Speaker: Tanya Baber
Date: December 17th, 2024
Time: 1 PM EST
Post-webinar Q&A:
Here is a closer look, with answers included, into some of the great questions we didn't have time to address during the webinar.
Q: Are detached garages included in the Energy Credits?
Answer: It could be possible, but just like many things found in tax code, it depends on the facts and circumstances. What energy credit is being sought? In many cases, the detached garage could be considered part of the home that is used as a primary residence. You may need to consider other facts like if the space is partially used for a business or rented out, which could limit the potential credit.
Q: The Roth IRA phaseouts are AGI, correct?
Answer: The ROTH IRA Phaseouts are based on MAGI (Modified Adjusted Gross Income). This takes into consideration certain deductions and credits beyond what just AGI considers. There is a helpful worksheet (2-1) to use in determining this MAGI (although most tax software will also assist in this calculation) https://www.irs.gov/pub/irs-pdf/p590a.pdf See Page 40. Keep in mind this publication applies to the 2023 tax year, so the phaseout amounts are set to 2023 totals instead of 2024. While the updated 2024 publication is not available at the time of writing, it can still give you a good idea of what is included in calculating MAGI for this purpose.
Q: How do you verify whether or not you are being sent duplicate 1099 forms for 1099K for the merchant processor and a 1099 NEC from your customer?
Answer: You would need to compare the total amounts of revenue by adding the 1099K and 1099NEC amounts together. If the total of the 1099 forms added together is larger than the total income you know your client received, this is likely what happened. Do keep in mind this is a really common mistake, so you would always want to include and report the actual amount of earnings and know that it is possible the 1099K and 1099NEC amounts added together may not match the actual amounts received due to this common issue. It would generally not be recommended as good practice to only use the 1099 amounts reported in a given year as total income for tax reporting purposes anyway without separately checking the actual revenue received.
Q: Are extensions for forms 1041 different than other General returns?
Answer: Yes, that is correct. To help with any confusion: Extended 1041 forms do carry a slightly ‘odd’ extended due date compared to other tax forms, since they are due September 30 of the year (not counting if there is a weekend which could put it into October instead), so it doesn’t have six months, but only five and a half.
Q: On an RMD, what is considered a "timely" correction?
Answer: A “timely correction” for a missed Required Minimum Distribution (RMD) means taking the full amount of the missed RMD and filing Form 5329 with your tax return within the second calendar year following the year in which the RMD was missed, allowing you to potentially reduce the penalty from 25% to 10% of the shortfall. Essentially you must correct the error within two years of the missed distribution to be considered timely.
Q: Sometimes an S-Corp owner individual receives a Form 1099-NEC that should have been issued to the S-Corp's EIN number. Should we not use the Form 1099-K adjustment blank to back out this type of Form 1099-NEC error?
Answer: You should not use a different 1099 form to attempt to correct an error when a 1099 is issued to you by a customer. You would first try to contact them to issue a corrected form, if that is not successful, you can treat it as a nominee/middleman, where you receive a 1099 for amounts that belong to another person and basically create a new 1099 for amounts that should be passed onto them. (see under section A. Who Must File for Nominee information) https://www.irs.gov/instructions/i1099gi#en_US_2024_publink1000286907
Q: Are states going to tax 529 accounts rolled to Roth?
Answer: Yes, some states may tax these amounts in order to recapture state tax benefits that may have been received at the time of contribution. It would be recommended to check with your state to see if this would apply to these types of rollovers.
Q: For the 1099-K, should we still issue 1099-NEC in case the 1099-K is not issued?
Answer: A 1099-NEC should always be issued if required. This is based on amounts paid in Cash / Check to a vendor in the course of business and does not include amounts paid in credit card or debit card.
Generally ,this is when a non-corporation is paid $600 or more during a calendar year. As an example, this means that if you pay your service provider $1000 total, but $900 is in credit card, and only $100 in cash or check, you would still issue the 1099-NEC for $100, since you paid the vendor more than $1000 overall for the year, and that is more than $600.
The $600 threshold doesn’t apply to just the cash/check amount but instead to the total paid during the entire year by all means, but the amount you report on the 1099-NEC is only the cash/check (expectation is that credit/debit amount is going to be reported on the 1099-K, even if it isn’t issued).
Q: Will high-income taxpayers lose the regular catch-up and the increased catch-up in 2026?
Answer: Starting in 2026, all catch-up contributions will be subject to ROTH (after-tax) rules, so if their prior year wages exceed the phase-out amounts, this is the concern of losing the catch-up contributions. (see Notice 2023-62). However, like many of our tax rules moving forward, it is possible they can change, so if we see new tax bills coming up, they may address this issue, if not, the rules do stand that the high-income taxpayer can be affected in this manner.
Q: Are you sure that the 2024 IRA contribution limit is $7,500? I thought it was $7,000, with a $1000 catch-up for people 50 and over. Do you mean for 2025?
Answer: Yes, that is correct - $7,000 for 2024 and $7,500 for 2025. Catch-up contribution over 50 years old for 2024 is $1,000 (indexed after 2024). Plus additional catch-up amounts 60-63 yrs old in 2025 as well.
Q: With this being the last year that repayment is on the form, does that mean whatever the balance is it needs to be repaid this year. I have a client that a preparer skipped a year so they or 1 year behind.
Answer: As this relates to the first-time homebuyer credit for homes purchased in 2008: if the home was ever sold after the credit was issued, the full remaining balance is due on the tax return in the year sold. If they have been paying it back over the full 15 years, it is to be $500 per year, each year, during the repayment period. The wording would imply that it won’t continue past the 2024 year, so if one of the years was not filed, the remaining balance should not continue past the repayment period, but there isn’t anything specifically stating that is the case, and do keep in mind, the IRS does track how much is owing/repaid here: https://www.irs.gov/credits-deductions/individuals/first-time-homebuyer-credit-account-look-up
Q: Do clients need to self-certify with the tax preparer or the plan administrator for hardship distributions?
Answer: A client self-certifies to their plan administrator/employer at the time of requesting the hardship withdrawal.
Q: What is the amount to withdraw for delinquent taxes?
Answer: When addressing delinquent taxes and working with the collection division of the IRS, there is far more to consider than can be covered in a simple answer. Often it requires a separate arrangement to be made with the collection division, or other arrangements that are appropriate given the circumstances of the taxpayer and the delinquent taxes. This is based on the taxpayer’s ability to pay and would be recommended to research collection options further in order to determine the best course of action for the taxpayer.
Q: what is the interest rate for payment to the taxpayer?
Answer: The interest rate for payments that are owed to the taxpayer is the same as the rate of interest owed by the taxpayer to the IRS for 2024, which is 8% (except as it drops to 7% for 1Q 2025 for both)
Q: Can a corrected 1099K be filed and sent?
Answer: Any 1099 can be corrected, but keep in mind that it is the sender/payer that issues the 1099, and would be responsible for making those corrections. The recipient cannot make those corrections on a 1099 form, since they are not the one that sent it originally. Instructions for making corrections (as the issuer) are found here:
https://www.irs.gov/instructions/i1099gi#en_US_2024_publink1000286907
Q: How does IRS know if you took the credit upon purchase?
Answer: As it relates to a new or used clean vehicle credit, starting January 1, 2024, all Clean Vehicle Tax credits are initiated and approved at the time of sale, and a Clean Vehicle Seller Report is filed with the IRS. This report indicates if the credit was transferred to the dealer at the time of sale or not. (See the link here for a sample of Form 15400 and where this information can be found:) https://www.irs.gov/pub/newsroom/form-15400-sample-new.pdf
Q: Unknowingly, my client did not collect the TINs nor withhold 24% of payments as backup withholding from his sub-contractors. They are unreachable. As a tax prep, what should be my best course of action in terms of reporting his cost of labor?
Answer: Dealing with Backup Withholding, and the consequences and requirements of them are more complex than can be covered in a short answer here, but a few things to know are that a client’s cost of labor is whatever their cost of labor is, evidenced by payments made and accounted for during the year. Backup withholding may still be required to be paid by the IRS, so if the client cannot recover these additional costs from the subcontractors, it may mean it could represent additional costs of labor when paid. See Topic 307 for a little more information on Backup Withholding https://www.irs.gov/taxtopics/tc307#:~:text=You%20may%20be%20subject%20to,dividend%2C%20or%20patronage%20dividend%20income.
Q: Any updates on Social Security payments not being taxable this tax year?
Answer: Until we have new tax laws written and passed, there is no change to our current tax laws regarding Social Security payments and if they are to be changed for their taxable status. Like anything in tax law, we have to go with what is current law until new laws are passed and that changes and that is at the whim and control of lawmakers to determine these laws, the associated rules, and the timing of any changes.
Q: For New Clean Vehicle credit. What confirmation needs to be provided to the IRS? Is there any Form for it?
Answer: The IRS will receive a report filed by the dealer at the time of sale, so they will know what credit any taxpayer is entitled to. The confirmation and proof of filing this report (the dealer files with the IRS) is the recommendation for the taxpayer to obtain proof of, in case they should ever need to prove this was filed. It is not required to be attached to a return, only recommended to obtain a copy of the acceptance and proof of this being filed, in case it is ever questioned in the future. (see note regarding Form 15400 above, and link here for an example of what is included by the dealer and reported to the IRS): https://www.irs.gov/pub/newsroom/form-15400-sample-new.pdf
Q: What if you have a home office, can you still claim the energy credit?
Answer: Remember, that if there is business use, you have to consider how much is used for business purposes (which a home office does mean there is some business purpose). If the business use is less than or up to 20%, the full credit will be allowed. If it is more than 20%, it will be prorated instead.
