The following tax news and updates are provided as a courtesy of Ball & Minor CPA, PA.
Beneficial Ownership Information Reporting
The Financial Crimes Enforcement Network created a beneficial ownership information reporting requirement whereby most US entities must report to FinCEN information on their beneficial owners starting on January 1, 2024. New entities registered or created post December 31, 2023 will be required to file within 30 days of registration/creation. Existing entities must file by January 1, 2025. There are hefty penalties associated with noncompliance with the statute.
NC Deduction for Expenses Qualifying for PPP Loan Forgiveness
The 2020 General Assembly enacted legislation that previously required taxpayers to addback the amount of expense deducted under the Code to the extent the expenses were paid with forgiven PPP loan proceeds. The 2021 General Assembly retroactively amended this legislation. As amended, the taxpayer is not required to add to federal income the amount of otherwise deductible expenses paid with forgiven PPP loan proceeds until tax years beginning on or after January 1, 2023. The NC Department of Revenue has made it clear that they will not automatically adjust returns. A 2020 NC amended return will have to be filed to claim the potential refund.
Expanded Employee Retention Credit
The Consolidated Appropriations Act extended the Employee Retention credit through June 30, 2021. It was later extended through September 30, 2021 by the American Rescue Plan Act of 2021. For 2021, the credit has increased to 70% of up to $10,000 of qualifying wages per employee per quarter. Contact our office for further information related to the credit.
The IRS issued a renewed warning March 7, 2023 for taxpayers to carefully review the Employee Retention Credit guidelines before claiming the credit. The news release advised taxpayers to refrain from engaging with firms that are aggressively promoting ERC schemes.
The IRS has placed a moratorium on processing of new ERC claims through the end of 2023 to allow time to add more safeguards to prevent future abuse and protect businesses from predatory tactics.
NC Information Return Penalties and Electronic Filing Requirements
Taxpayers failing to file certain informational returns with the Secretary by the date the returns are due are subject to a penalty of $50 per day, up to a maximum of $1,000. In addition, a $200 penalty for failure to file informational returns in the format prescribed by the Secretary will also be implemented. Unless, an employer goes out of business, Form NC-3 must be filed annually on or before January 31 and must be filed in an electronic format using the Department’s eNC3 Application. NC requires the state copy of the W-2 to be filed electronically. NC also requires 1099-MISC and 1099-NEC forms to be filed electronically if North Carolina income withholding is reported.
2018 Tax Law Changes
Qualified Business Income Deduction
The Tax Cuts and Jobs Act introduced the Qualified Business Income Deduction for tax years beginning after December 31, 2017. The deduction allows eligible individuals, trusts, and estates to deduct 20% of their qualified business income, 20% of qualified real estate investment trust dividends, and 20% qualified publicly traded partnership income. This is welcome news for many small business owners. The regulations associated with this deduction are complex. Please feel free to call our office to discuss.
Unreimbursed Employee Expenses
Under law prior to 2018, various employee business expenses, e.g., employee home office expenses, unreimbursed business mileage and other unreimbursed expenses, are deductible as itemized deductions if those expenses plus certain other expenses exceed 2% of adjusted gross income. The new law suspends the deduction for employee business expenses paid after 2017. Now would be a good time to talk to your employer about changing your compensation arrangement. For example, if your employer would reimburse you for the expenses that you previously paid personally, even if the employer reduced your wage by an amount approximately equal to the reimbursement amount, both you and the employer would wind up in a better position since, in most cases, such reimbursements would not be subject to tax.
No Deduction for Entertainment
Under the new tax law, for amounts paid or incurred after Dec. 31, 2017, no deductions are allowed with respect to an activity generally considered to be entertainment, amusement, or recreation. The IRS clarified in Notice 2018-76 50% of business meals continue to be deductible if certain requirements are met. To qualify the meal expense must be ordinary and necessary, provided to a current or potential business customer or contact, not lavish or extravagant, and either the taxpayer or employee of the taxpayer must be present at the meal. For meals purchased at an entertainment event, the meals can generally still be deducted if paid for separately or broken out separately from the entertainment cost on the invoice. Employers should still be able to deduct meals consumed by employees while traveling away from home assuming substantiation requirements are met.
Employers Required to Furnish Employees DOL Model Notice
The Department of Labor (DOL) is requiring employers to provide a notice to employees regarding certain health care options available under the Affordable Care Act. These notices are required to be furnished to newly hired employees within 2 weeks of an employee’s start date. The notice must be provided in writing in a manner calculated to be understood by the average employee. The model notices can be accessed at the DOL website: https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/coverage-options-notice . Feel free to contact our office with any questions.
NC Requiring Use of E-Verify System for Certain Employers
E-Verify is an internet based program that compares information from a job applicant’s I-9 form to United States government records to determine if the applicant is eligible to work in the United States legally. There are no costs or fees associated with using the E-Verify program; it is free of charge. This legislation requires some private employers to utilize the federally created E-Verify system to verify the legal employment status of all new hires.
Employers with 25 or more employees will be required to verify the legal employment status of all new hires by using the E-Verify system.
Private employers with 24 or fewer employees are exempt from the regulation completely and will not be required to use E-Verify. The legislation also provides an exemption for temporary, seasonal employees, meaning that the E-Verify system does not have to be used by employers of any size when employing someone for fewer than 90 days over a consecutive twelve month period. Feel free to contact our office with any questions or for help registering with the E-Verify system.
Stop Tax Identity Theft in Its Tracks
Imagine after sending in your annual tax return, you receive a notice from the Internal Revenue Service saying that another return has already been filed using your name and Social Security number—and claiming a refund. Sound impossible? It can happen if you become one of a growing number of victims of tax return identity theft. According to one estimate, tax-related identity theft cases have soared more than 650% since 2008. At the least, this crime can lead to a delay in your refund, but the consequences may be much more serious. In addition, you may face a larger problem with identify theft if the scammer is also running up credit card debt or taking out loans in your name.
To avoid becoming a victim, we recommend steps such as safeguarding your Social Security number and other financial information, keeping an eye on changes to your credit ratings and taking precautions with electronic transfers of confidential information. Be sure to contact us if you believe you have been a victim of identity theft or would like advice on the best ways to secure your financial information.
NC Withholding Required for Contractor’s with ITINs
Businesses, organizations, or individuals in NC that pay more than $1,500 per year to a contractor with an Individual Taxpayer Identification Number (ITIN) must withhold and remit 4 percent of that pay to the NC Department of Revenue. Our firm has all the specifics on this law and can help you implement the withholding. Please feel free to contact us with any questions.
North Carolina Department of Revenue Refund System
The North Carolina Department of Revenue has launched a “Where’s My Refund” tool within their website in order to locate your refund for the current tax year. The only information you need in order to inquire about your refund is the first social security number and the exact amount of refund listed on your NC return.
Retirement Plan Ceilings
The ceiling on salary reduction contributions to SIMPLE plans is $15,500 for 2023 and $16,000 for 2024. The ceiling is $19,000 for 2023 and $19,500 for 2024 for those age 50 and over assuming the plan allows for catch-up contributions. The maximum 401(k) or 403(b) elective deferral contribution limit is $22,500 for 2023 and $23,000 for 2024. The maximum 401(k) or 403(b) elective deferral contribution for those 50 and over is $30,000 for 2023 and $30,500 for 2024. The contribution limits for Roth and Traditional IRAs are set at $6,500 for 2023 and $7,000 for 2024. The IRA catch-up contribution limits are capped at $1,000 for 2023 and 2024 for those 50 and older. Please feel free to contact our office with any questions or for further clarification.
Penalties for S-Corporations and Partnerships
Partnerships and S-Corporations that do not file 2023 returns timely will owe $220 a month per partner or shareholder in penalties for up to 12 months.
NC Gift Tax Repeal
The NC gift tax was repealed effective January 1, 2009.
The standard mileage rate for business miles driven in 2024 is 67 cents per mile.
The standard mileage rate for medical or moving miles is 21 cents per mile for 2024. The standard mileage rate for miles driven in service of a charitable organization is 14 cents per mile in 2024.
The standard mileage rate for business miles driven in 2023 is 65.5 cents per mile.
The standard mileage rate for medical or moving miles is 22 cents per mile for 2023. The standard mileage rate for miles driven in service of a charitable organization is 14 cents per mile in 2023.
Social Security Administration Employee Verification Service
The Social Security Administration offers a telephone service to help you verify that names and social security numbers given to you by employees are correct. You can call 1-800-772-6270 on weekdays from 7 a.m. to 7 p.m. to receive verifications for up to 5 employees at a time. You must have your company EIN available along with SSN, last name, first name, middle initial, date of birth and gender of all employees you wish to verify.
Charitable Contributions Requirements
In order to deduct a charitable contribution made in cash, by check, or by other monetary means, the contribution must be supported by a bank record or a receipt, letter or other written communication from the charity showing the name of the donee organization, the date of the contribution, and the amount of the contribution. If the contribution is $250 or more, donor’s must receive a written receipt from the charity that includes detailed information, including a statement indicating whether or not goods or services were received in return for the contribution.