1099’s and Year-End Planning

December 31, 2023 will be here soon.  A few reminders for items to consider this month.

Forms 1099:

Forms 1099 must be filed every year by businesses or by individuals who conduct business activities (including farming and rentals), and make payments of $600 or more for rent or for services.  If you answer “Yes” to the questions below, you may have to file a 1099:

  • Do you rent your business location?
  • Do you hire individuals who are not employees to provide services to your business?
  • Do you engage the services of an accounting and/or a legal firm?

1099s must be submitted by January 31 and must be filed electronically.  If you don’t have a completed W-9 from all your vendors, now is the time to request.   To avoid punitive penalties, file the 1099s on a timely basis.

Year-end reminders and questions:

  • New for owners of short-term rentals (Airbnb): Starting in 2024, owners are required to complete a BOE Form 571-STR to report business personal property such as supplies, equipment, appliances and fixtures. Inventory is assessed as of January 1st, report is due to the County by May 7th.
  • Ensure that you requested the Required Minimum Distributions (RMD) from IRA and other retirement accounts. 
  • Consider a charitable contribution made directly from your IRAs. This is an alternative to help reduce your tax liability, as the donation will satisfy the RMD requirement but it will not be subject to income tax.  
  • CA Proposition 19 passed in 2020 is changing property tax calculations for the transfer of property when there is a death.  If a child inherits a home after the death of a parent, they must move in and live in the house to preserve the property tax base.  If they do not, the property is reassessed to the FMV as of the date of death.  If a child moves out, then the property is immediately reassessed.
  • Have you updated your trust, ensured that property is titled in the trust name?  If you don’t have a trust, consider creating a trust now.
  • If you have received a settlement payment from PG&E for loss incurred in the California Wildfires, you may have taxable income for Federal purposes.
  • If your business made a “PTE” payment by the June 15, 2023 due date, you made the election for your 2023 tax returns.  To deduct second PTE payment in 2023 as well, make the 2nd payment by December 31st.  
  • Expanded electric vehicle tax credits up to $7,500 for new electric vehicles or $4,000 for used electric vehicles purchased through 2033.
  • The credits for energy efficient homes and improvements are expanded up to $5,000. There are annual limits but no longer lifetime caps on the credits allowed.
  • The solar credit is increased to 30% of eligible costs for qualifying energy systems placed in service from 2022 to 2032.
  • Clean energy credits are extended and expanded for businesses to increase domestic production and sale of components used in wind, solar, fuel cell, hydropower, and waste energy.
  • Is it time to purchase new business equipment?  Equipment must be received, installed and in use by December 31, 2023 to take advantage of 80% depreciation.  (100% depreciation was phased out in 2022).
  • Are you considering making gifts before year-end?  For 2023, the exclusion is $17,000 per donee.
  • If you received payments of $600 or more from a credit card company or electronic payment processor, you may receive a 2023 1099-K.  Include copies of the 1099-Ks with all your tax documents provided to ensure proper recording of all your income.

Give us a call if you have questions about your 2023 income and how new tax laws may affect you.

New Non-Tax Reporting Requirement for Many Businesses

A new requirement for 2024 is that all new and most existing businesses will be required to report the “beneficial ownership” of their businesses to FinCEN (Financial Crimes Enforcement Network), the agency who brought you the Form 114 to report foreign bank accounts to the government. 

The penalties for not filing are HUGE.  Reports filed late, incorrect or incomplete are subject to an unlimited $500 per day penalty.

This new requirement encompasses any business organization which is required to register with a state regulatory authority for its formation, such as LLCs, LLPs, Corps, S-Corps, LPs, etc., unless the entity is specifically exempt from reporting.  Reporting applies to single member or shareholders as well.

The requirements give only a short window for new entities to file the required information with FinCEN.  For existing entities as of 12/31/2023 who are required to report, the first reports are due by 12/31/2025.  Reporting errors can be corrected within 90 days of the original filing without penalty.

There are limited exceptions to filing.  Excluded entities include:

  • Publicly traded companies
  • Large companies with at least 20 full time employees (at least 30 hours a week), a US office, and US gross receipts reported on the prior year tax return of $5 million or more.
  • CPAs, companies such as security dealers, investment companies registered with the SEC
  • Various other types including inactive entities

The exemptions are generally for highly regulated entities who have already provided the information to the government in other filings.

In general, the information to be provided is the personal information of the 25% or more owners, including their residential address, as well as anyone else with “substantial control” of the company regardless of ownership percentage.  Examples would be a 25% owner who is a “silent partner” as well as a 0% owner who is CFO of the company.  “Beneficial ownership” under the attribution rules has not yet been provided. Until final instructions are published, we recommend the broadest ownership attribution rules apply.

In lieu of providing the specific beneficial owner’s detailed information, the beneficial owner can provide their “FinCEN Identifier”.  This avoids providing the personal information.  It also removes the responsibility of reporting changes in the personal information (a move, a divorce) from the company and leaves the responsibility with the individual who already has a FinCEN Identifier Number to report their changes.

Any changes in information provided must be updated with FinCEN within 30 days of the change, including transfers of ownership of a reportable beneficial interest, changes in responsible parties, address changes, deaths, etc.  The same penalties that apply to late or incorrect/incomplete filings will apply to late, incorrect or incomplete updates. This is a serious responsibility for all owners of business entities.  While there is still time to figure out how to ensure compliance with these rules, now is the time to determine and implement the new reporting requirements before deadlines and the penalties kick in.  Call us for more details.

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