As a result of the recently passed Inflation Reduction Act, homeowners will have a greater incentive to invest in renewable energy sources in addition to reducing their energy costs and carbon footprint. One of the underlying goals of this bill was to promote investment in clean energy, and the government is hoping to stimulate this through offering tax credits. The Residential Clean Energy Credit, formerly known as the Residential Energy Efficient Property Credit, was recently extended to apply to property placed in service prior to January 1, 2035. For 2022, a 30% credit is available for the following eligible expenditures:
- Solar electric property
- Solar water heating property
- Fuel cell property
- Small wind energy property
- Geothermal heat pump property
- Biomass fuel property (but only through 2023)
Battery storage technology is also added to the list of qualified expenditures eligible for the credit, applicable to expenditures made after December 31, 2022.
The 30% tax credit is extended through the end of 2032. The credit will then be phased down to 26% in 2033 and to 22% for 2034.
The cost of the hardware and the expenses of installing the new system are also covered under this credit. Costs such as labor for on-site preparation, assembly, and installation of the equipment and for piping or wiring to connect it to your home may also be included.
This credit can be extremely beneficial to taxpayers as it may reduce their overall tax liability by up to 30% of their qualifying clean energy costs. In addition to this federal tax credit, there are other incentives offered by state and local governments as well as public utilities that may also help subsidize the costs of the investment. If you would like to discuss how your investment in a renewable energy system for your home may also deliver tax savings, give us a call at (401)-921-2000 or fill out our online contact us form.
The IRS has recently released the standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes for the 2023 tax year as follows.
Beginning on January 1, 2023, the standard mileage rates for the use of a car will be:
- 65.5 cents per mile driven for business use, up 3 cents from 2022
- 22 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces, consistent with 2022 increased rate
- 14 cents per mile driven in service of charitable organizations. The rate remains unchanged from 2022
As a reminder, the IRS states that under the Tax Cuts and Jobs Act, taxpayers cannot claim miscellaneous itemized deductions for any unreimbursed employee travel expenses as well as claim any deduction for moving expenses, unless they are active-duty members of the Armed Forces who are moving under orders to a permanent change of location.
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.
For tax periods beginning after December 31, 2022, Rhode Island businesses may be required to electronically file returns and remit tax payments, including quarterly estimates, extension payments, balances due and all other payments. If your business meets the larger business registrant definition below, this new mandate will apply to your business. “Larger business registrant” for the purposes of this mandate is defined as:
- A business whose combined annual liability for all taxes administered by the Division of Taxation is or exceeds $5,000; or
- A business whose annual gross income is over $100,000
The Division of Taxation encourages all taxpayers to utilize the Taxpayer Portal to remit taxes. New and first-time users of the Taxpayer Portal will need to request a PIN before activating a new account. PINs can be requested by phone at (401) 574-8484 or e-mail (taxportal@tax.ri.gov). Have the following information available when requesting a PIN: Name of the business, EIN, and address. The PIN will then be sent to the taxpayer via regular mail. The account will not be available for use until the PIN is received and the account validated, so please ensure ample time to guarantee no problems with activating the account before the deadline. PINs will not be e-mailed or provided by phone.
For those taxpayers who do not receive a PIN and validate their account prior to a payment due date, a same-day guest service is available on the Portal. Please note, this will require several verification steps for security purposes and is not a permanent solution.
Instructional videos are available on the Division’s website to walk you through the process of creating an account.
More Information
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.
Massachusetts voters have approved a measure during the midterm election to establish an additional 4% surtax on taxable income exceeding $1 million for state taxpayers. The measure, commonly known as the “Fair Share Amendment” or the “Millionaires Tax”, will add 4% to the State’s 5% flat tax rate to taxable income over $1 million starting in 2023. The $1,000,000 income level will be adjusted annually to reflect any increases in the cost of living by the same method as the federal brackets. The new change is a first for the state, as Massachusetts is known for having flat tax rates across the board. The change will amend the Massachusetts State Constitution to include the progressive tax-rate.
While this new amendment will apply to around 0.6% of Massachusetts households, it is estimated that it will raise around $1.3-$1.5 billion in additional tax revenue for the 2023 fiscal year. The new tax revenue has been earmarked for education and transportation maintenance as outlined in the amendment, but still can be altered by the legislature if other projects are deemed more important at the time.
The majority of taxpayers that will be affected by this tax increase are small business owners, large employers and retirees. The new law can also affect so-called “one-time millionaires”, which includes residents who sell their houses or businesses for a gain that , when coupled with their other sources of income, result in over $1 million in taxable income in any given year. Opponents to the new tax hike have raised the concern that this will drive out more high-income earners from that state and result in less revenue for Massachusetts.
If you have any questions regarding how this new tax change will affect your Massachusetts State Income Taxes, please call us at 401-921-2000, or reach us through email or complete our online contact form.
As part of the Inflation Reduction Act, Congress recently extended and expanded what was previously known as the Non-Business Energy Property Credit. The credit, now known as the Energy Efficient Home Improvement Credit, is intended to encourage investment in energy related home improvements such as energy efficiency improvements, residential energy property expenditures, and home energy audits. Prior to 2022, this credit was considered a lifetime credit. In other words, each year a 10% credit was allowed on qualifying expenses until the taxpayer reached a cumulative maximum amount of $500. This credit had originally expired as of December 31, 2021, but the Inflation Reduction Act extended it through the end of 2022.
Then, starting in 2023, the Inflation Reduction Act makes several substantial changes to the credit. The first is by removing the $500 lifetime cap limitation and replacing it with an annual limitation of $1,200. In addition, the former 10% credit percentage has been increased to a credit of 30% of qualifying expenses up to the $1,200 annual limitation. Qualifying expenses include water heaters, heat pumps, central air conditioners, hot water boilers, biomass stoves, oil furnaces, air sealing, cost of home energy audits, and electrical panels. There is an annual limit of $600 of credits with respect to residential energy property expenditures, windows and skylights, and $250 for any exterior door ($500 in total for all exterior doors). Also, the annual credit is increased to up to $2,000 for specified heat pumps and biomass stoves. Finally, roofs and advanced main air circulating fans are ineligible for the credit.
It is important to note that starting in 2025, reporting requirements mandate that manufacturers label, and taxpayers report, a product identification number associated with specified property items to receive the credit. These changes are expected to provide an incentive for taxpayers to lessen the high costs of energy and save in utility bills in addition to decreasing their overall tax liability.
If you have any questions on how you can utilize this credit or whether you qualify, give us a call at (401) 921-2000, or fill out our online contact us form.
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.
SIMPLE Plans
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.
IRA’s
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.
More Information:
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.
More Information
- 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.
If you have any questions, please reach out via email (poliver@disantopriest.com), give us a call at (401) 921-2000, or fill out our online contact us form.