Month: September 2022

I was perusing the Internal Revenue Code (it’s one of the things I do) and started to think about the various sources of tax-free income.

Here are the 11 that jumped out at me:

1. Roth IRAs
2. Social Security benefits up to the taxable limits
3. Tax-free IRA withdrawals (on top of tax-free Social Security)
4. Home sale gains of up to $250,000 ($500,000 if married, filing jointly)
5. Tax-free capital gains and dividends when you hit the sweet spot
6. Capital gains sheltered with capital losses
7. Stepped-up inherited assets
8. Section 1031 real estate exchanges when held until death
9. Qualified small business tax gains
10. Section 529 college savings plans
11. Coverdell Education Savings Accounts

When it comes to tax planning, tax-free tops the list.

If you would like to discuss tax-free income, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• September 17, 2022

New Law: Business Tax Credits for Your Electric Vehicle Purchases

You may have heard that the newly enacted Inflation Reduction Act includes an expanded tax credit for electric vehicles.

Although this personal credit has gotten most of the publicity, the new law launched a new commercial clean vehicle credit—specifically for business-use electric vehicles. And it’s much better than the credit for personal-use electric vehicles.

The new law’s personal-use electric vehicle credit is now called the clean vehicle credit. It comes with many new restrictions:

• It is available only if your adjusted gross income is no more than $300,000 (married, filing jointly) or $150,000 (single).
• It applies only to electric vehicles with a manufacturer’s suggested retail price below $80,000 for vans, SUVs, and pickup trucks, or $55,000 for other vehicles.
• It must pass complex tax-law-defined North American assembly and sourcing requirements that prevent many electric vehicles from qualifying.

Luckily, if you purchase or lease an electric vehicle for business use in 2023 or later, none of the clean vehicle credit restrictions apply.

Instead, you can qualify for the business-use electric vehicle credit. The credit is available for fully electric cars, plug-in hybrid electric vehicles, and fuel cell vehicles.

The maximum credit is $7,500 for electric vehicles with a gross vehicle weight rating of less than 14,000 pounds and a whopping $40,000 for electric vehicles with a GVWR of 14,000 pounds or more.

If you want to discuss electric vehicles, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• September 15, 2022

To date, 29 states have enacted pass-through entity (PTE) taxes that can enable owners of pass-through entities such as partnerships, multi-member LLCs, and S corporations to effectively get around the federal $10,000 limit on deducting state and local taxes (SALT).

The 29 states are Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Georgia, Idaho, Illinois, Kansas, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Utah, Virginia, and Wisconsin. PTE tax legislation is pending in Iowa, Pennsylvania, and Vermont.

If your pass-through business is located in one of these states, you may be able to save thousands of dollars in federal income taxes by electing to have your PTE pay the state tax due on its income at the entity level instead of you paying your share of such taxes on your personal return. Reason: When your PTE pays such taxes, it may deduct them in full because it is not subject to the individual $10,000 SALT limit.

Unfortunately, every state’s PTE tax regime is different. Before your PTE makes a PTE tax election, all its owners must understand the issues involved. These include:

• Is your PTE eligible for a PTE tax election?
• What percentage of ownership is required to make the election?
• What’s the deadline for the election?
• Are estimated PTE taxes due?
• How much is the PTE tax?
• Does your state give electing PTE owners a tax credit or income exclusion?
• How are non-resident PTE owners treated?

If you want to discuss PTE taxes, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• September 13, 2022