Author Archives: Brady Ramsay

About Brady Ramsay

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting. His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006. He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

2023 Limits on Individual Taxes Q&A

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Many people are more concerned about their 2022 tax bills right now than they are about their 2023 tax situations. That’s understandable because your 2022 individual tax return is due to be filed in a few weeks (unless you file an extension). However, it’s a good time to familiarize yourself with tax amounts that may have changed for 2023. Due to inflation, many amounts have been raised more than in past years. Here is a Q&A about limits on individual taxes for this year.

Note: Not all tax figures are adjusted annually for inflation and some amounts only change when new laws are enacted.

Itemizing Deductions for 2023

I didn’t qualify to itemize deductions on my last tax return. Will I qualify for 2023?

In 2017, a law was enacted that eliminated the tax benefit of itemizing deductions for many people by increasing the standard deduction and reducing or eliminating various deductions. For 2023, the standard deduction amount is $27,700 for married couples filing jointly (up from $25,900). For single filers, the amount is $13,850 (up from $12,950) and for heads of households, it’s $20,800 (up from $19,400). If the amount of your itemized deductions (including mortgage interest) is less than the applicable standard deduction amount, you won’t itemize for 2023.

Contribution Regulations

How much can I contribute to an IRA for 2023?

If you’re eligible, you can contribute $6,500 a year to a traditional or Roth IRA, up to 100 percent of your earned income. (This is up from $6,000 for 2022.) If you’re 50 or older, you can make another $1,000 “catch-up” contribution (for 2023 and 2022).

401(k) or 403(b) Contributions

I have a 401(k) plan through my job. How much can I contribute to it?

In 2023, you can contribute up to $22,500 to a 401(k) or 403(b) plan (up from $20,500 in 2022). You can make an additional $7,500 catch-up contribution if you’re age 50 or older (up from $6,500 in 2022).

FICA Tax Questions

I periodically hire a cleaning person. Do I have to withhold and pay FICA tax on the amounts I pay them?

In 2023, the threshold when a domestic employer must withhold and pay FICA for babysitters, house cleaners, etc. who are independent contractors is $2,600 (up from $2,400 in 2022).

Social Security Tax

How much do I have to earn in 2023 before I can stop paying Social Security on my salary?

The Social Security tax wage base is $160,200 for this year (up from $147,000 last year). That means that you don’t owe Social Security tax on amounts earned above that. (You must pay Medicare tax on all amounts that you earn.)

Charitable Deductions for 2023

If I don’t itemize, can I claim charitable deductions on my 2023 return?

Generally, taxpayers who claim the standard deduction on their federal tax returns can’t deduct charitable donations. For 2020 and 2021, non-itemizers could claim a limited charitable contribution deduction. Unfortunately, this tax break has expired and isn’t available for 2022 or 2023.

Gift Tax Return

How much can I give to one person without triggering a gift tax return in 2023?

The annual gift exclusion for 2023 is $17,000 (up from $16,000 in 2022).

Only the Beginning

These are only some of the tax amounts that may apply to you. If you have questions or need more information about 2023 limits on individual taxes, the tax professionals at Ramsay & Associates can help. Contact us today.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Standard Mileage Rate Updates for 2023

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Although the national price of gas is a bit lower than it was a year ago, the optional standard mileage rate used to calculate the deductible cost of operating an automobile for business is going up. Keep reading to learn about the standard mileage rate updates for 2023 and the rules for deducting vehicle expenses.

Cents-Per-Mile Increase

The IRS recently announced that the 2023 cents-per-mile rate for the business use of a car, van, and pick-up or panel truck is 65.5 cents. These rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles. In 2022, the business cents-per-mile rate for the second half of the year (July 1 – December 31) was 62.5 cents per mile, and for the first half of the year (January 1 – June 30), it was 58.5 cents per mile.

How Rate Calculations Are Done

The 3-cent increase from the 2022 midyear rate is somewhat surprising because gas prices are currently lower than they have been. On December 29, 2022, the national average price of a gallon of regular gas was $3.15, compared with $3.52 a month earlier and $3.28 a year earlier, according to AAA Gas Prices. However, the standard mileage rate is calculated based on all the costs involved in driving a vehicle — not just the price of gas.

The business cents-per-mile rate is adjusted annually. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, including gas, maintenance, repair, and depreciation. Occasionally, if there’s a substantial change in average gas prices, the IRS will change the cents-per-mile rate midyear, as it did in 2022.

Standard Rate Versus Actual Expenses

Businesses can generally deduct the actual expenses attributable to business use of vehicles. This includes gas, oil, tires, insurance, repairs, licenses, and vehicle registration fees. In addition, you can claim a depreciation allowance for the vehicle. However, in many cases, certain limits apply to depreciation write-offs on vehicles that don’t apply to other types of business assets.

The cents-per-mile rate is beneficial if you don’t want to keep track of actual vehicle-related expenses. With this method, you don’t have to account for all your actual expenses. However, you still must record certain information, such as the mileage for each business trip, the date, and the destination.

Using the cents-per-mile rate is also popular with businesses that reimburse employees for business use of their personal vehicles. These reimbursements can help attract and retain employees who drive their personal vehicles a great deal for business purposes. Why? Under current law, employees can’t deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns.

If you do use the cents-per-mile rate, keep in mind that you must comply with various rules. If you don’t comply, the reimbursements could be considered taxable wages to the employees.

The Standard Rate Can’t Always Be Used

There are some cases when you can’t use the cents-per-mile rate. It partly depends on how you’ve claimed deductions for the same vehicle in the past. In other situations, it depends on if the vehicle is new to your business this year or whether you want to take advantage of certain first-year depreciation tax breaks on it.

We Can Help

Now that you know the standard mileage rate updates for 2023, you can better determine whether to use this rate to deduct vehicle expenses. As you can see, there are many factors to consider. The business tax professionals at Ramsay & Associates can help. Contact us if you have questions about tracking and claiming such expenses in 2023 — or claiming 2022 expenses on your 2022 income tax return.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Filing Early and Our Tax Time Q&A

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The IRS opened the 2023 individual income tax return filing season on January 23. That’s when the agency began accepting and processing 2022 tax year returns. Even if you typically don’t file until much closer to the mid-April deadline (or you file for an extension), consider filing earlier this year. Keep reading to learn helpful hints for tax season, including the benefits of filing early and our tax time Q&A session for taxpayers.

How Can Your Tax Identity Be Stolen?

In a typical tax identity theft scam, a thief uses another individual’s personal information to file a fraudulent tax return early in the filing season and claim a bogus refund.

The actual taxpayer discovers the fraud when he or she files a return. They are told by the IRS that the return is being rejected because someone with the same Social Security number has already filed for the tax year. Ultimately, the taxpayer should be able to prove that his or her return is the legitimate one, but tax identity theft can be time consuming and frustrating to straighten out. It can also delay a refund.

Your best defense may be to file early. Why? If you file first, the tax return filed by a potential thief will be rejected.

What Are This Year’s Tax Deadlines?

This year, the filing deadline to submit 2022 returns or file an extension is Tuesday, April 18 for most taxpayers. The due date is April 18, instead of April 15, because the 15th falls on a weekend and the District of Columbia’s Emancipation Day holiday falls on Monday, April 17.

If you’re requesting an extension, you’ll have until October 16, 2023, to file. Keep in mind that an extension of time to file your return doesn’t grant you any extension of time to pay your taxes. You should estimate and pay any taxes owed by the regular deadline to help avoid penalties.

When Will Your W-2s and 1099s Arrive?

To file your tax return, you need all of your Form W-2s and 1099s. January 31 was the deadline for employers to issue 2022 W-2s to employees. It’s generally also the date for businesses to issue Form 1099s to recipients of any 2022 interest, dividend, or reportable miscellaneous income payments (including those made to independent contractors).

If you haven’t received a W-2 or 1099, first contact the entity that should have issued it. If that doesn’t work, ask us how to proceed.

Are There Any Other Benefits to Filing Early?

In addition to protecting yourself from tax identity theft, another advantage of early filing is that, if you’re getting a refund, you’ll get it sooner. The IRS expects most refunds to be issued within 21 days. The time may be shorter if you file electronically and receive a refund by direct deposit into a bank account.

Direct deposit also avoids the possibility that a refund check could be lost, stolen, returned to the IRS as undeliverable, or caught in mail delays.

Let Us Help

Our knowledgeable team at Ramsay & Associates hopes these tips for filing early and our tax time Q&A are helpful this tax season. If you have questions or would like an appointment to prepare your return, please contact us. We can help ensure you file an accurate return and receive all the tax breaks to which you’re entitled.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

The Pros and Cons of a C Corporation

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If you’re launching a new business venture, you’re probably wondering which form of business is most suitable. Here is a summary of the pros and cons of a C corporation — which is the most common — if you choose to do business as such.

A C corporation allows the business to be treated and taxed as a separate entity from you as the principal owner. A properly structured corporation can protect you from the debts of the business yet enable you to control both day-to-day operations and corporate acts such as redemptions, acquisitions, and even liquidations. In addition, the corporate tax rate is currently 21 percent, which is lower than the highest noncorporate tax rate.

Following Formalities

In order to ensure that a corporation is treated as a separate entity, it’s important to observe various formalities required by your state. These include:

  • Filing articles of incorporation,
  • Adopting bylaws,
  • Electing a board of directors,
  • Holding organizational meetings, and
  • Keeping minutes of meetings.

Complying with these requirements and maintaining an adequate capital structure will ensure that you don’t inadvertently risk personal liability for the debts of the business.

Potential Disadvantages

Since the corporation is taxed as a separate entity, all items of income, credit, loss, and deduction are computed at the entity level in arriving at corporate taxable income or loss. One potential disadvantage to a C corporation for a new business is that losses are trapped at the entity level and thus generally cannot be deducted by the owners. However, if you expect to generate profits in year one, this might not be a problem.

Another potential drawback to a C corporation is that its earnings can be subject to double tax — once at the corporate level and again when distributed to you. However, since most of the corporate earnings will be attributable to your efforts as an employee, the risk of double taxation is minimal since the corporation can deduct all reasonable salary that it pays to you.

Providing Benefits, Raising Capital

A C corporation can also be used to provide fringe benefits and fund qualified pension plans on a tax-favored basis. Subject to certain limits, the corporation can deduct the cost of a variety of benefits such as health insurance and group life insurance without adverse tax consequences to you. Similarly, contributions to qualified pension plans are usually deductible but aren’t currently taxable to you.

A C corporation also gives you considerable flexibility in raising capital from outside investors. A C corporation can have multiple classes of stock — each with different rights and preferences that can be tailored to fit your needs and those of potential investors. Also, if you decide to raise capital through debt, interest paid by the corporation is deductible.

Although the C corporation form of business might seem appropriate for you at this time, you may in the future be able to change from a C corporation to an S corporation, if S status is more appropriate at that time. This change will ordinarily be tax-free, except that built-in gain on the corporate assets may be subject to tax if the assets are disposed of by the corporation within 10 years of the change.

The Optimum Choice

This is only a brief overview of the pros and cons of a C corporation. If you’re starting a business and have questions, the business tax professionals at Ramsay & Associates can help. Contact us to discuss your options and explore the best choice of entity for your business.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.

Be Aware When Renting to a Relative

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If you own a home and rent it to a family member, you may be surprised to find out there could be tax consequences. Knowing the rules ahead of time can help you watch out for tax traps and be aware when renting to a relative.

Quick Rundown of the Rules for Renting

Renting out a home or apartment that you own may result in a tax loss for you, even if the rental income is more than your operating costs. You’ll be entitled to a depreciation deduction for your cost of the house or apartment (except for the portion allocated to the land). However, if your tenant is related to you, special rules and limitations may apply. For this purpose, “related” means a spouse, child, grandchild, parent, grandparent, or sibling.

No limitations apply if:

  • You rent a home to a relative who uses it as his or her principal residence (that is, not just as a second or vacation home) for the year, and
  • The home is rented at a fair market rent amount (not at a discount).

In these cases, you can deduct all the normal rental expenses, even if they result in a rental loss for the year. (If you have a loss, however, it’s a “passive” loss, which may be subject to a different set of limitations.)

Below Fair Market Rent

Problems arise if you set the rent below the fair market rental value. The reason is that this then becomes a rental property that you’ve treated as using personally. So, you’d have to allocate the expenses between the personal and rental portions of the year. Even more seriously, however, since all the rental days (at a bargain rate to a relative) are treated as personal days, the rental portion would be zero. Thus, you’d have to report all the rent you receive in income, but none of your expenses for the home would be deductible. (You’d still be able to deduct the mortgage interest, assuming it otherwise qualifies as deductible, and property taxes. These items are deductible even for nonrental homes.)

Given the above problems, it’s important to set the rent at a fair rate. Factors to look at include comparable rentals in the area and whether you made any “side” gifts to your relative (to help pay the rent) that could reasonably be interpreted to be a bargain element.

We Can Answer Your Questions

The best way to avoid tax traps is to know the rules and be aware when renting to a relative. If you’re in this situation and still have questions, we can help. The tax professionals at Ramsay & Associates can provide you with answers or discuss these matters with you in more detail. Contact us today.

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.