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Small Business Planning, 529 College Savings Plan, 2022 Taxes and 2023 Progress

Small Business Planning - New 1099-k Rules

The IRS deferred implementing the new 1099-K rules until 2023, so now we will start to pay attention to these new rules. The American Rescue Plan Act of 2021 modified the reporting for 1099-Ks, which are forms that are filed by banks and credit card companies. How does this affect my small business, you might ask? Well, a 1099-K is similar to a 1099-MISC or a 1099-NEC in that it reports to the IRS income your business received. A 1099-K reports income received through VISA, MasterCard, American Express, etc., as well as Venmo, PayPal, CashApp, or any other third-party network.

So, if your small business accepts credit cards or receives payment through Venmo or similar apps, you will be impacted. Beginning in 2023, you should receive a 1099-K for the following payments:

  • From all payment card transactions, and

  • In settlement of third-party network transactions above the minimum reporting thresholds for gross payments for goods and services that exceed $600 for any number of transactions.

It is important that your business records reflect your business income, including any amounts that may be reported on a 1099-K. Most of the clients that work with us are already reporting all of their income received, regardless of whether they receive a 1099 or not, so this may not be much of an impact. We just wanted you to be aware since these forms will be much more prevalent for the 2023 tax year.

529 College Savings Plans - Roth Conversion

529 College Savings Plans are a great way to save for college. When the money is contributed, you receive a state tax deduction (for Missouri, you get a deduction of up to $8,000 per person, or $16,000 if married, filing jointly. For Kansas, it is $3,000 per beneficiary by an individual and $6,000 per beneficiary per year if married, filing jointly).

Another benefit is that you can set it up for auto-contributions, so you are saving without thinking too much about it. In addition, the money grows tax free and can be used tax free as long as it is used for qualified education expenses. Qualified expenses are:

  • Tuition and fees

  • Books and supplies and equipment (a computer, etc)

  • Room and board

  • No more than $10,000 paid as principal or interest on a qualified student loan of the beneficiary.

  • No more than $10,000 of tuition for qualified elementary and secondary education expenses

So what happens if your child doesn’t go to college? What if they get a full or partial scholarship? The dilemma has always been what to do with those funds trapped in a 529 if you don’t have any education expenses to use them on. In the past, your option was to let it sit and roll over to a grandchild, niece or nephew, cousin, brother or sister, etc. so that the funds can be used by a different beneficiary for their educational expenses. The other option was to withdraw the funds and pay penalties on that withdrawal. Starting in 2024, you have another option.

Beginning in 2024, account holders will be able to transfer up to $35,000 (lifetime limit) to a Roth IRA for that beneficiary. There are certain parameters for the Roth conversions:

  • Lifetime maximum a 529 beneficiary can transfer is $35,000

  • The 529 account must have existed for at least 15 years

  • No contributions or earnings on contributions from the last 5 years can be transferred

  • The transfers are subject to the annual Roth IRA contribution limits.

What all of the above means is that you can’t set up a 529 account this year, and fund $35K and then expect to be able to roll it to a Roth. This is meant for people that have 529 plans set up, save over the years of their child’s life and then don’t have a place for those funds if unused. Now they do have a solution.

An example of this would be that Mom and Dad set up a 529 for their Child and contributed $8,000 per year all through elementary and secondary schools. Child goes to college and has scholarships, etc and at the end, has $35,000 still left in their 529. This example meets all the criteria of the requirements, so Mom and Dad can roll $7,000 per year for the next 5 years into a Roth IRA for Child and “use” the 529 funds up by getting them into a Roth for Child.

2022 Taxes and 2023 Progress We hope you have been having a great year so far. At Cornerstone, we have been navigating through staff vacations and some new software implementations,


but we are continuing to work through returns in-house that are in process. If you have not sent in your 2022 taxes yet, please do so as soon as possible so we can get you in the queue to be completed ahead of the extended deadlines. Late July and August will also be a time to begin discussions on how your year is going so far and if you need adjustments to withholding, estimates, etc. – depending on how things are going. Please contact us to get a call or meeting scheduled to discuss 2023 progress.


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