Corporate Transparency Act — Beneficial Ownership Information Reporting Requirement
Starting January 1, 2024, a significant number of businesses will be required to comply with the Corporate Transparency Act (“CTA). The CTA was enacted into law as part of the National Defense Act for Fiscal Year 2021. The CTA requires the disclosure of the beneficial ownership information (otherwise known as “BOI”) of certain entities from people who own or control a company.
It is anticipated that 32.6 million businesses will be required to comply with this reporting requirement. The BOI reporting requirement intends to help US law enforcement combat money laundering, the financing of terrorism, and other illicit activity.
The CTA is not a part of the tax code. Instead, it is a part of the Bank Secrecy Act, a set of federal laws that require record-keeping and report filing on certain types of financial transactions. Under the CTA, BOI reports will not be filed with the IRS, but with the Financial Crimes Enforcement Network (FinCEN), another agency of the Department of Treasury.
Please note that since the FinCEN, and not the IRS, is overseeing the compliance with the CTA, Ross Buehler Falk & Company, LLP, will not provide services relating to BOI reporting. Businesses should seek competent legal counsel for assistance.
Below is some preliminary information for you to consider as you approach the implementation period for this new reporting requirement. This information is meant to be general only and should not be applied to your specific facts and circumstances without consultation with competent legal counsel.
Frequently Asked Questions
What entities are required to comply with the CTA’s BOI reporting requirement?
Entities organized both in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements. Domestic companies required to report include corporations, limited liability companies (LLCs) or any similar entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
Domestic entities that are not created by the filing of a document with a secretary of state or similar office are not required to report under the CTA.
Foreign companies required to report under the CTA include corporations, LLCs or any similar entity that is formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or any similar office.
Are there any exemptions from the filing requirements?
There are 23 categories of exemptions. Included in the exemptions list are publicly traded companies, banks, credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities, and certain inactive entities, among others. Please note these are not blanket exemptions and many of these entities are already heavily regulated by the government and thus already disclose their BOI to a government authority.
In addition, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:
- Employ more than 20 people in the U.S.;
- Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and
- Be physically present in the U.S.
Who is a beneficial owner?
Any individual who, directly or indirectly, either:
- Exercises “substantial control” over a reporting company,
- Owns or controls at least 25 percent of the ownership interests of a reporting company
An individual has substantial control of a reporting company if they direct, determine, or exercise substantial influence over important decisions of the reporting company. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company.
The detailed CTA regulations define the terms “substantial control” and “ownership interest” further.
When must companies file?
There are different filing timeframes depending on when an entity is registered/formed or if there is a change to the beneficial owner’s information:
- New entities (created/registered in 2024) — must file within 90 days
- New entities (created/registered after 12/31/2024) — must file within 30 days
- Existing entities (created/registered before 1/1/24) — must file by 1/1/25
- Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports — must file within 30 days
What sort of information is required to be reported?
Companies must report the following information: full name of the reporting company, any trade name or doing business as (DBA) name, business address, state or Tribal jurisdiction of formation, and an IRS taxpayer identification number (TIN).
Additionally, information on the beneficial owners of the entity and for newly created entities, the company applicants of the entity is required. This information includes — name, birthdate, address, and unique identifying number and issuing jurisdiction from an acceptable identification document (e.g., a driver’s license or passport) and an image of such document.
Risk of non-compliance:
Penalties for willfully not complying with the BOI reporting requirement can result in criminal and civil penalties of $500 per day and up to $10,000 with up to two years of jail time. For more information about the CTA, visit https://www.fincen.gov/boi.
Will Ross Buehler Falk & Company, LLP, assist in the reporting of this information?
The FinCEN, and not the IRS, is overseeing compliance with the CTA, and therefore, assisting with BOI reporting can be construed as providing illegal services. As such, Ross Buehler Falk & Company, LLP, will not provide services relating to BOI reporting. Businesses should seek competent legal counsel for assistance.
Technology Trends for Business to Watch in 2024
The unrelenting advancement of technology is still going strong even as we enter 2024. The business landscape is poised for transformative changes, driven by ongoing developments that demand organizations to be innovative and adaptive. Below, we explore some key technology trends that businesses should keenly observe to remain competitive.
- Artificial Intelligence (AI) Advancements: Unlocking New Possibilities
The year 2023 witnessed widespread adoption of generative AI in various applications, from design tools to search engines and office software. This transformative shift changed the way businesses interact with technology.
Continued integration of AI is expected to redefine automation, decision-making processes and customer experiences. Evolving AI algorithms, especially in natural language processing and computer vision, will play a pivotal role. From enhancing customer service interactions to optimizing supply chains and enabling predictive maintenance in various industries, the transformative impact of generative AI will become increasingly evident.
Tech investments geared toward meeting changing priorities will be a hallmark of 2024. More businesses are anticipated to harness AI-driven automation, particularly using Generative Pre-trained Transformers (GPTs), further streamlining operations and enhancing efficiency.
- Cybersecurity Innovations: Staying Ahead of Evolving Threats
As cyber threats continue to evolve, businesses should anticipate increased data breaches. In response to sophisticated cyber threats, cybersecurity innovations are set to take center stage in 2024. Advanced solutions leveraging AI-driven threat detection and response mechanisms will become more prevalent. The industry will witness an intensified focus on zero-trust security frameworks, heightening data protection measures. Cyber-resilience will be paramount, necessitating proactive measures to safeguard digital assets and ensure business continuity.
- 5G Technology Implementation: Revolutionizing Connectivity
The widespread adoption of 5G networks will redefine connectivity standards in 2024. Businesses will benefit from faster and more reliable network speeds, unlocking opportunities for innovative applications and services. The increased bandwidth and reduced latency offered by 5G will enable businesses to explore new frontiers in communication, collaboration and data transfer.
- Edge Computing Expansion: Real-time Data Processing Redefined
Edge computing will gain even more prominence in 2024, playing a pivotal role in real-time data processing and latency reduction. Its integration with Internet of Things (IoT) devices will enable businesses to conduct faster and more efficient data analysis at the source, paving the way for enhanced decision-making and operational efficiency.
- Blockchain Beyond Cryptocurrency: Transforming Business Processes
Blockchain technology, often associated with cryptocurrencies, will find increased adoption in 2024 for purposes beyond financial transactions. Businesses will utilize blockchain for secure and transparent supply chain management, the execution of smart contracts and the development of decentralized applications. Integration into traditional business processes will enhance security and operational efficiency.
- Extended Reality (XR) Integration: Shaping Immersive Experiences
Augmented reality (AR) and virtual reality (VR) will expand across industries in 2024. These technologies will play integral roles in training, healthcare, retail and more. Improved XR technologies will deliver more immersive and realistic user experiences, unlocking new possibilities for customer engagement and employee training.
- Sustainable Technology Solutions: Embracing Environmental Responsibility
A growing emphasis on environmentally friendly technology will be a defining feature of 2024. Businesses will increasingly adopt energy-efficient data centers and integrate sustainable practices into product development. This shift toward green technologies is driven by environmental consciousness and the potential for cost savings and corporate social responsibility.
- Quantum Computing Developments: Unlocking New Frontiers
Quantum computing will continue to make strides in 2024, with ongoing research potentially leading to practical applications in certain industries. Businesses, particularly early adopters like financial services organizations, will leverage quantum computing to tackle complex problems beyond classical computers’ capabilities, such as fraud detection and optimization challenges.
- Robotic Process Automation (RPA) Evolution: Intelligent and Adaptive Automation
Robotic Process Automation (RPA) capabilities will witness enhancements in 2024. RPA will not only automate routine tasks and processes but will also integrate more seamlessly with AI, providing more intelligent and adaptive automation solutions. This evolution will contribute to increased efficiency and productivity in business operations.
- Voice and Conversational Interfaces: Transforming User Experiences
The popularity of voice-activated technologies and conversational interfaces will continue to grow in 2024. These technologies will find applications in customer service and various business operations, enhancing user experiences. Integrating voice assistants into diverse applications will further streamline interactions and improve overall usability.
The technological landscape in 2024 promises unprecedented advancements, challenging businesses to stay abreast of these trends for continued growth and innovation. Staying agile and embracing these technological shifts will be crucial for businesses looking to thrive in an ever-evolving digital era.
Documenting Fiduciary Accounting Practices
Fiduciary accounting, which is also referred to as court accounting, is a way to document and report financial activity during a discrete period of time for legal entities, such as a conservatorship, estate, trust or guardianship.
It’s meant to give adequate notice to all relevant parties when it comes to every consequential financial activity impacting the administration that occurred over the accounting time frame. It shows every disbursement and receipt that is managed by the legal entity’s fiduciary. It accounts for transactions beginning with the initial funding or principal, and the resulting future transactions, including income.
When it comes to the format of fiduciary accounting, along with the United States having its own unique modifications, the Uniform Principal and Income Act requires checking the governing instruments, in addition to state laws, to ensure fiduciary accounting compliance is met. However, looking at the National Standard Format, the following components in a filing are accepted by most courts:
- Documentation of incoming and outgoing monetary sums of the legal entity’s starting principal and income produced
- Documentation of the entity’s liabilities and assets
- Documentation of any payment the fiduciary received
- Legally authorized individuals hired by the fiduciary, what pay they received and their association with the fiduciary
The primary consideration is that being part of being a fiduciary is having a legal duty to the beneficiary of the legal entity, including “the duty to account” to the beneficiary. This duty to account is oftentimes required by the governing document, the state statute, a court order, linked to court proceedings or a beneficiary requesting an accounting. If this duty is breached, the fiduciary may be liable.
The accounting should ensure a reporting of every asset in the legal entity. During the first year, the beginning balance will list the assets that fund the account. For successive accountings, the starting balance and the ending asset values on the preceding accounting should be the same. Along with the assets in custody of the legal entity being documented, any asset that has been withdrawn, paid out or moved must also be documented. Income received from the entity’s investments is to be measured against the principal and income investment schedules to ensure that all income, dividends and interest have been received and reported correctly.
Reasons Why an Accounting is Done
Some of the more straightforward reasons a fiduciary accounting is done is to ensure the fiduciary is compliant. There’s also greater efficiency when doing this annually versus more infrequent intervals, since mistakes can be identified and corrected sooner. The same accounting results can also be used for the entity’s tax filings.
Other reasons concern the fiduciary and beneficiaries. The beneficiary can review and challenge the accounting if there’s impropriety suspected. When the fiduciary has completed their responsibilities for the beneficiaries and entity, liability for the fiduciary may cease to exist, even if the beneficiaries decline to execute a receipt, release and refunding agreement (or similar document). If an approved accounting is necessary to be submitted with a court, the above four documents may be considered an acceptable substitution in place of an accounting.
Regardless of the type of legal entity that requires this type of fiduciary accounting, a fiduciary that is diligent and works with an accounting and legal professional can reduce the chances of exposing themself and their supervising entities from unnecessary exposure.
Considerations For Paying Off a Mortgage Early
For many, buying a home is the biggest asset they will ever own. However, you aren’t able to fully benefit from that asset until you pay off the mortgage; until then it is technically a liability. The most common length of a mortgage loan is 30 years, but most people either sell their home, refinance their mortgage – or even pay it off before the end of that term.
What are the pros and cons of paying off a mortgage early? Obviously, you no longer have to make monthly payments, so money can be directed elsewhere. It is advisable to pay off your mortgage before you retire, when most people live on a lower, fixed income. By having the mortgage paid off, that money can be redirected to other household expenses and/or provide higher discretionary income.
It should be noted that paying off your mortgage doesn’t provide relief from other routine, high-ticket home expenses such as property taxes, homeowners’ insurance or regular maintenance. However, owning your home outright means it can’t be foreclosed on and taken from you. It also provides a large financial asset from which you can tap the equity or sell for a windfall.
While paying off your mortgage can provide security and peace of mind, you should consider all the factors before going down this path. For example, you may not have enough discretionary income to devote to making extra payments to your mortgage loan principal.
Usually in the first 10 to 20 years of homeownership, buyers are juggling a multitude of financial obligations – raising a family, building an emergency fund, saving for college, taking annual vacations and investing for retirement. That doesn’t always leave a lot of money left over for your mortgage.
There are, however, different strategies you can use to pay off a mortgage early:
- Pay an extra amount toward your principal along with your regular payment every month.
- Pay an extra amount each year, such as from a work bonus or other annual windfall.
- If you continue working after retirement age, you may want to allocate required minimum distributions (RMDs) from a retirement account toward your mortgage.
- Make large payments each year from an inherited IRA transferred from a deceased parent’s retirement account. Non-spouse heirs generally have 10 years to use up these funds. By withdrawing only a portion of the funds each year, the inherited IRA may continue to grow over the full 10-year period.
- Pay off fully or a significant portion of the mortgage using other inherited funds from a deceased parent.
Not only does paying off the mortgage early shorten the life of the loan, but it also can save you tens of thousands of dollars in interest payments.
For some people, paying off a mortgage early may not be their best strategy. After all, if they have locked in a low, fixed interest rate on the loan for the entire term, their excess income may be better deployed to an investment portfolio. Over a 15-, 20- or 30-year period, regular contributions to an investment portfolio can earn even more than the equity built up in a home.
If you’re locked into a high-interest rate mortgage, you may want to consider refinancing when rates are adjusted downward. This can help you allocate more money toward your principal. However, don’t be quick to refinance to a lower rate if you already have a low rate, as mortgages are structured to pay a higher percentage of interest on the front end of the loan. When possible, it’s best to refinance or pay extra principal in the early years of the loan rather than the later years – because refinancing could cause you to pay more interest in another front-loaded loan for another long term. Also be aware that some mortgages have an early payoff penalty, generally during the early years of a refinance, so check before you pay it off early.
Another consideration is that mortgage interest is tax deductible, which may be a key tax saver for those in a high tax bracket.
It’s a good idea to pay off any high-interest debt you may owe, such as credit cards, auto or student loans before paying down your mortgage early. These debts may be costing you more money than you can save paying off a low-interest mortgage. Once you’re debt free, you can redeploy those payments toward your mortgage principal.
The decision to pay off a mortgage early depends on your situation and your priorities. Specifically, if you still need to build an emergency reserve fund, catch up on retirement savings, or pay down high-interest debt, you might be better off allocating money elsewhere. By the same token, if the investment markets are enjoying an upward trend and you have a low-interest mortgage, you may want to just let your money “ride” in the market so you have more available later – perhaps then you can pay off your mortgage before you retire.
A Safeguarding Your IRS Payments: Defending Against Check Washing Fraud
In an era where financial scams are becoming increasingly sophisticated, protecting your IRS payments demands more awareness than it once did. Check washing fraud, a technique where thieves steal checks from the mail, erase crucial information, and manipulate the payee and amount, has seen a resurgence. Understanding exactly how this crime is committed is essential if you want to protect yourself and your loved ones. In this guide, we will also look at implementing preventive measures to secure your financial transactions.
What is Check Washing Fraud
Check washing is a multi-step process criminals use to steal money from unsuspecting victims. The scheme unfolds as follows:
- Mail Theft: Criminals target checks in the mail, either from mailboxes or USPS collection boxes. This can involve individuals acting alone or as part of organized crime rings.
- Chemical Alteration: Stolen checks undergo a chemical washing process that erases the payee information and amount, leaving the signature and paper intact. Alternatively, criminals may attempt to scratch off existing details.
- Forgery: Once the check has been prepared, criminals then inscribe new information on the blank check, changing the name and amount at will.
- Deposit and Withdrawal: The manipulated check is deposited into a bank account, either through traditional means or using mobile deposit services. Subsequently, the criminals swiftly withdraw the funds.
This process may involve different “actors” from the crime ring specializing in distinct roles, such as stealing, washing, or cashing checks, contributing to the scheme’s complexity.
Mitigating Risks: Protective Measures
To shield yourself from becoming a victim of check washing fraud, consider implementing the following safeguards:
- Embrace Electronic Transactions: Shift towards electronic bill pay, transfers, and peer-to-peer payment apps, minimizing reliance on physical checks.
- Opt for Secure Writing Practices: Use black gel pens, known for ink that is challenging to wash off. Brands like Uni-Ball pens with Super Ink claim added protection against fraud.
- Mail Safely: If mailing checks is unavoidable, drop them off at the post office to minimize theft risks. Avoid using USPS collection boxes, especially in less-traveled areas.
- Mailbox Vigilance: Regularly retrieve mail from your mailbox, and sign up for Informed Delivery from USPS to monitor expected mail.
- Travel Considerations: When traveling, request a USPS mail hold to safeguard your mail from potential theft during your absence.
- Financial Oversight: Frequently review your checking account for unusual or unexpected withdrawals, promptly identifying any signs of unauthorized activity. If you see a suspicious transaction, contact your bank or credit union immediately for assistance.
Responding to Fraud: Taking Swift Action
If you suspect check theft or notice forged checks, take immediate action:
- Contact Your Bank: As noted, report any incidents to your bank immediately, enabling them to take preventive measures such as putting a hold on the check.
- File a Police Report: In case of deposited forged checks, file a police report and work closely with your bank. Reimbursement policies may vary, and investigations could extend over months.
- Regulatory Intervention: If disputes persist, reach out to the bank’s regulator for assistance. Utilize resources like HelpWithMyBank.gov for national banks and relevant links for credit unions and state-chartered banks.
- Report the crime to the USPS.
Dealing with IRS Tax Obligations
Our office is here to help you navigate the outcome of financial fraud and the IRS. Below are some issues we need to resolve as we prepare to take action.
- Assessing the Damage:
- Examine your IRS payment obligations to determine the impact of the lost funds.
- Identify the specific taxes owed and any associated penalties or interest.
- Contacting the IRS:
- We will reach out to the IRS immediately to report the situation.
- Explain the circumstances surrounding the lost funds and inquire about potential relief options on your behalf.
- Penalty Relief Programs:
- In cases of financial hardship due to fraud, the IRS may offer penalty relief programs.
- We will explore available options such as the First-Time Penalty Abatement or the Reasonable Cause Assistant.
- Establishing a Payment Plan:
- We will work with the IRS to establish a viable payment plan based on your current financial situation.
- Discuss installment agreements or other arrangements to fulfill your tax obligations over time.
Beyond Check Washing: Monitoring Identity Theft
Recognizing that check thieves may exploit personal information, remain vigilant against identity theft:
- Credit Monitoring: Regularly check your credit or use monitoring services with free alerts to swiftly detect any attempts to open credit accounts using your information.
- Identity Theft Protection: Explore identity theft protection services offering financial and logistical assistance in case of identity restoration needs.
By staying informed and implementing these measures, you strengthen your defenses against check washing fraud and other financial threats, ensuring the security of your IRS payments. Don’t let sophisticated scams compromise your financial well-being—take charge of your financial security today.
Breaking: IRS Restarts Collection Notices But Adds Penalty Relief
In a significant development to assist individuals, businesses, and tax-exempt organizations grappling with back taxes, the Internal Revenue Service (IRS) has introduced new penalty relief for approximately 4.7 million entities that did not receive automated collection reminder notices during the pandemic.
The IRS is allocating around $1 billion in penalty relief, primarily benefiting those with annual incomes below $400,000. The temporary suspension of automated reminders during the pandemic led to the accrual of failure-to-pay penalties for taxpayers who didn’t fully settle their bills after the initial notice.
The IRS proactively addresses this before resuming regular collection notices for tax years 2020 and 2021. It plans to issue unique reminder letters next month, alerting taxpayers of their liabilities, providing convenient payment options, and specifying the amount of penalty relief, if applicable.
For those unable to pay their full balance, the IRS encourages them to visit IRS.gov/payments to make arrangements. Additionally, the IRS is waiving failure-to-pay penalties for eligible taxpayers affected by this situation for tax years 2020 and 2021, which are estimated to cover 5 million tax returns and save taxpayers $1 billion.
The penalty relief is automatic, requiring no action from eligible taxpayers. The IRS has adjusted individual accounts first, followed by business accounts and, subsequently, trusts, estates, and tax-exempt organizations. Notice 2024-7PDF outlines how the agency is providing relief and addressing COVID-19-related challenges.
Commissioner Danny Werfel emphasized the IRS’s commitment to looking out for taxpayers, especially those who haven’t received notices for an extended period. This penalty relief is a common-sense approach to supporting individuals facing unexpectedly more significant tax bills.
Eligible taxpayers are automatically entitled to this relief, including individuals, businesses, trusts, estates, and tax-exempt organizations with assessed tax under $100,000 for tax years 2020 or 2021. If a taxpayer has already paid failure-to-pay penalties related to these tax years, the IRS will issue a refund or credit the payment toward another outstanding tax liability.
It’s crucial for affected taxpayers to understand this relief’s eligibility criteria and automatic nature. The penalty relief only applies to those with assessed tax under $100,000, and it will resume on April 1, 2024 for eligible taxpayers who don’t take advantage of this relief. If you find yourself in this situation, seeking professional help can be invaluable in navigating these changes, avoiding pitfalls, and ensuring compliance with federal tax obligations.
Our team of tax experts is ready to assist you – contact our office today for guidance tailored to your specific circumstances.
Home IRS Expands Requirements to E-File Information Returns Starting in 2024
Businesses, whether operating as a corporation, partnership, or a sole proprietorship, have been required to electronically file information returns when the aggregate number of these returns, regardless of the type of return, for a tax year was more than 250. The IRS issued regulations in February 2023 lowering the threshold to 10 or more returns, effective with the returns filed on or after January 1, 2024. For the most part, this means the electronic filing mandate will apply to 2023 information returns.
Some small businesses that previously filed paper information returns, because the number of information returns they had to issue was below the 250 threshold, will now find that they will need to file the forms electronically. Under the prior rules, the threshold number of returns for required e-filing applied separately to each type of return, while under the new regulations, all types of information returns are combined when totaling up the number of returns required to be filed.
Affected employers may need significant lead time to implement new software, policies, and procedures to comply with the new rules. Thus, even though electronic filing is not required until 2024 for the 2023 tax year, employers should evaluate what changes may be needed. Simply doing the “same as last year” will not work for many employers.
Why the e-filing mandate? The IRS believes that the electronic filing mandate is necessary due to the sheer volume – some four billion information returns – they receive each year. Although about 99% of all information returns in 2019 were e-filed, that still left nearly 40 million paper information returns for the IRS to handle. And as became all too apparent during the COVID-19 crisis, paper filings bog down the IRS’s ability to efficiently process returns. In instituting the lower threshold, the IRS also noted that electronic filing has become more common, accessible, and economical, as evidenced by the prevalence of return preparers and service providers who offer electronic-filing services; by the availability of relevant software; and by the numbers of returns already being filed electronically on a voluntary basis.
What is an Information Return? So, you might wonder what an information return is. You are probably familiar with Form W-2 that reports annual wages of an employee, Form 1099-NEC for nonemployee compensation paid to an independent contractor, Form 1099-INT that gives the year’s interest income paid by a bank or other financial institution, and Form 1098 that is issued by a lender and reports the home mortgage interest a taxpayer paid during the year. These are all information returns, but there are significantly more types of information returns. Following are the information returns affected by the new e-file mandate:
- Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding;
- Forms in the 1094 series;
- Form 1095-B, Health Coverage;
- Form 1095-C, Employer-Provided Health Insurance Offer and Coverage;
- Form 1097-BTC, Bond Tax Credit;
- Form 1098, Mortgage Interest Statement;
- Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes;
- Form 1098-E, Student Loan Interest Statement;
- Form 1098-Q, Qualifying Longevity Annuity Contract Information;
- Form 1098-T, Tuition Statement;
- Forms in the 1099 series, such as those noted above (including Form 1099-QA, Distributions from ABLE Accounts);
- Form 3921, Exercise of an Incentive Stock Option Under Section 422(b);
- Form 3922, Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c);
- Forms in the 5498 series (but not Form 5498-QA, ABLE Account Contribution Information, which must be filed on paper);
- Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips;
- Form W-2, Wage and Tax Statement, and the similar wage and tax statements for the U.S. possessions; and
- Form W-2G, Certain Gambling Winnings
Other filings affected by the e-file mandate – The regulations also require e-filing of certain returns and other documents not previously required to be e-filed. Returns affected by the electronic filing mandate, and not listed above, include partnership returns, corporate income tax returns, unrelated business income tax returns, registration statements, disclosure statements, notifications, actuarial reports, and certain excise tax returns, among others. However, the ten-return threshold does not make electronic filing mandatory for employment tax returns, such as Forms 940 and 941.
A partnership with more than 100 partners must file its information returns electronically regardless of the number of information returns the partnership must file during the calendar year.
If your trade or business receives more than $10,000 in cash in one transaction (or two or more related transactions), you must file Form 8300, “Report for Receipt of Over $10,000 in Cash” within 15 days of receiving the income. This is not a new requirement. But for Forms 8300 required to be filed after December 31, 2023, Form 8300 must be filed electronically if the business is required to electronically file at least 10 information returns and/or wage and tax statements during the calendar year.
Example – During calendar year 2024, XYZ Company is required to file the following forms for tax year 2023: 4 Forms 1099-NEC (non-employee compensation), 4 Forms 1099-DIV (dividends), and 2 Forms W-2 (employee wages), for a total of 10 returns. Because XYZ is required to file 10 information returns during calendar year 2024 for tax year 2023 reporting, the company must electronically file all of its tax year 2023 Forms 1099-NEC and 1099-DIV with the IRS, and electronically file its tax year 2023 Forms W-2 with the Social Security Administration. Thus, if the business meets the 10-return threshold for 2023 information returns that must be e-filed in 2024, then any 8300 filed during 2024 must also be e-filed.
Corrected information returns – If an error was made on an information return that was required to be filed electronically, the corrected information return required to be filed during calendar years beginning after December 31, 2023 also must be filed electronically. However, if an original information return was allowed to be, and was, filed on paper, any corresponding corrected information return must be filed on paper.
Penalties – Penalties under IRC Section 6721 may apply for non-electronic filing of information returns (e.g., Forms W-2, 1099-series, etc.) when electronic filing is required. Such penalties may also apply for non-filing, late filing or incorrect information. The potential penalty in 2024 is up to $310 per information return, up to an annual maximum of $3,783,000. For businesses with annual gross receipts of less than $5 million, the maximum is $1,261,000. Penalty amounts are indexed and change annually.
Waivers – A business may file a request for a waiver from having to electronically file information returns due to undue hardship. For more information businesses can refer to Form 8508, Application for a Waiver from Electronic Filing of Information Returns
IRS portal – To facilitate compliance, the IRS has an online portal to help businesses file Form 1099 series information returns electronically. Known as the Information Returns Intake System (IRIS), this free electronic-filing service is secure, accurate and requires no special software. Though available to any business of any size, IRIS may be especially helpful to small businesses that currently file Forms 1099 on paper to the IRS.
Even if filers are not required to file electronically under the new rules, they may want to consider doing so, as electronic filing has become more common, accessible, and economical. Electronic filing may reduce administrative efforts compared to paper filing, can increase accuracy, and improve record retention.
The new mandatory electronic filing rules are complicated and penalty exposure may be significant. If you have questions about the new e-file mandate for information returns or would like assistance in meeting your obligation to e-file information returns for your business, please contact this office.
Wage Garnishment Considerations for Business Owners
According to the United States Department of Labor’s Consumer Credit Protection Act (CCPA), wage garnishments are a complex legal process for employers to account for when it comes to employment matters. This article specifically refers to Title III of the Consumer Credit Protection Act.
Usually authorized through a court order, a wage garnishment directs an employer to withhold or garnish an employee’s wages for a certain amount or percentage to satisfy an outstanding debt. Wage garnishments also can be implemented for delinquent tax obligations and other debts owed to federal agencies of the U.S. federal government, as well as for state-level tax collectors.
Another consideration for Title III is that for a single debt, employees may not be fired; but if an employee’s earnings are garnished for two or more distinct debts, an employer has the discretion to involuntarily separate an employee from its business. This law also permits varying amounts and percentages of an employee’s “disposable earnings” that may be withheld.
The first step is determining how earnings are defined in the course of deciding the final wage garnishment calculation. Examples include but are not limited to retirement and pension payments to the employee, hourly wages, yearly salaries, commissions, bonuses, along with profit sharing, etc.
When it comes to lump-sum payments, the CCPA requires counting earnings that are for personal services, but not including non-personal service-related lump-sum payment compensation as the first step when calculating the final wage garnishment.
Defining Disposable Earnings
The final amount able to be garnished is determined by the employee’s disposable earnings. This is defined as the earnings remaining once legally mandated deductions are factored into an employee’s earnings. Example deductions include local, federal and state taxes, along with withholdings for unemployment, Medicare and Social Security taxes. Voluntary deductions, such as health premiums, voluntary retirement plan contributions, etc., are not factored into the disposable earnings calculation.
When it comes to regular garnishment guidelines, which include non-support, bankruptcy or tax-based requests, for both state and federal taxes, the maximum weekly amount is the smaller amount of either one-fourth of the worker’s disposable earnings or how much the worker’s disposable earnings exceed 30 times the U.S. minimum wage of $7.25 per hour x 30 hours = $217.50 (as of June 2023).
Looking at a weekly view, if disposable earnings are $217.50 or less, no garnishment can occur. If disposable earnings between $217.50 and up to $290 are considered, only $72.50 may be garnished, depending on how much the outstanding debt is in total. If the worker’s disposable earnings exceed $290 for a weekly pay period, up to one-fourth of the pay period’s disposable earnings can be considered to be garnished. It’s important to note that some bankruptcy court orders, state/federal tax debts and court orders for child support and/or alimony are not necessarily subject to the garnishment ceilings discussed above.
While this information is not comprehensive for employers, it’s important to understand all the federal, state and local regulations to ensure compliance is achieved to reduce the chances for adherence complications.
Impact of Digital Currency on Businesses’ Accounting
The emergence of digital currency is reshaping how businesses operate and account for financial transactions. As accounting professionals navigate this transformative wave, understanding the profound impact of digital currency on business accounting becomes not just relevant but imperative.
What is digital currency?
Digital currency is a form of currency that exists only in electronic or digital form, without a physical counterpart like coins or banknotes. There are two main types of digital currencies. First, there are decentralized cryptocurrencies such as Bitcoin or stablecoins such as USDC (that track to the US dollar at 1-1). Cryptocurrencies are always based on blockchain technology. The other main type and more likely to serve as a substitute for traditional government issued currencies are digital currencies such as central bank digital currencies (CBDCs). Unlike crypto-currencies, CBDCs are centralized and issued by issuing authority and also are not necessarily based on a blockchain or immutable ledger systems.
Immutable ledger systems ensure transparency, traceability and security in financial transactions. Technology also has given rise to decentralized finance, or DeFi, designed to offer access to financial services without the need for institutions such as banks. This translates into a paradigm shift for accounting professionals, as digital currency and crypto currency is continually adopted to make payments, investments and as a reservoir of value.
The Impact of Digital Currency on Business Accounting
- Enhance Financial Reporting – Digital currencies facilitate real-time transactions, eliminating the lag time associated with traditional banking processes. This newfound speed provides accounting professionals with instant access to financial data, enabling quicker and more accurate financial reporting. Businesses can now assess their financial health daily, leading to more informed decision-making.
- Smart Contracts Streamline Auditing Processes – Smart contracts, self-executing contracts with the terms of the agreement written directly into code, bring automation to the auditing process. This reduces the risk of human error and accelerates auditing procedures. Accounting professionals can leverage smart contracts to automate routine tasks, allowing them to focus on higher-value analytical work.
- Cross-Border Transactions Simplify Global Accounting – Accounting for international transactions has historically been intricate due to varying currencies and exchange rates. With digital currencies, businesses can streamline these processes, reduce the complexities associated with global accounting, and provide accounting professionals with standardized data for analysis.
- Enhanced Financial Inclusion Accounting for a Broader Audience – Digital currencies can enhance financial inclusion by providing access to financial services for unbanked or underbanked individuals. Accounting professionals will need to consider the unique accounting challenges associated with this expanded user base, such as diverse transaction volumes and varying levels of financial literacy.
Challenges of Digital Currencies
Accounting professionals face both challenges and opportunities as businesses increasingly adopt digital currencies for transactions. Accounting standards may need to evolve to accommodate the unique characteristics of digital currencies.
The integration of digital currencies with traditional accounting systems is another critical consideration. Businesses will likely operate in a hybrid financial environment for the foreseeable future, necessitating seamless integration between digital and conventional accounting systems. Accounting professionals must adapt to this coexistence, ensuring data accuracy and integrity across platforms.
The volatile nature of digital currencies poses both risks and opportunities for businesses. While the potential for significant gains exists, so does the risk of value fluctuations. Accounting professionals play a pivotal role in developing robust risk management strategies, ensuring businesses can thrive in the evolving landscape of digital currency without exposing themselves to undue financial risks.
The regulatory environment surrounding digital currencies is still evolving. Accounting professionals must stay abreast of changing regulations to ensure businesses remain compliant. This adaptability is crucial as governments define and regulate digital currencies worldwide. For instance, the lack of a precise classification of digital currencies poses difficulties in determining their financial treatment. The absence of standardized guidelines complicates valuation, reporting and compliance, requiring accountants to navigate a complex landscape where traditional classifications may not fully capture the distinctions of these evolving assets. Therefore, a proactive approach to compliance will be integral to the long-term success of businesses in this space.
As digital currencies evolve, accounting professionals must commit to continuous learning. Staying ahead of technological advancements, regulatory changes and industry best practices is paramount. Professional development in areas such as blockchain technology, cryptocurrency taxation and digital auditing will be essential for accounting professionals aiming to thrive in the digital era.
The impact of digital currency on business accounting is transformative and far-reaching. Accounting professionals are at the forefront of this paradigm shift, navigating the challenges and harnessing the opportunities presented by the digital revolution. Embracing innovation, adapting to changing regulations and continuously honing skills will ensure businesses survive and thrive in this dynamic era of digital currency.
The 2023 Tax Planning Guide
It’s that time of year again: time for year-end tax planning. With the end of 2023 coming fast, the time to act is now. In this article, we’ll look at the moves you can make to optimize your tax situation in 2023 as an individual taxpayer.
Flexing your timing on itemized deductions is a solid strategic move. It can help you shift to a bigger itemized deduction in 2023 versus 2024 (but not both). This can be advantageous if you expect to be in a higher tax bracket in one year compared to the other. Key itemized deductions to consider are home interest, state and local taxes, charitable deductions and medical expenses.
If you are in the market for a new car, consider buying an electric vehicle (EV) to save some taxes as well. Many new EVs can get you a credit of up to $7,500 and used versions up to $4,000. The credit is limited based on the cost of the vehicle, with more expensive model’s ineligible for the tax credit. Generally, the MSRP of a sedan cannot exceed $55,000, and SUVs, trucks and vans cannot be more than $80,000.
In addition to the price limit on the EV itself, the credit is limited by taxpayers’ income levels. Married couples modified gross income cannot be more than $300,000 to get the credit on a new EV and $225,000 for a used version. Single taxpayers are capped at $150,000 for a new version or $75,000 for a used EV.
One important distinction here is that if you buy an EV in 2023, you’ll need to claim the credit via your tax return, which means you won’t get the benefit right away. In 2024, however, you can choose to transfer the credit to the car dealer when you buy the vehicle and pay less as a result immediately. So, if you plan to buy it now or in early 2024, it may be better to wait if you have the choice.
There are two tax credits you can get related to making “green” upgrades to your home. The first is the residential clean energy property credit, which is installing alternative energy systems such as solar, wind, geothermal, etc., giving you a credit of up to 30 percent of the materials and cost of installation. The second is the energy-efficient home improvement credit. This applies to smaller upgrades like boilers, central air-conditioning systems, water heaters, windows, etc., that meet qualifications for specific energy efficiency ratings. The credit is for 30 percent of the cost, with $1,200 yearly maximum (from all upgrades).
If you are considering making charitable donations, consider donating appreciated property, like stocks or mutual funds, where you have unrealized gains. This way, you’ll get to deduct the full amount of the fair market value without having to sell and pay taxes on the gains first.
Beware Required Minimum Distribution (RMD) Rules for IRAs
The penalty for failing to take your RMD dropped from 50 percent down to 25 percent with the Secure 2.0 Act in 2023, but it is wise to avoid the still hefty penalty. The general rule is that taxpayers 73 and older must take annual payouts, and there is a specific calculation behind it based on your age and account balance. You can also be subject to RMDs at a much younger age if you inherited an IRA. If you don’t feel comfortable making this determination, it’s best to check with your CPA or financial advisor to ensure you withdraw the right amount.
Max Out Retirement Plans
The deadline to fund workplace 401(k) plans is December 31, 2023, while 2023-year IRA contributions are allowed up until April 15, 2024. Taxpayers can contribute up to $22,500 in a 401(k) ($30,000 if age 50 or older); and $6,500 for IRAs ($7,500 if over 50).
Capital Gains and Tax Loss Harvesting
The capital markets have seen a volatile year, and interest rates have been at highs not seen in quite some time. This may create situations where tax loss harvesting is advantageous.
Generally, if you have losses in some securities, understand that you can take losses against positions with gains up to the number of gains you realize, plus a maximum of $3,000 against other income. Excess losses are carried forward to future years. So, if you have a combination of winners and losers in your portfolio, consider tax loss harvesting to lower your tax bill.
Beware of the wash-sale rules, however. The wash-sale rules forbid you to sell and then repurchase “substantially identical” securities within 30 days of the sale on loss positions. One nuance here is that cryptocurrencies are not subject to the wash-sale rule as of yet.
Increase Your Withholdings
If you expect to have a hefty tax bill, then it may be wise to have additional amounts withheld from your paycheck or make an estimated payment. This can help you avoid a penalty for underpayment of taxes. As long as you prepay via tax payments or withhold a minimum of 90 percent of your 2023 total tax bill or 100 percent of what you owed for 2022 (110 percent if your 2022 AGI exceeded $150,000), you are clear of the penalty.
As we prepare to enter the final month of 2023, now is the time to take a look at your financial and tax situation to see if there are any moves you can make to minimize your 2023 tax liabilities and maximize your wealth.