2023 Tax Law Changes

I’m preparing for the upcoming tax season. As I stumble across changes to the tax law that folks here may be interested in, I’ll post them here (and encourage others to do so as well), in case they affect folks here.

The first one deals with Home Energy credits:

These are nonrefundable credits - they can decrease your tax liability to zero but cannot further increase your refund.

The Change
In past years, any part of the credit you didn’t use could be carried forward to future years.
The 2023 credits, which are part of the Inflation Reduction Act, cannot be carried forward to future years.

If you are expecting these credits but don’t have enough tax liability to fully get the benefit of the credit, consider doing a Roth IRA conversion or other transaction that will generate taxes now while reducing taxes later.

15 Likes

Posting you follow! Thank you for starting this thread!

2 Likes

Thank you!

1 Like

Here’s another one that probably won’t affect most of us for a while.

The age for Required Minimum Distributions is going up again, from 72 to 73. Here’s a chart that explains it most clearly to me:

If you were born: You must start taking RMDs at age:
6/30/1949 or earlier 70½
7/1/1949 to 1950 72
1951 to 1959 73
1960 or later 75

The first RMD must be taken by April 1 of the following year; all subsequent RMDs must be taken by 12/31 of that year. Designated Roth 401ks and 403b’s are subject to RMD rules for 2022 and 2023, but not for tax years 2024 and onward.

1 Like

Is the penalty for not taking RMDs still 50% of the amount you didn’t take?

1 Like

Good question, you’re right, it has changed.
(I’m also attaching the answer to Q9 from the IRS site, because even though that hasn’t changed, it’s important to know you do have an out if you miss your first RMD.)

Q8. What happens if a person does not take a RMD by the required deadline? (updated March 14, 2023)

If an account owner fails to withdraw the full amount of the RMD by the due date, the amount not withdrawn is subject to a 50% excise tax. SECURE 2.0 Act drops the excise tax rate to 25%; possibly 10% if the RMD is timely corrected within two years. The account owner should file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their federal tax return for the year in which the full amount of the RMD was required, but not taken.

Q9. Can the penalty for not taking the full RMD be waived?

Yes, the penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. In order to qualify for this relief, you must file Form 5329 and attach a letter of explanation. See the Instructions to Form 5329

2 Likes

Good to know thanks! The few tax returns we do are mostly people 65+. We had someone who missed their RMD a few years ago but thankfully we got it forgiven for her. Otherwise she would’ve had to pay $7,500.

4 Likes

Good job!

2 Likes

I think I’d throw up if someone told me I owed the IRS an extra $7,500.

3 Likes

The IRS recently announced it is delaying the 1099-K threshold reporting change.

In 2022, third party payment platforms only had to issue 1099-K’s to people who received $20,000 or more in payments through their platforms. That was set to decreases to $600 in 2023.

This has been delayed, and the $20,000 threshold still applies for 2023. The threshold will become $5000 in 2024 (if it doesn’t change again).

The article noted that some states have lower reporting requirements, and that 1099-K’s could be issued for amounts below the threshold anyway.

I spent a little time on the Venmo site:

At least for Venmo, users have the option of tagging a transaction for “goods and services” and only those payments will be reported on 1099-K.

This site also noted that in 2022, MD, MA, VT and VA have $600 reporting thresholds.

1 Like

Starting in 2024, you may be able to rollover unused 529 funds to Roth IRAs. There are some rules, which are described in the two links below.

Please note, I was not able to confirm this information on an IRS site. The site notes that this is what was included in the Secure 2.0 Act and that IRS interpretation and implementation could be different.

https://www.fidelity.com/learning-center/personal-finance/529-rollover-to-roth

The rules (from the Charles Schwab site unless noted):

  • Tax Free The rollover is not taxable and the 10% early withdrawal penalty does not apply
  • Lifetime limit There’s a $35,000 lifetime rollover limit
  • Holding periods. You need to have owned the 529 for at least 15 years before you can execute a rollover. Contributions made to the 529 plan in the last five years before distributions start—including the associated earnings—are ineligible for a tax-free rollover.
  • Annual limits. Your rollover can’t exceed the annual Roth contribution limit, which in 2023 is $6,500.
  • Ownership. The beneficiary of the 529 plan must also be the owner of the Roth IRA, and they must have earned income at least equal to the amount of the rollover.
  • Income limitations The income limitations that normally apply to a Roth contribution may not apply to this rollover (this was on the Fidelity site but not the Schwab site).
2 Likes