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Federal Tax Update for Businesses and Individuals

Published
Jan 27, 2025
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When tax law changes occur in the US, it’s critical for you to be aware of the current rules and what opportunities exist. Join EisnerAmper to learn about the recent key tax developments impacting individuals and businesses.


Transcript

Tom Cardinale: Thank you Astrid and welcome everyone. I hope everyone is off to a great new year and staying warm depending on where you are, we are happy to be here once again to give our business an individual tax update. Overall, I'd have to say 2024 was a fairly quiet year in terms of tax changes. The 2017 Tax Reform Act or the TCJA. The Tax Cuts and Jobs Act still reign Supreme and current tax practice and will be the point of our presentation today and what we're using today in practice. However, we have a new administration and we are expecting significant action on the tax legislative front in 2025, and we will be touching on a sum proposals being floated around. Although the goalposts are moving a little bit, it seems like every day they change a little bit, so please take them merely as high level considerations and insight maybe for internal planning purposes only. So with that, let's get this started. I'm going to pass off the individual tax update to my colleague Ben Asper to kick things off, and then I'll take over from there on the business update. So Ben, take it away.

Ben Aspir: Thanks Tom. Welcome everyone to the first official day of the tax filing season and which I believe Tom is our 10th annual individual and business tax update, and it's come a long way from presenting on the 10th floor of our building. Now we are presenting to participants in more than 40 states around the country, so we're very excited to present today. So to kick it off, like Tom said, there's going to be a lot of changes that may potentially happen on both individual and the business tax side. First, let's talk about just the tax brackets, and I'm not going to go through each line, but just everyone to be aware of for this upcoming filing season, what the tax rates were for 2024. As you can see, if you go down the line starting at the 10% and then all the way down to the 37% for single filers compared to married filers, that's where the so-called marriage penalty kicks in the brackets do not double. If you look at the single filers, it's 609,000. For married filers, it should be double at 1.2 million. However, it's 731,000. Then for 2025, just looking forward for your own tax planning, the brackets are adjusted for inflation and just remember these brackets and these numbers because I will be talking about some changes that will affect the tax rates and the brackets.

The standard deduction, which was doubled as part of the Tax Cuts and Jobs Act, which I'll be talking about shortly, was increased for inflation up to 15,000 and 30,000 for merit filing jointly for anyone doing planning going forward for 2025, if they think they're going to end up being close to that number, it may be worth towards the end of the year accelerating any deductions they may have such as charity if they want to itemize. So this planning that could be done around that retirement planning contributions with the new year starting for any employees, they should be checking to see if they're able to do it. If they can maximize their retirement plan contributions, they should check on their company website to see that, to update any contributions that they could be taking out through their paycheck. There is this special new catchup for people that are 60 to 63. It's an additional $11,250 for people that are in that age bracket. So I would advise anyone, like I said, anyone that can contribute to a plan to see if they can maximize their retirement plan contributions. Another thing to keep in mind, remember these numbers is like I said, there's going to be changes from the tax cost and jobs act unless there's action by Congress. The lifetime exclusion for gifting people give away assets is 13.6 million. It goes up to 13.9 million for 2025. The annual gift exclusion becomes 19,000 for 2025.

So the tax Cuts and Jobs Act, I'm sure you've been hearing about it, it was passed at the end of 2017 colloquially called the Trump Tax Cuts. Many of the provisions are set to sunset at the end of 2025. Tom will talk about the business side, but some of the provisions are the 20% qualified business deduction that was enacted to create equity between the corporate tax rate, which was made permanent at 21% and for pass throughs, it would've been for S corporations and partnerships, it would've been like you saw earlier, if you're in the top tax for 37%. So with a 20% deduction, if a company is eligible, it reduced that effective tax rate to 29.6%. My own personal opinion is I don't believe they'll let it expire. They'll either extend this deduction or make it permanent, which I think is less likely. Again, like I said, like Tom said, we're just giving our own personal opinion.

This can change three more times until it actually passes. So the mortgage interest deduction, currently the limit is $750,000. That was a result of TCJA that would if absent in the action by Congress, that increase that will increase to a million dollars. You can deduct interest up to a million dollars if that's allowed with house prices going up. I think some many people will like to see that limit go up. The personal casualty and theft loss deduction currently only federally declared disasters. Unfortunately, that's become more pertinent lately with wildfires in California and hurricanes on the east coast. So if that's allowed to expire to sunset, this would obviously be a favorable change that if a federally declared disaster would not be required to claim a personal casualty and the theft loss itemized deduction for miscellaneous expenses. So prior to TCJA there was a 2% floor.

So if you had certain miscellaneous expenses that were in excess of 2% of your adjusted gross income are I amper, our tax prep fees were deductible as long as you exceeded, you itemized your deductions, you exceeded that limit investment management fees, those were deductible job service expenses, those were deductible. Currently they're not. If this provision is allowed to sunset, then if starting in 2026 you would be able to take those deductions and deduct EisnerAmpers fees. The itemized deduction phase out, this would be an unfavorable change if it's allowed to come back into play. But prior to TCJA, if you reached a certain income limit and your itemized deductions would phase out up to 80%, currently that is not in play, but starting in 2026, that would come back into play and like I mentioned, on paying attention to the lifetime estate and gift tax exclusion, that was significantly increase as part of TCJ.

If this provision is allowed to sunset, it would be cut in half. The lifetime estate and gift tax exclusion aspect, a flurry of activity of gifting before the end of the year. There are some in Congress that want to just repeal the estate tax completely. Some that want to keep the increase exclusion amount, so that remains to be seen the individual tax rate, so the top tax rate, if the T-C-U-J-A is allowed to sunset, this provision will be 39.6%. As you saw in the earlier slides, it was 37%. The standard deduction, which I showed earlier, would be cut approximately in half the personal exemption, which was also done away with the TCJ that would come back. Anyone that's filled out a W four remembers the personal exemptions and that would come back. The additional child tax credit, which was increased, which was doubled as part of the TCJA would be reduced back to a thousand dollars and have much lower income threshold phase out.

Currently it starts the phases out at dollars, it would be approximately a quarter of that, so a lot more people that are claiming the child tax credit would be phased out from IT credit for other dependents that was added also that would no longer be available. Moving expenses, that was done away with as part of the DCGA, which allowed if you move more than 50 miles and you met other criteria for a job, you were able to deduct those expenses. So like I said, absent any legislative save activity, that would be a favorable reinstatement. The charitable contribution deduction limit would be currently you can deduct up to 60% of your adjusted gross income. That would be reduced to 50% and another one, the biggie that everyone's talking about the state and local tax deduction cap as part of the TCGA, you can deduct up to only $10,000 for anyone.

Like I said, I know we have participants from over 40 states. If you're in a state with a low income tax or low real estate taxes, it may not have hit you as hard, but up here in the northeast with high real estate taxes and high income taxes, it affect us significantly, which brought on the pass through entity tax regime that allowed S corporations and partnerships to make elections depending on the state and deduct those taxes on their business tax return. So there's a lot of proposals being floated around. So like I said, currently it's $10,000 a cap. Some are proposing to double that to $20,000 that you can deduct to state and local taxes up to 20,000 some in the other direction. Some want to repeal any deduction for the state and local tax and some are proposing doubling from 10,000 to 20,000, but then repealing the deduction for the past renting tax. I mean that would ripple throughout the entire business community because a significant amount of our clients are making the pass through entity tax election and deducting it. So it remains to be seen.

The Republicans have an narrow majority in the Senate and in the house and obviously Republican president, so it would only take a few dissenting people in Congress to kill a bill, a legislative bill. So there's going to be a lot of negotiations over the next several months and it's going to be very interesting to see electrical vehicle credits that came into play as part of the inflation reduction Act. Currently it's still part of the tax code that may, there's rumblings that it may be reduced or appealed. Some of these credits, the maximum credit you can take now is 7,500 for a new electric vehicle, one of the newer provisions and used vehicles, you could take a electric vehicle credit up $4,000 and a taxpayer can only claim that credit once every four years and it's limited to 30% of the car's purchase price and you can look up the vehicle if you're interested in purchasing or leasing and the electric vehicle, we provided the link at the bottom. You could actually type in the make and the model and the year of the car and it'll tell you what credit you're eligible for.

These are just the income limits for new qualifying vehicles. For married filing jointly, it's up to $300,000. Anything over that, you don't qualify for the credit. If your adjusted income is over that. For used vehicles, the threshold is much higher. Take note, I mean the threshold is much lower actually at $150,000. Another credit that may go away depending on how Congress decides to act, but this was also added if you did any energy efficient improvements on your house, whether you put in energy efficient windows, energy efficient doors, you added specifics installation to your attic, you can take a credit on your tax return equal to 30% of the cost improvements and the credit is now to $1,200 annual credit. It used to be a lifetime cap on it, so it was increased and it's an annual credit as well after. So currently in 2025, if you purchase a energy efficient product, they will give you identification number on it. So for your 20 20 25 tax return, if you make an energy efficient improvement, you would have to add that identification. Number of this credit, unless it's repealed or reduced, is available through 2022. Let's move on to our second polling question. The top federal individual tax rate is 2025 and 39 is 39.6%. True or false, we'll give you 60 seconds. Let's see. Any questions we got while we do our polling?

So someone had a good point. Even if the salt deduction were to sunset, you would still get tracked with the alternative minimum tax. It is true if you had a significant amount of state and local tax deductions prior to TCJA and you were high income earner, you were very likely to get hit with the alternative minimum tax. That is a good point. Let's see what other questions we have. We'll give everyone about 20 more seconds.

Astrid Garcia: Hi Ben. I'm going to jump in here. Just remind everyone that the polls are within the slides widget. So if you could see the slides, you could see and answer the polls, just make sure you select an answer and hit the submit button. I know that we're getting a couple of questions that people are not getting notified. You'll not get a notification. We will say the question and then you need to make your selection on the slide widget and hit the submit button. So just make sure that you submit your answer.

Ben Aspir: Give five more seconds. The correct answer is false. The top tax rate for 2025 is 37%. If it's allowed the sunset, the changes, it'll in 2026, it'll revert to 39.6 retirement provisions for 2025, the secure act which passed in 2019 and then they made a new and improved version in 2022. It expanded automatic enrollment in retirement plans. They want to encourage taxpayers to participate in the retirement plans that their employers are offering. If anyone that's curious what secure stands for is setting every community up for Retirement Enhancement Act. I prefer secure to use that term employing matching contributions.

In order to encourage employees to pay back their student loans, they allowed employers to make matching contributions to the amount that employers are paying back their student loans. Part-time workers now can join their company's retirement plans like 4 0 1 Ks or if they're not-for-profit or government or 4 0 3 B. This is an interesting one. You can 5 29 rollovers to a Roth. If you were in a 5 29 plan for at least 15 years, you can roll over parts of the 5 29 to a Roth IRA with a lifetime limit of $35,000 and the rollover must be within the annual contribution limits on 5 29 plan. There are people that have leftover funds in a 5 29, whether the child, they didn't spend the entire amount for the tuition and there's money left over and they don't want to pay the penalty to take money out of a 5 4 9 if they don't have eligible education expenses.

Some additional provisions, penalty fee withdrawals for certain emergency expenses up to a thousand dollars. I mean it is going to be taxable if you take advantage of that withdrawal, you can repay it back within three years to avoid the tax. There was a mandatory Roth catchup contributions for high income earners. That was a lot of controversy last year. They delayed that through 2025. If you were over a certain income limit, you can only make Roth catch up contributions if you were over 50. So they delay that through 2025. You still have another year to do that. We'll see if they change that. And like I mentioned earlier, there's a higher catchup contribution limit if you're 60 to 63, the greater of $10,000 or 50% of the regular catchup amount after 2025, it'll be indexed for inflation. For anyone that's subject to required minimum distributions, this is the age that you have to take with people living longer. They increase the age that are required for required minimum distributions. And just remember for Roth accounts you're generally exempt from retired required minimum distributions. I'll turn it over to Tom to talk about the business tax side of today's update.

Tom Cardinale: Thank you Ben, and I know there's been a lot of questions being posted to our q and a. Please note if we can't get to your question, we'll do our best to respond to your questions. After the call, we get an Excel sheet of all unanswered questions and we will do our best to answer them because we already got a few dozen questions so we just don't have the time unfortunately, but we will try to get back to you. So moving on to the business tax update. We're going to go through a few tax proposals being considered and as I stated in my opening, this seems to be changing every day, so we want to just pay attention that things could change. Please do not consider it as written in stone. I'm going to be focusing more on the current law provisions and updates. We'll go through some inflation adjustments, other tax provisions, and also spend a few minutes at the state level, which oftentimes gets overlooked, especially when it comes to legislation at the federal level because states can in the end do their own thing. They could write their own legislation, they could either be a rolling conformity and just follow Fed or they could be static conformity and write their own laws. So we'll go through a couple of provisions at the state level also.

First we want to touch on what are the proposals being discussed by the new administration? Without question, the first bullet here has been the big talk is lowering the corporate tax rate even further. We're at 21% right now and there's been a discussion to have kind of a dual corporate tax rate system of either 15 or 20%. The 15% rate is being floated as only two companies that are 100% or substantially. All US based operations, and that's primarily employees in your physical location want to make sure you're investing in the US to be rewarded with a low 15% corporate rate and would be 20% rate for all other corporations. So it'd only be a 1% haircut to the rate for all companies. So the point I'd take from that, just from a pure planning perspective is if you are a company out there with significant taxable income and you're primarily in the US right now, but you are thinking about global expansion, maybe you want to open up a sales point person team in Ireland just as a start to your international operations, but you don't want such a small office or presence overseas to ruin a tax rate from 15%, now you're going to be paying 20%.

So that 5% difference in the tax rate could be meaningful. So if you're in that planning phase, you just want to keep that item in play. It's completely unknown if it's going to be less than a hundred percent, that's what President Trump wanted, but maybe they do it based on 95% of your employees or it must be in the US or 90%. So this could keep changing, but it could influence your international planning right. Now the second item, especially if the corporate tax rate does go down to 15%, there's going to be a lot of pressure from small businesses that have an S corp or a partnership to make the 20% qualified business income deduction permanent. If they don't extend that, then it could technically be more favorable in many instances to be a C corp including the double taxation impact of a 20% dividend because you got a 15% rate and then you pay a 20% dividend rate on top of it.

That could wind up being very competitive with a pass through rate. So we will have to pay attention to that. The repeal of certain business clean energy provisions, tax credits has been talked about a lot, not across the board. There's been a lot of talk, especially with Elon Musk as part of the administration to extend energy credits relating to electric vehicles or clean burning vehicles. So there could be an extension of those and the 1 63 J, which we'll be talking about in more color in a minute, which is the interest expense limitation, restoring that to an EBITDA measure for the limitation right now it's ebit, so restoring the depreciation and amortization component would be significant benefit for those that are hitting this limitation.

And just real briefly, tariffs aren't considered a tax. Some call it a hidden tax or a deemed tax, but they're not. But this can influence a lot of people in this call. We've been hearing about a 25% tariff on goods in Canada and Mexico, which was now postponed to a February 1st announcement. It was initially brought up during the day one signature of various executive orders from the president, so we could hear something next week on that. The 60% tariff on certain Chinese made goods has been talked about. Now I'm hearing more in line with the last bullet, 10% perhaps on certain Chinese goods on universal tariffs. I think we imposed a 25% emergency tariff yesterday on Columbia, but that was relating to immigration policy and turning our military jets around, so that was maybe more a concentrated example, but there's something to be aware of on those.

So business Mel, let's talk about what is the corporate and business tax law today. We talked about the 21% flat US corporate tax rate and that was written as permanent into the tax law of the Tax Cuts and Jobs Act of 2017. So we'll see if that gets lowered. The section 1 74 r and D capitalization. This is without doubt been one of the most harmful provisions of the Tax Cuts and Jobs Act. We have startup companies, heavy tech companies investing in RD, biotech pharma and to capitalize a significant r and d cost over five years as a tax deduction for domestic or 15 years if it's foreign based that has an immediate tax bite that's in a significant add back to taxable income and that was written in as permanent. So we'll see if that maybe gets repealed. Maybe they lower the years to three years, that could be part of potential new tax reform 2.0 corporate NOLs.

If an NOL is generated after from 2018 and later, it is still an indefinite life on the carryover if it's unused, but the note that such NOL deductions are limited to 80% of your current year taxable income, so that's almost like a deemed minimum tax. You can't use it fully. You can continue to use full NOL deductions if you have a pre 2018 NOL carryover entertainment expense. Business entertainment expense is still 100% non-deductible. There is still the 50% allowance for business and office meals, but keep in mind that entertainment is still 100% non-deductible. The 1 63 J business limitation, 30% of EBIT current year ebit, the global intangible low tax income or guilty inclusion still in existence, it's kind of a pain, very, very complex. It could actually wind up being an immaterial difference to your tax bill because you're allowed all these statutory deductions against it. You're allowed a foreign tax credit against it, so it could almost wind up being breakeven, but it is still in existence. And then the foreign derived intangible income FDI deduction, which is for companies based in the US that are exporting products or services overseas, you can do a bifurcated deemed foreign export income on those exports and you get a 37.5% deduction on that. So that's the 2025 deduction.

So a focus on the 163J interest expense deduction current law is limiting the annual business expense to 30% of EBIT formerly EBITDA prior to 23. So with the removal of depreciation and amortization, especially with companies that have acquired other businesses and have substantial goodwill, intangible deductions, amortization that's now removed so that, so more and more companies we're seeing as we prepare tax returns are getting severe limitations based on the EBIT component. Any interest expense, this allowed still carries forward indefinitely and the interest expense this allowed is considered paid or incurred in the following year, so by default so it could wind up snowballing unless the income is high enough. So there's no expiration or change to the above unless Congress acts. This was again, a permanent change within the TCJA. There was an attempt to loosen the rules a couple years ago during Covid, but it just didn't have enough votes.

Now to discuss some potential good news here, and this has been a hot item over the last few months. We're discussing it internally in our firm and we want to make sure we get it all out there to the marketplace and that is a 2 66 election. It's been around for decades going back to the 1950s and sixties, but it really hasn't had much thought because interest expense was pretty much fully deductible or even with the EBITDA limitation, it wasn't as prevalent, but a 2 66 election allows companies to capitalize carrying costs, certain carrying costs, not all costs on the acquisition of personal business property, which does include interest expense, which was an admission by the IRS, that interest expense is a carrying cost and you can capitalize it either to inventory or other tangible property for tax purposes only. So it works similar to 2 63 A if you're familiar with that.

The uniform capitalization rules. So this is just another way to carve out the interest expense from what was otherwise part of 1 63 J and move it to a cost of good sold item. You need three qualifiers to do this. It must adhere to your method of accounting, whether you're cash or accrual. The elected cost must otherwise be a deductible expense. Now you would think, well, the interest expense is not deductible because of 1 63 J, but no, the 1 63 J is a limitation. It is not telling by default interest expense is a fully deductible expense and then 1 63 J is just a limitation mechanic. So that is an allowable cost and with like most elections, it must be made with a timely filed tax return with extensions included. Don't go back and say, Hey, let's just amend all prior years now for this election. You can't do that.

It's got to be on a timely filed return and further, as I stated, well how does this help? Well, by capitalizing the interest into tax basis in inventory, it becomes a short-term temporary difference. You're putting it to cost of good sold and it become fully deductible when the inventory is sold and you're totally shielded of that on that interest from the 1 63 J limitation. So the interest expenses transformed into a short-term temporary difference isn't deducted either the current or the following tax year, but without doing anything, the disallowance, as I said, that could snowball the carryover of the 1 63 J interest could snowball to a significant amount and be trapped in perpetuity. So this election could be very effective planning tool.

Okay, we're going to move on to our next poll question. Please be sure to answer it in the next minute. How many Super Bowl PX pools have you joined this year? And we'll give you about a minute for that. As a Giants fan, unfortunately my two most hated teams are in the Super Bowl, so I'm hoping to make some money on some of these pools to soften that blow. A couple questions coming in. Is a greens fee and golf cart fee considered hundred percent dinner? Well assume you're taking out a business client or employees out to a golf day. Pretty much all costs relating to that event is going to be a hundred percent non-deductible expense, so you can't really carve that out. What you could do is if you go out for a round of golf and you take everyone to a business meal later, you discuss some type of business, then you can carve out the meal costs and deduct that 150%.

What is the threshold that brings in 163J is another question. It applies to all companies, except if you're considered a small business, which we'll touch on later, if your average receipts are 30%, or I'm sorry, your average gross proceeds or revenues are 30 million or less in the last three years, you are exempt. You're a small business and you don't have any limitation to 163J. Okay, we got almost everyone answering. Give a few more seconds. You're in Go Birds. My guess would be most of America is going to be rooting for eagles. That's just my opinion.

Okay, and we're going to close the poll and see the results here. I is the 2 66 election, an annual one? Yes, I believe it is an annual election. None, 78%. So we have 78.3% smart people on this. Unfortunately, I'm not the smart one. I'm in the two to three camp, so I joined 7.2% of you, but in the end, I just hope it's a great game. You all have a great Sunday in a couple of weeks and enjoy the game. Alright, next slide. If you are a business owner and you are a not public, you could have a 32nd to a minute break here. The 162M officers compensation limit is purely on public companies. This is a public company rule that we deal with a lot in our practice with public companies. It's generally a $1 million maximum annual deductible limitation on compensation for each of the top five officers or employees of a public company or a covered employee.

I just want to put this out there for all the public company contacts on the call. This is a new proposed hot off the press last week and it's extremely technical, but I just want to give an overarching message on this and that is that the iris is looking at this on a global scale or an aggregation scale, meaning you have companies, let's say you have a public company and you also have a multinational group like several foreign subsidiaries, and you pay your let's say CEO $1 million, okay? There's your 1 million limit right there. But let's also say that that employee is paid overseas by a foreign subsidiary or many foreign subsidiaries, and then the US public company reimburses those foreign companies for those services of the CEO, like as an intercompany fee. And you call it intercompany allocation fee or management fee. The purpose of this new proposed reg is to corral all those payments as compensation.

So right now you could be very clever in bifurcating someone's compensation to somehow circumvent them 162M limit. But these new regs could be substantial. It's not going to take effect for a couple of years as you see it's on the later of final regs publication or 12 31 26, but they're trying to corral just universal groups related parties and kind of make it a unitary business for 162M purposes. So that could be significant and you want to plan that out. If you are a public company and you have this issue and multinational groups, please be aware of it. The employee pools expanded. Like I said, if you're part of an affiliated group, you could have a top five compensated employee regardless if that employee performs services in the us. And then the compensation is also going to be computed on an employee by employee basis. Well, what does that mean? Well, the current rule for public companies is you have to follow SEC disclosure. So for the top three highest comp employees, but now this change is going to say no, no, you have to do it for tax purposes, a tax basis computation for 162M unlimit. So that could be materially different.

Okay, so back to overall provisions. Bonus depreciation, which has always been a business friendly favorite and the tax law and even congress likes it because in the end it except for present value of a dollar, it is tax neutral. They have allowed businesses to accelerate depreciation on a qualified business. Property started at a hundred percent, but as part of the Tax Cuts and Jobs Act, there was a sunset or cascading 20% reduction every year. And it is still currently on that timeline. This could be part of a new tax reform, maybe burning back the a hundred percent we don't know. So just note for tax year 24, we have 60% bonus. And then next year, current year we have 40% bonus and then it'll go to 20% next year and then 0% bonus after that unless it is extended. The reminder on qualified property generally there's always qualifiers.

It's generally 2020 years or less tax recovery period except for certain improvements. If one of my favorite publications you could Google is 9 46 publication and just go right to the back if you're unsure of the recovery period. And there's a pretty good detailed, especially on manufacturing equipment, very good detailed list of assets. Note that many states still do not follow bonus depreciation. States in large part may have a balanced budget amendment and this was just too costly to them, so they may decouple from that and you have to depreciate under normal class lives. So please be aware of that.

And then the other side of business expensing for tangible property, and this is 179, section 179 now has a lot more value in the business market because of the cascading 20% bonus when bonus depreciation was a hundred percent. Section 179 for the most part was considered a fifth wheel. You really didn't need it. It was too much except for maybe state purposes where maybe they allowed a more healthy 179 deduction and decoupled from bonus. But now we're at 40% bonus for this year. But you still got these significant 179 expenses you can do, which is a maximum deduction of 1,000,002 for 24. And you can see it only goes up a little bit in 25 up to 3 million of qualified property. If you exceed that annual cap, then it's reduced on a dollar-for-dollar basis, the 179. And also a reminder, it's limited by your taxable income.

You can't take this for a loss business if you're have taxable loss. You cannot take section 179 for bonus. However, you could take it in both instances. Eligible for most tangible property and equipment except for real property, that's the one big exclusion and it has to be an asset used 50% of business, federal corporate AMT, the AMT, which was also introduced in the Tax Cuts and Jobs Act. Some have joked called at the Amazon tax back in the Trump first administration because it's set to include a 15% minimum tax on global income for certain corporations that have global profits of a billion dollars. So everyone talked about Amazon, they have all these global operations, they seem to be making a killing, but for whatever reason in the US they are breakeven or losing money and making billions everywhere else and you use the three year average on that. So there's only about 150 US companies that are impacted by this AMT.

So they reinstated it technically in our firm. We're doing it for several businesses that are hitting that mark. There was a new regulation passed in September 24 pretty recently that goes into the clarity for all the adjustments because it is a convoluted computation when you get to things like depreciation basis, adjustments, certain allowances. So the IRIS finally issued some proposed regs on that. Just a couple of the foreign items. Many of you may not have this, but if you are a US business and you have export services or income tax, year 25 is the last year of this 37.5% deduction on that deemed foreign derived eligible income and it's going to go down to 21.875 next year. The base erosion and anti-abuse tax commonly called the beat in the tax world. This only applies to multinational groups that have significant intercompany service payments or service deductions. Cross-border activity, it applies if you have $500 million globally in receipts, average receipts and at least 3% of overall deductions are payments attributable to foreign affiliates. So if you have those heavy intercompany allocation fees, you may be subject to that and then you work up this deemed beat income and the rate for 25 is 10% and then it's slated to go up next year to 12.5%.

So this page just kind of a various business tax items out there and inflation adjustments to be aware of one. And this was touched on a question I received before on the 163J. Does it apply to everyone? No. If you are considered a small business for tax purposes, which is now $30 million of average prior year receipts, it's a three year average and that was significantly increased from 27% last year. So it's about a 10% increase. So if you're in that 30% average receipts or less, you're excluded from that 163J EBIT interest limitation. You're also allowed to use the cash method of accounting if you're a C corp. The 2 63 a uniform capitalization rules for inventory. If you're considered just a reseller of products and you're hitting this $30 million or less receipts, you don't have all this and there's no special paperwork to do, you're just automatically exempt.

The business mileage rate for business miles has increased to 67 cents this year. It's slate to be 70 cents this year. So pretty good inflation increase even though gas prices have been fairly steady over the last year at two 50 to 3 25 area and right for regular. So pretty meaningful inflation increase the qualified transportation benefits three 15 a month from two 80. If you have the employer contribution, this is the flexible spending account, the FSA that you may want to put aside some pre-tax dollars and use it for things maybe like dental care or medical costs, things like that is 3,200 for 24, 3300 for 25. And again, these are pre-tax dollars, so your salary, your box, one of your salaries would be lowered by that amount and hence you're not paying a tax on it when you use those funds for certain medical costs. The self-employed pension, the retirement plan contribution if you're a sole proprietor, sole business owner is increased to 69,000 for 24 and increases only a little bit for 25 up to 70,000. So some various inflation adjustments on those.

Okay, so we're going to see who the tax experts are. We're going to go to our next polling question, what is the current US corporate tax rate? We'll open that poll up and if you have any issues, please reach out and Astrid will take care of you. Okay, let's see. Take a peruse of some questions. Do the bonus depreciation of 179 deductions work independently of each of for the same property? Yes, you could technically apply an asset for both. If you wanted to apply 179 first, or I should say bonus first, you could have 179 on the remainder, but you can technically get both. Can you take 179 deduction if any has a loss, but consolidated group has income? Great question. Normally when you think about deduction limitations it's looked at or income limitations even. It's almost always looked at the consolidated level. So if the consolidated group has income will be limited to that. I can't say that's going to be the same at the state level though. So you may want to check the states if it's a lost company, I don't know what the state rules are, they may have a limitation on that.

I saw an article saying that we might have to consider fees paid to outside counsel or others into the 1 62 M consider. Wow, that's very interesting. Yeah, these new regs are very expansive and maybe they do throw in other costs into the remuneration. Anything that maybe is to the benefit of one of those top five employees or executives, then yeah, that could be a consideration. Okay, we got give a couple more seconds. We got 86%, 14% of you have not answered. Let's go

Ben Aspir: Based on the chat. Tom, it seems like we have a lot of Eagles fans on this podcast.

Tom Cardinale: A lot of Eagles fans appreciate the question. Yep. Alright, so we're next. Very good. 71% of you got it right? It is 21% is the current US corporate rate, so good. Very good. The 37% rate, no, that's the individual top right, right now. All right, very good. Okay, just want to spend a few minutes as we tail off here just talking about some state updates pass through entity returns. And this is kind of tying into Ben's presentation before an individual taxes, but everyone, especially in high tax states, always is talking about this $10,000 state and local tax deduction cap and is there a way to circumvent it? So several years ago, many states started the process of saying, well, why don't we just have the business pay the tax and then it's a federal deduction to the federal business tax return with no limit and then the individual will be allowed a credit.

So in the end it's like paying it twice, getting a credit once net paid once, but you're circumventing it past due entity returns are still very popular. So this is just kind of a PSA to remember that either March 15th or April 15th is a very popular election date to do this. Some are earlier, I believe New York is especially earlier, so don't rely on these tax proposals. Some have talked about removing the cap, some have talked about making it 20 or 30,000. Even if they change it to $20,000 cap, I think the PTE is still going to be extremely popular and there'd be no reason to stop doing it. So something to consider, just want to make a note on interest rates here. When it comes to estimated payments, I know it's never popular to pay taxes on a quarterly basis for your business. Please note that interest rates are still high.

They are coming down, but they're still high on estimated payment deficiencies. Think of the cashflow costs on skipping those payments and waiting until the extension payment, which is usually three and a half months of the following tax year. Some states have 10 11% prime plus three I think would be actually 11.5%. So it's still got a lot of bite to it. So if you're saving that cashflow, make sure you could at least beat that interest cost on the 174 RD capitalization, which again has been very harmful on the federal side. There are a few states that have made it easier for those businesses and have completely decoupled from the 174 capitalization. So if your business is in any of these five states, they do have a complete decoupling of that so you can expense your r and d altogether.

Okay, another big thing we've seen is the economic nexus trap. This is really important. If we could just go back in time six, seven years ago that you may have heard of the Supreme Court decision of Wayfair versus the state of South Dakota and it was all a big case about economic nexus. It's like technically speaking, Wayfair really had no physical presence in South Dakota in terms of say inventory or employees, but they had significant sales going into South Dakota. So South Dakota is like, Hey, wait a minute, you got a lot of sales coming here. I think you should be subject to at least sales tax because of this activity. And Wayfair said, no, we don't have a physical presence there. Why should we pay? But in the end, the Supreme Court ruled in the state's favor and that born this new regime called Economic Nexus. And over those last six or so years states have like, Hey, we know the Wayfair decision was just sales tax, but why don't we just equate this and make it an income tax rule?

And they did. Many states now have a popular annual target for economic nexus of 500,000 in gross revenues for that state. So if you have around that amount now it is different for most states, but 500,000 is a very popular one. If you're hitting that in a state and you're not filing there, you're going to have risk. You need to make sure you're taking a look at all your sales to a state, your source sales, who's the economic beneficiary of your sale or the destination sale? Where does risk transition? That could be revenue sourcing rules, which we won't get into, but just be aware of that. If you have that sufficient economic nexus and you're rolling the dice and you're saying, Hey, let's just avoid it, keep in mind that there's no statute of limitations on a unfiled tax return. So the risk could be very high if you're not filing in those states with economic nexus. Some states are considering lowering their threshold. This should be on this call is to look at that. So I just wanted to make that as just kind of a PSA on that. Okay. Alright. We actually finished a few minutes at a schedule. You have a question, Beth?

Ben Aspir: Yeah. We've given a lot of great engagement, a lot of good questions. Someone asked, if I purchased three electrical vehicles in one year, can I get the EV credit three times in a year? Yes you can. As long as you meet the income limit, your income is below that limit. If you roll over a 5 29 plan restart, there's a change of beneficiary restart the 15 year period for the 5 29 plan. It's unclear. There's no guidance on it yet, but there is a risk that the IRS could challenge that someone asked about the lifetime estate and gift tax exclusion if they give. So currently the maximum is just under 14 million. What if someone only gives 7 million in cumulatively through 2025 and then it reverts back to the old amounts, it goes back to Hef. The answer is they've lost out it's user to lose it basically. If they don't, that's why there's going to be, unless they do something with the lifetime estate and gift tax exclusion, there's going to be a huge flurry of gifting prior to year end.

Tom Cardinale: Yep. And I'll answer a couple of quick ones here. Got a 162 M question. Does the 1 million executive reimbursement include stock related comp? Yes it does, but it has to be what would be includeable in their W2 as compensation. So that would usually be exercised, say options or just stock granted that's vested. That would be part of their compensation. It would not relate to granted stock options though it would have to be exercised. It also got one can an accrual basis New Jersey taxpayer accrue the New Jersey PTE tax. Absolutely. Every state and your accrual basis, every state you should consider accruing because that's what it's going to allow you to deduct it in the prior year, even though maybe you paid the tax in the following year with an extension. Normally it's good practice to have some board minutes or some internal executive action that documents that you're making the accrual as of year end just to show you're making it as of year end if your accrual basis, technically when you talk about accrued liabilities, you get into the rules where it has to be identifiable in fact and reasonably estimated. You need to get the economic performance rules. So you want to make sure you do take some sort of action on that.

Alright, well we're going to finish a couple minutes early. I hope everyone enjoyed this update. Please, if we did not get to your question, we will get and respond to that in a few days after. We'll try to get back to you. Otherwise, thank you so much for joining and I'll let arid go over any final housekeeping items to take us off. So thank you very much everybody. Thank you.

Transcribed by Rev.com AI

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