FinCEN Beneficial Ownership Information Reporting

Under the Corporate Transparency Act, as part of the Anti-Money Laundering Act of 2020, companies are subject to new informational reporting obligations pertaining to their beneficial ownership. Beginning January 1, 2024, many companies will be required to report information about who ultimately owns and controls them to the U.S. Financial Crimes Enforcement Network (FinCEN). This filing is simple, secure, and free of charge.
 
Filing Deadlines:

• Existing Companies – Reporting companies created or registered to do business in the United States before January 1, 2024, must file their initial report by January 1, 2025. 

• Newly Created Companies – Reporting companies created or registered to do business in the United States in 2024 have 90 calendar days to file after receiving notice that their company’s creation or registration is effective.

 
What to Report:

Generally, reporting companies must provide four pieces of information about each beneficial owner: name, date of birth, address, and the identifying number and issuer from an accepted government-issued identification document (such as a driver’s license or passport). An image of the document must also be submitted.
 
Please note that this report is a separate filing directly with FinCEN and is not part of your annual business income tax return.
 
If there are any changes to the required company or beneficial owner information, including the beneficial owners’ identities and other previously submitted information related to them, the company must file an updated BOI report no later than thirty days after the date on which the change occurred.
 
Civil and criminal penalties for failure to file or update a BOI report can be severe, including fines of up to $10,000 and possible jail time.
 
Additional Resources:
 
For more information, you can refer to the Beneficial Ownership Information Reporting page on the FinCEN website. FinCEN also provides a Small Entity Compliance Guide and other resources, such as informational videos and webinars, answers to frequently asked questions, and a contact center.
 
https://www.fincen.gov/boi
https://www.fincen.gov/boi/small-business-resources

Maine Retirement Plan Mandate

The registration for Maine's new mandatory retirement program for employers commenced on January 1st, 2024. Here is what you need to know about this initiative.
 
The Maine Retirement Investment Trust (MERIT) is designed to aid those without employer-based retirement plans by initiating automatic payroll deductions into a ROTH IRA for savings. Covered Employers are obligated to register with MERIT, enroll their Covered Employees, and submit payroll deduction contributions to the program administrator.
 
A Covered Employer is one with more than five Covered Employees and a business history of at least two years. If an employer already provides a tax-favored retirement plan to all employees, then this will satisfy the mandate.
 
Covered Employees encompass individuals aged 18 or older with wages attributed to Maine during the calendar year. This includes part-time, temporary employees, and seasonal employees - with some exceptions. For employers with a workforce in multiple states, only those with wages in Maine are obliged to be registered with MERIT.
 
Key Dates to Remember:

• April 30th, 2024: Deadline for registration of Covered Employers with 15 or more Covered Employees.

• June 30th, 2024: Deadline for registration of Covered Employers with 5 to 14 Covered Employees.

• If your business becomes a Covered Employer after December 31st, 2024, registration must be completed within 12 months of becoming covered.

The registration process will be facilitated through a portal on mainesaves.org. When registering on the portal, prepare the following information:

• Business Name

• Employer Identification Number (EIN)

• Mailing Address

• Details of the designated point of contact: Name, contact number, and email address

• Information for Covered Employees including name, Social Security Number (SSN), date of birth, address, and contact details (email/number).

 
Failure to register by the deadlines will result in penalties. Late registration incurs a penalty of $20 per Covered Employee, which escalates to $50 per employee after July 1st, 2026, and further increases to $100 per employee after July 1st, 2027.
 
Other Responsibilities:

Covered Employers are accountable for registering their Covered Employees and managing the deduction and remittance of payroll contributions to MERIT. Covered Employees hold the responsibility of verifying their eligibility to contribute to an IRA. Unless a Covered Employee chooses to opt out of MERIT or selects an alternative contribution rate through the employee portal, the standard payroll deduction rate is 5% of their wages. This rate will increase by 1% annually at the start of each new calendar year, with a maximum limit of 10%, unless employees opt out of automatic increases. Employers are prohibited from making employer contributions to MERIT on behalf of their employees.

Electric Vehicle Tax Credits

Are you thinking about buying a vehicle in the future? Buying a new or used electric vehicle, plug in, or hybrid vehicle in 2023 can qualify you for up to $7,500 through the new Qualified Plug-In Electric Drive Motor Vehicle Credit.

For your purchase of an electric vehicle to qualify, the vehicle must meet the following requirements:

• Minimum of 7kWh of total battery life

• Gross weight rating of 14,000lbs or less

• The vehicle is made by a qualified manufacturer or is a fuel cell vehicle

• MSRP of below $80,000 for trucks and $55,000 for all other vehicles

• The vehicle must meet critical mineral and battery component requirements (This information would be provided to you when purchasing the vehicle from a dealership)

• The vehicle is primarily for use within the United States

• Final assembly occurs in North America

To be eligible for the credit, it's important to note that you should not exceed the adjusted gross income threshold. For the year 2022, there were no income limitations for claiming the credit. However, beginning in 2023, income limitations come into effect. To qualify for the credit in 2023, your adjusted gross income must be below $300,000 for joint filers, $225,000 for head of household filers, and $150,000 for single filers.

For used vehicles, there are additional requirements to claim the credit. The maximum available credit for used vehicles is $4,000. The additional requirements are as follows:

• Sale price of $25,000 or less

• AGI limitations: $150,000 Joint, $112,500 HOH, $75,000 Single

• You are not a dependent

• You have not claimed an EV Credit or Clean Vehicle Credit 3 years prior to the current year

• You are not the original owner

• Model is from at least 2 years prior to the current year

• The vehicle has not been purchased by someone else who has the ability to claim the credit

The IRS has provided a calculator, as well as a list of currently qualifying vehicles for 2023. There is also a FAQ section for additional information. These resources can be found here: https://fueleconomy.gov/feg/tax2023.shtml.

Estimated Tax Payments

As the 2022 tax season is now upon us, many taxpayers have questions about estimated taxes and underpayment penalties. It is important for all taxpayers to understand their respective tax liabilities and how they are impacted by income levels, filing status, payment dates, and other variables. While it’s important to work with a tax advisor to address your unique situation, there are general rules that all taxpayers should be aware of.

Any taxpayer who expects to owe at least $1,000 when filing their federal income tax return, and who also had a tax liability in the prior year, may be required to make quarterly estimated tax payments. While this most often affects individuals who have significant investment or self-employment income, it can also capture W-2 recipients who simply didn’t have enough withholding throughout the year. Taxpayers who fail to pay in enough during the year to reach the “safe harbor” threshold will be assessed interest and penalties on any remaining balance due when filing their return or extension in April.

 To reach that safe harbor threshold, the IRS requires that most taxpayers have paid in an amount equal to at least 90% of their current year’s tax or 100% of their previous year’s tax—for taxpayers whose adjusted gross income for the prior year was greater than $150,000 (or $75,000 if married filing separately), this second threshold becomes 110% of their previous year’s tax. If a taxpayer reaches either of these thresholds during the year, they are considered to have reached the “safe harbor” and, as long as all payments were made on time, will not be subjected to interest or penalties on any remaining balance due when their return or extension is filed in April.

 Penalties for underpayment or late payment of estimated taxes are 5% of the balance due per month up to a maximum of 25%. These underpaid amounts also incur interest at the federal short-term rate plus three percentage points. As of the first quarter of 2023, the underpayment interest rate is 7% per year, compounded daily.

 Taxpayers needing to make quarterly estimated payments to reach the safe harbor will usually make those payments in four equal installments throughout the year, although be warned that the due dates for those payments do not perfectly correspond to their respective calendar quarters. 2023 quarterly estimate payments are due as follows:

                 First Quarter                     April 18, 2023

                Second Quarter                June 15, 2023

                Third Quarter                   September 15, 2023

                Fourth Quarter                January 16, 2024

 While the window for making quarterly estimate payments towards the 2022 tax year has closed, taxpayers needing to pay estimates for the 2023 tax year should already be looking ahead to the April 18 deadline for first quarter payments. Consulting your tax advisor and ensuring that they have all of the necessary information is highly recommended in order to minimize your exposure to penalties for potentially missing or underpaying your estimated taxes for the coming year.

Retirement Plan Changes from the Secure Act 2.0

At the turn of the calendar from 2022 to 2023, Congress and the Biden administration signed into law the Secure 2.0 Act. This legislation provides near wholesale changes for the structure of retirement plans and contributions for the American taxpayer. With the introduction of this act, the goal was to provide increased access for employees to these plans and expand the utility of these accounts. While dozens of minor changes were enacted into law, the following are the most common/practical for the average taxpayer. To ensure increased participation in retirement plans, employers will now be required to enroll participants upon their becoming eligible as full-time employees. This would begin with a mandatory contribution of 3% with an annual increase of an additional 1%. Importantly, employees may opt out of this plan at any time, but it must be provided for them. Compulsory enrollment begins starting in tax years after December 31st, 2024.  

There will be an increase to the minimum age to start taking RMD’s (Required Minimum Distributions) to age 73 in 2023 and 75 in 2032. Penalties for failing to make this distribution will fall from 50% to 25% effective starting this year. Roth accounts in employer retirement plans are exempt from having required minimum distributions. Those needing to make up ground in their retirement contributions can benefit from a newly introduced catch-up period between the ages of 60-63, with contribution limits of $5,000 for IRA’s and $10,000 for 401k’s. There is an expansion of eligible recipients for QCD’s (Qualified Charitable Contributions) to include charitable remainder trusts, charitable remainder annuity trusts, and charitable gift annuities. All donations to QCD’s count towards the required minimum distribution that an individual must make by certain age requirements.

Small businesses with fewer than 50 employees can also see an increase in the small employer pension plan startup credits. This credit will increase from 50% of cost, $5,000 limit to 100% of cost for the same annual cap. As a bonus, retirement plans can now attach an emergency savings account for savers, up to $2,500 worth of withdrawals. Contiguous with this change, any officially declared federal disaster will allow for someone with a 401k to make a qualified hardship withdrawal. Starting in 2024, employers will be allowed to match student loan payments with contributions to a retirement plan, incentivizing younger employees to save while paying off debt early in their careers.

With the Secure Act 2.0, there are a plethora of additional options available to workers in both how they can contribute towards their retirement and the way in which these funds can be used, especially in times of duress or hardship. It is always best to consult with your tax professional about any possible deductions for contributions and implications from any distributions. Saving early and often is still the best way to provide a well-funded retirement and plan for the future!

New Rules for Online Transactions & Form 1099-K

UPDATE 12/23/22 – The IRS has delayed the new 1099K reporting threshold for tax filers and online platforms until the 2023 tax year, to be filed in 2024.

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Effective for the 2023 tax season, there will be a new policy initiated by the IRS requiring any business income over $600 generated through a “Third Party Network Transaction” to be reported on a form 1099-K. A third-party network transaction is defined an online payment made through platforms such as Venmo, Etsy, PayPal, and Airbnb. Under the new policy for next year, forms will be sent to both taxpayers and the IRS for anyone meeting the newly determined threshold of $600 for sales/services.  This will ultimately include a more significant number of small providers of online goods/services. Additionally, there will be no minimum requirement for the number of transactions necessary to trigger this newly defined threshold.

 What is a 1099-K and how do I know if I might get one?

 A 1099-K is a tax form used to report business transactions done online or through credit cards to ensure taxpayers are reporting all income received from these sources. In previous years, companies such as these would release a 1099-K to anyone engaging in payments of more than 200 transactions totaling at least $20,000. Companies obligated to prepare this document include any online or credit card platform where such transactions take place. Anyone who receives more than $600 in credit card payments or online sales can expect to receive a 1099-K starting in 2023, although not all websites are required to provide one to every individual, and some may fail to do so when necessary. Some companies, such as Zelle for instance, directly connect the bank accounts between a seller and a buyer. Because of this, they themselves are not hosting the sales and do not have to provide their users with the 1099-K report.

  When and how will I access my 1099-K?

 If you participate in one of the previously mentioned online platforms or receive more than $600 in credit cards payments for goods/ services, you should expect to receive a form 1099-K. 1099-Ks are required to be issued by January 31st and are typically issued via mail. Some providers may have this form available on your online account as well.

  What should I do if I receive a 1099-K and how do I report it?

 Anyone who receives a 1099-K should already be reporting the income it details on their individual tax return or providing the information to their tax preparer. All income recorded on a 1099-K should be included as income received during the year from sales/business activities regardless of having received the form or not. This new policy only requires that the income received from a business transaction is reported, it does not require any reporting of personal transactions such as money being sent through Venmo to reimburse a friend. With the advent of the online service economy, some Americans have failed to acknowledge what they earned to the Government through these mediums. It is often the case that many people only take part in singular transactions of items such as old furniture, or business income they deem to be of a negligible amount. While this information and documentation will be new to many taxpayers for the 2023 year, there is no official change in the necessity to disclose all earnings for tax purposes. No new rates or additional taxes are being imposed; the objective of this policy is simply to ensure income meeting the required thresholds are being reported to the IRS.

  What will happen if I don’t report my 1099-K?

 Those who fail to comply with reporting their income from these sources will be subject to scrutiny, adjustments, and potentially fines from the IRS for the lack of discernment or intentional wrongdoing. In a similar fashion, another thing for taxpayers to keep in mind is to report income that may be received from additional online platforms, such as gambling winnings from websites such as DraftKings or FanDuel. These amounts, like those received from smaller business transactions previously discussed, may be trivial in nature but are expected to be included on your individual tax return. When in doubt whether something should be included in your taxes, it is always best practice to consult your tax professional with any questions or concerns.

What's New for 2022?

Back in 2021 the IRS announced their annual changes for the 2022 tax year, to be filed in 2023. Although this is done on a yearly basis to account for inflation and the economy, this current tax year will produce some unique developments. Following the surge in inflation over the last couple of years, changes were made with the intent of covering the shifting value of the dollar. Beginning with the income tax brackets, 2022 will implement the following changes: CLICK HERE TO VIEW.

While there are not any changes to the rates themselves, the values within each bracket are updated. These adjustments are most substantial for couples filing together and heads of household, with an average increase to each bracket cap at nearly 10% when compared to 2021. Although less significant of a difference, single returns will see a roughly 3% change next year to these values. This will come as welcome news to those submitting returns with their spouse or maintaining a household struggling to cope with the various increases in cost of living, since they will pay a lower percentage of tax on income as they otherwise would under normal smaller alterations. Barring a measurable increase in income for either married filing joint or head of household, many taxpayers under these conditions with static income will see a slight reduction in their liability over the prior year. For those claiming the standard deduction, there will be a slight increase regardless of filing status of around 3%. New rates for this deduction are as follows for 2022: $25,900 for married filing joint, $12,950 for single returns or married filing separately, and $19,400 for head of household. In 2021 they were valued at: $25,900, $12,550, and $18,800 respectively.

Additionally, there will be an increase in the Earned Income tax credit, for those who qualify with three or more children, up to $6,935 from $6,728. This too is in line with the IRS’ attempt to provide some relief to those caring for a family during these uncertain economic times. Taxpayers will also see an increase in savings limits for their 2022 returns, up to $1,000 for 401(k) retirement accounts, and maximum limits of $7,400 and $4,950 for Health Savings Accounts (HSA’s).

Some other key changes to the 2022 tax year are as follows. Unlike 2021, taxpayers will no longer be allowed to deduct either $300 or $600 (single or joint) of charitable contributions without incorporating itemized deductions. This was only implemented for the single year as an incentive for people to donate towards their local communities or additional charities providing aid. There also will not be any additional federal recovery rebate credits sent out to taxpayers to report for the year. Finally, the maximum Child and Dependent Care credit has dropped to 35% of expenses instead of the 50% from 2021. Taxpayers may claim up to $3,000 of expenses for one child under the age of 13 or $6,000 for two or more under the same age.

A Game of Loans

On August 24th,2022, the Biden administration released its plans to forgive upwards of $20,000 in student loans to Federal Pell grant recipients and up to $10,000 for anyone who did not receive the grant. This aid came with the restriction that single filers collect less than $125,000 in income with the limit for married couples set at $250,000. In lieu of these expansive payments, certain credits offered under the Public Service Loan Forgiveness program would be expanded to offer additional coverage to those who work for a non-profit, the military, federal and state workers, and tribal or local governments. In conjunction with the direct compensation, the Department of Education proposed reducing the monthly cap for student loan payments at 5% of a borrower’s discretionary income, which would reduce most existing plans installments to half of what they currently are. While the announcement received general praise from its potential beneficiaries, a significant amount of opposition was raised at the question of the unprecedented moves’ legality. Challenges were soon raised, with multiple lawsuits generated at preventing the nearly $400 billion spending measure. It has since incurred a tangle of litigation. As of this Monday, November 14th, a Federal appeals court ruled an indefinite halt to the plan stemming from a lawsuit initiated by six states (Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina) who claimed the policy would directly hurt them economically. Their allegation is centered primarily around lost state revenue, such as the Missouri Higher Education Loan Authority (MOHELA), a private student loan provider, asserting that such a move would drastically reduce their overall revenue by mitigating its’ stream of interest and associated fees with the present cancellation of numerous accounts. MOHELA then goes to state that it would then be unable to adequately fund students at Missouri’s higher education institutions and would also be unable to fund its interconnected obligations to the state treasury, a reliable source of funding for Missouri. Arguments provided by the other states mirror this situation. As its defense, the White House claims authority for the secretary of education to alter student loan financial programs in the event of a war, direct military operation, or national emergency i.e., the COVID pandemic.

What does this uncertainty mean for any taxpayer who might otherwise secure forgiveness? Well, the short answer is that there is no way of knowing whether the executive order will eventually pass all its requisite hurdles. As of this moment it appears highly unlikely that any payments will be made for the current 2022 tax year, with early 2023 likely to be the soonest possible period for any disbursements. Should the forgiveness pass, the Federal Government has already indicated it will not tax any payments sent out for student loan forgiveness. The same cannot be said for every state; however, with Minnesota, Indiana, North Carolina, and Mississippi currently planning on including the payments as taxable income. As of this writing Wisconsin, Arkansas, and California are still considering whether to follow suit. Anyone who may opt to accept the forgiveness payments should be aware of the potential ramifications that may have on their tax liability for either 2022 or 2023 when or if the spending measure occurs. For example, a subsequent increase of $1,600 would be incurred by a median California taxpayer earning $64,000 a year with $20,000 of forgiveness. Additionally, borrowers should be mindful of the eventual resumption of student loan payments following the pause granted by the government, which is currently set to expire on December 31st, 2022. Another extension is already being considered with the confusion around the current forgiveness plan. To be safe, those who may still be required to pay monthly installments on their loans should budget for them to resume soon. In the meantime, anyone who so qualifies for a student loan interest deduction (a modified adjusted gross income of $85,000 or less for single filers and $170,000 or less for joint filers in 2022) should be sure to hold onto their 1098-E and include the form/interest received from their lender in their returns or provide it to their tax consultant.