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Preface: The desire of gold is not for gold. It is for the means of freedom and benefit. –Ralph Waldo Emerson

Reporting and Taxation for Investors in Precious Metals

Credit: Benjamin Gelbart

The term “precious metals” generally means gold and silver, but also includes other metals such as platinum and titanium.

Investment grade precious metal that has been refined to high levels of purity is known as bullion. Bullion includes both coins and bars.
Sale of bullion is taxed as a capital gain or loss in a way similar to other investments like commodities or stocks. This means that you must report not when you buy, but when you sell the investment. If the amount of the sale is greater than the amount of your original purchase, you have a capital gain. If it is smaller, you have a capital loss.

When reporting the sale of precious metals, as with similar investments, you must include five data points:

1) A description of the asset
2) The original date of purchase
3) The cost or other basis of the purchase
4) The date of sale
5) Proceeds from the sale (net of transaction costs)

Gain on assets held for more than one year are considered long-term. Precious metals are considered collectibles, which means that their long-term gains cannot be taxed at more than 28%. Ordinary tax rates in 2023 range from 10% to 37% depending on your income. So the rate cap on long-term gains from collectibles will only make a difference to taxpayers whose total income is large enough to put them in a tax bracket of over 28%.
Gain on an asset held for a year or less is considered short-term and is in any case taxed at ordinary rates.

Note that all transactions that result in capital gains or losses should be reported. Despite any rumors you may have heard, there is no minimum threshold that would except you from having to report a capital transaction.
Exchange traded funds that hold precious metals are likewise considered collectibles for tax purposes. However, stock in companies than mine precious metals are not.

Another issue to consider when investing in precious metals is that certain types of coins, when sold in certain quantities greater than certain amounts, require that the seller issue a form 1099-B to report the sale. This is not an additional tax, it is just an additional filing requirement. The quantities that require the seller to issue a 1099-B differ depending on the type of coin or bar sold. When required, form 1099-B must be filed by January 31 following the year the sale is made.

The types of precious metals sales that would require you to issue a 1099-B are determined by the Commodity Futures Trading Commission. Experienced precious metals traders are also a good source of information on this topic and often maintain their own lists.

Note that whether or not the sale you make requires you to issue a 1099-B, it must in any case be reported on your income tax return.

Preface: “Give thanks for a little, and you will find a lot.”–Hausa Proverb

What’s New in Tax Deductions and Credits for Tax Year 2023?

Credit: Benjamin Gelbart

Tax Year 2023 sees the continuation of the Tax Cuts and Jobs Act of 2017 (TCJA) and the end of COVID-related Tax Relief introduced in the Tax Relief Act of 2020 and the Consolidated Appropriations Act of 2021.

Among other things, this means no deductions are available for unreimbursed employee expenses or for non-business casualty loss outside of federally declared disasters. Moving expenses are only deductible for qualified active-duty members of the Armed Forces. Itemized deduction of state and local tax is still limited to $10,000. There is no deduction for charitable giving outside of itemized deductions.

Read blog here……

What’s New in Tax Deductions and Credits for Tax Year 2023

 

Preface: “Reflect upon your present blessings — of which every man has many — not on your past misfortunes, of which all men have some.” — Charles Dickens

Grateful Blessings This Thanksgiving Season

As Thanksgiving draws near, we find ourselves reflecting on the blessings we’ve received throughout the year, and at the forefront of those blessings is the privilege of serving clients like you. Our hearts are filled with gratitude for the trust and faith you’ve placed in Sauder & Stoltzfus.

During this season of giving thanks, we want to express our heartfelt appreciation for the opportunity to work alongside you in managing your financial stewardship. Your commitment to integrity and principled financial management aligns seamlessly with the values we hold dear.

As we gather with our loved ones to celebrate the abundance of God’s grace, we want to extend our warmest wishes to you and your family. May your Thanksgiving be a time of joy, reflection, and moments of profound gratitude for the blessings in your life.

Thank you for being an essential part of the Sauder & Stoltzfus family. We look forward to continuing our journey together and supporting you in your financial endeavors.

Wishing you a blessed and Happy Thanksgiving!

Preface: “Be the person your dog thinks you are.” – C.J. Frick

The Intersection of Pennsylvania Puppy Sales and Taxes

Credit: Benuel Glick, EA

Snapshot of Sales Tax History

The Attica region of Greece was imposing sales tax on certain good(s) as early as 415 BC., according to the book, Ancient Greece, by Matthew Dillon and Lynda Garland. Other literature has indicated that certain forms of sales tax were imposed much earlier perhaps during the middle to late Bronze Age. Scholars have also noted that sales tax was imposed in the Roman Republic during emporer Augustus’ rule. It is good to have some perspective on history less we mistakenly think sales and use tax is merely a modern concept. Although not a contemporary invention, it is alive and well in the United States of America today………     Sales Tax on Puppy Sales

Preface: “Do not save what is left after spending, but spend what is left after saving”. – Warren Buffett

Health Savings Accounts (HSAs) in a Nutshell

Credit: Benjamin Gelbart

A Health Savings Account (HSA) is a tax advantaged savings account available to taxpayers who participate in a High Deductible Health Plan (HDHP) and who are not enrolled in any other health insurance, including Medicare.

An HSA is an investment account similar to a retirement savings account or a college savings account. The money contributed to it is invested and the investments grow tax-free for the life of the account. Withdrawals from the account are also tax-free as long as they are used for the intended purpose of the account, which in the case of an HSA is qualified medical expenses.
Unlike money contributed to a Flexible Savings Accounts or cafeteria plan, funds in an HSA are never lost just because they are not used by a certain date.

While a taxpayer cannot open an HSA without having an HDHP, once money has been contributed to the HSA, it continues to be available for withdrawal and is tax-free if used for qualified medical expenses even after the taxpayer is no longer enrolled in the HDHP and is no longer eligible to make contributions. Nor is there any required minimum distribution. The funds may be used to cover qualified medical expenses originating at any date after the HSA was established and funded. HSAs can even be used to reimburse the taxpayer for expenses that have already been paid out of pocket.

The tax benefits of HSAs are threefold:
– Contributions are deducted from your taxable income.
– The contributions, once invested, grow tax-free.
– Withdrawals from the account are tax-free as long as they are used for qualified medical expenses.

HSAs come in two flavors: individual and family. The family HSA has a deductible, annual contribution limit, and annual withdrawal limit that are larger than those for an individual: For 2023:  Individual HSA
annual contribution limit $3,850 ($4,850 if age > 55) Deductible $1,500 withdrawal limit  $7,500.  Family HSA annual contribution limit $7,750 ($8,750 if age > 55)  Deductible $3,000 annual withdrawal limit $7,500.

Note that combined contributions of a married couple cannot exceed the family coverage limit.

Excess contributions are subject to an excise tax of 6%. This excise tax is avoided if the excess contribution is withdrawn before the end of the year. Non-qualified withdrawals are subject to ordinary income tax plus a 20% penalty. The penalty (but not the ordinary income tax) is waived for taxpayers who are disabled or are of age 65 or older.

Taxpayers who have an HDHP through their employer will usually have contributions to their HSA deducted automatically from their paychecks. The contributed amount will not be included in their taxable income. The total amount of contributions made in a tax year will appear on the taxpayer’s W-2 in Box 12 with the code “W.” Because this kind of contribution is done at the payroll level, it also reduces FICA (Social Security and Medicare) payroll tax.

Taxpayers may also make direct contributions to their HSAs, as long as the total amount of contributions does not exceed the annual limit. Direct contributions can then be deducted from taxable income at tax time.

Tax Strategy: Another way to contribute to an HSA is to roll over funds from an IRA. However, this can can be done only once in a taxpayer’s lifetime.

Preface: “It’s fine to celebrate success but it is more important to heed the lessons of failure.”- Bill Gates

Weighing the Pros and Cons of Purchasing an Existing Business 

Credit: Jim McKinley

Entrepreneurship can be a challenging journey, but buying an existing business can be a shortcut to success. No matter how tempting it may be to start a new business from scratch, buying an existing business is often the best option for entrepreneurs who want to hit the ground running. However, it’s important to weigh the pros and cons before you make a decision. This guide shared by Sauder & Stoltzfus explores both sides of the coin. 

Pros of Buying an Existing Business 

Established Customer Bases 

One of the biggest advantages of buying an existing business is that it already has an established customer base. This means that you don’t have to spend time building your customer base from scratch. Established businesses have loyal customers who know and trust the brand. This can save you a lot of time and money on marketing and advertising. 

Established Brand You Can Build Upon 

Another advantage of buying an existing business is that it already has an established brand. This means that you don’t have to spend time and money creating a new brand identity. You can build upon the existing brand and make it even stronger. 

Learn From the Mistakes of Others 

Before buying a small business, thorough preparation is key to ensure success and longevity. Start by conducting a comprehensive due diligence process to understand the business’s financial health, competitive landscape, and potential growth opportunities. Understanding why do small businesses fail can provide valuable insights into common pitfalls to avoid. For instance, poor cash flow management, lack of market demand, and inadequate business planning are frequent reasons for failure. Additionally, consult with professionals such as lawyers, business brokers, and Sauder & Stoltzfus to ensure you’re making informed decisions. By taking these steps, you can position yourself for a successful transition into small business ownership. 

Infrastructure in Place to Get Started 

Buying an existing business also means that there is already infrastructure in place. This can make it much easier to get started. For example, the business may already have an office, equipment, and employees. This can save you time and money on setting up a new business. 

Easily Promote a Change in Ownership 

When you buy an existing business, you can easily promote the change in ownership by using online tools to create content marketing posts and share them online. There are many online resources available that can help you with the process. 

Cons of Buying an Existing Business 

Higher Upfront Cost 

One of the biggest disadvantages of buying an existing business is that it has a higher upfront cost. You will likely have to pay more than you would if you were starting a new business from scratch. However, buying an existing business can be more profitable in the long run. 

Unforeseen Liabilities That Can Impact Profitability 

Another disadvantage of buying an existing business is that there may be unforeseen liabilities that can impact profitability. For example, the business may have outstanding debts or legal issues that you are not aware of. Credit reporting can be helpful. It’s important to do your due diligence and thoroughly research the business before making a purchase. 

Limit Your Flexibility In Making Changes 

Buying an existing business also means that you may be limited in making changes. The business already has established policies and procedures that may be difficult to change. This can be frustrating for entrepreneurs who want to put their own stamp on the business. 

Buying an existing business can be a great way to become an entrepreneur. It can save you time and money, and give you a head start in building a successful business. However, it’s important to weigh the pros and cons before making a decision. Consider the existing customer base, established brand, infrastructure in place, and the opportunity to hone your skills while running the business. At the same time, be aware of the higher upfront cost, unforeseen liabilities, and limitations on making changes. With careful consideration, you can make an informed decision that’s right for you and your business. 

Preface: “Entertainment is in the eye of the beholder.” – Anonymous

Meals and Entertainment Deductions for Businesses in Tax Year 2023

Credit: Benjamin Gelbart

For the most part, tax year 2023 sees a continuation of the types of meals and entertainment deductions allowed under the Tax Cuts and Jobs Act of 2017. This means:

I) No deductions are allowed for entertainment expenses.
II) In general, meal expense deductions are limited to 50% of their cost.

The 100% deductions that had been allowed in 2021-2022 for meals purchased in restaurants have now been discontinued. This increased percentage had been introduced as part of the Consolidated Appropriations Act of 2021 to help support the restaurant business during COVID by encouraging businesses to spend more of their meal budgets in restaurants.

The increased percentage still applies to meals that were purchased in restaurants during 2021-2022, but the 50% limit is back in effect for meals purchased in 2023 and going forward.

The only meals that remain 100% deductible for 2023 are:

a) Office holiday parties and picnics.
b) Food offered to the public for free.
c) Meals that have been included as taxable compensation to an employee                 or contractor.
d)Meals sold to a client or customer.

Transportation to and from client business meals is 100% deductible as it is a transportation deduction and not a meal deduction.
The 50% limit applies to:

– Client business meals.
– Meals provided at entertainment or sporting events.
– Meals provided for the convenience of the employer.
– Meals provided to employees occasionally and overtime employee meals.
– Meals during business travel.
– Meals in office during meetings and conferences.
– Meals included in a charitable sports package.

Example: Whether you are entertaining clients, providing a meal for employees during an extended series of meetings, or having a meal on the road while travelling for business, the meal will only be deductible at 50% of its cost regardless of whether you purchase the food at a restaurant or at a convenience or grocery store.

No deduction is available for entertainment, sporting event tickets, or club memberships. However, food and beverages provided during such events are still deductible up to the 50% limit as long as the cost is stated on a bill or receipt separately from the total entertainment cost.

Example: You entertain clients at a sporting event or club at your expense. During the event, food and beverages are provided. If your purchase for the food/beverage cost is stately on a bill or receipt separately from the other costs, you can deduct 50% of that separately stated amount that is due to food and beverages. That is the only business deduction you can take from an event of this type in 2023.

For more information on Meals and Entertainment Deductions for Businesses in Tax Year 2023 please contact our office.

Preface: “An investment in knowledge pays the best interest.” —Benjamin Franklin

The PA EITC Allows Pennsylvanians to Fund Schools and Reduce Taxes

Credit:  Jacob M. Dietz

Many people do not like paying taxes. Some people, however, would joyfully donate to a good school that shared their values. Fortunately, the Pennsylvania Educational Improvement Tax Credit (EITC) allows qualifying businesses to enjoy a 90% tax credit to reduce various PA taxes on eligible donations to qualifying organizations.

The credit offsets PA corporate net income tax, PA personal income tax and various other taxes. For pass-through entities, REV-1123 can be filed to pass the credit down to the partners to claim on their personal tax returns. It does not offset sales tax or payroll taxes. Sole proprietorships do not qualify for the credit.

If your business structure does not qualify, or if you do not wish to give through your business, then you might consider using a special purpose entity (SPE) to make contributions. Faith Builders offers the opportunity to give through an SPE.

To be a qualified member of an SPE, you must be either:
1. An owner or partial owner of a PA business (not a sole proprietorship)
2. A W-2 employee of a PA for-profit business OR
3. A stockholder of a PA registered business.

The donor must give to an approved organization to get the credit. Pennsylvania’s Department of Community and Economic Development lists many organizations that can receive these donations. Faith Builders Scholarship Services is one of these organizations. They pass the donation on to the school of your choice, less an administrative fee. Before choosing a school, however, check with the school to make sure that they are willing to accept the donation.

How much is the credit worth? Generally, EITC donors receive 75% of the contribution as a credit, but it is increased to 90% if you agree to a two-year commitment to give. For Pre-Kindergarten Scholarship organizations, the credit is 100% for the first $10,000, and then 90% above that but not exceeding $200,000.

Let’s look at an example of how this could work. Suppose James and Kevin are both 50% members in Ironville Bicycle Seats, LLC. They ask their CPA what their normal PA personal income tax liabilities are, and he tells them that they both averaged a $3,000 liability for each of the last two years. They decide to estimate their future liabilities on the low side to avoid having an unusable credit. They agree to aim for a $1,800 credit per person each year. They therefore make a 2-year commitment from the LLC to give $4,000 to Faith Builders Scholarship Services, and have the money passed on to their local church school. They fill out the information and give it to Faith Builders, which electronically files the application at the right time. Since it is a 2-year commitment, 90% of the donation, or $3,600 per year, is available as a credit. Their CPA can file REV-1123 to pass an $1,800 credit down to both James and Kevin each year to be used on their personal income tax returns. Their church school doesn’t need to worry about receiving a check from the state because the money received by the school doesn’t come from the state. The money never touched the state’s coffers on its way to fund Christian education.

Now let’s suppose that Kevin and James are still 50% partners, but James wants to take the EITC because he has children in a school that accepts EITC funds, but Kevin does not want to participate since his church school doesn’t accept EITC funds. In that case, James could still apply for the EITC by applying to Faith Builders to join an SPE in his personal name. He could then contribute $3,000 (or more) and get a $2,700 PA tax credit.
If you currently pay personal PA income taxes and already joyfully give to Christian education, then you may want to consider the EITC. The EITC allows Pennsylvanians to give to education while paying less to the government.

This article is general in nature, and does not contain legal advice. Please contact your accountant to see what applies in your specific situation.

Preface: It’s what you learn after you know it all that counts. -John Wooden

2023 Tax Planning: Higher Education Credits

With school back in session, parents and students should look into tax credits that can help with the cost of college education. Credits reduce the amount of tax someone owes on their tax return. If the credit reduces tax to less than zero, the taxpayer may receive a refund.

There are two credits available to help taxpayers offset the costs of college education. The American opportunity tax credit (AOTC) and the lifetime learning credit (LLC) may reduce the amount of income tax owed. Taxpayers who pay for higher education can see these tax savings when they file their tax returns next year.

 The American opportunity tax credit is:

• • • • Worth a maximum benefit up to $2,500 per eligible student.

• • • • Only for the first four years at an eligible college or vocational school.

• • • • For students pursuing a degree or other recognized education credential.

• • • • Partially refundable. This means if the credit brings the amount of tax owed to zero, 40 percent of any remaining amount of the credit, up to $1,000, is refundable.

The lifetime learning credit is:

• • • • Worth a maximum benefit up to $2,000 per tax return, per year, no matter how many students qualify.

• • • • Available for all years of postsecondary education and for courses to acquire or improve job skills.

• • • • Available for an unlimited number of tax years.

To be eligible to claim the American opportunity tax credit, or the lifetime learning credit, a taxpayer or a dependent must receive a Form 1098-T from an eligible educational institution. The credits are subject to income limits: to claim the full amount, income must be below $80,000 for single taxpayers ($160,000 married filing jointly). Taxpayers cannot claim either credit if income exceeds $90,000 ($180,000 married filing jointly).

In general, qualified tuition and related expenses for the education tax credits include tuition and required fees for the enrollment or attendance at eligible post-secondary educational institutions (including colleges, universities and trade schools). The expenses paid during the tax year must be for: an academic period that begins in the same tax year or an academic period that begins in the first three months of the following tax year. For the AOTC but not the LLC, qualified tuition and related expenses include amounts paid for books, supplies and equipment needed for a course of study.

 The following expenses do not qualify for the AOTC or the LLC:

• • • • Room and board

• • • • Transportation

• • • • Insurance

• • • • Medical expenses

• • • • Student fees, unless required as a condition of enrollment or attendance

• • • • Expenses paid with tax-free educational assistance

• • • • Expenses used for any other tax deduction, credit or educational benefit

We wish you a successful school year. Please call our office if you have any questions related to education expenses and tax benefits.

Preface: “You are not buying a house, you are buying a lifestyle.”                        -Anonymous

Interest – Tax Breaks for Home Mortgage Interest

The Trump Administration Tax Cuts and Jobs Act (Tax Cuts Act) placed new restrictions on the home mortgage interest deduction, one of the most important tax breaks available for homeowners today. Because the potential for tax savings is so great, it may be useful to review the rules. As you’ll see, they are quite complex and full of nuances as well as opportunities.

Home acquisition. Like the vast majority of Americans, you generally can fully deduct the interest paid on a loan if the proceeds are used to buy or build a residence (a main home and one vacation home). This type of financing is called acquisition debt; it can’t exceed an aggregate of $1 million for all interest to be deductible, and must be secured by your home.

Under the Tax Cuts Act, a taxpayer may treat no more than $750,000 as acquisition debt ($375,000 in the case of married taxpayers filing separately) for tax years 2018 through 2025. The reduced amounts for acquisition debt do not apply to any debt incurred on or before December 15, 2017. Therefore, a taxpayer who purchased their home on or before December 15, 2017, may continue to deduct interest paid on the first $1 million of debt ($500,000 for a married taxpayer filing a separate return). The acquisition debt incurred on or before December 15, 2017, reduces the $750,000/$375,000 limit to any acquisition debt incurred after December 15, 2017.

Points. In general, any points you pay to the lender in the year you get a mortgage loan to buy your main residence are fully deductible. In order for points to be deductible, they must be paid from funds separate from loan principal at the time of closing. Points paid to refinance a mortgage on a principal residence are generally not deductible in the year paid and must be prorated over the period of the new loan. However, if the borrower uses part of the refinanced mortgage proceeds to improve his or her principal residence, the points attributable to the improvement are deductible in the year paid.

Home equity loans. The Tax Cuts Act suspends the deduction for interest on home equity debt. Therefore, for tax years beginning after December 31, 2017, a taxpayer may not claim a deduction for interest on home equity debt. However, home equity loan interest is still deductible in certain circumstances. For example, interest on a home equity loan used to build an addition to an existing home would be deductible if certain requirements are met. The suspension ends for tax years beginning after December 31, 2025.

Refinance. It may be beneficial to refinance acquisition debt for a lower rate of interest (or more favorable terms overall). The ($1million/$500,000) higher dollar limit continues to apply to any debt incurred after December 15, 2017, if it used to refinance existing acquisition debt as long as the refinancing does not exceed the amount of the refinanced debt. Therefore, the maximum dollar amount that may be treated as acquisition debt on the taxpayer’s principal residence will not decrease by reason of a refinancing. The exception for refinancing existing acquisition will not apply after:

1. 1. 1. 1. the expiration of the term of the original debt; or
         2. the earlier of the expiration of the first refinancing of the debt or 30 years after the date of the first refinancing.

Please do not hesitate to give us a call and set up an appointment to analyze your home financing situation in order to make the most of the home mortgage interest deduction.