The Internal Revenue Service (IRS) has officially kicked off the 2023 tax filing season and has begun accepting and processing tax returns for tax year 2022 as of January 23, 2023. With tax season underway, there are a few things to think about as you compile your tax documents and get your tax affairs in order.
First off, the natural disasters caused by the recent series of atmospheric rivers afforded those who were victimized some additional time to file their tax returns and pay any balances due. For most calendar year individual and business income tax returns, the filing deadline this year is generally March 15 for S corporations, partnerships, and limited liability companies (LLCs) and April 18 for individuals, estates/trusts, and C corporations. However, individuals and businesses affected by the recent California storms, including those who reside in Orange, Los Angeles, Riverside, San Bernardino, and San Diego counties, among others, have been granted relief and have until October 16 to pay their taxes and file their tax returns. This also means that eligible taxpayers have until October 16 to make 2022 contributions to their individual retirement accounts (IRAs) and health savings accounts (HSAs).
The IRS faced many challenges last year, including processing delays for tax returns, due to resource constraints and antiquated systems/processes. Although things have improved, the backlog of unprocessed tax returns still sit at about $4 million as of mid-December 2022. Leading into 2023, the IRS will continue to face headwinds as they push to shrink the size of their backlog while trying to keep up with processing incoming tax returns for tax year 2022. Given the continued delays in processing tax returns, it behooves you to file your tax returns electronically rather than paper-file, not to mention having any tax refunds directly deposited rather than requesting paper checks, as this will speed up the processing time by months.
Starting in 2023, owners of traditional IRAs, 401(k)s and other eligible retirement plans can wait until the age of 73, rather than 72, to start taking required minimum distributions (RMDs). However, if you turned 72 in 2022, you must take your first RMD by April 1, 2023.
If you own an S corporation, now is the time to review your S election status to ensure that you are complying with the S corporation rules. On October 11, 2022, the IRS issued Revenue Procedure 2022-19 to allow S corporations and its shareholders to cure frequently violated issues through a simplified procedure without having to go through the more onerous Private Letter Ruling (PLR) process. Taxpayers can self-correct the following issues through this simplified procedure:
- One class of stock requirement and governing provisions;
- Disproportionate distributions;
- Certain errors or omissions on Form 2553 (Election by a Small Business Corporation) and Form 8869 (Qualified Subchapter S Subsidiary (QSub) Election);
- Missing administrative letter(s) for a corporation’s S election or its subsidiary’s QSub election;
- A federal income tax return filing that is inconsistent with the corporation’s status as an S corporation or a QSub; and
- Non-identical governing provisions that cause an S corporation to have more than one class of stock.
By self-correcting any issues through the simplified procedure, you can minimize penalties and avoid the risk of losing your S corporation status, so act fast to beat the IRS to the punch.
Last but not least, if you have not already done so, consider making the state-level pass-through entity tax (PTET) election, where available. By doing so, your state income tax in relation to your share of pass-through income can be paid by the related S corporation, partnership, or LLC on your behalf, thereby avoiding the $10,000 state and local tax deduction cap imposed on individuals who itemize their deductions. However, there are traps for the unwary by making this election, so be sure to consider all factors when evaluating the cost/benefit of the PTET election.
We hope you find these tips helpful as you prepare for this year’s tax filing season. And, as always, please be sure to consult with your own tax, legal and accounting advisors prior to acting on any of the information set forth herein.
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David Yoo, CPA, MBT, CFP® Director of Tax and Financial Planning First American Trust |
David brings over 24 years of tax experience servicing wealthy individuals and their closely held businesses, with a strong emphasis in the taxation of estates and trusts. As a Director of Tax and Financial Planning, he is responsible for overseeing the Tax Department and advising clients on their tax planning needs vis-à-vis income, estate, gift, and charitable matters. David is a licensed Certified Public Accountant in California and a Certified Financial PlannerTM, and earned his Master of Business Taxation degree from University of Southern California and his undergraduate degree from University of California, Irvine.
First American Trust, FSB, and its affiliates do not provide tax, legal or accounting advice. Any such content provided herein has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal or accounting adviser(s) before engaging in any transaction.
