Tax Archives - Page 5 of 13 - Wouch Maloney CPAs & Business Advisors

Year-End Tax Planning: Businesses

December 6, 2023/in Tax /by Wouch Maloney

As we close in on the end of 2023, it is important for business owners to evaluate the tax impact of their 2023 operations and contact their tax advisors to review 2023 results and discuss any year end planning opportunities.

During 2023, Congress passed the Inflation Reduction Act of 2022 which extended and added a host of new credits related to the transition to a clean energy economy. The Act incentivizes new investment into clean technology and should be something taxpayers consider for 2023 and beyond.

Tax law is a moving target with changes happening regularly that impact taxpayers, however, as the date of this publication there is no active pending tax legislation to cause significant changes to our tax laws for 2023.

For business owners, these are the items you may want to consider prior to the end of the year:

Method of Accounting

Tax law stipulates that taxpayers must use the accrual method of accounting when an entity meets a three-year inflation-adjusted average gross receipts, which is approximately $29 million for 2023. If an entity is required to change accounting methods for 2023 it is important to talk to a trusted tax advisor to understand the tax impact.

Accruing Expenses

For accrual basis taxpayers it is important to start planning for services and deliveries that are anticipated towards year end. It may be advantageous for some Taxpayers to either delay delivery and services until the next tax year or accelerate into the current year depending on the specific tax situation.

Timing of Expenses

For cash basis taxpayers payment needs to be made prior to year end for expenses to be deducted in 2023. Depending upon your tax situation you may want to consider accelerating payments into 2023 or delaying payment until 2024.

Accelerated Depreciation

Taxpayers can still utilize both section 179 and Bonus Depreciation during 2023 for qualifying property and equipment. However, as of 2023, it is important for taxpayers to note that the first-year bonus depreciation deduction has fallen to 80% and is scheduled to continue to decline as follows:

Bonus Depreciation Rates

Year	Rate
2023	80%
2024	60%
2025	40%
2026	20%
2027	0%

2023 Section 179

Maximum amount of deduction: $1,160,000.

Qualified Business Income Deduction

Eligible taxpayers, through 2025, can deduct up to 20% of qualified business income. There are multiple limitations, and exclusions depending on the specific tax situation, so it is important to speak to a trusted tax advisor to understand if an entity qualifies.

Questions?

With an always changing tax landscape it is crucial to work with a trusted advisor on tax planning. We will continue to monitor all future developments and keep you informed with the latest tax law changes.

If you have questions about tax planning or other accounting, tax or advisory services, please call 215.675.8364 or email us to speak with a CPA today.

Abraham Shahswar, CPA contributed to this article.

DISCLAIMER: The WM Update, WM Wednesday Wisdom, WM Daily Update, and other related communications are intended to provide general information, as of the date of this communication, and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

Year-End Tax Planning: Individuals

November 8, 2023/in Tax /by Sweta Joshi

With December 31^st right around the corner, it is a great time to start the tax planning process which may help lower your tax bill come April.

As of publication, there is no active pending tax legislation that is expected to cause significant changes to our tax laws for 2023. However, it is expected that Congress will pass an omnibus spending bill towards the latter part of 2023 that may address various temporary tax provisions.

Amid an always changing tax landscape, these are the tax moves you may want to consider before the end of the year.

Retirement Plans: The Contribution limit for employer-sponsored plans in 2023 is $22,500, with a catch-up option of $7,500 for individuals aged 50 and above. The limit will increase to $23,000 in 2024
Tax Loss Harvesting: Carefully manage gains and losses in investment accounts. To the extent you have capital losses this year or capital loss carryovers from earlier years, selling appreciated securities by year-end may not increase your taxes. Offsetting net short-term capital gains with capital losses is a tax-efficient move because net short-terms gains will be taxed at your higher ordinary income rate of up to 37% plus another 3.8% for the net investment income tax.
Passive Activities: If possible, consider increasing participation in any passive activities to not be restricted in the amount of losses you can utilize during the year. A taxpayer can satisfy the material participation test by participating in an activity more than 500 hours during the year, participating more than 100 hours if no one else does more, or participating more than 500 hours in all the taxpayer’s significant participation activities.
Energy Efficient Tax Credits: Consider purchasing a qualified electric vehicle before the end of the year or making energy efficient home improvements. Eligible taxpayers can receive a credit up to $7,500 for the purchase of a new, qualified plug-in EV or fuel cell electric vehicle (FCV). The Home Improvement credit for 2023 is 30% of the cost of certain qualified expenses.

If your total itemized deductions for this year will be close to your standard deduction allowance, consider making enough additional expenditures for itemized deduction items before year-end to exceed the standard deduction.

Consider accelerating medical purchases for 2023 to increase your deduction for qualified medical expenses. It is important to note that taxpayers can only deduct to the extent that total qualified medical expenses exceed 7.5% of AGI.
Consider increasing charitable contributions. Through 2025, the charitable contribution limit for a gift of cash to a public charity or donor advised fund remains 60% of one’s adjusted gross income (AGI) and 30% for noncash contributions.

If you have questions about tax planning or other accounting, tax or advisory services, please call 215.675.8364 or email us to speak with a CPA today.

Abraham Shahswar, CPA and Sweta Joshi, CPA contributed to this article.

Employer match and student loan payments Under Secure Act 2.0

November 1, 2023/in Tax /by Sweta Joshi

For a long time, employers and employees have been able to take advantage of a special tax break on tuition and certain types of tuition-related assistance that has offered a boost to companies’ employee benefits programs. One provision under the Secure Act 2.0, which is to take effect, January 1, 2024, allows employers to make matching contributions to an employee’s 401(k), 403(b), 457(b) or SIMPLE employer-sponsored retirement plan if the employee is making student loan payments.

To be eligible for the matching contributions:

The employee’s loan payments must be for a qualified student loan to pay for higher education costs (tuition, fees, books, expenses). Room and board, non-credit courses and sports expenses are not eligible.
The employee must have been enrolled (at least half time) in a program that leads to a certificate or degree.
The employee must certify that loan payments have been made on an annual basis.
The employer may rely on the employee certification of payment and is not required to obtain payment and loan documentation support.
The annual maximum deferral limit for student loan repayments considered eligible for matching contributions for 2023 is $22,500 401(k)/403(b)/457(b) and $15,500 for SIMPLEs and reduced by any employee elective deferrals. The total annual elective deferral and loan payment amount cannot exceed the Section 402(g) IRC limit.
Matching contributions for student loan payments must be at the same rate as those for elective deferrals.

Employer business considerations:

The first consideration in adopting a student loan match under SECURE 2.0 is whether it makes business sense, for example, in recruiting and retaining talent. Employers should assess how many employees are currently repaying qualified student loans, as well as the jobs they hold. The student loan match may make sense for employers who wish to assist all employees with student debt without regard to salary level or job function. In any event, employers should assess the costs and administrative burdens of the student loan match.

The SECURE 2.0 provides the framework for the student loan match, however many administrative and implementation questions remain. The US Department of the Treasury and IRS is expected to provide more guidance to fully implement this feature.

We will continue to provide updates as additional information is received. If you have questions about this update or other accounting, tax or advisory services, please call 215.675.8364 or email us to speak with a CPA today.

IRS Announces Process to Withdraw ERC Claim

October 20, 2023/in Tax /by Wouch Maloney

Yesterday, October 19, 2023, the IRS released information on how to withdraw an ERC claim. In the release, the IRS wrote “for those who filed a claim requesting a refund for an Employee Retention Credit (ERC or ERTC) and would now like to withdraw your claim, details as to whether you can do so and, if so, how to withdraw your claim are available from the IRS.”

Scams and Aggressive Marketing Tactics

As many of you may recall, in September, the IRS issued a moratorium on processing new claims through year’s end. IRS Commissioner Danny Werfel issued the moratorium due to “growing concerns inside the tax agency, from tax professionals as well as media reports that a substantial share of new claims from the aging program are ineligible and increasingly putting businesses at financial risk by being pressured and scammed by aggressive promoters and marketing.”

The moratorium will allow the IRS to add more safeguards to prevent future abuse and protect businesses from predatory tactics, as the IRS works with Justice Department to pursue fraud fueled by aggressive marketing tactics.

ERC Audits and Investigations

Over $2.8 billion of potentially fraudulent Employee Retention Credit claims were part of an IRS Criminal Investigation (IRS-CI). On July 31, 2023, the IRS wrote “Of those, 15 of the 252 investigations have resulted in federal charges. Of the 15 federally charged cases, so far six matters have resulted in convictions, four of those cases have reached the sentencing phase with the average sentence being 21 months.” Criminal Investigation’s work is in addition to ERC audits that have already begun.

The IRS has already referred thousands of ERC cases for audit.

IRS Issues Interim Guidance on R&D Expenditures

September 27, 2023/in Tax /by Wouch Maloney

Recently, the IRS released Notice 2023-63, containing long-awaited interim guidance on the capitalization and amortization of Specified Research or Experimental expenditures under Section 174. Beginning in 2022, businesses involved with R&D are no longer able to currently deduct their R&D expenses. Rather, they need to capitalize and amortize those costs over time.

The Notice specifically addresses:

Amortization Methods
Identification and Allocation of Costs
Software Development
Research performed under contract
Disposition of property
Cost-sharing regulations
Long-Term Contract Accounting

The proposed regulations are expected to apply to tax years ending after September 8, 2023, although they may be adopted for earlier years. The IRS intends to issue additional guidance, however,

“Before the proposed regulations are released, a taxpayer may choose to rely on Notice 2023-63 , except for the rules in section 7, provided the taxpayer relies on all rules and applies them consistently. Notice 2023-63 also addresses how account for SRE expenses under IRC Sec. 460 and how to apply IRC Sec. 482 to cost-sharing agreements involving SRE expenditures. Additionally, the IRS has indicated the IRC Sec. 460 regulations will likely be revised to reflect these updates. Notice 2023-63.”

The IRS is currently requesting comments on the proposed regulations.

We will continue to update you as information is received. To read the entire release, click here.

If you have questions about how these changes may affect you, please call 215.675.8364 or email us to speak with a construction accounting professional today.

Tax Credits for Energy Efficient Home Builders

August 30, 2023/in Tax /by Wouch Maloney

Contractors who build or substantially reconstruct qualified energy-efficient homes may be eligible for tax credits up to $5,000 per home. The amount of the credit depends on factors including the type of home, its energy efficiency and the date when someone buys or rents it.

Eligible Builders and Homes

To be eligible for the credit, contractors must:

Construct or “substantially” reconstruct a qualified new energy-efficient home
Own the home or have a basis in the home during construction, and
Sell or lease the home to an individual who will use it as a residence.

A qualified energy-efficient home is a single or multi-family home that is located in the U.S. and purchased or rented by an individual to use as a residence. The home must also meet the applicable energy-saving requirements based on the home type and acquisition date.

Energy-saving Requirements

To qualify for the Energy Efficient Home Builder credit, the new build or reconstructed home must meet the following standards, including:

Energy Star program requirements
Zero energy ready home program requirements
Prevailing wage requirements

Credit Amounts

For homes acquired in 2023 through 2032, the credit amount ranges from $500 to $5,000, depending on which standards are met. Builders can receive a credit of:

$5,000 per home for new single-family and manufactured homes that are:

Part of an ENERGY STAR-eligible building
Certified by the Zero Energy Ready Home Program

$1,000 per unit for new multifamily homes that are:

Part of an ENERGY STAR-eligible building
Certified by the Zero Energy Ready Home Program

Before claiming the credit, builders must certify that their homes meet all requirements under IRC Section 45L.

Contractors claiming the credit should practice good recordkeeping of all documents required to support a claim for the Section 45L credit.

If you have questions about how these changes may affect you, please call 215.675.8364 or email us to speak with a construction accounting professional today.

New Jersey Corporate Business Tax Act Changes

July 19, 2023/in Tax /by Suzanne Feldman

On Monday, July 3, 2023, New Jersey Governor Phil Murphy signed into law Senate Bill 3737/Assembly Bill 5323 (the Legislation), which significantly overhauls key aspects of the Corporation Business Tax Act (the CBT Act).

Key Provisions

Retroactively effective for tax years beginning on or after January 1, 2022

Research Expenses

Historically, under New Jersey law, no deduction was allowed for research and experimental (R&E) expenditures to the extent that those R&E expenditures were qualified research expenses or basic research payments for which an amount of credit was claimed, unless those R&E expenditures were also used to compute a federal credit. The legislation provides that a deduction for New Jersey R&E expenditures is allowed during the same privilege period for which a New Jersey credit is claimed. However, non-New Jersey research expenditures are deductible in the same manner and with the same timing as they are for federal purposes (i.e., amortized over a five- or fifteen-year period).

Effective for tax years beginning on or after January 1, 2023

Partnership Sourcing

The law provides that partnerships and sole proprietors are now required to use single sales factor sourcing. This change aligns the rules for partnership income apportionment with those applicable to corporations. For service providers this means sourcing is no longer based on where the work was performed. Instead, service providers apportioning income to New Jersey must use market sourcing, which looks to the location where the benefit of the service is received.

Effective for tax years ending on or after July 31, 2023

Economic Nexus standard

The Legislation adopts an economic nexus standard for corporate business tax purposes. A non- New Jersey corporation with receipts in excess of $100,000 from in-state sources or 200 or more separate transactions delivered to customers in New Jersey will be deemed to have substantial nexus. The bill makes clear that a corporation with sales/transactions below these thresholds may still have New Jersey nexus if the corporation’s exercise of its franchise in New Jersey is otherwise sufficient to establish jurisdiction.

Sunset of CBT Surtax

The New Jersey Legislature did not extend the 2.5% corporate tax surtax beyond 2023. The surcharge temporarily increased the tax rate from 9% to 11.5%. The surcharge was previously extended in 2021 and is set to expire on December 31, 2023.

NOL provisions

The Legislation conforms to the federal 80% limitation on the use of NOLs.

Administrative

The Legislation makes the following administrative changes:

The due date for the New Jersey CBT return has changed to the 15th day of the month immediately following the month of the original due date for filing the taxpayer’s federal corporate tax return for the same tax year (or the 15^th of the month following the month of the extended due date if extended for federal tax purposes)
The installment payment safe harbor increased from $500 to $1,500.

Other New Jersey Items of Note

Beginning in tax year 2023, New Jersey will institute a new reciprocal “Convenience of the Employer Rule” targeting nonresident remote workers who work for a New Jersey-based business. This comes in response to New York’s convenience rule, which has cost New Jersey billions in tax credits for residents subject to New York’s income tax while telecommuting from New Jersey. The rule only applies if the reciprocal state also has a convenience rule.

Starting in 2026, a new property tax relief program will provide seniors earning less than $500,000 per year a credit for half of their property tax, up to $6,500.

If you have questions about how these changes in the law may affect your business or personal return, please call 215.675.8364 or email us to speak with an accounting professional today.

New IRS Scam Arriving in Cardboard Envelopes to Homes

July 11, 2023/in Tax /by Wouch Maloney

Scammers are not taking a summer vacation. While most of us were enjoying the 4^th of July holiday, the IRS and the Security Summit issued a warning to taxpayers on July 3, 2023, regarding a new scam involving a delivery to your home.

According to the news release, the scam involves a cardboard envelope that arrives via a delivery service. Inside the envelope is a letter on IRS masthead with information regarding “your unclaimed refund.” The contact information and phone number included in this scam letter does not belong to the IRS.

Warning Signs of a Scam

In this new scam, there are many warning signs that can be seen in similar schemes that arrive via email or by text. An unusual feature of this cardboard envelope scam is that it tries tricking people to email or phone very detailed personal information in hopes of stealing valuable information.

The letter tells the recipients they need to provide “Filing Information” for their refund as well as instructions for the recipient to provide personal identifiable information such as a photo of your driver’s license.

The request for a photo of your driver’s license has misspellings in the sentence, which is included below. You will notice the scam letter uses the word phone instead of photo.

“A Clear Phone of Your Driver’s License That Clearly Displays All Four (4) Angles, Taken in a Place with Good Lighting.”

Do Not Share Personal Identifiable Information

In addition to asking for photos of your driver’s license, the letter requests more sensitive information including cellphone number, bank routing information, Social Security number and bank account type.

The IRS provided a second example of the poorly worded letter:

“You’ll Need to Get This to Get Your Refunds After Filing. These Must Be Given to a Filing Agent Who Will Help You Submit Your Unclaimed Property Claim. Once You Send All The Information Please Try to Be Checking Your Email for Response From The Agents Thanks”

Grammatical Errors and Incorrect Dates

In addition to being poorly written, the letter contains grammatical errors and incorrect filing dates. This letter, as most scams, contains a variety of warning signs, including odd punctuation and a mixture of fonts and other inaccuracies.

Other examples provided by the IRS include: “the letter says the deadline for filing tax refunds is Oct. 17; the deadline for people on extension for their 2022 tax returns is actually Oct.16, and those owed refunds from last year have time beyond that.

Keep in mind that the IRS handles tax refunds, not “unclaimed property.”

Taxpayers Beware

“This is just the latest in the long string of attempts by identity thieves posing as the IRS in hopes of tricking people into providing valuable personal information to steal identities and money, including tax refunds,” said IRS Commissioner Danny Werfel. “These scams can come in through email, text or even in special mailings. People should be careful to watch out for red flags that clearly mark these as IRS scams.”

Uncertain About IRS Correspondence?

If you are uncertain about correspondence received from the IRS, please contact us for guidance. Do not respond directly to the request and do not provide information over the phone.

Keep in mind that scammers are using many communication modes including letters, texts, emails or phone calls to question you about your tax refund, tax return or anything related to the IRS.

Finally, many of us have aging parents, relatives, or neighbors. Please take a moment to remind them about scammers so they do not fall prey to these predators.

Please call 215.675.8364 or email us to speak with an accounting professional today about this or any other topic related to your accounting, tax or advisory needs.

How to Determine Residency for Tax Purposes

July 5, 2023/in Tax /by Sweta Joshi

There’s no doubt that remote work has gained momentum over the last few years. Many companies are permanently rethinking their approach to working outside the office as employees express interest in the perks of working from home.

If you have traveled to another state and worked while there, you may owe taxes in the state where you worked, even if you weren’t there for the whole year. States have different residency rules for how long someone must be there before they’re considered a resident for tax purposes.

Another group that should pay attention are those who moved from states with high-income taxes to those with low or zero-income taxes. If you want to move to the lower income tax state for a couple of months just to lower your taxes, that’s probably not going to happen. States want to collect income taxes and will likely not overlook temporary moves. Unless you took steps to change your permanent residence, you will not be able to get away with paying no or less money in state taxes with a temporary move.

If you leave your state of residence, it is important to determine if your presence in a different location is for a temporary or transitory purpose. You should consider the purpose and length of your stay when determining your residency for taxes.

The underlying theory of residency for tax purposes is that you are a resident of the place where you have the closest connections. This means that you should compare your ties to your resident state with your ties elsewhere. It is the strength of your ties, not just the number of ties, that determines your residency.

The following list shows some of the factors you can use to help determine your residency status for taxes:

Amount of time you spend in one state versus amount of time you spend in another state.
Location of your spouse/RDP and children.
Location of your principal residence.
State that issued your driver’s license.
State where your vehicles are registered.
State where you maintain your professional licenses.
State where you are registered to vote.
Location of the banks where you maintain accounts.
The origination points of your financial transactions.
Location of your medical professionals and other healthcare providers (doctors, dentists etc.), accountants, and attorneys.
Location of your social ties, such as your place of worship, professional associations, or social and country clubs of which you are a member.
Location of your real property and investments.
Permanence of your work assignments in different states.

Many states follow a “facts and circumstances” test. For example, California takes a very aggressive stance and regularly performs residency audits. The state auditor will review many third-party records to determine if you are a California resident including electric or gas bills, cell phone records, grocery store receipts, debit and credit card charges.

Keep in mind, no one thing makes you a resident, and no one thing makes you a nonresident.

Our tax consultants can help you determine the state of residence for your income taxes. Talk to an advisor at Wouch Maloney for more information.

Preparing Tax Returns – Should you do it yourself or go to a professional tax preparer?

June 14, 2023/in Tax /by Sweta Joshi

If you’re wondering whether you should do your own taxes or hire a tax professional, the answer (as with most financial decisions) is: It depends on your situation. You might be fine filing your taxes on your own if your financial situation is uncomplicated, but many people require the assistance of a trained tax professional such as a Certified Public Accountant (CPA) or a tax preparer.

If preparing your taxes consists of gathering a W-2 from your employer and a 1099 from your bank and entering them in a form, your tax return is simple, and you should consider filing by yourself or using tax software. Tax preparation may take longer when you handle all the details yourself so make sure you have the time.

Using a tax professional to prepare your tax returns is a good option if your situation includes the following:

Self-employment income
K-1 income
Foreign income, bank accounts, or investments
A major life event such as buying or selling home, receiving an inheritance, or moving to different state
Owning a rental property
Being audited

While a tax preparer and a CPA are both professionals in the financial industry, it is important to understand what sets the two roles apart. Some of the key differences between a CPA and a tax preparer:

CPAs

Education: Bachelor’s degree and 150 credit hours with a focus on accounting and business
Licensed by a professional governing body.

Have requirements for continuing education in order to maintain their license.
Are held to specific professional standards and a code of ethics.
Are considered business advisors and provide tailored advice and tax planning to minimize client’s tax liabilities.
Qualified to represent you on any IRS matters including payment/ collection issues, appeals, audits, etc.

Tax Preparer

No college degree is required.
Most learn tax rules and regulation on the job instead of in a classroom.
A tax preparer’s focus is narrower, but this may be a good option if you seek only tax-filing services.
For smaller companies with straightforward taxes, using a tax preparer is a way to save money and get your tax returns completed on time.
An unlicensed tax preparer is limited to no representation rights for you with the IRS.

Only you can decide which tax preparation method will work best for your situation. A CPA is a full-service financial professional and is generally the right choice for someone who wants accounting, audit, tax or business advisory services year-round or who would benefit from tax planning in advance of filing. A tax preparer is someone who prepares and files taxes and is generally the right choice for someone who specifically needs help when it comes time to file.

If you are unsure of which option is best for you, contact Wouch Maloney today to speak with an accounting professional. Wouch Maloney provides tax preparation services for complex tax returns for businesses in Philadelphia, PA and Horsham, PA.

Call 215.675.8364 or email us to speak with an accounting professional today.