A death is oftentimes a time of sadness. But that sadness can be compounded with confusion for surviving family members who are responsible for taking care of final arrangements. One of these arrangements that many are unfamiliar with is filing a final federal tax return for a deceased person. If you are responsible for the estate of someone who has died, here are some things you should know.

Filing a final tax return

Generally, the final individual income tax return of a deceased person is prepared and filed the same way as if the person were alive.

• The return must report all income up to the date of death and claim all eligible credits and deductions.
• If the deceased person did not file individual income tax returns for the years before their death, their surviving spouse or representative may have to file prior year returns.
• The IRS considers the surviving spouse married for the full year their spouse died if they don’t remarry during that year.
• The surviving spouse is eligible to use filing status “married filing jointly” or “married filing separately.”
• The same tax deadlines apply for final returns. For example, if the deceased person died in 2022, their final return was due by April 18, 2023, unless the surviving spouse or representative had an extension to file.

Who should sign the tax return

Obviously, the deceased cannot sign his or her own tax return. Here’s how to determine who should sign it.

• Any appointed representative must sign the return. If it’s a joint return, the surviving spouse must also sign it.
• If there isn’t an appointed representative, the surviving spouse filing a joint return should sign the return and write in the signature area, “filing as surviving spouse.”
• If there’s no appointed representative and no surviving spouse, the person in charge of the deceased person’s property must file and sign the return as “personal representative.”

Other documents to include with the final tax return

Court-appointed representatives should attach a copy of the court document showing their appointment. Representatives who aren’t court-appointed must include Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer to claim any refund. Surviving spouses and court-appointed representatives don’t need to complete this form.

If tax is due, the filer should submit payment with the return or visit the payments page of IRS.gov for other payment options. If they can’t pay the amount due immediately, they may qualify for a payment plan or installment agreement.

Qualifying widow or widower

Surviving spouses with dependent children may be able to file as a Qualifying Surviving Spouse for two years after their spouse’s death. This filing status allows them to use joint return tax rates and the highest standard deduction amount if they don’t itemize deductions.

Required Minimum Distributions (RMDs) are minimum amounts you must withdraw from your IRA or retirement plan account when you reach age 72. Beginning in 2023, the SECURE 2.0 Act changes the age RMDs must begin to age 73 for taxpayers that reach age 72 after December 31, 2022.

Roth IRAs are not subject to RMDs until after the original account owner dies. Designated Roth accounts in a 401(k) or 403(b) plan are subject to the RMD rules for 2022 and 2023. However, for 2024 and later years, RMDs are no longer required from designated Roth accounts.

RMDs from an IRA

You can meet your RMD requirement by taking a withdrawal from one or more of your traditional IRAs, or SEP, SIMPLE and SARSEP IRAs. It’s not necessary to take a withdrawal from each of your IRAs, but your total withdrawals must be at least equal to the total RMD due from all IRAs combined.

If you reached age 72 in 2022: The first RMD from your IRAs is due by April 1, 2023, based on the December 31, 2021, account balances. Your second RMD is due by December 31, 2023, based on the December 31, 2022, account balances.

If you reach age 72 in 2023: If you reach age 72 in 2023, you don’t have an RMD requirement for 2023. Your first RMD is for 2024, the year you reach age 73, and is due by April 1, 2025.

If you reach age 73 in 2023: If you reach age 73 in 2023, you were 72 in 2022 and must take your first RMD for 2022 by April 1, 2023, based on your December 31, 2021, account balances.

RMDs from a retirement plan

To satisfy the RMD requirements in a retirement plan, you must take RMDs separately from each of your retirement plans. If you reached age 72 in 2022, your first RMD for 2022 is due by April 1, 2023, based on your December 31, 2021, account balance. Your 2023 RMD is due by December 31, 2023, based on your December 31, 2022, account balance.

If you’re still employed by the plan sponsor, and not a 5% owner, your plan may allow you to delay taking RMDs from that workplace retirement plan until you retire. IRS rules always require you to take RMDs beginning at age 72 from traditional IRAs, SEP, SIMPLE and SARSEP IRA plans, even if you’re still employed.

If you can’t pay your tax bill by the April 18, 2023 deadline, don’t panic. The IRS offers several options to help you pay on a schedule you can afford.

First of all, if you find yourself with a tax bill you can’t afford, it’s important that you don’t ignore the problem. You still need to file your tax return or request an extension of time to file by the April 18, 2023, deadline – even if you can’t pay your tax bill in full. Filing or requesting an extension on time will help you avoid costly penalties that could make you owe even more.

Also remember that an extension applies only to the filing deadline, not the payment deadline. If you can’t pay the full amount of taxes you owe by April 18, you should file and pay what you can. Making a payment, even a partial payment, will help limit penalty and interest charges.

Payment options

If you find yourself struggling to meet your tax obligation, you might consider these options:

Online payment plans

If you owe but can’t pay in full by April 18, you don’t have to wait for a tax bill to set up a payment plan. You can apply for a payment plan online, or contact us and we can help you. These payment plans can be either short- or long-term.

• Short-term payment plan – The payment period is 180 days or less, and the total amount owed is less than $100,000 in combined tax, penalties and interest.
• Long-term payment plan – The payment period is longer than 180 days, paid in monthly payments, and the amount owed is less than $50,000 in combined tax, penalties and interest.

Offers in compromise

An offer in compromise lets you settle your tax debt for less than the full amount you owe. This may be an option if you can’t pay your full tax bill or if doing so creates a financial hardship. The IRS considers a taxpayer’s unique set of facts and circumstances when deciding whether to accept an offer.

Penalties and Interest

If you owe tax and don’t file on time, you can be charged a failure-to-file penalty. This penalty is usually five percent of the tax owed for each month or part of a month that the tax return is late, up to 25 percent. The failure-to-pay penalty applies if you don’t pay taxes by the due date.

Interest is based on the amount of tax owed and for each day it’s not paid in full. The interest is compounded daily, so it is assessed on the previous day’s balance plus the interest.

Remember: An extension of time to file is not an extension of time to pay. An extension only gives you until October 16, 2023, to file your 2022 tax return, but taxes owed are still due April 18, 2023.

If you have questions about payment options for your tax bill, please contact our office. We would be happy to help.

Many states made special tax refunds or payments related to the pandemic and its associated consequences in 2022. A variety of state programs distributed these payments in 2022 and the rules surrounding their tax treatment are complex. One question was whether income related to these payments was taxable at a federal level. Recently, the IRS has clarified its position on these payments by determining that taxpayers in many states will not need to report these payments on their 2022 tax returns.

During a review, the IRS determined that it will not challenge the taxability of payments related to general welfare and disaster relief. This means that 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 in this group as well, but please see below for more nuanced information.

In addition, many people in Georgia, Massachusetts, South Carolina and Virginia also 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.

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 can be complex, so to simplify the matter, the IRS has determined that it 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 (see below)
• California
• Colorado
• Connecticut
• Delaware
• Florida
• Hawaii
• Idaho
• Illinois (see below)
• Indiana
• Maine
• New Jersey
• New Mexico
• New York (see below)
• Oregon
• Pennsylvania
• Rhode Island

For Alaska, this applies only to for supplemental Energy Relief Payment received in addition to the annual Permanent Fund Dividend.

Illinois and 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.

Other payments

Other payments that may have been made by states 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.

If you travel for business, you probably know that you can deduct some of the expenses related to that travel from your income taxes. But knowing which expenses are deductible, and under what circumstances might make your head spin. In this article we want make sense of business travel deductions so that you know what records to keep in order to maximize your deduction.

The basics of business travel deductions

In order for expenses related to your business travel to be deductible, your travel must take you away from your tax home or main place of work for business reasons. For the purposes of this deduction, you are “traveling away from home” if you are away for longer than an ordinary day’s work and you need to sleep to meet the demands of your work while away.

Travel expenses must be ordinary and necessary. They can’t be lavish, extravagant or for personal purposes.

Employers can deduct travel expenses paid or incurred during a temporary work assignment if the assignment length does not exceed one year.

Travel expenses for conventions are deductible if attendance benefits the business. There are special rules for conventions held outside North America.

Deductible travel expenses include:

• Travel by airplane, train, bus or car between your home and your business destination.
• Fares for taxis or other types of transportation between an airport or train station and a hotel, or from a hotel to a work location.
• Shipping of baggage and sample or display material between regular and temporary work locations.
• Using a personally owned car for business.
• Lodging and meals.
• Dry cleaning and laundry.
• Business calls and communication.
• Tips paid for services related to any of these expenses.
• Other similar ordinary and necessary expenses related to the business travel.

Travel deductions for the self-employed

If you are self-employed, you can deduct travel expenses on your Schedule C (Form 1040). If you are a farmer, you will need to use Schedule F (Form 1040).

Recordkeeping

If you will be claiming deductions for business travel, it’s important to keep good records of your expenses so that you can support your deductions. Keep receipts, canceled checks, credit card statements, and other evidence that supports your expenses so that you can claim your full deduction.

The nature of work has changed over the last several years. In this time it has become more common for workers to work part-time and on-demand. Uber drivers, Doordash, grocery delivery, it seems like every week you hear about another company built on the so-called “gig economy.”

But the income earned from these types of jobs aren’t immune to the reach of Uncle Sam. Gig workers are still required to report their gig economy earnings on a tax return – whether they earned that money through a part-time, temporary or side gig.

If you have income from a side gig, here are some things to keep in mind as you get ready to file in 2023.

Gig economy income is taxable

• You must report all income on your tax return unless excluded by law, whether or not you receive an information return like a Form 1099.
• You may be required to make quarterly estimated tax payments to pay income tax and self-employment tax on your earnings from side gigs.

Workers report income according to their worker classification

Gig economy workers who perform services, such as driving a car for booked rides, running errands and other on demand work, must be correctly classified. Classification helps these workers determine how to properly report their income.

• If workers are employees, they report their wages from the Form W-2, Wage and Tax Statement.
• If they are independent contractors, they report their income on a Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship).

Expenses related to gig economy income may be deductible

If you have a side gig, you may be able to deduct expenses related to that work income, depending on tax limits and rules.

• You may be able to lower the amount of tax you owe by deducting certain expenses.
• It is important to keep records of your business expenses so that you can support any potential tax deductions.

Pay the right amount of taxes throughout the year

An employer typically withholds income taxes from their employees’ pay to help cover taxes their employees owe.

If you are involved in the gig economy there, are two ways to cover you taxes due:

• If you have another job where you are considered an employee, you can submit a new Form W-4 (Employee’s Withholding Certificate) to your employer to have more taxes withheld from your paycheck to cover the tax owed from your side gig.
• You can make quarterly estimated tax payments throughout the year.

If you need help understanding how your side gig might affect your tax situation, please contact our office. We would be happy to help.

If you itemize your deductions on your tax return, you may be interested to know that the IRS has updated the standard mileage rates for the use of a car. For 2023, the rates will be:

• 65.5 cents per mile driven for business use, up 3 cents from the increase that occurred midyear in 2022.
• 22 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces, which is unchanged from the increase that occurred midyear in 2022.
• 14 cents per mile driven in service of charitable organizations. (This rate is set by law and remains unchanged from 2022.)

Also keep in mind that these rates apply not just to gasoline and diesel-powered vehicles, but also to electric and hybrid automobiles.

It is important to note that under the Tax Cuts and Jobs Act, you can’t claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. You also cannot claim a deduction for moving expenses, unless you are a member of the Armed Forces on active duty moving under orders to a permanent change of station.

Finally, remember that you always have the option of calculating the actual costs of using your vehicle rather than using the standard mileage rates. It takes more recordkeeping, but depending on your circumstances, it might be worth it.

The IRS has announced a delay in reporting thresholds for third-party settlement organizations that was scheduled to take effect for the upcoming tax filing season.

As a result of this delay, third-party settlement organizations will not be required to report tax year 2022 transactions on a Form 1099-K to the IRS or to the payee for the lower, $600 threshold amount enacted as part of the American Rescue Plan of 2021.

As part of this, the IRS released guidance outlining that calendar year 2022 will be a transition period for implementation of the lowered threshold reporting for third-party settlement organizations (TPSOs) that would have generated Form 1099-Ks for taxpayers.

The American Rescue Plan of 2021 changed the reporting threshold for TPSOs. The new threshold for business transactions is $600 per year; changed from the previous threshold of more than 200 transactions per year, exceeding an aggregate amount of $20,000. Under the law, beginning January 1, 2023, a TPSO would have been required to report third-party network transactions paid in 2022 with any participating payee that exceed a minimum threshold of $600 in aggregate payments, regardless of the number of transactions. TPSOs report these transactions by providing individual payee’s an IRS Form 1099-K.

The newly announced transition period delays the reporting of transactions in excess of $600 to transactions that occur after calendar year 2022. The transition period is intended to facilitate an orderly transition for TPSO tax compliance, as well as individual payee compliance with income tax reporting. A participating payee, in the case of a third-party network transaction, is any person who accepts payment from a third-party settlement organization for a business transaction.

The IRS also noted that the existing 1099-K reporting threshold of $20,000 in payments from over 200 transactions will remain in effect.

As I’m sure you know, Congress seems to make changes to tax laws just about every year. This year was no exception, so here are a few things related to taxes that you should be aware of as we head into 2023.

Some tax credits return to 2019 levels

Some tax credits that were adjusted in recent years are scheduled to return to 2019 levels. This means that you might receive a smaller refund compared to recent tax years. Changes include amounts for the Child Tax Credit (CTC), Earned Income Tax Credit (EITC) and Child and Dependent Care Credit.

• If you got $3,600 per dependent in 2021 for the CTC, you will (if you’re eligible) get $2,000 for the 2022 tax year.
• For the EITC, if you have no children and received roughly $1,500 in 2021, you will now get $500 in 2022.
• The Child and Dependent Care Credit returns to a maximum of $2,100 in 2022 instead of $8,000 in 2021.

No above-the-line charitable deductions

In recent years, you could take up to a $600 charitable donation tax deduction on your tax return, due to Coronavirus relief passed by Congress. However, in 2022, you may not take an above-the-line deduction for charitable donations if you take the standard deduction.

More people eligible for the Premium Tax Credit

In tax year 2022, you may still qualify for temporarily expanded eligibility for the premium tax credit.

Clean vehicle tax credit

If you are interested in claiming a tax credit for a plug-in electric vehicle, you should be aware that those rules may have changed, depending on when in 2022 you purchased your vehicle. Please contact our office for more information.

In most cases, distributions from a traditional Individual Retirement Account (IRA) are taxable in the year you receive them, but there are some exceptions. A qualified charitable distribution (QCD) is one of these exceptions, and this opens up the possibility of using a QCD to reduce your taxes.

A QCD is a nontaxable distribution made directly by the trustee of your IRA to charitable organizations that are eligible to receive tax-deductible contributions. QCDs can’t be made from Simplified Employee Pension (SEP) plans and Savings Incentive Match Plan for Employees IRA.

Making a QCD can benefit you by reducing your taxable income while at the same time supporting your favorite charitable organizations. Best of all, you don’t have to worry about meeting the standard deduction or itemizing deductions with a QCD.

QCD Guidelines

If you are thinking about making a qualified charitable contribution, keep the following guidelines in mind.

• To make a QCD, you must be at least 70½ years old on the day of the distribution.
• A QCD will count toward your required minimum distribution (if any).
• You must have an acknowledgement of the contribution
• The amount of the QCD can’t be more than the amount of the distribution that would count as income.
• You must declare the QCD as income to claim the charitable contribution as a deduction.
• The maximum annual exclusion for QCDs is $100,000 for individuals, or $200,000 for joint returns.
• The amount of QCD contribution limits for exclusion reduce after age 70½.

If you would like more information about qualified charitable distributions, or held determining if you might be able to take advantage of them, please contact our office. We would be happy to help.