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Archive for the ‘IRS’ Category

IRS Raising Its Interest Rates Again

Posted by taxguru on December 3, 2022

For the fourth straight quarter, IRS will be raising the interest rate that it charges on back taxes and pays on late refunds. As of 1/1/23, it will be 7.0%. This is good news for those who have refunds coming, but not so good if you owe IRS money.

With most banks still paying ridiculously low rates on their savings accounts, we may see the return of a strategy to maximize interest yields by “investing” with the IRS. There have been cases in the past where taxpayers intentionally overpaid their taxes to IRS by “accidentally” leaving off large legitimate deductions. A few years later, they (hopefully) “notice” their mistake and file an amended return (1040X) with IRS to recoup those overpaid taxes and much more interest on top of that than they could have earned with alternative uses of that money.

Anyone considering such a tactic should heed a few warnings:
1. If the 1040X is not submitted within the three-year statute of limitations, the refund will be forfeited and considered to be a gift to the IRS.

2. Amended returns receive much more scrutiny from IRS than original returns, especially when claiming a refund. When examining an amended return, it is not uncommon for IRS to initiate a full-blown audit on other things on the return, not just the item triggering the amendment. I have seen this happen and the ensuing hassles caused the taxpayers to regret ever filing the amended return.

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How long will this upward trend in interest rates continue? No sane person is anticipating a slow-down in the current inflation snowball for at least another two to three years, when there may be a new occupant of the White House. By then, the rate will definitely be in the double digits, which hasn’t been the case since the last quarter of 1991.

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IRS Press Release Announcing the Higher Interest Rate:
Interest rates increase for the first quarter of 2023

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A very handy chart of IRS Interest Rates, going back to the beginning of 1987, including this section for the past few years.

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Posted in IRS, inflation, interest | Comments Off on IRS Raising Its Interest Rates Again

IRS Announces 2023 Inflation Adjustments

Posted by taxguru on October 18, 2022

There are few aspects of life that are untouched by the current Biden created inflation. While most are bad consequences, some are pretty nice. Social Security recipients will have a large increase in our monthly payments. Bank savings accounts are now back to paying actual interest on deposits.

As I have covered for several years, IRS is required by law to index a lot of tax items for the higher cost of living in order to prevent inflation caused Bracket Creep, where raises received by people in order to offset higher living costs push them into higher percentage tax brackets.

Side-Note: Every so often some of our genius rulers in DC will float the idea of doing away with these annual inflation adjustments, citing the huge amounts of extra money the Federal government will collect as a result. Luckily, those plans don’t usually get very far in DC.

The math wizards at IRS have done the calculations and have come up with the inflation adjustments for over 60 items in the Tax Code that will take effect as of January 1, 2023.

The IRS Press Release with a general summary of some of the changes, as well as some obvious typos referencing incorrect years:
IRS provides tax inflation adjustments for tax year 2023

Many more specific details can be found in this 28 page PDF version of Revenue Procedure 2022-38.

Gift Tax Exemption Increases
Having this info almost two and a half months before the end of 2022 can be quite useful for people working up tax plans that cross multiple years. Besides the effects of these inflation adjustments on income taxes for 2023, a more interesting change is the annual Gift Tax exclusion. As I have described many times before, this figure often remains steady for a number of years before being bumped up because it is only allowed to increase in even one thousand dollar increments based on the cumulative inflation factor since the previous increase. This is the first time that I can recall the amount increasing in two consecutive years: to $17,000 in 2023, from the $16,000 amount we have had for 2022. Many people use these annual gift tax exemptions as part of their long term Estate and Gifting strategies.

Out of curiosity, I dug up the recent history of the annual Gift Tax exemption amounts so we can see how rare it is to have an increase so soon after a previous one.

1997 – 2001 $10,000 per donor (giver) per donee (recipient)
2002 – 2005 $11,000
2006 – 2008 $12,000
2009 – 2012 $13,000
2013 – 2017 $14,000
2018 – 2021 $15,000
2022 – 2022 $16,000
2023 – ???? $17,000

Posted in Gifting, inflation, IRS | Comments Off on IRS Announces 2023 Inflation Adjustments

IRS Disaster Related Extended Filing Dates

Posted by taxguru on September 29, 2022

As we were waiting for Hurricane Ian to reach us, I was thinking that if it turned out to be as destructive as predicted, IRS would have to extend the upcoming October 17 deadline for taxpayers and preparers who are located here in Florida, as they recently did for storm and flood victims in Alaska and Hurricane Fiona victims in Puerto Rico. Those extensions were until February 15 of 2023.

Fortunately, IRS acted quickly and has issued the same extension of the October 17 deadline for all taxpayers and preparers in Florida since the entire state is part of the federally designated disaster area. That extra time will help ease the stress of having to get a lot of tax returns wrapped up by October 17.

Besides the longer time allowed to prepare and file 2021 tax returns, the status of being a federally designated disaster allows for a very unique tax saving opportunity. Any losses suffered from these recent disasters may be deducted on 2021 tax returns, even though the disaster took place in 2022. It is an excellent way to get tax money back into the hands of the victims much sooner than making them wait another year.

I have prepared several of these kinds of tax returns, where we claimed the losses in the year before the disaster. Most of these were for losses due to earthquakes and wildfires in California. The trickiest aspect to claiming such a deduction is calculating the amounts of the losses so soon after the event happened. We need to factor in how much is expected to be received from any insurance coverage that may apply and come up with the net loss incurred.

A tip for anyone claiming these kinds of losses on their tax returns: I have been able to avoid any IRS challenges to these disaster loss deductions by attaching before and after photographs of the damaged or destroyed properties.

Update 10-5-2022: IRS has extended this same official filing delay (until 2/15/2023) to those who were in the Hurricane Ian targets in North & South Carolina.

Posted in disaster, Due Dates, IRS | Comments Off on IRS Disaster Related Extended Filing Dates

IRS Interest Rates Continue To Climb

Posted by taxguru on August 15, 2022

In spite of the Biden Gang’s attempts to pretend that there is no such thing as Inflation, IRS is required to adjust how much they charge for late payments and pay out for late refunds.

As of October 1, 2002, the rate will move from the current 5.0% APR to 6.0% APR.

Here is their official press release, announcing this:

IRS announces interest rate increases for the fourth quarter of 2022; 6% rate applies to most taxpayers starting Oct. 1

Three months from now, there will most likely be another IRS announcement of an even higher rate as of January 1, 2023.

For those people trying to maximize their return on investment, this presents an opportunity to earn much more than banks are paying. In earlier times when IRS interest rates were higher than bank savings accounts, I can recall some clients and others holding off on filing amended refund returns for longer than normal in order to accrue more interest from IRS. I’m not necessarily advising this, but just noting that it is a tactic that some people do in times like this.

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

Giving More Power To IRS

Posted by taxguru on August 7, 2022

There is no shortage of news coverage of the Dims’ proposals to give IRS billions more dollars in order to squeeze more money out of everyone. Here are some more humorous approaches to what we may have to deal with if the IRS’s wet dreams do come true.

From the August 2, 2022 episode of Gutfeld!



From Ben Garrison at GrrrGraphics:


From Rich Terrell:

From Lisa Benson:


From Dana Summers:



As I expected, my favorite satire group, The Babylon Bee, can’t resist pointing out some of the insane aspects of this new law.

New Bill In Congress Hires An IRS Agent To Live In Every Home

10 Ways To Avoid Getting Audited By One Of The 87,000 New IRS Agents

Saruman Breeds Army Of 87,000 More Tax Collectors

Report: By 2026 Everyone In U.S. Will Be Working For IRS And Will All Just Be Auditing Each Other

Gamers Eagerly Await The Release Of ‘Call Of Duty: IRS Auditor’

Want To Be One Of The New IRS Agents? Here Are The 17 Job Requirements

Biden Hires 87,000 Bused-In Migrants As IRS Agents




From A.F. Branco:

From Steve Kelley:

From Dick Wright:

Posted in comix, IRS, parody, video | Comments Off on Giving More Power To IRS

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

Are IRS computer systems impossible to fix?

Posted by taxguru on March 9, 2022

Nobody should hold their breath expecting the wizards at IRS to get their act together with their computer systems any time this century.

A client just sent me this link to Americans For Tax Reform‘s handy list of just some of the IRS’s failed attempts to modernize their computer systems.

40 Years of Failure: IRS Unable to Fix Computer System

I remember 30 plus years ago, rather than hire outside tech experts to help them, they thought they could save money by drafting employees from various IRS departments, who had zero IT skills, to design more modern systems.  I don’t recall how many millions or billions of dollars they wasted on this project, but the whole thing had to be scrapped.

It may be amusing, but it’s definitely not funny when you consider how much money they have wasted and how much aggravation, expense and hassle their incompetence has cost all of us who are on the receiving end of their screw-ups.

Posted in computers, IRS | Comments Off on Are IRS computer systems impossible to fix?

Who knows when IRS will catch up with their backlog?

Posted by taxguru on March 5, 2022

This last item from the most recent issue of The Kiplinger Tax Letter is a bit depressing for all of us hoping that IRS will get back to normal in regard to processing returns and correspondence anytime soon.

“IRS will have trouble wiping out its backlog of 2020 returns and other filings,
despite its hopes of catching up amid the temporary personnel moves it made recently.
The agency shifted 1,200 personnel from other areas to assist with the backlog.
But there are over 20 million filings by individuals and corporations from last year
to sort through. IRS is begging Congress for more funding, but even if the agency
does get the money, any relief for taxpayers won’t be immediate. It will take months
or longer to hire new workers in this tight labor market and to onboard them.”

This will be the messiest Tax Season ever, to-date; something I have actually said each of the past two years.

Update 3/7/22
I’m much less optimistic about any timely resolution to the IRS backlog after reading the following in this morning’s newsletter from NCPE Fellowship.

“IRS to Hire 10,000 Workers to Help With Tax Return Backlog

The backlog includes at least 10 million individual tax returns and 4 million business tax returns going back to last year

The IRS is taking steps to relieve the backlog of tax returns.

The agency plans to hire 10,000 new full-time workers to play a direct role in that mission, according to Politico.

There are millions of unprocessed tax returns and other mail from individual and business taxpayers, according to the union that represents most of the IRS workforce.

The hiring process is scheduled to run through Dec. 31, 2023 and was first reported by the Washington Post.

In an effort to hire 5,000 new employees has fallen flat with less than 200 workers brought on board.

The new plan “sounds like an extension of that plan and its logic,” said Chad Hooper, president of the Professional Managers Association, a group that represents non-union personnel.

While he didn’t have the details of the plan, Hooper seemed skeptical about how easily it could be fulfilled.

“It’s unclear where the IRS believes these future employees are,” Hooper said.

There is a massive accumulation of paperwork going back to last year still awaiting processing, according to the report.

The mountain of paperwork includes at least 10 million individual tax returns and 4 million business tax returns, holding up refunds and credits going back to last year.

Starting this month, the IRS shifted 1,200 workers from their current jobs to deal with the backlog.

The IRS workforce currently sits at about 80,000, according to its website.”

Posted in IRS | Comments Off on Who knows when IRS will catch up with their backlog?