Since 2018, taxpayers have been able to take advantage of favorable bonus depreciation rules found in the Tax Cuts and Jobs Act. However, these rules will begin to phase out over the next several years. Read on to find out how this could affect you.
Bonus Depreciation
The passing of the TCJA allowed most taxpayers to claim 100% bonus depreciation for the cost of qualifying business property. This included tangible property with a recovery period of 20 years or less and depreciated under MACRS rules. It also included most computer software, water utility property, and qualified artistic productions.
However, the anticipated phase-out of bonus depreciation became effective on January 1, 2023. For assets placed in service starting on this date, the deduction for the first-year will be reduced to 80% of the asset’s adjusted basis. Under current law, bonus depreciation will continue to drop an additional 20% annually through 2027.
The deduction phase-out is scheduled as follows:
- 2023: 80%
- 2024: 60%
- 2025: 40%
- 2026: 20%
- 2027: 0%
These changes present tax-planning opportunities to consider as companies project out their taxable income. It’s also important to note that it’s possible to elect out, if so desired.
Section 179 Depreciation
In lieu of bonus depreciation, taxpayers may also be able to expense the cost of certain fixed asset purchases under Code Section 179. Eligible property includes tangible 1245 property depreciated under MACRS, off-the-shelf computer software, qualified improvements, roofs, HVACs, fire protection systems, and security systems. The acquired eligible property may be new or used. Taxpayers can elect to utilize Section 179 when the return is filed or on an amended return in the year of election.
The limits for 2023 and 2024 are as follows:
| 2023 | 2024 | |
| Section 179 Limit | $1,160,000 | $1,220,000 |
| Phase-out Limit* | $2,890,000 | $3,050,000 |
*Once this threshold is hit, a dollar-for-dollar phase out begins.
Questions?
If you have any questions regarding bonus depreciation or section 179 limits, call us at 401-921-2000 or fill out our contact form to get started.
You may not think about New Hampshire state income tax much, or lack thereof. But if you own a sole proprietorship or real estate such as a rental property, you may be generating income that’s subject to the New Hampshire Business Profits Tax and Business Enterprise Tax.
New Hampshire State Income Tax Filing Requirements
There is typically no New Hampshire state income tax withheld on wages and salaries, and many people choose to live in the state to avoid paying on it. However, individuals who own a sole proprietorship or are a sole owner of a single member LLC that has business activity in New Hampshire may have a filing requirement for the following:
- Business Profits Tax (BPT)
- Business Enterprise Tax (BET)
There are filing thresholds for each tax type that may change each year.
BPT and BET Thresholds
The BPT threshold is based on gross business income. On the other hand, the BET threshold is based on an enterprise value tax base. The business enterprise calculates its enterprise value tax base under New Hampshire regulation by adding up all compensation paid or accrued, all interest paid or accrued, and all dividends paid. The filing threshold for the 2023 tax year is as follows:
- $103,000 of business income (BPT)
- $281,000 of enterprise tax value base (BET)
Personal Services Deduction
If you meet the filing requirement for the BPT return, you may also qualify for the personal services deduction. This could reduce the amount of tax you owe on your business income. According to the New Hampshire revised statute section 77-A:4, this deduction is for total compensation that is “reasonable and fairly attributable” to its proprietor. Taking the full amount of this deduction requires that you maintain records necessary to prove that this deduction is reasonable.
New Hampshire State Income Tax: Get More Details
Want more information regarding potential exposure to BPT and BET tax liabilities? Call (401) 921-2000 or fill out our contact form to learn how you can decrease your potential tax liability.
Financial ratios for construction companies can be a key indicator of current performance and potential for future growth. No one ratio can truly tell the whole story of a company’s health. However, looking at several key ratios can help identify trends in the company and its overall well-being. Primary users of financial statements, including banks, bonding agents, insurance companies, and others, will usually be interested in this information. In addition, company management must ensure they fully understand these ratios before distributing their financials to avoid surprise by any concerns or follow-up questions.
5 Important Financial Ratios for Construction Companies
Here, we’ll explore several common ratios and how they can help you measure business performance and mitigate risk. The following are some key financial ratios for construction companies:
Current Ratio
This ratio compares current assets over current liabilities to determine how many times per year a company can pay its liabilities within the next 12 months. The company should have a ratio of at least 1.0 – 1.3 to ensure sufficient assets for covering liabilities as they become due.
Quick Ratio
This is a close relative of the current ratio, which includes all current assets in the calculation. However, the quick ratio just includes cash, cash equivalents, short term investments, and accounts receivable in the numerator. The denominator remains the same as the current ratio and includes all current liabilities. This ratio considers only assets that are cash or easily convertible to cash. A company is typically considered favorable when its quick ratio is between 1.1 and 1.5. This indicates that it has enough cash to cover its liabilities.
Debt-To-Equity Ratio
This ratio calculates how the growth of the company is financed through debt. In this instance, a person usually considers a ratio of 2.0 or lower favorable. As the ratio grows, it could signal that the company is financing its growth through too much debt and could become unsustainable.
Working Capital Turnover Ratio
A company uses the capital turnover ratio to identify its asset efficiency in generating sales. The company calculates the ratio by dividing the difference between current assets and current liabilities by its sales. For each dollar of working capital, a higher ratio generates more sales. However, a ratio above 30.0 could signal that the company may need more working capital to continue to grow in the future.
Equity Turnover Ratio
A company’s equity turnover ratio identifies how efficiently it generates sales using its assets. The company calculates its sales-to-equity ratio by dividing its sales figure by its total equity. Usually, a ratio above 15.0 may signal a company will have trouble growing in the future.
More Information
DiSanto, Priest & Co.’s experienced team of professionals can assist you in calculating, analyzing, and improving your financial ratios with a focus on maintaining your company’s health. For more information, call us at (401) 921-2000 or fill out our contact form.
Solar panel installation is at an all-time high across the country. Are you among the many individuals and businesses thinking about an installation? This federal solar tax credit guide was created to explain how you can take advantage of these tax credits.
When installed in 2023 or later, the federal solar tax credit has increased to 30% of the total cost of the system, with no set maximum amount. This 30% federal solar tax credit will be available until 2032 for individuals and 2033 for businesses. After that time, the percentage is set to decrease. The tax credit is a dollar-for-dollar reduction of the tax that you owe.
If your federal solar tax credit is larger than the tax you owe, you may carry the credit forward. If you are deciding to install solar panels on your home or business, now may be the time to call your tax advisor.
Considerations for Individuals
To qualify for a federal solar tax credit on a system installed on your residence, you must ensure that you own the system and that it’s new or being used for the first time. If you lease the solar panel system, you will not qualify for the federal solar tax credit. Other important requirements include the location of the residence and the date the system was completed.
The residence must be in the United States, owned by the individual claiming the tax credit, and meet certain requirements to be considered as completed in the year the tax credit is claimed. There are also other qualifying situations such as purchasing interests in an off-site community solar project.
In addition, you should take care to only include approved costs in your computation of the system’s total cost as some fees should not be included in the total. Excluded costs typically include things like support beams and shingles but some exceptions can be explored if certain criteria exist.
Considerations for Businesses
There’s more than one option for a federal solar tax credit when installing a solar system on your commercial property. Businesses have the option to use either the Investment Tax Credit (ITC) or the Production Tax Credit (PTC).
- ITC: allows you to take 30% of the total cost of the system in the year the system is completed.
- PTC: allows a tax credit of 2.75 cents per kilowatt hour for electricity generated by the solar panels for the first ten years of the system’s operation.
Generally, both the ITC and PTC cannot be claimed for the same property. Also, the tax credit may be larger than the tax due for some businesses.
For projects placed in service in 2023 or later, the tax credit may be carried forward 22 years or back three years. The rates for both tax credits are set to change in 2033. If you’re installing a large system and expect to have a lot of sunlight, the PTC may be your best option. If you incur high installation costs or qualify for other tax credits, the ITC may be a better fit.
In addition, there are other bonus tax credits that businesses may be able to benefit from as well.
Federal Solar Tax Credit: Get More Details
If you have any questions about federal solar tax credits that weren’t outlined in this guide, we’re here to help. You may call us at (401) 921-2000 or fill out our contact form.
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.