Mesa Money Minute

Charitable contributions can be a great way to give back to your community and also provide some tax benefits. Let's explore how you can maximize these deductions. First, if you itemize your deductions, you can deduct contributions made to qualified charitable organizations. This includes donations of cash, property, and even mileage driven for charitable activities. Be sure to keep receipts and records of your donations, as the IRS requires documentation for these deductions. For those who don't itemize, there's good news if you're in Colorado. The state offers a Colorado Subtraction for Charitable Contributions. This allows non-itemizers to subtract charitable contributions above the first $500 from their Colorado taxable income. It's a great way to benefit from your generosity even if you take the standard deduction on your federal return. Remember, to qualify for these deductions, the charity must be a recognized 501(c)(3) organization. Also, if you receive something in return for your donation, like a dinner or event ticket, you can only deduct the amount that exceeds the fair market value of what you received. Consult your CPA to ensure you're maximizing your charitable contribution deductions and taking advantage of any state-specific benefits like the Colorado Subtraction.

Estate planning is essential for managing your financial future and minimizing tax liabilities for your heirs. Beyond gift giving, there are several strategies you can use to plan for estate taxes effectively. First, consider establishing trusts. Trusts like a Spousal Lifetime Access Trust (SLAT) allow one spouse to transfer assets to a trust for the benefit of the other spouse, providing access to the assets while removing them from the taxable estate. Charitable giving is another powerful tool. Setting up a charitable remainder trust (CRT) or a charitable lead trust (CLT) allows you to donate assets to a charity while still providing income to your beneficiaries or yourself for a period of time. Life insurance can also play a crucial role. Purchasing a policy within an irrevocable life insurance trust (ILIT) can help cover estate taxes, ensuring that your heirs receive the full value of your estate. For those with significant assets, Family Limited Partnerships (FLPs) can be beneficial. An FLP allows you to transfer assets to family members at a discounted value, reducing the overall taxable estate while maintaining control over the assets. Another strategy is upstream gifting, which involves gifting assets to older family members in lower tax brackets who can benefit from a stepped-up basis upon their death, reducing capital gains taxes for your heirs. Lastly, regularly review and update your estate plan with your CPA or estate planning advisor to ensure it aligns with current laws and your financial goals. This includes updating wills, trusts, and beneficiary designations. An important component of estate planning is understanding the Uniform Lifetime Exclusion. This exclusion allows individuals to transfer a certain amount of wealth, either through gifts during their lifetime or bequeathments after death, without incurring federal estate or gift taxes. For 2024, the lifetime exemption is $13.61 million per person, up from $12.92 million in 2023. For married couples, this amount doubles to $27.22 million. However, unless Congress acts, this exclusion is set to drop to approximately $7 million in 2026. By implementing these strategies and understanding the current and future tax laws, you can effectively manage your estate and minimize tax liabilities for your heirs. Always consult with your CPA or estate planning advisor to tailor these strategies to your specific situation.

Welcoming a new baby is an exciting time, and it also brings new tax considerations. Let's dive into some key tax planning tips for new parents. First, there's the Child Tax Credit. For 2024, you can claim up to $2,000 per qualifying child under age 17. If your tax liability is less than the credit, you might be eligible for the Additional Child Tax Credit, which can provide a refund of up to $1,500 per child. Next, consider the Dependent Care Credit. If you pay for childcare so you can work or look for work, you may be eligible for a credit of up to 35% of your qualifying expenses, with a maximum of $3,000 for one child or $6,000 for two or more children. Don't forget about medical expense deductions. You can deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income. This includes costs related to childbirth and your child's medical care. Health Savings Accounts (HSAs) are another great tool. If you have a high-deductible health plan, you can contribute pre-tax dollars to an HSA, which can be used for medical expenses. Contributions, earnings, and withdrawals are all tax-free when used for qualified medical expenses. For your child's future education, consider a 529 plan or other tuition savings plans. Contributions to a 529 plan may be deductible for state tax purposes, and withdrawals are tax-free when used for qualified education expenses. And here's a fun fact: a child born at the end of the year “counts” for the whole year. This means you can claim the Child Tax Credit and other benefits for the entire year, even if your baby was born on December 31st. Consult your CPA to ensure you're taking full advantage of these tax benefits and planning effectively for your family's future.

As we look ahead to 2025, it's important to be aware of significant tax changes on the horizon. Many provisions of the Tax Cuts and Jobs Act (TCJA), enacted in 2017, are set to expire at the end of 2025. Here's what you need to know: First, individual income tax rates will revert to their 2017 levels. This means higher tax rates for many taxpayers. Additionally, the standard deduction will be cut roughly in half, and the personal exemption will return. The child tax credit will decrease, impacting families with children. The estate tax exemption will also be reduced, potentially affecting estate planning strategies. For small business owners, the 20% tax deduction for pass-through businesses will be eliminated. Another significant change is the removal of the cap on the state and local tax (SALT) deduction. This could provide some relief for taxpayers in high-tax states. For corporations, several temporary provisions will expire, including limits on deducting research and equipment costs and certain interest expenses. If these provisions are not extended, they will revert to pre-TCJA rules. It's important to note that there will likely be legislative changes between now and then, which could alter these provisions. Staying informed and consulting with your tax advisor will help you navigate these changes and plan accordingly.

Filing taxes as a small business owner can be complex, but understanding the basics can make the process smoother. Depending on your business structure, you may need to file different types of returns. Sole proprietors and single-member LLCs typically file a Schedule C as part of their personal 1040 tax return. However, if you operate as a partnership, multi-member LLC, or corporation, you'll need to file a separate business tax return. It's crucial to report all income and all deductions accurately. This includes revenue from sales, services, and any other business activities. Deductions can cover a wide range of expenses, such as office supplies, travel, and advertising costs. Be mindful of filing deadlines. For most small businesses, the tax return is due by March 15th. If you need more time, you can file for an extension, which typically gives you until September 15th. However, remember that an extension to file is not an extension to pay any taxes owed. Also, keep in mind that income taxes aren't the only taxes you might be subject to. Depending on your business, you may need to pay self-employment taxes, payroll taxes, sales taxes, and more. Consult with your CPA to ensure you're meeting all your tax obligations and taking advantage of any deductions or credits available to you.

Understanding the difference between tax deductions and tax credits is essential for effective tax planning. Tax deductions reduce your taxable income, which means their value depends on your tax rate. For example, a $1,000 deduction saves you $240 if you're in the 24% tax bracket. Tax credits, on the other hand, provide a dollar-for-dollar reduction in your tax liability. So, a $1,000 tax credit reduces your tax bill by $1,000, regardless of your tax rate. This concept applies to both federal and state income taxes. Generally, tax credits are available for more specific categories of expenditures, such as education or energy-efficient home improvements, while deductions often cover broader categories like mortgage interest or charitable donations. Credits usually come with more eligibility requirements and often require additional forms and supporting documentation. Deductions, while still requiring proper documentation, tend to be simpler to claim. Consult your tax advisor to understand which deductions and credits you qualify for and how to maximize your tax savings.

An often-overlooked deduction for self-employed individuals is the home office deduction. This allows you to write off a portion of your home expenses as business expenses. To qualify, you must use a specific area of your home exclusively for business purposes. There are two methods to calculate the home office deduction: the actual expense method and the safe harbor method. The safe harbor method lets you deduct a flat $5 per square foot of your home office, up to 300 square feet or $1,500. You can choose the method that provides the greatest deduction. The actual expense method involves using a percentage of your total home expenses. This percentage is determined by dividing the square footage of your home office by the total square footage of your home. You can then deduct this percentage of all your home expenses, including mortgage interest, rent, insurance, utilities, and repairs and maintenance. Note that expenses specific to areas outside the home office, like lawn maintenance, do not qualify. Consult your CPA to determine if you qualify for the home office deduction and which method is best for you.

What is the best account to use for your retirement savings, a 401(k) or an Individual Retirement Account (IRA)? Each has pros and cons. With a 401(k), you can set aside more each year (up to $23,000 in 2024, or $30,500 if you're over age 50). It's easy for an individual to set up, as your employer typically handles deducting your contributions from your paycheck and depositing them into the account. There are no income limits, and often employers offer matching contributions to boost your savings. IRAs are a bit more flexible than 401(k)s. You can make contributions until the filing deadline (usually April 15 of next year), whereas 401(k) contributions generally must be made by December 31 of this year. You can contribute any type of earned income to an IRA, so you don't have to rely on your employer to offer the plan. However, you are responsible for setting aside and making your contributions. The max contribution to an IRA is lower ($7,000 in 2024, or $8,000 if you're 50 or older), and there are income limits that apply if you or your spouse are also covered by an employer plan. There are also many other types of retirement plans to consider, especially if you're self-employed, such as SEPs and SIMPLEs. It's best to confer with your advisers to determine which plans are best for your circumstances.

Understanding the difference between marginal tax rates and effective tax rates is crucial for accurate tax planning. The marginal tax rate is the rate applied to your last dollar of income, while the effective tax rate is the average rate you pay on all your income. A common misconception about taxes is that a 40% top tax rate means you'll pay 40% of your taxable income in taxes. In reality, the U.S. uses a graduated income tax system, where your top, or marginal, tax rate only applies to the income within that bracket. For instance, many think a 24% tax rate on $100,000 of taxable income means $24,000 in taxes. However, the 24% rate only applies to the last $5,000 of income. The first $11,000 is taxed at 0%, the next $33,000 at 12%, and the following $50,000 at 22%. This results in approximately $17,000 in taxes. Your effective tax rate, which is the average rate you pay, would be 17%, even though your marginal rate is 24%. Note that these figures are for illustrative purposes only and your rates will vary.

Having a side hustle is another term for being an independent contractor or self-employed. All income from a side hustle is taxable, whether it's part-time, temporary, not reported on traditional tax forms like W-2's or 1099's, or paid in cash, cryptocurrency, or barter. If you have a side hustle, track and report your income and expenses just like any other business. You must file a tax return if your net earnings from your side hustle exceed $400, even if you otherwise aren't required to file a return. As a self-employer person, you'll need to pay both income and self-employment taxes on your earnings. If you don't have an employer to withhold additional taxes, you might need to make quarterly estimated tax payments. The good news is you can deduct work-related expenses such as vehicle mileage, a portion of your cell phone bill, and possibly even home office costs. For more details on saving taxes on your side hustle, consult your CPA.

Many deductions are often overlooked due to the hassle of recordkeeping or simply not knowing they exist. With a bit of organization and education, you can ensure you're maximizing your write-offs and reducing your tax bill. Commonly missed deductions include the home office deduction, vehicle expense deduction, business use of cell phone and internet bills, and the self-employed health insurance deduction. Most of these are primarily available to self-employed individuals, so if you're a W-2 worker, be sure and speak with your CPA about deductions that are available to you, and make sure to keep good records.

If you're a freelancer, you might be curious about potential tax deductions. Generally, any expense that's ordinary and necessary for your business operations can be deducted, though there are many exceptions in the tax code. One commonly overlooked deduction for sole proprietors is the home office deduction. If you use a space in your home regularly and exclusively for business, you can deduct a portion of your mortgage interest or rent, utilities, insurance, maintenance, and HOA dues.  Another useful deduction for small business owners is the business use of your cell phone. If you have multiple lines, break out the portion of the bill for your line and estimate a reasonable business use percentage, like 25% or 30%. Additionally, don't forget about the mileage deduction for your personal vehicle. Keep a digital or paper log of your business drives, as commuting between your home and place of work is not deductible. Consult your CPA to ensure you're not missing any valuable business deductions.

The Inflation Reduction Act of 2022 implemented some new and changed other energy efficiency credits for home improvements. Certain types of home energy efficient upgrades, including exterior doors, windows, skylights, and insulation, central air conditioners, water heaters, furnaces, boilers and heat pumps, biomass stoves and boilers, and home energy audits, qualify for a credit up to 30% of the cost of the expenses, with a max of $1200 (heatpumps, biomass stoves, and boilers, have a separate limit of $2000) with no lifetime max. Further, other types of home energy efficient upgrades, such as solar, wind and geothermal power generation, solar water heaters, fuel cells, and battery storage are eligible for a credit of up to 30% with no lifetime limit or annual max. For more information on what types of property qualifies, visit energy.gov/save.

The Inflation Reduction Act of 2022 implemented and changed many of the clean energy credits available to both individual and business taxpayers. The electric vehicle (EV) credit is available for individual taxpayers with adjusted gross income of less than $300k for married taxpayers and $150k for single taxpayers. For a vehicle to qualify, it must be purchased new for personal use, and must have a battery capacity of at least 7kWh, and have a gross vehicle weight rating of less than 14,000 lbs. It also must be made by a qualified manufacturer, and undergo final assembly in North America. Lastly, the manufacturer's suggested retail price must be less than $80,000 for SUV's and pick-up trucks, and $55,000 for other vehicles. If a vehicle meets all these requirements, it could be eligible for a credit of up to $7,500. Additionally, there is a Colorado credit of up to $5,000. The requirements are complex, so be sure to do your research before purchasing a new EV! For more information, visit energy.gov and search for clean vehicle credits.

January 21-27 is National Data Privacy Week. It's a good time to review the steps you're taking to protect your personal sensitive information and make any adjustments for the new year. Check your security settings on your devices, and especially when you set up a new device. Device manufacturers often release new security features with software updates, so stay updated and familiarize yourself with any new settings. Default passwords should be changed as soon as possible. Never email sensitive information; instead utilize client portals and secure file transfer systems. Review your bank and credit card statements regularly for any unfamiliar charges. Don't use public, unsecured wifi for things like banking and shopping. Set up alerts on your bank account and credit card accounts so you are immediately notified of any unusual spending. Set up an account on irs.gov to monitor your tax account, and request an Identity Protection PIN. Consider freezing your credit with the credit bureaus until you need to apply for a loan. For more tips on protecting your personal data, go to staysafeonline.org.

Amid the recovery efforts from COVID-19, many businesses took advantage of the Employee Retention Credit (ERC) which allowed a credit for keeping employees on payroll. However, the regulations and requirements of the credit are complex, and many businesses may have discovered after the fact that the claimed the credit in error. IRS has been stepping up enforcement action on incorrect ERC claims in recent months. If a business loses the ERC under audit, they'll be liable to repay the credit plus penalties and interest. However, for businesses who claimed the ERC in error or by mistake, IRS has announced a Voluntary Disclosure program which allows those businesses to return 80% of the credit and not be subject to penalties. There are many requirements for eligibility for this program, so be sure to consult with your CPA to determine if you are eligible. For more information, visit irs.gov and search for ERC voluntary disclosure program.

Colorado Family and Medical Leave Insurance (FAMLI or "Famli") leave is available to use beginning January 1, 2024. If you are an employee and need leave for an eligible reason, typically parental leave for birth or adoption of a child, medical leave to care for a person with a serious medical condition, whether that person is yourself or a family member, leave to support family members who are in the military, or to attend the needs of a person (including yourself) who has experienced domestic abuse. Leave is available for up to 12 weeks, and is available on an intermittent basis. MyFAMLI+ is the portal where employees will go to apply for leave. They may apply up to 30 days before a planned leave, or up to 30 days after the first absence. Workers will not receive the full amount of their normal wages, but a reduced amount based on their average wages, not to exceed $1,100 a week. Employers are not responsible for the employees' wages during this period; however, they must hold the job for the employee upon their return from leave. For more information, visit famli.colorado.gov.

On December 19, the IRS announced a new program to help taxpayers who have been hit with penalties for 2020 and 2021, but were unaware of the accumulating penalties due to a pandemic-era policy to halt sending penalty notices. IRS had temporarily stopped sending automated reminders to pay past due tax bills in February 2022. Penalties, however, continued to accrue, sometimes without the knowledge of the taxpayer. The IRS will resume its normal process of sending automated reminders this month. However, to ease the transition, it will automatically forgive penalties for certain taxpayers affected by this situation. Eligible taxpayers include individuals, businesses, trusts, estates, and not-for-profit entities with less than $100,000 of taxes for the tax years 2020 and 2021. The IRS will automatically grant the relief and refund the penalty if it has already been paid, or credit it to another outstanding liability. Check your tax transcript at irs.gov to determine if you received penalty relief, and if a refund is pending. You may contact the IRS after March 31 with questions about this program. 

Contrary to popular belief, you don't need to wear a lab coat or discover a new element to be eligible for a research and development (or R&D) tax credit. If your business is creating or improving a product, process, or software, you may qualify. For expenditures to qualify, they must be "incurred in connection with the taxpayer's trade or business" and must "represent research and development costs in the experimental or laboratory sense". According to the regulations, the "experimental or laboratory sense" is "for activities intended to discover information that would eliminate uncertainty concerning the development or improvement of a product." If you're a start-up making less than $5 million annually and are under 5 years old, R&D credits can be used to offset up to $250,000 of your payroll taxes per year. If you're an established small business but don't have taxable income this year, you can carry the credit forward for up to 20 years. R&D credits require a lot of documentation so be sure to track your expenses diligently. If you think some of your business activities might be eligible for an R&D credit, contact your CPA to find out more about this complex topic.

What is Section 179D? Sounds intimidating doesn't it? Section 179D is a tax incentive for qualifying energy efficient commercial buildings. It allows for a deduction of up to $5/square foot if all energy efficiency and prevailing wage requirements are met. The deduction is primarily for building owners, but in certain circumstances it can be allocated to the designers, architects, engineers, and contractors of public buildings. The incentive is available for new construction projects as well as upgrades and retrofits of existing buildings. Commercial buildings and residential buildings with four or more stories are eligible. Single family homes or multi-family homes with three or fewer stories are not eligible. A taxpayer cannot prepare the claim on their own. A licensed engineer must complete a certification to validate the deduction. Consult your CPA if you want to explore your eligibility for a Section 179D deduction!

The Colorado Department of Labor and Employment rolled out its new employer platform for paying unemployment premiums, reporting wages, and responding to claims last month. Employers will need to register their accounts on the new platform to report wages and pay premiums. Every employer should have received either an activation email or letter with the information necessary to register a new account. If you haven't received your activation information, you can call the division or visit their website to obtain your activation code.  If you use a third party administrator (or TPA), such as a payroll service or accountant, you will still need to activate your new account and authorize your TPA to use the account. Due to some issues with the new system, the deadline for third quarter unemployment insurance premiums and wage reports has been extended from October 31 to November 30. More information is available at myuiemployer.coworkforce.com.

What is Proposition HH? Prop HH would make various changes to state property taxes and changes to state revenue limits, including reducing the residential property tax assessment rate and subtracting a set amount of money from a property's taxable value before applying the assessment rate; creating two new subclasses of residential property effective in 2025; providing funds to local governments to make up for decreased property tax revenues, referred to as backfilling; creating a limit on local government property tax revenue; and creating a new cap on state revenue allowing the state to retain revenue up to the newly created cap that it would otherwise be required to refund to residents under TABOR. If Prop HH passes, the state sales tax refund every taxpayer has received on their Colorado tax return would be a flat amount, increasing for taxpayers of low- and middle-income, and decreasing for higher income individuals. The bottom line is that property taxes would decrease but TABOR refund credits would also decrease for most taxpayers over the next ten years. For more information visit leg.colorado.gov/bluebook. Don't forget to vote by November 7!

Whether you're a sole proprietor, a partnership, or a small corporation, you're probably wondering what you can "write off" or deduct from your taxes. Any expenditure that is ordinary and necessary to the operations of your business can generally be deducted, with many exceptions noted in the code. A commonly overlooked deduction available for your sole proprietorship is the use of a home office. If you use a space in your home regularly and exclusively for your business, you can deduct a portion of your mortgage interest or rent, utilities, insurance, maintenance, and HOA dues. Another useful deduction almost all small business owners can take advantage of is the portion of your cell phone that you use for business. If you have multiple lines on your account, you should break out the portion of the bill that is only for your line, and estimate a reasonable business use portion such as 25 or 30% of that line. Another simple but valuable deduction is mileage on your personal vehicle. You will need to substantiate this deduction should you be audited, so be sure to keep a digital or paper log of your business drives, and remember that commuting between your home and place of work is not deductible. Speak with your CPA about other business deductions you might be overlooking.

The gig economy or sharing economy is a term for the activities in which people earn income by providing services or goods on an on-demand basis, usually connected through digital platforms. Income from the gig economy is taxable even if it is part time, temporary, not reported on any tax form like a W-2 or 1099, or paid in any form including cash, crypto, or with a trade. If you're employed in the gig economy, be prepared to track and report your income and expenses just like any other business. You are required to file a tax return if you have net earnings from gig work or other types of self-employment of $400 or more. As a gig worker who is an independent contractor, you will be required to pay both income and self-employment taxes on your income, and you may need to pay quarterly estimated taxes if you do not have a job where you can have additional withheld from your check to cover your gig work income. The upside is that you can deduct expenses related to your work, such as mileage on your vehicle, the portion of your cell phone you use for work, and possibly even a home office. Consult your CPA for more information on the taxation of your gig!

For the second year in a row, many Colorado residents are eligible for a refundable state sales tax refund credit, which is a mechanism to refund tax revenue in excess of limits established by the Taxpayers' Bill of Rights amendment, or TABOR, added to the Colorado Constitution in 1992. The credit is allowed only to those individuals who lived in Colorado for the entire year. In order to claim the credit, taxpayers must file a Colorado income tax return or a Colorado Property Tax/Rent/Heat Rebate Application. If the taxpayer has either a Colorado tax liability or Colorado withholding, they are still eligible to claim the credit on an extended return until the due date of the return. Unfortunately for many seniors and low income individuals, if an individual had neither Colorado withholding nor Colorado tax liability, they must have filed their tax return or property tax rebate form by the original due date of April 18th, even if they extended their federal income tax return. Some industry groups such as the Colorado Society of CPA's has brought the unfairness of this rule to the attention of the Colorado Department of Revenue and to lawmakers and there is some hope for a resolution by year-end. 

August means back to school! There are lots of tax benefits for higher education. The American Opportunity Credit is a credit of up to $2,500 per year for the first four years of college. The Lifetime Learning Credit is a credit of up to $2,000 per year for years after the first four years of higher education. Child not college age yet? You can still get a tax benefit by setting aside savings to a Qualified Tuition Program, also known as a 529 plan. Contributions to eligible plans are deductible for state purposes, and withdrawals from such an account are not taxable if used for education expenses. Withdrawals from 529 plans can now also be used for qualified K-12 expenses, up to $10,000 per year. There are other tax benefits for education, including penalty-free IRA withdrawals, student loan interest deductions, and gift-tax exceptions. Speak with your CPA about the methods that are best for your situation.

Courts have issued decisions which have halted the Biden administration's plan to cancel up to $20,000 in federal student debt for more than 40 million Americans. The Biden administration has appealed the decisions and is attempting to reinstate the program; however, in the meantime, the stay on student loan repayments has been extended until June 30, 2023, though you can continue to make payments on your loans if you wish. More than half of eligible borrowers had applied for the program before it was paused, and the Department of Education had approved some 16 million applications. For now, the application has been closed. If you've already applied, the Department will hold your application and process it if the court decisions are overturned. Subscribe to updates at studentaid.gov.

Beginning on January 1, 2023, Colorado employers will be required to start withholding .45% of their employees' wages to contribute to the new Family and Medical Leave Insurance (FAMLI) program. Employers with more than 10 employees will also contribute .45% of wages to the program. The funds will be used, beginning in 2024, to pay employees for leave taken for the birth or adoption of a child or for caring for a family member with an illness, or other approved uses. The employer portal is open for enrollment now and it's recommended to get the account set up as soon as possible so you're ready for the payroll deductions beginning next month. Self-employed individuals are not required to participate in the program but may do so if they wish. Visit famli.colorado.gov to set up the portal or for more information.

Beginning in early 2023, most  employers without a retirement plan offering will be required to enroll in the Colorado SecureSavings program and automatically sign up their employees for a 5% payroll deduction to contribute to their savings accounts. The funds will be contributed to a Roth IRA for the employee. Employees will be able to opt out or change their savings rate if they wish. Employers will receive an official registration notice in early 2023 which they will use to set up their online account, where they will enroll their employees. There is no employer contribution or cost except for the cost of setting up and maintaining the account. Go to www.coloradosecuresavings.com for more information.

This week is the 7th annual National Tax Security Awareness Week which is a joint effort by the IRS, state tax agencies, and the tax industry to urge increased security measures as fraudsters exploit COVID-19 concerns. The IRS is warning people to be on the lookout for scammers using fake charities during the holiday season when folks are expressing their generosity as well as year round. Some tips to avoid fake charity scams include, don't give in to pressure. Scammers often use the technique of urgent need to pressure people into making a contribution. Be wary about how a donation is requested. Don't work with charities that ask for donations by giving numbers from a gift card or wiring money. Don't give more than needed. Personal information can be just as valuable to scammers as money. Never give out your social security number, credit card numbers, or PIN numbers. Visit irs.gov/securitysummit for more tips on protecting yourself from identity theft.

If you own a small business, or even if you don't, you may be getting a lot of solicitations advising you that you may qualify for the Employee Retention Tax Credit (ERTC). Be wary of these "ERC Shops" that may advise you to claim the credit when you may not qualify. These third parties often charge large upfront fees or a fee that is contingent on the amount of the refund and may not inform taxpayers that wage deductions claimed on the business' federal income tax return must be reduced by the amount of the credit. Businesses are encouraged to be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true. Taxpayers are always responsible for the information reported on their tax returns. Improperly claiming the ERTC could result in taxpayers being required to repay the credit along with penalties and interest, and chances are that by the time that auditor comes around, those ERC Shops will be nowhere to be found. If you think you may qualify for a tax credit, discuss it with a qualified professional like your CPA.

Now that tax season 2021 is finally in the books, it's time to start thinking about next year!  The last couple of months of the year are an excellent time to revisit your tax plan and make any last-minute adjustments. It's a good time to estimate your 2022 tax liability based on how you've done in the year so far, to be prepared for any extra payments that may be needed. There are online tools to do this such as the one on efile.com, or get with your CPA. Review your charitable goals and make any additional gifts by December 31. If you haven't completed a W-4 at your job since 2019 when the form was updated, request a new one and complete it using the calculator at irs.gov. Also do so if you have any life changes, such as getting married or having a child. Designate a safe place, such as a bin or a folder to put your tax documents as they start coming in. Determine if you can or should make any additional contributions to your 401k. Contact your CPA if you have planning issues beyond what you can handle on your own!

The Inflation Reduction Act, signed into law by the President on August 16, provides significant expansion of individual tax credits for green energy. Consumers may receive tax credits on new and used clean vehicle purchases. The federal credit for up to $7,500 for new vehicles and $4,000 for used vehicles. The solar credit increases the credit amount from 26% to 30% for solar panel installation costs. There is also a 30% credit for installing efficient exterior windows, skylights, doors, water heaters, and other items. There is also a $4,000 credit for an electric load service center upgrade, a $2,500 credit for electric wiring, and a $1,600 credit for insulation, air sealing, and ventilation. Consumers may also be eligible for up to $14,000 in rebates on purchases of certain efficient electric appliances such as a heat pump water heater, a heat pump for space heating or cooling, an electric stove, or an electric heat pump clothes dryer. There are income limits on most of the credits so do your research before making any purchases.

The 2017 federal Tax Cuts and Jobs Act (the TCJA) went into effect on January 1, 2018. Among other things the TCJA capped the amount of state and local taxes (or SALT) that an individual could deduct to $10,000. This cap extends to individual owners of pass-through entities because business income generated from pass-through entities like LLC's, partnerships, and S-Corps, is assessed at the individual owner level rather than at the business level. This limitation does not apply to C-Corporations. On June 23, 2021, Governor Polis signed into law the "SALT Parity Act" which allows owners of Colorado pass-through entities to obtain substantial federal income tax savings. The SALT Parity Act allows pass-through entities to elect to be taxed at the entity level, thereby bypassing the $10,000 SALT cap and allowing business owners to obtain substantial federal income tax savings. On May 16, 2022, Governor Polis signed another bill that makes the election available going back to 2018. Speak with your CPA about whether making this election is appropriate for your business, and what needs to be done differently to make sure your taxes are paid on time.

Two and half years into the pandemic, the IRS has finally announced they will provide some automatic late filing penalty relief. The tax community has been lobbying for automatic relief for penalties due to the burdens placed upon taxpayers and tax professionals during the pandemic. Staff shortages, service outages, constantly shifting tax regulations, and illness caused many taxpayers and tax professionals to be unable to timely file tax returns over the last 30 months. IRS announced last week that it is providing automatic relief for late filing penalties for 2019 and 2020 tax returns. This covers most federal (but not state) income tax returns for businesses and individuals. Taxpayers do not need to do anything to receive the relief and should receive letters in the coming months communicating the penalty relief. The relief does not apply to late payment penalties or any penalties on state returns or payroll returns, among other things. Importantly, if you have not filed a 2019 or 2020 tax return, file it by September 30 to be eligible for the penalty relief. 

On August 16, President Biden signed into law the Inflation Reduction Act. This sweeping bill includes some changes to invididual income taxes, including extending the Premium Tax Credits for marketplace health plans through 2024 (they were originally scheduled to end this year). It modifies, extends, and creates a variety of tax credits for green energy. For busineses, it imposes a 15% minimum tax on corporate books income for corporations with profits over $1 billion. And increases the research & development tax credit for small businesses to $250,000. It expands IRS funding by $80 billion over 10 years and includes some provisions expected to bring down the cost of prescription drugs.

To alleviate the nationwide issue of low retirement savings for individuals in Colorado, the state is implementing a public retirement savings plan. Employers who have more than 4 employees and don't offer a retirement account, will be required to enroll in the program and auto-enroll each employee. The default savings rate will be 5% of wages, but employees can change that rate or opt out completely. There is no employer match or cost, other than the cost of setting up and maintaining the program. If you have a retirement plan in place, you may be required to apply for exemption from the program by providing documentation that you have a plan. Employers may receive notices from the Colorado State Treasurer's office in 2023 requesting that you enroll in the program or provide the documentation that you have a retirement plan. Respond promptly to all requests.

All the buzz is about the federal student loan forgiveness program! In a nutshell, if you have federal student loans and make less than $125,000 if you are single or $250,000 if you are married or head of household, then you will qualify for $10,000 student loan forgiveness. If you received a Pell grant when you were in school, you will qualify for $20,000 forgiveness. If you are on an income-based repayment plan, the Department of Education may already have your income information on file and may automatically grant the forgiveness. If not, you will need to apply. The application is expected to be released in early October, and you can sign up on ed.gov/subscriptions to be notified when it is. Visit studentaid.gov for more information. 

Last week we gave you the first four tips for audit proofing your small business. Here are four more valuable tips. (5) Use technology. The options are endless and your CPA can help you decide what's best for you. (6) Understand what is deductible. Of course you will need your CPA's help from time to time, but having a general understanding of how tax deductions work will help you stay organizer. (7) Remember, only your business can make business deductions. If your employees spend their own money on business expenses, they cannot deduct them. Try a reimbursement policy instead. (8) Track donations meticulously. Donation expenses are one area the IRS looks at thoroughly. Be sure to keep the thank you letters the organization sends you. 

Audits are an unfortunate fact of life for small business owners. While the chance of an audit in any given year is low, there's a decent chance that over the life of your business you'll be subject to at least one type of audit of your business records. Here are eight tips to ensure you're prepared in case of an audit: (1) choose a strategy and stick with it! Are you going to use technology, a professional, old fashion paper ledgers? Figure out what works for you and keep it up. (2) Know what to track: income, expenses, assets and liabilities. Make sure your strategy covers all items. (3) Store your information in one place. You need to keep information for at least seven years, so get organized with your documentation system, whether that's a filing cabinet or the cloud.  (4) Keep your business and personal accounts separate. If you do one thing for your small business recordkeeping, do this. Tune in next time for the rest of the tips.

Last week, Sen. Manchin agreed to a pared-down version of Biden's Build Back Better legislation. The bill is called the Inflation Reduction Act and leaves out most of the tax provisions of Biden's proposal. There are no increases in individual tax rates, however the child tax credit, which was expanded for 2021, will also not be expanded going forward. The most significant tax change is the 15% minimum tax on financial profits to large corporations. This refers to the financial income reported to shareholders rather than the taxable income reported to the IRS, which under current law is frequently vastly different. The bill also attempts to end the much maligned "carried interest" tax benefit. There is also $370 billion of energy and climate-change provisions, and roughly $80 billion of IRS funding, in the hopes of raising revenue through increased enforcement action. This bill is not yet law and it remains to be seen whether it will garner enough support to make it through Congress so stay tuned.

A lot of real estate investors are converting their long-term rentals to short-term rentals, and renting them on websites such as AirBNB and VRBO. Before making the switch, it's important to understand the tax implications. First off, localities (including the City of Grand  Junction) often charge lodging tax in addition to sales tax. They may also require a special permit be obtained. Check with the city your property is located in to learn about tax and licensing requirements. Additionally, if you provide significant personal services, such as daily cleaning, recreational, or information services to your tenants or guests, the income from the property might be considered self-employment income subject to the 15% self employment tax. Consult with your CPA before deciding to convert to a short-term rental to make sure you understand the costs and benefits of doing so.

With the boom in real estate values in the last couple of years, many casual and professional real estate investors are looking for ways to save in taxes on their real estate investments. One strategy is to complete a cost segregation study. Cost segregation studies, or "cost segs" for short, are prepared to allocate or reallocate building costs to tangible personal property. A cost seg identifies and reclassifies personal property from real property assets to shorten the depreciation time for tax purposes. This, in turn, reduces current income tax obligations. Personal property, or section 1245 property, includes assets that are non-structural elements. Other property such as land improvements can also be depreciated with shorter lives. The deduction created from the cost seg will directly reduce taxable income. Cost segs must be completed by a qualified cost segregation provider. Reach out to your CPA to ask if a cost seg is right for your situation.

Effective July 1, Colorado imposes a retail delivery fee on all deliveries by motor vehicle to a location within Colorado with at least one item of tangible personal property subject to state sales or use tax. The retailer that collects the sales tax on the sale sold and delivered, including delivery by a third party, is liable to collect and remit the retail delivery fee. Deliveries include when any taxable goods are mailed, shipped, or otherwise delivered by motor vehicle to a purchaser in Colorado. The retail delivery fee is due at the same time as your sales tax return. Returns are generally filed on a monthly basis and must be filed on or before the 20th day of the month following each reporting period. Retailers permitted to file state sales tax return on a quarterly, annual or other basis will file the retail delivery fee return on the same schedule. The retail deliver fee is calculated as $.27 per sale. If every item in a retail sale is exempt from sales tax, the delivery is also exempt from the retail delivery fee. 

On May 23, 2022, Governor Polis signed a new law to give Coloradans a tax rebate of $750 for single filers and $1,500 for joint filers this summer. If you filed your individual 2021 tax return by June 30, you will receive your check by September 30. If you extended your tax return and file it by October 17, you will receive your check by January 31, 2023. To prevent fraud, all rebates will be issued by check, not direct deposit. You must file either a Colorado tax return or a property tax/rent/heat credit rebate in order to receive the rebate. You must have been a full-year Colorado resident in 2021; you do not qualify if you moved into or out of Colorado in 2021, or if you moved into Colorado in 2022. Go to colorado.gov or ask your CPA for more information.