Author: Alexis Long

The Corporate Transparency Act (CTA) was signed into law to fight crimes commonly associated with illegal business activities such as terrorist financing and money laundering. If your business can be defined as a “reporting company” under the CTA, you may need to comply with new beneficial ownership information (BOI) reporting rules that take effect on January 1, 2024.

Who’s who?

A reporting company includes any corporation, limited liability company, or other legal entity created through documents filed with the appropriate state authorities. A reporting company may also be any private entity formed in a foreign country that’s properly registered to do business in a U.S. state. Reporting companies must provide information about their “beneficial owners” to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.

A beneficial owner is someone who, directly or indirectly, exercises substantial control over a reporting company, or who owns or controls at least 25% of its interests. Indirect control is often exhibited by a senior officer or person with authority over senior officers.

The CTA does exempt a wide range of entities from the BOI reporting rules — including government units, nonprofit organizations and insurers. Notably, an exemption was created for “large operating companies” that: Employ more than 20 employees on a full-time basis, Have more than $5 million in gross receipts or sales (not including receipts and sales from foreign sources), and Physically operate in the United States. However, many of these businesses need to comply with other reporting requirements.

What info must be provided?

The BOI reporting requirements are extensive. Reporting companies must file a report with FinCEN that includes the entity’s legal name (or any trade or doing-business-as name), address, jurisdiction where the entity was formed, and Taxpayer Identification Number. Reporting companies must also submit the name, address, date of birth, and “unique identifying number information” of each beneficial owner. A unique identifying number may be a U.S. passport or state driver’s license number. An image of the document containing the identifying number must be included in the filing.

In addition, the CTA requires reporting companies to provide identifying information about their “company applicants.” A company applicant is defined as someone who’s responsible for: Filing the documents that created the entity (for a foreign entity, this is the person who directly files the document that first registers the foreign reporting company to conduct business in a U.S. state), or Directing or controlling the filing of the relevant formation or registration document by another individual. Note: This rule often encompasses legal representatives acting in a business capacity.

When to file?

Reporting companies have either 30 days or one year from the effective date of January 1, 2024, to comply with the CTA. Reporting companies created or registered before the effective date have one year to file their initial reports with FinCEN. Those created or registered on or after January 1, 2024, will have 30 days upon receipt of their creation or registration documents to file initial reports. After initially filing, reporting companies have 30 days to file an updated report reflecting any changes to previously reported BOI. In addition, reporting companies must correct inaccurate BOI in previously filed reports within 30 days after the date they become aware of the error.

Who can help?

With the effective date closing in quickly, now’s the time to determine whether your business is a nonexempt reporting company that must comply with the BOI reporting rules. We can help you make this determination in consultation with your legal advisors. 

Contact us if you have any questions about the Corporate Transparency Act. © 2023

Heads up: Under Sec. 179, your business may be able to currently deduct eligible property you’ve placed into service in 2023. This generally includes new and used machinery, equipment, off-the-shelf software, roofs, improvements to building interiors and HVAC, as well as fire, security and alarm systems.

For 2023, you can expense a maximum of $1,160,000. That full amount may be claimed until property placed into service exceeds $2,890,000, at which point a dollar-for-dollar phase-out begins. You may also be able to take first-year bonus depreciation of 80% of the adjusted basis of new depreciated property placed into service in 2023.

Contact us for business tax advice.

With the rising cost of college, many families are in search of scholarships to help pay the bills. If your child is awarded a scholarship, you may wonder about how it could affect your family’s taxes.

Good news: Scholarships (and fellowships) are generally tax-free for students at elementary, middle, and high schools, as well as those attending college, graduate school, or an accredited vocational school. It doesn’t matter if the scholarship makes a direct payment to the individual or reduces tuition.

Requirements for tax-free treatment

Despite this generally favorable treatment, scholarships aren’t always tax-free. Certain requirements must be met. A scholarship is tax-free only if it’s used to pay for: Tuition and fees required to attend the school, and Fees, books, supplies, and equipment required of all students in a particular course. For example, expenses that don’t qualify include the cost of room and board, travel, research, and clerical help.

A scholarship award is taxable to the extent it isn’t used for qualifying items. The recipient is responsible for establishing how much of an award is used to pay for tuition and eligible expenses. Therefore, you should maintain records (such as copies of bills, receipts and cancelled checks) that reflect the use of the scholarship money.

Taxable and nontaxable amounts

Subject to limited exceptions, a scholarship isn’t tax-free if the payments are linked to services that your child performs as a condition for receiving the award, even if the services are required of all degree candidates. Therefore, a stipend your child receives for required teaching, research, or other services is taxable, even if the child uses the money for tuition or related expenses.

What if you, or a family member, are an employee of an educational institution that provides reduced or free tuition? A reduction in tuition provided to you, your spouse or your dependents by the school at which you work isn’t included in your income and isn’t subject to tax.

Payments reported and not reported on tax returns

If a scholarship is tax-free and your child has no other income, the award doesn’t have to be reported on a tax return. However, any portion of an award that’s taxable as payment for services is treated as wages. Estimated tax payments may have to be made if the payor doesn’t withhold enough tax. Your child should receive a Form W-2 showing the amount of these “wages” and the amount of tax withheld, and any portion of the award that’s taxable must be reported, even if no Form W-2 is received.

These are just the basic rules. Other rules and limitations may apply. For example, if your child’s scholarship is taxable, it may limit other higher education tax benefits to which you or your child are entitled.

Contact us if you wish to discuss these or other tax matters further. © 2023

Year-end tax planning season is here. The up-and-down financial markets this year may provide you the opportunity to harvest your losses. This tried-and-true tax strategy may be an option if you’ve realized adjusted net capital gains and are now facing a high tax bill as a result.

To soften the tax blow, review your portfolio to see if there are any securities you can sell at a loss to offset the gains. If you end up with a net capital loss, you can use it to offset up to $3,000 in ordinary income. However, beware of the wash sale rule. It bans the deduction of a loss when you acquire “substantially identical” investments within 30 days before or after the sale date.

Click here for more tax planning tips.

This holiday season, you may want to make cash gifts to loved ones. The annual gift tax exclusion for 2023 is $17,000 ($34,000 for married couples). You can give up to that amount to an unlimited number of people by Dec. 31, and the gifts will be exempt from gift tax, the generation-skipping tax and filing obligations.

You can’t “carry over” tax-exempt gifts from year to year, but there may be strategies for making larger gifts. If, for example, you and your spouse want to help your daughter buy a house, you can give her $34,000 on Dec. 31. Then on Jan. 1, you can give an equal or higher amount, when 2024’s gift tax exclusion is projected to be $18,000 ($36,000 for married couples).

Contact one of our experts for help with tax planning.

Taxpayers who purchase assets for business use may be eligible to deduct the full cost in the year of purchase, subject to Section 179 limits. A taxpayer must prove the asset’s cost, where and when it was purchased, and the percentage of business use. Only the percentage of cost that applies to business use may be deducted.

The owner of an electrical services corporation purchased a forklift and a plow attachment, used mostly for business, and a boat that he said was used to entertain clients. The U.S. Tax Court approved a partial deduction for the business use of the forklift and plow. The boat was used mainly for personal purposes, so the court denied that deduction. (TC Memo 2023-114)

Contact one of our experts with questions about tax planning.

The IRS is continuing to warn businesses about aggressive marketing by nefarious actors involving the Employee Retention Tax Credit (ERTC). It has suspended the processing of ERTC claims until at least year end because of a spike in the number of fraudulent claims.

The IRS has now issued a series of red flags businesses should bear in mind. Warning signs include unsolicited calls mentioning an “easy application process,” claims from fraudulent promoters that a business qualifies for the ERTC even before any discussion of the company’s tax situation, large upfront fees, and additional fees based on a percentage of the refund claim. For more information: https://bit.ly/46fh4Yd

Contact one of our experts if you have questions.

As the IRS begins compliance work on cryptocurrency transactions, taxpayers who participate in them should prepare their documentation for scrutiny. You need to keep good crypto activity records because you may not be able to rely on your transaction platform to provide that data. However, some platforms, such as Coinbase, send Form 1099s to customers who earn more than $600 over the course of a tax year.

The IRS has suggested that during this transition period, it will be lenient with taxpayers who owe tax or haven’t kept good records because they didn’t know they’d need them. Also, the agency has talked about using artificial intelligence to enforce compliance with crypto reporting rules.

Contact one of our experts with questions about cryptocurrency tax compliance.

Mark your calendars for this important date, Sept. 15, if you must make quarterly estimated tax payments. That’s the due date for the third estimated tax payment for 2023.

Who must pay estimated tax? Generally, those who have taxable income that isn’t subject to withholding must make payments if they expect to owe tax of $1,000 or more when they file their tax returns. Estimated payments are used to pay not only income tax, but also self-employment taxes. With the rise of the gig economy, more people, such as rideshare drivers, are now required to make estimated tax payments.

If you’re not sure if this includes you, contact us or learn more here: https://bit.ly/3AYci4R