What scares you the most? Statistically, there are over 400 identified phobias, including less common ones like astraphobia (fear of otters), hippopotomonstrosesquippedaliophobia (fear of long words), arachibutyrophobia (fear of peanut butter), myrmecophobia (fear of ants) and genuphobia (fear of knees).
Most of us are scared of something—even if it’s not peanut butter—like snakes, spiders, or tax audits (be sure to scroll to the bottom to see some of our team’s fears). Taxpayers often fear audits, but statistically, less than 1% of individual tax returns are pulled for examination. Still, some behaviors may attract unwanted attention—a few adjustments may be all you need to avoid the audit pile. Those include checking your math, double-checking forms and numbers, and being thoughtful about credits and deductions. Since the IRS is looking for patterns outside the norm (especially in today’s data-driven world), one easy strategy is to pull out last year’s tax return and compare numbers—make sure you can account for any apparent differences. If you’re working with a tax pro, they will typically run a year-to-year comparison and can point out any surprises. (☆)
Much of what goes on in the tax world is simply a numbers game. Staying between the lines may be your best defense against an audit or paying too much. That might be why taxpayers are in no rush to file this tax season, with a nearly 20% downturn in tax returns received compared to the prior year. The IRS notes that the current tax season began about a week later than it did in 2023, but I think the bigger issue is that many taxpayers are waiting on The Tax Relief for American Families and Workers Act. The legislation, which would, among other things, expand the child tax credit retroactively to the 2023 tax year, quickly passed in the House with significant bipartisan support. It has not yet been slated for a vote in the Senate—the earliest that is likely to happen is February 26, 2024—but IRS Commissioner Danny Werner is encouraging taxpayers to file anyway. As for that second retroactive House bill (that would double the SALT deduction)? The House killed it this week. (☆)
Taxpayers who have filed early are waiting on their refunds. Traditionally, around two-thirds of taxpayers receive a refund at tax time, and they are usually issued in about 21 days, assuming e-filing and direct deposit. Some taxpayers are more eager than others to get their checks. An analysis of Google search volume examined those most anxious to receive a refund and found that Southern states look the most, with more than four in ten Mississippi, Georgia, and Alabama residents performing tax refund searches during tax season. Mobile, Alabama, was the city with the most searches per 100,000 residents, with many conducting more than one search. (☆)
Not all taxpayers will get a refund—some of us will write a check. Boxer Floyd Mayweather recently posted about his massive tax check (over $18 million). The size of the check had some questioning whether you could actually write a check that big to the IRS. You can—but you’re limited to just under $100 million. Smaller limits apply to DirectPay ($10 million) and EFTPS ($50 million), but the feds do not have the same limits on credit card payments—that’s between you and your AmEx black. Champagne problems, right? (☆)
Finally, from startups enabling in-game and international payments to payment processing giant Stripe, nine payments companies made Forbes’ ninth annual Fintech 50 list this year. While we don’t expect the IRS to suddenly embrace less-traditional payment processing (yet), businesses are increasingly opting into companies like Melio and Stripe to pay bills and get paid digitally without the need for paper checks, though, admittedly, clicking on your phone doesn’t make for as cool an Instagram post. (☆)
And speaking of numbers, there are just 59 days to Tax Day.
Thanks for reading!
—Kelly Phillips Erb (Senior Writer, Tax)
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QUESTIONS
Fears of being audited aren’t the only worries keeping Americans up at night. According to a study conducted by SafeHome.org, 55% of Americans are afraid they won’t have enough money for retirement. That likely explains why reader questions are often geared towards retirement income, including Social Security.
The taxability of Social Security has always been something of a flashpoint. Now, a new bill, You’ve Earned It, is winding its way through Congress and aims to increase retirees’ net income from Social Security by eliminating federal taxation of benefits. It’s not likely to become law, but fortunately, Social Security income is taxed less than other forms of retirement income. It’s taxed based on a formula: add your adjusted gross income (AGI), nontaxable interest (think municipal bonds), and 50% of your SS benefits. If that number is below $25,000 as a single filer or $32,000 as a married filer, no taxes will be owed on Social Security benefits. If you owe tax on your SS benefits, there are limits: regardless of how much you make in retirement, at least 15% of your Social Security benefits will come to you tax-free.
Too many people wait until the end of the year to consider key IRA actions and strategies, but there are benefits to planning them early in the year. For example, you may need to take your required minimum distribution (RMD) early—your first RMD is now required by April 1 of the year after you turn 73 for anyone who turns 72 after 2022. It’s also a good time to make new contributions—you have until April 15, 2024, to make your 2023 IRA contributions. And, folks with multiple IRAs might decide it is time to simplify their financial lives by consolidating into one IRA—this can be done through tax-deferred rollovers. Since you have those account statements in front of you now, it’s a good time to consider some options.
But what if Social Security wasn’t around at all? Some studies suggest that the retirement program won’t be able to pay full promised benefits in about ten years. To address this, two highly respected experts would slash tax subsidies for private retirement savings and use the money to shore up the public system. Andrew Biggs, a former deputy administrator of the Social Security Administration, and Alicia Munnell, a former top official at the White House, the U.S. Treasury, and the Federal Reserve Bank of Boston, said the swap would have two major benefits.
If all of this has you thinking about what you want to sock away, there’s good news—the contribution limits went up in 2024. This year, individuals can contribute up to $23,000 to their 401(k) plans in 2024—up from $22,500 for 2023. And those playing catch-up get a boost, too: the catch-up contribution limit for employees aged 50 and over is an additional $7,500 for 2024. The announcement was tied to cost‑of‑living adjustments for pension plans and other retirement-related items for tax year 2024. (☆)
Do you have a tax question or matter that you think we should cover in the next newsletter? We’d love to help if we can. Check out our guidelines and submit a question here.
AUDIT RATES
In her recent report to Congress, the National Taxpayer Advocate noted that taxpayers with incomes below $50,000 had about 90% of their audits conducted by correspondence with fewer than 20% agreeing to the proposed adjustments. She also found that as income levels increased, the relative number of correspondence audits decreased, whereas the agreed rates went up. The highest no-change rates were also found at the top.
Here’s a look at audit rates and income levels for the last two years:
You can check out the complete report here.
A DEEPER DIVE
Do you really have to turn over your tax ID number, like your Social Security number, on Form W-9 when you get paid for certain transactions? Short answer: Yes. If you do not, you may be subject to withholding, as one taxpayer found out the hard way. In a recent Tax Court case, a taxpayer refused to provide his tax ID after reaching a settlement in another legal matter. When he received a check for only 76% of the agreed amount, the matter went to court.
In the end, the judge ruled that the withholding was proper and ordered the taxpayer to pay attorneys fees for the expenses involved in the action to enforce the settlement agreement. The lesson: Form 1099 noncompliance can be costly.
IMPORTANT DATES
📅 February 22, 2024. U.S. Tax Court Tax Trailblazers webinar featuring Howard Law Professor Alice Thomas. 7:00-8:15 pm ET. Free, registration required.
📅 March 15, 2024. S-corp and partnership tax returns are due (or file for an extension).
📅 March 22, 2024. Last day to apply for the Employee Retention Credit Voluntary Disclosure Program—the program lets employers who received ERCs but are ineligible pay back the credits at a discounted rate.
📅 April 15, 2024. Individual federal income tax returns are due (or file for an extension) for most taxpayers.
📅 April 17, 2024. Individual federal income tax returns are due (or file for an extension) for taxpayers in Maine and Massachusetts.
NOTEWORTHY
Chief Jim Lee, the head of IRS Criminal Investigation, will retire from federal service on April 6, 2024. Lee has led CI since October 2020, and has overseen a staff of more than 3,200 CI employees, including 2,200 special agents who have investigated thousands of financial crimes involving tax violations, money laundering, public corruption, cybercrime, identity theft, and terrorism financing. (☆)
Diaceutics PLC, a technology and solutions provider to pharma and biotech customers, has announced a strategic alliance with KPMG LLP. According to Diaceutics, the goal is to bring their technology solutions, which help pharma companies find appropriate patients for their precision medicines, and KPMG’s advisory business.
Nebraska Governor Jim Pillen (R) has announced the appointment of Sarah Scott as state property tax administrator. Scott currently leads the field operations team within the Property Assessment Division at the Nebraska Department of Revenue.
If you have career or industry news, submit it for consideration here.
POSITIONS AND GUIDANCE
The American Bar Association (ABA) Section of Taxation has submitted comments on the Proposed Regulations under Section 30D with respect to the new clean vehicle credit to the IRS. The Proposed Regs would change the requirements for obtaining tax credits for the purchase for use or lease of qualifying “clean” vehicles, including battery electric, plug-in hybrid, or fuel cell electric vehicles.
The American Institute of CPAs (AICPA) has submitted a letter requesting guidance regarding international information reporting for domestic grantor trusts. The AICPA recommends that IRS issue a Notice or Revenue Procedure that would clarify that grantor trusts are disregarded as entities separate from their owners for the purpose of filing Forms 5471, 8858, 8865 and 8992, or establish certain exemptions for domestic grantor trusts from filing these information returns.
TRIVIA
Which supermodel blamed Forbes for her IRS audit, which she claims was triggered after she earned the top spot on the Highest Paid Models list of 2012?
A. Heidi Klum
B. Kate Moss
C. Miranda Kerr
D. Gisele Bündchen
Find the answer at the bottom of this newsletter.
OUR TEAM
I hope you’ll get to know some of our staff and contributors. This week, since we all know that audits can be scary, I asked: What’s something you’re scared of?
Kelly Phillips Erb (Senior Writer, Tax): I am wildly claustrophobic. If we’re ever on the same elevator, and I get off, don’t take it personally. I just hate small spaces.
Amber Gray-Fenner(Contributor, Tax): Horses
Brandon Kochkodin (Writer, Money Team): Snakes
Nic Thibodeau (Senior SEO Strategist, Investing): Needles (for shots, injections, etc.) as well as movie or television scenes where they show medical procedures
Nina Bambysheva (Writer, Digital Assets): Frogs
Emily Mason (Writer, Money Team): Drowning
KEY FIGURES
That’s the percentage of filed 2019 tax returns audited by IRS as of March 2023. It’s a steep drop from the 0.89% of filers that were audited in 2010.
TRIVIA ANSWER
The answer is (D) Gisele Bündchen.
Bündchen topped the list in 2012 with estimated earnings of $45 million, a number she disputed.
British supermodel Kate Moss came in second in 2012, while Miranda Kerr came in second in 2013.
Klum didn’t make the list since Forbes determined that Klum had become more of a businesswoman and multi-media personality.
FEEDBACK
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