New Guidelines for Clean Vehicle Credits and Dealer Transfers

July 8, 2024 by David Moseman

Introduction of Final Regulations

The IRS has issued final regulations for new and previously owned clean vehicle credits. These regulations include rules on transferring credits to registered dealers at the point of sale and guidelines for dealers to become eligible for advance payments of transferred credits.

New Clean Vehicle Credit Requirements

The final regulations specify the critical mineral and battery component requirements for the new clean vehicle credit, adding a new test for mineral content. Under the Inflation Reduction Act of 2022, a maximum credit of $7,500 is allowed for a new clean vehicle, divided into $3,750 for meeting critical mineral requirements and $3,750 for battery component requirements. Additionally, the vehicle must meet certain price limits, and the taxpayer must meet income limitations.

Previously Owned Clean Vehicle Credit

The credit for previously owned clean vehicles is $4,000 for eligible vehicles with a sale price of $25,000 or less. The buyer must place the vehicle into service during the tax year and meet income limitations, and the vehicle must meet specified eligibility requirements.

Point-of-Sale Credit Transfers

Over 100,000 credits have been transferred at the point of sale this year, resulting in over $700 million in upfront savings for consumers. The final regulations detail how credits can be transferred to dealers and how dealers can receive advance payments.

FEOC Compliance Requirements

The regulations finalize rules for manufacturers to determine if vehicle battery components and critical minerals comply with Foreign Entity of Concern (FEOC) requirements. They provide definitions, impose due diligence requirements, describe compliance determination methods, and outline a reporting and review process.

New Mineral Content Test

The new traced qualifying value add test requires manufacturers to trace the supply chain to determine the value-added percentage for extraction, processing, and recycling. Manufacturers can use the 50% roll-up method until 2027. The IRS, with help from the Energy Department, will review sourcing documentation to ensure compliance, and no penalties will be imposed on taxpayers if manufacturers make mistakes in vehicle eligibility information.

HAVE QUESTIONS?

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Darien) or email us at info@cironefriedberg.com.

Selecting an Entity Structure for Your New Business

March 15, 2024 by David Moseman

In a recent announcement, the IRS reminded would-be entrepreneurs of the importance of understanding the tax implications of setting up their own businesses. To start with, you have to choose a form of entity, for your business. Your choice has many implications for taxation and management, and as such, we encourage you to give this a lot of thought and seek the advice of a tax professional.

Here are some forms of entity to consider for your new business:

Sole Proprietorship

This is the simplest form of entity structure. It’s an unincorporated business owned by an individual; there’s no distinction between the taxpayer and the business. You will typically file a Form 1040, including Schedule C, Profit or Loss from Business (Sole Proprietorship). You may need to pay estimated taxes through the year, because, unlike an employee, you are not having money automatically deducted from regular paychecks.

Partnership

This is an unincorporated business with ownership shared between two or more members. A partnership must file an annual information return to report the income, deductions, gains, losses, and so forth from its operations, but it does not pay income tax at the federal level. Instead, it “passes through” profits or losses to its partners on a Form K-1. Each partner reports their share of the partnership’s income or loss on their personal tax return. Certain states may impose taxes at the partnership level. Partners are not employees and should not be issued a Form W-2, as employees typically get.

Limited Liability Company (LLC)

This is a business structure established under state statute. These tend to be very flexible. Owners of an LLC are called “members,” and most states do not restrict ownership, so members may include individuals, corporations, other LLCs and foreign entities. Unlike with an S corporation (see below), there is no maximum number of members. Most states also permit “single-member” LLCs, those having only one owner.

The tax situation can be complex. For example, depending on elections made by the LLC and the number of members, the IRS will treat an LLC as either a corporation, partnership, or as part of the LLC’s owner’s tax return (a “disregarded entity”). Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it affirmatively elects to be treated as a corporation.

S Corporation

If selected as the entity structure, an S corporation passes corporate income, losses, deductions and credits through to the shareholders, on a K-1, similar to partnerships. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. Certain S corporations are responsible for tax on built-in gains at the entity level. Unlike a Partnership, shareholders of an S corporation do receive W-2’s and must be paid a reasonable wage for services they provide to the company. There are many rules about who can be an S corporation shareholder. In addition, an S corporation cannot have more than 100 shareholders.

Important Considerations

There are many more tax provisions and options, and of course state rules to consider. It is very important to think about the above factors before you establish your business and consider how the business may evolve in the future. The best advice is to work closely with tax professionals to get your business off to a good—and compliant—start.

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Is Your Tax Withholding Correct?

March 3, 2024 by David Moseman

All year long, employers withhold income tax from the paychecks of their employees. Each paycheck is distributed to you after your employer has taken out a portion of your paycheck to pay the IRS on your behalf.

At the end of every year, employers send employees a Form W-2, Wage and Tax Statement. Within this document, you will see the amount of money you were paid in wages as well as the amount of money that was withheld on your behalf.

The amount of money withheld in your name will depend not only on the annual income that you earn but also on the information you provided your employer via Form W-4, Employee’s Withholding Certificate. If you have any questions about how to fill out this form, refer to IRS Publication 505, Tax Withholding and Estimated Tax for details or consult with your tax CPA.

You must specify your filing status on Form W-4. You also should complete the other parts of the form if you anticipate receiving additional income or deductions beyond the standard deduction. This is where you should indicate your eligibility for tax credits as well.

If your refund is either larger or smaller than you expected, look directly at the amount of money that is being withheld. Increase the amount to reduce the amount of any money that you may owe when filing your income tax return.

Here are times when you should check your withholding amount:

At the start of every year.
After a major life event.
When your income changes.
When tax laws change in ways that affect you.
When you experience a lifestyle or financial change.
If you get married or divorced.
After having a child, purchasing a home, or retiring.
After filing Chapter 11 bankruptcy.
When your spouse either starts or stops working.
If you have taxable income that is not subject to withholding.
When there are changes to your planned deductions or eligible tax credits.

If you need to check the withholding amount, make use of the Tax Withholding Estimator tool on the official IRS website. This tool can help you figure out whether you need to submit a new Form W-4 to your employer.

If you have a pension or an annuity and you are not employed, turn to Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments, instead. This document is where you will estimate your tax withholding for these types of payments. And if you have a more complex tax situation, there’s understandably even more to consider.

If you owe alternative minimum tax or you are responsible for paying tax on unearned income from dependents, or you have received nonwage income such as dividends, capital gains, rents or royalties it’s important to review Publication 505. This documentation includes worksheets and examples that can guide you according to your situation. If you have a nonresident alien status, refer to the instructions in Notice 1392, Supplemental Form W-4, Instructions for Nonresident Aliens, instead.

With the assistance of Form W-4V, Voluntary Withholding Request, for any government payment, you can request federal income tax be withheld on any of these types of income:

Unemployment compensation.
Social Security benefits.
Commodity Credit Corporation loans.
Crop disaster payments.
Alaska Native Corporations dividends and distributions.

Are you of the belief that you need to change your current withholding status? As mentioned, calculate your results with the Tax Withholding Estimator and use that information to complete a new Form W-4 to give to your employer. Make sure you submit it as soon as you finish filling out the form. Do not send the form to the IRS because it needs to be submitted to your employer instead.

If you are worried that you have been underpaying your taxes, you can adjust the amount of money being withheld from your paychecks. You can also alter the amount of estimated tax payments that you make, too.

Either way, it’s important to make sure your withholding is right. If you need additional help with this tax-related matter, reach out to your tax professional or speak with your employer for further insight into your work-based taxes.

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2024 Tax Deadlines to Note

January 5, 2024 by David Moseman

Here are the various tax deadlines throughout 2024 to mark on your calendar.

January 2024

January 18, 2024

The IRS begins accepting tax returns. Note that this date may change when the IRS issues a bulletin in January confirming the filing date.

January 31, 2024

W-2 forms are due to employees and the IRS.
1099’s are due to Vendors and the IRS.

Estimated Tax Payments Due Dates

January 16, 2024

Fourth quarter for tax year 2023 for the period September 1 – December 31

March 15, 2024

For calendar year Partnerships and S Corporations the due date for filing forms 1065/1120S

April 15, 2024

First quarter 2024 for the period January 1 – March 31
For calendar year Corporations this is the due date for filing Form 1120

June 17, 2024

Second quarter 2024 for the period April 1 – May 31

September 16, 2024

Third quarter 2024 for the period June 1 – August 31

January 15, 2025

Fourth quarter for tax year 2024 for the period September 1 – December 31

Federal Tax Return Deadlines

April 15, 2024

For individuals, the due date for filing your tax return is April 15, unless extended because of a state holiday (e.g., April 18 in Massachusetts).
Final day for IRA contributions
Final day to file an extension

October 15, 2024

Late filing deadline

HAVE QUESTIONS?

If you need assistance or have any questions on tax deadlines that might apply to you, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Darien) or email us at info@cironefriedberg.com.

Understanding Estimated Taxes and Penalties

December 11, 2023 by David Moseman

The IRS requires taxpayers to pay their taxes for a given year in that year. For taxpayers who are employees of companies, their employers must withhold income tax from each paycheck and report it on a Form W-2 early in the following year. If your employer withholds too much, you get a refund. If it withholds too little, you owe taxes. Either way, you can fine-tune your status by filing a new Form W-4 with your employer, as well as any appropriate state tax form.

Paying Estimated Taxes

Estimated tax payments are used to pay income tax and self-employment tax, as well as other taxes and amounts reported on your tax return.

Taxpayers who work freelance, for example, do not have income tax withheld from the income they generate by invoicing clients. They must follow a different route for paying their taxes, and they cannot just wait until April 15 for an accounting of the previous calendar year.

These taxpayers must file their estimated taxes on a quarterly basis: April 15, June 15, September 15, and January 15. (If any of those dates fall on a weekend or a federal holiday, they are due on the first business day after the due date.)

Avoiding Penalties

With some exceptions, failure to have enough taxes withheld could result in a tax penalty. Notes the IRS: “We calculate the penalty separately for each required installment. The number of days late is first determined and then multiplied by the effective interest rate for the installment period.” For more information on the penalty interest rates visit the IRS online.

Under the IRS Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus three percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus three percentage points and the overpayment rate is the federal short-term rate plus two percentage points.

For the fourth quarter 2023 and the calendar quarter beginning January 1, 2024, the penalty rate of overpayments is 8%.

Fourth quarter 2023 estimated taxes (payment period September 1 through December 31) are due on January 16, 2024.

First quarter 2024 taxes (payment period January 1 through March 31) are due April 15. Note: If the due date for making an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if made on the next day that’s not a Saturday, Sunday, or legal holiday.

Three ways to avoid the estimated tax penalty:

Pay at least 90% of the current year’s tax liability due.
Pay at least 100% of the prior year’s tax liability or 110% if your adjusted gross income (AGI) for the prior year exceeded $150,000. (These amounts may be tweaked in future years.)
Pay at least 90% of the current year’s “annualized income.” Taxpayers who do not receive income evenly over the course of the year, such as snowplow drivers, may use this method by completing Form 2210, Schedule AI.

The penalty may be waived if either of the following occurred:

The failure to make estimated payments was caused by a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty.
You retired (after reaching age 62) or became disabled during the tax year for which estimated payments were required to be made or in the preceding tax year, and the underpayment was due to reasonable cause and not willful neglect.

In addition, no penalty is assessed if either of the following occurs:

The total tax shown on your return minus the amount you paid through withholding is less than $1,000.
You had no tax liability in the previous year.

This is just a summary. Tax rules may change. To learn more about estimated taxes and penalties visit the IRS site and seek the advice of a qualified tax professional.

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Form 1099-K threshold of $5,000 planned for 2024

December 11, 2023 by David Moseman

Many small business owners, sole proprietors, and gig workers accept payment for sale of goods and services through third-party payment settlement networks such as Venmo, PayPal, eBay, Etsy, and others.

The IRS originally announced that starting with the 2022 tax year, businesses receiving payments over $600 using payment settlement networks will receive a Form 1099-K that will reflect the gross amount of money received for goods or services. Previously, form 1099-K was only issued for gross receipts over $20,000 with over 200 transactions. However, that deadline to drop the threshold was delayed and pushed to 2023.

According to the IRS, the $600 threshold for payment apps and online marketplaces to report payments on Form 1099-K is delayed again. The IRS is planning a threshold of $5,000 for tax year 2024.

Dropping the threshold was included as part of the American Rescue Plan Act of 2021 and considered a way to raise extra tax revenue. Deep concern over unpreparedness to process an onslaught of tens of millions of additional 1099-K forms, and concerns over implementing the rule in a limited timeframe gave way to the delay. The current $20,000 threshold will remain in place for tax year 2023.

To avert another delay and pave the way for reporting third-party payment settlement payments, the IRS is planning to drop the threshold from $20,000 to $5,000 for tax year 2024.

This is a complex tax reporting situation for businesses. Be sure to reach out to your tax professional for guidance. The tax professionals at CironeFriedberg will provide updates as this is an ongoing and evolving issue.

For more information, visit the IRS page Understanding your Form 1099-K.

HAVE QUESTIONS?

If you need assistance or have any questions about this reporting requirement call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Darien) or email us at info@cironefriedberg.com.

New Guidelines for Clean Vehicle Credits and Dealer Transfers

HAVE QUESTIONS?

Selecting an Entity Structure for Your New Business

HAVE QUESTIONS?

Is Your Tax Withholding Correct?

HAVE QUESTIONS?

2024 Tax Deadlines to Note

January 2024

Estimated Tax Payments Due Dates

Federal Tax Return Deadlines

HAVE QUESTIONS?

Understanding Estimated Taxes and Penalties

HAVE QUESTIONS?

Form 1099-K threshold of $5,000 planned for 2024

HAVE QUESTIONS?

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