?

    How much the Saver’s Credit is worth depends on how much you contribute to your retirement account, your filing status and your AGI.

    Pro Tip

    The maximum amount of the Saver’s Credit cannot exceed $1,000 for single filers or $2,000 for joint filers in 2023.

    Your income determines the percentage of your retirement savings that will be credited to your tax bill.

    You might be eligible for 50%, 20% or 10% of the maximum contribution amount.

    Keep in mind that the percentage of your retirement contribution you can receive as a credit decreases as your income increases.

    Saver’s Credit Rate for 2023

    Filing status 50% of contribution 20% of contribution 10% of contribution
    Single Filers, Married Filing Separately or Qualifying Widow(er) AGI of $20,500 or below AGI of $20,501 – $22,000 AGI of $22,001 – $34,000
    Married Filing Jointly AGI of $41,000 or below AGI of $41,001 – $44,000 AGI of $44,001 – $68,000
    Head of Household AGI of $30,750 or below AGI of $30,751 – $33,000 AGI of $33,001 – $51,000

    For example, a single filer with an adjusted gross income of $20,000 who invests $2,000 in a Roth IRA would receive a maximum credit for 50% of their contribution, or $1,000.

    But a single filer earning $33,000 who contributed $2,000 to a Roth IRA would receive a credit of just 10% of the amount they invested, or $200.

    As you can see, people with the lowest income benefit most from the Saver’s Tax Credit.

    How Do I Claim the Saver’s Credit?

    Here’s what eligible taxpayers need to do to take advantage of the Saver’s Credit.

    First, you’ll need to open a retirement account if you don’t have one already. You can open one with any brokerage firm or robo-advisor. Or, you can start contributing money to your workplace 401(k).

    Contributions to the following retirement accounts qualify for the Saver’s Credit:

    • Traditional or Roth IRA
    • Traditional or Roth 401(k)
    • SIMPLE IRA
    • SEP IRA
    • ABLE account (if you’re the designated beneficiary)
    • 403(b) plan
    • 457(b) plan
    • A federal Thrift Savings Plan

    Next, make your deposit.

    The IRS actually gives taxpayers until April 18, 2023, to make contributions to individual retirement accounts and include those investments on their 2022 taxes. Pretty cool, huh?

    Lastly, you need to file Form 8880: Credit for Qualified Retirement Savings Contributions with the IRS. If you’re using online tax software, like TurboTax, then it’s even easier to file this form with your tax return.

    Other Information About the Saver’s Tax Credit

    It’s important to note that this government tax benefit is not a deduction, but a credit.

    On the scale of great tax breaks, tax credits are the best. While deductions merely lower your taxable income, a tax credit reduces your actual tax bill dollar for dollar.

    Let’s say you do your taxes and discover you owe $1,000. If you paid $1,000 out of your paycheck to your retirement accounts over the course of the year and received a $500 Saver’s Credit, your tax bill would shrink to $500.

    It’s also worth noting that the Saver’s Credit can be claimed in addition to any tax deduction you receive by making qualified retirement savings contributions.

    So if you contribute to a traditional IRA or traditional 401(k), you could receive double tax savings: a reduction in your taxable income equal to the amount you kicked into your retirement account plus the Saver’s Credit (if you qualify).

    One potential drawback about the Saver’s Credit is it’s nonrefundable. Usually that means it can only be used to lower your tax bill.

    But a nonrefundable credit can also boost your refund if you had taxes withheld from your paycheck throughout the year, according to Robert Persichitte, a certified public accountant at Delagify Financial in Colorado.

    Here’s how that can work:

    1. You had taxes withheld from your paycheck.
    2. You used a nonrefundable credit to erase your tax liability.
    3.  You get your money back as a refund.

    Finally, you must contribute new money to a retirement plan: Rollover contributions from an existing account — like a 401(k) rollover into an IRA — don’t count.

    Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder. She focuses on retirement, investing, taxes and life insurance. 




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  • IRS won’t tax most relief payments made by states last year

    IRS won’t tax most relief payments made by states last year

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    The IRS announced Friday that most relief checks issued by states last year aren’t subject to federal taxes, providing 11th hour guidance as tax returns start to pour in.

    A week after telling payment recipients to delay filing returns, the IRS said it won’t challenge the taxability of payments related to general welfare and disaster, meaning taxpayers who received those checks won’t have to pay federal taxes on those payments. All told, the IRS said special payments were made by 21 states in 2022.

    “The IRS appreciates the patience of taxpayers, tax professionals, software companies and state tax administrators as the IRS and Treasury worked to resolve this unique and complex situation,” the IRS said Friday evening in a statement.

    The states where the relief checks do not have to be reported by taxpayers are California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. That also applies to energy relief payments in Alaska that were in addition to the annual Permanent Fund Dividend, the IRS said.

    In addition, many taxpayers in Georgia, Massachusetts, South Carolina and Virginia also avoid federal taxes on state payments if they meet certain requirements, the IRS said.

    In California, most residents got a “middle class tax refund” last year, a payment of up to $1,050 depending on their income, filing status and whether they had children. The Democratic-controlled state Legislature approved the payments to help offset record high gas prices, which peaked at a high of $6.44 per gallon in June according to AAA.

    A key question was whether the federal government would count those payments as income and require Californians to pay taxes on it. Many California taxpayers had delayed filing their 2022 returns while waiting for an answer. Friday, the IRS said it would not tax the refund.

    Maine was another example of states where the IRS stance had created confusion. More than 100,000 tax returns already had been filed as of Thursday, many of them submitted before the IRS urged residents to delay filing their returns.

    Democratic Gov. Janet Mills pressed for the $850 pandemic relief checks last year for most Mainers to help make ends meet as a budget surplus ballooned.

    Her administration designed the relief program to conform with federal tax code to avoid being subject to federal taxes or included in federal adjusted gross income calculations, said Sharon Huntley, spokesperson for the Department of Administrative and Financial Services.

    Senate President Troy Jackson called the confusion caused by the IRS “harmful and irresponsible.”

    “Democrats and Republicans worked together to create a program that would comply with federal tax laws and deliver for more than 800,000 Mainers,” the Democrat from Allagash said in a statement Friday.

    ___

    Sharp reported from Portland, Maine. Associated Press writer Adam Beam in Sacramento, California, contributed to this report.

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  • IRS won’t tax most relief payments made by states last year

    IRS won’t tax most relief payments made by states last year

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    The IRS announced Friday that most relief checks issued by states last year aren’t subject to federal taxes, providing 11th hour guidance as tax returns start to pour in.

    A week after telling payment recipients to delay filing returns, the IRS said it won’t challenge the taxability of payments related to general welfare and disaster, meaning taxpayers who received those checks won’t have to pay federal taxes on those payments. All told, the IRS said special payments were made by 21 states in 2022.

    “The IRS appreciates the patience of taxpayers, tax professionals, software companies and state tax administrators as the IRS and Treasury worked to resolve this unique and complex situation,” the IRS said Friday evening in a statement.

    The states where the relief checks do not have to be reported by taxpayers are California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. That also applies to supplementary energy relief payments in Alaska that were in addition to the annual Permanent Fund Dividend, the IRS said.

    In addition, many taxpayers in Georgia, Massachusetts, South Carolina and Virginia also avoid federal taxes on state payments if they meet certain requirements, the IRS said.

    In California, most residents got a “middle class tax refund” last year, a payment of up to $1,050 depending on their income, filing status and whether they had children. The Democratic-controlled state Legislature approved the payments to help offset record high gas prices, which peaked at a high of $6.44 per gallon in June according to AAA.

    A key question was whether the federal government would count those payments as income and require Californians to pay taxes on it. Many California taxpayers had delayed filing their 2022 returns while waiting for an answer. Friday, the IRS said it would not tax the refund.

    Maine was another example of states where the IRS stance had created confusion. More than 100,000 tax returns already had been filed as of Thursday, many of them submitted before the IRS urged residents to delay filing their returns.

    Democratic Gov. Janet Mills pressed for the $850 pandemic relief checks last year for most Mainers to help make ends meet as a budget surplus ballooned.

    Her administration designed the relief program to conform with federal tax code to avoid being subject to federal taxes or included in federal adjusted gross income calculations, said Sharon Huntley, spokesperson for the Department of Administrative and Financial Services.

    Senate President Troy Jackson called the confusion caused by the IRS “harmful and irresponsible.”

    “Democrats and Republicans worked together to create a program that would comply with federal tax laws and deliver for more than 800,000 Mainers,” the Democrat from Allagash said in a statement Friday.

    ___

    Sharp reported from Portland, Maine. Associated Press writer Adam Beam in Sacramento, California, contributed to this report.

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  • IRS says California, most state tax rebates aren’t considered taxable income

    IRS says California, most state tax rebates aren’t considered taxable income

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    Relief payments complicate tax season


    State relief payments and rebates complicate tax season

    04:27

    Taxpayers in more than 20 states who received tax rebates last year got some guidance from the IRS after the agency had asked them to hold off on filing their tax returns. At issue was whether the IRS would consider those payments to be taxable income.

    The IRS on Friday said that taxpayers in “many states” won’t need to report the payments on their 2022 tax returns, which are due by April 18 this year. 

    California and more than 20 other states authorized tax rebates last year as their coffers were buoyed by strong economic growth and federal pandemic aid, with the goal of helping their residents offset inflation and the costs of the pandemic. But on February 3, the IRS asked people who had received a rebate to wait before filing their taxes, citing the question of whether the checks needed to be reported as income.

    On Friday, the IRS said that, for the most part, taxpayers won’t have to report the rebates on their tax returns. 

    “During a review, the IRS determined it will not challenge the taxability of payments related to general welfare and disaster relief,” it noted.

    The states where residents who received rebates and won’t need to report them as income are:

    • Alaska (but only for the supplemental Energy Relief Payment received; the annual Permanent Fund Dividend is usually taxable on the federal level.)
    • California
    • Colorado
    • Connecticut
    • Delaware
    • Florida
    • Hawaii
    • Idaho
    • Illinois
    • Indiana
    • Maine 
    • New Jersey
    • New Mexico
    • New York
    • Oregon
    • Pennsylvania 
    • Rhode Island

    The IRS added that many people in the following states won’t have to report their rebate checks as income if they meet some requirements. For instance, this is the case if the rebate is a refund of state taxes paid and the taxpayer claimed the standard deduction or itemized deductions but did not receive a tax benefit, the IRS said. These states include:

    • Georgia
    • Massachusetts
    • South Carolina
    • Virginia 


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  • IRS says many state rebates aren’t taxable at the federal level. Some may face filing struggle, tax pros warn

    IRS says many state rebates aren’t taxable at the federal level. Some may face filing struggle, tax pros warn

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    The IRS on Friday issued federal tax guidance for millions of Americans who received state rebates or payments in 2022.

    The announcement came about a week after the agency had urged those taxpayers to hold off on filing while it determined if the funds are taxable on federal returns.

    “The IRS has determined that in the interest of sound tax administration and other factors, taxpayers in many states will not need to report these payments on their 2022 tax returns,” the agency said in a statement.

    The agency said taxpayers in California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island won’t need to report these payments on their federal tax returns. Some Alaska taxpayers may also avoid federal levies on certain payments.

    Taxpayers in Georgia, Massachusetts, South Carolina and Virginia may also skip federal tax reporting for some payments. But eligibility may hinge on factors from your previous tax filings.  

    More from Smart Tax Planning:

    Here’s a look at more tax-planning news.

    Californians may still face filing challenges

    “The state of California really did everyone a disservice by issuing 1099-MISC [forms],” said Dan Herron, a San Luis Obispo, California-based certified financial planner at Elemental Wealth Advisors. He is also a certified public accountant.

    If the state doesn’t amend and reissue those forms to the IRS, it may cause a mismatch when California taxpayers file their federal returns, he said.

    Typically, a mismatch between tax forms and returns triggers automated notices, which may delay refunds or require taxpayers to contact the IRS to resolve.

    “I don’t know how the IRS system is going to handle that,” Herron added.

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  • IRS tells millions of Americans in 22 states to hold off on filing their taxes

    IRS tells millions of Americans in 22 states to hold off on filing their taxes

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    The IRS is asking millions of taxpayers in 22 states including California, Colorado and Florida who received tax rebates last year to hold off on filing their taxes. 

    The reason: The agency said it is seeking to clarify whether those tax rebates and special refunds are considered taxable income. “We expect to provide additional clarity for as many states and taxpayers as possible next week,” the IRS said on February 3. As of February 10, the IRS hadn’t yet provided clarification.

    About 16 million California residents received “middle-class tax refund” checks of $350 per eligible taxpayer last year, part of a relief package designed by the state to help residents cope with soaring inflation at a time when the state had a budget surplus. 

    At least 22 states authorized tax rebates last year as their coffers were buoyed by strong economic growth and federal pandemic aid, according to the Tax Foundation. The following states sent rebate checks to at least some of their taxpayers last year, the Tax Foundation said:

    • Alaska
    • Arkansas
    • California
    • Colorado
    • Connecticut
    • Delaware
    • Florida
    • Georgia
    • Hawaii
    • Idaho
    • Illinois
    • Indiana
    • Maine
    • Massachusetts
    • Minnesota
    • New Jersey
    • New Mexico
    • New York
    • Oregon
    • Rhode Island
    • South Carolina
    • Virginia

    But those one-time windfalls are now throwing a wrench into tax season for millions of Americans, many of whom count on getting timely tax refunds to pay down debt, make a purchase or get on top of bills. Last year, the average tax refund (for the 2021 tax year) was almost $3,200, a 14% jump from the prior year, according to IRS data — an amount that’s bigger than the typical worker’s paycheck. 

    “This uncertainty is unfair to taxpayers,” wrote Jared Walczak, vice president of state projects at the Tax Foundation, a tax-focused think tank, in a blog post. “Tax experts have long known that the taxability of state rebate payments would be an issue, but the IRS remained silent until February 3rd, at which point it basically said we’ll get back to you soon.”

    File and amend, or file and get penalized?

    Taxpayers in these states who have already filed returns and who report the rebates as taxable may need to file amended returns to exclude the money if the IRS decides they aren’t taxable, according to the National Taxpayer Advocate, the watchdog arm of the IRS.

    Conversely, taxpayers who already filed their returns and excluded the payments could be subject to potential penalties, tax and interest if the IRS decides the rebates are taxable. 

    “[T]he IRS missed the boat” by failing to provide timely guidance on this issue, wrote National Taxpayer Advocate Erin Collins in a Thursday blog post

    She added, “Giving taxpayers a choice between waiting to file their returns and receive their refunds or filing returns now that the IRS may later determine to be inaccurate is not acceptable.”

    Adding to the confusion for taxpayers is that the federal government’s tax rebates — sent in the form of three stimulus checks during the pandemic — were not considered taxable income by the IRS. 


    With tax season starting, what do Americans need to know before filing their returns?

    04:06

    Some taxpayers took to social media to express their frustration at the IRS guidance that they should delay filing their tax returns. The agency started accepting returns for this year’s tax season on Jan. 23

    “So I tried to sit down this morning for a fun game of Do Your Taxes, but turns out the IRS hasn’t decided if California’s Middle Class Tax Relief payments are taxable or not…,” one taxpayer wrote on Twitter. 

    Income or not?

    The IRS issued the statement after Rep. Kevin Kiley, a Republican from California, wrote to the tax agency to say that his office had been contacted by “numerous” constituents asking for help on the issue. 

    “Many of the 16 million residents of California who received the refund are unable to file a 2022 tax return because they do not have clear guidance as to whether to include this payment” as taxable income, he wrote in the February 2 letter

    Adding to the confusion is that some states seem to be indicating that the rebates count as taxable income, according to Collins, the National Taxpayer Advocate. For instance, California’s Franchise Tax Board said it is sending tax forms to all recipients of the rebate, noting that the “payment may be considered federal income.”

    Yet at the same time, many tax preparers “have concluded that some state payments are not taxable and have programmed their software so that these payments are not reported,” Collins added. 

    On Friday, the IRS advised, “[T]he best course of action is to wait for additional clarification on state payments rather than calling the IRS.”

    It added, “We also do not recommend amending a previously filed 2022 return.” Amended returns have been caught up in the IRS’ backlog, leading to processing delays.

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