Tax

As an integral part of our commitment to keep you updated on matters that could affect your financial decisions, we want to inform you of recent changes and available incentives on electric vehicles at both the federal and state levels.

While lawmakers extended the federal tax credit for personal-use electric vehicles through 2032, they restricted it to vehicles that comply with domestic battery sourcing rules. The battery rules limit the number of electric vehicles that qualify for the full $7,500 federal tax credit.

Despite this, there’s encouraging news as most states offer additional incentives to residents who switch to electric vehicles.

The incentives vary widely and may include reduced vehicle licensing fees or sales taxes, HOV lane privileges, reduced or waived vehicle inspections, and financial incentives for purchasing home chargers. Moreover, many states’ local electric utilities provide rebates to customers who buy electric vehicles, ranging from $100 to $1,500 or more.

Currently, eight states—California, Colorado, Connecticut, Maine, Maryland, Massachusetts, New York, and Pennsylvania—are leading the electrification efforts by offering their own financial incentives to residents who purchase or lease electric vehicles.

The incentives are usually in the form of rebates, typically ranging from $1,000 to $2,000, but can be as much as $7,500 for lower-income residents in some states. Unlike the federal tax credit, state rebates are not subject to strict domestic sourcing restrictions.

But it’s important to note that each state’s electric vehicle rebate program is unique and often requires residency in the state for two or three years after your EV purchase or lease. States may also impose income caps and price restrictions on qualifying electric vehicles. Therefore, we strongly encourage you to carefully review your state’s program before purchasing an electric vehicle.

If you are considering an electric vehicle, the rebates and tax credits can help reduce your cost.

If you want my help with an electric vehicle purchase, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• July 10, 2023

For the past few weeks, I have received questions about the Section 105 medical reimbursement plan from my self-employed and solo C corporation owners. Below are the main points from my answers.

When you have multiple businesses, all employees across these businesses are considered your employees under the Section 105-HRA plan. If you have more than one W-2 employee, the spouse-only 105-HRA plan may not be suitable. Similarly, the plan would not work for the one-person C corporation with two or more employees.

While there are no specific regulations on the timing of reimbursements, it is advisable to reimburse expenses monthly to maintain a professional business image.

Employee spouses under the Section 105 plan can receive W-2 wages that provide solid proof of employment. But a W-2 is not mandatory, and the Section 105-HRA plan can serve as the sole source of remuneration.

Premiums for long-term care policies can be included as reimbursable expenses under the Section 105-HRA plan, allowing for a full deduction without limitations.

If you receive compensation solely through the Section 105 plan without any W-2, there is no requirement for additional contributions to a SEP IRA on your behalf.

If you have any further questions or require more detailed information, please don’t hesitate to call me on my direct line at 408-778-9651.

• By Leon Clinton
• July 5, 2023

I am bringing to your attention an opportunity that might result in significant tax benefits for you or your corporation—the unclaimed 2020 and 2021 COVID-19 sick and family leave credits.

The IRS allows individuals and corporations to claim these credits to alleviate the pandemic’s impact. But many missed this opportunity on their previous tax returns.

If you did not claim these credits for 2020 and 2021, it’s not too late. You can now claim the credits by filing an amended return. Moreover, if you had a net profit of $143,866 on Schedule C or equivalent W-2 wages from your corporation, you could qualify for up to $32,220 in refundable tax credits.

Here’s a brief breakdown:

• Up to $15,110 under the 2020 rules
• Up to $17,110 under the 2021 rules

The 2020 rules apply from April 1, 2020, through March 31, 2021. For the period from April 1, 2021, through September 30, 2021, there are even more opportunities to qualify for the sick leave credit of up to $511 a day and the family leave credit of up to $200 a day.

To claim the credits, self-employed individuals should file a completed 2021 Form 7202 and IRS Form 1040-X. If your corporation missed the credits, it can amend its payroll tax returns using Form 941-X.

I recommend that you do not delay in claiming these credits. While the IRS provides a three-year window for filing amended returns, it’s beneficial to get that money working for you as soon as possible.

Of course, you need to gather the documentation that validates your tax credit claims.

One key point: you can’t claim a double benefit by using the qualifying wages and monies for other relief programs such as the Paycheck Protection Program loan forgiveness or the Employee Retention Credits.

I would happily assist in filing the amended returns and answering any questions. If you want to get the ball rolling, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• June 30, 2023