November 2023 Tax Update
While 2023 has been a relatively quiet year for new tax legislation, many provisions from pre-2023 legislation are coming into effect this year. This tax update includes some recent tax law changes that could help to reduce your taxes or avoid tax penalties.
Provisions of the Inflation Reduction Act of 2022 taking effect in 2023
In Fall 2022, we issued a three-part series of tax updates covering the Inflation Reduction Act of 2022, including new provisions for home energy tax credits and vehicle credits.
Here is brief overview of the provisions taking effect in 2023:
Home Energy Tax Credits
Several home energy credits were enhanced, beginning this year:
The Energy Efficient Home Improvement Credit was expanded to 30% of cost for a credit of up to $1,200 a year for improvements such as qualified windows and insulation. More information here.
The Residential Clean Energy Credit was increased to 30% of cost for items such as qualified solar, wind and geothermal power units. More information here.
The Energy Efficient Home Credit from $500 to $5,000 is available to eligible home builders for qualified homes acquired by a homeowner. See here for more details.
Vehicle Tax Credits
New rules for vehicle tax credits apply for 2023:
The Credit for New Clean Vehicles of up to $7,500 applies to certain new qualified plug-in EV or fuel cell vehicles. To qualify, your income cannot exceed a certain level based on your filing status. See details here.
The Used Clean Vehicle Credit of up to $4,000 applies to certain used qualified plug-in EV or fuel cell vehicles. There are income limitations for this credit too, and they are lower than the thresholds for the new clean vehicle credit. See details here.
The Commercial Clean Vehicle Credit is the lesser of: (1) 15% of tax basis in the vehicle (30% if not powered by gas or diesel) or (2) the incremental cost of the vehicle up to a max credit of $7,500 for qualified vehicles with a gross vehicle weight rating of under 14,000 pounds and $40,000 for all other vehicles. Details here.
SECURE Act 2.0
The SECURE Act 2.0 was signed into law on December 29, 2022. The act includes many provisions to encourage retirement savings that take effect beginning in 2023.
Changes to Retirement Plans in 2023
Raises the required minimum distribution (RMD) age to 73.
Allows an employer to deposit matching or nonelective contributions into an employee’s Roth account.
Allows retroactive deferrals for sole proprietors in a plan’s initial year.
Increases the tax credit for retirement plan start-up costs for employers with 50 or fewer employees.
Adds a tax credit of up to $500 per military spouse participating in a defined contribution plan such as a 401(k) plan of an employer with no more than 100 employees. There are several other requirements.
Changes to Retirement Plans in 2024
Allows a surviving spouse the option to elect to be treated as the plan participant, which can increase the period before RMDs must be taken.
Allows life-time tax-free rollovers of up to $35,000 from a section 529 education plan into a Roth account if the 529 account has been open for at least 15 years. The rollover cannot exceed the total amount contributed to the 529 account (and earnings thereon) more than 5 years before the rollover. Also, rollovers are subject to the annual Roth IRA contribution limits currently $6,500 ($7,500 if over age 50).
Allows small employers to adopt a starter 401(k) deferral-only plan.
Adds certain retirement plan coverage for part-time workers.
Delays the requirement to deposit catch-up contributions for high earners into a Roth account until 2026.
Increases the contribution limits for a SIMPLE retirement plan.
Other Developments
The importance of making timely estimated tax payments has increased because IRS and North Carolina Department of Revenue penalty rates have increased to 8% and 7% respectfully so a penalty for underpayment of taxes would be much stiffer than in the prior 3 years when rates were low.
Individuals can now set up an online account with the IRS to access information such as tax payments and tax records. https://www.irs.gov/payments/your-online-account
Information returns such as the Form 1099 series must be electronically filed in 2024 if you are required to file ten (10) or more information forms during a calendar year.
Businesses receiving $10,000 or more of digital assets after 2023 must file Form 8300-DA, but this requirement may be postponed.
Please contact us with any questions or to schedule a meeting to discuss your taxes.
This update includes general summaries of tax legislation and should not be relied upon without consulting your tax advisor. Any tax information contained in this update is not intended to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or state tax law provisions.