What To Do if You’re Missing Important Tax Documents

As the tax deadlines quickly approach, tax filers should make sure they have all their documents before filing a tax return. You should have received a Form W-2, Wage and Tax Statement, from each of your employers for use in preparing your federal tax return. Employers must furnish this record of 2022 earnings and withheld taxes no later than January 31, 2023. As such, most taxpayers should have received their documents near the end of January, including:

  • Forms W-2, Wage and Tax Statement
  • Form 1099-MISC, Miscellaneous Income
  • Form 1099-INT, Interest Income
  • Form 1099-NEC, Nonemployee Compensation
  • Form 1099-G, Certain Government Payments; like unemployment compensation or state tax refund

If You Have Not Received a W-2 or Form 1099

Taxpayers who haven’t received a W-2 or Form 1099 should contact the employer, payer, or issuing agency and request the missing documents. This also applies to those who received an incorrect W-2 or Form 1099.

If they can’t get the forms, they must still file their tax return on time or get an extension to file. To avoid filing an incomplete or amended return, they may need to use Form 4852, Substitute for Form W-2, Wage, and Tax Statement or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, Etc.

If a taxpayer doesn’t receive the missing or corrected form in time to file their tax return, they can estimate the wages or payments made to them and any taxes withheld. They can use Form 4852 to report this information on their federal tax return.

If they receive the missing or corrected Form W-2 or Form 1099-R after filing their return and the information differs from their previous estimate, they must file Form 1040-X, Amended U.S. Individual Income Tax Return.

Incorrect Form 1099-G for Unemployment Benefits

Unemployment compensation is taxable and must be reported on the recipient’s tax return. Taxpayers who receive an incorrect Form 1099-G, Certain Government Payments (Info Copy Only), for unemployment benefits they did not get should contact the issuing state agency to request a revised Form 1099-G showing their correct benefits. Taxpayers who are unable to obtain a timely, corrected form from states should still file an accurate tax return, reporting only the income they did receive.

Filing an Amended Return

If you receive a corrected W-2 or 1099 after your return is filed and the information it contains does not match the income or withheld tax that you reported on your return, you must file an amended return on Form 1040X, Amended U.S. Individual Income Tax Return.

Don’t Wait, Take Action Now

If you’re missing important tax forms, please contact the office for assistance.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

Refundable vs. Non-refundable Tax Credits

Tax credits can reduce your tax bill or give you a bigger refund, but not all tax credits are created equal. While most tax credits are refundable, some credits are nonrefundable. Still, before we look at the difference between refundable and nonrefundable tax credits, it’s important to understand the difference between a tax credit and a tax deduction.

Understanding the Difference between a Tax Credit and a Tax Deduction

Tax credits reduce your tax liability dollar for dollar and are more valuable than tax deductions that reduce your taxable income and are tied to your marginal tax bracket. Let’s look at the difference between a tax credit of $1,000 and a tax deduction of $1,000 for a taxpayer whose income places them in the 22% tax bracket:

  • A tax credit worth $1,000 reduces the amount of tax owed by $1,000 – the same dollar amount.
  • A tax deduction worth the same amount ($1,000) only saves you $330, however (0.22 x $1,000 = $220). As you can see, tax credits save you more money than tax deductions.

Tax Credits: Refundable vs. Nonrefundable

A refundable tax credit reduces the federal tax you owe and could result in a refund if it is more than you owe. Let’s say you are eligible for the Child Tax Credit for $1,000 but only owe $200 in taxes. The additional amount ($800) is treated as a refund.

A nonrefundable tax credit means you get a refund only up to the amount you owe. For example, if you are eligible to take an American Opportunity Tax Credit worth $1,000 and the amount of tax owed is only $800, you can only reduce your taxable amount by $800 – not the full $1,000.

Examples of Refundable Tax Credits

  • The Earned Income Tax Credit
  • Additional Child Tax Credit
  • Premium Tax Credit

Nonrefundable Tax Credits

Examples of nonrefundable tax credits include:

  • Adoption Tax Credit
  • Electric Vehicle Tax Credit
  • Foreign Tax Credit
  • Mortgage Interest Tax Credit
  • Residential Energy Property Credit
  • Credit for the Elderly or the Disabled
  • Credit for Other Dependents
  • The Saver’s Credit

Partially Refundable Tax Credits

Some tax credits are only partially refundable such as:

  • Child Tax Credit (fully refundable in 2021 and 2022)
  • American Opportunity Tax Credit

Questions About Tax Credits or Deductions?

If you have any questions or want more information about these tax topics, please call.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

Tax Implications When Employed in the Family Business

When a family member employs someone, the tax implications depend on the relationship and the type of business. Taxpayers and employers need to understand their tax situation. Here is what to know:

Married People in Business Together

  • Generally, a qualified joint venture whose only members are a married couple filing a joint return isn’t treated as a partnership for federal tax purposes.
  • Someone who works for their spouse is considered an employee if the first spouse makes the business’s management decisions and the second spouse is under the direction of the first spouse.
  • The wages for someone who works for their spouse are subject to income tax withholding and Social Security and Medicare taxes, but not to FUTA tax.

Children Employed by Their Parents

If the business is a parent’s sole proprietorship or a partnership in which both partners are parents of the child:

  • Wages paid to a child of any age are subject to income tax withholding.
  • Wages paid to a child age 18+ are subject to social security and Medicare taxes.
  • Wages paid to a child age 21+ are subject to Federal Unemployment Tax Act

If the business is a corporation, estate, or a partnership in which one or no partners are parents of the child:

  • Payments for services of a child are subject to income tax withholding, social security taxes, Medicare taxes, and FUTA taxes, regardless of age.

Parents Employed by Their Child

If the business is a child’s sole proprietorship:

  • Payments for services of a parent are subject to income tax withholding, social security taxes, and Medicare taxes.
  • Payments for services of a parent are not subject to FUTA tax regardless of the type of services provided.

If the business is a corporation, a partnership, or an estate:

  • The payments for the services of a parent are subject to income tax withholding, social security taxes, Medicare taxes, and FUTA taxes.

If the parent is performing services for the child but not for the child’s trade or business:

  • Payments for services of a parent are not subject to social security and Medicare taxes unless the services are for domestic services and several other criteria apply.
  • Payments for services of a parent are not subject to FUTA tax regardless of the type of services provided.

Questions?

Many people work for a family member, whether a child is helping at their parent’s shop or spouses running a business together. If you are one of them, your tax situation may be more complicated than you think. Please call the office for assistance if you need help understanding how your work situation affects your taxes.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

Five Overlooked Tax Breaks for Individuals

Are you confused about which credits and deductions you can claim on your 2022 tax return? You’re not alone. With tax law becoming more complicated every year, it’s hard to remember which tax breaks are available in any given year. With that in mind, here are five tax breaks you might not want to overlook.

1. State Sales and Income Taxes

The IRS allows for a deduction of either state income tax paid or state sales tax paid, whichever is greater. As an individual, your deduction of state and local income, sales, and property taxes is limited to a combined total deduction of $10,000 ($5,000 if married filing separately). If you bought a big ticket item like a car or boat in 2022, deducting the sales tax might be more advantageous, but don’t forget to figure out any state income taxes withheld from your paycheck, just in case. If you’re self-employed, you can include the state income paid from your estimated payments. In addition, if you paid state tax when filing your 2021 tax return in 2022, you can include that amount in the state tax deduction on your 2022 federal tax return this year.

2. Child and Dependent Care Tax Credit

Most parents realize that there is a tax credit for daycare when their child is young, but they might not realize that once a child starts school, the same credit can be used for before and after school care, as well as day camps during school vacations. The child and dependent care tax credit can also be taken by anyone who pays a home health aide to care for a spouse or other dependent such as an elderly parent who is physically or mentally unable to care for him or herself. The credit is worth a maximum of $1,050 or 35% of $3,000 of eligible expenses per dependent. For two or more qualifying children, the credit can be up to $6,000.

3. Student Loan Interest Paid by Parents

Typically, a taxpayer can only deduct interest on mortgages and student loans if they are liable for the debt; however, if a parent pays back their child’s student loans, the IRS treats the money as if the child paid it. As long as the child is not claimed as a dependent, they can deduct up to $2,500 in student loan interest paid by the parent. The deduction can be claimed even if the child does not itemize.

4. Medical Expenses

Most people know medical expenses are deductible if they are more than 7.5% of AGI for tax year 2022. They often don’t realize which medical expenses can be deducted, such as medical miles driven to and from appointments and travel (airline fares or hotel rooms) for out-of-town medical treatment. For 2022, these amounts are 22 cents per mile from July 1-December 31, 2022, and 18 cents per mile from January 1-June 30, 2022. For tax year 2023, the rate is 22 cents per medical mile driven.

Other deductible medical expenses that taxpayers might not be aware of include: health insurance premiums, prescription drugs, co-pays, and dental premiums and treatment. Long-term care insurance (deductible dollar amounts vary depending on age) is also deductible, as are prescription glasses and contacts, counseling, therapy, hearing aids and batteries, dentures, oxygen, walkers, and wheelchairs.

Self-employed individuals. If you’re self-employed, you can deduct the amount of your entire health insurance premium, and if you pay health insurance premiums for an adult child under age 27, you may be able to deduct them as well. Self-employed individuals aged 65 or older can also deduct the amounts paid for medicare premiums as long as they do not have a regular job covered under their (or their spouse’s) employer’s health care plan.

5. Bad Debt

If you’ve loaned money to a friend but were never repaid, you may qualify for a non-business bad debt tax deduction of up to $3,000 annually. To qualify, however, the debt must be totally worthless in that there is no reasonable expectation of payment. Non-business bad debt is deducted as a short-term capital loss, subject to the capital loss limitations. You may take the deduction only in the year the debt becomes worthless. You do not have to wait until a debt is due to determine whether it is worthless. Any amount you are not able to deduct can be carried forward to reduce future tax liability.

If you think you qualify for these tax breaks but aren’t sure, help is just a phone call away.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

State Payments Excluded From 2022 Federal Returns

Taxpayers in 21 states received special payments related to general welfare and disaster relief in 2022. However, according to recently issued guidance from the IRS, they will not need to report these payments on their 2022 federal tax returns. The special tax refunds or payments made by certain states were related to the pandemic and its associated consequences. Generally, payments made by states are includable in income for federal tax purposes. Due to this unique and complex situation, the rules surrounding their treatment for federal income tax purposes are more complex.

As such, people in the following states do not need to report these state payments on their 2022 tax return: California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania, and Rhode Island. Alaska is included in this group as well. Still, taxpayers should be aware that the annual payment of Alaska’s Permanent Fund Dividend does not apply to this exception as it is considered taxable income on federal tax returns.

Additionally, taxpayers in Georgia, Massachusetts, South Carolina, and Virginia will not include state payments in income for federal tax purposes if they meet certain requirements. For these individuals, state payments will not be included for federal tax purposes if the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit.

To assist taxpayers who have received these payments in filing their returns in a timely fashion, additional information is provided below:

Refund of State Taxes Paid

If the payment is a refund of state taxes paid and either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit (for example, because the $10,000 tax deduction limit applied), the payment is not included in income for federal tax purposes.

Payments from the following states in 2022 fall in this category and will be excluded from income for federal tax purposes unless the recipient received a tax benefit in the year the taxes were deducted.

  • Georgia
  • Massachusetts
  • South Carolina
  • Virginia

General Welfare and Disaster Relief Payments

If a payment is made for the promotion of the general welfare or as a disaster relief payment, for example, related to the outgoing pandemic, it may be excludable from income for federal tax purposes under the General Welfare Doctrine or as a Qualified Disaster Relief Payment. Determining whether payments qualify for these exceptions is a complex fact-intensive inquiry that depends on several considerations.

The IRS has reviewed the types of payments made by various states in 2022 that may fall into these categories. Given the complicated fact-specific nature of determining the treatment of these payments for federal tax purposes balanced against the need to provide certainty and clarity for individuals who are now attempting to file their federal income tax returns, the IRS has determined that in the best interest of sound tax administration and given the fact that the pandemic emergency declaration is ending in May 2023 making this an issue only for the 2022 tax year, if a taxpayer does not include the amount of one of these payments in its 2022 income for federal income tax purposes, the IRS will not challenge the treatment of the 2022 payment as excludable for income on an original or amended return.

Payments from the following states fall in this category, and the IRS will not challenge the treatment of these payments as excludable for federal income tax purposes in 2022.

  • Alaska (Only for the supplemental Energy Relief Payment received in addition to the annual Permanent Fund Dividend.)
  • California
  • Colorado
  • Connecticut
  • Delaware
  • Florida
  • Hawaii
  • Idaho
  • Illinois (Illinois issued multiple payments, and in each case, one of the payments was a refund of taxes, which should be treated as noted above, and one of the payments is in the category of disaster relief payment.)
  • Indiana
  • Maine
  • New Jersey
  • New Mexico
  • New York (New York issued multiple payments, and in each case, one of the payments was a refund of taxes, which should be treated as noted above, and one of the payments is in the category of disaster relief payment.)
  • Oregon
  • Pennsylvania
  • Rhode Island

For a list of the specific payments to which this applies, please call the office for assistance.

Other Payments

Other payments that states may have made are generally includable in income for federal income tax purposes. This includes the annual payment of Alaska’s Permanent Fund Dividend and any payments from states provided as compensation to workers.

Questions or concerns? As always, help is just a phone call away.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

New Online Option for Certain IRS Notices

Taxpayers who receive certain notices requiring them to send information to the IRS can now submit their documentation online through IRS.gov. This new secure step will allow taxpayers or their tax professionals to upload documents electronically rather than mailing them in, helping reduce time and effort in resolving tax issues.

Initially, the online correspondence feature will be available to the more than 500,000 taxpayers each year who receive one of nine IRS notices. These notices are primarily sent to individual tax filers claiming various tax benefits, such as the Earned Income Tax Credit for low- and moderate-income workers, the Child Tax Credit for families with dependents, the Premium Tax Credit for those who obtain health coverage through the Health Insurance Marketplace and members of the military claiming combat zone tax benefits. Of note, taxpayers receiving these notices can respond securely to IRS online, regardless of whether they have an IRS Online Account.

How the Document Upload Tool works

The prototype for the Document Upload Tool was developed by IRS information technology specialists in 2021. Since then, the IRS has been testing this feature on a limited number of exam-related notices, and 38% of the responses to these notices have used the agency’s secure electronic communications rather than traditional mail.

Language on the notice informs the taxpayer to “Send us your documents using the Documentation Upload Tool within 30 days from the date of this notice.” It includes the link and a unique access code.

  • The taxpayer can open the link in any browser and then input their unique code, first and last name, and Social Security, Individual Taxpayer Identification, or Employee Identification number.
  • The taxpayer can then securely upload scans, photos, or digital copies of documents (maximum of 15 MB per file, up to 40 files).
  • The taxpayer receives a confirmation that the IRS received their documents, and the IRS employee assigned to the case can manage the transmitted documents.

What Notices Qualify?

Taxpayers who receive one of the following notices with the link and access code can choose to upload their documents:

  • CP04, relating to combat zone status.
  • CP05A, information request related to a refund.
  • CP06 and CP06A, relating to the Premium Tax Credit.
  • CP08, relating to the Child Tax Credit.
  • CP09, relating to claiming the Earned Income Tax Credit.
  • CP75, relating to the EITC.
  • CP75a, relating to the EITC.
  • CP75d, relating to the EITC and other credits.

Future Expansion Planned

This capability is expected to expand to dozens of other notices in the coming months and years. In addition, the IRS will offer digital correspondence on various other taxpayer interactions. During live phone calls with taxpayers, IRS employees can grant upload access by providing the link and unique access code.

Secure Digital Correspondence Offers a Better Solution

For taxpayers and tax professionals working with the IRS, this new capability reduces the correspondence burden, ensures tax compliance, and improves the customer experience. For IRS employees, this reduces paper correspondence, decreases processing time, and speeds case resolution.

Questions? Please, don’t hesitate to contact the office.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

There’s Still Time To Make an IRA Contribution for 2022

If you haven’t contributed funds to an Individual Retirement Account (IRA) for tax year 2022 or put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 18, 2023, due date, not including extensions.

Be sure to tell the IRA trustee that the contribution is for 2022. Otherwise, the trustee may report the contribution as being for 2023 when they get your funds.

Generally, you can contribute up to $6,000 of your earnings for tax year 2022 (up to $7,000 if you are age 50 or older). You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot exceed these amounts.

Traditional IRA. You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer’s pension plan.

Roth IRA. You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.

The IRS announces the cost of living adjustments and limitations for retirement savings plans each year. Saving for retirement should be part of everyone’s financial plan, and it’s important to review your retirement goals every year to maximize savings. If you need help with your retirement plans, please call.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

Wheeler Collaborative Day, February 2023

On Thursday, February 9, the Wheeler team gathered at the San Jose office, as well as in virtual meetings, for the second of many Collaborative Days. After the first Collaborative Day in Fall of 2022, the positive feedback was overwhelming, so the tradition began. These events are opportunities for the local team to connect in person, spend dedicated time discussing important topics in an open environment, and top it off with fun teambuilding experiences!

On February 9, we first held a time of remembrance for Keith Plottel, his legacy, and his contributions to the firm and the greater tax community. Then we broke out into small groups rotating through a range of subjects, including:

  • Potential topics for future blog posts
  • Website improvements
  • Our vision for internal committees at Wheeler
  • Department specific needs, and
  • Improving collaboration with our remote team members

Thank you to all of our staff for jumping in and participating—we believe the best way to grow and improve is by hearing from everyone in the firm at all staff levels and working together to implement the best ideas.

After a full day of collaboration, the party moved to LVL Up in Campbell, a nostalgic arcade bar filled with over 25 classic arcade games and pinball machines.

California to conform to IRS October 16 deadline extension

The Governor’s office announced on March 2, 2023 that California is aligning with the recent announcement by the IRS and extending the tax filing deadline for Californians impacted by December and January winter storms to October 16, 2023. The state tax filing deadline will be automatically extended for taxpayers located in all California counties except the following:

  • Lassen
  • Modoc
  • Shasta

This relief applies to deadlines falling on or after January 8, 2023, and before October 16, 2023, including:

  • Individuals whose tax returns and payments were due on April 18, 2023
  • Quarterly estimated tax payments that were due January 17, 2023, April 18, 2023, June 15, 2023, and September 15, 2023
  • Business entities whose tax returns are normally due on March 15 and April 18
  • PTE Elective Tax payments due on June 15, 2023
  • Note that while the extension applies to payroll tax returns, it does not apply to employment and excise tax deposits.

If you have any questions about whether this applies to you, don’t hesitate to reach out.

San Jose: (408) 252-1800
Watsonville: (831) 726-8500

Governor’s Full Press Release
Full IRS Statement

IRS Extends May 15 tax deadline to Oct. 16 for disaster area taxpayers

The IRS announced on Friday, February 24, that disaster-area taxpayers in most of California and parts of Alabama and Georgia now have until Oct. 16, 2023, to file various federal individual and business tax returns and make tax payments. Previously, the deadline had been postponed to May 15 for these areas.

This includes:

  • Individual income tax returns, originally due on April 18
  • Various business returns, normally due on March 15 and April 18
  • Returns of tax-exempt organizations, normally due on May 15.

For the list of affected counties, and details regarding who automatically qualifies for relief, please review our post outlining the original May extension announcement.

The new October deadline announcement introduces additional important considerations:

  • IRA Contributions: Eligible taxpayers will have until Oct. 16 to make 2022 contributions to their IRAs and health savings accounts.
  • Farmers: Farmers who normally file by March 1 will have until Oct. 16, 2023, to file their 2022 return and pay any tax due.
  • Estimated Taxes: Estimated tax payments for the fourth quarter of 2022, originally due on Jan. 17, 2023, and 2023 estimated tax payments, normally due on April 18, June 15 and Sept. 15, are also extended. Taxpayers can choose to include these payment with the 2022 return they file on or before Oct. 16.
  • Payroll and Excise Taxes: The October deadline also applies to the quarterly payroll and excise tax returns normally due on Jan. 31, April 30, and July 31.

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time. Taxpayers in the affected areas do not need to file any extension paperwork, and they do not need to call the IRS to qualify for the extended time.

The tax relief is part of a coordinated federal response to the damage caused by these storms and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

Note that the California FTB has not yet announced whether they will conform to the IRS guidance on this matter. We will continue to notify you as additional information is released.

The full IRS statement is available here: IRS: May 15 Deadline Extended to Oct. 16