As we usher in the new year, businesses in the United States are gearing up for a significant change—the implementation of the Corporate Transparency Act (CTA) on January 1, 2024. This federal mandate brings with it a fresh filing requirement for a broad spectrum of business entities, aiming to enhance transparency and curb illicit financial activities. In this article, we’ll delve into the intricacies of the CTA, exploring its requirements, exemptions, and implications for businesses.
The Corporate Transparency Act in a Nutshell:
The CTA casts its net wide, covering most corporations, limited liability companies (LLCs), limited partnerships, and certain other business entities. The central requirement of the CTA is the filing of a Beneficial Owner Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN) by December 31, 2024.
Identifying Beneficial Owners:
The heart of the BOI report lies in identifying and disclosing beneficial owners—individuals who control 25 percent or more of the ownership interests in the entity or exercise substantial control over it. Each beneficial owner’s information must include their full legal name, date of birth, complete current residential address, a unique identifying number (from a U.S. passport, state/local ID, or driver’s license), and an image of the document providing the unique identifying number.
The BOSS Database:
FinCEN is set to establish the Beneficial Ownership Secure System (BOSS) to house the BOI data. This database aims to assist law enforcement agencies in preventing the use of anonymous shell companies for various illegal activities, including money laundering, tax evasion, and terrorism. Notably, the BOI reports will not be publicly accessible.
The CTA primarily applies to business entities formed by filing documents with a state secretary of state or a similar official. Additionally, foreign entities registering to do business in the U.S. fall under the purview of the CTA. However, certain entities are exempt, such as larger businesses with 20 or more employees and $5 million in receipts, as well as those already heavily regulated by the government, including publicly traded corporations, banks, insurance companies, and non-profits.
Sole proprietors and general partnerships in most states are exempt from the CTA, providing some relief to smaller businesses. However, single-member LLCs, despite their pass-through tax treatment, are subject to the CTA’s requirements.
While the initial BOI report filing does not expire, businesses must remain vigilant in fulfilling their ongoing duty to keep the report up to date. Any changes in beneficial ownership must be promptly reported to FinCEN within 30 days of occurrence. This continuous monitoring ensures that the information remains accurate and relevant.
The CTA underscores the seriousness of compliance by imposing hefty penalties for failure to adhere to the filing requirements. Businesses that neglect to file the BOI report or provide inaccurate information may face significant monetary fines and, in extreme cases, imprisonment for up to two years.
As the Corporate Transparency Act takes effect in 2024, businesses must adapt to the new regulatory landscape. Compliance with the BOI reporting requirements is not only a legal obligation but also a crucial step toward fostering transparency and combating financial crimes. By understanding the nuances of the CTA, businesses can navigate the reporting process with confidence, ensuring a smooth transition into this era of heightened corporate accountability.
The IRS has recently intensified its efforts to combat improper Employee Retention Credit (ERC) claims. In response to a surge in questionable claims, the IRS has taken several actions. In this article, we will delve into these actions and their implications for businesses seeking ERC relief.
1. Temporary Halt on New ERC Claims:
On September 15, 2023, the IRS announced a temporary stop in processing new ERC claims, effective until the end of the year at the earliest. This decision stems from the IRS’s concern about the rising number of improper ERC claims. While some tax experts and associations support this measure, there are differing opinions. Some believe that all valid claims should be addressed promptly, especially for businesses facing ongoing financial hardships. Despite the processing delay, it’s advisable to submit your claim now to secure a spot in the queue.
2. Slower Processing of Existing Claims:
The IRS faces a backlog of over 600,000 ERC claims, causing delays in processing. The standard processing goal of 90 days has been extended to 180 days, with even longer processing times for claims requiring further review or audit. For legitimate ERC claims, patience is essential, and having proper documentation is crucial. Those with questionable claims should consult IR-2023-169 and engage with their tax professionals to explore options.
3. New IRS Q&A Document:
The IRS released a new Q&A document with a headline that some find problematic. The document aims to provide clarity on ERC eligibility, but its wording may discourage eligible businesses. Clear guidance on qualification and non-qualification is essential. The IRS’s primary mission should be helping taxpayers pay the correct tax, not intimidating them.
4. Watch Out for Red Flags:
The ERC is a legitimate tax credit, but it has become a target for aggressive marketing to businesses that may not qualify. In a September 2023 news release, the IRS warns businesses to be cautious of improper assistance in claiming credits. The example of paying hefty fees to promoters, only to have claims disallowed, serves as a cautionary tale. The rule of thumb is to ensure the validity of your claim.
5. IRS’s Recruitment of 3,700 New Employees for Audits:
The IRS’s latest hiring effort includes the recruitment of 3,700 new employees, primarily for audit purposes. This expansion of the audit workforce will focus on high-income earners, partnerships, large corporations, and promoters. For promoters, the IRS aims to investigate those involved in peddling abusive schemes.
The IRS’s actions against improper ERC claims signify a commitment to ensuring that tax credits are granted to those who genuinely qualify. Businesses seeking ERC relief should be cautious, patient, and well-prepared to navigate these changes and protect their interests. Additionally, the IRS’s efforts to crack down on promoters of abusive schemes aim to maintain the integrity of the tax system.
Two tax term that hold significant value are ‘safe harbor.’
Moreover, five more tax terms that bring great benefits are ‘tax-advantaged expensing without recapture.’
To establish and safeguard your safe-harbor expensing, you, your corporation, or your partnership must formally elect, on your tax return, to utilize the de minimis safe harbor for assets valued at $2,500 or less (or $5,000 with applicable financial statements, as explained later).
This advantageous safe-harbor election removes the hassles associated with:
The term ‘safe harbor’ signifies that the IRS will approve your expensing of the qualified assets as long as you adhere to the safe-harbor rules.
For asset purchases that do not qualify for safe-harbor expensing, there is no issue: Section 179 expensing and Section 168(k) bonus depreciation are both available options.”
Overview
You aim to have your safe-harbor expensing ready for implementation by January 1, 2024, which is why you’re reading this article in September 2023. We’re providing this information well in advance to ensure you have ample time to establish your safe harbor for the upcoming year.
If you’ve utilized safe-harbor expensing in previous years, you should find your prior-year safe-harbor election on those respective tax returns.
If you’re a small business that has chosen the $2,500 limit for safe-harbor expensing, let’s consider a scenario where you purchase two desks, each costing $2,100. The invoice indicates a quantity of two, a total cost of $4,200, along with a sales tax of $378 and a $200 delivery and setup fee, bringing the total to $4,778.
Before adopting the safe harbor option, you would typically have treated each desk as a capital expense, totaling $2,389 ($4,778 ÷ 2). Subsequently, you would have either utilized Section 179 expensing or depreciation for both desks. Additionally, you would have maintained the desks on your depreciation schedule until they were eventually disposed of.
However, with the safe harbor provision, you can expense the desks as office supplies. This eliminates the necessity to include the desks in your accounting books, simplifying your financial record-keeping process.
Safe Harbor
When put into practice, involves the following:
The de minimis safe harbor consists of two options, and which one applies to you depends on whether you have what’s called an “applicable financial statement” (AFS) for your business. If your financial statements have been subject to a certified public accountant (CPA) audit or a similar process, then you have an applicable financial statement.
The key difference between having an AFS and not having one is as follows:
Creating the Safe Harbor
The Rise of Pass-Through Entity Tax (PTET)
The pass-through entity tax (PTET) has emerged as a game-changing solution for owners of pass-through businesses, such as S corporations and multi-member LLCs. Previously an exception, PTET has now taken center stage in most states. This innovative approach allows businesses to circumvent the $10,000 annual limitation on state and local tax (SALT) deductions.
Demystifying PTET Mechanics
At its core, the PTET process is elegantly simple yet remarkably impactful. Pass-through entities (PTEs) now have the option to pay state income taxes on their business earnings, a responsibility typically borne by the individual owners. Subsequently, the PTE claims a federal business expense deduction for these state income tax payments. Importantly, states permit individual owners to claim a credit or deduction for these taxes, enabling them to sidestep the SALT limit.
This strategic maneuver results in a dual benefit for owners: they leverage the federal deduction against state income tax, all while avoiding the shackles of the $10,000 SALT limit on a portion or entirety of their pass-through income.
State-Level Progress
Presently, 36 out of the 41 states that impose income taxes have embraced some iteration of the PTET concept. Notably, this trend continues in 2023, with Hawaii, Indiana, Iowa, Kentucky, Montana, Nebraska, and West Virginia joining the ranks of PTET adopters.
Of this group, Indiana, Iowa, Kentucky, and West Virginia have implemented retroactive PTET policies dating back to 2022. Nebraska’s PTET has retrospective implications for 2018. Meanwhile, Hawaii and Montana have chosen not to apply retroactive measures to their PTET implementations.
Eligibility Criteria
Eligibility for PTET hinges on the type of business entity. Partnerships, S corporations, and multi-member LLCs taxed as such are generally eligible to opt for state PTET. Conversely, sole proprietorships, single-member LLCs taxed as sole proprietorships, C corporations, most trust structures, and LLCs taxed as C corporations are typically ineligible.
Election Deadlines and Opt-Outs
It is important to note that while no state, except Connecticut, mandates a PTE to pay a state PTET, the decision to do so rests with the entity. Election deadlines for PTET vary from state to state.
In most states, a PTET election applies universally to all owners within the PTE, with individual owners usually unable to opt-out. Exceptions to this rule exist in Arizona, California, New York, and Utah.
Connect with Us
If the intricacies of the pass-through entity tax (PTET) raise questions or concerns, please do not hesitate to reach out directly at 757-410-8030. We are here to ensure that you have the clarity and confidence needed to navigate this evolving tax landscape effectively.
Filing taxes can be a daunting process, but for some, it’s much more than that – tax audits. This stressful situation involves having the IRS put your tax return under a microscope to see if you reported all your income and to see if you overstated your deductions and expenses. The IRS’s main goal in an audit is to assess more taxes, penalties, and interest. It’s an intimidating experience that most Americans dread facing!
An IRS audit can cause even the most squeaky-clean of taxpayers to become fearful and anxious when faced with defending themselves to an auditor. It’s understandable why the majority feel powerless in this situation. You also have to understand and get comfortable with, in the eyes of an IRS auditor, you are guilty until proven innocent. Navigating the tax code on your own is not a good place to be.
Tax audits don’t have to be a source of fear as long as you’ve remained compliant with all the rules and regulations. The best way to ensure peace of mind is to work with an experienced Tax Resolution Specialist who represents clients in such matters and has a good track record. Contact our firm for a complimentary no-obligation consultation to assess your situation. https://calendly.com/premierbusinessstrategist/freeconsult
An IRS audit can be a very time-consuming and intrusive exercise that can include a visit from the auditor. Audits can also be conducted remotely. This method, known as a desk audit, involves sending documents through fax or mail to evaluate accuracy and compliance with established law.
Filing taxes is a complex process and the IRS seeks to ensure accuracy by auditing income tax returns. These examinations may be focused on certain deductions, particularly if taxpayers have claimed for more than what their reported incomes suggest – but this does not necessarily indicate any wrongdoing or misconduct. The IRS can also select your return to be audited for no reason at all. These are referred to as “random” audits to ensure compliance with tax laws.
Taxes are a fundamental pillar of our society and the government strives to ensure that everyone is compliant. To this end, random audits from both Federal and State authorities may be conducted in order to verify taxpayers’ income as well as expenses incurred throughout the year; making sure all taxation payments due remain accurate.
Preparing for a tax audit should be an ongoing process. To avoid any problems, ensure that all deductions taken are backed up with proof and every receipt is kept on file along with the return – you never know what may arise in the future! It’s important to remember: only declare items that can easily be defended – your documents are a crucial piece to your defense. Ensure each tax record remains safely stored away for at least seven years as per IRS regulations.
Protect your finances and future by taking the time to review your tax returns before signing off, even if you have a professional do them. A thorough examination of the documents will not only help ensure accuracy in filing but also offers an invaluable opportunity for you to gain knowledge on taxes – safeguarding against potential penalties or interest charges related to inaccuracies down the line.
Tax audits can be intimidating, but with a little foresight and the right representation it doesn’t have to cause stress. Staying organized throughout the year is key for having peace of mind when tax season rolls around. Finding an experienced professional who understands your individual needs will help make dealing with the audit as painless as possible.
Take the worry out of representing yourself in front of the IRS, which is like going to court without a lawyer. Let our expert team lift this from your shoulders and navigate the IRS on your behalf. Schedule a no-obligation consultation to explore your options and get on track toward permanently resolving any worries you have over having to meet with and defend yourself in an IRS or State income tax audit. https://calendly.com/premierbusinessstrategist/freeconsult
Even for honest taxpayers, the IRS can be extremely frightening. Unlike most other government agencies, the IRS has unbridled power to attach your wages, freeze your bank account and even confiscate your property, and that is enough to send a chill up the spine of any taxpayer.
If you receive a letter from the IRS saying that you owe additional taxes, it is important not to panic. It may be a frightening situation, but there are things you can do to settle your tax debt and get back on the good side of the IRS.
Taxpayers do have options when resolving tax disputes and paying additional taxes due, and simply knowing what those options are can set your mind at ease.
As an expert Tax Resolution Firm, we encourage all readers facing a tax problem, whether it’s the feds or the state, to contact us for a free consultation https://calendly.com/premiersmlbus/consult
Here are three strategies you can use to resolve your tax debt and get on with the rest of your life. Not all of these options will be right for everyone, but it is important to be an informed taxpayer.
Review the Amount Owed And Your Tax Return In Question
If the IRS says you owe money, you should not simply assume they are right. The tax agency does make mistakes (a lot), as do tax preparers and ordinary taxpayers.
Whether you filed your taxes on your own or hired someone else to do it for you, it is important to examine your return and compare what you find with what the IRS is claiming. It pays to seek professional help for this tax review, even if you originally filed your own taxes. A professional with IRS experience may be able to uncover errors and inconsistencies you would have missed on your own, and that could end up saving you money.
There is no guarantee this review will eliminate the extra taxes the IRS says you owe, but it never hurts to be sure. There have been many cases in which taxpayers who thought they owed money to the IRS ended up owing nothing – or even being due a refund from the IRS.
Set Up a Payment Plan
Getting a notice of additional tax due from the IRS is frightening, especially if you cannot afford to pay what the agency says you owe. Keep in mind, however, that you do not necessarily have to pay the bill all at once.
The IRS is often willing to set up payment plans with taxpayers, and those payment plans could make paying what you owe easier and less stressful. Once again, it is a good idea to seek professional help and guidance here – the IRS can drive a hard bargain, and you do not want to end up with a payment plan you cannot afford and wind up defaulting on it.
If you fall behind on the payment plan you agreed to, you could be subject to additional enforcement action, including the tax agency garnering your paycheck or seizing funds from your bank accounts. Getting the help of a tax resolution professional upfront can help you avoid these serious consequences.
Explore an Offer in Compromise Settlement
If you are truly unable to pay the money the IRS claims you owe, you may be able to work out a (much) smaller lump sum payment. The IRS may not advertise this program, but they are often willing to work with taxpayers by accepting lesser amounts, especially if those taxpayers have little in the way of equity in assets and a limited income. Sometimes these settlements can be for a fraction of what’s owed if you qualify. We offer a free no-obligation consultation to find out if you qualify https://calendly.com/premiersmlbus/consult
If you plan to explore this last option, it is critical that you work with a tax resolution expert. An offer in compromise can be extremely complicated, with legalese and language that can be difficult to understand. You do not want to make a misstep here, and you want to ensure that you are only paying the lowest amount, allowed by law, in the settlement of your tax bill.
Few things are as frightening as getting a letter from the IRS. That official-looking letterhead is bad enough, but what the letter says is even worse. If you receive such a letter, you need to take positive steps right away. Ignoring the situation will make it worse and it won’t go away, and the sooner you start exploring your tax resolution options the better off you will be.
If you want the help of an expert tax resolution professional who knows how to navigate the IRS maze, reach out to our firm and we’ll schedule a no-obligation confidential consultation to explain all your options to permanently resolve your tax problem. https://calendly.com/premiersmlbus/consult
If you hire an employee for your Schedule C business, you can qualify for several valuable tax credits. Each credit is different, and certain limitations apply to all or most employer tax credits. Remember, tax credits are the best. They beat deductions. Note the difference below (using the 32 percent bracket):
Many tax credits are not available if you hire a person related to you, including children, stepchildren, a spouse, parents, siblings, step-siblings, nephews, nieces, uncles, aunts, cousins, or in-laws.
Eight Valuable Tax Credits for Business Owners
Below are listed the eight non-refundable tax credits that Schedule C business owners can claim when they hire employees.
The second option is more realistic for smaller businesses. Businesses often partner with childcare companies such as the Learning Care Group, Bright Horizons, and KinderCare to offer this benefit.
Key point. You might be surprised which places the government designates as having high poverty and unemployment. It’s worth checking out.
You can claim a credit equal to 20 percent of the first $15,000 in wages you pay to full- or part-time employees who both live and work in an empowerment zone.
Thus, the maximum credit is $3,000 per employee (20 percent x $15,000). The employees must work for you for at least 90 days.
If you would like to discuss how to take advantage of these or other tax credits, please call us at 757-410-8030.
Whether you are expecting a nice tax refund or preparing to write a big scary check, you know that April 15 is the annual tax filing deadline. What you may not know, however, is that tax day is every day at the IRS, and the tax agency is always reviewing the information taxpayers and business owners have provided.
That means that keeping tax records is about more than just smart bookkeeping – it is an integral form of self protection. You see, millions of Americans get letters from the IRS stating they owe back taxes or requesting more information about their tax returns.
It may be disconcerting, but the IRS has the right to request additional information months, or even years, after the return you filed has supposedly been processed and accepted. In fact, the much feared tax agency can request additional documentation for up to three years after the annual tax deadline has come and gone.
We help people resolve their back tax problems and often settle with the IRS for less than the amount they owe, but in order to do this, we need to provide the right records. Thats where having your tax records saved can be the difference between settling your tax debt or not.
As a result, it is important to retain your tax records and keep certain tax documents on hand, just in case the IRS asks for them. Here are the most common tax records and how long you should keep them around.
If you owe back taxes, our firm can help negotiate with the IRS and potentially settle your tax debt. Call us today. Our tax resolution specialists can navigate the IRS maze so that you have nothing to worry about. [https://calendly.com/premiersmlbus/consult]
In most cases the IRS will have up to three years to question the figures you reported on your tax return, or otherwise challenge the information you provided. You may think the tax year is over, but for the IRS the final curtain does not fall for a full 36 months.
For this reason, it is generally a good idea to keep your old tax returns for a minimum of three years. You do not necessarily have to print and retain hard copies of your tax returns – electronic documents are fine as long as you will be able to access them quickly should you need them.
If you fail to keep copies of your tax returns, you can still access them by asking the IRS for transcripts. It is best to keep your own records, and doing so will make your life a lot easier.
As with the tax returns themselves, it is generally a good idea to keep your W2 forms for a minimum of three years. This will provide you with the documentation you need should the IRS find a discrepancy between the amount of income you reported to the agency and the figures your employer provided.
It is also a good idea to retain at least your year-end pay stubs, not only to help reconcile them with the W2 forms but also for other forms of income documentation. If you are applying for a mortgage, for instance, the lender may ask to see several years worth of tax returns, pay stubs and other income documents, and having them on hand will make the application process faster and easier.
The IRS looks at all of the income you report when you complete and submit your tax returns, but the agency does not just take your word for the accuracy of those figures. Instead the IRS uses sophisticated matching programs to compare the amount of income you reported from various sources with what they receive from third party sources.
Those third party sources could include your bank and credit union, your brokerage firms and mutual fund companies and any other places that provide you with income. It is therefore a good idea to hold onto any income related forms you receive for at least three years, and possibly longer if you run your own business or earn income from gig work or freelancing.
Once again, these income documents can do double duty, serving as backup if the IRS questions the numbers on your tax return but also giving you the information lenders and others might need down the road. If you store these documents electronically you will not even need to worry about buying a file cabinet, so there is really no reason to not keep them around.
Filing taxes can be a stressful experience, but the difficulty does not end when you click send on your e-filed tax return. Even after that return has been filed and accepted, the IRS could still question or challenge your numbers, and that is why it is so important to retain the backup documentation until the challenge window has passed. Now that you know what to retain and for how long, you can rest a little easier when tax time rolls around.
If you do run into tax trouble or the IRS states you owe back taxes, reach out to our tax resolution firm and we’ll schedule a free, no-obligation confidential consultation to explain your options in full to permanently resolve your tax problem. [https://calendly.com/premiersmlbus/consult]