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Work Opportunity Tax Credit
Employers hiring individuals facing employment barriers, such as ex-felons, qualified veterans, or residents of designated zones, can benefit from this credit. It offers up to 40% of the first $6,000 in wages (maximum $2,400 credit) per eligible worker in their first year. For some veteran hires, the credit is higher. Employers must prescreen candidates using Form 8850 and submit it to the state workforce agency within 28 days of hire to confirm eligibility. The credit amount is calculated using Form 5884.
Key Updates on EV Credits
EV Tax Credit Changes in 2024: Starting in 2024, eligible EV buyers can transfer up-to-$7,500 credit to dealers at purchase, immediately reducing the car's cost. Dealers must register through the new IRS Energy Credits Online tool for this benefit.
Maximizing Benefits with Roth IRAs
Roth IRAs are excellent tools for retirement savings, offering tax-free growth and withdrawals. While contributions are not tax-deductible, the flexibility of tax-free earnings after 59½ and penalty-free access to contributions at any age stands out. It's crucial, however, to understand the Roth IRA's five-year rules, which dictate the tax-free status of earnings and the penalties on early distributions. A clear grasp of these rules can significantly enhance the effectiveness of your Roth IRA strategy.
Expanded Retirement Options for Long-Term Part-Timers
Starting in 2024, 401(k) plans must include part-time employees who work at least 500 hours per year for three consecutive years. This expands in 2025, allowing part-timers with two consecutive years of at least 500 hours to participate, and extends to 403(b) plans.
IRS Guidance on Syndicated Conservation Easement Donations
The IRS has issued guidance for pass-through entities regarding deductions on conservation easement donations. Under a 2022 law, deductions for such contributions by S corporations, partnerships, LLCs, and similar entities are disallowed if they exceed 2.5 times the owner's investment in the entity.
Extended Tax Deduction for Teachers and Proposed Education Tax Credits
Teachers have an extended opportunity to claim a tax deduction in 2023. They can deduct up to $300 for unreimbursed expenses without itemizing; the limit is $600 for jointly filing spouses who are both teachers.
States Revise Internet Sales Tax Laws
Following the 2018 Supreme Court decision endorsing South Dakota's law on sales tax collection from out-of-state sellers, all states with sales taxes have adopted similar laws, significantly boosting revenue. Small online sellers are typically exempt, but states vary in setting dollar or transaction thresholds for exemption. Increasingly, states like California, Colorado, Iowa, Maine, Massachusetts, North Dakota, South Dakota, Washington, and Wisconsin are adopting a dollar threshold only, moving away from minimum-transaction thresholds. However, 23 states and D.C. still use both criteria. Notably, Delaware, Montana, New Hampshire, and Oregon have no state or local sales taxes, while Alaska has local but no state sales tax.
IRS to Expand Audits on High-Wealth Individuals
The IRS aims to intensify comprehensive audits of the super-rich through its Global High Wealth (GHW) group within the Large Business and International Division. Targeting individuals with tens of millions in income or wealth, these in-depth audits review not only personal tax forms but also related entities and trusts.
IRS Online Accounts for Small Businesses
The IRS has introduced online accounts for small businesses, currently limited to sole proprietors with an EIN filing business returns under that EIN. However, the online service offers limited functionalities at this stage.
IRS Ruling Tax-Exempt Status Applications
Tracking Tax-Exempt Status Applications: Organizations applying for tax-exempt status can check the progress of their Form 1023 or 1023-EZ applications on the IRS website. With nearly 100,000 applications annually, the IRS offers the “Where’s My Application for Tax-Exempt Status” tool, providing guidelines and estimated review dates based on the latest postmarked applications being processed.
Tax Update: IRS Enforcement of Obamacare Reporting Requirements
The IRS is actively penalizing employers who fail to meet the Affordable Care Act's reporting requirements. Companies with 50 or more full-time employees must annually file Forms 1095-C and 1094-C, detailing health insurance data for each full-time worker. Late or incorrect filings are attracting penalties, although those who filed on time but erred may have fines waived if they show good-faith compliance efforts. For 2024, penalties can reach up to $310 per employee, with potential increases to $630 or more for intentional non-compliance.
- IRS Faces 1099-K Influx and Funding Debate
- 1099-K Form Surge: The IRS is set to receive a vast increase in 1099-K forms in 2024 due to lowered reporting thresholds from $20,000 to $600. This change could result in approximately 44 million filings, raising concerns about the IRS's capacity for handling and data enforcement. Congress is considering raising the threshold back to $10,000.
- Controversy Over IRS Funding: Proposals to cut IRS funding, including a significant reduction to finance aid for Israel, are facing opposition and potential veto. Reduced funding for the IRS could lead to a substantial decrease in federal revenue, with estimates suggesting a loss of nearly $27 billion.
- Extended Deadline for R&D Credit Refund Claims
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The IRS has granted businesses additional time to perfect their Research and Development (R&D) credit refund claims. The original grace period, ending January 10, 2024, has been extended to January 10, 2025.
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During this extended period, businesses that have filed incomplete R&D credit refund claims will receive notifications from the IRS. They will then have 45 days to provide the missing information.
- Reinstating the full R&D tax break is uncertain. Businesses now must amortize R&D costs over five years (or 15 years for overseas research), a change from the full expense previously allowed. A Congressional agreement appears unlikely due to differing priorities.
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