Now that the proposals are cleared through Congress with the promise of the President’s signature, we take note of the tax changes included in the bill, as follows:
The Employee Retention Tax Credit (ERC) is cut off for wages paid after September 30, 2021 with limited exceptions for “Recovery Startup Businesses”. Such businesses are those that were started after February 15, 2020 AND whose gross receipts do not exceed $ 1,000,000. As a consequence, employers may have been counting on qualifying for and claiming the credit for the fourth quarter of 2021, but may have reduced their employment tax deposits in anticipation of the granting of the ERC credits.
While no explicit relief is provided for in the bill’s provisions, it is anticipated that the IRS will adopt some relief provisions. Stand by for clarification on this point. If you believe that you may qualify for ERCs, but have not yet applied for them, please contact our office for assistance in verifying your qualification, computation of the ERCs you are entitled to, and preparation of the forms that need to be filed with the IRS to obtain refunds for employment taxes already paid.
Another provision included in the bill relates to reporting of cryptocurrency transactions by “brokers” (yet to be defined). What is certain is that transactions in such items (Bitcoin, Etherium, Litecoin, etc.) that total more than $ 10,000 will be subject to reporting similar to reports of stock trades, beginning in 2023 (filings due by February 15, 2024). Investors may need to be more forthcoming with their tax advisors and preparers, since IRS scrutiny in this area will increase dramatically, once this reporting mechanism is activated.
Slight changes to the disaster area tax provisions are also included to limit the extended period for filing returns or taking time-limited actions to 60 days, from the current, longer period permitted.
The statutory basis for activating such provisions is changed from the current reference to a section of the FEMA enabling statutes.
The other significant provision relates to an extension of tax action deadlines for Taxpayers who have been in a combat zone or who have suffered from a “significant fire”. It is expected that clarification from IRS will follow as to whether the former provision will apply only to those on active duty or if civilians merely present in a combat zone will be able to claim benefits of the time extensions and what level of suffering will qualify a Taxpayer for extension under the latter provision.
Mark H. Misselbeck, C.P.A., M.S.T. is a Tax Principal at Katz, Nannis + Solomon, P.C. If you have any questions or would like to speak with one of our tax professionals, please contact our office at 781-453-8700.