In a move that will be significant to many Massachusetts residents and businesses, Massachusetts Governor Maura Healey signed into law a tax package that will provide benefits of up to $1 billion. The bill was signed into law on October 4, 2023 by the governor, and the package includes provisions that will impact both income taxes and estate taxes. This third, and final, post focuses on changes to Massachusetts corporate income tax. For a deeper understanding of other aspects of this bill, read our previous posts on its impact on Estate Taxes and Individual Income Taxes.
Currently, Massachusetts requires most companies to use a 3-factor apportionment formula of property, payroll, and a double-weighted sales factor. The exception to this apportionment method is in relation to manufacturing companies, qualifying defense contractors, and mutual fund service corporations in which these companies must use a single sales factor apportionment method. The new tax bill in Massachusetts states that starting for tax years that end on or after January 1, 2025, all companies will adopt a single sales factor apportionment method. It is important to note that companies that manufacture in Massachusetts will need to continue to qualify as a manufacturing company under M.G.L CH. 62 s. 42B in order to continue claiming certain exemptions for property and sales/use tax and also the ability to claim the investment tax credit.
For companies that are based in Massachusetts with all or most of their property and payroll located in the state, this could be seen as beneficial in the fact that it could lower their overall apportionment percentage. Consequently, companies that are required to file a tax return in Massachusetts that only have sales in the state would generally experience a higher apportionment percentage than previous years with all facts considered the same. The Massachusetts government hopes that this change will remove a disincentive for companies to hire and place their headquarters in Massachusetts and attract more businesses to move to the state.
DiSanto, Priest & Co. can help you with corporate tax planning and navigate the tax opportunities created by the Massachusetts Tax Bill of 2023. Call us at (401) 921-2000 or submit our contact form to get started.
In a move that will be significant to many Massachusetts residents and businesses, Massachusetts Governor Maura Healey signed into law on October 4, 2023, a tax package that will provide benefits of up to $1 billion. The bill includes provisions that will impact both income taxes and estate taxes. This post highlights significant individual income tax changes. For a deeper understanding of other aspects of this bill, read our posts on its impact on Estate Taxes and Corporate Taxes.
Individuals who are required to file a return in Massachusetts will be subject to tax cuts involving decreases in certain tax rates, increases in deductions, and increases in tax credits that will reduce their income tax liability.
The reductions in certain tax rates include a 3.5% reduction in the tax rate on short-term capital gains, reducing the current rate from 12% to 8.5%. This reduction will go into effect for tax years starting on or after January 1, 2023. However, if a taxpayer is subject to the new Massachusetts “millionaires tax”, the 4% surtax will increase the short-term capital gain rate up to 12.5%.
Also, starting in 2024, married couples must file their Massachusetts tax returns using the same filing status (joint or separate) as their federal returns. This is to eliminate a loophole for taxpayers to separate their Massachusetts return without impacting their federal filings and potentially avoid the 4% millionaire surtax.
Further provisions of the new tax bill will increase various allowable deductions and tax credits for individuals. Most notably, the residents in Massachusetts who pay rent for their primary residence will witness an increase in the cap of the rental deduction from $3,000 to $4,000 starting in 2023. The government estimates that this increase will support around 800,000 renters in the state. Among the increases in tax credits for Massachusetts residents include enhanced benefits to the Earned Income tax credit and the Child and Dependent tax credit. Massachusetts individuals who receive an Earned Income tax credit on their federal return will now be allowed to take 40% of the federal credit as opposed to the previously allowed 30%. The Child and Dependent tax credit for Massachusetts residents will also be increased per dependent from $180 to $310 in 2023 and $440 in taxable years after that.
DiSanto, Priest & Co. can help you navigate the tax opportunities created by the Massachusetts Tax Bill of 2023. Call us at (401) 921-2000 or submit our contact form to get started.
In a move that will be significant to many Massachusetts residents and businesses, Massachusetts Governor Maura Healey signed into law on October 4, 2023 a tax package that will provide benefits of up to $1 billion. The bill includes provisions that will impact both income taxes and estate taxes. This post highlights estate tax implications and benefits. For a deeper understanding of other aspects of this bill, read our posts on its impact on Individual Income Taxes and Corporate Taxes.
Previously, Massachusetts estates that were valued at up to $1 million were exempt from the Massachusetts estate tax. In comparison to other states, this was tied for the lowest exemption threshold for states that impose an estate tax. There are currently many states that do not tax estates at all and those that do typically have exemption thresholds significantly higher than $1 million.
The new tax bill raises the threshold for estates to be taxed from the current $1 million threshold up to $2 million. In addition, the bill changes the current estate tax structure from a cliff test to a true exemption. Under the prior cliff test, if an estate exceeded $1 million the entire estate was taxable. By switching to a $2 million exemption, estates are now only taxed on the value of the estate above the $2 million exemption.
The changes are retroactive and apply to estates of residents who die on or after January 1, 2023, and continue forward for the foreseeable future as the $2 million exemption is not indexed for inflation.
For illustration purposes, below is an example of the impact of the new estate laws:
- Estates of Massachusetts residents with a value of $2 million who died before January 1, 2023, would be subject to a Massachusetts estate tax equaling $103,920.
- Estates of Massachusetts residents with a value of $2 million who die on or after January 1, 2023, would NOT be subject to a Massachusetts estate tax.
Although the threshold has doubled, it is still low in comparison to most other states. This new exemption threshold ranks 3rd lowest in the country above only Oregon and Rhode Island.
DiSanto, Priest & Co. can help you with estate tax planning and navigate the tax opportunities created by the Massachusetts Tax Bill of 2023. Call us at (401) 921-2000 or submit our contact form to get started.
The Inflation Reduction Act of 2022 (IRA) created Section 45X‒the Advanced Manufacturing Production Credit of the Internal Revenue Code. The IRA is the most significant climate legislation in U.S. history‒offering funding, programs, and incentives to accelerate the transition to a clean energy economy‒and will likely drive significant deployment of new clean electricity resources.
The credit is available for businesses that produce components related to clean energy and sell to an unrelated person or company. Products must be produced in the United States. Eligible component categories include solar energy components, wind energy components, inverters, end-products suitable to convert direct current electricity from one or more solar modules, qualifying battery components, and applicable critical minerals.
The credit for each eligible component varies and can be calculated based on the value of the component size or weight, the value per electric capacity, or a percentage of the cost of production.
For example, eligible wind energy components include a blade, nacelle, tower, offshore wind foundation with fixed or floating platform, and offshore vessel. Among these components, the credit varies. The credit for an offshore wind vessel can be an amount equal to ten percent of the sales price of such vessel. However, for any other wind energy component, there will be various fixed amounts multiplied by the total rated capacity expressed on a per watt basis of the completed wind turbine for which the component is designed.
There are three ways a business can realize the benefit of the credit:
- The credit can be applied on a federal income tax return against a federal tax liability with any amount of the credit that exceeds a current tax liability eligible for carry forward to future years.
- A business can transfer or sell the credit.
- There is also a direct pay election for certain eligible entities to receive payment.
There is a phase-out of the credit for eligible components sold after December 31, 2029.
Section 45X is one of many credits and incentives created by The Inflation Reduction Act of 2022, and there can be many complex layers of calculations to reach the credit amount.
DiSanto, Priest & Co. can help you navigate the credit and incentive opportunities created by The Inflation Reduction Act of 2022. Call us at (401) 921-2000 or submit our contact form to get started.
What’s meant by a “clean” set of books and records? It simply means that a company’s financial records are up-to-date, accurate, and organized. While the nature and scope of a firm’s books and records may differ amongst companies and across an industry, the importance of adequately maintaining books and records are of equal importance.
All too often, business owners become complacent in maintaining their company’s financial records. Owners turn their energies to other aspects of the business, such as sales and operations, and struggle with finding the time for this imperative function.
Why is this so important? While there are many reasons to dedicate the time and resources to maintaining a “clean” set of books and records, there are two main benefits.
First, up-to-date and accurate financial records contain a lot of information about a company’s operations, such as profitability, cash flow, and receivables from customers, to name a few. Such information is necessary to successfully manage operations and make informed, knowledgeable business decisions. Second, a “clean” set of books and records can make a company more valuable and more attractive to prospective buyers. The condition of a company’s books and records are a direct reflection of the ongoing condition of a business. This is very similar to the curbside appeal of a piece of property or home.
Some other reasons to maintain a “clean” set of books and records include meeting tax filing requirements, assisting with business plans, and providing the ability to perform year-end tax planning to help plan for and potentially reduce income taxes. While maintaining a “clean” set of books and records may not be the most exciting aspect of running a business, the benefits far exceed the detriment of not doing so.
DiSanto, Priest & Co.’s experienced team of professionals can assist you in realizing the value of having a “clean” set of books and records and can help you achieve this goal. Call us at (401) 921-2000 or submit our contact form to get started.
If you’re a commercial real estate investor, you may be aware of the complex rules in a Section 1031 Exchange, also known as a like-kind exchange. Our previously published blog post outlines the guidelines on this federal tax regulation. Many states follow the federal tax code and allow for the deferral of state income tax for like-kind exchanges; however, like-kind exchanges occurring between properties located in different states may have additional state tax implications to consider.
Some states require non-resident withholdings on real estate transactions that occur when an investor lives outside of the state. A handful of states – California, Massachusetts, Montana, and Oregon – have a “claw back” provision, allowing them to tax the gain on the property sale when the deferred gain originated from a property exchange located in their state. For example, if an investor sold a property in Massachusetts and purchased a replacement property in Florida, when the Florida property sells, Massachusetts may “claw back” and impose their state income tax on the gain.
Some of the states with the “claw back” provision have passed bills that require certain tax forms be filed along with a yearly tax return when doing a like-kind exchange. In California, for example, the bill “California AB 92” requires annual information reporting for taxpayers that claim non-recognition of gain or loss for like-kind exchanges with property outside of California. Form 3840 needs to be filed for 1031 exchange recognition, even if no tax return is required in California until the property is ultimately sold.
If you own investment properties in multiple states and have taken advantage of the 1031 Exchange, call us at (401) 921-2000 or submit our contact form to get started. We’re more than happy to assist you in determining state filing requirements.
The Internal Revenue Code of 1954 included Section 174 which allowed businesses the option to either expense research and development (R&D) related expenses in the year those costs were incurred, or amortize these costs over a period of up to sixty months. Through the next sixty-plus years, not much changed in relation to this standard. When the Tax Cuts and Jobs Act of 2017 was passed, Congress amended this standard by requiring that starting in January of 2022 businesses would no longer be able to deduct R&D expenses in the year they were incurred. Rather, as of this date businesses became required to amortize these costs, in most cases over five years. As for the R&D tax credit, the calculations with respect to this have not changed.
This change to Section 174 could cause significant reductions in cash flow for companies related to the payment of tax, creating some serious concern for small business owners. In the larger global picture, this change can also affect both the economy and jobs creation and retention. With these effects in mind, companies began urging Congress to pass legislation to amend this change prior to the 2022 year-end filing season, however no such amendments have been made as of the date of this writing, which has created great uncertainty and angst among both taxpayers and advisors regarding tax planning and tax return preparation. A bipartisan group of legislators sponsored a bill that was introduced in April (entitled the “American Innovation and R&D Competitiveness Act”) that would repeal the currently required R&D amortization and restore expensing of R&D costs as incurred retroactive to January 2022. Additionally, this proposed legislation would also enhance the research tax credit.
These proposed legislative changes aren’t guaranteed, continuing to leave taxpayers with many unanswered questions when filing their 2022 tax returns. It is hopeful that there will be some additional guidance by late summer 2023.
As a firm it has been our best practice that any taxpayer who may be impacted by Section 174 extend their tax return filings, thus allowing this proposed legislation to be debated and hopefully enacted. We, as a firm, remain abreast of these legislative proposals and remain ready to implement the Section 174 legislative change should the bipartisan bill be adopted.
For more information on tax policy changes, call us at (401) 921-2000 or submit our contact form to get started.
With the passage of the Inflation Reduction Act in August of 2022, several changes to the tax laws have been made in response to green initiatives pushed forth by the legislative and executive branches of government. One of these new guidelines is a change to the Energy-Efficient Commercial Buildings tax deduction, also known as the Section 179D tax deduction, which originally took effect in 2006. The tax deduction was made permanent in 2020 through legislation, and for calendar year 2023, has been incentivized further with the Inflation Reduction Act.
Section 179D is primarily comprised of three different sections of improvements: building envelope, HVAC, and lighting. To qualify for the tax deduction, the improvements must meet ASHRAE standards and be certified by a qualified individual sanctioned by the IRS. If the plans are to “retrofit” an already existing building, then the building must be located within the United States and be at least five years old at the time of the retrofit planning.
For 2023, the scope and value of the tax deduction will be increased, allowing for a greater deduction amount along with a lower bar for entry for some eligible taxpayers. The new act has made three meaningful changes to Section 179D:
- Modifying the efficiency standard from 50% down to 25%,
- Altering the maximum allowable deduction per square foot, and
- An alternate election deduction for energy efficient retrofitting.
The new law aims to improve building energy efficiency by a minimum of 25%, but any improvements in efficiency over the 25% but not exceeding a credit rate of $5.00 per square foot will increase the benefit for the taxpayer. The new law also allows for taxpayers to take the tax deduction in the year the retrofitting plan is solidified into a qualified retrofit plan, opting for an earlier benefit than previously allowed.
Finally, tax-exempt entities are also allowed to allocate the credit to the person primarily responsible for designing the property in lieu of the ownership of the property, which will give tax-exempt entities an effective discount.
For more information on this and other energy tax incentives, give us a call at (401)-921-2000 or fill out our online contact us form to get started.
The Probate and Family Courts require the completion of a financial statement; this financial statement is required in all matters involving a marital dissolution (divorce), support (alimony and child), and other financial matters.
Why is this document so important? It is extremely important for a few reasons:
- This document will become part of a permanent record;
- This document will be used as a benchmark for future support modifications;
- This document will be used to divide all marital assets; absent extraordinary circumstances, the division of marital assets is a FINAL distribution, which cannot be modified or changed.
This document will be used to decide a divorcing individual’s financial future; therefore, it requires the proper time and attention to make certain the information is accurate and presented in the most appropriate manner. This document is signed under the penalties of perjury that the information is complete, true, and accurate.
The amount of an individual’s annual income before taxes determines if a short form (less than $75,000) or a long form (more than $75,000) financial statement needs to be prepared. If an individual is self-employed or has rental property additional forms (Schedule A and Schedule B) are required.
In my years of working in family law, I have reviewed and prepared numerous financial statements. Some of the repeated mistakes that are often observed include the following:
- Weekly v. Monthly Figures
- As one navigates through the financial statement pages, there are pages that request weekly figures and other pages that request monthly figures. Special attention should be given to ensure that the proper figure is reported.
- Self-Employment Income (Schedule A)
- There is confusion surrounding the term “self-employment.” Based upon my experience as a Certified Public Accountant and a litigation support professional, it is my belief that the Schedule A should only be utilized in matters that involve a sole-proprietorship (tax form Schedule C of Form 1040) or a partner of a partnership (Form 1065). Generally, self-employed individuals must pay self-employment tax; self-employment tax consists of Social Security and Medicare tax primarily for individuals who work for themselves.
- Therefore, the Self-Employment Income reported on Schedule A should NOT be utilized for business owners that are S-corporations, even though such individuals may consider themselves to be “self-employed” due to the fact that they are a business owner. The determining factor is not if you own the business, but how the business’ income is taxed to the individual and whether such income is subject to self-employment tax.
- It is worth noting that Schedule A uses mostly monthly figures, but it also includes a line item that is weekly (“weekly expenses”). Again, close attention is required in accurately completing said schedule.
Accurately reflecting an individual’s financial position along with one’s income and expenses can be complex, especially when there are multiple sources of income and business interests are involved. DiSanto, Priest & Co. has the experience and expertise to assist in preparing this very important document, so let our trained professionals help you and your clients prepare an accurate, well thought-out financial statement.
If you have any questions, please reach out to Pam Oliver via email, give us a call at (401) 921-2000, or fill out our online contact us form.
The Inflation Reduction Act of 2022 includes changes related to the credits for electric vehicles. If you are in the market for an electric vehicle, it is important to understand the new requirements to maximize the benefit of this credit.
Clean Vehicle Credit
Congress passed the new Clean Vehicle Credit under Section 30D to replace the Qualified Plug-In Electric Drive Motor Vehicle Credit. The new credit applies to the purchase of new electric vehicles after August 16, 2022. This credit will apply to all electric vehicles placed in service after 2022 and prior to 2033. The maximum credit for new electric vehicles remains unchanged at $7,500. The difference between Section 30D and the former credit revolves around limitations on the taxpayer’s income, limits on the vehicle’s price and manufacturing criteria for car makers.
Income limitation: The adjusted gross income (AGI) limitation determines who can take the credit. No credit is allowed if the taxpayer’s AGI exceeds the following threshold amounts:
- For married taxpayers filing a joint return or a surviving spouse, $300,000.
- For taxpayers filing as head of household, $225,000.
- For all other taxpayers (single, married filing separately), $150,000.
Limit on vehicle’s price: The new credit establishes a threshold for eligibility based on the manufacturer’s suggested retail price (MSRP) of the electric vehicles. No credit is allowed if the MSRP exceeds the following amounts:
- Vans, SUVs, and trucks must have an MSRP below $80,000.
- All other vehicles must have an MSRP below $55,000.
Manufacturing requirements: For vehicles to qualify for Section 30D, they must have a certain percentage of both critical materials and battery components made in North America. The credit will be reduced to $3,750 if only one requirement is met. The final assembly of the vehicle must also take place in North America.
It is also important to note that for vehicles placed in service after 2023, the taxpayer can choose to utilize the credit to reduce their tax liability when filing their taxes or transfer the credit to the dealer to directly lower the cost of the vehicle for an immediate benefit.
Previously-Owned Clean Vehicle Credit
The Act also includes a new 30% credit, up to a $4,000 maximum, for purchases of previously-owned clean vehicles after 2022 and before 2033 from dealers registered with the Secretary of Treasury. To qualify for the credit, the vehicle being purchased must be at least 2 years old and have a purchase price of less than $25,000.
A qualified buyer for purposes of the credit must have AGI below a certain threshold, cannot be a dependent of another taxpayer, or have claimed a credit for a used clean vehicle during the three-year period ending on the date of sale.
Income limitation: No credit is allowed if the taxpayer’s AGI exceeds the following threshold amounts:
- For married taxpayers filing a joint return or a surviving spouse, $150,000.
- For taxpayers filing as head of household, $112,500.
- For all other taxpayers (single, married filing separately), $75,000.
Give us a call at (401) 921-2000 or fill out our online contact us form if you would like more information on how to maximize the full value of this credit.