Changes in 2024 for the 2023 Tax Season

Happy New Year 2024 to All!

As we enter another new year, I wanted to touch base and communicate some of the changes occurring in 2024 that will impact the 2023 Tax Season. Several of the items described in more detail below may warrant a more detailed conversation.  Please feel free, as always, to call the office and schedule an appointment to ensure any last-minute items are covered.

Federal Developments and Changes

  • The Corporate Transparency Act – In 2021, the U.S. enacted the Corporate Transparency Act (CTA). Ultimately, it is designed to capture more information about the ownership of specific entities conducting business in, or accessing, the U.S. market. After several delays of the effective date, this law became effective on January 1, 2024 for business entities and their owners. The CTA is designed to improve business activity transparency through the reporting of Beneficial Ownership Information (BOI) and is particularly targeted to smaller businesses. Entities doing business in the US and formed prior to January 1, 2024, have until January 1, 2025 to report BOI. Entities formed during 2024 will have 90 days after creation to file and entities formed after December 31, 2024 will have 60 days to report. The bottom line with this legislation is that it will require just about every legal entity to file BOI with the Financial Crimes Enforcement Network (“FINCEN”). For more information on the reporting requirements and instructions on filing, please use the following link: gov/boi-faqs#M_3
  • Expiration of Enhanced Business Meals Deduction – For 2023, the deduction for business related meals will return to 50%. During 2021 and 2022 businesses could deduct the full cost of business-related food and beverages purchased from a restaurant. That exception has expired.
  • Phase-out of 100% Bonus Depreciation on most qualified property – The Tax Cuts and Jobs Act (“TCJA”) extended bonus depreciation rules that were set to expire at the end of 2019 and increased the deductible amount to 100% for qualifying assets placed in service after Sept. 27, 2017, and before Jan. 1, 2023. For 2023 tax purposes, the maximum amount of bonus depreciation for qualifying assets is 80%. The first-year percentage will decrease by 20% each year over the next few years until it eventually phases out completely.  That translates to 60% in 2024, 40% in 2025, etc…
  • The Secure 2.0 ACT of 2022 – Multiple changes have been implemented again with respect to retirement plans including IRAs, 401(k), SEP, SIMPLE and ROTH IRAs and others. The IRS continues to digest these changes and expects to issue additional guidance and regulations in the future. The details are too numerous to list but a good resource for current guidance on these changes can be found in IRS Notice 2024-02 using this link:  Notice 2024-02

Arizona Income Tax Developments and Changes 

  • Arizona Pass Through Entity (“PTE”) tax – new in 2022, this “optional” tax for Arizona small business owners will most likely be around for some time to come, unlike the Small Business Income tax (“SBI”) from 2021. The attractive part about this PTE tax is that it may also reduce your Federal tax on your individual return.
    • The PTE rate has been reduced to 2.5% and allows an S-Corp or Partnership or other “pass-through” entity, to apply an entity level Arizona Income Tax of 2.50% to its Net Income (and rental income if stated separately) and treat the tax as a “business deduction” that flows through to the shareholders’ or Partners’ allocable share of net income on the Federal Return.
    • The resulting effect is essentially a deduction to your personal Federal taxable income tax from your ownership stake in your business
    • The IRS has indicated it will not impact your other SALT tax deductions on your Schedule A – Itemized deductions, which are currently capped at $10k. So, if you previously had SALT (state and local taxes) deductions at $5k and this brought you to $10k, you could claim the full $10k
    • This tax, although it may be elected by the due date (including extensions) of the business return, IRS interpretations suggest it must be paid in the year taken. In other words, payment must be made by 12/31/23 to take advantage of the deduction for Tax Year 2023.
  • Arizona law changes rates – The Arizona state legislature has simplified the Arizona tax to one rate: 2.50% for all income levels and filing statuses.
  • Arizona Tax Credits – As a reminder, Arizona law allows for certain charitable contributions made through April 15, 2024 to be counted as a 100% tax credit toward your 2023 tax Return. They are as follows:
    • Qualifying Charitable Organizations in Arizona – The maximum credit is $421 for single filers and $841 for married filing joint
    • Contributions to Qualifying Foster Care Charitable Organizations in Arizona – The maximum credit is $526 for single filers and $1,051 for married filing joint.
    • Credit for Contributions to Private School Tuition Organizations in Arizona – The maximum credit is $655 for single filers and $1,308 for married filing joint.

Prescott Meals on Wheels is an excellent option for the Arizona Qualifying Charitable Organization credit and allows you to re-direct your tax dollars to a great cause.