Mesa Money Minute

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.

The taxation of gifts is complex, but the vast majority of us will never actually pay gift taxes, at least under current tax code. Gifts are generally not taxable to the recipient, however, if a gift of an asset such as a rental property is made, and then that property begins generating income, that income will be taxable to the new owner of the property (the recipient). Any potential gift taxation is the responsibility of the giver, not the recipient. There is currently a gift tax exclusion of $17,000 per year per recipient, meaning that you can gift that amount to an unlimited number of people with no tax or reporting consequences. You can also split gifts with your spouse, meaning a married couple can gift up to $34,000 per year per recipient with no reporting requirement. This is known as the annual exemption. Gifts for medical or education expenses paid directly to an institution are not counted against the annual gift exclusion. Once you get above those limits, you must report those gifts on a Form 709 Gift Tax Return, which is due on April 15 of the year following the year of the gift. Generally any gifts you give above the limit use up what is known as the Uniform Lifetime Credit. This credit essentially allows each individual to transfer, either by gift while living or by bequeathment after death, up to $12.92 million over their lifetime. Gifts above the annual exclusion amount eat into this limit, which is adjusted for inflation every year. Unless Congress acts, this exclusion drops to $7 million in 2026. 

What is the best account to use for your retirement savings, a 401(k) or an Individual Retirement Account (IRA)? Each has pro's and cons. With a 401(k) you can set aside more each year (up to $22,500 in 2023, or $30,000 if you're over age 50); it is easy for an individual to set up (usually your employer takes care of deducting your contributions from your paycheck each month and depositing them to the account); there are no income limits; and often employers offer matching contributions to boost your savings. IRA's are a bit more flexible than 401(k)'s (you can make contributions until the filing deadline [usually April 15]) whereas generally 401(k) contributions must be made by December 31; 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 the plan is lower ($6,500 in 2023 or $7,500 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, such as SEP's and Simples. It's best to confer with your advisers to determine which plans are best for your circumstances.

Biden signed the Fiscal Responsibility Act on June third, ending the debt limit crisis. The act increases the federal debt limit and suspends the federal debt limit until January 2025. It also ends the current student loan repayment pause, meaning that student loan repayments will resume towards the end of the summer. It also cuts about $20 billion of the $80 billion funding provided to the IRS by the Inflation Reduction Act. This could mean that the anticipated improvements in IRS taxpayer services will be delayed or canceled. What this means for you is that you can likely continue to expect long delays in processing, especially of paper filed returns and requests, and that if you have an IRS issue, expect it to take many months to resolve. The IRS, however, has said that it will continue with its plans to ramp up enforcement, and is focusing on high net worth individuals for audit selection. Ideally what this means is that it can shift some focus away from audits of low- to medium-income taxpayers. 

June is an estimate month! Generally individuals and businesses must submit their income tax payments to the IRS and state agencies four times per year. There is an exception if your tax bill, after withholding and other payments, is less than $1,000. However, if you don't meet this or other exceptions then there can be penalties for not paying estimated tax payments. The penalty rate is similar to interest and is applied on a daily basis. Currently the penalty rate is 7%, so it is similar to paying 7% annually on a credit card. These penalties are usually calculated and paid with your tax bill at the end of the year. To calculate your estimated tax payments, calculate the tax due on your estimated taxable income for the year, subtract any withholding or other payments, and divide the result by four. This is the amount you should pay each quarter. There is also a safe harbor available, known as protective estimates, in case you cannot or don't want to estimate your current year's tax liability. The safe harbor is 100% of last year's tax liability, or 110% of last year's tax liability if your income was more than $150,000.  Protective estimates will prevent penalties on not paying estimated tax payments, even if you owe much more than you paid. Consult with your CPA for assistance calculating and paying estimated tax payments.