Axley & Rode, LLP

Many employers offer health care plans and other benefits that fall under the purview of the Employee Retirement Income Security Act (ERISA). A recent federal court decision serves as a reminder that employers need to know their legal rights and limits regarding employee terminations and ERISA-protected benefits. Plaintiff’s argument In Kairys v. S. Pines Trucking, Inc. , a former employee brought a discrimination case contending, among other things, that he was terminated in retaliation for substantial medical expense claims and anticipated future use of his employer’s self-insured ERISA health plan. The plaintiff argued that his employer violated Section 510 of ERISA, which makes it unlawful to: Discharge, fine, suspend, expel, discipline or discriminate against a participant for exercising a right to which the participant...

When you filed your federal tax return this year, were you surprised to find you owed money? You might want to change your withholding so that this doesn’t happen again next year. You might even want to adjust your withholding if you got a big refund. Receiving a tax refund essentially means you’re giving the government an interest-free loan. Adjust if necessary Taxpayers should periodically review their tax situations and adjust withholding, if appropriate. The IRS has a withholding calculator to assist you in conducting a paycheck checkup. The calculator reflects tax law changes in areas such as available itemized deductions, the child credit, the dependent credit and the repeal of dependent exemptions. You can access the IRS calculator here: https://bit.ly/33iBcZV Life changes There are some situations when you should...

The U.S. Senate and House of Representatives have passed the Inflation Reduction Act (IRA) and President Biden signed the bill into law. The IRA includes significant provisions related to climate change, health care, and, of course, taxes. The IRA also addresses the federal budget deficit. According to the Congressional Budget Office (CBO), the IRA is projected to reduce the deficit by around $90 billion over the next 10 years. Although the IRA falls far short of Biden’s originally proposed $2 trillion Build Back Better Act, the $430 billion package nonetheless is a sprawling piece of legislation bound to affect most Americans over time. Here’s an overview of some of what the bill includes. Significant tax provisions For starters, how is the federal government going to pay for all of it? Not surprisingly, new taxes are part of the equation (along with savings from, for example, lowe...

When you take withdrawals from your traditional IRA, you probably know that they’re taxable. But there may be a penalty tax on early withdrawals depending on how old you are when you take them and what you do with the money. Important: Once you reach a certain age, you must start taking required minimum distributions from your traditional IRAs to avoid a different tax penalty. Previously, the required beginning date (RBD) was April 1 of the year after the year in which you turn 70½. However, a 2019 law changed the RBD to 72 for individuals who reach age 70½ after 2019. But what if you want to take an “early” withdrawal, defined as one taken before age 59½? You’ll be hit with a 10% penalty tax unless an exception applies. This 10% early withdrawal penalty tax is on top of the regular income tax you’ll owe on the distribution. Exceptions to the gen...

Are you in the early stages of divorce? In addition to the tough personal issues that you’re dealing with, several tax concerns need to be addressed to ensure that taxes are kept to a minimum and that important tax-related decisions are properly made. Here are five issues to consider if you’re in the process of getting a divorce. Alimony or support payments. For alimony under divorce or separation agreements that are executed after 2018, there’s no deduction for alimony and separation support payments for the spouse making them. And the alimony payments aren’t included in the gross income of the spouse receiving them. (The rules are different for divorce or separation agreements executed before 2019.) Child support. No matter when the divorce or separation instrument is executed, child support payments aren’t dedu...

A business or individual might be able to dispose of appreciated real property without being taxed on the gain by exchanging it rather than selling it. You can defer tax on your gain through a “like-kind” or Section 1031 exchange. A like-kind exchange is a swap of real property held for investment or for productive use in your trade or business for like-kind investment real property or business real property. For these purposes, “like-kind” is very broadly defined, and most real property is considered to be like-kind with other real property. However, neither the relinquished property nor the replacement property can be real property held primarily for sale. If you’re unsure whether the property involved in your exchange is eligible for a like-kind exchange, contact us to discuss the matter. Here’s how the tax rules work If it’s a straight asset-for-asset exchange, you won’t h...

Sadly, many businesses have been forced to shut down recently due to the pandemic and the economy. If this is your situation, we can assist you, including taking care of the various tax responsibilities that must be met. Of course, a business must file a final income tax return and some other related forms for the year it closes its doors. The type of return to be filed depends on the type of business you have. Here’s a rundown of the basic requirements. Sole proprietorships. You’ll need to file the usual Schedule C, “Profit or Loss from Business,” with your individual return for the year you close the business. You may also need to report self-employment tax. Partnerships. A partnership must file Form 1065, “U.S. Return of Partnership Income,” for the year it closes. You also must report capital gains and losses on Schedule D. Indicate that this is the final re...

Many wonder how they can save taxes by transferring assets into their children’s names. This tax strategy is called income shifting. It seeks to take income out of your higher tax bracket and place it in the lower tax brackets of your children. While some tax savings are available through this approach, the “kiddie tax” rules impose substantial limitations if: The child hasn’t reached age 18 before the close of the tax year, or The child’s earned income doesn’t exceed half of his or her support, and the child is age 18 or is a full-time student age 19 to 23. The kiddie tax rules apply to your children who are under the cutoff age(s) described above and who have more than a certain amount of unearned (investment) income for the tax year — $2,300 for 2022. While some tax savings on up to this amount can still be achieved by shifting income to children under the cutoff ag...

Although merger and acquisition activity has been down in 2022, according to various reports, there are still companies being bought and sold. If your business is considering merging with or acquiring another business, it’s important to understand how the transaction will be taxed under current law. Stocks vs. assets From a tax standpoint, a transaction can basically be structured in two ways: 1. Stock (or ownership interest). A buyer can directly purchase a seller’s ownership interest if the target business is operated as a C or S corporation, a partnership, or a limited liability company (LLC) that’s treated as a partnership for tax purposes. The current 21% corporate federal income tax rate makes buying the stock of a C corporation somewhat more attractive. Reasons: The corporation will pay less tax and generate more after-tax income than it would ha...

Does your organization offer a 401(k) plan to its employees? This is a common fringe benefit for the rank and file. However, some employers might want to take their benefits packages to the next level by offering special options to key employees. In such cases, a nonqualified deferred compensation (NQDC) plan could fit the bill. Qualified vs. nonqualified When understanding the concept of an NQDC plan, first know the difference between a qualified and nonqualified plan. Under a qualified plan, so long as the employer follows various tax law requirements, its contributions are deductible, and payments to participants are guaranteed. A 401(k) is a type of qualified deferred compensation plan. With a nonqualified plan, participants rely on the employer’s promise to pay out the benefits at a specified date — but there are no guarantees. Participants run the risk th...

Sales and registrations of electric vehicles (EVs) have increased dramatically in the U.S. in 2022, according to several sources. However, while they’re still a small percentage of the cars on the road today, they’re increasing in popularity all the time. You may be eligible for a federal tax break if you buy one. The tax code provides credit to purchasers of qualifying plug-in electric drive motor vehicles, including passenger vehicles and light trucks. The credit is equal to $2,500 plus an additional amount, based on battery capacity, that can’t exceed $5,000. Therefore, the maximum credit allowed for a qualifying EV is $7,500. Be aware that not all EVs are eligible for the tax break, as described below. The EV definition For purposes of the tax credit, a qualifying vehicle is defined as one with four wheels that’s propelled to a significant extent by an electric motor, which draws electricity ...

If you’ve recently begun receiving disability income, you may wonder how it’s taxed. The answer is: It depends. The key issue is: Who paid for the benefit? If the income is paid directly to you by your employer, it’s taxable to you just as your ordinary salary would be. (Taxable benefits are also subject to federal income tax withholding. However, depending on the employer’s disability plan, in some cases they aren’t subject to Social Security tax.) Frequently, the payments aren’t made by an employer but by an insurance company under a policy providing disability coverage. In other cases, they’re made under an arrangement having the effect of accident or health insurance. In these cases, the tax treatment depends on who paid for the insurance coverage. If your employer paid for it, then the income is taxed to you just as if it was paid directly to you by the employer. On the other hand, if it’s a policy you paid for, the ...

The Tax Cuts and Jobs Act (TCJA) significantly boosted the potential value of bonus depreciation for taxpayers — but only for a limited duration. The amount of first-year depreciation available as a so-called bonus will begin to drop from 100% after 2022, and businesses should plan accordingly. Bonus depreciation in a nutshell Bonus depreciation has been available in varying amounts for some time. Immediately prior to the passage of the TCJA, for example, taxpayers generally could claim a depreciation deduction for 50% of the purchase price of qualified property in the first year — as opposed to deducting smaller amounts over the useful life of the property under the modified accelerated cost recovery system (MACRS). The TCJA expanded the deduction to 100% in the year qualified property is placed in service through 2022, with the amount dropping each subsequent year by 20%, until bonus ...

Employers spend a lot of time on motivation. You create marketing plans to, in part, motivate those you serve to support your mission — be they customers, members or some other constituency. And you likely deploy many resources to motivate employees to stay with your organization and do their best work. It’s not easy, is it? One approach that’s taken off in recent years, especially with the widespread popularity of apps and social media, is gamification. The term generally refers to integrating characteristics of game-playing into business-related interactions or tasks. External campaigns Sometimes gamification is used externally. For example, a business might award customers points for purchases that they can collect and use toward discounts. Or a company might offer product- or service-related games or contests on its website to generate traffic and visitor engagement. A nonprofit could use gamification...

It’s not just businesses that can deduct vehicle-related expenses on their tax returns. Individuals also can deduct them in certain circumstances. Unfortunately, under current law, you may not be able to deduct as much as you could years ago. For years prior to 2018, miles driven for business, moving, medical and charitable purposes were potentially deductible. For 2018 through 2025, business and moving miles are deductible only in much more limited circumstances. The changes were a result of the Tax Cuts and Jobs Act (TCJA), which could also affect your tax benefit from medical and charitable miles. Fortunately, if you’re eligible to deduct driving costs, the IRS just increased the standard amounts for the second half of 2022 due to the high price of gas. Current vs. past limits Before 2018, if you were an employee, you potentially could deduct business mileage not reimbur...

What are the requirements for employers regarding federal employment taxes? This might seem like a silly question to ask of employers, many of which have been grappling with this obligation for years or even decades. But, just as a coat of paint sometimes needs freshening up, it’s not a bad idea to occasionally review the basics of employment taxes to see whether your organization’s processes are at risk of missing any key steps, which could lead to costly penalties. Form 941 Employers must report and deposit certain employment taxes regularly. These include: Federal income tax withholding (FITW), Social Security tax (both the employer and employee portion), Medicare tax, Additional Medicare tax, and Federal unemployment tax (FUTA). Typically, an organization reports FITW...

Here are some of the key tax-related deadlines affecting businesses and other employers during the third quarter of 2022. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements. August 1 Report income tax withholding and FICA taxes for second quarter 2022 (Form 941), and pay any tax due. (See the exception below, under “August 10.”) File a 2021 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension. August 10 Report income tax withholding and FICA taxes for second quarter 2022 (Form 941), if you deposited on time and in full all of the associated taxes due. September 15 ...

Many popular retirement and health care plans must comply with the Employee Retirement Income Security Act (ERISA). Employers that sponsor one could one day receive a request from the U.S. Department of Labor (DOL) for plan-related documents. Such a request usually initiates a DOL civil investigation, often referred to as an “audit.” If this happens to your organization, address the inquiry immediately. Failure to provide requested documents to the DOL can lead to a penalty assessment, and a prompt and cordial response can establish a positive rapport with the investigator. DOL audits generally follow a predictable path: Initial document request . Generally, a plan sponsor learns of an audit when it receives a letter or phone call from the DOL’s Employee Benefits Security Administration (EBSA) advising “plan officials” of the investigation and requesting a detailed list of documents. The investigation may be gene...

There’s a valuable tax deduction available to a C corporation when it receives dividends. The “dividends-received deduction” is designed to reduce or eliminate an extra level of tax on dividends received by a corporation. As a result, a corporation will typically be taxed at a lower rate on dividends than on capital gains. Ordinarily, the deduction is 50% of the dividend, with the result that only 50% of the dividend received is effectively subject to tax. For example, if your corporation receives a $1,000 dividend, it includes $1,000 in income, but after the $500 dividends-received deduction, its taxable income from the dividend is only $500. The deductible percentage of a dividend will increase to 65% of the dividend if your corporation owns 20% or more (by vote and value) of the payor’s stock. If the payor is a member of an affiliated group (based on an 80% ownership test), dividends from another group member are 100% ...

As a result of the current estate tax exemption amount ($12.06 million in 2022), many people no longer need to be concerned with federal estate tax. Before 2011, a much smaller amount resulted in estate plans attempting to avoid it. Now, because many estates won’t be subject to estate tax, more planning can be devoted to saving income taxes for your heirs. Note: The federal estate tax exclusion amount is scheduled to sunset at the end of 2025. Beginning on January 1, 2026, the amount is due to be reduced to $5 million, adjusted for inflation. Of course, Congress could act to extend the higher amount or institute a new amount. Here are some strategies to consider in light of the current large exemption amount. Gifts that use the annual exclusion One of the benefits of using the gift tax annual exclusion to make transfers during life is to save es...