LB – THE 2022 TAX SEASON MEMO (Important)!

VARIOUS INFO ABOUT THE 2022 TAX SEASON:

(A) AFTER 12/31/22  –

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#1 – HERE IS A SUMMARY OF STEPS FOR YOU DURING THE TAX SEASON- 

(A) Main steps

Except for the initial year, these are the main steps each year, usually starting in December/January –

  1. Detailed discussion with Fran, of past, present and expectations
  2. Discuss changes since last year, especially those affecting taxes.
  3. Client reviews tax matters outlined in memos of ideas below and at other links:
  4. Client snail-mails supporting documents (originals) keeping her or his own copies. (For new clients, provide copies of 2 prior year returns, along with copies of drivers licenses – front and back) and also the completed 12 page organizer form
  5. Fran prepares a draft and calls/emails client with questions and comments.
  6. Final returns are prepared as well as estimated for next year.  (Fran sends pdfs of tax returns and not hard copies, allowing for Fran’s lower fees). 

(B) Please be sure that you give me –

(in addition to the usual W-2s, Form 1099, Form 1098, lists of business expenses etc.) the following info:

  1. Your (and spouse) most recent front and back of drivers license (needed by states to prevent internet theft).  If I did your return in 2021 and your license did not expire in 2021, I don’t need it.
  2. Any stimulus you may have received. None for 2022. (For 2020- #1 – $1,200, #2 – $600, (not until 2021. For 2021- $1,400).  They have to be reported so that the software calculates any tax due or tax credit.
  3. Any proceeds from an SBA loan or grant (e.g. EIDL grant, EIDL loan, PPP loan, forgiven amount?)
  4. Any tax notices from IRS or from states about any discrepancies or questions regarding your tax returns.
  5. Any notice from Social Security administration.
  6. Closing statement of any real estate you sold in 2022.
  7. Any expected major event in 2023 that may impact your paying estimated taxes, otherwise I will use the 2022 returns to do the estimates.
  8. Any debt that was cancelled, and if you received a 1099-COD which may trigger income.
  9. Any Form 1099-G for Unemployment Compensation benefits received.
  10. Any stimulus you may have received. (None for 2022. For 2020- #1 – $1,200, #2 – $600, (not until 2021. For 2021- $1,400).  They have to be reported so that the software calculates any tax due or tax credit.)

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#2 –VARIOUS TAX AND FINANCIAL TIPS 

(You should do a quick read of the following Year-end planning memo below in case it triggers ideas or questions for you. Please feel free to call me about these matters)

*Step #2* – Various tips on taxes and finances:

(A)Taxes in General

(B) Income and Cash Flow

(C) Small business owners and gig workers

(D) Investors and Real estate owners

(E) Individuals and families

(F) Insurance

(G) Estate Planning

(A) – TAXES IN GENERAL –

(1) Year-end strategies –

Several steps could be taken before 12/31/22. A few quick examples include: (1) defer income and accelerate expenses (2) take investment losses, including switching investments yet avoiding “wash sale” rules (3) issue bonuses including to yourself (4) For S Corporation owners, make sure you put yourself on salary or you can lose the ability to show earned income necessary for IRA contributions , or can be challenged by the IRS (5) if you have a business loss, pull money from your IRAs and retirement plans to the extent of zeroing out taxable income and thus zero tax (6) set up SEP IRA plans

(2) Decide on your accountant (if you are changing) to avoid time jams later.

(3) Review how to streamline your recordkeeping especially for small businesses. Often, QuickBooks is not the solution but instead a complication.

(4) File any back returns, settle outstanding unresolved matters and set up an installment payment plan, often getting penalties waived due to “reasonable cause.

(5) Consider amending prior returns to claim refunds.

(6) Review your dependent exemptions. Claim as a dependent an elderly parent or relative if you provide most of the support. Emancipating a child could cause lower taxes for the family.

(7) Use child tax credits if pertinent to your situation.

(8) Set up sideline businesses prior to 12/31/22 to get business expenses to be deductible. I work with a third party who an arrange for a corporation or an LLC , at a reasonable fee and in a quick time frame.

(9) Contribute to IRAs and retirement plans (e.g. SIMPLE Plans must be set up prior to 10/1/22, but SEP IRAs can be set up before 4/15/23 plus extensions). Be careful due to a spouse with a retirement plan, and also limitations on Adjusted Gross Income.

(10) Obtain credit lines to build up flexibility in case of another recession or future pandemic lock-down.

(11) Strategize deductions that have been eliminated or reduced – e.g. miscellaneous itemized deductions. For highly paid actors and creatives who lost the deductibility of business expenses on Schedule A as miscellaneous itemized deductions, by setting up “loan out corporations” could be a viable strategy.

(12) Be creative yet honest in documenting the cost of property sold in order to reduce the taxable gain.

(13) Use Section 179 to get large deductions on equipment purchases. Also, purchase of an auto before 12/31/22 can bring tax benefits, including depreciation and bonus depreciation.

(14) If you are older and have a very profitable company, consider a defined-benefit plan that increases allowable deductible contributions significantly.

(15) Tackle new rules dealing with at-home work, including state-related rules.

(16) Tax penalties and interest –Take the loss in 2022 for worthless securities, with certain proof. 

(17) Address situations promptly that involve late filing, late payment and discrepancies. Installment plans can be arranged. Often, a large amount of penalties and interest can be reduced in view of reasonable causes, if properly demonstrated. I’ve handled many cases over the years.

(B)  INCOME AND CASH FLOW – 

(1) For professions hard-hit by Covid-19 (e.g. artists, musicians, restaurants, you should try to apply for grants that are often offered by many organizations and governmental entities.

sd a. Many non-pandemic grants are offered too. One example is through Creatives Build, part of a New York State program that received Federal grant money and has given grant money to (1) individuals who are artists, in the broad sense, who express a need for money (A client, with my help and another individual, was able to get a grant around 10/22 of $18,000, payable $1,000 per month. His finances did show need but him being of the LGBTQ community and his skills and experience helped greatly.  I myself on 12/13/22 received notification that my artistic corporation (FutureDollars.com Corporation) was awarded a grant of up to $10,000 (contingent on an agreement being sent to me and my providing certain documentation) to be spent on art-related activities as identified in my application. In connection with the application, I registered as a Women Owned Business Enterprise, and as a transgender female I qualified.  My suggestion is to start in your own community and inquire of your town council person, mayor, county legislator, state legislators, and to check with organizations like churches, arts centers, trade organizations, women’s empowerment organizations, etc. Also search for grants via google online, especially for particular discipline, trade, focus, business etc.

(2) For recipients of SBA grants and loans, ensure compliance with filings

(3) Analyze options for careers and businesses. Don’t stay in dead-end ventures.

(4) Invest in your own skills and creativity (and with proprietary protection) in order to establish additional and alternative income sources.

(5) Complete open projects (e.g. inventions, books, plays, films, albums, screenplays) and try to sell options on them. Consider creating NFTs of your own very special work. Enhance protection via copyrights, patents, trademarks, website domains.

(6) Consider other forms of organizing an entity – LLC, S Corp, C Corp, Partnership, Trust, Schedule C.

(7) Reduce taxes through appropriate investment choices – tax-free, tax-deferred and tax-advantaged.

(8) When income is high and cash is plentiful – Don’t lose the opportunities to maximize your retirement accounts, pay off high interest debt, consider new ventures purchase equipment that can be written off, consider buying rental properties that may have depressed values yet solid income and deductions. Leverage up future family assets via life insurance. Launch ventures.

(9) Cash flow problems and debt -Your tax deductions may have declined if you have fallen behind paying your monthly mortgage and/or real estate taxes. On the other hand, they may have increased if you are catching up, especially if you sold your house or it was foreclosed. Watch for COD (Cancellation of Debt) that triggers income and ensure you use temporary tax relief to avoid COD income.  Planning and coordination with retirement accounts is important.

(C) SMALL BUSINESS OWNERS AND GIG WORKERS

(1) Small business owners should consider the usual cash-basis strategies involve postponing
collections of sales receivables, prepaying business expenses including equipment and supplies and autos, including Section 179.

(2) Negotiate deals with employees and independent contractors that your payments to them be reduced if paid now (if you have the cash) rather than as scheduled throughout 2023. You get the deduction now and they must pick up the income, but often you’ll find some takers on this strategy.

(3) For entertainers, writers, artists, actors, filmmakers, etc., If possible, receive income on a Form
1099-MISC (business-related deductions can be taken) instead of a W-2 (deductions as an employee can no longer to used)

(4) Possibly close down inactive or unprofitable businesses. Sometimes, there are recorded assets that no longer have value and, by closing the books, a net write-off can be used against the person’s other income.

(5) Business hard times – When there is a large business loss, there are ways to maximize the tax loss and use it to generate tax refunds, currently and in the future. Also, it may be better to bite the bullet and move into a new business that has more potential and less risks. If the losses cause negative taxable income, consider withdrawing from retirement plans and annuities and pay no tax, or alternatively convert traditional IRAs to Roth IRAs.

(6) Business expenses – You’d be surprised what expenses are allowable as deductible business expenses beyond the usual business driving (56 cents per mile), dues, meals and entertainment, and equipment.

(7) Sideline businesses -In this crazy quickly changing world, it’s often that people supplement income with sideline businesses that can have important tax benefits, especially if set up properly. I’ve helped clients and also first-hand set up my own sole proprietorship, partnership, LLC, S Corporation and C Corporation. I can help you organize with the right structure for you.

(D) – INVESTORS AND REAL ESTATE OWNERS –

(1) Investment securities should be assessed in early December with an eye toward selling losers
at a loss so the loss could be used sto offset capital gains, and up to $3,000 of ordinary income.

(2) For capital gains, this could be a good time to take gains to reduce risks at a low tax cost.
Capital gains tax rates are low depending on tax bracket and sometimes zero (e,g, $80,800 for Married Filing Jointly and $40,400 for single) or 15% for taxable income under $501,600 for MFJ or $445,850 for Single. The higher your regular income tax bracket, the higher could be your capital gains tax. For example, taxpayers in the 10% and 12% income tax brackets will pay 0% or 15% on eligible capital gains, whereas those in the 22%, 24%, 32% and 35% will pay 15% except those with taxable income over $501,600 will pay 20% on capital gains.

(3) Convert IRAs to Roth IRAs or to regular accounts and save future income taxes, if you have a loss (e.g. say due to Pandemic slowdown) and you can withdrawn equivalent amounts from IRAs or other qualified plans (or also nonqualified annuities).

(4) Shifting ownership in order to attain a step-up in cost basis upon death, especially for clients of a very advanced age.

(5) Real estate owners and landlords who have reduced income or losses due to tenants paying less rent may use any net losses against other income up to $25,000 of losses, unless phased out because AGI (Adjusted Gross Income) is over $150,000 in which case the loss gets carried forward.

(6) With asset-managed accounts with a low number of transactions, consider asking your advisor for a commission-based account (as the commissions get added to the cost basis and reduce gains) rather than a periodic percentage fee of assets (often 1% which are no longer a deductible as an itemized deduction.)

(7) Review your risk tolerance and investment allocation and possibly reduce risks by shifting some funds to lower-risk investments, or confining risk to a smaller portion and for that portion possibly increase risk for higher reward.

(8) If moving funds from equity mutual funds and stocks, you should consider higher-growth longer term industries and trends like Meta, NFTs, Crypto, Virtual Reality, ESG etc.  During periods of large declines, consider buying and during periods of large increases, consider selling.

(9) Consider quarterly automatic rebalancing which has shown to be an effective tool to sell high and buy low, over time.

(10) Reduce risky investments and expenses in a variable annuity – Even though there are advantages of dsfddstax deferral features and so-called guarantees, you may want to examine the case more closely, especially because of high hidden expenses and risks. Furthermore, if you defer income and pay higher ordinary rates upon withdrawal, you often end up with less money than if you only paid lower capital gains rates along the way. Also, selling underwater investments could reduce taxes.  In some market cycles, like perhaps the one we’re moving into, the danger signs of upcoming major corrections are too big and loud to ignore.  Perhaps reduce your allocation to equities? Perhaps buy long-term puts to hedge losses?  Consider 10-year CDs, with survivor options, paying over 3%?  Some investment advisors charge 1% or more on assets for not doing much more than simpler investments could achieve (e.g. $10,000 annual fees on $1 million in investments).  Making it even worse is when a portion of the expense is not deductible as a miscellaneous itemized deduction because of the threshold of 2% of AGI. Want some suggestions?

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(E) – INDIVIDUALS AND FAMILIES

(1) Use “bunching” if the ordinary method is not applicable of prepaying personal deductible expenses in 2020 rather than waiting until 2021. For example, If you make large charitable contributions but have low other Schedule A itemized deductions causing you to take the standard deduction, it may make more sense “bunching” by postponing making the large contribution (e.g. big cash gift, a donated vehicle) to 2023 in order to qualify for a standard deduction in 2022 and higher itemized deductions in 2023.

(2) SALT – State and local tax considerations are like last year (with the $10,000 limit) but new
homeowners need to plan accordingly, possibly prepaying real-estate taxes before 12/31/22 if not much was paid at the closing or until now.
(3) For payments of tuition for colleges of children who do have income (e.g. W2 from work), consider gifting money to children for them to make the payments and then be able to use credits (e.g. American Opportunity Credit of up to $2,500) or deductions while parents’ high income could be too high (for AGI over $180,000) to use credits or deductions.
(4) Small business owners (or those with sideline businesses) should consider hiring children to
shift tax-brackets, assuming tax benefits outweigh the extra payroll costs, etc.

(5) For high medical expenses for parents, consider claiming them as a dependent if you are paying high medical expenses on their behalf. Get help as the requirements and calculations can be tricky.
(6) For people undergoing hard times, there can be special cases of smart tax planning, often different from the usual advice of deferring income and accelerating deductions. For example, let’s suppose your elderly husband has had a substantial amount of unreimbursed medical expenses in 2022 that will go mostly unused. Perhaps he can use up the deduction by shifting income (e.g. capital gains on investments and retirement plan distributions) from future years into 2022 or 2023.
(7) With credit card companies, try to work out arrangements for credit card overdue balances.
Several banks are reducing interest rates to zero or 6% with long 60-months payment plans but causing a close-down of account. In most cases, it makes sense to do now rather than later when credit card balances could fall more behind.
(8) AMT (Alternative Minimum Tax) -With the reduced effect of SALT, there are fewer dealing with
AMT. Yet, you should consider AMT if you have preferences like taxes, miscellaneous itemized
deductions, incentive stock options etc. Seek help, as the calculations can be complicated, and the premises can be anti-intuitive.
(9) “Bird-in-hand” tax strategies to take advantage of today’s advantageous situations – Take
capital gains at these low rates in 2022, make gifts and estate transfers for the wealthy at these current high exemption levels ($11.8 million), and note that ordinary tax rates are relatively low as what may occur in the future.

(10) Unemployment benefits, Stimulus and SBA loans and grants – Get your records and tax returns in order and prepare in case there is another round of Stimulus and SBA loans and grants. 
(11) Be in compliance with all PPP (“Payroll Protection Plan” loans or EIDL loans or grants
(“Economic Injury Disaster Loan or Grant”). Establish a good record-keeping system and reach out for help if needed.

(12) Gifting to children and family members -This could be a good way to reduce future income taxes. When assets are moved to lower-bracket individuals so too are the income taxes that are earned on those assets. But be cautious about the effect on college financial aid. Also, consider employing children in family businesses to lower aggregate taxes. Sometimes you should have children pay college expenses, if by doing so someone gets education credits. Complex issues requiring thorough discussions income. Annual gift exclusion for 2022 is $16,000 and for 2023 is $17,000.

(F) INSURANCE –

(1) Get inexpensive term insurance with long-guarantee periods. Sometimes, you can even trade up to less expensive policies from existing ones.

(2) If you don’t have long-term care protection and don’t like the traditional LTC policies or think they are too expensive, investigate alternatives such as the universal life policies with LTC riders.

(3) Be wary of alternatives to Medicare combined with top-rated supplemental policies (e.g. United Healthcare in NY)

(4) Investigate homeowner or business insurance riders if you are located in problem areas (e.g. flood, fire, hurricane)         

(5) Long-term care insurance and reverse mortgages- There are tax benefits (e.g. portion of premiums are deductible; receipts of benefits are mostly tax-free) but the main issues revolve around the type and coverage of the policies. I can help you evaluate various policies for a fee.  I am thankful I obtained my own policy when I turned 50 because rates are up over 400% since then and many of my policy’s excellent features are no longer available on new ones.  I arranged policies for several relatives as well as clients who benefited significantly (e.g. my mother recovered $275,000 in caregiver expenses, my spouse’s aunt over $200,000, but my father unfortunately resisted getting a policy, causing losses). If you don’t have coverage and have less than $500,000 of liquid assets, you are playing with fire. Let’s talk. Reverse mortgages can be an effective tool in reducing monthly cash outlay and accessing a pool of cash to pay accumulated bills. However, there are drawbacks. I have a lot of experience with these mortgages and know many of the minefields to help you avoid.

(6) Life insurance – Premiums are not tax deductible but the proceeds paid upon death are tax-free. Term insurance policies are relatively inexpensive and a good method to help family members deal with an untimely death by clearing up outstanding debts such as mortgages and paying to beneficiaries a good sum to restart the family’s financial health, Older policies could be transferred to newer policies, which sometimes have lower premiums. Although Irrevocable Life Insurance Trusts are less popular because fewer estates are subject to estate tax, these trusts still represent an important way to control payments to beneficiaries

 

(G) ESTATE PLANNING – 

(1) Update estate planning documents including will, trust, durable power of attorney, health care proxy, living will, final wishes memo. Think creatively. Avoid family squabbles by being more open.

(2) Report gifts over $16,000 (for 2022 and $17,000 for 2023)made to a donee on Form 709, even though tax does not usually apply.

(3) For the very wealthy (over $5 million) consider large gifts to use up the lifetime gift and estate allowance which will likely be reduced by legislation over the foreseeable future.

(4) Titling of accounts – Too often I see cases of outdated wills or revocable trusts, and accounts in the names of individuals and with outdated beneficiary designations. Bank accounts could easily have ITF and brokerage accounts TOD, with designated beneficiaries, avoiding probate, especially until a more rigorous review of estate plans. Although I am not an attorney I am an Accredited Estate Planner, with significant experience and I work closely with attorneys.

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Note – In December 2017, I issued a comprehensive Financial Flyer that has many additional points, several of which are still quite valid as we approach 2022. The link to it on my website is at:

https://transfransisco.wordpress.com/wp-admin/post.php?post=677&action=edit

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(B) PRE 12/31/22 -Information if you re reading this BEFORE 12/31/22, INCLUDING Fran Sisco’s tax letter dated 12/14/22.

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Below is text format without photos etc.

Hi Friend – Please let me give you a holiday gift of a stress-free tax season! 

> If you are ALREADY my client, you should read this letter for general comments, but please look for the detailed personalized email I will be sending to you very soon, that makes specific comments on:

(1) the steps to take before 12/31/22 to reduce taxes and save money, tailored to your situation (2) getting tax info to me to prepare your tax returns, (3) related issues involving financial planning (e.g. investments, insurance, estate planning), (4) my estimated fees for this work and the anticipated schedule of payment

> If you are NOT YET my client, I hope you consider hiring me to prepare your tax returns and help you with financial planning because of the following:

(1) My very varied and deep expertise and experience is from being a –

  1. CPA for over 40 years
  2. Personal Financial Specialist (PFS), Accredited Estate Planner (AEP) & Investment strategist
  3. business owner over the years of a variety of businesses
  4. advisor to literally thousands of clients over the years from many walks of life
  5. a transgender female, living full-time as a female since 1/1/11, which has enabled me to develop a keener understanding of people, and of myself, and has greatly expanded my creativity

(2) My dedication to getting the job done well, timely and error-free. I take particular care in my work. In doing thousands of returns for over 40 years, I know of only 2 mistakes I have made and then corrected.  (Partly due to my unique way of manual checking of the software-produced returns and catching mistakes before filing)

(3) My reasonable fees are generally based on the number of hours X $180 per hour) and are often lower than your current fees because of certain very efficient ways I’ve developed about gathering and reporting key info and because of the factors above. Especially if you have a small business or are a professional and sole proprietor, I’m confident my work would be faster and less expensive, yet accurate and timely. Also, I provide discounts for taxpayers undergoing financial stress.

Please feel free to call my cell (914.589.1013) or send me an email at FrancisSisco@aol.com, and we can set up a no-cost initial conversation by phone or Zoom or in-person. Also, my website at http://www.TransFranSisco.com has a wealth of financial information, mostly at sections that begin with LB (for Left-Brain). (Incidentally, the sections marked with a RB (for Right Brain) primarily relate to my creative endeavors, as a filmmaker, writer (plays, books, songs, poems), actor, entertainer (comedy), visual arts (painting and sculpture) and advocate/activist.

If you plan to visit me in person – My home office is large, comfortable and with its own entrance in my home that is conveniently located in the north end of New Rochelle, NY at 30 Mill Road, and only 32 minutes from Manhattan by car or train, about 25 minutes from the George Washington Bridge (NJ) or Mario Cuomo Bridge, (Nyack) about 25 minutes from Greenwich Connecticut. You will spot my house (white with black trim) by several of my original sculptures on my front and side lawns, including some shown above. If you come, I will give you a tour of my paintings show on –

https://transfransisco.wordpress.com/rb-paintings-and-sculpture/ 

          Best regards, (12/14/22)

Fran Sisco   
Cell 914.589.1013
http://www.TransFranSisco.com                  

30 Mill Road, New Rochelle, NY 10804                     

Email – FrancisSisco@aol.com           

facebook.com/francis.sisco.16                                   

instagram – trans_fran_sisco     

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#3 – LB – 2020 Tax Season – Organizer forms, DEDUCTION CHECKLISTS, etc.
#4 – LB-2020 – Quickfinder Handbook summary info for Individuals
#5 – LB-2020 – Quickfinder Handbook summary info for Small Business

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Click on the below links to get info that may be older or stale 

LB-Fran Sisco’s Financial Flyer for Saving Money and Taxes-December 2017 – Vol.2 No.1

LB – The New Tax Act and how you can save taxes.