Although the congressional session beginning in January 2023 may bring some new tax legislation, for now attention must be focused on the 2022 tax filing season. Taxpayers may be affected by the following issues when preparing their 2022 tax returns: contributions to an IRA or a Roth IRA, per diem rate changes, meal expense deductions, gig workers’ income and expense reporting, and claiming refunds for a deceased taxpayer. Let’s take a look at these issues that taxpayers and preparers must consider.
IRA AND ROTH IRA
Contributions to an IRA or Roth IRA can be made for tax year 2022 until April 18, 2023 (since April 15 falls on a Saturday). The maximum contribution amount for 2022 is $6,000 ($7,000 if the taxpayer is 50 or older by December 31, 2022). It will increase to $6,500 ($7,500) for 2023. There’s no age limit for making a deductible IRA contribution, which means anyone with earned income can contribute to an IRA.
The amount deductible depends on the taxpayer’s filing status and income. The phaseout range for single taxpayers covered by a workplace retirement plan is $68,000 to $78,000. For married couples filing jointly, it’s $109,000 to $129,000 if the spouse making the IRA contribution is covered by their employer’s retirement plan and $204,000 to $214,000 if the spouse making the IRA contribution isn’t covered by an employer’s retirement plan. It’s $0 to $10,000 if the couple is filing separately.
For a Roth IRA, the nondeductible contribution phaseout range for single and head of household taxpayers is $129,000 to $144,000. For married filing jointly, it’s $204,000 to $214,000, and it’s $0 to $10,000 for married filing separately. Contributions to a Roth IRA aren’t affected if a taxpayer is covered by an employer’s retirement plan.
PER DIEM RATES AND MEAL DEDUCTIONS
The U.S. Department of the Treasury issued Notice 2022-44 covering special per diem rates for the period of October 1, 2022, through September 30, 2023. Taxpayers claiming business expenses under the per diem method for travel within the United States in lieu of actual lodging, meal, and incidental expenses would apply the rates applicable for travel in each quarter. The applicable per diem rates for travel prior to October 1, 2022, and after September 30, 2023, in nonhigh-cost localities are $202 and $204, respectively, and, in high-cost localities, they are $296 and $297, respectively.
The portion of the rates treated as paid-for meals remains unchanged at $74 for high-cost localities and $64 for all other localities. A listing of the high-cost localities is available in Notice 2021-52 for 2022 and Notice 2022-44 for 2023.
For calendar years 2021 and 2022 only, a business owner is permitted a temporary 100% deduction for food or beverage expenses incurred or paid to a restaurant. A restaurant includes a business that prepares and sells food or beverages to retail customers for immediate consumption (in other words, not a business that primarily sells prepackaged food and beverages not for immediate consumption). The food or beverages don’t need to be consumed on the business’s premises, which means takeout meals qualify (see Notice 2021-25 for specific details).
The growing number of gig workers is raising several questions for 2022 filings. If a gig worker is receiving payments of $600 or more for their services through a third party (e.g., Venmo, PayPal, or others) as an independent contractor, the worker will receive a Form 1099-K, which means they need to report the income. If the individual is a hobbyist, they have income but no expenses to record because the miscellaneous itemized deduction subject to the 2% floor was eliminated by the Tax Cuts and Jobs Act of 2017. Still further, if the person is an independent contractor or a business owner, they file Form 1040, Schedule C, and claim the business expenses.
These taxpayers need to be careful because they could also receive a Form 1099-NEC from their client or customer in addition to the Form 1099-K from the company they’re working for, therefore duplicating the same amount of income. Tax preparers will need to be vigilant for such duplicated income, which means the taxpayer needs good documentation to remedy this situation.
A taxpayer may receive both a Form 1099-K and Form 1099-NEC from a company, which doesn’t represent double-counted income. For example, Uber and Lyft drivers will receive a Form 1099-K for commissions earned and a Form 1099-NEC for bonuses or referrals earned during the year. In these cases, the income isn’t duplicate.
In the case of an individual claiming a refund for a deceased taxpayer, Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer, may need to be filed with the Internal Revenue Service (IRS) to claim the refund. Specifically, this applies in the case of a married couple who files a timely joint return that’s due a refund but then one of the spouses dies after filing and before the IRS issues the refund. When the IRS learns of the death of one spouse, it may request the surviving spouse to file a separate Form 1310 before issuing the refund.
The Form 1310 instructions don’t address this situation. It appears instead in the detailed letter sent by the IRS (IRS Letter 12C notifying the taxpayer that more information is needed to process their individual income tax return) to request the surviving spouse to submit the form by mail or fax and attach a copy of the death certificate to get the refund.
The Form 1310 instructions, however, advise taxpayers not to attach the death certificate but to keep it for the taxpayer’s record. Obviously, it’s best to follow the instructions in the IRS letter, but don’t expect the check right away since it’s a paper submission.
TAX PREPARER PENALTIES
With the legislation enacted over the past few years and the introduction of new tax reporting forms and checkboxes (virtual currency transactions), tax preparers need to be more vigilant when working with clients. The importance of documentation can’t be overstated given the increased number of tax preparer penalties, including, for example, the accuracy-related penalty for understating the taxpayer’s tax liability (the greater of $1,000 or 50% of the client’s fee). This all adds up to another challenging year as taxpayers strive to file their taxes without running afoul of the abundant tax pitfalls.
© 2023 A.P. Curatola