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.
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.
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.
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 (email@example.com). 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.
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.