Mesa Money Minute

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.

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.

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.

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!