Accounting & Tax

Article Autumn Hines

On June 20, 2024, the Supreme Court of the United States (SCOTUS) upheld a provision of the 2017 tax law that imposed on shareholders of American-controlled foreign corporations a one-time, backward-looking tax on earnings accumulated and undistributed by foreign corporations.

Need to Know:

In 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted, which made a significant number of tax changes, including the enactment of the Mandatory Repatriation Act tax (“MRT”) The MRT is a one-time, backward-looking pass-through tax on some American shareholders of certain American-controlled foreign corporations. The one-time tax addressed the trillions of dollars in income these corporations had earned and accumulated abroad that went almost entirely untaxed by the United States. On Thursday, June 20, in Moore v. United States, No. 22-800, SCOTUS held the MRT constitutional, a significant win for the government.

The tax challenge was initiated by Petitioners Charles and Kathleen Moore, who had invested in an American-controlled foreign corporation, KisanKraft. The corporation had accumulated a substantial amount of income from 2006 to 2017, which was not distributed to its American shareholders. As a result, the MRT was imposed on the Moores’ pro-rata share of KisanKraft’s accumulated income, leading to a tax liability of $14,729. The Moores paid the tax and then filed a lawsuit for a refund.

In their challenge, the Moores claimed that the MRT was unconstitutional. They argued that the MRT was an unapportioned direct tax on their shares of KisanKraft stock, essentially a property tax, which they believed was in violation of the Constitution’s apportionment clause in the 16th Amendment. The government, on the other hand, maintained that the tax was an income tax, which is not required to be apportioned under the 16th Amendment. The Moores countered this by stating that KisanKraft’s profits did not qualify as income because they never received any income.

Justice Brett M. Kavanaugh wrote the majority opinion and stated, “[T]he precise and narrow question that the Court addresses today is whether Congress may attribute an entity’s realized and undistributed income to the entity’s shareholders or partners, and then tax the shareholders or partners on their portions of that income. This Court’s longstanding precedents, reflected in and reinforced by Congress’s longstanding practice, establish that the answer is yes.” (Emphasis added.)

What Does This Ruling Mean for You?

This ruling means taxing a company’s owners on income earned by the company but not actually distributed to those owners is permissible, which emphasizes the need for proper and proactive tax planning for individuals and businesses, especially for complex matters such as ownership in foreign corporations.

If you have questions about how this affects your situation, be sure to contact your Dean Dorton advisor.

[1] https://apnews.com/article/supreme-court-wealth-tax-5a13417bd5ae41f7d150ac596f7c51d0

Article Dean Dorton

As part of the TCJA, the IRS imposed a State and Local Tax Deduction cap of $10,000. In total, more than 30 US states have responded to the limited deduction by enacting a pass-through entity (partnerships and S corporations) tax (“PTE Tax”). Each state has its own tax policies for pass-through entities – businesses that are typically not taxed at the entity level, but instead pass their income, deductions, and credits through to their owners, who report these amounts on their individual tax returns. Taxing the income at the entity level can create a deduction on the business’s Federal return. This enables the owners to effectively reduce their ordinary income instead of deducting the tax on their individual return, which is subject to the TJCA limitation. The IRS has acknowledged and blessed these types of “Workarounds” in Notice 2020-75.

Ohio Pass-Through Entity Tax Policy
Ohio allows pass-through entities to make an annual election (“PTE Election”) to pay a tax at the entity level on Form IT4738. This PTE Tax is based on Ohio taxable income, which is calculated by multiplying federal taxable income by an apportionment factor that incorporates the percentage of the entity’s sales, property, and payroll that are in Ohio. The PTE Tax rate is 5% for 2022 and drops to 3% in 2023. Taxpayers making the PTE Election for 2022 can claim credit for estimated payments for Non-Resident Withholding and Composite Tax on the IT4738. Unfortunately, estimated payments that were made at the individual level cannot be claimed.  Estimated payments are due for the IT 4738 on the 15th day of the month after the end of each quarter.

At the individual filing level, Ohio requires an add back modification of this deduction. Business income is still taxed at 3% for the individual on the owner’s individual return. Business owners who file Form IT1040 can claim their proportioned PTE Tax as a refundable credit on their individual return.

Kentucky Pass-Through Entity Tax Policy

On Friday March 24th, 2023, Kentucky Governor Andy Beshear signed HB360 into law. This bill is retroactive to January 1st, 2022, and allows for Kentucky pass-through entities to make an election to pay tax at the entity level (guidance on frequency has not yet been released). Due to the recency of the passing of this bill, the Kentucky Department of Revenue has yet to announce a form to file and make this election on. Similarly, there is the potential for legislative changes or additional guidance expected regarding estimated payments to come. Kentucky’s legislation also allows pass-through entity owners to claim a nonrefundable credit in the amount of their respective pro rata share on their Kentucky individual income tax return. It is expected to be late summer or early fall before Kentucky has more guidance and forms available from the Department of Revenue.  Due to the timing of this legislation, taxpayers considering this election could benefit from extending their federal and state returns.

Indiana Pass-Through Entity Tax Policy
On February 22, 2023, Indiana Governor, Eric Holcomb, signed Senate Bill 2 into law. This bill is retroactive to January 1st, 2022, and allows for Indiana pass-through entities to make an annual election to pay tax at the entity level. Taxpayers can make this election after March 31st, 2023, on Form IN PTET and file the entity’s Composite Schedule. The PTE Tax is based on Indiana taxable income, which is calculated by multiplying federal taxable income by an apportionment factor that takes into account the percentage of the entity’s sales in Indiana. The PTE Tax rate is the same as the Indiana individual tax rate – a flat 3.23% for 2022 and 3.15% for 2023. Indiana appears to allow credits against the PTE Tax for estimates paid towards composite filings. However, similar to Kentucky, guidance is unclear and currently limited due to the timing. If the tax year ends on or before June 30, 2023, no PTE Tax estimated payments will be required. If the tax year ends after June 30, 2023, or before December 31, 2024, a single estimated tax payment is required.

Indiana requires an add back modification of this deduction. Business owners who file IT-40 or IT-40PNR can claim their proportioned PTE Tax as a refundable credit on their individual return.

Each state is handling this “workaround” in a different manner, and some states have limitations on other credits. Although these new laws are often beneficial for taxpayers, they can present unique circumstances that need to be considered with caution. Making these elections will not necessarily make sense in every scenario.

Article Dean Dorton

A cost segregation study is an analysis performed by trained professionals to identify property that should be classified as tangible personal property or land improvements, rather than real property that is depreciated over 27.5 or 39 years. This allows the taxpayer to identify property that can be depreciated over 5, 7, or 15 years instead of the 27.5 or 39 years that typically apply to real estate. This acceleration of deductions results in substantial tax savings benefits.

Cost segregation studies apply to both newly acquired or constructed property, leasehold improvements/fit-ups, and property that was placed in service in prior years (post 1986). For property placed in service in prior years, the IRS allows a “catch up” deduction in year 1 for the additional depreciation deductions that are identified in a cost segregation study that you were entitled to but did not claim in previous years. This can generate substantial tax savings in the first year of the study.

There is no limitation on the cost of property that is eligible for a cost segregation study. The benefit of a study for a smaller building will be less than that of a larger property, but may still be beneficial. We have worked with several industries to provide cost segregation studies including auto dealerships, banks, commercial and residential property owners, medical facilities, and manufacturing facilities.

Bonus depreciation and Section 179 expense elections allow taxpayers to write off 100% of qualified tangible property with a recovery period of 20 years or less. Thus, the 5, 7, and 15 year property that is identified in a study may qualify for this additional depreciation deduction that wouldn’t normally be identified if the property was being depreciated over 27.5 or 39 years. These tax incentives for 2022 make cost segregation studies even more beneficial for the current tax year as it applies to both newly constructed and existing properties. Similar tax incentives are also available for property placed in service in tax years 2008-2021. After 2022, bonus depreciation begins to phase out, with qualifying property getting an 80% bonus deduction in 2023 and reducing by 20% each year following 2023 until it sunsets in 2027.

One of Dean Dorton’s most recent cost segregation studies was performed on a $13.5 million retail shopping center purchased in 2021. That study generated $1,168,876 of tax savings in the first year. The present value of accelerated deductions (discounted at 7%) exceeded $722,032. The return on investment for this study was 95.5 to 1.

Dean Dorton uses an Indianapolis-based engineering firm to provide cost segregation studies to our clients. This engineering firm conducts studies that conform to the Cost Segregation Audit Techniques Guide issued by the IRS. They have reviewed over $3.8B of assets and have increased cash flow of over $300M. They have successfully defended all challenges brought forth by the IRS.

We work in tandem with your CPA, whether you are served by a large international firm, a regional firm, or a local accountant, to serve your best interests and save you money.

Brandi Gillen, CPA
Tax Associate Director
bgillen@deandorton.com • 859.425.7678

Article Dean Dorton

The holiday season is a time of increased giving, including many nonprofit donation campaigns. It’s also the premier time for tax planning.  For Ohio filers, don’t forget there is still time to qualify for the Ohio Scholarship Donation Credit before the end of the year!

Back in September of 2021, Ohio passed legislation enacting section 5747.73 of the Ohio Revised Code, establishing a nonrefundable state income tax credit for monetary donations to an eligible scholarship granting organization (SGO).  The credit can reduce your Ohio tax liability by the total amount donated to SGOs during the tax year up to the max reduction amount of $750 per taxpayer. A taxpayer and spouse filing jointly can reduce their Ohio tax liability up to $1,500.

So, what is a scholarship granting organization? A scholarship granting organization must be certified as such by the Ohio Attorney General’s Office. It is a public charity that primarily awards academic scholarships for K- 12th grade students and must prioritize awarding scholarships to low-income students. A list of certified scholarship granting organizations can be found at the attorney generals website at the following link: https://charitable.ohioago.gov/Scholarship-Granting-Organization-Certification/List.

The credit provides the most tax benefit to those who take the standard deduction on their federal income tax return and are not already receiving certain other Ohio tax credits.

The majority of taxpayers take the standard deduction on their federal tax return and will be able to treat all their monetary donations to an SGO during the year as eligible for the Ohio credit. Taxpayers who itemize deductions on their federal return cannot “double dip” by taking an itemized charitable deduction on the federal return and taking the state tax credit. However, if the total amount donated to an SGO exceeds the Scholarship Donation Credit taken on the Ohio return, the excess remaining can be taken as a federal itemized charitable deduction. For example, if a single filing taxpayer made cash donations to an SGO of $1,000 during the tax year, they could potentially qualify for the max $750 credit on their Ohio return in addition to taking the remaining amount of $250 as an itemized charitable deduction on their federal return.

On the Ohio return, the Scholarship Donation Credit must be taken after certain other state tax credits, so certain limitations may apply.

Organizations interested in applying to be certified as an SGO will need to fill out an online application on the Ohio Attorney General’s website (https://charitable.ohioago.gov/Scholarship-Granting-Organization-Certification) and provide the additional required documentation. If an organization has not already been certified, it can be certified for 2023, as long as it applies prior to November 30, 2023.

As you are making your end of year holiday charitable giving, the Ohio Scholarship Donation Credit can provide a great overlap between the desire to give back and maximizing tax planning benefits.

Article Dean Dorton

Yesterday afternoon, President Biden signed into law the Inflation Reduction Act of 2022 (“IRA”). The IRA includes provisions intended to combat climate change, promote clean energy, and lower prescription drug and health care costs. To pay for its spending, the IRA contains several tax changes, although the tax provisions are much narrower than those proposed in the Build Back Better Act that failed to progress in Congress last fall.

Notably, the IRA extends, through 2028, the limit on excess business losses (“EBL”) that can be deducted by noncorporate taxpayers. It also appropriates $80 billion to the Internal Revenue Service for enforcement, taxpayer services, operations support, and modernization, which could lead to increased audit activity. On a positive note, the IRA contains several tax incentives for individuals and businesses related to clean energy. Other tax provisions include a new corporate alternative minimum tax, an excise tax on the repurchase of corporate stock by publicly-traded companies, an increase in the research credit against payroll taxes for small businesses, and changes to the premium tax credit.

Extension of Limit on Excess Business Losses

The Tax Cuts and Jobs Act (“TCJA”), enacted at the end of 2017, introduced a limit on business losses deductible by individuals and other noncorporate taxpayers (trusts and estates) against non-business income. Specifically, the TCJA disallowed 2018 net tax losses from active businesses in excess of $250,000 (for individual taxpayers) and $500,000 (for joint filers), adjusted annually for inflation. Disallowed losses are converted into a net operating loss (“NOL”) and carried over to the following tax year. Under the TCJA, the EBL limit was effective for tax years 2018 through 2025.

In March of 2020, the CARES Act retroactively postponed the effective date of the EBL limit until tax years beginning in 2021. The American Rescue Plan Act of 2021 (“ARP”) later extended the EBL limit for one year, through 2026.

The IRA provides for a two-year extension of the EBL limit, through 2028. To illustrate the impact of this limitation, consider the following example:

H and W are married taxpayers filing a joint return. In 2022, H generates a net tax loss from his business of $600,000 and W generates a net tax loss from her business of $240,000. Both H and W actively participate in their businesses. Their aggregated net tax loss from trades or businesses is $840,000. For tax year 2022, the EBL limit is $540,000 for joint filers. Thus, their EBL for 2022 is $300,000 ($840,000 – $540,000).

How does this limitation impact the taxable income of H and W?

Let’s assume that, in addition to the losses generated from their businesses, H and W have other investment income totaling $1,000,000. The following table illustrates how taxable income is calculated before and after the EBL limit:

<table style="border-collapse:collapse;border:none;">
    <tbody>
        <tr>
            <td style="width: 197.75pt;border: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>&nbsp;</p>
            </td>
            <td style="width: 134.85pt;border-top: 1pt solid windowtext;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-image: initial;border-left: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'><strong>Before EBL limit</strong></p>
            </td>
            <td style="width: 134.9pt;border-top: 1pt solid windowtext;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-image: initial;border-left: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'><strong>After EBL limit</strong></p>
            </td>
        </tr>
        <tr>
            <td style="width: 197.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>Investment income</p>
            </td>
            <td style="width: 134.85pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'><span style="color:black;">$1,000,000</span></p>
            </td>
            <td style="width: 134.9pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'><span style="color:black;">$1,000,000</span></p>
            </td>
        </tr>
        <tr>
            <td style="width: 197.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>H&rsquo;s active business loss</p>
            </td>
            <td style="width: 134.85pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>($600,000)</p>
            </td>
            <td style="width: 134.9pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>($600,000)</p>
            </td>
        </tr>
        <tr>
            <td style="width: 197.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>W&rsquo;s active business loss</p>
            </td>
            <td style="width: 134.85pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>($240,000)</p>
            </td>
            <td style="width: 134.9pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>($240,000)</p>
            </td>
        </tr>
        <tr>
            <td style="width: 197.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>Excess business loss (see above)</p>
            </td>
            <td style="width: 134.85pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>$0</p>
            </td>
            <td style="width: 134.9pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>$300,000</p>
            </td>
        </tr>
        <tr>
            <td style="width: 197.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'><strong>Net taxable income</strong></p>
            </td>
            <td style="width: 134.85pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'><strong>$160,000</strong></p>
            </td>
            <td style="width: 134.9pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'><strong>$460,000</strong></p>
            </td>
        </tr>
    </tbody>
</table>

While H and W cannot reduce their 2022 taxable income by the $300,000 EBL, this loss is converted to a NOL and carried over to the following year. H and W can use the NOL in 2023 to offset up to 80% of their taxable income. To illustrate, let’s assume that H and W have the exact same facts as above for 2023. Their 2023 taxable income would be calculated as follows:

<table style="border-collapse:collapse;border:none;">
    <tbody>
        <tr>
            <td style="width: 332.75pt;border: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>&nbsp;</p>
            </td>
            <td style="width: 134.75pt;border-top: 1pt solid windowtext;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-image: initial;border-left: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'><strong>2023</strong></p>
            </td>
        </tr>
        <tr>
            <td style="width: 332.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>Investment income</p>
            </td>
            <td style="width: 134.75pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>$1,000,000</p>
            </td>
        </tr>
        <tr>
            <td style="width: 332.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>H&rsquo;s active business loss</p>
            </td>
            <td style="width: 134.75pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>($600,000)</p>
            </td>
        </tr>
        <tr>
            <td style="width: 332.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>W&rsquo;s active business loss</p>
            </td>
            <td style="width: 134.75pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>($240,000)</p>
            </td>
        </tr>
        <tr>
            <td style="width: 332.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>Excess business loss (see above)</p>
            </td>
            <td style="width: 134.75pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>$300,000</p>
            </td>
        </tr>
        <tr>
            <td style="width: 332.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>Net taxable income before NOL carryover</p>
            </td>
            <td style="width: 134.75pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>$460,000</p>
            </td>
        </tr>
        <tr>
            <td style="width: 332.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'>NOL carryover from 2022 (lesser of NOL of $300,000 or 80% of taxable income before NOL ($368,000))</p>
            </td>
            <td style="width: 134.75pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'>($300,000)</p>
            </td>
        </tr>
        <tr>
            <td style="width: 332.75pt;border-right: 1pt solid windowtext;border-bottom: 1pt solid windowtext;border-left: 1pt solid windowtext;border-image: initial;border-top: none;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:  justify;font-size:15px;font-family:"Arial",sans-serif;'><strong>Net taxable income after NOL</strong></p>
            </td>
            <td style="width: 134.75pt;border-top: none;border-left: none;border-bottom: 1pt solid windowtext;border-right: 1pt solid windowtext;padding: 0in 5.4pt;vertical-align: top;">
                <p style='margin-top:0in;margin-right:0in;margin-bottom:.0001pt;margin-left:0in;text-align:center;font-size:15px;font-family:"Arial",sans-serif;'><strong>$160,000</strong></p>
            </td>
        </tr>
    </tbody>
</table>

As illustrated above, the EBL limit is merely a timing issue. Fortunately, the IRA only extends the limit for two more years and does not make further changes to current law, such as the conversion of disallowed losses into a NOL.

Increased IRS Funding

As noted above, the IRA appropriates $80 billion to the IRS for enforcement and other activities. The $80 billion is appropriated over a ten-year period and approximately broken down as follows:

  • $3.2 billion for taxpayer services;
  • $45.6 billion for enforcement;
  • $25.3 billion for operations support; and
  • $4.8 billion for business systems modernization.

An additional $15 million is appropriated to the IRS with a directive to report to Congress on the potential development of an IRS-run e-file system.

The IRA does not instruct the IRS on how to spend this additional funding with respect to enforcement activities. However, in a letter Congress on August 4, the IRS Commissioner stated that the agency’s investment of these additional resources would follow the Department of Treasury’s directive that audit rates will not rise relative to recent years for households making less than $400,000. Instead, the letter stated that the IRS would “pursue meaningful, impactful examinations of large corporate and high-net-worth taxpayers to ensure they are paying their fair share.”

Clean Energy Incentives

Investment in clean energy is a focal point of the IRA, and the law contains several tax incentives for both businesses and individuals. Notable clean energy incentives include, but are not limited to, the following:

  • Modification and extension of the credit for nonbusiness energy property – This credit, which applies to energy-efficient windows and doors, in addition to certain HVAC systems and heat pumps, is extended through 2032. The $500 lifetime limit for the credit is replaced with an annual limit of $1,200.
  • Modification and extension of the credit for residential energy-efficient property – This credit is renamed the “residential clean energy credit” and extended through 2034. It applies to residential energy-efficient property installed in a dwelling unit used as a residence by the taxpayer, such as qualified solar electric property, solar water heating property, fuel cell property, small wind energy property, and geothermal heat pump property.
  • Modification and extension of the clean vehicle credit – The credit for the purchase of clean vehicles, such as plug-in electric vehicles, is extended through 2032. The IRA eliminates the current cap on the number of credit-eligible vehicles produced by a specific manufacturer. However, it also imposes sourcing requirements on a vehicle’s critical components and battery systems. For example, electric vehicles made with any battery components manufactured by “foreign entities of concern” would be ineligible to receive the credit after 2023. The IRA also imposes a new credit limit based on the taxpayer’s income. The credit is not allowed if a taxpayer’s modified adjusted gross income exceeds $150,000 (for individual taxpayers) or $300,000 (for joint filers). The maximum credit per vehicle remains at $7,500.
  • Credit for previously-owned clean vehicles – A new credit of up to $4,000 is created for the purchase of a previously-owned clean vehicle. The credit applies only to taxpayers whose modified adjusted gross income does not exceed $75,000 (for individual taxpayers) or $150,000 (for joint filers). The credit applies to vehicles acquired after 2022 and before 2033.
  • Credit for commercial clean vehicles – The IRA creates a new business credit for qualified commercial clean vehicles acquired after 2022 and before 2033. The maximum credit per vehicle is $7,500, or $40,000 for a vehicle with a gross vehicle weight rating of at least 14,000 pounds.

The IRA also appropriates funds for the establishment of state rebate programs geared towards low- and middle-income households that purchase energy-efficient appliances.

Other Provisions

  • Corporate Alternative Minimum Tax – Effective for taxable years beginning after 2022, the IRA imposes a new, 15% corporate alternative minimum tax on the adjusted financial statement income (“AFSI”) of large corporations. The minimum tax applies to C corporations which, for a three taxable year period, have average annual AFSI greater than $1 billion. A lower threshold applies to foreign-parented corporations that are members of an international financial reporting group. S corporations are not subject to the minimum tax.
  • Excise Tax on Repurchase of Corporate Stock – The IRA also establishes a new excise tax on the repurchase of certain corporate stock. An excise tax of 1% is imposed on the fair market value of stock repurchased by a publicly-traded U.S. corporation during the taxable year. Several exceptions apply, including an exception in any case in which the total value of the stock repurchased during the taxable year does not exceed $1 million. The excise tax applies to repurchases of stock after 2022.
  • Increase in Research Credit Against Payroll Taxes for Small Businesses – Under current law, taxpayers engaged in research and development activities may be eligible for a research credit against their income tax liability. Small businesses that meet certain requirements may elect to apply the credit against their payroll tax liability. The amount of the credit that can offset a taxpayer’s payroll tax liability currently is limited to $250,000. The IRA increases this amount to $500,000 for taxable years beginning after 2022.
  • Changes to Premium Tax Credit – Taxpayers who purchase health insurance through the Health Insurance Marketplace may be eligible for a premium tax credit under current law. Eligibility for the credit depends on various factors, including a taxpayer’s household income, family size, and the federal poverty line. For 2021 and 2022, the ARP expanded eligibility for the credit to individuals with household income in excess of 400% of the poverty line and increased the credit amount for qualifying taxpayers. The IRA extends these enhancements to the credit through 2025.

Article Dean Dorton

Learn how to run the Sage Intacct revaluation process and post an entry to the general ledger at the end of every financial period. The step-by-step process below can come in handy for all users of global consolidations.

The value of transactions that occurs during the month that is not settled (AP bill incurred but not paid) by the end of the month, represents unrealized gains or losses to the business due to changes in currency rates.

Example:  Imagine a company that operates with a base currency of US Dollars. On July 15th, they incur an expense of 1,000 Euros that they do not pay by the end of that month. When the expense was incurred, the exchange rate between Euros and US Dollars was 1.00168. At the end of July, the exchange rate was 1.02254.

The difference between the two rates (1.00168 – 1.02254 = -0.02086), multiplied by the transaction amount of 1,000 Euros, represents an unrealized loss of $20.86 due to currency fluctuations. These amounts are posted to the financials to represent these currency fluctuations.

When the AP bill is finally paid, for instance on August 1, the system would record a realized loss of $20.71, representing the difference between the rate at the time of the invoice (1.00168) and the rate on the day the invoice is paid (1.02239).

Steps for Revaluation Process in Intacct

1. Set-up:

For each entity, identify any Asset or Liability accounts other than AR, AP, and Cash accounts that are transacted in a foreign currency with respect to the base currency of the entity, and will be settled in the foreign currency (for example loans).

  • Suggest exporting the COA, identify all accounts subject to revaluation, and then create a GL Group for these accounts – use a name like “GL Revaluation Accounts”.
  • General Ledger > All > Financial Structures > Account Groups

https://deandorton.com/wp-content/uploads/2022/08/General-Ledger-Revaluation-Report.pnghttps://deandorton.com/wp-content/uploads/2022/08/Journal-Entry-Creation.png

2.  Run the General Ledger Revaluation:

Run the General Revaluation Report as of the last day of the month.

  • General Ledger > Reports > General Ledger Revaluation
  • Enter “As of Date” (typically the last day of the reporting period)
  • Revaluation Date (typically the last day of the reporting period)
  • Select Account Group “GL Revaluation Accounts”
  • Set Location
  • Either check the box for “Auto-create draft JE when offline”, or check the box after you’ve run the report
  • Reverse the entry on the first day of the following month

https://deandorton.com/wp-content/uploads/2022/08/AR-Open-Items-Revaluation-Report.png

3.  Run the AR & AP Open Items Revaluation Reports:

Post the adjusting entry to the last day of the month.

  • Go to Accounts Receivable > All > Reports >AR Open items Revaluation
  • Enter the date of the revaluation – typically the ending day of the month
  • Enter the name of the Location or Entity
  • Allow the system to auto-create the entry, or create it after running Revaluation Report. The entry should be reversed on the first day of the following month.

https://deandorton.com/wp-content/uploads/2022/08/CM-Revaluation-Report.pnghttps://deandorton.com/wp-content/uploads/2022/08/Journal-Entry-Creation.png

4.  Run the Cash Management Reconciliation:

  • Go to Cash Management > All > Reports > Revaluation
  • Post any needed adjustment to the GL – note: this entry cannot be automatically created, but requires the user to manually post a journal entry. Also, this entry does NOT get reversed at the start of the following month.

https://deandorton.com/wp-content/uploads/2022/08/Account-Group-Information.png

Jim Stubanas
Business Software Services Manager
jstubanas@ddaftech.com • 919.508.6068