2023 Marcum Year-End Tax Guide

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THE MARCUM YEAR-END TAX GUIDE 2023

MARCUM 2023 FEDERAL TAX YEAR IN REVIEW BY MICHAEL D’ADDIO

We have been eagerly waiting for tax legislation to address various tax provisions impacting both individuals and businesses all year. On the business side, there are three main provisions we are watching:

1. The elimination of the requirement to capitalize specified research & experimentation expenses under IRC sec 174 2. The removal of the phase-out of bonus depreciation 3. The inability to add-back depreciation and amortization in computing the base for determining if business interest expense is deductible under IRC sec 163(j) While we are hoping that the provisions are repealed (which generally would be prospectively), since some of these rules impacted 2022, the hope is that they would be repealed retroactively. Although there was a consensus between members of Congress to modify the tax provisions, the issue couldn’t be resolved due to the disagreement on certain individual tax changes that some members wanted to include in the overall tax package. These changes comprised restoring higher child tax credits and earned income tax credits and changing the limitation on the deductibility of state and local taxes (SALT). The SALT provision was especially critical for members from states with high taxes.

As of the date of this article, we have not had significant tax legislation passed. We must see if a new bill can pass before year-end. Given the narrow margins in both the House of Representatives and the Senate, the outlook is dim that these parties can reach a compromise. However, despite the lack of a large tax bill, it has been a busy tax year with a large amount of IRS guidance and many tax-related cases decided by the courts. Below, we review some of the most significant cases and administrative guidance that may impact your businesses or individual taxes. Some of these will be discussed in greater detail in other articles in this year-end guide. EMPLOYEE RETENTION TAX CREDIT (ERTC) This is the year of the employee retention tax credit. You could not watch television or listen to the radio without being confronted by a barrage of commercials for the ERTC. In response, this year saw the IRS (The Service) issue warnings and initiate several programs to combat what the Service sees as abusive claims for the credit. The Employee Retention Tax Credit is a refundable tax credit created under the Coronavirus Aid, Relief,

and Economic Security Act (CARES Act) for businesses and tax-exempt organizations that had employees and were impacted by the COVID-19 pandemic. The credit applies to qualified wages paid after March 12, 2020. The requirements are complex and differ depending on the year of the credit. The credit was amended three times since its enactment by the Consolidated Appropriations Act of 2021, the American Rescue Plan Act, and the Infrastructure Investment and Jobs Act. For most eligible employers, the ERTC applies to eligible wages paid through September 30, 2021, though the credit can apply to wages paid in the 4th quarter of 2021 for a Recovery Startup Business. To qualify for the credit, an employer must have suffered a significant decline in gross receipts when comparing a covered quarter in 2020 or 2021 to a comparable quarter in 2019, or the trade or business was fully or partially suspended due to a government order. The measure of significant decline in gross receipts differs for a quarter in 2020 and 2021. In determining if either test applies, certain related entities must be aggregated and treated as a single employer.

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