The end of 2022 is approaching at a rapid pace. Clients who are considering various planning strategies should be advised to act now to ensure that there will be enough time to execute the strategy before year-end. That includes Roth conversions.
The IRS has also issued warnings about schemes promising artificially high employee tax credit refunds and is reminding service providers to look for new Form 1099-Ks if their sales exceed $600 in 2022.
Taxpayers Considering Roth Conversions Should Act Now
As a reminder, the deadline for converting traditional IRA funds into a Roth is Dec. 31, 2022 (not, as many people believe, the tax filing deadline in April 2023). Taxpayers who execute conversions in 2022 will pay taxes on the conversion at their 2022 rates, which are relatively low and could rise in the future.
However, taxpayers should also consider the impact of a conversion on their Medicare premiums, Social Security benefits and other deductions and credits that phase out based on income.
Taxpayers should also be reminded that, under the 2017 tax reforms, the right to recharacterize (or reverse) the conversion no longer exists — so once the client executes the Roth conversion, they're stuck with that conversion even if it looks like a mistake in hindsight.
For more information on the considerations that are important in evaluating whether a Roth conversion is a smart move, visit Tax Facts Online. (Read More)
Schemes Promising Inflated ERC Returns
The IRS is warning business owners about scams perpetrated by third parties claiming that employers are eligible for large employment tax refunds generated by improperly claiming or overstating the employee retention credit (ERC).
