Scale CPA December Newsletter

Welcome to the December 2023 edition of Scale CPA’s newsletter, where we provide insights on all things tax and accounting, along with the overall economy.

Let’s get to it.

1. New 2024 Small Business Reporting Requirement
   
   Effective January 1, 2024, certain small businesses are required to submit a “beneficial ownership information” (BOI) report to the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN).
   
   This is the result of Congress passing the Corporate Transparency Act a couple of years back, with the intention to make it harder for bad actors to hide or benefit from shell companies or other opaque ownership structures.
   
   The report will be due by January 1, 2025 for businesses in existence prior to 2024.
   
   For new businesses formed in 2024 and beyond, this report will be required within 90 days of formation. Be sure to keep this in mind if forming a new entity!
   
   The report will include information on each owner of the company, including name, DOB, address, and a photo identification (e.g. drivers license, passport, etc.).
   
   Businesses not complying with beneficial ownership information reporting requirements can face stiff penalties. Any company that fails to file a required beneficial ownership report or amendment by its filing deadline is subject to a fine of $500 per day, up to a maximum of $10,000. Willful failures or intentionally filing inaccurate information is a felony, punishable by up to two years in prison.
   
   We will be offering assistance with this report, and will be reaching out individually to discuss next steps further on this.
   
   If you’re interested in reading more, here is FinCEN’s webpage dedicated to this.
   
   

2. Year-End Tax Planning
   
   As we are nearing year-end, we wanted to outline a few key year-end tax planning strategies to keep in mind at this time:
   
   Expense Acceleration
   Cash method taxpayers have the ability to plan the movements of cash in and out of the business (outside of inventory accounting) to maximize deductions at year-end and defer income inclusions to the subsequent year. If your business plans to invest in items such as equipment, supplies, etc. or more significant capital expenditures, it may be prudent to make the purchase now to trigger the tax benefit for this year as opposed to delaying the tax benefit to next year – this could result in significant tax savings this year and a sizable benefit around time value of money.
   
   This is especially relevant this year as the bonus depreciation allowance for businesses is declining over the next several years (80% in 2023, 60% in 2024, 40% in 2025, and so on).
   
   Your business can even put these expenses on a credit card – take the deduction in the year the card is charged, and then not have to actually pay the credit card bill until next year.
   
   Alternative Energy Credits
   As a result of the Inflation Reduction Act of 2022, multiple new significant federal tax credits are available this year for leveraging alternative energy sources, like electric, solar, and wind. These include the Electric Vehicle Credit, Residential Clean Energy Credit (for major home improvements, like installing solar panels) and Energy Efficient Home Improvement Credit (for minor home improvements, like installing energy efficient appliances).
   
   The Residential Clean Energy Credit provides a credit (dollar-for-dollar tax deduction) of 30% of the cost of the project.
   
   The Electric Vehicle Credit provides a credit up to $7,500 (once again, dollar for dollar tax reduction) as a result of purchasing or leasing a qualified electric vehicle.
   
   The Energy Efficient Home Improvement Credit offers up to a $1,200 dollar-for-dollar tax reduction benefit for installing items like energy efficient A/C units, electric panels, natural gas heaters, furnaces, exterior doors, and simply conducting a home energy audit.

   
   If you'd like to learn more, here is the IRS resource page for more details on these credits.
   
   Tax Loss Harvesting
   Triggering a capital loss by selling a security (e.g. stock) at a loss can help reduce overall tax liability – but economics of the transaction should always be considered first. For individuals, capital losses can fully offset capital gains — and any excess can be deducted against ordinary income (up to $3,000 / year).
   
   Securities sold at a loss can be re-purchased but you must wait at least 30 days to repurchase or else the loss will be subject to the “wash sale” loss rules and disallowed (would increase the basis of the new stock).
   
   Note: This "wash sale" loss rule does not currently apply to cryptocurrency transactions.
   
   

3. Economic Update
   
   On December 13th, Jerome Powell, Chairman of the Federal Reserve, delivered an economic update.
   
   Within this update, he highlighted that there was a slowdown in economic growth in the fourth quarter, but indicated overall GDP is still on track for around 2.5% expansion for the year. Powell also expressed that progress has been made in bringing down inflation, with the 12-month inflation rate falling to an estimated 3.1% from a peak of 7.1% (see chart below). 
   
   However, Powell stressed that inflation remains too high and achieving sustained 2% inflation is not assured. The labor market has gradually cooled, with job openings declining and wage growth moderating.
   
   The fed did not increase or decrease rates but indicated the current trajectory is to decrease rates in 2024. This shift in tone after aggressive rate hikes over the past year and a half sent markets soaring, with the Dow Jones reaching an all time high.
   
   Businesses and individuals ought to consider how to take advantage of these high rates now (high yield savings accounts, CDs, bonds, etc.) and continue to be conservative with high-interest debt. Once the Fed begins bringing rates back down, the cost of debt should become much more palatable.

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Wishing you and your family happy holidays!