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Archive for the ‘inflation’ Category

IRS Raises Standard Mileage Rate For Second Half of 2022

Posted by taxguru on June 9, 2022

IRS has released this press release with a slightly misleading headline today:

IRS increases mileage rate for remainder of 2022

Although the “remainder of 2022” includes the rest of June, the increased rates don’t take effect until July 1, 2022.

For Business purposes, the IRS allows 58.5 cents per mile for what was driven between 1/1/22 and 6/30/22 and 62.5 cents per mile for 7/1/22 through 12/31/22.

For Medical and Moving deductions, IRS allows a deduction of 18 cents per mile from 1/1/22 until 6/30/22 and 22 cents per mile for the second half of 2022.

For miles driven on behalf of charities, the rate remains fixed at 14 cents per mile because of the idiocy of our rulers in Congress who omitted any inflation adjustments.

Posted in inflation, IRS, Vehicles | Comments Off on IRS Raises Standard Mileage Rate For Second Half of 2022

Expect IRS To Increase Standard Mileage Rate

Posted by taxguru on May 20, 2022

In normal years, IRS adjusts its standard mileage deduction rate once a year for those taxpayers who don’t want to keep track of their actual expenses, as well as for employee reimbursements.

The standard rate, which has been 58.5 cents per mile for business purposes since the beginning of 2022, is intended to include the operating and ownership costs of an “average” car based on prior year (2021) costs. These include such things as fuel, insurance, oil changes, repairs, registration, washing, and tires. It also includes a factor for the depreciation of the vehicle.

Having been in the tax business for over 45 years, I can remember some years where fuel prices shot up as quickly as they are currently doing. In some of those cases, IRS increased their mileage rates mid-year. Sometimes this was as of July 1, while in other cases it was as of October 1. This meant that taxpayers had to keep track of and report their business miles separately for each time period.

I haven’t seen anything from IRS indicating that this will happen this year, but, given the insane price increases in gasoline and diesel we have been dealing with all over the country, it seems inevitable. The higher purchase prices for both new and used vehicles makes an increase in the depreciation component of the standard mileage rate also very likely.

Whether IRS raises its standard deduction rate or not, this is a perfect example of why it is important for everyone to keep track of their actual vehicle expenses because they will almost certainly be higher than whatever standard rate IRS allows for 2022.

Update 5/25/22: During today’s CPELink Monthly Tax Update, there was a mention of a recent letter that some CongressCritters wrote to the IRS Commissioner, requesting an increase in the standard mileage allowance to account for the drastic increases in fuel prices since 2021.
Press Release From Arizona Congressman
Copy of Letter

Posted in inflation, IRS, Vehicles | Comments Off on Expect IRS To Increase Standard Mileage Rate

IRS Interest Rates Continue To Rise

Posted by taxguru on May 20, 2022

Unlike most State tax agencies, which don’t ever change the interest rates that they charge on late tax payments (Arkansas has always been 10%) or adjust them annually (California, et al), IRS modifies its rates every three months to stay in sync with the overall financial markets.

As anyone would have expected, IRS has just announced that, as of July 1, it will be bumping up the rate it will be charging to 5% from the current 4%.

Here is their press release: IRS interest rates increase for the third quarter of 2022

If you want to consider a good side to this, besides charging taxpayers more on late tax payments, this also means that IRS will be paying taxpayers more for delayed refunds. Those millions of people who still have tax returns stuck in the IRS backlog of unprocessed returns will be earning much more from IRS than any banks are currently paying on savings accounts.

Posted in inflation, interest, IRS | Comments Off on IRS Interest Rates Continue To Rise

Inflation Hits IRS

Posted by taxguru on February 23, 2022

Every three months, IRS looks at the current inflation rate and determines how much interest they will be charging taxpayers on late tax payments and paying out to taxpayers for delayed refunds. For the past seven quarters – since July 1, 2020 – it has been three percent (3.0%) APR. It’s not per day. It’s an annual rate.

As we all know, inflation is currently at its highest pace since Jimmy Carter’s reign. IRS has just announced in this press release that, as of April 1, their main interest rate will be a whopping four percent (4.0%) APR.

As I remind clients who are upset about the IRS’s lengthy delays in sending out refunds, their money will be earning a much higher return from IRS that it would in a bank, where they are still paying less than one percent on savings accounts. It’s the silver lining to a bad situation.

Three months from now, I expect to be writing a similar post about IRS raising their interest rate again, to five or six percent.

Posted in inflation, interest, IRS | Comments Off on Inflation Hits IRS

2022 IRS Inflation Adjustments

Posted by taxguru on November 10, 2021

IRS has officially calculated the various increases for 2022 that are required to be adjusted annually.

IRS News Release with some of the “most popular” changes

Revenue Procedure 2021-45 with all of the details (29 Page PDF)

Not mentioned in either of the above referenced documents is the fact that there should be a huge asterisk with the disclaimer that all of these figures are subject to changes at the whim of the rulers currently in power.  With all of the threats to retroactively increase all tax rates coming from DC, we can only hope that the IRS assumptions of 2022 rates will actually survive.

One noteworthy change for 2022 is the annual Gift Tax exclusion, which can only be increased in $1,000 increments after multiple years of inflation.  For 2022, it will be raised from the current $15,000 per donor (giver) per donee (recipient) to $16,000.  Many people design their long-term gifting strategies based on these annual exclusion amounts.

[Update 11-30-2021]: The good folks at TheTaxBook have produced this handy one page summary of the most popular inflation adjustment amounts for 2020, 2021 and 2022.

Posted in inflation, IRS | Comments Off on 2022 IRS Inflation Adjustments

IRS Releases 2021 Inflation Adjustments

Posted by taxguru on October 26, 2020

The Tax Game never ends.  As 2020 nears its end, people are starting to look ahead to what we can expect for 2021.  Every year, many items in the Tax Code are adjusted to reflect the official increase in the Cost of Living since the prior year. 

There are also a lot of things in the Tax Code that have been set in concrete by our Rulers in DC and have not been increased for decades, such as the measly $3,000 of net capital loss that can be used to offset other kinds of income.  I long ago gave up any hope for such concepts as Fairness or Consistency in the Tax Code in order to hold onto my sanity in this profession.

While some tax publishers had already released what they calculated as the inflation adjustments a few weeks ago, it’s not really official until IRS makes its calculations known, which has happened today.

They have a good summary of the changes in their news release:

IRS provides tax inflation adjustments for tax year 2021

 

All of the nitty-gritty specifics are spelled out in much more detail in the official 28 page Revenue Procedure 2020-45

Besides adjustments that affect Income taxes, there are some that affect Estate and Gift taxes.  One item that is closely watched is the change in the annual amount that can be gifted without the need to file a Gift Tax return (Form 709).  Many people have gifting plans that utilize this allowance in the amounts that are gifted each year.  Unlike the other inflation adjusted items, which normally increase every year and result in “odd-looking” numbers, the Gift tax allowance can only be increased when the cumulative inflation since the previous adjustment is close to an even $1,000.  That’s not happening in 2021.  The annual exemption will remain at $15,000 per donor (giver) per donee (recipient).

[Update 10-28-2020] – As they have done each year, the folks at TheTaxBook have posted this very handy one-page summary of the 2021 figures side by side with what they were for 2019 and 2020.

Posted in inflation, IRS | Comments Off on IRS Releases 2021 Inflation Adjustments

IRS Releases 2020 Inflation Adjustments

Posted by taxguru on November 6, 2019

IRS has done its official calculations of the adjustments that will be required for more than 60 tax provisions in the year 2020.

Their Press Release:  IRS provides tax inflation adjustments for tax year 2020

All of the juicy details are in this 28 page PDF of Revenue Procedure 2019-44

A handy one-page version of the changes compared to previous years from TheTaxBook: 2019-11-13_Inflation_Adjusted_Amounts_for_2020

 

Gifting Exclusion

The Number One question I constantly receive regarding these IRS inflation adjustments has to do with the annual exclusion from Gift Tax reporting because many people structure their estate plans based on gifting the maximum each year.  Unlike most of the other inflation adjusted provisions, which do increase every year, the amount of the annual Gift Tax exclusion is only allowed to increase when the cumulative inflation factor warrants an increase of a full $1,000.  This does make a lot of sense.  Otherwise, the exclusion amount would be very odd, not round, figures that would be very confusing to keep track of.  For 2020, there will be no increase in the annual Gift Tax exclusion.  It will remain at $15,000 per donor (giver) per donee (recipient).

Posted in inflation, IRS | Comments Off on IRS Releases 2020 Inflation Adjustments

Adjusting Costs For Inflation When Computing Cap Gain Taxes?

Posted by taxguru on July 31, 2019

One of the many extremely unfair aspects of the tax system in this country that I have long railed against is the fact that, when assets that have been owned for several years are sold, the taxable gain is based on the original cost, with no adjustment for the fact that the dollars being recovered are worth much less today than what was paid out those many years ago.  Current year tax rates are literally assessed on inflation.

Over the past three decades, there have been some feeble attempts to remedy this injustice by allowing people to adjust their cost bases by the changes in the cost of living.  I have written and spoken about this in great detail since 1992, when it seemed to have some momentum, only to fizzle out under the wimpy gutless leadership of both Bush presidents.

Some historical references on this issue:

My article from the 1990s on this topic has been on my main website ever since then: Indexing Gains For Inflation

The Wall Street Journal article addressed to Pres. George H.W. Bush from 8/31/92 that got a lot of us excited at the time: An Act of Leadership

A similar press release from the National Taxpayer Union on 1/23/08 addressed to Pres. George W. Bush: Bush Can Bolster Economy by Ordering Inflation-Indexed Cap Gains Taxes, Legal Brief Says

The actual report from August 1992 that is discussed in the above articles, describing the authority that the Treasury Dept. has to define Cost Basis as being inflation adjusted: 96 page PDF

 

The reason I am bringing this issue back up for discussion is the following very encouraging news from the U.S Senate:

Cruz Pushes Mnuchin for Quick Action on Capital Gains Tax Break

I doubt that I am alone in thinking that things are very different nowadays in terms of the odds of such a change finally being made.  As was illustrated, both Presidents Bush were extremely wimpy and utterly scared to death to do anything that would offend the media and the Dims, such as authorizing anything that would be propagandized by them as a boondoggle for the evil rich at the expense of the poor working slobs.  Both of them were too scared to do the right thing and implement this change in policy to allow the cost basis of capital assets to be adjusted for inflation.  Now that we have someone in the White House who seems to relish taking on the status quo and cares not a whit about offending the Dims and their media cohorts, we should finally have a much better chance of seeing this long overdue change enacted.

Posted in CapGains, inflation | Comments Off on Adjusting Costs For Inflation When Computing Cap Gain Taxes?

2019 IRS Inflation Adjustments

Posted by taxguru on November 20, 2018

Even with all of the changes from the TCJA, there are still some items that are adjusted periodically for increases in the cost of living.  IRS has done the calculations for 2019 and released the following press release.

IRS provides tax inflation adjustments for tax year 2019 

The folks at TheTaxBook have summarized the 2019 changes, with comparisons to the 2018 and 2017 amounts.  I posted a copy of it on my Google Drive for easy downloading.

Posted in inflation, IRS | Comments Off on 2019 IRS Inflation Adjustments

2018 Federal Inflation Adjustments

Posted by taxguru on October 25, 2017

Every year, some parts of the tax code, such as the beginning and ending points for the various personal income tax brackets, are adjusted for the change in the government’s official Consumer Price Index (CPI) as of August 31.  This is supposed to prevent “bracket creep,” where people whose income is just keeping pace with inflation are pushed into the higher percentage brackets.

Not all tax related amounts in the Tax Code adjust automatically for inflation.  There are scores of tax related figures in the Tax Code that do not ever get adjusted and have been the same for several decades, waiting for an official Act of Congress to be adjusted for the effects of inflation.

As has been the tradition, tax publishers are the first to do the calculations and release the inflation adjustments for the next year.  IRS will release their official inflation adjustments for 2018 in the next month or so, assuming those IRS employees are still around in IRS HQ.

The first such report with 2018 adjusted amounts that I have come across is this 16 page pdf from Thomson Reuters.

Projected 2018 Inflation-Adjusted Tax Brackets and Other Key Figures

As I have done in previous years, I will post links to other such reports, as I learn about them.

Update 10/25/2017:  IRS has announced their official inflation adjustment figures in the following two news releases.

IRS Announces 2018 Pension Plan Limitations; 401(k) Contribution Limit Increases to $18,500 for 2018

In 2018, Some Tax Benefits Increase Slightly Due to Inflation Adjustments, Others Unchanged

One key adjustment that I didn’t mention earlier is the fact that, after several years at $14,000, the annual Gift Tax exclusion will rise to $15,000 per donor per donee for 2018.  This exemption is only increased in $1,000 increments, so it normally takes a few years of cumulative inflation before it’s enough to trigger the $1,000 increase.

Posted in inflation | Comments Off on 2018 Federal Inflation Adjustments