I can’t believe it’s Summertime!🏖️
June 2024
Feature Articles
Tax Tips
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.
Does the Corporate Transparency Act Apply to Your Business?
Under the Corporate Transparency Act (CTA), many businesses are subject to new reporting requirements that went into effect on January 1, 2024. That means certain companies are required to provide information related to their “beneficial owners,” that is, the individuals who ultimately own or control the company, to the Financial Crimes Enforcement Network (FinCEN). Failure to submit a beneficial ownership information (BOI) report may result in civil or criminal penalties, or both.
Subsequent Developments
On March 1, 2024, the U.S. District Court for the Northern District of Alabama ruled that the CTA is unconstitutional. Does that mean that businesses no longer need to comply? Not necessarily. The federal government filed an appeal on March 11, 2024, in the U.S. Court of Appeals for the 11th Circuit. That same day, FinCEN announced that the law’s requirements are still in effect for those not involved in the court case.
“While this litigation is ongoing, FinCEN will continue to implement the Corporate Transparency Act as required by Congress, while complying with the court’s order,” FinCEN stated. “Other than the particular individuals and entities subject to the court’s injunction … reporting companies are still required to comply with the law and file beneficial ownership reports as provided in FinCEN’s regulations.”
More About the CTA
The CTA is intended to curb illicit finance, including terrorist financing, money laundering and other illegal activities. But it could also open the door to the inspection of family offices, investment angels and other private individuals who may have been shielded from scrutiny in the past.
The CTA’s rules generally apply to both domestic and foreign privately held reporting companies. For these purposes, a reporting company includes any corporation, limited liability company or other legal entity created through documents filed with the appropriate state authorities. A foreign entity includes any private entity formed in a foreign country that is properly registered to do business in the United States.
The complete list of entities that are exempt from the reporting rules is too lengthy to include here, ranging from government units to not-for-profit organizations to insurance companies and more. Notably, an exemption was created for a “large operating company” that employs more than 20 persons on a full-time basis, has more than $5 million in gross receipts or sales (not including receipts and sales from foreign sources), and physically operates in the United States. However, many of these companies already must meet other reporting requirements providing comparable information.
If an entity initially qualifies for the large operating company exemption but subsequently falls short, it must then file a BOI report. On the other hand, an entity that might not currently qualify for an exemption can update its status with FinCEN to potentially gain exemption status.
Compliance Deadlines
The deadline to comply depends on the entity’s date of formation. Reporting companies created or registered prior to January 1, 2024, have one year to comply by filing initial reports. Those created or registered on or after January 1, 2024, but before January 1, 2025, will have 90 days upon receipt of their creation or registration documents to file their initial reports. Entities created or registered on or after January 1, 2025, will have 30 days upon receipt of their creation or registration documents to file their initial reports.
But stay tuned for more developments as the CTA case noted above goes through the appeals process. There could be other litigation as well, or Congress could make changes to the law.
What Expenses Can't Be Written Off by Your Business?
If you check the Internal Revenue Code, you may be surprised to find that most business deductions aren’t specifically listed there. For example, the tax law doesn’t explicitly state that you can deduct office supplies and certain other expenses. Some expenses are detailed in the tax code, but the general rule is contained in the first sentence of Section 162, which states you can write off “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.”
Basic Definitions
In general, an expense is ordinary if it’s considered common or customary in the particular trade or business. For example, insurance premiums to protect a store would be an ordinary business expense in the retail industry.
A necessary expense is one that’s helpful or appropriate. For example, a car dealership may purchase an automatic defibrillator. It may not be necessary for the business operation, but it might be helpful if an employee or customer suffers a heart attack. It’s possible for an ordinary expense to be unnecessary. But to be deductible, an expense must be ordinary and necessary.
A deductible amount must be reasonable in relation to the benefit expected. For example, if you’re attempting to land a $3,000 deal, a $65 lunch with the potential client should be OK with the IRS. (The Tax Cuts and Jobs Act eliminated most deductions for entertainment expenses but retained a 50% deduction for business meals.)
How the Courts May View Expenses
The deductibility of some expenses is clear, while others are more complicated. Not surprisingly, the IRS and courts don’t always agree with taxpayers about what is ordinary and necessary. To illustrate, here are three recent U.S. Tax Court cases in which specific taxpayer deductions were disallowed:
These cases and others should show the importance of maintaining careful, detailed records. Make sure that only business costs are claimed.
Proceed with Caution!
If an expense seems like it’s not normal in your industry or could be considered personal or extravagant, proceed with caution. Contact the office with questions about deductibility and proper documentation.
Sending the Kids to Day Camp May Bring a Tax Break
Among the many challenges of parenthood is childcare for kids when school lets out. Babysitters are one option, or you might consider sending them to a day camp. There’s no one-size-fits-all answer, but if you do choose a day camp, you could be eligible for a tax break. (Unfortunately, overnight camps don’t qualify.)
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Dollar-for-dollar Savings
Day camp can be a qualified expense under the child and dependent care tax credit. The credit is worth 20% to 35% of the qualifying costs, subject to an income cap. The maximum amount of expenses that can be claimed is $3,000 for one qualifying child or $6,000 for two or more children, multiplied by the percentage that applies to your income level.
For those qualifying for the 35% rate with maximum expenses of $3,000, the credit equals $1,050, or $2,100 for two children with expenses of at least $6,000. The applicable credit percentage drops as adjusted gross income (AGI) rises. When AGI exceeds $43,000, the percentage is 20% of qualified expenses, subject to the $3,000 or $6,000 limit.
Tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar, that is, $1 of tax credit saves $1 of taxes. This is compared to deductions, which simply reduce the amount of income subject to tax. So, if you’re in the 24% tax bracket, a $1 deduction saves you only $0.24 of taxes.
Qualifying for the Credit
Only dependents under age 13 generally qualify. However, the credit may also be claimed for expenses paid to care for a dependent relative, such as an in-law or parent, who is incapable of self-care. Eligible care costs are those incurred while you work or look for work.
Expenses paid from, or reimbursed by, an employer-sponsored Flexible Spending Account can’t be used to claim the credit. The same is true for a dependent care assistance program.
Determining Eligibility
Additional rules apply to this credit. Contact the office if you have questions about your eligibility for the credit and the exceptions.
Help Prevent Financial Scams Aimed at Older People
In any season, scam artists are seeking new ways to steal financial data and money from vulnerable people. Such fraudulent activities often target older adults. Here are three ways to help prevent elder financial abuse and fraud, whether you’re in this age bracket or you share them with senior loved ones:
Boost Your Home Improvements with Tax Credits
For many homeowners, summer means it’s time to tackle home improvement projects. By investing in certain energy-efficient updates, taxpayers not only can lower their power bills but also can score some tax breaks.
The Energy Efficient Home Improvement Credit equals 30% of qualified expenses (up to $3,200) incurred to improve a home after Jan. 1, 2023. Examples include insulation and exterior doors or windows.
The Residential Clean Energy Credit is equal to 30% of qualified property installed in a U.S. home from 2022 through 2032. Examples include solar electric panels, solar water heaters and wind turbines.
Additional rules and limits apply to these credits. Here’s more: https://www.irs.gov/newsroom/irs-home-improvements-could-help-taxpayers-qualify-for-home-energy
Tax Breaks for Increasing Accessibility
Certain small business owners may qualify for tax breaks by making their premises accessible to people with disabilities. The CDC reports that 61 million people in the United States are affected by disabilities.
The Disabled Access Credit is a nonrefundable credit for up to 50% of eligible access expenditures made by qualifying small businesses in each year the costs are incurred. Also available is a barrier removal tax deduction when a business removes an architectural barrier and the removal improves access for persons with disabilities and the elderly.
Both tax benefits can be used in the same year if the requirements are met. To learn more: https://www.irs.gov/newsroom/tax-benefits-to-help-offset-the-cost-of-making-businesses-accessible-to-people-with-disabilities
Upcoming Tax Due Dates
June 17
Individuals: File a 2023 individual income tax return (Form 1040 or Form 1040-SR) or file for a four-month extension (Form 4868) if you live outside the United States and Puerto Rico or you serve in the military outside those two locations. Pay any tax, interest and penalties due.
Individuals: Pay the second installment of 2024 estimated taxes (Form 1040-ES) if not paying income tax through withholding or not paying sufficient income tax through withholding.
Calendar-year corporations: Pay the second installment of 2024 estimated income taxes, completing Form 1120-W for the corporation’s records.
Employers: Deposit Social Security, Medicare and withheld income taxes for May if the monthly deposit rule applies.
Employers: Deposit nonpayroll withheld income tax for May if the monthly deposit rule applies.
July 10
Individuals: Report June tip income of $20 or more to employers (Form 4070).
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Graphic Designer at Developed Design
1dThrowback to summer fun from the peaks of snow here in Suffern:)
7x Proven Entrepreneur | 3 Exits | Keynote Speaker l Relationship Capital Builder | Battle Cry: BUILD Brick by Brick®
6moSummer is a great time to recharge. Happy summer and successful bookkeeping!
Senior tax manager
6moSummer is my favorite season and time of year. Warm weather lots of sunshine and great time spent with family and friends.
Talent Matchmaker Building Futures One Leader at a time, Career Support for Owners & HR Professionals to fill Key Roles Quickly & Successfully Navigate Career Transition | Compensation Analysis
6moRenee Wengrofsky, sounds like you’ve got an amazing summer planned! I love the idea of a CSA delivery—nothing beats fresh produce. Enjoy those pool days and BBQs. Thanks for the reminder about Q2 goals; it's easy to lose track. Happy summer!
Ethical Recruitment Leader | Executive-Level Recruiter | Helping Qualified Candidates Grow Their Careers by Matching Them with Thriving Companies
6moRenee Wengrofsky, this is a vibe!