Last-minute tax season reminders
With the end of tax season rapidly approaching, NATP is reminding tax preparers of recent news items that could impact your practice, your clients or returns you prepare.
1. New RMD rules in effect for 2023 tax year
The SECURE 2.0 Act of 2022 raised the age at which account owners are required to take minimum distributions (RMDs) from their IRAs and employer-sponsored retirement plans from 72 to 73 for 2023. Under the new rule, individuals born in 1951 must take their first RMD by April 1, 2025. For most individuals born before 1951, RMDs should have already begun and are required for 2023.
2. IRS issuing due diligence reminders
The IRS is taking steps during the 2024 filing season to ensure that paid tax preparers meet their due diligence obligations when preparing returns claiming refunds for:
- Earned income tax credit
- Child tax credit, additional child tax credit or credit for other dependents
- American opportunity tax credit
- Head of household filing status
The IRS will be sending letters to paid preparers who don’t include Form 8867, Paid Preparer’s Due Diligence Checklist, with returns claiming the above-listed benefits when it determines there is a high likelihood of errors. The agency will also be sending letters to the preparer’s clients to let them know their returns may contain errors regarding the benefits they received.
3. There is still time for some voluntary ERC disclosures
The deadline for taxpayers to voluntarily disclose the fact they received payments for improperly claimed employee retention credits (ERC) was March 22, but taxpayers who have yet to receive payment can still withdraw their claims. The IRS is allowing taxpayers who requested a refund based on an improper ERC claim but have received payment to withdraw their claims. Given that the IRS is still working through the backlog of claims filed before the agency instituted a moratorium on new claims in September, some taxpayers who submitted improper claims can still take advantage of the withdrawal process.
4. Ask clients about Forms 1099-K
The IRS has postponed the application of the lowered threshold where payment processors and online marketplaces are required to issue Forms 1099-K, but some taxpayers may still receive the forms reporting 2023 income based on the lower threshold. Remind your clients that, despite the lower reporting threshold not having taken effect, the IRS will still receive copies of their Forms 1099-K and expect any income included on the forms to be reflected on their returns.
For 2023, the threshold for payment apps and online marketplaces to issue Forms 1099-K remains at more than $20,000 from more than 200 transactions. For 2024 the IRS is planning to lower the threshold to $5,000 and then drop the reporting threshold to $600 for 2025.
5. IRS is beginning to prosecute taxpayers for unreported cryptocurrency transactions
The IRS has been reminding U.S. taxpayers that they must report the sale or exchange of digital assets on their returns for several years, but a recent indictment of a taxpayer who filed to report profits from cryptocurrency transactions show that the agency is getting serious about enforcing the reporting requirements. The February indictment of a Texas man for allegedly underreporting his capital gains by $4 million is believed to be the first that has been filed against a taxpayer for failing to disclose a cryptocurrency transaction when no other crimes were involved. IRS officials have previously said it is ready to bring charges in hundreds of cryptocurrency cases.
6. Legislation expanding the child tax credit has not taken effect
While it was widely reported that the U.S. House of Representatives passed a bipartisan tax package in January that included a temporary three-year expansion of the child tax credit, the legislation has yet to come up for a vote in the U.S. Senate and has not taken effect. Given the large volume of press coverage the tax package that included the child tax credit provisions received at the time it was passed by the House, many Americans believe the legislation has been enacted. It is still unclear if the Senate will even vote on the package and, if it does pass, it is unlikely the changes will be retroactive to the 2023 tax year.