Mesa Money Minute

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.