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The tax bill put forth a few weeks ago, the Smith-Wyden Tax Act, has the potential to bring about significant changes for both individual and business taxpayers in 2024 and possibly even retroactively to 2022 and 2023. Although the bill passed the House, it is currently stalled in the Senate. Here’s a highlight of the tax provisions that we believe will be most impactful to our clients:
R&D Expense Correction:
Child Tax Credit Expansions:
Bonus Depreciation Reinstatement:
Business Interest Expense Limitation:
Section 179 Small Business Expensing Cap:
We will continue to monitor the Act – whether it continues to move through Senate or stalls. Given the proximity to the tax filing due date for calendar year entities, we are advising our affected clients to extend their 2023 tax returns to avoid possible amendments to their returns should the Act pass on a retroactive basis. If you have any questions on how the Act may impact your tax situation, please call us at 630-953-4900.
In this video, Maria Gordon, Tax Supervisor of State and Local Taxation, sheds light on the crucial topic of tax incentives offered by states and localities to businesses. From empowerment and edge credits to research and development incentives, she underscores the vast array of opportunities available.
My name is Maria Gordon. My title is Tax Supervisor of State and Local Taxation. Businesses should really be thinking about tax incentives that many states and localities offer to them.
The states really want to see economic development in their state and even certain areas, and so often they will offer empowerment, credits, edge credits where your business is employing people there, investing in capital. And these credits are very specific. You apply for it with the state. And then it helps businesses to really expand and get some credit, some benefits there. And some states offer, you know, research and development credits. You can get that at the federal level, but if you are also doing research and experimentation in a state, you may be able to receive a state -level credit as well.
And then there’s even states that have credits that have to do with your activities such as the Wisconsin Manufacturing Tax Credit, that’s a credit against income tax. So, there is an awful lot out there with respect to state incentives and if a business isn’t thinking about these things, they really could be missing out on some benefits.
One benefit that business owners have had had for the last couple years is taking advantage of the pass-through entity tax, which is a tax whereby the business can pay state income tax at the entity level rather than having it paid at the individual level for partnerships and s-corporations where the income would generally flow through to the owners.
Now as a workaround to the state and local tax deduction cap, businesses can pay those at the entity level and get a state tax deduction against the business income. For most states, this is set to expire after 2025. So, we’re doing all we can to take advantage of those deductions right now.
I think the hope is that some of these states will extend that provision, but as of now for most of them it’s expiring 2025 and this is just an issue that we’re going keep up on and make sure we know all the changes that are happening over the next couple of years.
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. The CTA requires the disclosure of the beneficial ownership information (otherwise known as “BOI”) of certain entities from people who own or control a company.
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.
The CTA is not a part of the tax code. Instead, it is a part of the Bank Secrecy Act, a set of federal laws that require record-keeping and report filing on certain types of financial transactions. Under the CTA, BOI reports will not be filed with the IRS, but with the Financial Crimes Enforcement Network (FinCEN), another agency of the Department of Treasury.
Below is some preliminary information for you to consider as you approach the implementation period for this new reporting requirement. This information is meant to be general-only and should not be applied to your specific facts and circumstances without consultation with competent legal counsel and/or another retained professional adviser.
What entities are required to comply with the CTA’s BOI reporting requirement?
Entities organized both in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements. Domestic companies required to report include corporations, limited liability companies (LLCs) or any similar entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
Domestic entities that are not created by the filing of a document with a secretary of state or similar office are not required to report under the CTA.
Foreign companies required to report under the CTA include corporations, LLCs or any similar entity that is formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or any similar office.
Are there any exemptions from the filing requirements?
There are 23 categories of exemptions. Included in the exemptions list are publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities and certain inactive entities, among others. Please note these are not blanket exemptions and many of these entities are already heavily regulated by the government and thus already disclose their BOI to a government authority.
In addition, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:
Who is a beneficial owner?
Any individual who, directly or indirectly, either:
-Exercises “substantial control” over a reporting company, or
-Owns or controls at least 25 percent of the ownership interests of a reporting company
An individual has substantial control of a reporting company if they direct, determine or exercise substantial influence over important decisions of the reporting company. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company.
The detailed CTA regulations define the terms “substantial control” and “ownership interest” further.
When must companies file?
There are different filing timeframes depending on when an entity is registered/formed or if there is a change to the beneficial owner’s information.
What sort of information is required to be reported?
Companies must report the following information: full name of the reporting company, any trade name or doing business as (DBA) name, business address, state or Tribal jurisdiction of formation, and an IRS taxpayer identification number (TIN).
Additionally, information on the beneficial owners of the entity and for newly created entities, the company applicants of the entity is required. This information includes — name, birthdate, address, and unique identifying number and issuing jurisdiction from an acceptable identification document (e.g., a driver’s license or passport) and an image of such document.
Risk of non-compliance
Penalties for willfully not complying with the BOI reporting requirement can result in criminal and civil penalties of $500 per day and up to $10,000 with up to two years of jail time. For more information about the CTA, visit www.aicpa-cima.com/boi.
If you have any questions about how the CTA affects you and your business, please contact the experts at CK by calling 630-953-4900.
CPA | Tax Supervisor
In 2017, the Tax Cuts and Jobs Act (TCJA) introduced limiting state and local taxes (including real estate taxes) to $10,000. Prior to this legislation, state and local taxes were usually deducted in full on individual income tax returns. As a result of this legislation, many Americans, especially in high tax states or those owning their own business, lost the ability to itemize their deductions.
Many states have worked around this limitation by allowing owners of passthrough entity businesses the ability to deduct their share of state taxes on the business return itself, reducing total profit and thereby giving a back-door deduction for business owners. This is commonly referred to as a pass-through entity tax (PTET) deduction and many states have allowed it, including Illinois, Indiana, Michigan, and Wisconsin. While this back-door deduction is a benefit for business owners that have profitable pass-through entities, it doesn’t benefit those without businesses or those living in states with higher state taxes, such as California, New York, New Jersey, Connecticut, Maryland and Illinois.
This legislation has been controversial since it was introduced and is expected to sunset (expire) in 2026. The current 118th US Congress, primarily the House of Representatives, has three bills before it that would liberalize the current itemized deduction limitation on state and local taxes.
In short, the three bills have different outcomes. One bill proposes to eliminate the limitation altogether, which would result in the full deduction of state and local taxes paid during the year. The second bill proposes to increase the limitation from the current $10,000 to $100,000 for single filers and $200,000 for married filing jointly. The final bill proposes to modestly increase the cap for married filing jointly to $20,000 but retain the current $10,000 limitation on single filers.
Congress has squabbled over many policies and bills during the recent years, and to expect a clear decision anytime soon does not seem likely. As taxes have become politicized, the outcome of the full repeal of the SALT limitation prior to 2026 does not seem likely. However, we will continue to monitor the status of the other two bills which would at least raise the cap on the limitation of state and local taxes. The outcome of either bill progressing significantly could bring about a substantial change in limitations.
While any proposals in Congress, especially tax changes, can cause confusion, Cray Kaiser is here to help you navigate potential pitfalls and opportunities. Please contact us at 630-953-4900 with any questions.
Tax Supervisor – SALT
For tax years beginning January 1, 2024 there are big changes to the Ohio Commercial Activity Tax (“CAT”). For one thing, the CAT annual minimum tax is being eliminated. More importantly, the receipts exclusion is increased from $1 million to $3 million for 2024 and will be increased to $6 million for 2025. Taxpayers having 2024 calendar year Ohio gross receipts of $3 million or less will no longer be subject to the CAT. The CAT rate remains unchanged at 0.26% and will apply to Ohio gross receipts in excess of $3 million.
What does this mean for your business? If you expect your 2024 Ohio gross receipts to be under $3 million, you must close your CAT account. Failure to close the account could result in non-filing notices. You may close the CAT account online by visiting the Ohio Business Gateway. Select the CAT Cancel Account transaction and indicate a closure date of December 31, 2023.
Remember to file your final CAT return for tax year 2023! CAT filing deadlines are:
Ohio is just one of many states that imposes a tax on gross receipts. Cray Kaiser can help your business evaluate the impact of these types of taxes on your business. Contact us by calling 630-953-4900 and one of our State and Local Tax professionals will be happy to provide assistance.
In-Charge Staff Accountant
As the end of the year approaches, a lot of us take time to look back at the past year and plan for the year ahead. Now is the time to look for new opportunities, plan for the future, and take steps to avoid surprises.
Teaming up with your advisor to put together a year-end tax projection is a good idea that’s worth making time for. A tax projection is essentially an estimated tax return that will use a combination of information you already know and estimates of things you can’t know until the year is over to form a rough idea of what to expect come tax time. No projection will be perfect, especially in recent years when tax laws have changed so frequently and drastically. But starting with a good projection can eliminate at least some unknowns. In the words of Gen. Dwight D. Eisenhower, “Plans are useless, but planning is indispensable.”
Unpleasant surprises often come in the form of a higher-than-expected amount of tax due with your return, and a year-end projection can help avoid this. In many cases, an extra year-end estimated payment might be a good idea, since it can help ensure timely payment and avoid incurring penalties or interest that the government might add on to your balance due.
In addition, a year-end tax projection can often help you and your advisor uncover opportunities for additional tax savings. For many people, this might come in the form of maximizing contributions to retirement savings accounts, health savings accounts, or education savings accounts. It can also aid in the planning of charitable giving.
Beyond that, a year-end projection can aid in planning for future savings, as well. For business owners, conducting a projection can help in evaluating timing decisions for major investments in equipment or other aspects of their businesses. The same activity might have different tax consequences if it takes place before or after the current year ends. Certain deductions and credits for individuals have annual limits, as well. Some of these are fixed and other limits have a sliding scale based on your adjusted gross income (AGI) as calculated on your tax return. A tax projection can show whether the benefit will be greater in the current year or in a future year.
Of course, a projection is just an estimate, and there will be uncertainties involved. But a year-end projection can help put you in the best position to step into the year ahead. For assistance with completing your year-end tax projection, please contact the tax experts at CK at 630-953-4900.
Effective January 1, 2024 certain taxing jurisdictions in Illinois have imposed a local sales tax or changed their local sales tax rate on general merchandise sales. The following taxes are affected:
To be in compliance with the new tax rates, you must adjust your point of sale and/or accounting system to ensure that you will collect and pay the correct sales tax effective January 1, 2024. You may need to contact your software vendor to confirm that they will correct their systems to the appropriate tax rate. Remember that even if you under-collect tax, the tax is still due. That means it will be your responsibility to pay the difference.
To verify your new combined sales tax rate (state and local tax) use the Tax Rate Finder and select rates for January 2024.
The sales tax rate change will affect some cities in Cook County, DuPage County and other jurisdictions. To see a full list of all the cities impacted and the new rates, please click here.
These rate changes do not impact what is and is not subject to sales tax. As a reminder, most sales are subject to both the state sales tax and the locally imposed sales tax.
Note that some jurisdictions may impose and administer taxes not collected by the Illinois Department of Revenue. Contact your municipal or county clerk’s office for more information.
If you have any questions regarding the sales tax rate change, please don’t hesitate to contact Cray Kaiser today or call us at (630) 953-4900.
CPA | Tax Supervisor
Cryptocurrency is relatively established with 17% of Americans using it, but the regulations on tax reporting are still in the infancy stage.
The Treasury Department has proposed a new Form 1099-DA to modernize reporting requirements related to cryptocurrency. It would result in an easier way to determine the transactions that result in a taxable event and gives crypto users a clearer answer regarding taxation around cryptocurrency. While the form is new, the rationale aligns with what Congress adopted in 2021 with the passage of the Infrastructure Investment and Jobs Act (IRA).
The current system in place is a hodgepodge of rules, with part of it being based on the honor system. The proposed 1099-DA would require brokers to annually report the sales and exchanges of digital assets to both the IRS and the taxpayer, similar to how the sale of securities is reported. As such, the learning curve is low as most taxpayers are used to the reporting regime related to the sale of stocks, bonds, and mutual funds.
This Proposal gives a clearer definition of who brokers are and will encompass both traditional brokers (i.e. Morgan Stanley) and new entrants (i.e. Coinbase). It includes both centralized and decentralized trading platforms, crypto payment processors and online applications that store digital assets, such as Bitcoin, Ethereum and NFTs.
The government is catching up to the nascent crypto world and trying to bring order and consistency to the taxation of digital assets. Currently, the IRS is waiting to hear feedback until October 30, and once fine-tuned, implementation would occur for the 2025 tax year, giving the industry two years to get systems and best practices in compliance.
While any change, especially tax changes, can cause anxiety, Cray Kaiser is here to help you navigate potential pitfalls and opportunities. Please call us today at 630-953-4900.
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 2023 – 2024 Tax Planning Guide.
Many small businesses have received refunds by claiming the Employee Retention Credit (ERC) which had expanded opportunities under the Consolidated Appropriations Act of 2021 and the American Rescue Plan Act of 2021. If you have not yet claimed the ERC, time will be running out soon and you will want to check the availability for this payroll credit before it is too late. To qualify for the ERC, you will want to review our blog.
As a reminder, the ERC is claimed by filing an amended payroll tax return for the quarter in which you qualified. The IRS regulations require amended payroll tax forms to be filed by the later of the following:
However, the IRS considers Form 941 for a calendar year as filed on April 15 of the succeeding year as long as the original 941 was filed by this date. This consideration by the IRS is allowing you to still claim the ERC for calendar quarters in 2020 up to April 15, 2024 and for calendar quarters in 2021 up to April 15, 2025.
While the ERC offers an opportunity for significant refunds, it is important for you to confirm your eligibility before claiming the credit. There is increased scrutiny on companies trying to fraudulently solicit claims related to ERC. In response to rising concerns of fraudulent claims for ERC, the IRS recently ordered an immediate moratorium on processing new ERC claims through at least December 31, 2023. The IRS will continue to process ERC claims received prior to the moratorium however processing times are expanding due to the fraud concerns and the increased review time needed for the claims.
We are available to assist you in determining your qualifications and the preparation of the associated amended payroll tax returns. Please contact Cray Kaiser at (630) 953-4900 for additional information.