Joseph R. Castellano, CPA

08/18/2023

New school year reminder to educators; maximum educator expense deduction is $300 in 2023

WASHINGTON – As the new school year begins, the Internal Revenue Service reminds teachers and other educators that they’ll be able to deduct up to $300 of out-of-pocket classroom expenses for 2023 when they file their federal income tax return next year.

This is the same limit that applied in 2022, the first year this provision became subject to inflation adjustment. Before that, the limit was $250. The limit will rise in $50 increments in future years based on inflation adjustments.

This means that an eligible educator can deduct up to $300 of qualifying expenses paid during the year. If they’re married and file a joint return with another eligible educator, the limit rises to $600. But in this situation, not more than $300 for each spouse.

Who qualifies?
Educators can claim this deduction, even if they take the standard deduction. Eligible educators include anyone who is a kindergarten through grade 12 teacher, instructor, counselor, principal or aide who worked in a school for at least 900 hours during the school year. Both public and private school educators qualify.

What's deductible?
Educators can deduct the unreimbursed cost of:

Books, supplies and other materials used in the classroom.
Equipment, including computer equipment, software and services.
COVID-19 protective items to stop the spread of the disease in the classroom. This includes face masks, disinfectant for use against COVID-19, hand soap, hand sanitizer, disposable gloves, tape, paint or chalk to guide social distancing, physical barriers, such as clear plexiglass, air purifiers and other items recommended by the Centers for Disease Control and Prevention.
Professional development courses related to the curriculum they teach or the students they teach. But the IRS cautions that, for these expenses, it may be more beneficial to claim another educational tax benefit, especially the lifetime learning credit. For details, see Publication 970, Tax Benefits for Education, particularly Chapter 3.
Qualified expenses don’t include the cost of home schooling or for nonathletic supplies for courses in health or physical education. As with all deductions and credits, the IRS reminds educators to keep good records, including receipts, cancelled checks and other documentation.

For 2022 tax returns being filed now: Don’t forget to claim educator expenses
For those who received a tax filing extension, qualify for a disaster extension, or for any other reason are still working on their 2022 return, the IRS reminds educators that the rules for claiming the deduction are the same as they are for 2023. For those who obtained an extension, the filing deadline is Oct. 16, 2023. But taxpayers can avoid processing delays by filing before that date.

File electronically when ready. Tax-filing software uses a question-and-answer format that makes doing taxes easier. Whether a return is self-prepared or prepared with the assistance of a tax professional or trained community volunteer, the IRS urges everyone to file electronically and choose direct deposit for refunds. For details, visit IRS.gov/efile.

In addition, the IRS urges anyone who owes taxes to choose the speed and convenience of paying electronically, such as with IRS Direct Pay, a free service available only on IRS.gov. For information about this and other payment options, visit IRS.gov/Payments.

Make payments, view your account or apply for a payment plan with the IRS.

08/17/2023

Issue Number: IR-2023-150

Inside This Issue

New school year reminder to educators; maximum educator expense deduction is $300 in 2023

WASHINGTON – As the new school year begins, the Internal Revenue Service reminds teachers and other educators that they’ll be able to deduct up to $300 of out-of-pocket classroom expenses for 2023 when they file their federal income tax return next year.

This is the same limit that applied in 2022, the first year this provision became subject to inflation adjustment. Before that, the limit was $250. The limit will rise in $50 increments in future years based on inflation adjustments.

This means that an eligible educator can deduct up to $300 of qualifying expenses paid during the year. If they’re married and file a joint return with another eligible educator, the limit rises to $600. But in this situation, not more than $300 for each spouse.

Who qualifies?
Educators can claim this deduction, even if they take the standard deduction. Eligible educators include anyone who is a kindergarten through grade 12 teacher, instructor, counselor, principal or aide who worked in a school for at least 900 hours during the school year. Both public and private school educators qualify.

What's deductible?
Educators can deduct the unreimbursed cost of:

Books, supplies and other materials used in the classroom.
Equipment, including computer equipment, software and services.
COVID-19 protective items to stop the spread of the disease in the classroom. This includes face masks, disinfectant for use against COVID-19, hand soap, hand sanitizer, disposable gloves, tape, paint or chalk to guide social distancing, physical barriers, such as clear plexiglass, air purifiers and other items recommended by the Centers for Disease Control and Prevention.
Professional development courses related to the curriculum they teach or the students they teach. But the IRS cautions that, for these expenses, it may be more beneficial to claim another educational tax benefit, especially the lifetime learning credit. For details, see Publication 970, Tax Benefits for Education, particularly Chapter 3.
Qualified expenses don’t include the cost of home schooling or for nonathletic supplies for courses in health or physical education. As with all deductions and credits, the IRS reminds educators to keep good records, including receipts, cancelled checks and other documentation.

For 2022 tax returns being filed now: Don’t forget to claim educator expenses
For those who received a tax filing extension, qualify for a disaster extension, or for any other reason are still working on their 2022 return, the IRS reminds educators that the rules for claiming the deduction are the same as they are for 2023. For those who obtained an extension, the filing deadline is Oct. 16, 2023. But taxpayers can avoid processing delays by filing before that date.

File electronically when ready. Tax-filing software uses a question-and-answer format that makes doing taxes easier. Whether a return is self-prepared or prepared with the assistance of a tax professional or trained community volunteer, the IRS urges everyone to file electronically and choose direct deposit for refunds. For details, visit IRS.gov/efile.

In addition, the IRS urges anyone who owes taxes to choose the speed and convenience of paying electronically, such as with IRS Direct Pay, a free service available only on IRS.gov. For information about this and other payment options, visit IRS.gov/Payments.

Make payments, view your account or apply for a payment plan with the IRS.

08/16/2023

Issue Number: Tax Tip 2023-100

Information for organizations applying for tax-exempt status

Organizations applying for tax-exempt status must be organized and operated exclusively for any of these purposes: charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, or preventing cruelty to children or animals.

Organizations that want to apply for recognition of tax-exempt status under IRC 501(c)(3) will complete and file a Form 1023-series application.

The application process on IRS.gov includes a step-by-step guide explaining how to apply for tax-exempt status.

Here are some key things to know about this process.

Form 1023-series applications for recognition of exemption must be submitted electronically online at Pay.gov. The application must be complete and include the user fee.

Some types of organizations don't need to apply for Section 501(c)(3) status to be tax exempt. These include churches and their integrated auxiliaries, and public charities with annual gross receipts normally no more than $5,000.

Every tax-exempt organization needs an employer identification number (EIN), even if they don't have any employees. An EIN is a nine-digit number the IRS assigns for tax filing and reporting purposes. An organization must include their EIN on the application. Organizations can apply for an EIN online.

The effective date of an organization's tax-exempt status depends on their approved Form 1023. If they submit this form within 27 months after the month they legally formed, the effective date of the organization's exempt status is the legal date of its formation. If an organization doesn't submit this form within those 27 months, the effective date of its exempt status is the date it files Form 1023.

An organization that qualifies for tax-exempt status under IRC 501(c)(3) will be classified as a private foundation unless the organization meets the requirements to be treated as a public charity.

A charitable organization must make certain documents available to the public. These include its approved application for recognition of exemption with all supporting documents and its last three annual information returns. See Publication 557, Tax Exempt Status For Your Organization for additional information on public inspection requirements.

08/16/2023

Issue Number: IR-2023-147

Inside This Issue

Security Summit: IRS reminds tax pros to plan, protect, defend against identity theft; special summer series concludes with important reminders

WASHINGTON — Wrapping up a special awareness series, the Internal Revenue Service and the Security Summit partners urged tax pros to maintain robust security measures and take important steps to protect themselves and their taxpayer clients against identity theft.

Tax-related identity theft scams continue targeting tax professionals with a regular bombardment of scams and schemes that seek to gain access to sensitive taxpayer information. These schemes continue to evolve and ensnare victims, threatening both tax professionals and the clients they serve.

In today’s conclusion of the special five-part "Protect Your Client; Protect Yourself" series, the IRS and Summit partners urge tax professionals to take critical steps to protect their information, including taking extra care with how they handle data and security at their business and at home.

“Tax professionals form a central part of the tax community’s defense against identity thieves and cyberattacks,” said IRS Commissioner Danny Werfel. “Ensuring strong security at a tax practice – regardless of its size – will help protect not just the business, but also help safeguard individual taxpayers as well as state and federal tax agencies from fraud. The IRS and the Security Summit partners continue to urge tax professionals to take important steps to protect their clients and themselves from identity thieves.”

The Security Summit is a public-private partnership created in 2015 that works to protect the tax system against tax-related identity theft and fraud. The partnership has successfully strengthened fraud defenses inside the tax system to protect against identity theft, including by sharing information about emerging fraud and cyber schemes.

A key part of those defenses involves awareness among tax professionals and the taxpaying public. This news release series provides important information to help protect sensitive taxpayer data that tax professionals hold while also protecting their business from identity thieves. This marks the eighth year that the Security Summit partners have worked to raise awareness about these issues through the "Protect Your Clients; Protect Yourself" campaign as well as special seminars at the IRS Nationwide Tax Forums, which continue later this month in San Diego and Orlando.

The Security Summit partners also continue to remind tax professionals about the importance of setting up a Written Information Security Plan or WISP. The 28-page, easy-to-understand document was developed by and for tax and industry professionals to keep customer and business information safe and secure. The special template is designed to help tax professionals, especially smaller practices, make data security planning easier. Special sessions on the WISP have had standing room only audiences at the Tax Forum sessions so far this summer, with more than 300 attending last week’s session in Washington D.C.

Important reminders for tax pros, taxpayers to reduce identity theft risk:

Be cautious of email attachments and web links. Do not open a link or attachment that arrives unexpectedly. Many scammers can imitate legitimate businesses, taxpayer clients and government agencies, including the IRS. If in doubt about something you receive, independently contact the sender to confirm receipt and the validity of any unexpected links or attachments before opening.
Do not send sensitive business information to personal email devices. Do not conduct business, including online business banking, on a personal computer or device. Likewise, do not engage in web surfing, gaming or video downloading on business computers or devices. All of these can add to security risks.
Do not share USB drives or external hard drives between personal and business computers or devices. Never connect an unknown/untrusted piece of hardware to the tax pro’s system or network. Also do not insert any unknown CD/DVD or USB drives. Disable the "Autorun" feature for USB ports and optical drives on business computers to help prevent malicious programs from being installed.
Be careful with downloads. Do not download software from an unknown web page. Always exercise caution with freeware or shareware.
Use strong passwords. Never give out usernames or passwords to others. Strong passwords consist of a random sequence of upper and lower-case letters that include numbers and special characters. Ideally, passwords should be at least 14 characters long. For systems or applications that have sensitive information, use multiple forms of identification (multifactor or dual-factor authentication).
Change default passwords. Many devices come with default administrative passwords. Change them immediately and regularly thereafter. Default passwords are easily found or known by hackers.
Change passwords often. Every three months is recommended. Consider using a password management application to store passwords. Passwords to devices and applications that contain business information should not be reused.
In addition, because many continue working from home either full- or part-time, the IRS and Security Summit partners also urge:

The use of virtual private networks, or VPNs, to securely conduct business, a step that can reduce the threat of data loss.
Use caution with online business/commerce and banking. This should only be done while using a secure browser connection and never at a coffee shop, restaurant or other business offering 'free’ Wi-Fi.
Use of separate personal and business computers, mobile devices and email accounts. This is particularly important for those who may share hardware with other family members, especially children, who may not be aware of safety protocols.

08/16/2023

Issue Number: Tax Tip 2023-101

Everyone has the right to finality when working with the IRS

By law, all taxpayers have the right to finality of tax matters. For example, taxpayers have the right to know when the IRS has finished an audit. This is one of ten basic rights — known collectively as the Taxpayer Bill of Rights.

Here's what taxpayers should know about their right to finality:

Taxpayers have the right to know:
The maximum amount of time they have to challenge the IRS's position.
The maximum amount of time the IRS has to audit a particular tax year or collect a tax debt.
When the IRS has finished an audit.

The IRS generally has three years from the date taxpayers file their returns to assess any additional tax for that tax year.

There are some limited exceptions to the three-year rule, including when taxpayers fail to file returns for specific years or file false or fraudulent returns. In these cases, the IRS can assess tax for that tax year at any time.

The IRS generally has 10 years from the assessment date to collect unpaid taxes. The IRS can’t extend this 10-year period unless the taxpayer agrees to extend the period as part of an installment agreement to pay tax debt or a court judgment allows the IRS to collect unpaid tax after the 10-year period.

There are circumstances when the 10-year collection period may be suspended. This can happen when the IRS can’t collect unpaid tax due to the taxpayer's bankruptcy or there's an ongoing collection due process proceeding involving the taxpayer.

A statutory notice of deficiency is a letter proposing additional tax the taxpayer owes. This notice must include the deadline for filing a petition with the tax court to challenge the amount proposed.

Generally, a taxpayer can be subject to only one audit per tax year. The IRS may reopen an audit for a previous tax year if the agency finds it necessary. This could happen, for example, if a taxpayer files a fraudulent return.

08/12/2023

TGIF! Check out this beautiful dolphin caught on camera at the right moment in a once in a lifetime in Lady’s Island, SC!

📸 Marjorie Bosworth.

08/10/2023

Issue Number: IR-2023-145

Inside This Issue

IRS and Treasury issue guidance for owners of solar and wind powered energy facilities in low-income communities for increased energy credit under the Inflation Reduction Act
WASHINGTON — The Department of the Treasury and the Internal Revenue Service today issued final regulations and Revenue Procedure 2023-27 to provide guidance for owners of certain solar or wind facilities built in connection with low-income communities.
The guidance issued today provides definitions, requirements and procedures applicable to the Section 48(e) low-income communities bonus energy investment credit program established under the Inflation Reduction Act. The IRS estimates that applications from individuals, businesses and tax-exempt organizations that own certain energy credit qualifying solar or wind facilities could number in the thousands.
The Inflation Reduction Act provides for an increase in the energy investment credit for solar and wind facilities that apply for and receive an allocation of environmental justice solar and wind capacity limitation. Taxpayers that receive an allocation and properly place the facility in service may then claim the increased energy investment credit in the year that the facility is placed in service.
The final regulations provide definitions and requirements for the program. The regulations state the four project categories under which facilities apply for an allocation, and the increase of either 10% or 20% associated with a project category. Additionally, the regulations:
Define financial benefits for the two applicable project categories.
Define energy storage technology installed in connection with the solar or wind facility.
Define and describe the additional selection criteria for eligible potential applicants.
Remind potential applicants that facilities placed in service prior to an allocation are not eligible.
Provide the disqualification and credit recapture rules specific to the program.
Revenue Procedure 2023-27 provides the procedures for potential applicants to apply for an allocation of capacity limitation. Specifically, this guidance provides the information applicants will need to apply and describes the Department of Energy’s application and review process, and the IRS’s allocation award process. The guidance directs applicants to register and apply through the Department of Energy’s portal.
Today, DOE launched a Low-Income Communities Bonus Credit Program page, which will be updated in the coming weeks to provide additional information about the application opening date and application materials.
The Treasury Department and IRS released Notice 2023-17 on Feb. 13, 2023, to establish the Low-Income Communities Bonus Credit Program. Notice 2023-17 provided initial guidance for potential applicants seeking allocations of calendar year 2023 environmental justice solar and wind capacity limitation. The Treasury Department and IRS also issued proposed regulations on May 31.

08/08/2023

Issue Number: IR-2023-143

Inside This Issue

Security Summit reminder: Identity theft red flags tax pros should know

WASHINGTON — In the fourth of a special series, the Internal Revenue Service and the Security Summit partners today urged tax professionals to learn the signs of data theft so they can respond quickly to protect clients.

Tax professionals have a precious commodity that identity thieves desperately want — client tax information. With stronger fraud defenses put in place by the IRS and Security Summit partners, identity thieves need this essential information to help complete their crime.

"It’s important for tax professionals to protect their systems from identity thieves who always look for new methods to steal data," said IRS Commissioner Danny Werfel. "There are practical ways for practitioners to keep on top of the latest trends and signs of data and identity theft."

The IRS, state tax agencies and the nation’s tax industry – working together as the Security Summit – reminded tax professionals that they should contact the IRS immediately when there's an identity theft issue while also contacting insurance or cybersecurity experts to assist them with determining the cause and extent of the loss.

This is the fourth in a five-part "Protect Your Client; Protect Yourself" summer series from the Security Summit, a public-private partnership that works to protect the tax system against tax-related identity theft and fraud.

The news release series and the IRS Nationwide Tax Forums, which begin today in the Washington, D.C., area, provide important information to help protect sensitive taxpayer data that tax professionals hold while also protecting their business from identity thieves. This marks the eighth year that the Security Summit partners have worked to raise awareness about these issues through the "Protect Your Clients; Protect Yourself" campaign.

Tax professional victims have frequently shared their concern with IRS that they did not immediately spot the signs of data theft. Here are some things that can help.

Tax pros: Know the warning signs
Tax pros should be on the lookout for these critical warning signs from their clients:

Clients receive notice that an IRS Online Account was created without their consent or that:
Someone accessed their IRS Online Account without their knowledge.
The IRS disabled their Online Account.
Clients receive a tax transcript they didn't request.
Balance due or other notices from the IRS are received that are not correct based on the tax return filed.
Clients respond to calls or emails the tax pro didn't make.
Clients receive refunds without filing a tax return.
Tax professionals should also watch for these red flags when their business experiences:

Slow or unexpected computer or network responsiveness such as:
Software or actions take longer to process than usual.
Computer cursor moves or changes numbers without touching the mouse or keyboard.
Unexpectedly being locked out of a network or computer.
Client tax returns being rejected because their Social Security number was already used on another return.
IRS authentication letters (5071C, 6331C, 4883C, 5747C) being received even though a tax return hasn’t been filed.
Getting more e-file receipt acknowledgements than the tax pro filed.
While these are only a few examples, tax pros should ensure they have the highest security possible and be ready to react quickly to protect themselves and their clients. To help tax pros, the Summit partners created the Written Information Security Plan or WISP is a 28-page, easy-to-understand document developed by and for tax and industry professionals to keep customer and business information safe and secure.

Report immediately
If a tax pro or their firm are the victim of data theft, they should:

Report it to their local IRS Stakeholder Liaison. Speed is critical. IRS Stakeholder Liaisons will ensure all the appropriate IRS offices are alerted. If reported quickly, the IRS can take steps to block fraudulent returns in the clients' names and will assist tax pros through the process.
Email the Federation of Tax Administrators at [email protected]. They will provide guidance on reporting to state tax agencies. Most states require that the state attorney general be notified of data breaches.
Tax professionals should be pro-active with clients that could have been impacted and suggest appropriate actions, such as obtaining an IP PIN or completing a Form 14039, Identity Theft Affidavit, if applicable.

08/08/2023

Issue Number: IR-2023-142

Inside This Issue

IRS: Builders of qualified new energy efficient homes might qualify for an expanded tax credit under Section 45L

WASHINGTON – The Internal Revenue Service reminds eligible contractors who build or substantially reconstruct qualified new energy efficient homes that they might qualify for a tax credit up to $5,000 per home.

The actual amount of the credit depends on eligibility requirements such as the type of home, the home’s energy efficiency and the date when someone buys or leases the home. This important credit was expanded as part of the Inflation Reduction Act of 2022.

Eligibility for builders and homes
To qualify, eligible contractors must construct or substantially reconstruct a qualified new energy efficient home. They also must own the home and have a basis in it during the construction, and they must sell or lease the home to a person for use as a residence.

The homes must also be specified categories of single-family (including manufactured) or multifamily homes under Energy Star programs, be located in the United States, and meet applicable energy saving requirements based on home type and acquisition date.

Requirements and credit amounts for 2023 and after
For homes acquired in 2023 through 2032, the credit amount ranges from $500 to $5,000, depending on the standards met, which include:

Energy Star program requirements
Zero energy ready home program requirements
Prevailing wage requirements
Requirements and credit amounts before 2023
For homes acquired before 2023, the credit amount is $1,000 or $2,000, depending on the standards met, which include:

Certifying that the home has an annual level of heating and cooling energy consumption that is at least 50% (or 30% for certain manufactured homes) less than that of a comparable home that meets certain energy standards, with building envelope component improvements accounting for at least 1/5 (or 1/3 for certain manufactured homes) of the reduction
Meeting certain federal manufactured home rules
Meeting certain Energy Star requirements
Properly claiming the credit
Eligible contractors must meet all requirements under Internal Revenue Code Section 45L prior to claiming the credit. Guidance interpreting Section 45L may be found in Notice 2008-35 (and Notice 2008-36, for manufactured homes).

Use Form 8908, Energy Efficient Home Credit, to claim the Section 45L credit. If the source to claim the credit is from a partnership or S corporation, eligible contractors should use Form 3800, General Business Credit.

The IRS encourages eligible contractors to practice good recordkeeping of all documents required to support a claim for the Section 45L credit.

08/05/2023

Issue Number: IR-2023-140

Inside This Issue

Home Energy Audits May Qualify for an Energy Efficient Home Improvement Credit

Washington – The IRS issued Notice 2023-59 today regarding the requirements for home energy audits for taxpayers that want to claim the energy efficient home improvement credit.

The Inflation Reduction Act of 2022 created several clean energy credits. Each of these credits has requirements for the type of clean energy property or service purchased and how they are claimed. This includes a non-refundable energy efficient home improvement credit for the purchase and installation of certain energy efficient improvements in taxpayers’ principal residences.

The credit amount is equal to 30 percent of the total amount that taxpayers pay during the year for:

Qualified energy efficiency improvements installed during the year,
Residential energy property expenditures, and
Home energy audits.
Today’s guidance provides specific requirements to claim the home energy improvement credit and the process for conducting the home energy audit. The audit must identify the most significant and cost-effective energy efficiency improvements to the residence, including an estimate of the energy and cost savings to each improvement.

The maximum credit for home energy audits is $150. Therefore, taxpayers can claim a 30 percent credit on audits that cost up to $500. The home energy auditor must provide a written audit report to the taxpayer.

When obtaining a residential energy audit make sure that it meets the credit requirements. Specifically, taxpayers will need to substantiate that a qualified auditor conducted their home audit. To satisfy this requirement, the written audit should state that the auditor is certified to conduct the home energy audit.

The home energy efficient home improvement is a non-refundable credit, meaning that it can only reduce the amount of tax you owe and will not create a refund.

For more information on these credits and other clean energy credits related to the Inflation Reduction Act check the inflation reduction act credits and deductions page on

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