From the office of Neill Werkheiser  

Summer 2023

Individual income tax returns under extension must be submitted not later than October 16, 2023.

Tel. 610 253-5420 or 1 866 577-3960 Fax; 610 442-3696 text.

PA Inheritance tax - PA is one of only seven states with a death tax.  Yes, most assets that are transferred upon death are subject to a tax (rates differ) that must be paid to PA within 9 months of death.  Assets owned in a Living Trust and assets such as IRA's and annuities are subject to the tax.  Bank accounts or brokerage accounts that are titled TOD or POD (transfer or payable to another upon death) are subject to the tax.  Life insurance proceeds are exempt from the tax. Deductions are allowed for funeral expenses and costs of administration such as attorney and accountant fees.

Latest release -

As of August 4, 2021 PPP loan forgiveness for small loans may be sought directly through the SBA portal - no need to apply through a lender web site. In most cases, the loan proceeds are not subject to tax.

Direct SBA Economic Injury Disaster Loan (EIDL) recipients need not make an initial repayment for one year.  At that time, monthly repayment amounts will be pursuant to a 30 year amortization schedule. Interest does accrue during the initial 12 months, however. For most loans, repayment must begin not later than mid-2022.

RMD payments from IRA's. 401-K's etc. are not waived in 2022.  Pandemic waivers have ended.

Trade-in's -  2022/23 - Section 1031 treatment (like kind exchanges) which allowed the trade-in of a truck, for example, on a replacement without recognizing gain, has ended for personal property.  It continues for real property.  This is a significant change! However, most personal property can now be expensed without depreciating over many years. Be sure to see the above link "Defer tax".

If you file a partnership tax return for a multi-member LLC, you may wish to amend your Operating Agreement to allow special allocations of profit and loss if you are currently utilizing primarily guaranteed payments.

Residents of NY, NJ and DE, all high graduated tax rate states, will fare worse than PA residents under the new law because PA is a relatively low, flat rate state.

Pennsylvania is one of the friendliest states for retirees - NJ and NY are not.  PA taxes no part of social security benefits and does not tax retirement benefits in most cases. Florida has no personal income tax.  However, it is important to establish residency in FL. 

An IRA for 2022 - May be opened as late as tax return filing deadline in 2023, without extensions.  Once opened, an IRA may be funded until the extended filing deadline. 

Health Insurance legislation -. The mandate (tax) which was assessed in recent years for failure to have credible health insurance has gone away for 2019 and later years.  Premium Tax Credit, Form 8962, must be part of your tax return if you purchased health insurance through the federal government's exchange.  In addition, you may receive a Form 1095-B or 1095-C from your employer or insurance company.  If you purchased insurance from a marketplace insurer you will receive Form 1095-A which is needed to prepare Form 8962. If form 8962 is not included, electyronic filing will reject.

Pennsylvania residents no longer use HealthCare.gov.  Beginning with 2021, PA residents should apply through www.pennie.com.

A.  Under age 59 1/2?  There are multiple ways to tap your IRA without incurring the 10% excess tax penalty.

B.  Have a small business "on the side"?  Is it really a business or is it a hobby?  The distinction makes a huge difference when reporting for tax purposes.

If you have unused passive losses from rental properties you own, recover and use the losses when you sell your property.

Tips you can use, below - Click the "Business Questions" link, above for business/investment questions.

Q.  Can I claim a tax deduction for losses in my traditional IRA account?

A.  Perhaps, but not likely.  If the value of all your IRA's is less than your non-deductible contributions (basis), when you liquidate, you have a miscellaneous itemized deduction.  

Q. If I purchased or inherited shares of stock at $20/share and the stock increased to a high of $50/share during my ownership, can I claim a loss if I sold it in 2020 for $25/share?

A.  No, this is very much misunderstood.  You would have a taxable gain of $5/share.  This example assumes no reinvested dividends.  

Q.  Will the annual Gift Tax exclusion increase? Will I owe gift tax?

A.  It is now $16,000. Very few folks ever owe gift tax.  It is more likely you will need to submit a gift tax return, however.

Q. What is the Earned Income Tax credit?

A.  Sometimes referred to as "tax welfare", this credit provides a refundable payment to taxpayers with low earned income from wages and salary.  Strict rules apply.  As a result of  past abuse, taxpayers will now be required to file a "due diligence" report when claiming the credit.

A.   Probably not.  If you owned and lived in the home as your primary residence for any two of the past five years, you may have a gain of $250,000 (single) or $500,000 (married) without paying tax.  If your gain exceeds these amounts, you will have taxable gain.  Also, depreciation which was deducted or deductible on the part of your home used for business cannot be part of the excluded amount.

Q.  Will I receive a tax benefit if I give appreciated shares of stock to a charitable organization?

A.   Yes, you will avoid the taxable gain that would be incurred if you sold the shares and donated the proceeds and can claim a charitable itemized deduction for the fair market value.   You can also make a charitable contribution directly from your IRA as part of your Required Minimum Distribution. 

Q.  When is a Gift Tax return required? House transfer to child?

A.  If you made a gift with value of more than $16,000 to any one individual in 2021 or later, you are required to file a gift tax return by April 15 of the following year.  In most cases, no gift tax is due at that time. Transferring your home to a child for less than appraised value constitutes a gift. If you retain the right to reside in the home after transfer, you have not made a completed gift because your child retains a remainder interest. The date of death value of your home or interest remqins subject to PA Inheritance tax.

A.  In 20221 the Sect. 179 deduction limit remains greatly liberalized.  Some lower limits apply for vehicles.  The limit has been raised for future years and bonus depreciation will apply to equipment that is new to you - previously, you had to be the first user of the equipment.  Bonus depreciation  allows for faster vehicle write-off and saves tax dollars.

A.  Maybe yes - maybe no!  Generally, if your employer paid the insurance premiums or they were paid with pre-tax dollars, the benefits are taxable.  If you paid the premiums, benefits would not be taxable.   If your employer paid half the premiums, half the benefits will be taxable.