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CPA | Tax Supervisor -SALT
Beginning January 1, 2025, Illinois legislation requires lessors of tangible personal property (TPP) to charge Illinois sales tax on rental charges. Previously, TPP acquired for leasing purposes in Illinois was taxed to the purchaser, and leases of TPP were not taxed to the rental customer. Under the new law, lessors must apply Illinois sales tax to rental charges based on the sourcing rules outlined in the Illinois Retailer’s Occupation Tax (ROT).
Determining the Appropriate Tax Rate
For leases requiring recurring periodic payments for TPP delivered by the lessor to the customer, each periodic payment is sourced to the primary property location as provided by the lessee. For all other leases, including leases that do not require regular periodic payments, and any lease in which the customer takes possession at the lessor’s place of business, the sales tax rate is determined as provided under the Retailers’ Occupation Tax Act for sales at retail (86 Ill. Adm. Code 270.115). For additional details, see Illinois Informational Bulletin FY 2025-15 (FY 2025-15, Illinois Sales and Use Tax Applies to Leased or Rented Tangible Personal Property).
Exceptions to the New Law
Several exceptions to this legislation remain unchanged :
City of Chicago Exception
The City of Chicago already imposes its own local tax on non-titled use of TPP – the Personal Property Lease Transaction Tax, which increased from 9% to 11% as of January 1, 2025. To prevent double taxation, the state has excluded the City of Chicago from the ROT on leases of TPP. Notably:
Sales Tax Impact on TPP Purchases
Effective January 1, 2025:
Need Assistance
Navigating the complexities of sales and use tax can be challenging. Cray Kaiser is here to help. If you have any questions or need guidance, please contact us or call us at 630-953-4900.
CPA | Tax Supervisor – SALT
Beginning January 1, 2025, all out-of-state shipments into Illinois will be subject to the Retailer’s Occupation Tax (ROT). This tax includes state and local sales taxes and is determined based on the destination of the sale.
Key Changes
Previously, Illinois retailers with a physical presence in the state who sold tangible personal property from locations outside Illinois were only required to charge Illinois Use Tax (state, not local tax) on such sales. Under the new regulations, such sales will be subject to ROT, including local taxes.
Who Is Affected
This change only applies to retailers with a physical presence in Illinois who make sales into Illinois from an out-of-state location. The change does not impact remote retailers with no physical presence in the state.
Further Guidance
The State of Illinois provides Bulletin FY 2025-10 to assist sellers in navigating these changes including what actions to take in response to this change.
ROT Rules by Seller Type
1. Illinois Retailers
Sellers with a physical presence in Illinois shipping from locations within the State must collect and remit ROT based on the origin of the shipment.
2. Out-of-State Sellers
Retailers with a physical presence in Illinois and shipping from both in-state and out-of-state locations follow these rules:
3. Remote Sellers
Retailers with no physical presence in Illinois who meet a threshold of $100,000 or more in gross receipts or 200 or more separate transactions must collect ROT based on the destination of the shipment.
Need Assistance
Cray Kaiser can answer your questions on the changing landscape of sales and use taxes. Please contact us here or call us at 630-953-4900 if you have any questions.
On December 12, 2024, President Biden signed the Federal Disaster Tax Relief Act of 2023 into law. This provision was long awaited by victims of hurricanes and wildfires in the past few years, and affects disasters declared between January 1, 2020 and February 9, 2025. This includes Hurricanes Idalia, Nicole, Fiona, Helene, Milton, Ian, and the California and Hawaii wildfires, and other specific disasters during this period.
Before this Act was passed, individuals could only deduct personal casualty losses as an itemized deduction to the extent the loss exceeded 10% of their adjusted gross income. The limitation on the deductible loss meant that many victims of disasters received no tax benefit from their casualty loss.
Under the new law, the loss is deductible whether the taxpayer itemizes or not. Additionally, the adjusted gross income limitation has been replaced. The deduction is now only reduced by $500 per casualty loss.
In addition to the relief for losses, the act also provides that individual taxpayers can exclude from gross income compensation resulting from certain wildfires. Qualified wildfire relief payments received during taxable years beginning after December 31, 2019, and before January 1, 2026, are eligible for this provision. The same exclusion will apply to individual taxpayers receiving disaster relief payments due to the East Palestine, Ohio train derailment.
If you were a victim of a disaster as noted above, please contact Cray Kaiser at 630-953-4900 or by filling out this form. We will review your tax situation to determine if an amended return should be filed to claim the benefits provided under this Act.
CPA | Tax Supervisor
The IRS released an official form for electing IRC § 83(b). This election has been around for quite some time. For many recipients, it is a tax advantageous election for unvested restricted stock received. No substantive change has been made to the law under IRC § 83(b). However, the IRS released Form 15620 which gives the transferor another way to elect 83(b).
What is an 83(b) election?
This election merely advances a taxable event to when unvested property is received. When filed timely by the transferor, it allows tax to be assessed at the grant date instead of the vesting date. Many times, this is used for startup companies with a low value; therefore, the taxation upon an 83(b) election is limited. The election also starts the clock for determining the holding period upon sale. When the stock vests, there is no tax paid as the compensation income was recognized upon the 83(b) election date. Once sold, you pay capital gains on the difference of sale price and the value of the stock when the compensation was recognized.
If no election is made, then you won’t pay taxes until the restricted stock vests. The risk with this is if the value at vesting is higher than grant, you will be paying ordinary rates on this compensation income at fair market value. This is a big cash flow issue for taxpayers, as tax is due even if the stock is not sold.
What the 83(b) election allows is the flexibility to pay ordinary tax at grant date, where value would be usually lower. Accelerating the income also provides for a higher chance of getting beneficial long-term capital gains rates. However, the downside to the election is if you have paid tax early and the value of the stock drops, then this will not result in a tax benefit.
Example
Let’s say you receive $1,000 worth of restricted stock with vesting in Year 3. If the 83(b) election is filed timely, then you would pay ordinary income tax on $1,000 of compensation in the year you received restricted stock. If ordinary rates are 37% at the highest bracket, you would pay $370. In Year 3, when stock vests at $20,000, there is no tax liability. If you decide to sell In Year 5 when the stock is $25,000, then you will pay capital gains tax on the difference between sale price and grant price which would be $24,000. Capital gains at 20% would translate to $4,800 tax due in Year 5.
Total taxes paid on this restricted block would be $5,170 ($370 + $4,800).
If we assume the same facts as above, but no 83(b) election was made, then you would have no tax due at grant date (Year 1). However, when stock vests in Year 3, you would be liable for $7,400 (ordinary rate of 37% times vesting amount of $20,000). And if you keep the stock until Year 5 and then sell it, the capital gain would be $5,000 (difference between vesting and sale price). Tax due at 20% would be $1,000.
Total taxes paid on this restricted block would be $8,400 ($7,400 + $1,000).
Takeaway
The IRC § 83(b)election has not changed. The IRS merely released a Form to make the election If you expect to receive nonvested property in connection with performance of services, and you believe the 83(b) election to be beneficial to you, it is imperative that the 83(b) election is made within 30 days as there is no late filing relief.
As this election can be murky, Cray Kaiser is here to help you navigate potential pitfalls and opportunities. Please call us today at 630-953-4900.
Accounting & Tax Specialist
The Internal Revenue Service recently announced the annual inflation adjustments for tax year 2025. Although the adjustments will generally apply to individual tax returns filed in 2026, it’s helpful to see how taxes will change in the future and understand how you may be affected. Here are some of the highlights of these changes.
Income Rate Brackets
The top tax rate for 2025 remains at 37%. The 37% rate will apply to individual single taxpayers with income greater than $626,350 and married couples filing jointly with income greater than $751,600.
The other rates are:
Standard Deduction updates
Due to an increase in inflation, the standard deductions will increase as well.
Adjustments to Retirement Accounts
The limits on annual contributions for qualified retirement plans have also been updated for 2025, along with the phaseout ranges.
Deductible IRA phaseout ranges
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions including income limitations.
Roth IRA income phase out
Singles and head of households increased to between $150,000 and $165,000, up $4,000.
Married Couples Filing Jointly increased to between $236,000 and $246,000, up $6,000.
Annual Exclusion for gifts
Increases to $19,000, up $1,000.
Estate and gift lifetime exemption
Increases to $13.99 million, up from $13.61 million in 2024.
If you have any questions regarding the 2025 inflation adjustments, please don’t hesitate to contact Cray Kaiser today or call us at (630) 953-4900.
Important changes to Illinois sales tax rates are coming your way. Effective January 1, 2025, several taxing jurisdictions in Illinois will impose new local sales taxes or update their existing rates on general merchandise sales.
What’s Changing?
The following local sales taxes will be affected:
These updates will be collectively referred to as “locally imposed sales taxes.”
What’s Being Taxed?
This locally imposed sales tax will apply to the same items of general merchandise reported on Line 4a of Forms ST-1 and ST-2 that are subject to State sales tax.
Locally imposed sales taxes do not apply to:
What Steps Should I Take Before January 1, 2025?
Make sure any cash registers and computer programs are updated to reflect the new tax rates beginning January 1, 2025. If a software vendor manages these processes, contact them immediately to begin implementing the changes.
Use the MyTax Illinois Tax Rate Finder here to verify your new combined sales tax rate (State and local sales taxes).
If a prior sale was subject to a sales tax rate different from the current sales tax rate, this should be reported on Line 8a of Forms ST-1 and ST-2.
What About Business District Sales Taxes?
Your business address determines whether business district sales tax applies to your sales. Remote retailers and marketplace facilitators who meet the tax remittance threshold should pay extra attention. If property is shipped or delivered to an address within a business district, the tax likely applies.
For more information, refer to the MyTax Illinois Tax Rate Finder, which provides a detailed list of business district addresses and corresponding rates.
Don’t Get Caught Off Guard in the New Year
Avoid headaches in the new year and prepare now for this sales tax rate update. If you have questions or need assistance navigating these changes, Cray Kaiser is here to help. Contact your trusted advisors at (630) 953-4900 to ensure you’re ready for the January 1, 2025, rollout.
Starting January 1, 2024, a significant number of businesses were required to comply with the Corporate Transparency Act (“CTA”). The CTA was enacted into law as part of the National Defense Act for Fiscal Year 2021. It is anticipated that 32.6 million businesses will be required to comply with this reporting requirement. The BOI reporting requirement intends to help U.S. law enforcement combat money laundering, the financing of terrorism and other illicit activity. To learn more about the CTA, listen to this audio blog by Matt Richardson, a senior tax accountant at CK.
Transcript:
My name is Matt Richardson. I’m a senior tax accountant at Cray Kaiser.
So the Corporate Transparency Act is a piece of legislation that went into effect in 2024. And it requires certain companies to report their beneficial ownership information, also known as BOI. And this is a report that goes not to the IRS, but to the FinCEN, which is the Financial Crimes Enforcement network, which is the law enforcement arm of the US Treasury Department. Information that needs to be reported for the business includes the full legal name and any DBA names ortrade names, a business address and the state or jurisdiction of formation, and an IRS taxpayer ID number. Additionally, information has to be reported for each beneficial owner, including a name, address, and an ID number from a valid ID like a passport or a driver’s license. With a few exceptions, the filing is required for any domestic corporations, limited liability companies, or other entities that are formed by a filing with a secretary of state or a similar office to do business under a state or a tribal jurisdiction. Foreign-incorporated entities are also required to file if they’re registered with a state or tribal jurisdiction to do business, and domestic entities that are not created by filing with a secretary of state, like an unincorporated sole proprietorship, are not required to file this reporting.
So a beneficial owner under the CTA is any individual who has substantial control over the company, either directly or indirectly. It can also include anyone who controls at least 25% of ownership. And this is important to note because it’s not only ownership, but it’s also control. So a non-owner officer who has decision-making power can also be considered a beneficial owner under the legislation. The purpose of the BOI is to aid law enforcement and enforcement of financial crimes like fraud, money laundering, sanctions evasion, and the financing of other crimes like terrorism or drug trafficking. And this disclosure of corporate ownership is intended to make it harder for criminals to use shell companies to cover up the financial aspects of their criminal activities. So the BOI reporting requirement has exceptions for certain categories of companies, as well as what it calls large operating entities. The specific categories of companies are highly regulated areas like banking and publicly traded companies and non-profit entities. A large operating entity is defined as any company that has 20 or more employees, five million dollars in gross sales or more, and a physical presence in the United States.
Many are confused about why large companies are exempt from reporting rather than small companies. Since so many government reporting requirements do exempt small companies. But this is because in general these larger companies are going to be visible to law enforcement and regulators through other types of tax and payroll banking reports. Whereas the purpose of the legislation is to make these smaller companies more visible, I mean, easier to track ownership for law enforcement.
So there are different filing requirements for the BOI report depending on when the entity was formed. New entities created in 2024 have 90 days after their creation to file the report. New entities created starting January 1st, 2025 have 30 days to file the report and existing entities created before January 1st, 2024 have until January 1st, 2025 to file the report. And then any companies that have a change in their ownership information or have a correction of an error to report have 30 days from the discovery of the error or from the change in information to file an updated report.
Penalties for willful non-compliance are steep, so the risk involved in shirking the requirements are serious. Consequences can include civil penalties of over $500 per day that the report has filed late, and those can escalate to up to $10,000 in criminal fines or up to two years in jail time. These requirements are generally covered by the Treasury Department’s criminal enforcement arm, which is different than the tax law and IRS matters that CPAs are generally authorized to address. And there are some legal complexities in determining who is a beneficial owner and who is subject to the requirement that need the expertise of a lawyer.
Although you can’t avoid taxes, you can take steps to minimize them. This requires proactive tax planning – estimating your tax liability, looking for ways to reduce it and taking timely action. To help you identify strategies that might work for you, we’re pleased to present the 2024 – 2025 Tax Planning Guide.
The IRS has recently launched the Second Employee Retention Credit Voluntary Disclosure Program (ERC-VDP), which presents a critical opportunity for businesses that may have inadvertently filed erroneous ERC claims for the 2021 tax period. This program, effective from August 15, 2024 to November 22, 2024, offers a path for businesses to correct these errors and avoid potentially severe penalties as the IRS ramps up its enforcement efforts against improper ERC claims.
Understanding the Second ERC-VDP
The Second ERC-VDP is different from the initial program, which closed in March 2024, offering a slightly different set of terms for repayment and eligibility. Under this new program, eligible businesses can repay 85% of the ERC amount they received. This is a more favorable rate compared to the first ERC-VDP, making it a viable option for those who missed the initial window.
It’s important to note that this program exclusively covers ERC claims for the 2021 tax periods. Businesses that need to rectify claims from 2020 are not eligible under this program and should seek alternative compliance options.
Key Eligibility Criteria
To qualify for the Second ERC-VDP, businesses must meet several stringent criteria:
Application Process
For those eligible and interested in applying, the process is straightforward but requires attention to detail. Businesses must complete Form 15434, the Application for Employee Retention Credit Voluntary Disclosure Program, and submit it via the IRS Document Upload Tool.
In cases where businesses cannot repay the required 85% upfront, they may apply for an installment agreement by submitting Form 433-B, Collection Information Statement for Businesses, alongside their application package. It’s also essential to include Form 2750, Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty, if applicable.
What Happens After Application Approval?
Once the IRS approves the application, businesses will receive a closing agreement. They are then required to repay 85% of the ERC received, which can be done online or via phone using the Electronic Federal Tax Payment System (EFTPS). Penalties and interest will apply under the standard terms for those opting for an installment agreement.
Deadline and Resources
All application packages for the Second ERC-VDP must be submitted by 11:59 p.m. local time on November 22, 2024. The IRS has provided a comprehensive set of FAQs on their website, detailing the nuances of the program, including eligibility, application steps, and the consequences of non-compliance.
At Cray Kaiser, we understand that navigating these programs can be complex and daunting. Our team is here to help you assess your situation, determine eligibility, and ensure that your application is accurate and timely. Don’t let an improper ERC claim result in unnecessary penalties—reach out to the experts at CK today to explore your options under the Second ERC-VDP.
Late last month, the IRS provided an update on the processing of Employee Retention Credit (ERC) claims. In the update, the agency plans to deny tens of thousands of “high-risk” ERC claims while starting a new round of processing “low-risk” claims.
IRS Commissioner Danny Werfel said in the release: “The completion of this review provided the IRS with new insight into risky Employee Retention Credit activity and confirmed widespread concerns about a large number of improper claims. We will now use this information to deny billions of dollars in clearly improper claims and begin additional work to issue payments to help taxpayers without any red flags on their claims.”
The IRS has identified between 10% and 20% of claims fall into what the agency has determined to be the highest-risk category, showing clear signs of being erroneous claims for the pandemic-era credit. This high-risk group includes filings with warning signals that clearly fall outside the guidelines established by Congress.
Additionally, the IRS also estimates between 60% and 70% of the claims show an unacceptable level of risk. For this category of claims with risk indicators, the IRS will be conducting additional analysis to gather more information with a goal of improving the agency’s compliance review, speeding resolution of valid claims while preventing improper payments.
For taxpayers who made a questionable claim, there is a claim withdrawal process available. Many of these taxpayers may have been misled by promoters who incorrectly indicated the business qualified for the ERC. Evidence of the widespread fraud related to ERC is reflected in the IRS announcing over $2 billion in compliance efforts.
On a positive note, the IRS is concerned about small businesses waiting on legitimate claims, and the agency is taking more action to help. Between 10% and 20% of the ERC claims show a low risk. For those with no eligibility warning signs that were received prior to last fall’s moratorium, the IRS will begin judiciously processing more of these claims.
For clients awaiting approval of their ERC claims, the IRS indicates that no further action should be taken. Frustratingly, they ask taxpayers to await further notification from the IRS. Cray Kaiser will keep you apprised of further ERC developments.
