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Many individuals want to provide financial assistance to family members to help them experience the joys and pride of home ownership. From aiding grandchildren to purchase their first homes to empowering children or other loved ones to build their personal balance sheets through investing in residential real estate, there are many options to explore regarding how financial support is best provided. Each approach has tax implications, and determining the best approach will require consideration of a number of factors, including:

• Whether the residence is already owned by the family or is being newly acquired;
• The anticipated growth of the home’s value;
• The expected period of time that the family will own the home; and
• The availability of attractive bank financing terms.

This article explores some of the options that may be considered and identifies some of the tax implications that should be evaluated.

Navigating Estate and Gift Tax Exemptions

The estate and gift tax lifetime exemption is currently $13.61 million for individuals and $27.22 million for married couples, under the Tax Cuts and Jobs Act (TCJA), but it is set to be reduced to an estimated $7 million per person beginning January 1, 2026. If the value of your residential real estate is a significant component of your personal balance sheet, transferring those assets outside of your estate may be a prudent way to take advantage of the higher lifetime exemption before the TCJA estate tax provisions sunset.

The Generation-Skipping Transfer Tax

In addition to the estate and gift tax, the generation-skipping transfer (GST) tax often comes into play when wealth owners wish to transfer real estate, like vacation properties or second homes, to younger family members. GST tax is imposed on wealth transfers to grandchildren and more remote descendants that exceed the exemption limits so individuals cannot avoid transfer taxes by “skipping” a generation. The GST tax is levied in addition to gift or estate taxes and is not a substitute for them. The exemption for the GST tax is also $13.61 million per person and the exemption may be applied to gifts during lifetime or transfers through the grantor’s estate. The GST tax exemption is also scheduled to sunset at the end of 2025 and will be lowered to $7 million per person in 2026.

Gifting as a Means to Support Home Ownership

Many individuals consider offering a “deal” to their loved ones by pricing the residence at a level their family member can afford, below the current market rate. However, this situation can create a tax filing obligation because the IRS considers any transfer of assets for less than full and adequate consideration than would be paid “between a willing buyer and a willing seller” (Treas. Reg. §20.2031-1) to be a gift. A gift tax return must be filed to disclose the gift to the IRS, and it must include a qualified appraisal as of the transfer date if the delta between the transfer price and the market value of the gift is higher than the annual exclusion ($18,000 for 2024). When the total value of all gifts made throughout an individual’s life exceeds the lifetime exemption amount (again, currently set at $13.61 million per person), then a 40% gift tax will be assessed on the excess of the total over the lifetime exemption amount.

Rather than gifting an entire property, wealth owners can make a cash gift to a beneficiary to cover the down payment, the monthly mortgage, property tax, insurance payments, maintenance and repair costs, and more. As mentioned above, the Internal Revenue Code provides an annual gift exclusion that allows individuals to give up to $18,000 in 2024 to as many people as they’d like without incurring gift taxes. If the gift is solely in cash, does not exceed the annual exclusion amount, and there are no other gifts to report for the year, a gift tax return is not required.

Gifting Real Estate Through Trusts

Using trusts to gift real estate is a technique often used in estate planning, as many trusts include provisions that allow the trustee to make discretionary distributions to or on the beneficiary’s behalf for health, education, maintenance, and support. The ongoing costs of home ownership, such as real estate taxes, insurance, mortgage payments, and home repairs can fall within the maintenance and support standard, to assist beneficiary’s with home ownership expenses.

Some types of trusts can be structured to continue for several generations, allowing a wealth owner to provide for home ownership even for decedents who are not yet living at the time the trust is created, if desired. This is done by allocating the GST exemption to the trust. Some trusts qualify for the $18,000 annual gift exclusion too, if there is a single beneficiary and all the assets and income go to the beneficiary or their estate.

Using estate planning techniques like a qualified personal residence trust (QPRT) may allow individuals to transfer a residence to their children, and still allow that individual to live in the home.  In addition to reduced transfer taxes, any future appreciation in the residence after the QPRT is established is transferred to children without being subject to additional transfer tax. Learn more about QPRTs here.

Living Arrangements and Reduced Rent Options

If you already own the home you want to gift or transfer, you could consider allowing a family member to live there rent-free or at a reduced rent. An annual gift tax return may be required if the market value of the reduced rent is higher than the annual exclusion, but a key advantage of this approach is that if you intend to transfer the property to the beneficiary upon your passing, maintaining the asset within your estate ensures it will benefit from a step-up in basis. This is an attractive option for a home that has a very low basis and has appreciated significantly over many years of ownership.

Loan Options for Home Purchase Assistance

Another option you can consider is loaning your family member the money to purchase the home from you at fair market value. However, there are protocols that must be followed to avoid running afoul of IRS regulations. Such loans must be formally documented, and payments made according to the terms of the agreement. Interest rates on related-party loans must be set, at a minimum, at the interest rate provided by the IRS in monthly published Revenue Rulings (known as the Section 7520 rates), and other arm’s length terms must be observed.

Of course, the grantor could forgive part of the loan at any point during the loan term. If the loan forgiveness amount is $18,000 or less per year, then it should qualify for annual exclusion gifting and not reduce the grantor’s lifetime estate and gift exemption.

However, it’s important to avoid a predetermined arrangement for forgiving the loan annually under the annual exclusion, as the IRS might view this as a single gift made in the first year, resulting in an inadvertent reduction of the donor’s lifetime exemption.

Financing Strategies for Home Purchases

Many families have relationships with their banking partners that allow them to obtain favorable interest rates or terms. In addition, they may own other assets, such as brokerage accounts, that may be used as additional collateral to support a loan, although it would not be advantageous to sell those assets. Using such assets as collateral usually entails the addition of restrictions that prevent the disposition of the assets while being held for collateral without prior authorization from the financial institution. A parent or grandparent can serve as a personal guarantor on the loan between the beneficiary and the bank, but there may be a gift value to a personal guarantee, and consideration should be given as to whether this triggers a gift tax filing requirement.

Consulting with Advisors for Tailored Strategies

As you can see, there are many ways in which wealthy individuals may offer to help loved ones achieve home ownership or favorable living arrangements. Talking with your advisors will help determine which options accomplish your goals while utilizing tax-efficient strategies. We can address your inquiries and assist in crafting a personalized strategy that enables you to transfer your wealth not merely as a gift but with meaningful intent and purpose, aligning with your family’s home ownership goals and financial well-being.

Written  by Abbie M.B. Everist. Copyright © 2024 BDO USA, P.C. All rights reserved. www.bdo.com

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Navigating through various financial strategies is essential for any business owner aiming to enhance profitability and ensure sustainable growth. These financial benefits, offered by state governments, are designed to spur economic development and encourage investments within their jurisdictions. By leveraging such incentives, businesses can significantly reduce their tax liabilities, enhance cash flow, and optimize their financial strategy.

What Are State Tax Credits and Incentives?

State tax credits and incentives are reductions in tax obligations provided by states to businesses that meet specific criteria. These can range from credits for job creation and investment in some geographic regions to incentives for implementing green initiatives or investing in new technology. Unlike deductions, which reduce the amount of income subject to tax, credits directly decrease the tax owed, often making them more valuable.

A typical scenario where a business might receive a state tax credit is through job creation incentives. For example, a company that expands its workforce might qualify for credits designed to encourage employment growth within the state. These credits often provide a direct offset against the business’s tax liability for each new job created under specific conditions such as salary levels and full-time status, aiming to stimulate local economic growth and reduce unemployment.

Why Prioritize State Tax Credits and Incentives?

1. Reduced Tax Liability: One of the most immediate benefits of utilizing state tax credits and incentives is the potential reduction in tax liability. This helps improve your business’s bottom line and frees up resources that can be reinvested into the industry.
2. Enhanced Cash Flow: Many state tax incentives are refundable, which means they can provide cash refunds to businesses even if they owe no tax. This injection of cash can be crucial for funding operations, expansion, or new investments.
3. Strategic Business Growth: By taking advantage of incentives related to expansion or relocation, businesses can strategically position themselves in markets that offer the most economic benefit while minimizing costs.

Navigating the Complexity

Determining whether your business qualifies for specific state tax credits involves understanding the various criteria set by state laws. Typical qualifications include investing in property, creating jobs, or engaging in business activities such as research and development. Since these incentives vary widely from state to state and year to year, staying informed about the latest opportunities and legislative changes is vital.

Claiming these incentives can be complex, involving stringent compliance and reporting requirements. Additionally, the timing of claiming these credits is often critical, with many having specific filing deadlines or caps on the amount that can be claimed. 

Given the complexities associated with state tax credits and incentives, consulting with a Certified Public Accountant (CPA) knowledgeable about tax law and the specifics of these incentives is crucial. A CPA can help you:

• Identify which credits and incentives your business may qualify for.
• Understand the application and compliance requirements.
• Strategically plan to maximize the benefits of these incentives.

Final Thoughts

State tax credits and incentives represent a significant opportunity for business owners to reduce costs and enhance profitability. These financial tools can catalyze business growth and success with the right approach and professional guidance. As you consider your business’s financial planning and strategic direction, evaluating potential state tax credits and incentives with the help of a qualified CPA can provide a competitive edge and help ensure that your business thrives in an ever-evolving economic landscape.

The post Navigating State Tax Credits and Incentives for Business Expansion appeared first on Walter Shuffain.

To combat a wave of frivolous employee retention credit (ERC) claims, the IRS has sharply increased compliance action through audits and criminal investigations, with more activity planned in the future. In this heightened enforcement environment, employers are advised to act swiftly when responding to IRS notices regarding ERC claims.

Immediate Action Required for Employers Receiving IRS Audit Notifications

Employers must be aware that failing to respond to IRS notices within the time frame specified can lead the IRS to disallow the entire ERC claim and issue a notice of disallowance. Once the IRS formally disallows a refund claim, the taxpayer may be permitted to first file a protest with the IRS Office of Appeals or, in some cases, the taxpayer may decide to file a lawsuit in federal court to litigate the issue. Both scenarios subject employers to the necessary defense of an often burdensome and costly refund claim controversy, further delaying the much-needed ERC relief promised by Congress.

Successful defense of any ERC examination will depend greatly on an understanding of the risks and eligibility criteria to avoid the costly repercussions of noncompliance, including the potential for general examination. As noted below, the IRS highlighted in Notice IR-2024-39 warnings signs that ERC claims may be incorrect, urging businesses to revisit eligibility.

Key Examination Risks Identified by the IRS

1. Claiming Too Many Quarters: It is unusual for employers to qualify for the ERC in all available quarters. A meticulous review of eligibility for each quarter is advised to avoid overstating claims.
2. Non-Qualifying Government Orders: The IRS has clarified that not all government orders related to COVID-19 qualify for the ERC. Orders must have directly affected the employer’s operations, and mere guidance or recommendations do not suffice. Businesses must be able to document and substantiate the impact of qualifying government orders.
3. Employee Counts and Calculation Errors: With changes in the law during 2020 and 2021, employers must be vigilant in their calculations, adhering to the dollar limits and credit amounts for qualified wages.
4. Supply Chain Disruptions: Qualifying for the ERC based solely on supply chain issues is rare. Employers must demonstrate that their supplier was affected by a qualifying government order.
5. Overstating the Eligibility Period: Claiming the ERC for an entire calendar quarter is possible only if the business was impacted for the full duration. Employers are entitled to claim only the actual suspension period and must maintain accurate payroll records.

Navigating Refund Claim Controversies Amid Increased IRS Action

Employers should seek guidance from trusted tax professionals to ensure compliance and to effectively manage the challenges of the IRS’s ongoing enforcement actions.

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For many business owners, taxes often represent a hurdle to clear rather than a strategic asset to leverage. However, those who look beyond mere compliance can unlock the transformative power of tax planning as a key driver for sustainable business growth. Rather than viewing tax as a static annual obligation, repositioning it as a dynamic component of your business strategy can substantially impact your bottom line. Effective tax planning goes beyond preparing for tax season; it integrates with your company’s financial decision-making process, influencing everything from cash flow management to long-term investment strategies. This article outlines practical steps for business owners to harness tax planning effectively in their growth strategies.

Comprehensive Tax Analysis

Initiate your tax strategy by comprehensively analyzing your company’s financial situation. Assess all aspects—revenue, expenses, investments, and potential risks—to understand your tax obligations. Engaging with financial advisors to conduct this analysis can uncover valuable tax-saving opportunities that align with your business growth plans.

Tax Strategy and Business Goals Alignment

Ensure that your tax strategies are in sync with your business objectives. If expansion or capital investments are on the horizon, tailor your tax approach to support these aims. This could involve tax planning methods like income deferral or identifying deductions that can be claimed to reduce taxable income, thereby aligning with your business’s future financial goals.

Tax Credits and Incentives Utilization

Stay informed about tax credits and incentives that could benefit your business. Regularly review government offerings for R&D, environmental initiatives, or employment practices, and consider how to integrate these into your tax planning effectively. Consult with tax professionals to apply these credits in the most advantageous ways for your business.

Income and Expense Timing

The timing of income recognition and expense incurrence is crucial. Make informed decisions about when to realize income and incur expenses to manage your tax liabilities effectively. Adjusting the timing can lead to a more favorable tax position and improved cash flow, aiding reinvestment in your business.

Technology Investment for Tax Planning

Invest in technology to enhance your tax planning and business management processes. Accounting software and automation tools can provide accurate, real-time data, allowing for better financial decisions. This technological support is essential for maintaining efficiency and compliance with tax obligations.

Strategic Employee Compensation

Review your compensation strategies to optimize tax outcomes for the business and employees. Consider various compensation models, such as deferred compensation plans or other fringe benefits, which may offer tax advantages while supporting your talent acquisition and retention objectives.

Retirement Planning for Owners and Succession

Business owners should view retirement planning as a component of the company’s tax strategy. Structuring retirement savings tax-efficiently benefits both the individual’s and the business’s future. This planning also involves considering the tax implications of business succession and transition.

Tax planning is more than compliance; it’s a critical element of a sustainable business strategy. While navigating through these areas, it’s essential to maintain a forward-thinking approach, utilize available resources, and continuously adapt to changing tax laws. Before implementing any tax-related changes, consult a CPA to ensure the strategies are appropriate and beneficial for your business’s unique context. This careful and informed approach to tax planning will support your business’s growth and stability over the long term.

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The Massachusetts Millionaire’s Tax, a significant fiscal policy aimed at taxing the state’s wealthiest individuals, has become a pivotal factor for high-net-worth individuals (HNWIs) considering their residency status, especially those with real estate holdings across multiple states. As these individuals evaluate their future, particularly with retirement on the horizon, understanding the tax’s implications and the requirements for changing domicile becomes crucial. This article delves into the Massachusetts Millionaire’s Tax, its impact on HNWIs, and key considerations for those contemplating a move to another state.

Recap: The Massachusetts Millionaire’s Tax

The Massachusetts Millionaire’s Tax imposes an additional surtax on annual income exceeding $1 million, targeting high earners to contribute more to state revenues. This includes income from wages, investments, and certain capital gains, which can significantly affect HNWIs with diverse income sources, including real estate investments across states. To read more about the Massachusetts Millionaire’s tax, check out this article on our blog.

The Impact on High-Net-Worth Individuals

For HNWIs with real estate in Massachusetts and other states, the Millionaire’s Tax introduces complex considerations for tax planning and residency decisions. The tax affects their income and complicates decisions regarding where to declare residency, especially for those nearing retirement or planning to relocate. We recently put together an article that outlines strategies for easing the tax burden in light of this legislation; read it here.

Considering a Move: Domicile and Residency

The concept of “domicile” is central to understanding one’s tax obligations to Massachusetts. Domicile refers to where you intend to make your permanent home, where you return after being away. You can have multiple residences but only one domicile. For Massachusetts to recognize a change in domicile, thereby releasing an individual from the obligation to pay the Millionaire’s Tax, clear evidence demonstrating a permanent move must be provided.

Establishing a New Domicile

Contemplating a move from Massachusetts to retire in another state requires substantial planning and documentation to authenticate a change in domicile, especially if you retain real estate in Massachusetts. The process is far from straightforward and involves more than just ticking boxes on a checklist. It requires considerable effort and understanding that the transition is nuanced, involving various factors beyond the basic steps. The planning and documentation to prove the shift in domicile can include:

• • Physical Relocation: Moving one’s belongings and family to the new state.
  • Changing Legal Documents: Updating your driver’s license, voter registration, and legal documents to reflect your new state of residence.
  • Economic Ties: Shifting banking, investment accounts, and business interests to the new state.
  • Social Ties: Joining clubs, religious institutions, and community organizations in the new location.
  • Facts and Circumstances Test: Massachusetts employs a “facts and circumstances” test to assess domicile. This means the state will consider all aspects of an individual’s life to determine their domicile.

The Millionaire’s Tax Complication

Introducing the Millionaire’s Tax adds a layer of complexity for HNWIs planning to change their domicile. The tax incentivizes the state to scrutinize claims of domicile change more closely, given the potential loss in tax revenue. This scrutiny means that individuals must diligently establish and document their ties to a new state. The Department of Revenue is intensifying its efforts to verify or refute claims. For instance, they examine data from external sources, including E-ZPass and telephone records.

Key Considerations

Massachusetts residents who own real estate in other states but wish to keep a residence in Massachusetts due to family connections must exercise caution. It’s possible to be considered domiciled in Massachusetts and, as a result, be obligated to pay taxes in the state.

For those contemplating a move, it is vital to:

• • Plan Ahead: Begin the domicile change process well before the move to ensure all documentation and changes reflect your new state of residence.
  • Maintain Records: Keep detailed records of all steps to establish a new domicile, including receipts, memberships, and any other evidence of a permanent move.
  • Consult Professionals: Work with tax and legal professionals specializing in multi-state residency and tax planning to navigate the complexities of the Millionaire’s Tax and ensure compliance.

Conclusion

If you’re contemplating a change in residency, understanding the complexities of being deemed domiciled in Massachusetts based on facts and circumstances is crucial. It involves much more than simply ticking off items on a checklist, such as changing your address or doctor. The effort required is substantial and encompasses a wide array of considerations that go beyond the superficial aspects of relocation. It’s not a straightforward process; it may necessitate a multi-year plan to establish residency in a new state fully.

Additionally, it’s important to remember that other states have their own specific criteria for determining residency, nexus, and domicile. These factors can significantly impact your tax obligations and legal residency status. Given these complexities, you may want to thoroughly reassess your relocation plans, ensuring you fully understand the implications and commitments of such a significant decision.

The post Navigating the Massachusetts Millionaire’s Tax: Implications for High-Net-Worth Individuals with Multi-State Real Estate appeared first on Walter Shuffain.

In this article, we explain why 2024 is an ideal year to prioritize your wealth transfer plans.

Current Tax Laws Double Lifetime Giving Exemption

For affluent individuals and their families, estate taxes can represent one of their largest tax liabilities. IRS rules allow certain amounts of an estate to be transferred free of taxes to family and friends, on an annual basis (the limit is $18,000 per person in 2024) and also grant each taxpayer a lifetime giving exemption. Beginning in 2010, that lifetime exemption was $5 million per person indexed for inflation. The Tax Cuts and Jobs Act (TCJA) roughly doubled the giving limit, raising the lifetime exemption in 2024 to $13.61 million for individuals and $27.22 million for married couples.[1]

The caveat—and it’s a big one—is that those expanded exclusion amounts expire at the end of 2025, with lifetime exemption totals reverting back to an estimated $6.40 million per person.[2]  Individuals and families seeking to lower their taxable estate may not see such a generous opportunity from the government again, so it’s critical to develop giving plans and put them into motion before it’s too late.

Gifting in a Bear Market Is Like Buying Low

Recent stock and bond market selloffs may make you think that now is a risky time to consider giving away a large portion of your estate. But for those in a position to take full advantage of the lifetime exemption, doing nothing could result in burning up much more in potential tax savings than any recent market losses.

In fact, initiating a giving program during a bear market has the possibility to increase the value of your gifts to future generations. When transferring common stock, for example, you can gift more shares when values are down, potentially providing a larger base of appreciation for the recipient. And, as the donor, a downturn means you could be able to transfer a greater portion of your wealth out of your estate.

Transferring the maximum amount allowed on your terms and timetable not only removes those assets and their potential appreciation from your estate, but it can also add meaning to the gifts by allowing you to see your children and grandchildren enjoy those assets during your lifetime.

Value of Gifting Today vs. Gifting in the Future

Failure to utilize the full expanded exclusion amount of $13.61 million per individual prior to its lapse at the end of 2025 may result in the unused amount being subject to estate or gift tax.

Key takeaway: An additional $8.33 million is paid in estate taxes by the couple who failed to utilize the expanded exclusion amount before it expires in 2025.

A Note of Caution

The generation skipping transfer (GST) tax exemption may also come into play if gifts are given to grandchildren. Gifts to grandchildren and subsequent generations have GST tax considerations. The gift tax exemption and the GST tax exemption start off the same (at $13.61M per individual) but can, and often, get used at different rates. If you have never used your gift tax exemption or GST tax exemption, you should be fine. However, you must be careful as a gift can result in both gift tax and GST tax being imposed on that gift.

Customize Your Wealth Transfer Strategies

Effective wealth transfer can be accomplished in a number of ways and should be customized to your personal circumstances. Your tax advisor can explain the pros and cons of various gifting options to ensure you receive the full estate tax benefits while retaining a measure of flexibility and access to certain assets if needed. A professional tax advisor can help you prioritize the types of assets to be gifted, such as cash, investments, or business interests.

Various techniques, including using irrevocable trusts and grantor retained annuity trusts (GRATs), can be employed to limit estate taxes when the wealth owner dies. Such trusts are established as a method of transferring wealth out of the owner’s estate for the benefit of family members (e.g., children, grandchildren, etc.). It is important to note that trusts have specific risks and challenges that must be understood before executing transfers of significant wealth. Qualified estate planning advisors also can help identify alternative gifting options, such as promissory notes and intrafamily loans, that may avoid some of the pitfalls of trusts.

When considering how much wealth should be transferred for the benefit of your heirs, thoughtful consideration should be given to how much wealth you should retain in your estate to maintain your lifestyle. Difficult decisions must be made during the estate planning process that weigh current cash flow needs with estate tax savings and preservation of family legacy. A qualified estate planning professional can model various scenarios to help you determine the amount of gifting that is right for you.

The Clock Is Ticking … Begin the Discussion Now

The window on making the most of the expanded lifetime exemption and shielding a significant portion of your estate from Uncle Sam will close at the end of 2025. We are available to answer many of your questions and help formulate a customized plan that allows you to not just gift your wealth, but gift it with a purpose.

[1] IRS, “IRS provides tax inflation adjustments for tax year 2024,” November 9, 2023

[2]  Figure based on estimate of $5 million exemption in 2010 indexed for inflation through 2025

The post We May Never See a Better Environment for Transferring Wealth … Here’s Why appeared first on Walter Shuffain.

Single-Sales-Factor Apportionment

Effective for tax years beginning on and after January 1, 2025, Massachusetts corporate taxpayers will be required to apportion net income using a single sales factor. That is a departure from current law, which requires corporations (other than qualifying manufacturers) to use a three-factor formula of property, payroll, and a double-weighted sales factor.

Financial Institution Receipts From Investment and Trading

Also effective for tax years beginning in 2025, H. 4104 repeals the current sourcing of financial institution receipts from investment and trading assets and activities, which generally sources those receipts to the taxpayer’s regular place of business (where day-to-day investment and trading decisions are made). Beginning in 2025, those receipts – interest, dividends, net gains, and other income from investment assets and activities and income from trading assets – will be sourced using a fraction. The numerator will be the financial institution’s Massachusetts-sourced receipts from financial activities, such as lending, credit card receivables, leasing, and the denominator will be total receipts, excluding income from investment assets and activities.

Short-Term Capital Gains

For Massachusetts personal income tax purposes, the legislation reduces the short-term capital gains rate to 8.5%, retroactive to January 1, 2023. Previously, Massachusetts taxed any gain from the sale or exchange of capital assets held for no more than one year at a rate of 12%.

‘Wealth’ Taxes

• The legislation increases the state estate tax threshold to $2 million for decedents dying on or after January 1, 2023. It also alleviates the so-called cliff effect of the Massachusetts estate tax, whereby estates valued at over $1 million were subject to tax on their entire value. The legislation grants a state estate tax credit of up to $99,600 as relief and changes how the tax on out-of-state real estate and tangible personal property is calculated.
• Effective January 1, 2023, Massachusetts enacted the millionaires surtax, an additional 4% state income tax on the portion of a taxpayer’s annual income that exceeds $1 million. For income earned on or after January 1, 2024, H. 4104 requires married couples to file Massachusetts joint income tax returns for any year in which they file federal joint income tax returns.
• H. 4104 also requires the Department of Revenue to study the effect of an additional surtax of up to 4% on pass-through entities (PTEs) that have made the Massachusetts PTE tax election.

Insights

• Affected taxpayers should model the impact of the Massachusetts apportionment changes that will be effective for tax years beginning January 1, 2025, particularly if applying economic nexus or other state nexus positions to avoid Massachusetts sales factor throwback and/or throwout.
• PTEs and their owners should watch for the Department of Revenue’s study and possible recommendations concerning a PTE surtax.” Like requiring married joint filing when a federal joint return is filed, a 4% surtax on electing PTEs is intended to address avoidance of the millionaires surtax that went into effect earlier this year.

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On October 4, 2023, Massachusetts Governor Maura Healey signed into law a historic tax relief package to provide substantial financial relief to the state’s residents. The $1 billion Massachusetts Tax Relief Bill, the first of its kind in more than 20 years, is set to bring significant changes to the state’s tax system. 

The tax relief bill is set to provide benefits for many taxpayers beginning with the 2023 tax year. Keep reading to learn more about the key changes in the bill. 

1. A Breath of Fresh Air for Investors
The investment realm hasn’t been left untouched. Short-Term Capital Gains Tax, often a concern for traders and short-term investors, has been pruned down from a steep 12% to 8.5%. This cut encourages more dynamic participation in the investment landscape.

2. Alterations in Estate Planning
For those considering their legacies, there’s good news on the horizon. The estate tax exemption in Massachusetts has been raised, moving from a $1 million threshold to an elevated $2 million. That means estates valued at under $2 million won’t be taxed by Massachusetts. This change offers families greater flexibility and security in estate planning.

3. Simplifying Business Taxes
Businesses operating in multiple states often grapple with complex tax calculations. Massachusetts aims to simplify this. The state has transitioned its apportionment calculation from the traditional three-factor system to a straightforward sales-only apportionment, making tax calculations simpler and more predictable. Massachusetts now joins over 30 other states in using the single factor apportionment.

4. Closing Millionaires Tax Loophole for Married Couples
Starting in the 2024 tax year (but not for 2023), married couples must file their Massachusetts tax returns using the same filing status (that is, jointly or separately) as their federal returns. This is intended to eliminate a “millionaires tax” loophole permitting dual-income taxpayers to file separate Massachusetts returns with no federal tax consequence, which would have allowed each spouse to avoid the 4% millionaires surtax on the first $1 million of taxable income.

5. Supporting Families with Children
Starting in 2023, the Child and Dependent Tax Credit will increase from $180 to $310 per child under 13, disabled adults, or seniors. And 2024 promises even more respite, with the credit set at $440 per child.

6. Earned Income Tax Credit Increase
The Earned Income Tax Credit is set for a growth spurt, moving from capturing 30% of the federal credit amount to 40% of the federal credit.

7. A Boost for Renters
With the escalating cost of living, renters can often feel the financial squeeze. The state has escalated the rental deduction cap from $3,000 to $4,000.

8. Senior Citizens in Focus
The senior circuit breaker credit is a refundable credit for senior citizens based on real estate taxes or rent paid on residential property owned or rented as a principal residence, doubling from $1,200 to $2,400.

9. Septic Tank Replacement
This bill will triple the maximum credit from $6,000 to $18,000 and increases the amount claimable to $4,000 per year, easing the burden on homeowners facing the high cost of septic tank replacement or repair.

Ready to Navigate Massachusetts’ New Tax Landscape? 

Massachusetts’ latest tax reforms echo the state’s commitment to its residents. The reforms touch every facet of the state’s vibrant community, from parents to senior citizens, from hardworking individuals to businesses.  

If you have questions about the tax relief bill and how this impacts you, contact Walter Shuffain.  

The post Massachusetts Governor Signs $1 Billion Tax Relief Bill appeared first on Walter Shuffain.

Are you looking to take advantage of the employee retention credit (ERC)? You’re likely bombarded with ads and solicitations urging you to act now. But before you move forward with the ERC application process, it’s important to understand what the ERC is and what it entails. It’s also important to consider aggressive marketing and misleading claims; the IRS added Employer Retention Credit Promoters to its annual ‘Dirty Dozen’ list of top taxpayer scams for the year. Keep reading for some key points to consider.

1. You still have time.

Despite being specifically for 2020 and 2021 payroll tax filings, there is still a chance you may be eligible to claim this credit. If you file before the ERC claim deadline, you may be eligible to receive this credit for your business. Here are the filing deadlines for ERC claims:

• For the 2020 tax year, you must file your ERC claim by April 15, 2024.
• For the 2021 tax year, your deadline is April 15, 2025.

2. Beware of Misleading Advertising Regarding Employee Retention Credit

The Employee Retention Credit is a legitimate tax credit but beware of misleading advertising from aggressive promoters that make unrealistically high promises. The IRS and tax professionals have noticed a surge in exaggerated claims and misinformation about the credit. Don’t fall for false promises – seek out accurate and trustworthy information from reliable sources to determine if you qualify for this credit.

3. Work with a reputable advisor to answer your ERC questions.

Not every business will qualify for this tax credit. Seek the guidance of a qualified advisor who can assess your unique needs, goals, and eligibility for the ERC refund. Failure to meet the requirements may result in penalties and interest payments. It is worth noting that not all businesses are eligible for the ERC tax credit.

Remember that the IRS has a statute of limitations for assessment, typically three years from the deemed filing date. This means ERC claims for all 2020 quarterly tax filings can be audited through April 15, 2024, and claims for the first two quarters of 2021 can be audited through April 15, 2025.

If you’re like many businesses and need help understanding the ERC and the recent changes, contact our team of qualified professionals for help! We look forward to helping you!

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