The ups and downs that are shaping the tax landscape
By: Arnold Lessman and Bethany Banks
Businesses can expect shrinking tax deductions reflecting a phaseout of many “federal pandemic-related advantages given to taxpayers,” BRC Principal Arnie Lessman, CPA, told a packed house at the BRC 2023 CPE Symposium on Nov. 9. He and Bethany Banks, CPA and BRC Manager, touched on the highlights of tax changes in their “2024 Forecast, A Look at the Current Tax Landscape.”
The deduction for qualified meals purchased from a restaurant in 2023 returned to 50%. The bonus depreciation rate, which allows businesses to immediately deduct part of the purchase price of eligible assets, continues to phase down (100% in 2022, shrinking to 80% in 2023, 60% in 2024, and set to phase out by 2027).
On the bright side, qualifying as a small business will be easier (average gross receipts in 2023 of $29M or less; $30M in 2024). The Corporate Transparency Act, effective Jan. 1, 2024, will require most companies to file identifying information about beneficial ownership. Failure to file and timely update information carries civil and criminal penalties. For similar reasons, Bethany said, take a “proactive approach to avoid international reporting pitfalls and penalties, if you’re considering foreign investment or ownership.”
The trend line is up for individual tax deductions. For all workers, retirement contribution limits (401K and IRA) and catch-up totals for taxpayers ages 50 and older are higher in 2023. The income limit for contributions to a Roth IRA increased as well. Annual gift exclusion and estate limits for 2023 and 2024 also bumped up.
Expect to see a lot more 1099-Ks coming, said Arnie. Gross payments of $600 and any number of transactions will trigger taxpayers to receive a Form 1099-K in 2023 (previous trigger: $20K and 200 transactions). This will have a significant impact on individuals who may receive tax forms for personal transactions.
The SECURE 2.0 Act of 2022 is “packed” with change, Bethany said, primarily aimed at shoring up retirement savings. Highlights include automatic 401(k) enrollment (Employees can opt out, and very small businesses are exempt.) The change is effective for plan years beginning after 2024. Employers can contribute to qualified plans to match employee qualified student loan payments. “This allows employees who are paying down debt to receive the employer match,” Bethany explained. There’s also an increased credit for startup costs for eligible small businesses that want to offer a retirement savings plan.
The Inflation Reduction Act of 2022, which more accurately could be called clean energy incentives, sets new credits for individuals and qualified businesses that purchase new and used “clean vehicles” or install charging stations. It also increases the credit for energy efficient home improvements. The prior lifetime credit of $500 is replaced by a maximum of $1,200 annually starting in 2023 to 2032.
Tax rates in North Carolina are dipping for both individuals and businesses, and corporate rates will be phased out by 2030.
The legislative horizon looks “not ideal” for taxpayers, said Bethany. “Federal revenue proposals indicate an interest in” a potential hike in the corporate tax rate (to 28% from 21%), a 25% minimum tax for net worth over $100M, and a change to the generation-skipping transfer tax that would limit the transfer to two generations. Furthermore, Bethany said, the anticipated sunset of provisions of the Tax Cuts and Jobs Act (enacted 2017) means we may see changes in standard deductions, QBI, and lifetime gift and estate tax exemptions.
The information contained in this article is for informative purposes only and should not be relied on when making any business, legal, or other decisions. This information may be updated without notice and/or may not contain the most current information that is available related to this topic. Please consult with your advisor to determine how this information applies to your specific facts and circumstances.