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On-Demand: Year-End Tax Strategies for Businesses

Our corporate tax specialist will identify actionable planning opportunities that you and your business can take advantage of right now to mitigate your 2022 income tax liabilities and prepare for the future. 


Carolyn Dolci: Great, thank you. Today we're going to cover three areas, federal tax, international tax, and state and local tax.

And we're going to start off and going to go to the next slide here. We're going to start off with federal tax and thank you all for joining us. I'm going to cover the Inflation Reduction Act of 2022 and then Anthony's going to talk about tax planning, some year-end reminders and changes that come into effect in 22 and 2023. So, first thing to talk about, the Inflation Reduction Act, which was signed by the president August 16th, 2022. It's a slimmed down version of the Build Back Better, which never passed. And there are six items we're going to try to... We're going to not spend very much time on this slide because we're going to talk about them in detail, that are on here that we're going to talk about in a little more detail.Carolyn Dolci: Great, thank you. Today we're going to cover three areas, federal tax, international tax, and state and local tax. And we're going to start off and going to go to the next slide here. We're going to start off with federal tax and thank you all for joining us. I'm going to cover the Inflation Reduction Act of 2022 and then Anthony's going to talk about tax planning, some year-end reminders and changes that come into effect in 22 and 2023. So, first thing to talk about, the Inflation Reduction Act, which was signed by the president August 16th, 2022. It's a slimmed down version of the Build Back Better, which never passed. And there are six items we're going to try to... We're going to not spend very much time on this slide because we're going to talk about them in detail, that are on here that we're going to talk about in a little more detail.

The first one is the Corporate Alternative Minimum Tax. This tax was intended to help pay for the clean energy credits that we'll talk a little bit about later. It's aimed at large multinational corporations, which may show large book profits, but may not show any tax profits. It doesn't apply to S corporations, regulated investment companies or real estate investment trusts. And it's imposed on the adjusted financial statement income. There's certain adjustments that are made and it only impacts corporations with annual average adjusted financial statement income that exceeds $1 billion over a three-year period. The tax is 15% of the adjusted federal financial statement income over your regular tax and any base erosion tax that you have. And this is for years that are beginning after December 31st, 2022.

There are aggregation rules which may require a corporation to include the income of another corporation or a partnership in here. These are complex and it's going to require planning. The next item is the excise tax on stock buybacks. This is also intended to be a revenue raiser and it's to encourage public companies to reinvest funds in the business that they may have otherwise used to buy back stock. Now this tax is only imposed on domestic publicly traded corporations that repurchased their stock, either directly or through a subsidiary that they own more than 50% of or a partnership. The tax is 1% of the fair market value of the repurchase stock. This tax is not deductible and there are several exclusions and special rules, such as, if you have repurchases that are less than a million dollars, that's not subject to the tax. If there's a repurchase and it can be treated as a dividend or a 368(a) reorganization, that's not going to be subject. Purchases by, REITs not subject to it.

And there is some netting that is allowed. So, if you issue new shares and you buy back shares in the same year, you'll be able to net them. This is for repurchases that occur after December 31st, 2022. And this could impact like M&A transactions and how they're structured. And once again, this is complex and we will wait for further guidance on this. So, we go from the big down to the smaller. The first two are like revenue razors for big companies, a billion dollars publicly traded companies. And then we get to the research credit, applying it against payroll taxes. And this isn't necessarily new, it's just that they've expanded it and it's particularly helpful for startup businesses because a lot of times they can't use the R&D credit. They don't have any tax to pay. So just as a reminder, a qualified small business is eligible for this, has not had grocery seats in the last five years and has less than five million in the current year.

So, under the current law, the new law, a small business could offset the 6.2% of their employer portion of the social security tax up to $250,000. And as I said, you can still do this, but the new law allows for an additional 250 that can be used on the 1.4% fortified Medicare tax. Now this is for years that begin after December 31st, 2022. So, it's available 23 and going forward. The R&D credit against your payroll taxes, you can use it for up to five years and you need to complete form 6765 in order to make the selection

Just button to move forward, here we go. The limit on deductibility of excess business losses. This has been extended. Now this really happens on an individual return, but here, we're talking about past due entities, so want to make sure we at least mention it. If you remember, this limit was created as part of the Tax Cuts and Jobs Act. And then for the CARES Act it got suspended through 20 and then in 21 it was back. Well now under the Inflation Reduction Act, it's gone from another two years going to 2028. Anthony's going to talk more about this later when he does his part.

Then we get into... Wait, went too far here. The clean Energy credits. There are new credits, there are expanded credits, there are way too many credits to talk about here, but this is what some of those other revenue raises are being used to pay for. You could do a whole seminar on this one alone. Lastly, the important part that I'm going to cover right now is the IRS appropriations and enforcement. So, the IRS was given about $80 billion more of additional funding to help run themselves in these particular areas, taxpayer service, enforcement, operations support and business systems modernization. So, for taxpayer service, they received $3.2 billion. In preparing for this, I just looked at the IRS website, which said that as of November 11th, 2022, there were still 3.7 million unprocessed individual returns. There were 900,000 forms, 1040-X with a current turnaround period of 20 weeks.

So, we've all filed amended returns and we get calls all the time saying, "When do you think they're going to get to it?" Well, it's taking a long time and hopefully this new personnel will help. There are 3.2 million of unprocessed forms 941 and 286,000 of forms 941-X that can't be processed until that 3.2 million of unprocessed forms 941 are completed. So, if you're still waiting for your employer retention credit to come back, this is part of the reason why. In enforcement, this is the biggest part of it. They got more than half; they got $45.6 billion that's going towards enforcement. The intention is to hit wealthy taxpayers making over 400,000, large corporations, complex partnerships, cryptocurrency and digital. So, the number of audits I would expect will increase as they get the agents trained.

So, as you're thinking about putting together your package for tax season, you're always supposed to have documentation but since we know that audits are going to increase, make sure before you put all your papers away, whether you're a business or individual, that you have all your items tied down for the year. Operation support, $25.3 billion went towards that and business systems modernization got 3.2 billion. So, looking at the taxpayer advocate page, we all call IRS, have trouble getting through. The taxpayer advocate page says that for the first half of 2021, there were over 240 million calls with less than 15,000 employees to answer it at the IRS. So that meant 16,000 calls for every one person over a six-month period. And I know we all get a lot of phone calls, but I don't think I could get anywhere near to close to picking up those that many calls.

IRS has already hired more than 4,000 customer service reps and they plan to hire another thousand before the end of the year. So that by I think President's Day they'll have 5,000 people answering phones and doing things like that. And now I turn it over to Anthony.

Anthony Cuti: Thank you, Carolyn. Thank you everyone for joining today. As Carolyn mentioned, I'm taking over some business tax planning ideas and some news updates. Starting off today's presentation with the corporate tax rate, it remains unchanged at 21% for the 2022 tax year. The top individual tax rate, again remains unchanged at 37%, you still have your 3.8% net investment income tax and your 0.9% additional Medicare tax. For folks who are subject to the self-employment tax, the 12.4% social security max is out at 147,000 for 2022. And that amount was adjusted for inflation into 2023 for up to 160,200. And the Medicare portion of the self-employment tax is the 2.9% with no maximum base. When doing some tax planning at year end, we always tend to focus on the current year, but it's also very important to review multiple years and not specifically just the current tax year. And it's important to determine whether to accelerate income or deductions or defer them.

This is our second year with the New York State pass-through entity tax, that Mitch will get into in more detail in his presentation. But there are many wide ranging states that have adopted pass-through taxes as well. And these are important at year-end because in order to secure a deduction for 2022, these typically should be paid before year-end, especially for cash basis tax payers. So for year-end also, we typically look at entity choices amongst taxpayers, either corporations versus pass-throughs and the impact it has on NOL usage and the excess business loss, which we will get into later. And also at year end, a lot of times it's good to come up with and discuss if there are any new states that are applicable to the taxpayers, as especially in this environment with people working remotely, it tends to pop up on taxpayers when the return is being prepared. And again, as with so many states adopting these pass-through entity taxes, in order to secure deduction for 2022, these need to be paid before year-end.

Some business tax planning reminders. Before year- end, we would need to set up some qualified retirement plans and also discuss and review any potential basis or at-risk limitations and the ability to deduct losses. Continuing in 2022, the partnership K1's that are issued, continue to report capital on a tax basis. This was a change a couple of years back and continues with that change. This is now our second year having to utilize Form 7203 for S corporations, which will track shareholder stock and debt basis. Also in 2022, there are some taxpayers who received the second round of the PPP loans and if the forgiveness was granted in 2022, that income would be federally tax exempt. Most states do follow the federal rule, but that should be reviewed as well in case there's a particular state that does not allow the tax exempt income.

Another change to be aware of, after being a hundred percent deductible for 2021 and 2022, meals purchased directly from a restaurant are reverting to a 50% deduction in 2023. The small business exception, which is the three-year average of the prior year's gross receipts increases to 27 million in 2022 and 29 million in 2023. This is applicable for our interest expense limitations inventory and whether you can be a cash basis taxpayer among other things. And there's also tax credits available for R&D credits. This will be discussed in more detail in the next slide.

So this is a major change for the 2022 tax year. The research and development expenses are required to be capitalized, effective January 1st, 2022 under Section 174. This is a change as opposed to in the past where the expenditures were expensed. So for expenditures conducted in the US, these will be amortized over a five year period and outside the US, over a 15 year period. This was passed initially during the Tax Cuts and Jobs Act of 2017 and is being implemented starting 1/1/2022. So for example, if a company had 500,000 of R&D costs prior to 2022, these would've been expensed 100% in that year. Starting in 2022, that same 500,000 would be capitalized and amortized over a 60-month period. However, it's important to note that you will only receive half a year of amortization in the first year and the sixth year. So if you have 500,000 of expenses, under the new rules you're only getting a $50,000 deduction. Now companies normally in an NOL position could potentially face themselves in a taxable income and this could impact a cash flow going forward. That was my first page.

Bella Brickle: Poll #1

Anthony Cuti: So the answer to this question is false, and this is, again, this is a big change for 2022. Expenses are no longer fully deductible in 2022 and amortized over a five year period for US based expenses.

Our next topic is bonus depreciation. And there's another significant change coming down the pipe on this as well. Bonus depreciation is for qualified assets with a recovery period under 20 years or less. That includes machinery, equipment, furniture and fixtures and qualified lease home improvements as well as computer software. Some common disqualifiers are building and structural framework for 39-year property. It's important to note particular elevators and escalators are considered structural and not a machinery and equipment. And new expansions to an existing building also would not qualify for bonus depreciation.

So 100% bonus depreciation has been around for the better part of six tax years. As you can see, it started on September 27th, 2017. And it is currently expected to come to an end at 12/31/2022 outside of any legislation that may or may not be passed in the future, but it's going to drop to 80% in 2023 and phased out equally over the next couple of years. And then here is a planning strategy. If you're able to place assets at the service prior to year end, you can secure a hundred percent bonus depreciation deduction. If you wait until 2023, you would only get 80%.

There is also the Section 179 expense, which is an annual tax write off. The limit for 2022 is 1,080,000 and that gets phased out dollar for dollar on amounts placed into service over 2.7 million. So the complete phase-out is if you have that additions of 3,780,000, this amount's been indexed for inflation, so the write off for 2023 is 1,160,000 and it phases out beginning at 2,890,000. Section 179 is only applicable to taxpayers that have income and cannot use Section 179 to produce a loss. Just a quick note on some luxury vehicles or listed property. They have different rules for depreciation and the first year maximum depreciation you can take is 11,200. And you can also get an additional $8,000 first year bonus depreciation through 2026, which means you can get a first year maximum depreciation for listed property of 19,200.

Some final depreciation or fixed asset reminders. A cost segregation study can be done to shorten lives and improvements and accelerate deductions to property. If you have more than 40% of your assets placed into service in the fourth quarter, the mid-quarter convention would apply, which just has slower depreciation rates in the beginning of the life. If you do elect out-of-bonus depreciation, the election out must be by class of assets, which means all five year property or all seven year property would have to be collected out of. And also to note, to be aware that states can have different rules when applying bonus depreciation of Section 179. And lastly, with a written expensing policy in place at the beginning of the year and an applicable financial statement, each item up to $5,000 can be expensed in the current year and not capitalized or appreciated without an applicable financial statement. That amount is limited to 2,500.

Our next topic is the employee retention credit. Now this has been around for some time now, but if you have not taken advantage of, you could still determine your eligibility. We've had many clients utilize the DRC and receive some money back from the IRS. This was to encourage employers to retain employees at their salaries during the pandemic. This was a fully refundable tax credit for employers equal to either 50% or 70% of the qualified wages depending on the year it applies to. And no deduction is allowed for wages equal to the amount of the credit that is claimed. This results in income in the year that the payroll relates to. So what this means is if you apply for a 2020 employee retention credit or a 2021 employee retention credit and have already filed your 2020 and 21 tax returns, which most already have, an amended return will be required for those years after the ERC is applied for.

So as Carolyn mentioned, the amended 941x are backlogged in the IRS and that's because the employer retention credit requires the filing of an amended 941-X, so a lot of companies are doing this at the moment, but it is important to note that if applying for a Q1 2020 employer retention credit, the amended payroll form 941 is actually due three years from the original due date, which is this coming April 15th, 2023. And it's also important to note with the inflation act...

And it's also important to note with the Inflation Act that the IRS will begin or has begun to audit the ERCs that have been claimed. And we also wanted to stress the importance of having the documentation to support your employer retention credit. There have been many non CPA firms advertising ERC to clients and taxpayers. It's important to note that the IRS has five years to audit the employer retention credits and can look to clawback funds in the future. So the firms that are advertising or these non CPA firms that are advertising their assistance with the ERC are not around in the future, potentially cause an issue down the road.

Just another reminder on the ERC. For 2021, the gross receipts test for determining employer eligibility is to show a 20% decline and the credit has been increased from 2020 to 2021 to 70% of the first $10,000 of qualified wages per quarter, and that's only available through the third quarter of 2021. That gives you a maximum credit of $21,000 per employee. Our next topic is the Qualified Business Income deduction or the QBI. This is a 20% deduction of domestic income for business owners of partnerships as corps for sole proprietorships. And this is actually set to sunset in 2025. If you qualify for the QBI, your top effective federal tax rate is dropped to 29.6%. And this applies whether a taxpayer is active or passive in a business.

QBI must be qualified and must not be a specified service trade or business, and that's a specified service trade or business is involved in the performance of services in the field of health, law, accounting, actuarial science, consulting, financial services, brokerage services, or any other trade or business whose principal asset is the reputation or skill of one or more its employees. An SSTB as it's referred to, would not qualify for the QBI deduction unless their income is below a certain phase out threshold. That phase out threshold for 2022 has been set at $340,100 of taxable income for married filing joint taxpayers or $170,050 for married filing separate or single taxpayers.

So if there's a potential for an individual in an SSTB nearing the income threshold, we could benefit from accelerating deductions or deferring income to the extent possible so that the taxable income falls below that threshold and to take advantage of the 20% haircut. I mentioned briefly in an earlier slide with the deductions or meals purchased from a restaurant were a hundred percent deductible from 2021 and 2022. That's reverting back to 50% in 2023 and entertainment remains to be 0% deductible. Meals at entertainment events will be 50% deductible, so it's good to get an itemized listing if you can from the vendor.

I'm going to skip this slide on time. And another significant change for 2022 is related to the business interest expense limitation. This is for taxpayers with greater than $27 million of three year average gross receipts. This business interest expenses limited to essentially 30% of the taxpayers adjusted taxable income. Now prior to 2022, this was essentially EBITDA, earnings before income taxes, depreciation and amortization. However, for tax years starting after 2021, this calculation is revised to reflect earnings before interest and taxes or EBIT. Thus allowing the add back of depreciation and amortization. This change in the calculation will broaden the net of interest expense limitation, likely affecting many entities that have narrowly escaped limitation in earlier years. The 163(J) or Business Interest Expense Limitation applies to all tax payers of all debt, domestic and foreign, individual C corps, S corps, REITs and partnerships. There is an opt out or an election out of section 163(J) for real property trades of businesses. The only trade off here is that you have to use longer depreciation periods and no bonus depreciation is allowed. Also, the election is irrevocable.

On the screen we have a quick example of the rule change between 2021 and 2022 for the business interest expense limitation. So for an entity with $50,000 in taxable income as well as $35,000 in interest expense and $50,000 in depreciation and amortization, under the 2021 rules in the right column, the depreciation is included in the ATI calculation, therefore a hundred percent of the interest expense is deductible. However, under the 2022 rules, only $27,000 would be deductible, thus a loss of $8,000 of interest expense. So this should be certainly determined before year end as this could put taxpayers at a disadvantage.

Bella Brickle: Poll #2
Anthony Cuti: So the answer is A $21,000. So that's the maximum 2021 employee retention credit per employee for the three quarters. So it's $7,000 per quarter times three. The next is Net Operating Losses. So this was changed with the Tax Cuts and Jobs Act as well. And for tax years beginning after January 1, 2021, there is no longer a carryback period and the NOLs have to be carried forward indefinitely, but however, they're also limited to 80% of taxable income. So most entities utilizing NOLs will still have a tax liability. And the changes to the R and D expenditures previously discussed, this could significantly impact taxpayers.

The Loss Limitation Rules for Taxpayers Other Than Corporations over excess loss limitations, Section 461(I). As Carolyn mentioned, this was originally in effect through 2026. However, the Inflation Reduction Act has extended this through 2028. It's important to note that. It was suspended by the CARES Act for a couple years and reinstated for the 2021 tax year. And the excess business loss limitation for 2022 is $540,000 in cases of a joint tax return. Net business losses in excess of this amount will be disallowed on 2022 returns and carried forward. And now I'm going to turn the presentation over to Max.

Max Markel: Thank you very much Anthony. That was great. Thanks everyone. So we'll talk a little bit about some international tax considerations for businesses and some latest developments in this year and looking forward to 2023. So one of the things that we're going to talk about is the Inflation Reduction Act with respect to the corporate AMT and how it relates to your multinational companies. So whether you're an outbound company that's headquartered in the US and you have foreign operations overseas, or if you're an inbound company that's a foreign owned C corp, let's say, that's doing business here in the US but it's owned by foreign parent, talk about how that impacts it from a corporate AMT minimum tax perspective. We're going to look at some of the latest developments around the international tax forms and compliance as they relate to some of the new reporting such as the K2, K3 reporting that I'm sure many of you are aware of at this point.

We'll also touch upon the capitalization of the R and D expense under Section 174, which Anthony just talked about from a federal tax perspective and how it may impact you from an international tax perspective as well. And then we'll touch upon some of the latest treasury regulations that came out in 2022. So this year there were some foreign tax credit and some part of regulations that went final as well as PFIC regs that came out that were proposed. And then we'll cover some of the latest developments in the tax treaty network that the US has obviously with a bunch of countries. There's some very interesting developments with respect to the US Hungary Treaty and the US Chile Treaty. Following that, we'll touch upon some of the Puerto Rico developments with respect to the IRS enforcement in that area. There's been a lot of stuff in the news that you may have been aware of with respect to folks trying to become bonafide residents of Puerto Rico.

So there's some interesting things to touch upon there. And then we'll close out the international tax portion by talking about some of the latest initiatives that the IRS has for international. So with that, let's get to it. So the Corporate Alternative Minimum Tax that Carolyn was talking about earlier in the presentation is basically a tax of 15% AMT on the adjusted financial statement income and it relates to applicable corporations. So if you have a C corp, let's say, that's doing more than a billion dollars of income over a three year period, which is essentially your AFSI, which is basically your book income with some adjustments such as depreciation, but it's not your taxable income, you may become an applicable corporation. And one thing to remember there is once you become an applicable corporation for this new corporate AMT, you're going to stay that way even if you go below the threshold of a billion dollars as it stands now.

So one thing to keep an eye on to see if treasury provides some clarity and guidance on that. Another thing to be mindful of is if you have, I touched upon foreign owned US corporation, so if those have a threshold of AFSI that exceeds a hundred million over a three year period. I think Carolyn touched upon this as well. So this tax basically will be in excess if you have a tentative minimum tax plus your regular BEAT. So if this tax applies and you're an applicable corporation, you may have some leakage in the scope of this alternative minimum tax. Let's go to the next slide. So again, this tax is really based on basically your net book income. If you have foreign operations overseas, if you have controlled foreign corporations, you're going to have to aggregate all the income that they generate and losses and then consolidate that with your US parent corporation.

The one thing to keep in mind here is that if you have a foreign net loss amongst your CFCs, you can't use that net loss to reduce your AFSI of your US parent. So if you have two foreign corporations that are CFCs, one has income of a million dollars and one has loss of 5 million in a net loss context, you can't use that $4 million of net loss in CFCs to reduce your US corp's AFSI. But what you can do is you can carry that loss forward and definitely to be used for future years. So one thing that you might want to consider in a situation like that is some potential check the box planning. Meaning you can make a tax entity classification election to treat those CFCs as disregarded entities, perhaps. Another key point is that QBAI deduction is not an allowable deduction in order to arrive at your AFSI.

And then at the end of the day you may have certain situations where you and certain of your clients may actually end up paying a higher effective tax rate on some of the inclusions from these foreign corporations such as your GILTI inclusions, which are generally your ETR on those after your applicable deductions. Which is most commonly the section 250 deduction is basically going to be 10.5%. This AMT might kick that up a notch. So that's just something to be mindful of. And it applies as Carolyn mentioned to C corps. It does not apply to REITS, RICs, S corps, and it's applicable for tax here starting after December 31st, 2022. This little slide here is a pretty good illustration of how the computation works. So you have your AFSI, you multiply that by 15% and then you take out any foreign tax credits for this corporate AMT and that gets you to your tentative minimum tax. Once you have your tentative minimum tax, you reduce that by your regular US taxes, which includes your BEAT tax liability, and if you still have anything left over, that's basically your corporate AMT tax.

All right, so let's talk a little bit about the international tax compliance and some of the latest forms and updates. As you know, the IRS has been increasing the complexity of some of these forms such as the 5471s for controlled form corporations, the 8865 for foreign partnerships, the 8858 for foreign disregarded entities or foreign branches. There's a lot of new schedules on the 5471 that are tedious and time consuming, so you need to make sure you factor that into account. One of the things that you want to remember is as part of TCJA, if you have form branches in your structure, you want to make sure that you file forms 8058 for those to avoid any misfiling penalties. A lot of the times I see folks that, it's not a legal entity, it could be a rep office overseas, offshore, if it has separate books and records, under section 989, it's what's called a qualified business unit and it's going to require its own separate 8858 filing annually.

So they just keep that in mind. When you do prepare your 8058, it's very easy to miss some of the schedules. So there's a schedule on which is your intercompany transaction schedule. Even if you don't have any intercompany transactions with that foreign branch or foreign disregarded entity and any of the related parties, you still want to attach the schedule one. It'll be mostly blank other than the heading and the exchange rate on top. But in order for the 8058 to be complete and deemed complete by the IRS, you need to make sure you're attaching that to your form. As well as, there's a structure chart on page one, I believe it's line five of the 8858, which basically says that you should attach a structure chart. You're required to attach a structure chart to illustrate that 8858 and it's US tax owner and any entities in between if there are any.

So make sure you do that so that the returns are not deemed incomplete. I mentioned K2 and K3, there's been some updates and developments around that. So the IRS is constantly releasing new information. I would urge everyone who has K2 and K3 in their filings to go on their IRS website. There's actually a new exception to filing some of these, so they're trying to reduce some taxpayer burden. Obviously it was quite tedious this time around, but hopefully things get more streamlined from that standpoint. Another thing to note, the form 8992 for GILTI is no longer required to be attached to the Form 1065 to the partnership return. So it should be attached to the partners return. In prior years, I think there was a requirement if you looked at the 1065 instructions to attach the 8992 with the 1065, you no longer have to do that.

Some other things to be mindful of. So if you have controlled foreign corporations and foreign entities in your structure, you most likely have FBAR filings that go along with that as well. A lot of times that's overlooked. So if you have operating companies or some kind of foreign operations, you're most likely going to have foreign accounts that in order to run those operations. So those will get filed with FinCEN. You could also file them with your return. If you have 5471s, CFCs, you may also have form 8938 filing requirements to report specified foreign financial assets. There is an exception to providing a lot of information if you're already reporting it on your 5471s. You just have to make sure that there's a little box you have to check off on the 5471 top of the page, but you still may need to file the 8938.

Some other forms that are common, you have your form 926, which is your contributions to foreign corp. So if the contribution is above a hundred thousand dollars, you may have a form 926 filing, or if your ownership in that foreign corp exceeds 10% as a result of that capital contributed, you may also have a filing. So one of those two ways are the most common. If you have PFICs in your structure, your passive foreign investment companies, make sure that you look at your 8621 filing requirements. If you're taking a 250 deduction and I mentioned against GILTI, or if you're taking FDII deduction for your foreign derived and tangible income, you need to make sure you're attaching an 8993 with your US tax return. If your company qualifies for BEAT, if you exceed the 500 million gross receipts threshold for the three years, you need to make sure you complete a form 8991. And finally, if you have interest expense in your controlled foreign corporations, you need to prepare form 8990 to be attached with each of the 5471s that have interest expense.

Some other things here. So be mindful if you're making payments from the US to foreign recipients, you may have 1042 reporting requirements on such payments, which may be FDAP payments. FDAP is basically your fixed, determinable and periodic payments. So those may include interest, dividends, rents, and royalties, which basically have a statutory rate of withholding of 30% on such cross border payments from the US. If you're looking to get a reduced rate of withholding, you need to see if there's a treaty with that recipient and their country. So if it's a payment from the US to the UK for instance, you would need to do a treaty analysis to see if you can qualify for a reduced rate, which in certain cases may be 0%, could be anywhere between zero and 30. But you also need to make sure you have your W8 documentation on file and at the time of the payment. So with that, we get to our next knowledge check.

Bella Brickle: Poll #3

Max Markel: Yep. Thank you, Bella. Yeah, so this is just to see how many of you guys have operations overseas and generate GILTI income from your foreign corporations. Make sure you get your knowledge checks in, or polling questions in, to get CP credit, as Bella mentioned.

All right, so it looks like about four out of 10 of you have some operations overseas or have clients that have operations overseas that are generating GILTI. It's a good amount.

Alrighty, so let's move on. Capitalization of R&D under section 174, that was touched upon by Carolyn and Anthony previously from a federal US tax concept. It's important to keep in mind in the example that Anthony walked through, the R&D costs, which were previously expensed and deductible in full in the year that they were put in place, are now amortized over five years if those are R&D costs that are domestic.

However, if you have IP that you're developing, or some kind of software development overseas, or any R&D that's offshore, that's going to be amortized over a period of 15 years. So you're going to be able to deduct a much smaller portion of that as when you were previously able to do. What that's going to create in some cases, if you have companies within certain industries that are pre-revenue or not profitable yet that have CFCs and foreign operations offshore, that may create a situation where it creates phantom income, because they're unable to deduct their entire R&D as they previously were able to do before '22.

One thing to note here, is just pay attention to the latest developments with the lame duck Congress in Washington right now, whether anything will get done at the 11th hour remains to be seen within the next month or month and a half that we have this year, to see if this gets pushed back. But as of right now, this is the law of the land for '22 and beyond. It's more likely than not, based on folks that I have been speaking with, that it's going to stay as is. So you want to be mindful of that and plan accordingly.

All right, so going to the treasury regs, there were final tax credit regulations that were issued in 2022. They touch upon the creditability of foreign taxes and timing at which that these foreign taxes accrue, and when they can be claimed as a credit. They clarify the definition of what foreign income tax is and a tax in lieu of an income tax. So you want to go into those if you're claiming foreign tax credits to make sure you're applying the definition correctly. They touch upon the attribution requirement, which was in the proposed regs referred to as your jurisdictional nexus requirement. So that's something to be mindful of. Then they talk about the disallowance of when there's a credit that should be disallowed with respect to your dividends-received deduction, in certain cases.

They clarify certain things in addition to foreign tax credits which relate to your foreign derived intangible income. One thing to be mindful with respect to FDII, I've had this in a number of my clients, obviously the IRS enforcement in this area, make sure that you and your clients have your documentation on file in the event that there is an audit. Because you'll need all your work papers that they'll ask for in the event that you took an FDII deduction, to see whether that deduction has the support that it needs.

There were other treasury regulations that were issued in '22 for subpart F. There were final regs issued, and for PFICs there were proposed regs. They treat the domestic partnerships as the aggregate of its partners when determining the income inclusion on their section 951, which is the section that deals with subpart F. They do that to conform with your GILTI rules under section 951A. The aggregate approach does not apply for purpose of determining the controlling the domestic shareholder of a CFC. With respect to PFICs, if you're making a QEF election and a mark-to-market election for determining an inclusion, that needs to be made at the partner level, not at the partnership level now. So just be mindful of that. Domestic partnerships are not considered shareholders for these purposes. With respect to the CFC/PFIC overlap rule, that should be applied at the partner level as well, and not at the partnership level.

All right, so there have been some developments in the tax treaty network that the US has with foreign countries. With respect to the US-Hungary Tax Treaty, it's important to note that the US is going to be terminating its treaty with Hungary. One of the reasons for this is it stems from Hungary's opposition to impose a global minimum corporate tax, which is outlined in Pillar II of the OECD guidelines. So that treaty is going to be terminated in '23, and with respect to taxes withheld at source, the treaty will cease to exist effective January 1st, '24.

That treaty was a very beneficial treaty with respect to tax planning. It did not have a limitation on benefits provisions, LOB provisions, which most treaties have with the US, so that being terminated is a pretty big deal. Then, for US and Chile, there is a draft of a tax treaty in place, but it is still not yet ratified. So pay close attention if you have clients that do business with Chile, to see when that gets ratified for relief from double taxation for some of your clients and businesses.

With respect to Puerto Rico, as I mentioned, there has been an increased scrutiny around, and the IRS has an audit campaign, for folks that are claiming bonafide residency in Puerto Rico. So make sure if you are advising clients, or if you have situations where you becoming a bonafide resident in Puerto Rico, you have all your documentation in order, which includes your local Puerto Rican documentation with respect to their Act 60, which is their export services exemption.

With respect to the internal revenue codes, some of the sections that deal with Puerto Rico are sections 937, 933. 937 sets forth the rules for determining whether an individual qualifies as a bonafide resident of a particular possession, such as Puerto Rico. There's various tests that you have to apply depending on your fact pattern. One is the closer connection test. There's a 183 day test. The tax home test. So just make sure that you have all your documentation, your receipts, your time logs and all that stuff for purposes of potential future audit. Then section 933 deals with the income from sources emanating from Puerto Rico. One key point to make here is these code sections talk about the US tax from a federal tax perspective. You also need to consider your state and local tax implications, and those should be analyzed by a state and local tax expert separately.

Finally, there's some IRS initiatives that we wanted to discuss. On November 4th, a couple of weeks ago, the Department of Treasury issued their Priority Guidance Plan for next year. Among the notable international tax items that they're going to be opining on are subpart F, and how it's including the coordination with the repeal of the downward attribution rules, which were recently repealed. The BEAT rules under section 59A, the DRD deduction under section 245A, with respect to the foreign source portion of certain dividends that are received from domestic corporations. Keep an eye on additional foreign tax credit guidance, transfer pricing guidance under Rev. Proc. 2015-41, with respect to your APAs. Your sourcing and expense allocation rules are under 861, as well as your chapter three and chapter four withholding.

One other thing to keep in mind is there's going to be guidance with respect to the Rev. Proc., revenue procedure 2015-40, which deals with the procedures for requesting and obtaining assistance from the US competent authority under US Tax Treaty. So if you have situations where you're going to the IRS to get competent authority on a related issue, just be aware there's going to be additional guidance coming out on that in 2023. That brings us to our next polling question.

Bella Brickle: Poll #4

Max Markel: Thanks, Bella. Yeah, as you're answering this polling question, one thing to keep in mind, in July of 2020, the IRS issued final GILTI treasury regulations that allow for a high tax exclusion election for companies that have foreign corporations that generate GILTI. So it's important to keep in mind if you do have CFCs that are generating GILTI for inclusion purposes on your US tax return, you want to be mindful of, if they're in high tax foreign jurisdictions, you may be eligible for this high tax election, similar to subpart F.

Okay, so it looks like there are some folks that do have this and they've analyzed that, and they've actually made the election, which is good. Even if you don't qualify, you still need to model out to see if this election will be beneficial for you as a taxpayer or as a client. With that, I'll pass it over to Mitch to cover state and a local tax.

Mitchell Novitsky: Okay. Thank you to my team. We're literally right on time. Usually when you're the last speaker, sometimes you got to go more, sometimes you got to go less. I remember a few years back, someone was given California updates, I was given New York. We had an hour between us. The person took 55 minutes, I had five minutes, and they said they needed that room after the five minutes because someone else was coming in. But we are right on time, we have a bunch of topics to cover. So I wanted to just summarize some of the areas that I'm going to be discussing in more detail. That should be in the slide that you see in front of you.

Starting in 2020, COVID presented a lot of different opportunities as well as issues in terms of state and local taxes. Then there was a federal notice issued and that created the opportunity for pass-through entity taxes at the state level. As a result, there's been a lot of activity going on in the States.

The first topic I'm going to talk about, and I'm going to talk about four separate topics, is this pass-through entity tax. It's called the SALT workaround. Now, even though it's called the SALT workaround, it really is a federal benefit, as has been mentioned earlier today, because with federal tax legislation in 2017, they put a maximum limitation on your deductibility of state local taxes. That's income taxes as well as property taxes. Most people in this area, property taxes alone could be over $10,000.

As a result, many people could not take advantage of both property as well as income taxes if they were located in high taxing states. So the IRS issued Notice 2020-75 that said, and this applies for all of you that have partnerships or S corporations, that even though at the individual level there's no deduction allowed for federal purposes, the pass-through entity can pay the tax on behalf of the individual. If the pass-through entity pays the tax on behalf of the individual, the partnership or the S corporation, those are the pass-through entities that are the focus of this, then they will get a deduction for the state taxes paid, and then they can credit those taxes paid and the individuals get a benefit as a result of getting a deduction that's allowed at the entity level that's not allowed at the individual level.

So that is a major opportunity that has presented itself as a result of this federal notice, that individuals that are partners in partnerships or shareholders in S corps now get a benefit by having the entity pay the taxes on their behalf and the entity getting the deduction for state taxes that the individuals would not get on their own. I'm going to get into more details with that. As a result of this notice, now there are about 29 states or so that have passed these pass-through entity taxes. Each state has its own peculiar provisions and therefore you really need to look at the specifics of each particular state. Some states have election dates, some states everything gets credited back to you. Some states, if there's a tax paid at the entity level, the state may take a portion, a certain percentage, for the benefit of allowing you to be part of that pass-through entity tax. So you really have to look at each state.

Some states also will not allow a carry for. Most states you just get a credit of any overpayment. Some states, like California, that amount has to be carried forward to the following year. I do want to highlight very specifically the three other topics because I've learned, I do teach, I'm an adjunct in Rutgers, that you want to make sure that... nobody can remember everything from a presentation, but you want to make sure that at least they take home certain points and then they can follow up with questions or further research these issues. That's all as a result of the federal notice. Remember, it's a federal benefit. So to get the federal benefit, generally cash based taxpayers, you got to make the payment before year end to get the benefit on your federal return.

There are three other benefits that I'm going to talk about, or three other issues that have came about. The world has changed, and now as a result of the world changing, many people are working from home. That creates issues as well as opportunities. One of the issues with people working from home is businesses now, if they have employees performing services in different states, that may create filing obligations in other states where employees are performing services on behalf of that particular entity.

But with every negative, always in life, you have to find the positive. That also creates planning opportunities, because before, if individuals were in a high tax state like New York, and now they have employees working in different places, it may create opportunities to reduce the overall tax burden of the entity. So look at everything as a positive and potential reduction in tax, even though some of the issues I'm discussing on first surface you may think are a negative, but there could be positive aspects of it in terms of reduction of overall tax burden.

Domicile, one of the biggest issues I've faced over the last couple of years as a result of COVID, is people don't have to be in a particular location anymore in person. That creates opportunities for individuals to basically change their residence, as well as their businesses, vigils, but the question comes up in businesses as well. No two states have the same tax structure. Certain states tax this, certain states tax that. So by relocating business or relocating individuals, you can save significantly on your tax burden.

Then New York City has a unique provision. They have a tax on partnerships, in most jurisdictions it's a flow through. They look at where the services are performed, with individuals performing services in different states now and out of New York City, there's a great opportunity to reduce one's overall New York City partnership level tax. So remember, pass-through entity tax, issues with telecommuters in terms of additional filings and opportunities, changing your residency and taking advantage of taxes like the New York City unincorporated business tax. It doesn't apply at the state level because they source revenue differently and they look at the office where it comes from, not where the services are performed.

So I mentioned the pass-through entity taxes. What the benefit is. Remember, it's a federal benefit that the states are giving you. They're allowing the entity to pay the taxes on your behalf. This is a chart, you got to be careful with charts, but, as I mentioned, when I teach, you got to look at the source. This is the AICPA, but you also got to look at the date, as of August 31st. I'm just utilizing this as an example. I'm not backing, supporting, advocating anything, but you'll see a lot of charts out there and that's why it's important to go to tax professionals, because some of these charts, they may misunderstand an application, they may not be updated. You got to look at a secondary source of information. If it's not coming from the IRS itself or from a state government, it has to be a reliable organization. I know there's chats on Google and everything, but just to give you a flavor, as you see, about 30 states have some sort of pass-through entity legislation.

Now, when would it pay to do this? Just want to throw this thought out. In most cases, you got to figure if anybody's paying significant state taxes, with the rates as we discussed before, the federal rate individual as high as 37%. It's almost a no-brainer to elect, or each state has its own way of doing it, this pass-through entity tax.

or each state has its own way of doing it, this pass-through entity tax, if you have a situation where an entity may not have any income, if you have a situation where an entity may not have any income source to a particular state and it's mostly non-residents to get into something, that may be something and if you're in a state, like California, where most states like New York, you can just get a refund of any amounts paid in excess of the liability. If you have a state that makes you carry forward the loss, then that may be consideration. There's also one other consideration that typically states give residents credit for taxes paid to other states. Most states will do, will allow this pass-through entity tax paid in another jurisdiction as a credit. But you could have some states that may not allow a credit. Those are very few states.

New York allows a credit for like 25 different states. But that's why it's important if you're considering election in some of these smaller states that may be important to you, you should look at any potential ramification that could come back to haunt you. Because a lot of times, these elections, I'm starting here with New York. New York has an election date, which is March 15th. They extended this year to September 15th. If you miss the election, technically you're out of luck. Where they'll be in terms of the future? I don't know. But you got to be careful that some states have an election date, so you got to be very aware of the election state date. Other states don't have an election date. You have to make estimated tax payments.

Last year in New York you didn't have to make estimated tax payments starting in 2022. The entity itself has to make estimated tax payments. But of course the tax payments made by the entity will be credited to the individuals on their particular return. As I said, don't focus on getting in all the details. You can look at the slides afterwards. I want to stress again, where you may not have time for questions, feel free to email us with questions. We'd be happy to answer all your questions. Just want to give you the flavor. Just want you to remember pass-through entity tax, it's almost a no-brainer in my opinion with very few exceptions.

This deals with the estimates and then similar rules for estimates, you have to pay in a certain amount, 90% of the current year, 100% of the prior year. If there's no prior year, then it's 90% of the current year. There's an annualization exception. New York doesn't allow it. Now, New Jersey allows the annualization exception. Each state is different. Jersey doesn't have that New York drop dead election date. Therefore, technically you still have time, but you have to make estimates. Jersey still have time technically until March 15th, 2023. New York, you're out of luck if you didn't make it at this particular point in time.

What is the pass-through entity tax on? Generally, for partners, it's on the income source to the states. So, if a partnership does business in a lot of states, I know there's all different levels of knowledge here. Only a certain amount is taxed to each state through a prescribed formula. For non-residents, it's generally an income source to the states. They allow for resident partners on all income. You may have to have some sort of partnership allocation agreement internally, talk to the attorneys to make sure that everything is being attributed and spread out properly. On S corps, because S corps you can't discriminate residents versus non-residents. So, it's just a New Jersey sourced income for all of them.

Jersey had a non-resident withholding requirement that still applied last year. They did away with it in '22. I'm going through the slides a little quickly, but as I mentioned, just get the flavor and the thought and follow up with questions. The tax rates, these are the tax rates. Incidentally, the tax rates, you're paying tax on all your income, from all the partners and everything. So, it may be a higher rate than an individual partner. It's more of a cash flow issue. You'll get it back at the end of the year. But you could wind up paying in more than an individual if they were making estimates would pay on their own.

There's different sourcing methods. New York partnership is three-factor cost of performance. Some of you may understand what I'm saying, some not, don't worry about it. S corp is market-based in New Jersey, partnerships is three-factor formula, cost of performance. For 2022, they made it the same for S corporations as well.

Now, New York City implemented a pass-through entity tax because New York City has its own separate tax. That's effective. They caught a lot of pressure, they were making it effective back to January 1st, 2022. You don't have to make the election till March 15th, 2023. But you can't make the city election unless you made the state election. So, if you elected the state by September 15th and you're in at the state, you can still make the city election. If you didn't make the state, you can't make the city election for 2022.

Who's eligible? Partnerships that have a final requirement in New York state and have at least one partner member that is a city resident individual. An S corporation only qualifies if you have all city resident individual shareholders. Incidentally, the state taxes non-residents, the city doesn't tax non-residents. That side of their requirements are a little different. To see if you qualify from a New York City perspective versus from a New York state perspective.

As I mentioned the New York City, the election is by March 15th. You don't have to make any estimates in 2022 if you wanted to apply to 2022. Be careful of the estimates. You don't want to, if you elect PTET, you got to remember the estimates. Same thing with all the normal rules, paying properly with the extensions and there's certain add-backs like the states don't allow a deduction for state taxes, so you may have to add it back, not to get into all the details, that could affect your estimated payment. Just be very careful. It's not just making the election and saying bye-bye. You have to follow up with your estimates and make sure that you're paying everything properly.

Just like there's a lot of items that for federal may not qualify for state, we talked about that in the earlier slides. So, just be very, very careful when it comes to making estimates. This is some further information here in terms of the New York City pass-through entity tax and the elections and the estimated tax payments.

Now, remember, New York City is one of the few places that has an unincorporated business tax as well as a tax on S corps. So, for New York City purposes, those entities are not flow-throughs. Even though you will make a pass-through entity tax election for New York City, if you have residents and you qualify under the terms that I just mentioned in the previous slide, you still have to file those unincorporated business tax returns and an S level tax.

Now, I'm bringing in the other states just quickly to highlight, Connecticut is one of the few states or the only state with a mandatory pass-through entity tax. Though, as I said, this changes very, very quickly. The rate of tax is 6.99%. They use the standard method, which is Connecticut source income, which some states look at, if you're a service business where the services are performed, some may look at where Connecticut looks typically at the market where the customer is. There's an alternative method in Connecticut, just be aware, Connecticut, you have no choice, you have to file a PTET return. Also, in Connecticut, they take a piece. So, credit goes to the partners 93.01, and 2019 legislation reduced it to 87.5%. New York and New Jersey, as I mentioned before, they allow a full credit and theirs is optional. You can elect in.

Connecticut's one of those states, you don't have a choice and you have to make estimated tax payments. Be aware of, as I said, not just the elections, you can get really stuck if you don't make the estimates at a certain point in time. California's got very quirky rules on this. Every state has its own rules. So, you have to be aware of that with these pass-through entity tax. Never assume that what applies to one state will apply to the next state. Okay, we have a polling question.

Bella Brickle: Poll #5

Mitchell Novitsky: Okay, good. Most of you got that. Normally, it's March 15th of the year. The state was extended to September 15th. The city says it didn't come about until the end of the year. They're giving you till March 15th, 2023. But you have to have elected it at the state level in order to make the city election.

Okay, now, the next topic is telecommuting. As I said, any questions in PTET, feel free to follow up. Now, with telecommuting, you have many individuals that may live in Connecticut or Jersey, work in New York. Incidentally, I can't help but talking about New York's convenience of the employer rule. This unfortunately isn't really potentially a planning idea, but New York says that if you are based out of a New York office, even if you are working in Connecticut or New Jersey, it doesn't matter, if you are based out of a New York office, you're subject to New York payroll taxes, New York State. New York City, as I said, doesn't tax residents. This has given the state a lot of heat over the years and this is a very tough rule to get around.

Now, on the next slide, I do talk about potentially having a home office out of state. I mean, if you work for an employer that has an office elsewhere and you're based out of that office, that may be a way around that. If you have a home office, it's got to meet very, very specific requirements. New York, even during COVID, when people were unable literally to go into the office and we're not allowed to go into the office, their position still was, and they ruled on this, that you have to withhold New York taxes from out-of-state residents. I know if you're an employer, an employee and you're watching this, is it unfair? They've had this rule, there's been case law on this as well. There's the Zelinsky case, he's a professor at Cardozo, and it's a tough rule, but that's the New York rule. But having said that, you can potentially, as I said, work for another office or have a bonafide office, but has to meet certain requirements, meeting customers and everything else out of New York and that could potentially help you.

But I bring up another point with telecommuting is that generally if someone is performing services in a state, that's going to create nexus for their employer and that nexus. Nexus is a filing requirement. A lot of employers now are not aware, and we talked about year end, looking at the states that you have to file it. A lot of employers are not aware. When you have employees performing services that could create income sales, personal income tax withholding requirements, and personal income tax. If you don't withhold, you're stuck with the obligations.

As employers, you got to be really careful where you have employees that you make sure you're filing in all the places that you should. It's interesting, a couple years ago, there was a Wayfair case for sales tax. It used to be you needed physical presence. That case basically stood for the principle economic presence. Even if you have no physical people or property in the state, where you just sell in, you have to file. Well, that created additional filing obligations. The telecommuters create additional filing obligations. Take a look and see where you may have to file.

But, as I mentioned earlier, where you have to file, that could create opportunities as well, because it could be that you're sourcing income out of a high tax state, like New York, into a lower tax state. But you got to look at each state's tax provisions, and this just has some other taxes you have to be aware of when you have a situation where employees are working remotely. But remember, don't look at it necessarily as a liability. Overall, you can wind up reducing your taxes with potentially a minimal compliance burden.

Okay, I see we have another polling question, but please stay on. I know that, like my class, once I say something and this and that, then I lose the whole class. We're going to have a second polling question, but we got exciting stuff for the next six minutes.

Bella Brickle: Poll #6

Mitchell Novitsky: This is a real trick question. I know normally shouldn't be talk while you're doing this, but as I mentioned, New York, if you are commuting, telecommuting out of state, they want the money. New York can't have their cake and eat it, too, even though they'd like to. So, if an out-of-state company has somebody working remotely in New York, but they're based out of state, and they never go back to that place, technically, that's a reverse convenience of the employer rule. And technically New York has to honor that. But that may be just with withholding.

But with everything else, they could say you still have nexus, corporate income tax or other franchise tax, they call, or other taxes could create nexus. But I think that if you are like a Nevada individual, and I had this question, and your family lives in New York and you're just telecommuting there, just because you're allowed to telecommute now from your employer, technically that's the reverse scenario. New York can't have it both ways and want you to withhold in that case, just withholding, not everything else.

Okay, let's see what the answers are. It depends. Yeah, people got it right. That was a trick question. Okay, two more topics and I'll cover them in the next four minutes, just residency issues. What happened as a result of COVID and now with telecommuting, you can now work from anywhere. A lot of people are calling up, "Oh I want to be a resident now of Florida." It's not so simple, because there's two ways to be a resident. One is it's your permanent home. We have a whole checklist we go through to make sure that you've changed your residency, voting and driver's license and removing all your contact and moving stuff and having your celebrations there. Your near and dear items and everything. You have to show that it's intended to be a permanent home and that has to be followed up with facts.

You can't just say, "Abracadabra, I'm a resident of Florida." Even if you have a place there, if you spend most of the time in New York, that's one way. The second way is your intent has to be to live elsewhere and it has to be shown through actions. The second way is you could be a resident of two states for tax purposes, even though you only have one permanent home. So, if you maintain a place in New York and spend more than 183 days, and any part of a day is a day, you are a resident for those reasons. Anybody that's considering changing their residence and the New York taxes now are between state and city are as much as 15%. Yes, it's a great idea. But dot your I's, cross your T's. I worked for the New York Finance Department. The burden of proof on an order is on a taxpayer.

They are very intrusive. They'll ask the cell phone records, credit cards, et cetera, for you to prove that you changed and went elsewhere, and that if you maintain an apartment there, you're not there more than 183 days. Any part of a day is a day. So, if you sleep over, remember, that's two days and it doesn't matter if it's business or personal.

As I said, they look at what your permanent home is and it's not just what you say, it's what you can prove. You have to prove it. They'll ask for cell phone records, bank statements, E-ZPass. I tell people, "Sever your connections with the old as much as you can and establish all new connections with the new." The more you connect to a place like New York, the more an order is going to come in and give you a tough time.

Everything should literally move. On the second test, spending 183 days, if you do maintain a place there, but mostly everything is in Florida. Watch your days. If you go to dinner and the bill comes late and it's the next day, that's two days. As I said, anyone that has that issue is considering moving or has a place elsewhere wants to make sure the residency is changed, we can work you through that.

They have a new audit group now that is specifically looking at people that change the residencies. So, do not take this lightly, we don't want you to get a letter and then get a little nervous, dot your I's, cross your T's, speak to a tax professional and make sure that you're not going to have a problem later on. If you do it, another thing, you can't decide two years later, "Oh, I want to unwind. I didn't like Florida or Texas." No, because that will certainly not be helpful in audit.

The last item I talked about was unincorporated business tax, where New York City uses single factor for services, where the services are performed. Well, we had a lot of clients that were totally in New York City that had 100% of their receipts sourced to New York. Now, as a result of COVID and the general telecommuting, you can lower your overall income tax to New York. I mean, I've seen 30%, 20%, 5%, but one thing, again, documentation, get the time sheets. You cannot take this lightly. You always have to think, "What happens if I get audited?" You always have to be prepared for that. So, save records. I got clients call me. I had a client's wife call me, "Why is my husband saving all these records?" Save the records. It will create a much easier situation later on down the road. I wanted to thank everyone, wishing you all a happy Thanksgiving. All the best and any questions, please follow up with us.

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