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Member of Russell Bedford International, a global network of independent professional service firms.
You may have heard that the Illinois House and Senate recently passed the Illinois Family Relief plan. Under the plan, one-time individual income and property tax rebates will be issued to taxpayers who meet certain requirements.
Rebates are expected to begin being issued the week of September 12. If you have not/are not receiving a refund or received a paper check refund, it may take longer for the rebate to be issued.
Keep reading to see if you are eligible to receive one or both of these rebates.
If you were an Illinois resident in 2021 and your adjusted gross income on your 2021 Form IL-1040 is under $400,000 (if filing jointly) or under $200,000 (if filing as a single person) you are eligible for a rebate.
If you filed as a single person your rebate is $50, married couples filing jointly will receive $100 ($50 per person). If you have dependents, you will receive a rebate of up to $300 — $100 per dependent, with a maximum of three.
If you have filed your 2021 IL-1040, you will automatically receive your rebate. If not, you have until October 17, 2022 to file your 2021 IL-1040. If you have dependents, you also must complete Schedule E/EIC.
You are eligible for a property tax rebate if you are an Illinois resident who paid Illinois property taxes in 2021 on your primary residence in 2020, and your adjusted gross income on your 2021 Form IL-1040 is $500,000 or less (if filing jointly) or $250,000 or less (if filing as a single person).
Your rebate amount is equal to the property tax credit you were qualified to claim on your 2021 IL-1040, up to a maximum of $300.
If you have filed your 2021 IL-1040 and Schedule ICR, you will automatically receive your rebate. If not, you have until October 17, 2022 to file a Property Tax Rebate form (IL-1040-PTR) to receive your rebate.
Submit Form IL-1040-PTR electronically through MyTax Illinois or submit a paper Form IL-1040-PTR.
Contact the tax experts at Cray Kaiser by calling 630.953.4900 or by filling out this form if you have any questions or need assistance with these rebates
Tax law requires individuals who have reached age 72 to begin taking minimum distributions from their traditional IRA accounts. These are referred to as a required minimum distribution or RMD. The RMD amount is calculated by dividing the value of the IRA account on December 31 of the prior year by the distribution period from the Uniform Lifetime Table, corresponding to the taxpayer’s age. For example, if an individual turns 75 in 2022, the distribution period from the table is 24.6. If the balance in their IRA was $500,000 on December 31, 2021, then the individual’s RMD for the current year would be $20,325 ($500,000/24.6). RMDs are counted as taxable income. The IRS develops the Uniform Lifetime Table using mortality rate data; it has been updated effective with 2022 distributions.
The tax law also permits individuals aged 70½ or over to transfer funds from their IRA accounts to charities in what is referred to as Qualified Charitable Distributions (QCDs). These QCDs are not taxable. In instances where a taxpayer must make required minimum distributions (RMDs), the QCDs count toward the RMD requirement. Thus, in our prior example, if the individual had transferred the $20,325 to a qualified charity in a QCD, the $20,325 would not have been taxable.
However, QCDs are not limited to RMDs. For those with large IRA balances, QCDs can total up to $100,000 annually. Additionally, QCDs are not limited to a single transfer in a tax year as long as the total amount distributed does not exceed the $100,000 annual limit.
Example: Anne wants to contribute to her church’s building fund, the American Cancer Society, and the American Red Cross in the same year. She can do that by having her IRA make separate direct transfers to each charity.
It is important to remember that all individual Traditional IRAs are treated as one for purposes of determining an RMD and that all QCDs must be direct transfers by the IRA trustee to the charity.
Qualified Charitable Distributions can provide significant tax benefits. Here is how this provision, if utilized, plays out on a tax return:
At first glance, this may not appear to provide a tax benefit. However, by excluding the distribution, a taxpayer lowers his or her adjusted gross income (AGI), which helps for other tax breaks (or punishments) that are pegged at AGI levels, such as medical expenses if itemizing deductions, passive losses, taxable Social Security income, and so on. In addition, non-itemizers essentially receive the benefit of a charitable contribution to offset the IRA distribution.
At first glance, this may not appear to provide a tax benefit. However, by excluding the distribution, a taxpayer lowers his or her adjusted gross income (AGI), which helps for other tax breaks (or punishments) that are pegged at AGI levels, such as medical expenses if itemizing deductions, passive losses, taxable Social Security income, and so on. In addition, non-itemizers essentially receive the benefit of a charitable contribution to offset the IRA distribution.
In the past, the tax code did not permit contributions to IRAs by individuals once they reached age 70½, which coordinated with the previous age requirement to begin RMDs and the ability to make QCDs. The age restriction to contribute to IRAs has been eliminated, so now individuals may make IRA contributions at any age provided they have earned income.
Whether intentional or an oversight by Congress, the tax changes did not modify the age at which a taxpayer can begin making QCDs and left it at age 70½ – no longer in synchronization with the revised RMD age of 72.
Unfortunately, that has created a situation that can be detrimental for individuals who have earned income and wish to utilize the QCD provisions and continue to contribute to an IRA after age 70½. The problem is that a Qualified Charitable Distribution must be reduced by the sum of IRA deductions made after age 70½ even if they are not in the same year, causing unexpected tax results for taxpayers that are not aware of this complication. This is best demonstrated by a couple of examples.
Example #1 –
Jack makes a deductible IRA contribution of $7,000 when he is age 71 and another $7,000 contribution at the age of 72. He claims an IRA deduction of $7,000 on his tax return for each year. Then later when he is 74, he makes a QCD of $10,000 to his church’s building fund. Since Jack had made the IRA contributions after age 70½, his QCD must be reduced by the post-70½ contributions that were deducted, and as a result, the $10,000 is a taxable IRA distribution ($10,000 – 14,000 = <$4,000>). However, he can claim the $10,000 to the church building fund as a charitable contribution on Schedule A if he itemizes his deductions.
In the next year, Jack makes a $5,000 QCD to the university where he got his degree. The excludable amount of the QCD is $1,000 ($5,000 – $4,000 = $1,000). The $4,000 is the amount that remained from post-age 70½ IRA contributions that didn’t previously offset QCDs. Jack includes $4,000 as taxable IRA income and can deduct $4,000 as a charitable contribution if he itemizes. No amount of post-age 70½ IRA contributions remains to reduce the excludable amount of QCDs for subsequent taxable years.
Example #2 –
Bob makes a traditional IRA contribution of $7,000 at age 71 and another $7,000 contribution at the age of 72 and deducts the IRA contributions on his returns. Then later when he is 74, he makes a QCD in the amount of $20,000 to his church’s building fund. Since Bob had made the deductible IRA contributions after age 70½, his QCD must be reduced by $14,000. As a result, of the $20,000 QCD, $14,000 is a taxable distribution, $6,000 is nontaxable, and Bob can claim a $14,000 charitable contribution.
All of this can become quite complicated. If you are considering making a Qualified Charitable Distribution and made IRA contributions after age 70½ consider consulting with the tax experts at Cray Kaiser before you make the distribution to ensure you understand the potential tax ramifications.
The Work Opportunity Tax Credit (WOTC) is a general business credit that is jointly administered by the Internal Revenue Service (IRS) and the Department of Labor (DOL). The WOTC is available for wages paid to certain individuals who begin work on or before December 31, 2025.
The WOTC may be claimed by any employer that hires and pays wages to or incurs on behalf of certain individuals who are certified by a designated local agency (sometimes referred to as a state workforce agency) as being a member of one of 10 targeted groups.
In general, the WOTC is equal to 40% of up to $6,000 of wages paid to, or incurred on behalf of, an individual who:
However, an employer cannot claim the WOTC for employees who are rehired.
The maximum tax credit is generally $2,400. A 25% rate applies to wages for individuals who perform fewer than 400 but at least 120 hours of service for the employer. Up to $24,000 in wages may be considered in determining the WOTC for certain qualified veterans.
Employers of all sizes are eligible to claim the WOTC. This includes both taxable and certain tax-exempt employers located in the United States and in certain U.S. territories. Taxable employers claim the WOTC against income taxes, and in general, may carry the current year’s unused WOTC back one year and then forward 20 years. The procedure is different for eligible tax-exempt employers; they can claim the WOTC only against payroll taxes and only for wages paid to members of the Qualified Veteran targeted group.
An employer may claim the WOTC for an individual who is certified as a member of any of the following targeted groups:
and continues to reside at the locations after employment.
An employer must obtain certification that an individual is a member of the targeted group, before the employer may claim the credit. An eligible employer must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their respective state workforce agency within 28 days after the eligible worker begins work. Employers should contact their individual state workforce agency with any specific processing questions for Forms 8850.
Qualified tax-exempt organizations described in IRC Section 501(c) and exempt from taxation under IRC Section 501(a), may claim the credit for qualified veterans who began work for the organization after 2020 and before 2026. Tax-exempt employers claim the credit against the employer Social Security tax by separately filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.
Form 5884-C is filed after the organization files the related employment tax return for the period for which it is claiming the credit. The IRS recommends that qualified tax-exempt employers do not reduce their required deposits in anticipation of any credit. The credit will not affect the employer’s Social Security tax liability reported on the organization’s employment tax return.
Contact Cray Kaiser at 630-953-4900 for additional information and assistance in determining if the WOTC is appropriate for your business.
If you sold your home this year or are thinking about putting it on the market, there are many tax-related issues that could apply to the sale of your home. To help you prepare for reporting a sale or make you aware of what issues you may face if you opt to sell your home, this article covers the tax basics and some special situations related to home sales and the home-sale gain exclusion.
For decades, Congress has encouraged home ownership by providing various tax breaks for taxpayers selling their homes. Under the current version of the tax code, you are allowed an exclusion of up to $250,000 ($500,000 for married couples) of gain from the sale of your home if you owned and lived in it as your principal residence for at least two of the five years counting back from the sale date. One important note, you cannot have taken a home-sale exclusion within the two years immediately preceding the sale. There is no limit on the number of times you can use the exclusion if you meet these time requirements. The home-sale gain exclusion only applies to your primary residence, not to a second home or a rental property.
As noted above, you must have used and owned the home as your principal residence for two out of the five years immediately preceding the sale. The years don’t have to be consecutive or the closest to the sale date. Vacations, short absences, and short rental periods do not reduce the use period. If you are married, to qualify for the $500,000 exclusion, both you and your spouse must have used the home for two out of the five years prior to the sale, but only one of you needs to meet the ownership requirement. When only one spouse in a married couple qualifies, the maximum exclusion is limited to $250,000 instead of $500,000.
Although this situation is quite rare, if you acquired the home as part of a tax-deferred exchange (sometimes referred to as a 1031 exchange), then you must have owned the home for a minimum of five years before the home-gain exclusion can apply.
If you don’t meet the ownership and use requirements, there are some situations in which a prorated exclusion amount may be possible. An example of this situation would be if you were required to sell the home because of extenuating circumstances, such as a job-related move, a health crisis, or other unforeseen events. Another rule extends the five-year period to account for the deployment of members of the military and certain other government employees. Give us a call if you have not met the two out of five years rule; we can help determine if you qualify for a reduced exclusion.
If you used your home for business and claimed a tax deduction—for instance, for a home office, storing inventory in the home, or using it as a daycare center—that deduction most likely included the home’s depreciation. In that case, up to the extent of the gain, the claimed depreciation cannot be excluded.
The first step is to determine how much the home cost, the combination of the purchase price and the cost of improvements. From this total cost, subtract any claimed casualty loss deductions and any depreciation taken on the home. The resulting number is your tax basis. Next, subtract the sale expenses and this tax basis from the sale price. The result is your net gain or loss on the sale of the home. Your mortgage does not affect the taxable gain or loss computation.
If the result is negative, the sale is a loss; losses on a personal-use property such as a home cannot be claimed for tax purposes.
If the result is a gain, subtract any home-gain exclusion (discussed previously) up to the extent of the gain. This is your taxable gain, which is, unfortunately, subject to income tax. If you owned the home for at least a year and a day, the gain will be a long-term capital gain; as such, it will be taxed at the special capital-gains rate, which ranges from zero for low-income taxpayers to 20% for high-income taxpayers. Depending on the amount of all your income, the gain may also be subject to the 3.8% net investment income surtax that was added as part of the Affordable Care Act.
If you have owned your home for 25 years or more, you may face another issue that can affect your home’s tax basis. If you purchased your home before May 7, 1997, after selling another home, the tax rules on home sale gains were different. Instead of a home-gain exclusion of the profit from the home you sold, any gain from the sale would have been deferred to the replacement home. This deferred gain would reduce your current home’s tax basis and add to any gain for the current sale. While this situation is rare now, if it applies to you, be sure to look back in your tax records from the year you purchased your home for information about the reinvested gain deferral.
If you previously used your home as a rental property, the law includes a provision that prevents you from excluding any gain attributable to the home’s appreciation while it was a rental. The law’s effective date was the beginning of 2009, meaning that you only need to account for rental appreciation starting that year. This law was passed to prevent landlords from moving into their rentals for two years to exclude the gains from those properties. Before the law changed, some landlords had done this repeatedly.
There are a few other rare home-sale rules we did not include here. As you can see, home-sale computations and tax reporting can be very complicated. If you have recently sold your home or are planning on selling, reach out to the tax experts at Cray Kaiser at (630) 953-4900 if you need assistance planning a sale or post-sale reporting.
Congratulations on your new marriage! While you likely spent a fair amount of time planning your wedding (especially if your plans were affected by the Coronavirus pandemic), you may not be thinking about the legal and tax consequences of your nuptials. Here are some post-marriage tips to help you avoid stress at tax time.
If you have any questions about the impact of your new marital status on your taxes, call the tax experts at Cray Kaiser at (630) 953-4900.
You have likely heard that Illinois residents are receiving up to $400 in compensation from the Facebook Biometric Information settlement. The courts finalized the settlement and began distributing checks in May 2022, for claims filed in 2021. Settlements like this are becoming more common; every day you hear of privacy lapses or breaches at large corporations which in many cases result in a class-action lawsuit. Most of these scenarios produce small settlements (or none at all) but with the Facebook Biometric settlement, the compensation amount was sizable. Our instinct is to cash the check without giving it a second thought. But what are the tax ramifications of these payments?
In short, most items are presumed taxable unless the tax code specifically indicates otherwise. Therefore, most of the settlements you hear about or benefit from will most likely be taxable events.
There are a few different types of damages that the IRS has commented upon, some of which are excluded from being reported as income. Below is a short listing of different types of damages and tax ramifications.
Receipt of damages due to the of the following are excludable from income:
Damages and settlements received for the following are taxable:
As you can see, most damages excluded from income tax deal with a clear physical injury, sickness, or wrongful death. In terms of emotional distress, the tax code gives special consideration and damages would be excluded up to the amount of any medical costs incurred as a result of the distress. Any additional amount received above the medical costs would be taxable.
The IRS has made it clear that any punitive damages, even if it is for physical injury, would be taxable. For wrongful death, the taxation of punitive damages is dependent on state law.
Other damages not specifically excluded by the IRS would be taxable.
Damages, legal settlements, and legal expenditures can get complicated. Cray Kaiser is here to help you determine the taxation on your damage award, just give us a call at 630-953-4900.
Thinking of exploring the world, living a nomadic lifestyle, or just being with family that lives abroad? Especially now that technology and digitalization enable you to work remotely? What you may not know is that you can potentially exclude some of that income from your U.S. taxes.
In general, U.S. citizens are taxed on their worldwide income and then receive a foreign tax credit for any portion of their income earned outside of the U.S. Theoretically, the U.S. is only taxing the difference between U.S. tax rates vs. foreign tax rates, and your taxes would be effectively the higher rate of the two countries.
However, the U.S. does allow its citizens and resident aliens to exclude up to $112,000 (for 2022 and indexed yearly for inflation) of their income, if they meet the following requirements:
You can use the IRS interactive tax assistant to determine if your foreign income is eligible for exclusion.
If you are married and both of you live abroad, and meet the definitions outlined, both of you can exclude up to $112,000 of income on your tax return.
Other taxable items such as social security income, dividends, interest, and pension checks would still be taxable in the U.S. Your tax rate would still be based upon your total income (including the excluded foreign income). However, you would still benefit as the foreign income is excluded from your tax return. Depending on your residence before moving abroad, your state might have different reporting requirements and might not allow any foreign exclusions.
If you meet the above requirements, you can claim the exclusion of income.
The taxation of foreign activities can get complicated and difficult to decipher, but Cray Kaiser can help. Call us at 630-953-4900 to help you determine the best treatment for your individual case along with any state complications.
As it does every year, the Internal Revenue Service recently announced the inflation-adjusted 2023 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2023, the standard mileage rates for the use of a car (van, pickup or panel truck) are:
The business standard mileage rate is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. The rate for using an automobile while performing services for a charitable organization is statutorily set (it can only be changed by Congressional action) and has been 14 cents per mile for over 15 years.
The 2023 rates are based on 2022 fuel costs. Given the potential for the continuation of substantially higher gas prices, it may be appropriate to consider switching to the actual expense method for 2023, or at least keep track of the actual expenses, including fuel costs, repairs, maintenance, etc., so that the option is available for 2023.
Taxpayers always have the option of calculating the actual costs of using their vehicle for business rather than using the standard mileage rates. In addition to the possibility of higher fuel prices, the bonus depreciation and increased depreciation limitations for passenger autos that were part of the 2017 Tax Cuts and Jobs Act may make using the actual expense method worthwhile during the first year a vehicle is placed in business service.
However, the standard mileage rates cannot be used if you have used the actual method (using Sec. 179, bonus depreciation and/or MACRS depreciation) in previous years. This rule is applied on a vehicle-by-vehicle basis. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or more than four vehicles simultaneously.
When employers reimburse employees for business-related car expenses using the standard mileage allowance method for each substantiated employment-connected business mile, the reimbursement is tax-free if the employee substantiates to the employer the time, place, mileage and purpose of employment-connected business travel.
The Tax Cuts and Jobs Act eliminated employee business expenses as an itemized deduction, from 2018 through 2025. Therefore, employees may not take a deduction on their federal returns for those years for unreimbursed employment-related use of their autos, light trucks or vans. However, those who are self-employed are eligible to claim expenses for their personal vehicles used in their businesses.
Many of today’s SUVs weigh more than 6,000 pounds and are therefore not subject to the limit rules on luxury auto depreciation. Taxpayers with these vehicles can utilize both the Section 179 expense deduction (up to a maximum of $28,900 in 2023) and the bonus depreciation (the Section 179 deduction must be applied before the bonus depreciation) to produce a sizable first-year tax deduction. However, the vehicle cannot exceed a gross unloaded vehicle weight of 14,000 pounds. Caution: Business autos are 5-year class life property. If the taxpayer subsequently disposes of the vehicle before the end of the 5-year period, as many do, a portion of the Section 179 expense deduction will be recaptured and must be added back to income (SE income for self-employed individuals). The future ramifications of deducting all or a significant portion of the vehicle’s cost using Section 179 should be considered.
Consider using bonus depreciation as an alternative to the Section 179 deduction. Under this provision, a taxpayer can elect to claim a deduction of 100% of the cost of a new or used vehicle used for business in the first year it is placed into business service. However, the luxury auto rules impose a maximum annual deduction for depreciation, including the bonus depreciation. For example, in 2021, the maximum depreciation deduction for an auto for which bonus depreciation was claimed was $18,200. This compares to a maximum of $10,200 if bonus depreciation isn’t elected. Of course, if the vehicle is used only partly for business, then only the business-use percentage of the cost is eligible to be deducted.
After 2022, the deductible bonus depreciation percentage drops by 20 percentage points a year, until 2027 when, barring an extension by Congress, no bonus depreciation will be allowed.
Whether to claim bonus depreciation, Section 179, regular depreciation, or a combination of these methods for a business vehicle or to use the standard mileage rate instead, can be a complicated decision to make.
If you have questions about the best methods of deducting the business use of your vehicle or the documentation required, please give our office a call at (630) 953-4900.
What you do with your pay stub often depends on how you get paid. If you have direct deposit, there’s a good chance that you don’t even look at your pay stub if you don’t receive paperwork from your employer. Or you receive a pay stub and shred it without a glance, confident that the money is in your bank account, and all is good in your world. But the fact that you’ve been paid doesn’t mean that the information on your pay stub isn’t important. It’s a good idea to take a closer look at the information that’s provided, and make sure you understand what it all means.
The most important reason to double-check your pay stub is to ensure that you’re being paid correctly and that the right amount of money is being withheld on your behalf by your employer. You know better than anybody what your income is supposed to be, and mistakes do happen, but you won’t know if you don’t check.
An issue that we see quite often is insufficient withholding taxes being taken out of your pay. This creates an unwelcome surprise at tax time, a matter that can be rectified sooner if you take action right away.
We’ve all seen how complicated federal taxes have become – with different levels of deductions, changing tax brackets, tax credit advances, and seemingly constant law changes. While the IRS recommends that you use calculators to estimate your taxes, we sometimes see errors with this methodology. Unfortunately, the best way to determine your tax burden is to prepare a mock return – taking into account all sources of income, expected deductions, and anticipated credits. Then compare that to your expected withholding.
If there is a shortfall, reach out to your Human Resources department and discuss changing your Form W4 to request more federal tax withholding. If it looks like you may receive a big refund, first, double-check your work. Then, perhaps adjust your withholding to have fewer taxes taken out to receive more take-home pay now.
Here in Illinois, we have a flat tax, so it is less likely errors will occur. However, you need to keep in mind other sources of income that may not have tax withholding (such as investment income).
Beyond what you are paid, and the taxes withheld, have you reviewed your other deductions and benefits? Unfortunately, there is no one set format for pay stubs. In fact, some states don’t even require employers to provide their employees with the specifics of where their money is going each pay period. For those who do receive paper records of their withholding amounts and more, here’s what you’re likely to find, and what it means.
Your payroll records have a wealth of information about your pay, taxes, and benefits that have implications come tax time. If you’d like us to perform an interim review of your tax situation, please contact Cray Kaiser today.
If you are considering purchasing an electric vehicle and expect to receive a federal tax credit for your purchase, do your homework first. There is a phaseout based on a manufacturer’s sales of electric vehicles that impacts the credit available to the purchaser.
Many popular manufacturers have been phased out of the credit, including Tesla and General Motors.
The credit phase out for manufacturers begins in the second calendar quarter following the sale of its 200,000th plug-in electric drive motor vehicle for use in the U.S. The applicable percentage phase-out is:
While the credit for many popular models is phasing out or has phased out already, some manufacturers are just beginning to offer electric vehicles. There are also new electric vehicle manufacturers entering the market, so you still have choices for an electric vehicle that qualifies for a tax credit.
Here are some things you should be aware of before making your decision to purchase an electric vehicle.
The credit is not a flat $7,500; it is made up of two elements, a $2,500 per vehicle credit plus an additional $417 for each kilowatt hour of capacity in excess of 5-kilowatt hours, not to exceed $5,000, resulting in an overall credit of up to $7,500.
The amount of credit available for any qualifying vehicle, listed by the manufacturer, is available on the IRS website. Although most salespeople will know the amount of credit that is available for the vehicle you are considering, you may run into an overzealous one that might mislead you. So, it is good practice to double check for yourself on the IRS Website.
The following requirements must be met to qualify for the credit.
Credit for Multiple Vehicles – The credit is a per vehicle credit. Therefore, if you purchase multiple plug-in electric drive motor vehicles you can claim the credit for each vehicle.
Off-Road Vehicles and Golf Carts – Vehicles manufactured primarily for off-road use, such as for use on a golf course, do not qualify for the credit.
Allocation Between Business and Personal Use – If you use a qualified plug-in electric drive motor vehicle both personally and, in your business, the credit is divided (allocated) between personal use and business use and creates two separate credits, with the tax treatment of the two being quite different.
For both the personal and business credit, the basis of the vehicle is reduced dollar for dollar by the amount of the credit. For a taxpayer claiming just the personal credit, this only becomes an issue when the vehicle is subsequently sold since when determining the gain or loss on the sale, the cost of the vehicle is reduced by the amount of any credit claimed. If the sale of a personal vehicle results in a loss, no loss is deductible, but if there’s a gain, the gain is taxable. This has rarely been an issue since vehicles were seldom subsequently sold for a profit. However, recently the used car market has been turned on its head, with many used cars selling for as much or more than the original cost, which could result in a taxable capital gain for the seller. For a vehicle used for business, the credit reduces the depreciable basis of the vehicle. No credit is allowed for any portion of a business vehicle expensed under Sec 179.
If a taxpayer uses a vehicle for business, they can choose between deducting actual expenses such as fuel, repairs, insurance, etc., or deducting a standard amount for each business mile driven. The standard mileage rate is determined periodically by the IRS using average costs of operating a vehicle. The IRS does not distinguish between fuel-powered cars and electric cars, and both are allowed to use the same standard amount, even though the rate includes fuel costs. The business mileage rate for 2022 is 58.5 cents per mile, up from 56 cents per mile in 2021.
President Biden’s Build Back Better Act included a new round of electric vehicle credits. But that Act appears to be dead in the water and whether Congress will authorize those credits in a separate bill is yet to be seen.
If you have questions contact Cray Kaiser. We can help determine how much benefit you will derive from the plug-in electric drive motor vehicle credit based upon your specific use of the vehicle, whether it is personal, business or a combination of the two.
