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Quick Facts and Updates: Student Loan Relief, Medical Expenses, S Corps Red Flags, & More

By November 1, 2022June 1st, 2023Business Tax Items, Personal Tax Items
Student Loan Relief

Several updates and new policies were issued throughout the first half of 2022. The good news is most of these updates are quite beneficial to taxpayers. But the big question is, do you qualify for these benefits?

In this article, we will tackle different benefits covering student loans, research and development costs, medical expenses, virtual currency, and general updates with S Corporations.

Student Loan Relief

President Joe Biden presents a three-part plan to cancel $10,000 student loan debt for low to middle-income families. However, some states will still require taxes to be paid on this forgiven amount. This plan was created to provide more breathing room to the American working class, as most are still recuperating from the effects of the pandemic. 

According to the President, the Department of Education will:

  1. Provide targeted debt relief to address the financial constraints caused by the pandemic. The department will provide up to $20,000 in debt cancellation to Pell Grant recipience with loans. Borrowers eligible for this are those with an individual income less than $125,000 or $250,000 for married couples. No high-income homes will be able to acquire this benefit.
  2. Make the student loan system more manageable for current and future borrowers by:
    1. Cutting monthly payments in half for undergraduate loans
    2. Fixing the broken Public Service Loan Forgiveness (PSLF) program by proposing that borrowers working at a non-profit, in the military, or in a federal state receive appropriate credit toward loan forgiveness.
  3. Protect future students and taxpayers by reducing the cost of college and holding schools accountable for price hikes.

Changes to the Tax Treatment of Research and Development Costs

According to the update on 2017’s Tax Cuts and Jobs Act, costs incurred for R&D activities will no longer be allowed for immediate deduction. As of January 1, 2022, the law stipulates that the costs of R&D activities will have to be capitalized and amortized over the course of five years for domestic R&D activities and 15 years for those performed abroad. The amortization period will begin with the midpoint of the taxable year when the expenses were paid.

Updated Deductible Medical Expenses

As of the 2022 tax year, you can deduct out-of-pocket medical expenses that total more than 7.5% of your Adjusted Gross Income (AGI). These costs include; insurance premiums, hospital stays, doctor’s appointments, prescriptions, transportation costs, and even accommodation for visiting out-of-state hospitals for special cases. The IRS also gives a mileage deduction related to medical travel.

As of July 20th, 2022 the state of GA has determined a human fetus with a detectable heartbeat is eligible for their state tax exception of $3,000. Note: this is not the case with the IRS. 

When filing your federal income tax return, you must itemize your deductions on a Schedule A Form 1040 or 1040 SR-R to claim the medical expense deduction.

The IRS has Doubled Down on Finding Virtual Currency Traders

The IRS has been requesting information from a large number of exchanges to find virtual currency traders that have not reported transactions in recent years. The most recent exchange the IRS has issued a summons of information to is sFOX and in the past requested information from Coinbase and Kraken.

The IRS is mainly looking for traders the did more than $20,000 in transactions during a year. More individuals will be subject to this than they think. For example, an individual with $5,000 in sFOX that bought bitcoin for $5,000 on Jan. 1 then sold on Feb. 1 and repeated this transaction 4 times throughout the year has now met the $20,000 threshold and could expect a letter from the IRS.  

S-Corporations Do Not List

The IRS is on the hunt for S Corporation owners that have incorrectly reported or kept track of shareholder distributions, built-in gains, and shareholder basis.

When a C Corporation converts to an S Corporation, it may be subject to a corporate-level built-in gains tax in addition to the tax currently imposed on its shareholders.

The corporation must also determine whether it has a net unrealized built-in gain in its assets on the date of the relevant transactions. Built-in gains recognized during this period are taxed at the highest rate which is currently at 35%

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