The IRS has recently released the inflation-adjusted contribution limits, phase-out ranges, and income limits for various retirement-related items for the 2023 tax year as follows.
401(k), 403(b), most 457 plans, and the Thrift Savings Plan
The annual limitation on elective deferrals (contributions) for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, as well as the catch-up contributions available to taxpayers aged 50 and over has been indexed for inflation to the following amounts:
- Elective deferral limit has increased by $2,000 to $22,500, up from $20,500.
- Catch-up contributions for taxpayers aged 50 and over increased by $1,000 to $7,500.
As a result of these changes, taxpayers aged 50 and over participating in these plans may contribute up to $30,000 in 2023.
The amount taxpayers can contribute to SIMPLE retirement accounts has increased by $1,500 to $15,500. The catch-up contribution limit for SIMPLE retirement accounts has increased from $3,000 to $3,500.
The maximum IRA contribution has increased from $6,000 to $6,500, with the catch-up contribution amount remaining at $1,000.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If either the taxpayer or the taxpayer’s spouse were covered by a retirement plan at work during the year, the deduction may be reduced, or phased out depending on the taxpayer’s filing status and income. If neither the taxpayer nor their spouse is covered by a retirement plan at work, then the phase-out rules do not apply. The income limitations for deductible contributions to a traditional IRAs have been increased to the following amounts:
- For single taxpayers who are covered by a workplace retirement plan, the income phase-out range is now $73,000 to $83,000, an increase of $5,000.
- For married couples filing jointly, where the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is now $116,000 to $136,000, an increase of $7,000.
- For married couples filing jointly, where the spouse who makes the IRA contribution is not covered by a workplace retirement plan, the income phase-out range is now $218,000 to $228,000, an increase of $14,000.
- For a married individual filing a separate return, the income phase-out range is not indexed for inflation and remains at $0 to $10,000.
The income phase-out range for taxpayers making contributions to a Roth IRA has also increased as a result of the annual cost-of-living adjustment:
- For single and heads of household filers, the income phase-out range is now $138,000 to $153,000, an increase of $9,000.
- For married couples filing jointly, the income phase-out range is $218,000 to $228,000, an increase of $14,000.
- For married couples filing separately, the income phase-out range is not subject to the annual cost-of living adjustment and remains at $0 to $10,000.
Saver’s Credit (Retirement Savings Contribution Credit)
The 2023 income limit for the Saver’s Credit increased as follows:
- For singles and married couples filing separately, the limitation has increased to $36,500.
- For heads of household, the limitation has increase to $54,750.
- For married taxpayers filing jointly, it has increased to $73,000.
If you have any questions, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.
The Internal Revenue Service has announced the increases in the annual gift tax exclusion and the lifetime estate and gift tax exemption for calendar year 2023.
The annual gift tax exclusion allows taxpayers to transfer gifts to unlimited donees without experiencing gift taxes up to a designated annual amount. The lifetime estate and gift tax exemption provides the limit for lifetime gifts as of the date of the gift or date of death before incurring a gift or estate tax liability.
For the 2023 tax year, the annual gift tax exclusion is increased by $1,000 to a total of $17,000. The exclusion covers gifts an individual makes to each donee per year. Married taxpayers can combine their gift tax exclusion as they can share their two annual exclusions. For example, married taxpayers with three children could potentially transfer $34,000 a year to each child or a total of $102,000 without incurring any gift taxes.
The annual gift tax exclusion is also an important consideration for estate planning purposes. Taxpayers can make gifts up to that amount before utilizing any of their lifetime estate and gift tax exemption. The value of any gifts in excess of the annual gift tax exclusion would then be subtracted from the lifetime exemption. As the lifetime exemption gets used over the taxpayer’s lifetime, the amount that can be excluded from the taxable estate upon death also decreases. For 2023, the lifetime exemption will increase by $860,000 to $12,920,000. The total available to a married couple will be $25,840,000 in 2023.
If you have any questions regarding estates, gifts, or any topics in this area, give us a call at (401)-921-2000 or fill out our online contact us form to get started.
Thanks to an obscure Massachusetts law passed back in 1986, Massachusetts taxpayers will be eligible to receive a tax refund starting November 1, 2022. Chapter 62F was a measure passed by Massachusetts residents in 1986 that required the state to refund a certain percentage of collected taxes if the state collected more taxes than what is considered the annual cap tied to wage and salary growth throughout the state. Triggered only once before in 1987, 2022 marks the second time this measure has been enacted in over thirty years.
For tax year 2021, the Commonwealth has collected an estimated $3 billion in excess tax revenue that will be distributed back to the taxpayers. The amount will be 14.035% of the taxpayer’s tax liability. Eligible taxpayers include resident and non-resident individuals as well as trusts and estates.
No action on the end of the taxpayer is required to receive the refund. If you are eligible, then you will receive the refund automatically either through check or direct deposit based upon your 2021 tax return. If you have not filed your 2021 tax year return, then you have until September 15th, 2023, to be eligible for the refund.
These refunds should be rolling out at the beginning of November for most taxpayers who filed before April 18th of 2022. If you filed on extension, your refund might be delayed compared to other taxpayers.
A quick and easy refund estimator is available at the Mass.gov website if you would like to see what you could receive with your refund.
Mass.gov Refund Estimator & Chapter 62F Q&A: Chapter 62F Taxpayer Refunds | Mass.gov
If you have any questions on the above and how it applies to you, please call us at 401-921-2000, or reach us through email or complete our online contact form.
Governor Dan McKee recently announced a new relief program aimed at providing some financial relief to Rhode Island families during these hard economic times. The 2022 Child Tax Rebates are a part of the State’s FY23 budget that was signed by the Governor in June, with the intention of building on the State’s economy and helping families who are in need. The new rebate payment will be $250 per qualifying child, up to a maximum of three children (max rebate of $750), that will be issued to eligible taxpayers as early as October 2022 based upon when the taxpayer(s) filed their 2021 RI Personal Income Tax return.
To qualify for this rebate, a 2021 Rhode Island Personal Income Tax return must have been filed on or before October 17, 2022, with an AGI limitation of $100,000 or less for taxpayers with a filing status of Single, Married Filing Separately, Head of Household, or Qualifying Widow/Widower, and an AGI limitation of $200,000 or less for those whose filing status was Married Filing Jointly. A qualifying child dependent must have been eighteen years of age or under as of December 31, 2021 to qualify for the rebate. Along with the above requirements, a taxpayer must be “domiciled” in the state of Rhode Island as per their 2021 RI-1040 or RI-1040NR to be eligible.
The 2022 Child Tax Rebate will be an automatic roll-out with no need to apply if a 2021 RI Personal Income Return has been filed for the year. If you filed by August 31, 2022, your rebate can be expected to be issued starting in October of 2022. Those on extension who file by October 17, 2022 will have their rebates issued starting in December 2022. The rebate will be mailed to your mailing address based upon your Rhode Island Personal Income return, with no direct deposit options available for these rebates. To check the status of your Child Tax Rebate, please use the tax.ri.gov website and enter your Social Security Number (SSN), your Federal Adjusted Gross Income (AGI) from Line 1, and your Filing Status. The rebate is expected to support close to 115,000 Rhode Island families across the state in the coming months.
- RI Division of Taxation: 2022 Child Tax Rebates | RI Division of Taxation
- RI Division of Taxation (FAQs): Child Tax Rebate FAQs_08012022.pdf (ri.gov)
If you have any questions, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.
The cash basis or accrual basis relates to how income and expenses are accounted for; hence these are referenced as methods of accounting. This information is used for a variety of reasons, such as the preparation and reporting of income tax returns, to obtain financing and completion of credit applications, preparation of a business valuation and in family law matters to name a few; therefore, it is important to understand their differences and limitations.
Generally, the cash basis of accounting is utilized by individuals and small businesses. The accrual basis of accounting is most often utilized by larger businesses; however, small businesses may also utilize the accrual basis, if they so choose. The basis of reporting (cash or accrual) will determine when income and expenses are recognized to compute a business’ profit for the year.
With the cash basis of accounting, income is recorded when cash is received, and expenses are recognized when cash is paid. In contrast, the accrual basis of accounting records income when it has been “earned” and not when the cash is received. Expenses are recorded when they “occur” and not when cash is paid. The main difference between cash and accrual basis accounting lies in the timing of when income and expenses are recognized.
So why does this matter? Recognizing income and expenses under either basis will result in a different income and profit calculation. These differences, if significant, could have a significant financial impact on a business, individual, or both. Businesses are most often valued based upon their income and/or profits – therefore, it is extremely important to be aware of the accounting method relied upon. An individual’s income is most often computed based upon tax returns. Other sources of income may not be reported on an individual’s cash basis tax return.
Both methods of reporting have different purposes and result in different outcomes. To ensure that the relied upon basis of reporting is consistent with its intended purpose (i.e., valuation, marital litigation), it is prudent to consult with an experienced professional.
With all the obstacles and challenges manufacturers are dealing with in their day-to-day operations, implementing artificial intelligence (AI) is an opportunity that could bring exponential benefits. Streamlining operations, driving growth, preventing defects/human error, and avoiding inefficiencies are a few of the potential advantages AI can bring to the industry.
Benefits of employing AI to enhance controls in monitoring output and equipment maintenance include decreases in scrap materials, less rework due to errors or ineffectiveness in the production line, and the visibility to employ continuous upkeep and supervision of machinery. Implementation of AI drives costs down while increasing margins and efficiency.
AI also has advantages beyond the production line. Companies have applied AI capabilities to accounting and finance departments, resulting in greater accuracy in forecasting, more effective analysis of data and trends, and increased precision in the application of accounting estimates. The technology also has applications in the training and development of employees.
Since the outbreak of the coronavirus pandemic, the implementation of AI in the manufacturing industry has only become more rapid. More than ever, manufacturers are facing more obstacles regarding workforce shortages, government shutdowns, and a host of unknowns still facing businesses each day. AI mitigates these concerns by managing risks and delivering results, all while optimizing costs.
Recent industry studies and surveys have documented the successes and advances AI has brought to industrial manufacturing thus far, the most key of which are driving growth and optimizing costs. Trends have shown that it’s not just the large players bringing AI into the arena; more and more small and middle-sized firms are looking at AI as an opportunity to stay competitive.
If you have any questions, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.
Are the Protections of P.L. 86-272 For Remote Sellers of Tangible Personal Property Dwindling?
P.L. 86-272 was enacted in 1959 to protect sellers of tangible personal property from the imposition of state income taxes outside of its home state. It was intended to be a temporary provision of the law; however, it remains unchanged for the sixty years since its enactment.
Although the law remains unamended, there have been multiple legal disputes over the years due to many key elements that lack clarity and terms that are not clearly defined. In an effort to assist taxpayers in achieving compliance with their application of P.L. 86-272 to their business activity, the Multistate Tax Commission (MTC) issued the original version of the Statement of Information Concerning Practices of Multistate Tax Commission and Signatory States Under Public Law 86-272 on July 11, 1986. The statement has been revised four times since then, with the latest revision being adopted on August 4, 2021.
Many sellers who are in the business of selling tangible personal property have relied on the protection of P.L. 86-272 (Public Law 86-272 – September 14, 1959) that prevents a state, outside of their home state, from imposing state income tax when the following conditions are met:
- The only activity “within” a State by the taxpayer or their representative in the state, are for the solicitation of orders of tangible personal property.
- Orders received are sent outside of the State for approval or rejection.
- Approved orders are filled by shipment or delivery from a point outside the state.
The Statement of information Concerning Practices of Multistate Tax Commission and Supporting States Under Public Law 86-272 describes how states in agreement with the way they interpret the law would apply it to various activities that a business may have in said states. Included in the statement is a list of activities that are deemed to be protected under P.L. 86-272 and a list of those activities that are not protected under P.L. 86-272.
The most recent version adopted on August 4, 2021 was issued to revise the statement to address modern business activities including:
- Telecommuting Employees:
Revision of Section A of Article IV – Unprotected Activities: “Activities performed by an employee who telecommutes on a regular basis from within the state unless the activities constitute the solicitation of orders for sales of tangible personal property or are entirely ancillary to such solicitation.”
- Business activities conducted via the internet
Addition of Section C to Article IV“As a general rule, when a business interacts with a customer via the business’s website or app, the business engages in a business activity within the customer’s state. However, for the purpose of this Statement, when a business presents static text or photos on its website, that presentation does not in itself Constitute a business activity within those states where the business’s customers are located. “The Statement includes eleven (11) examples of scenarios between an internet seller and its customer where the orders are approved or rejected as well as the products are shipped from a point outside of the customer’s state. The examples given indicate whether internet activities are protected by P.L. 86-272 as being merely a solicitation of sales, an activity entirely ancillary to the sale, or whether the internet activity exceeds the protection afforded by P.L. 86-272.
- Independent Contractors:
Expansion of Article V pertaining to Independent Contractors to include: “Performance of unprotected activities by an independent contractor on behalf of a seller, such as performing warranty work or accepting returns of products, also removes the statutory protection.”
- Foreign Commerce:
P.L. 86-272 is only applied to “interstate commerce” as Congress does not have authority to regulate foreign commerce. Revision of the language in Section VII eliminates the language that says “This state will apply….” as it may be construed that Congress was attempting to protect business activities pertaining to foreign commerce.
- Application of Joyce Rule:
Article VII.E was deleted as the Statement is no longer taking a position on the sourcing of sales
If your business is one of the many that continues to look to the protection that P.L. 86-272 affords from being imposed state income taxes outside of your home state for the sale of personal tangible personal property, now is the time to re-examine the presumptions that have been made in the past. DiSanto, Priest & Co. can assist you in analyzing your business activities and determining any state compliance that needs to be addressed regarding the applicability of P.L. 86-272, as well as other areas of state tax nexus. Give us a call at (401)-921-2000, or fill out our online contact us form to get started.
Consider More Than Just Your 1040 for Accurate Income Determination
What is an individual’s annual income? An income tax return, specifically the individual federal income tax return (Form 1040), is the most heavily relied upon document that attorneys and the courts gravitate to in order to answer this question. This is a mistake that could have a significant and detrimental financial impact, especially in matrimonial litigation.
The word “income” is overly broad; its application results in differing definitions and usages of the word itself, examples, of which, include, “taxable income,” “gross income,” and “net income” to name a few. All these types of income can be substantially different simply based upon definition alone.
Line 1 of Form 1040 reports wages, salaries, tips, etc., and these amounts are derived from a W2 Wage and Tax Statement; this statement has four (4) different reported wage amounts. The different wage amounts reflect differences in the tax treatment of specific components of wages. All these reported wage amounts can be significantly different, and Box 1 is generally the lowest wage amount. Would you be surprised to learn that this is the figure that receives most attention? It is this figure that is reflected on that line 1 of Form 1040. At the very least, “actual” wages are best reflected by utilizing Box #5, “Medicare wages and tips.” However, this too may understate an individual’s actual wages. Non-taxable benefits may not appear on Form W-2, such as retirement contributions, health savings accounts, pre-tax deductions, employee perquisites, stock options, etc., and they certainly are not observable simply by reviewing an individual’s federal tax return. To determine an individual’s “actual” income from wages, a detailed analysis must be performed utilizing not only tax returns, but also W-2s, payroll earnings statements and pertinent employer records.
A tax return reports taxable income and, depending on the specifics, some of the reported taxable income may be further reduced by allowable deductions. While Form 1040 is a great source of information, it is only the beginning of understanding and computing an individual’s income and not the end.
The more complex an individual’s tax return and/or compensation plan is, the more imperative it is to have a professional who has extensive knowledge and experience in performing an income analysis, so that all income components can be accurately determined, considering the purpose of which it will be used.
If you have any questions about income determination, tax returns, or W-2 statements, give us a call at (401)-921-2000, or fill out our online contact us form.
Throughout the COVID-19 Pandemic, individuals and businesses have turned to crowdfunding to support their financial needs. Crowdfunding sites like GoFundMe and Kickstarter have made it accessible for companies to acquire much-needed financial support. Although crowdfunding has grown in popularity, the implications of this funding can be tricky to navigate. To properly understand the implications it can have on your business, it’s important to start at the beginning.
What is it?
Crowdfunding is the process of raising capital through various backers by way of the internet.
Common Crowdfunding Sites
Types of Crowdfunding
- Donor-Based: The most popular type of crowdfunding that involves the donation or receipt of donations without any resources or services exchanged.
- Reward-Based: Involves the exchange of funds in return for goods or services.
- Equity-Based: The exchange of funds in return for an ownership interest in a company.
- Donor-Based: For the most part, funds received from donors, with no expectation of getting something in return, are not considered income. Under the “something for nothing” rule, the donation is considered a personal gift from the backer. For this reason, the gift would be nontaxable to the receiver, but the gift is restricted to the $15,000 annual gift tax exemption for the donor. Since the donations are usually made to a non-qualified charity, the donation does not qualify for the charitable deduction.
- Reward-Based: Keeping in line with the “something for nothing” rule, any funds received using the reward-based crowdfunding source would be considered taxable income. This is because the contributor is receiving something in return for the funds provided. For example, if a clothing company needs additional funds for a new clothing line, it may offer a “free” T-Shirt in return for any funds received. Since an exchange is taking place, this would be deemed a business transaction and reported as a source of income.
- Equity-Based: Under the Jumpstart Our Business Startups (JOBS) Act of 2012, an exemption was created that allowed non-accredited investors the opportunity to participate in funding campaigns. It is debatable how exchanges using this source of crowdfunding should be taxed based on the specifics of the situation. Hence, it’s critical to reach out to your local CPA for help on how to account for the matter.
It’s important to keep in mind that the details provided above are the general rule, and that not all transactions should be treated the same way. Additionally, all records should be preserved to demonstrate when income can be properly excluded from your tax return. If you have any questions about crowdfunding, and their tax implications for your business, please reach out via email, give us a call at (401)-921-2000, or fill out our online contact us form.
Important company documents often overlooked are Buy-Sell and Shareholder Agreements (referenced as the “Agreements”). These are legally binding documents that provide for the orderly transition of a company or company interest(s). Often these Agreements are used interchangeably; however, a Shareholder Agreement explicitly defines the roles of each shareholder and their responsibilities to each other and the company. It protects the rights of existing shareholders/owners and outlines their decisions on what outside parties may become future shareholders/owners. By having such an Agreement in place, shareholders/owners will be able to ensure that they are all aware of the direction of the company. With everyone in agreement, the company is more likely to maintain a stable ownership interest and operate effectively. When a company lacks a plan for succession, significant expense, delay, and a disruption of company operations and profits may result.
 A Shareholder Agreement may contain provisions of a buy-sell agreement.
Shareholder vs. Buy-Sell Agreement
Unlike the Shareholder Agreement, a Buy-Sell Agreement strictly deals with the transfer of ownership interests of the company; it includes provisions relative to the agreed upon handling of the transfer of ownership upon the occurrence of certain “triggering events” such as death, divorce, disability, or departure. This document allows shareholders/owners to plan for one of these triggering events before it inevitably occurs. Not only is it essential to have such a document in place, but it is of equal importance to review this document every few years to adjust for changes in the practice such as growth, changes in value, etc. If an Agreement is in place, the terms of said agreement will be executed even if it is old and outdated. If no Agreement is in place, then there is no plan to preserve the rights of the surviving owners or the continuation of the company. Although it is best to have these agreements formed at the inception of the company, a Buy-Sell or Shareholder Agreement may be put into effect at any time to protect the interests of those that have dedicated themselves to the success of the company.
What Goes Into an Effective Agreement?
An effective Buy-Sell Agreement should include provisions addressing the valuation of the ownership interests or the circumstances in which a company may dispose of an ownership interest(s), though it is ultimately at the owners’/shareholders’ discretion to tailor the agreement to their expectations. Another consideration is whether owners/shareholders will have the option to buy an exiting owners’/shareholders’ interest prior to it being sold to an outside party. With this provision, ownership interests in the company can be better managed by existing owners/shareholders. This protects the company from a break in management or voting control, which can potentially lead to needless expenses or even the collapse of the company.
Shareholders of a company founded on years of hard work, dedicated time, and invested capital will greatly benefit from implementing or reviewing either of these agreements. The expense of planning ahead and establishing these documents are minimal compared to the potential costs – both monetarily and structurally – associated with litigation resulting from ownership disputes. A well thought out Buy-Sell or a Shareholder Agreement will help mitigate problems before they occur and save countless hours of time and capital.
If you would like a review of your current Buy-Sell Agreement and/or Shareholder Agreement or would like to discuss putting one in place, please contact us at 401-921-2000 or complete our online contact form.