Unlocking the Tax Benefits of Opportunity Zones
Dec 10, 2019
Are you interested in reviving economically distressed communities in your area and reducing your tax burden at the same time? The Opportunity Zone program, created by the Tax Cuts and Jobs Act of 2017, provides the opportunity to do both.
What is an Opportunity Zone?
It is an economic development tool aimed to attract investments and jump-start economic growth in low-income urban and rural communities nationwide. To view all qualified opportunity zones, visit the U.S. Department of the Treasury for the most up-to-date listings. Zones are identified by state, county, and census tract number.
How does the program work?
It permits investors (individuals, corporations, partnerships, trusts & estates) to defer tax on any prior capital gains made from the sale or exchange of any asset, only if they invest in a Qualified Opportunity Zone (QOZ) by way of a special purpose entity known as a Qualified Opportunity Fund (QOF) within 180 days after the gain arises. In short, a QOF is an investment vehicle designed to hold funds to then invest in real estate to make “substantial improvements”.
What are the tax benefits?
- Deferral of taxable gains as late as December 31, 2026
- Qualifying investments made by December 31, 2021, and held until 2026 are eligible for a reduction in deferred gains in the amount of 10% of the gain. Investments made by December 31, 2019, and held until 2026 are eligible for an additional deferred gain reduction of 5% for a total maximum gain reduction/basis step-up of 15%.
- Permanently exempts any future gains of reinvested proceeds. Gain from appreciation in the QOF investment may be eliminated if the QOF investment is held for at least 10 years.
What should I know before investing?
Your original deferred gain (less any amount forgiven) will be subject to tax on whichever date comes first: either December 31, 2026, or when you sell your interest in an Opportunity Zone Fund. If you still own the interest in an Opportunity Zone Fund after December 31, 2026, you will owe tax on the original deferred gain without any cash proceeds from the investment to pay the tax.
When do I need to invest?
Act fast! Investing by December 31, 2019, will ensure you capture the greatest tax benefit.
Tax Senior Manager
Categories: Tax Planning
FASB Lease Accounting Standards Delayed
Jul 24, 2019
The Financial Accounting Standards Board (FASB) voted unanimously on Wednesday, July 17, 2019, to propose delaying the effective date for portions of its major accounting standards, including ASC 842, Leases, for privately held companies and nonprofit organizations.
Also, the new proposal is expected to create two new “buckets”: (1) SEC filers other than smaller reporting companies (SRCs, as defined by the SEC) and (2) all other entities, allowing at least a two-year difference in the effective date between the buckets.
Why is this important?
For private companies, ASC 842 was previously scheduled to take effect for annual financial reporting periods beginning after December 15, 2019 (2020 for calendar year-end companies), and interim periods after December 15, 2020. However, this delay means companies now have an extra year to adopt the new lease accounting rules, subject to the FASB issuing a formal proposal for public comment before finalizing the new effective dates.
The FASB staff will draft the proposed amendments to existing standards and provide them to the Board to vote by written ballot, after which they are expected to be exposed for a public comment period of 30 days. The FASB expects to issue the final amendments later this year.
As we continue to consult with current clients, we highly encourage companies to proactively address the implementations of both standards as evaluation and adoption typically take longer than anticipated.
For additional insights or assistance on the adoption of the new revenue standards please contact one of the following members of our audit team at 419.891.1040
Tracie Youngless Kristin Metzger Juli Seiwert Ryan Leininger Amy Barber
Categories: Audit & Accounting
Could the U.S. Supreme Court Change the Way You Shop Online?
Jun 20, 2018
April 17 was not only the end of tax season but also the day the Supreme Court heard South Dakota vs. Wayfair, Inc. This case will likely affect every business, no matter size or revenue. This case spotlights the collection and remittance of sales tax, specifically whether the responsibility should lie with the state or the business. Sales tax is considered a consummation or a value-added tax and is typically assessed to the end purchaser or user of a product. Most businesses are responsible for collecting and remitting these taxes. However, with any tax law, there are exemptions.
One of these exemptions comes from a previous Supreme Court Case from 1992 – Quill v. North Dakota. In this case, the Supreme Court ruled businesses only had to collect sales tax in states where they had a physical presence. Therefore, an out-of-state business whose only contact with a state was the sale of tangible personal property, did not need to collect and remit sales tax. If the sales tax wasn’t collected by the business the burden to remit to the State was then transferred to the resident of the State. Basically, if you don’t pay sales tax on a taxable purchase, YOU are now required to pay the tax on your individual tax return. And this is where the issue lies.
States governments argue the cost to enforce collections from an individual greatly outweigh any unpaid tax. As a result, state officials are pushing for the responsibility to lie with the business. Last year, South Dakota took action with the following economic threshold law: if your business has $100,000 in gross sales or over 200 varying transactions to consumers located within the state, then your business must collect and remit tax – no exceptions.
This brings us to South Dakota vs. Wayfair, Inc.
South Dakota wants to overturn the 1992 Quill ruling arguing the development of the internet and e-commerce establishes the physical presence of a business as outlined in Quill, therefore making businesses responsible for the tax collection. In addition, state officials maintained if an online business is doing substantial trade within their borders, then bricks-and-mortar businesses are at a disadvantage as consumers may opt to purchase a product online without paying sales tax.
Conversely, Wayfair argues the complexities of such transactions are too much for smaller businesses to overcome. Under current law, 45 states and thousands of local jurisdictions assess sales tax. Additionally, each state has varying laws on what is a taxable transaction and was is not. Lastly, Wayfair has contended any internet sales are at a disadvantage due to shipping and handling charges.
All eyes are now on the Supreme Court, who is set to rule by the end of this month on the “tax case of the millenium”. Stay tuned to see how this may impact you.
Categories: Tax Compliance