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Dear Clients,
As the 2023 year ends, a new tax year is on the horizon with minimal changes to tax laws. Getting a handle on your 2023 projected income is more important than ever. If you have not spoken to us about 2023 year-end tax planning and wish to do so, call the office at 410-643-4477 and talk to Marie. Below are some helpful reminders heading into the new year.
1099's
The IRS has gotten serious about not issuing 1099's. The penalty for not issuing 1099's was $50 per event in prior years. For 2023, the penalty could be as much as $1,000 per omitted or incorrect 1099. A 1099 is required whenever you pay a non-corporate entity $600 or more in one year in business transactions. These are cash and check transactions; credit card payments are not included. 1099's must be provided to the taxpayer and filed with the IRS by January 31, 2024, or those penalties will apply. You may encounter sub-contractors who do not want you to issue them one, so make sure you get them to fill out a W-9 form before you issue them a payment. Form W-9: https://www.irs.gov/pub/irs-pdf/fw9.pdf. In December, we will send a more detailed email with the filing requirements for 2023 1099's.
State and Local Taxes
Businesses should monitor the tax laws and policies in their business states. Understanding tax obligations and identifying ways to minimize state tax liabilities and eliminate state tax exposure is essential. Have you reviewed the nexus rules in each state where you have property, employees, or sales to determine if you have tax obligations? Have you checked the nexus rules of your mobile or remote workforce?
State tax authorities are beginning to utilize technology to determine state nexus for income tax purposes. They use information from other state departments, such as unemployment agencies, to determine if a company has employment nexus to their state. State nexus rules are complex and vary by state; please reach out if you have any questions or concerns.
Sales Tax
If you have a website selling products or services or offer sales across state lines, you must familiarize yourself with these rules and protect your company. We do not monitor sales volumes or the number of transactions by state and do not register or file sales tax returns for you when we prepare your income tax returns. We can suggest software solutions or a sales tax service provider if you wish, but you need to act on this issue because it is not part of your income tax preparation.
Shareholder Health Insurance
For 2% or more shareholders, the premiums paid by the company need to be included in their W-2. If the spouse and dependents are included in the shareholder policy, the total is included for reporting on the W-2. The Health Insurance is subject to federal and state withholding. Still, it may be subject to social security, Medicare & unemployment taxes if the policy is discriminatory and NOT in compliance with the Affordable Care Act (ACA).
Employer-Provided Vehicles
Personal use by an employee (including shareholders of S-Corporation of 2% or more) of a vehicle the employer provides is a fringe benefit. Personal use of the vehicle can include commute time between home and work, trips unrelated to the business, or someone other than an employee using the vehicle. Personal use needs to be recorded on your W-2. The taxable value is subject to withholding and reporting requirements.
De-minimis Business Purchases
In 2013, the IRS released sweeping changes in items considered deductible, such as repairs, maintenance, and small deductible purchases. These regulations allow, with the adoption of a $2,500 de minimis policy, businesses to deduct the first $2,500 of repairs, maintenance, and small purchases but require items costing more than the $2,500 de minimis to be subjected to up to 20 additional tests regarding a 12-month usage life, betterments, adaptations, and restorations. You will be responsible for adopting the policy and applying these tests to all repairs, maintenance, and equipment.
Section 179 Expenses and Bonus Depreciation
If you are considering acquiring business property between now and the end of the year, we can help you navigate that decision. Many factors can influence this decision, including current and future tax rates. If your business plans to purchase new or used machinery or equipment before year-end, you may be able to expense the entire cost in 2023 by combining bonus depreciation and Section 179.
The Tax Cuts and Jobs Act of 2017, bonus depreciation drops from 80% to 60% for property placed into service in 2024. After 2023, the percentages are as follows:
Business Meal Expenses
Meals are limited to a 50% deduction. Meals that are for the convenience of the employers are still eligible for 100% deducibility.
Entertainment is still not a deductible expense.
Available Tax Credits
There are a variety of tax credits and other incentives to encourage employment and investment. These credits are offered across various industries, such as innovation and technology, renewable energy, and low-income or distressed communities. A business that incurs expenses related to qualified research and development (R&D) activities is eligible for the federal R&D Credit. Many states and localities also offer tax incentives. Please reach out if you have any questions regarding any of these credits.
Employee Benefit - Retirement
Employers have until the extended due date of their 2023 federal income tax return to establish a qualified retirement plan retroactively and to fund the new or existing plan for 2023. Contributions made to a qualified retirement plan by the extended due date of the 2023 federal income tax return may be deductible for 2023. Contributions made after this due date are deductible for 2024.
Beginning in September 2022, the new Maryland Saves Program (https://marylandsaves.com/) requires most businesses to offer a retirement plan. This program is a low-cost, simple solution for retirement plan savings with no employer fees or requirements.
Employee Benefit - Student Loans
Employers can reimburse employees tax-free for up to $5,250 per year in student loan debt through December 31, 2025. The employers must set up a broad-based IRC Section 127 educational assistance plan.
Employers seeking to attract and retain qualified employees may offer tuition assistance to future employees by providing forgivable loan agreements. The amount forgiven is taxable wages, subject to income and employment taxes (including the employer share of employment taxes.)
If you have read this far, thank you. Keeping up with ever-changing tax laws can be overwhelming. If you have any questions regarding anything, please reach out.
Christopher Williams CPA/PFS, CFP®, MST, chrisw@kmaf.cpa
Gregory Litvinuck CPA, gregl@kmaf.cpa
Office 410-643-4477
