Jan 22, 2024
Last week, the chairs of the congressional tax committee unveiled a significant $78 billion bipartisan tax agreement poised to enhance the Child Tax Credit and offer substantial support to businesses. Named the “Tax Relief for American Families and Workers Act of 2024,” this pivotal legislation awaits the green light from both houses of Congress to be enacted into law. As the 2023 tax filing season commences on January 29, this introduces a narrow window for the bill’s approval and implementation.
Here are some of the key proposed provisions:
- Expanded Child Tax Credit – The deal outlines enhancements to the child tax credit in an attempt to provide relief to families that are struggling financially and those with multiple children. It would also lift the tax credit’s $1,600 refundable cap and adjust it for inflation by $200 per child to $1,800 for 2023, $1,900 for 2024, and $2,000 for 2025.
- Section 174 – The proposed law would postpone the requirement to capitalize and spread out the cost of domestic research and experimental expenses over multiple years. This change would apply to tax years starting from January 1, 2022, but the new rules wouldn’t take effect until tax years that begin after December 31, 2025. However, for research and experimental costs incurred outside of the U.S., these costs would still need to be spread out over a 15-year period.
- Section 163(j) – Under this draft bill, business deductions would be restored a less restrictive limitation for net interest expense, returning to a 30 percent limit based on EBITDA (earnings before interest, taxes, depreciation, and amortization) rather than EBIT (earnings before interest and taxes).
- Bonus Depreciation – The bill would temporarily restore 100 percent bonus depreciation for property placed in service between January 1, 2023, and December 31, 2025. It also would allow 20% bonus depreciation for property placed in service after December 31, 2025, and before January 1, 2027. For property placed in service after January 1, 2027, no bonus depreciation would be allowed.
- Employee Retention Tax Credit (ERC) – Under this deal, businesses would no longer be able to claim the popular ERC credit as of January 31, 2024. In addition, it would also extend the statute of limitations for ERC claims to six years from the date the claim was filed. Finally, it includes more stringent penalties for ERC promoters.
Please keep in mind that this bipartisan tax agreement is still in the proposal stage and must pass through the legislative process to become a law. As always, we will continue to monitor the status of this proposed bipartisan agreement, and keep you apprised of any developments. Please reach out to your tax advisor to discuss how this may impact your tax situation.
Categories: Tax Planning
Dec 13, 2023
In the world of taxes, all eyes have been on the Supreme Court and the case of Moore v. United States. What makes this case so monumental, you ask? It’s not every day that the Supreme Court hears arguments around tax laws affecting individuals, much less a high-stakes case that could redefine the meaning of taxable income.
At the heart of Moore v. United States is a provision of the Tax Cuts & Jobs Act (TCJA) enacted in 2017, requiring companies to pay taxes on foreign profits that had previously been untaxed. This mandatory repatriation tax is now being called unconstitutional by one Washington state couple.
In 2005, Charles and Kathleen Moore invested $40,000 in KisanKraft, a farm equipment retailer based out of India. The couple alleges that they never received any foreign profit payments from the company because all such profits were reinvested by KisanKraft. The Moores argue that such “unrealized gains” are not actually income and therefore should not be taxed. Their case argues that the TCJA provision violates apportionment requirements under the 16th Amendment because it allegedly taxes them on ownership of personal property — in this case, their KisanKraft shares — rather than on realized or received income.
While the Moores are simply seeking a refund of the one-time $15,000 increase in their tax bill due to the change in the law, the case carries much broader implications. A ruling in their favor could threaten other provisions of the tax code. The Justice Department has also noted that a ruling by the Supreme Court invalidating the mandatory repatriation tax could cost the U.S. government $340 billion over the next decade. That amount could grow exponentially if the decision invalidates other tax provisions as well.
While a ruling is not expected until June of 2024, some justices have signaled the possibility of upholding the tax by attributing the income earned by the foreign company to its shareholders. William Vaughan Company’s tax team is closely monitoring updates in the Moore v. United States case. Be sure to subscribe to our insights as we continue to share any breaking news on the ruling.
Categories: Tax Compliance
Oct 23, 2023
What is BOI Reporting?
Beneficial Ownership Information (BOI) Reporting is a framework developed by the Financial Crimes Enforcement Network (FinCEN) that mandates certain businesses to disclose specific information about their “beneficial owners.” The new reporting guidelines were formed as an effort to enhance financial transparency and curtail illicit financial activities by illuminating the individuals who own or control certain foreign or domestic entities registered to do business within the U.S.
Who is Required to Report Beneficial Ownership Information?
Domestic companies required to report include corporations, LLCs, and other similar entities formed through the registration with a secretary of state or similar office. Certain entities, such as large companies with over 20 million dollars in revenue, those that employ more than 500 full-time employees, and entities that operate under extensive regulatory scrutiny, among others, may be exempt from BOI reporting. In total, there are 23 types of entities exempt from reporting requirements, making it extremely important to carefully review FinCEN’s qualifying criteria, (published in their Small Entity Compliance Guide,) before concluding that your company is exempt.
Key Reporting Elements Defined
- Beneficial Owner(s): the FinCEN defines Beneficial Owners as individuals who own or control (either directly or indirectly,) at least 25% of the ownership interest in a reporting company, or hold “substantial control” over the company.
- Substantial Control: according to the FinCEN, an individual holds substantial control over a reporting company if the individual meets any of four general criteria:
- The individual is a senior officer;
- The individual has authority to appoint or remove certain officers or a majority of directors of the reporting company;
- The individual is an important decision-maker; or
- The individual has any other form of substantial control over the reporting company.
- Required Reporting Information: includes the name, date of birth, address, and an identifying number (e.g., a driver’s license or passport number) of each beneficial owner, as defined above.
- Existing Entities: Business that were formed as of January 1, 2024, must submit an initial BOI report by January 1, 2025.
- New Entities: Those businesses created or registered after January 1, 2024, must report within 30 days of creation/registration.
- Updates: Any changes or updates to a business’s BOI structure must be reported within 30 days of occurrence.
How to Report Beneficial Ownership Information
BOI reports must be submitted electronically through FinCEN’s secure, online filing system, which will be accessible starting January 1, 2024. FinCEN is currently not accepting any beneficial ownership information reports.
- Identify and verify Beneficial Owners: Ensure you have accurate, verifiable information for all individuals who hold a significant interest or control in your company.
- Understand your reporting obligations: Dive into the specifics of what information needs to be reported and acquaint yourself with the reporting formats and guidelines included in the Small Entity Compliance Guide linked above.
- Engage Professional Assistance: Consider connecting with WVC’s team of tax advisors who continue to remain on top of BOI reporting mandates to ensure accurate and timely filing.
- Stay Informed: Sign up for WVC Insights to receive regular updates and additional guidance on BOI reporting guidelines to ensure your business maintains continuous compliance.
Complying with BOI reporting requires businesses to exercise diligence in maintaining accurate records, understand the mechanics of the reporting framework, and exhibit punctuality in submissions. Strategic partnerships with professional experts can help pave the way for seamless compliance and fortified financial transparency.
Ensuring that your business is well-prepared to successfully navigate both BOI reporting mandates and other critical tax updates is William Vaughan Company’s top priority. Connect with a trusted WVC tax advisor today to see if your business qualifies to report on Beneficial Ownership Information under the updated framework.
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Categories: Tax Compliance
Oct 10, 2023
Understanding Tax Implications of Reselling on eBay, Ticketmaster, and Other Platforms
In an era where online third-party settlement organizations (TPSOs) such as eBay, Ticketmaster, and Venmo have become commonplace, it’s crucial to be aware of the evolving tax landscape. Traditionally, the net income from these transactions have been considered taxable income. Starting this year, the American Rescue Plan of 2021, will now also require TPSOs to file Form 1099-K with the IRS and provide a copy to the payee if sales on their platform exceed $600. This blog provides insights to the 2023 TPSO Tax Rules and how you may be impacted.
What information should be retained?
To start, you will want to keep track of any and all sales transactions completed using TPSOs. These can be used to confirm the accuracy of the 1099-K received. Additionally, any expenses related to the sale of the tickets or merchandise should be retained. This includes the receipt from the original purchase of a resell item, any fees associated with using third-party platforms, and any shipping or delivery fees.
Will my personal TPSO transactions be taxable?
Since many consumers use TPSOs for personal transactions such as gifts or bill-splitting among roommates, the 1099-K received from the TPSO may include business and personal transactions combined. By keeping a log of all resale transactions, the taxpayer can avoid being taxed on a personal transaction. If there are several transactions and the taxpayer finds it difficult to keep track of their transactions, they should consider creating two separate accounts with the TPSO: One for the business transactions and one for their personal transactions. This will help them track transactions and ensure there is no confusion when it comes to filing with the IRS. Additionally, using detailed descriptions attached to each transaction will help with determination of business or personal transactions. Personal transactions should not be included as taxable income, even if the amount reported on the Form 1040 does not match the 1099-K. Documentation to support the personal transactions should be retained for three years from date of file to surpass the statute of limitations.
What will be considered taxable income?
Reportable personal gain is considered taxable income and will include the resale price of all tickets or merchandise on the TPSO decreased by any applicable expenses related to the sale. Since these are considered sale of personal items, only gains are taxable income and personal item losses cannot be used to offset other income. In the case of a personal item loss, the transaction should still be reported to the IRS by reporting the amount received as other income and offsetting this amount under other adjustments as the basis in the personal item.
Planning for increased tax liability due to new 2023 TPSO Tax Rules.
To properly plan for taxes, you can set aside a specific percentage of each sale to ensure you have cash available to pay any applicable tax liability. If you expect to owe taxes, it is worth considering making quarterly estimated tax payments or increasing the amount withheld from a W-2, if applicable. This will help to ensure there isn’t a significant amount of tax due in April and mitigate any penalties related to underpayment of estimated tax.
For more information about these threshold changes, visit the IRS website.
Categories: Tax Compliance
Oct 04, 2023
Earlier this year, the Internal Revenue Service (IRS) finalized regulations mandating the electronic filing of the majority of tax and information returns in a strategic bid to curtail the influx of paper returns.
What has changed?
Starting January 1, 2024, companies filing 10 or more returns of any type per calendar year, must now submit these returns electronically instead of paper filing. This new regular significantly reduces the prior 250-return threshold.
Filers are now required to aggregate almost all information return types covered by the regulation to determine whether they meet the 10-return threshold. Below are just some of the forms impacted by the new requirement, most notably, Form W-2 and Form 1099:
- Corporate income tax returns
- Unrelated business income tax returns
- Withholding tax returns
- Certain information returns (W-2, 1099)
- Registration statements
- Disclosure statements
- Actuarial reports and certain excise tax returns
For a complete list of forms that must be aggregated, visit the IRS site.
Other noteworthy considerations:
- If a taxpayer is filing an amended return, the amended return must be filed using the same method as the original return.
- In limited circumstances, the IRS does not support e-filing. For example, the IRS does not support electronic filing of a final Form 941. Therefore, paper filings will be accepted if an employer is required to file a final Form 941.
- Partnerships with more than 100 partners at any time during the year must e-file.
- The IRS released a new, free e-file portal, Information Returns Intake System (IRIS), for the 1099 series of informational returns. Though available to any business of any size, IRIS may be especially helpful to any small business that currently sends their 1099 forms on paper to the IRS.
- Exemptions and waivers are available in limited situations. Exemptions will be allowed for members of certain religious communities that prohibit technology use.
- Failure to meet these new e-filing regulations could result in one or more penalties.
How do I know if I am impacted?
The aggregation rule combines all previously mentioned form types to determine if the filer meets the 10-return threshold. For example, the amount of W-2 forms will be combined with the number of 1099 forms a company is required to file. If that amount is 10 or more, then that company has to electronically file all of the forms.
Any taxpayers currently filing paper returns should consult with their William Vaughan Company tax advisor to determine if the new 2024 e-filing mandate requirements apply to them based on the number of returns that they anticipate filing in 2024 for tax year 2023. More details about these changes can be found on the IRS website, here.
Categories: Tax Compliance
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