Demystifying the Real Estate Professional Rule for Tax Purposes

Navigating the nuances of tax regulations can be daunting, particularly when it comes to understanding the passive activity rules and rental real estate. If you’re involved in real estate, you may have heard the term "real estate professional" in tax discussions and wondered how it applies to you. Let's simplify this concept and see how qualifying as a real estate professional could influence your tax situation.

What is a "Real Estate Professional"?

In the realm of taxes, most rental activities are considered passive, which means any income or losses from these activities don't mix with regular income from jobs or active businesses. However, for those who qualify as a "real estate professional," the game changes. Your rental real estate activities in which you're heavily involved are treated as non-passive, potentially allowing you to offset passive losses against other types of income, like wages from your W-2.

The Two Key Qualifications

To be considered a real estate professional, you must satisfy two main requirements within a tax year:

1. Majority Work in Real Estate: More than half of the personal services you perform in all trades or businesses must be in real property trades or businesses in which you actively participate.

2. Minimum Hour Requirement: You must perform more than 750 hours of services during the tax year in real property trades or businesses in which you actively participate.

Remember, services you perform as an employee only count if you own at least 5% of the business.

Types of Real Estate Services

The definition of what falls under real property trades or businesses is broad. It includes activities like developing, acquiring, converting, renting, managing, or brokering real estate. For closely held corporations, they can qualify if more than 50% of their gross receipts come from these types of real estate activities in which they materially participate.

The Material Participation Rule

Even if you qualify as a real estate professional, each rental property is considered separately for determining active involvement unless you opt to treat all your rental real estate interests as one single activity. This choice could simplify your tax life considerably and allow for an easier way to meet the active participation standards.

Tax Benefits for Real Estate Professionals

Beyond changing the nature of your income from passive to non-passive, qualifying as a real estate professional may offer other tax advantages. This classification can help shield some of your income from the self-employment tax and the net investment income tax, which could prove beneficial come tax time.

The Bottom Line

Proper documentation of your hours and services can make or break your qualification as a real estate professional. Detailed records are your best friend if you want to claim the tax benefits associated with this status. Without them, it's challenging to prove you meet the stringent IRS criteria, leading to missed opportunities and potential issues.

Understanding these rules and regulations can be complex, so it's often wise to seek the guidance of a tax professional. Armed with the right knowledge and expertise, you can navigate the tax seas like a seasoned captain, ensuring that your real estate endeavors work as favorably for you as possible under the law.

New Corporate Transparency Act Requirements: A Quick Guide for Businesses

As we step into a new era of business transparency, an important piece of legislation – the Corporate Transparency Act (CTA) – is knocking at our doors. Effective January 1, 2024, the CTA ushers in a new wave of filing obligations for many business entities. Here's what you need to know in a nutshell:

What Does CTA Mean for Your Business?

If you're setting up a corporation, a limited liability company (LLC), or other types of entities after January 1, 2024, you'll be classified as a "reporting company." This label comes with a responsibility: you must submit a beneficial ownership information (BOI) report to the Financial Crimes Enforcement Network (FinCEN), a division of the Department of the Treasury, within three months of your company's formation.

Don't worry - if your company existed before 2024, you're not off the hook, but you do have a bit more time. Your BOI report is due by January 1, 2025 (though aiming for December 31, 2024, might keep you ahead of the holiday rush).

Exemptions to the Rule

Some companies get a pass. For example, larger operating companies employing more than 20 people and boasting incomes over $5 million are exempt. There are also other specialized exemptions.

Filling Out the BOI Report

To comply, you'll need to provide specific details for each "beneficial owner" of your company in the BOI report. That includes:

• Full name

• Date of birth

• Address

• ID number and a copy of the ID itself

"Beneficial owners" are individuals who either own at least a quarter of the company or hold significant sway over the business operations.

The BOSS System – Your New Reporting Platform

Submission is digital and user-friendly, thanks to the BOSS system – the Beneficial Ownership Secure System – and comes at no extra cost.

Why Is This Important?

The data from BOI reports is a valuable asset in the fight against illegal activities like money laundering and terrorism. Rest assured, this information is strictly for government eyes and won't be available to the general public.

FAQs and Answers

As with any new regulation, questions abound. Here's a brief rundown:

• Own an LLC for your rental property? File a BOI.

• Have 10 LLCs? Prepare 10 BOI reports.

• Can accountants and similar professionals assist with your filings? It's currently a gray area.

• Should your registered agent handle the filing? No, that’s on you.

• Are you self-employed? No need to file a BOI.

• Is a street address required? Yes, indeed.

• Should you list your Social Security number? Nope.

• What about including your attorney’s details? That's a maybe.

• A beneficial owner departed? Time to update your BOI report.

• Got minor children involved in the business? They're not required on the BOI.

• Will criminals comply and submit BOI reports? That remains to be seen.

The points above cover just the basics. If you're thirsty for more knowledge or have unique circumstances, don’t hesitate to reach out to our office. We're here to steer you through the winding rivers of compliance and ensure that your reporting is as smooth sailing as possible.

FUTA Credit Reduction for California Employers

An important update has emerged that affects the Federal Unemployment Tax Act (FUTA) credit for California employers, and I wanted to ensure you're aware of the implications for your business. Here's a succinct summary of the situation:

Background on FUTA Credit Reductions:

• Employers in states with outstanding Title XII advances for two or more consecutive years as of January 1, and who still have balances on November 10, face a reduction in their FUTA tax credit.

• An additional credit reduction applies if advances are outstanding on five or more consecutive January 1 and have a balance on November 10, unless certain state conditions for waiver are met.

2023 Status for Affected States:

• California and New York did not repay their outstanding advances by November 10, 2023, resulting in a FUTA credit reduction of 0.6% for employers in these states for 2023.

• Connecticut and Illinois successfully repaid their outstanding advances before November 10, 2023, so their employers are not subject to the FUTA credit reduction for 2023.

• The US Virgin Islands have had outstanding advances for multiple years but obtained a waiver for the additional credit reduction. Nevertheless, employers in the USVI will face a standard FUTA credit reduction of 3.9% for 2023.

For California specifically, this means:

FUTA Credit Reduction for California:

• Employers in California will experience a reduction of 0.6% in their FUTA tax credit for the year 2023.

• This reduction arises from the failure to repay outstanding advances before the cutoff date of November 10, 2023.

This credit reduction will affect the overall FUTA tax liability for your business, potentially resulting in a higher tax due on your FUTA return. It's important to adjust your payroll tax calculations accordingly and prepare for this change when completing your end-of-year tax filings.

If you require clarification on these changes, need assistance with your FUTA tax calculation, or have any other tax-related inquiries, our team is readily available to assist you.

New Corporate Alternative Minimum Tax (AMT) Requirements

As we move into the new year, I would like to inform you about the latest requirements for the Corporate Alternative Minimum Tax (AMT) established by the Inflation Reduction Act of 2022. To assist in your tax preparation and planning, here is a summary of the critical aspects of the corporate AMT based on IRS announcements:

Form 4626 for Corporate AMT:

• The IRS has released a draft Form 4626, designated for calculating the corporate AMT for the 2023 tax year.

• All corporations, unless excluded, must file Form 4626 with their tax returns to assess whether they are an "applicable corporation" for the AMT, and to calculate the AMT due, if applicable.

Safe Harbor and Simplified Method:

• Draft instructions detail a safe harbor, simplified method for determining if a corporation is affected by the AMT.

• Corporations not classified as "applicable corporations" under this safe harbor do not need to file Form 4626 for the first tax year post-2022.

Filing Exclusions:

• Certain entities such as S corporations, regulated investment companies, and real estate investment trusts are excluded from filing the Form 4626.

Corporate AMT Thresholds:

• The corporate AMT imposes a 15% minimum tax on the adjusted financial statement income (AFSI) of corporations with over $1 billion in AFSI.

• For companies with foreign parents, an additional $100 million income threshold applies.

Interim Rules and Guidance:

• Several notices have provided interim rules and guidance, which taxpayers can rely upon for a limited time, including the 2023 tax year.

• These notices include initial applications of the corporate AMT, interim guidance on insurance-related issues, relief from certain underpayment penalties, and additional applications of the corporate AMT.

It's essential for your corporation to review these new AMT requirements and understand how they may impact your tax obligations. If your corporation has substantial AFSI, it's crucial to determine whether you fall within the scope of the new AMT and prepare accordingly.

If you have any questions about the new corporate AMT, or if you need assistance with tax preparation, our team is ready to help. Please reach out for support in navigating these changes.

California Minimum Wage

California is set to implement statewide wage increases that will affect businesses across various sectors. It's crucial to stay informed about these changes to ensure compliance and proper compensation for your employees. Below is a summary of the upcoming minimum wage increases:

Statewide Minimum Wage Increase:

• Effective January 1, 2024, the California state minimum wage will rise to $16 per hour for employers of all sizes.

Minimum Salary for Exempt Employees:

• With the increase in minimum wage, the minimum annual salary for exempt employees will be $66,560 from January 1, 2024.

Local Living Wage Ordinances:

• Various "living wage ordinances" have been adopted in several locales within the state. Businesses should verify local wage standards to ensure full compliance with jurisdiction-specific requirements.

Special Provisions for Computer Professionals:

• Exempt computer professional employees are required to be compensated with a minimum of $55.58 per hour or an annual salary of $115,763.35.

Sector-Specific Minimum Wage Increases:

• For the fast food industry, a separate minimum wage increase will come into effect on April 1, 2024.

• Healthcare facility employers will experience a minimum wage increase on June 1, 2024.

It is imperative for your business to prepare for these wage adjustments to maintain compliance and ensure fair compensation for your team. If you need further guidance on the new minimum wage regulations or assistance in adapting your payroll procedures, please don’t hesitate to contact us.

CalSavers Mandate

CalSavers is a state-run retirement program for private-sector workers, which aims to facilitate saving for retirement, especially when an employer does not offer a retirement plan. Here's what you need to know:

Key Points About CalSavers:

• No Cost to Employers: There are no fees for employers to participate, nor is there any requirement for employer contributions.

• No Fiduciary Liability: Employers do not have fiduciary responsibilities with respect to the program.

• Mandatory Registration: Employers with 1 or more employees that do not offer a retirement plan must register with CalSavers by December 31, 2025.

Registration Deadlines:

• Businesses with over 100 employees: Deadline passed on September 30, 2020

• Businesses with over 50 employees: Deadline passed on June 30, 2021

• Businesses with 5 or more employees: Deadline passed on June 30, 2022

• Businesses with 1 or more employees: Deadline is December 31, 2025

For New Businesses or Changes in Business Size:

• Businesses that become newly eligible (e.g., by employing five or more individuals) or cease to sponsor their retirement plans must register by the end of the relevant calendar year.

Additional Information:

• Further details on state laws, employer mandates, and specific deadlines are available through the program's resources.

It is imperative to fulfill this mandate by the specified deadline if it applies to your company. Late registration could result in penalties or compliance issues.

If you require assistance with the registration process or more information on how CalSavers can benefit your employees, please do not hesitate to reach out to us.

2024 Important Due Dates

Ensuring timely compliance with tax filing dates and various financial obligations is crucial for effective personal and business financial management. Here’s an easy-to-follow timeline highlighting the key filing events and important dates for 2024:

Mid-January:

• The IRS typically opens its tax filing season. Note that refunds for certain credits may not be issued until mid-February.

January 16:

• 4th Quarter Estimated Tax Payment Due for income earned from Sept. 1 to Dec. 31 of the previous year.

January 31:

• W-2 Distribution Deadline for employers to provide employees with their W-2 forms.

• 1099 Distribution Deadlines for various returns like the 1099-NEC, 1099-K, and 1099-INT.

February 15:

• Form W-4 Deadline for employees claiming tax-exempt status.

• Additional 1099 Deadlines involving informational returns such as 1099-Bs and 1099-MISC.

April 15 - Tax Day:

• Federal Tax Filing Deadline. Filing for a tax extension on this date only extends the time to submit, not to pay what is owed.

• HSA and IRA Contribution Deadline for the previous tax year.

• 1st Quarter Estimated Tax Payment Due for income earned from Jan. 1 to March 31.

June 17:

• 2nd Quarter Estimated Tax Payment Due for income earned from April 1 to May 31.

• Tax Deadline for Americans living abroad to file their taxes.

Mid-July:

• Final opportunity to file a tax return for a refund on a prior-year return (up to three years back).

September 16:

• 3rd Quarter Estimated Tax Payment Due for income earned from June 1 to August 31.

October 15:

• Tax Extension Deadline for submitting returns if an extension was filed in April.

• Deadline for contributions to SEP, Simple IRA, and Solo 401(k) if an extension was filed.

December 31:

• 401(k) Contribution Deadline for qualified contributions for the current tax year.

• RMD Deadline for required minimum distributions.

• Charitable Donations Deadline for itemizing deductions.

Please mark these dates in your calendar to remain proactive in your tax and financial responsibilities. Our team is here to provide support through these processes and to clarify any details you may find perplexing.

Fast-Food Minimum Wage Increase to $20/hour (AB 1228)

Assembly Bill (AB) 1228 has enacted significant changes, including establishing a $20 per hour minimum wage for fast food workers. Please find a concise summary of the bill's key points below:

Minimum Wage Increase for Fast Food Workers (AB 1228):

• Commencing April 1, 2024, fast food employees in California will be entitled to a minimum wage of $20 per hour.

• This minimum wage is set to rise each year up to and including the year 2029, with the exact annual increases to be determined.

Establishment of the Fast Food Council:

• Alongside the minimum wage provision, AB 1228 introduces the creation of the Fast Food Council.

• Starting in 2024, this council is expected to play a pivotal role in making recommendations for broader workplace conditions within the fast food sector.

This new law is a milestone in California's efforts to enhance worker compensation within the fast food industry. It highlights the need for employers in this sector to plan ahead for the new minimum wage structure and any forthcoming recommendations that may emerge from the newly established Fast Food Council.

If your business falls under the scope of this new law, it is essential to prepare for these changes, particularly in terms of payroll adjustments and budgeting. Our firm is ready to assist with any questions you may have about this new bill or help with the implementation of the necessary changes to your practices.

Please don't hesitate to reach out for further assistance and support.

Off-Duty Cannabis Use and Drug Test Results (AB 2188, SB 700)

Below you'll find summaries of Assembly Bill (AB) 2188 and Senate Bill (SB) 700, which address employment discrimination and drug testing.

Protection Against Discrimination for Off-Duty Cannabis Use (AB 2188):

• Effective January 1, 2024, AB 2188 makes it unlawful for employers to discriminate against job applicants or employees based on their off-duty use of cannabis or the presence of nonpsychoactive cannabis metabolites in certain drug test results.

• Employers cannot penalize individuals based on hair, blood, urine, or other body fluid tests that indicate the presence of nonpsychoactive cannabis compounds.

• This law does not permit cannabis use or possession in the workplace and does not restrict employers from maintaining a drug- and alcohol-free environment.

• Employers can still use valid, scientifically backed drug screening methods that do not detect nonpsychoactive cannabis metabolites.

• AB 2188 grants exemptions, for example, for employees in the building and construction industry.

Expanded Protection Under Fair Employment and Housing Act (SB 700):

• SB 700 enhances protections under California's Fair Employment and Housing Act by prohibiting hiring discrimination based on an applicant's prior cannabis use, with specific exceptions.

• Employers cannot inquire about a job applicant's past cannabis consumption.

• Additionally, it is unlawful for employers to utilize criminal history information related to prior cannabis use in their employment decisions, barring situations where state or federal laws allow for such consideration or inquiry.

With these laws, California progresses towards greater privacy and nondiscrimination for individuals who use cannabis away from their workplace. As an employer, it's essential to review your company's hiring and drug testing policies to ensure compliance with these updates.

If you need assistance in understanding these new requirements, wish to update your policies, or have any questions, please feel free to reach out to us for guidance and support.

Workplace Violence Prevention Program (SB 553)

Starting July 1, 2024, California will be enforcing a new regulation mandating employers to establish comprehensive workplace violence prevention plans. Senate Bill (SB) 553 introduces specific obligations, which are detailed below for your convenience:

Workplace Violence Prevention Plan Requirements (SB 553):

• Violent Incident Log: Employers are required to document any instances or threats of violence in a dedicated log, ensuring incidents are systematically recorded and addressed.

• Employee Training: All employees must receive training related to workplace violence prevention, enabling them to identify risks and follow proper procedures to mitigate them.

• Record Maintenance: Employers must keep thorough records concerning their workplace violence prevention plan. These records will be crucial for both compliance and in enhancing the effectiveness of the plan.

The implementation of these plans can be within an employer's existing injury and illness prevention program or as a standalone document, depending on the employer's preference.

This policy change underscores the importance of employee safety and the active management of risks associated with workplace violence. Employers are encouraged to comply with these new requirements to ensure a safer and more secure working environment for all employees.

We are here to assist you in developing a compliant workplace violence prevention plan, including providing the necessary employee training and helping set up a reporting and record-keeping system.

If you require our services or need further advice on this matter, please don't hesitate to contact us.

Reproductive Leave Loss for Employees (SB 848)

We wish to inform you about a significant update to employee leave entitlements in California: Senate Bill (SB) 848, which addresses unpaid leave following a reproductive loss event. Here's a clear summary of what you need to know about this compassionate measure:

Unpaid Leave for Reproductive Loss (SB 848):

• SB 848 grants eligible employees the right to take up to five days of unpaid leave for a "reproductive loss event."

• To be eligible, employees must have been employed by a business with five or more employees for at least thirty days before starting their leave.

Definition of Reproductive Loss Event:

• The law characterizes a "reproductive loss event" as any of the following occurrences:

  • A failed adoption process

  • An unsuccessful surrogacy agreement

  • A miscarriage

  • A stillbirth

  • An unsuccessful round of assisted reproduction

• The leave is available on the day of such an event, or for an event extending over multiple days, it is available on the final day of the event.

This legislation represents a considerate approach to supporting employees through challenging personal times. It is important for employers to adjust their HR policies accordingly to accommodate staff facing these sensitive circumstances.

If you have any questions on how to implement this new provision for leave or would like further clarification on the law, please don’t hesitate to reach out to our team for support.

Noncompete Agreements and Notice Requirements (SB 699, AB 1076)

Here’s a straightforward summary to help you understand the implications of Senate Bill (SB) 699 and Assembly Bill (AB) 1076:

Prohibition of Noncompete Agreements (SB 699):

• Employers are prohibited from entering into, or enforcing, noncompete agreements with employees.

• All noncompete agreements are declared void in California, irrespective of where the employee was working at the time the agreement was initiated or the location where it was signed.

Notification Requirements (AB 1076):

• Employers are now required to provide written notification to current and certain former employees (those employed after January 1, 2022) by February 14, 2024.

• This notification must inform them that any noncompete agreements they entered into are no longer valid and enforceable under California law.

These developments mark an important shift ensuring greater mobility and freedom for employees in their professional choices. It is crucial for your business to comply with these legal updates to avoid any legal complications.

If you have any noncompete agreements in place or questions about these legislative changes, it's imperative to take immediate action. Please feel free to contact us for guidance on next steps or for any additional information you might need.

Paid Sick Leave (SB 616)

Below, you'll find an easily understandable summary of the new paid sick leave law, Senate Bill (SB) 616, which enhances the provisions set by the Healthy Workplaces, Healthy Families Act of 2014.

Enhanced Paid Sick Leave Entitlement:

• As per SB 616, employees are now entitled to five days, or a total of forty hours, of paid sick leave annually. This is an increase from the previous entitlement of three days or twenty-four hours.

Options for Accruing Sick Leave:

• Employees may continue to accrue paid sick leave at a standard rate of one hour for every thirty hours worked.

• By the 200th day of employment, employees must be able to accrue the full forty hours.

• Employers must ensure that at least twenty-four hours of paid sick leave are available to employees by their 120th day of employment.

• Alternatively, employers have the option to "frontload" the total amount of paid sick leave at the beginning of each year.

Increased Limits for Annual Usage and Accrual:

• The new limit for an employee’s annual use of paid sick leave has risen to forty hours, from the previous cap of twenty-four hours.

• Employers may now set an accrual cap at eighty hours or ten days — an increase from the former limit of forty-eight hours or six days.

These changes reinforce California's commitment to supporting employees’ well-being while providing employers with clear guidance on paid sick leave benefits. It’s essential for employers to understand and integrate these adjustments into their payroll and HR operations.

Should you have any questions or require assistance implementing these new regulations, please don’t hesitate to reach out for support.

Sales Tax Rates - January 1, 2024

In an effort to keep you updated on the financial factors that affect your business operations, please find below the latest sales tax rates for various cities within San Diego County:

• Carlsbad: 7.750%

• Chula Vista: 8.750%

• Coronado: 7.750%

• Del Mar: 8.750%

• El Cajon: 8.250%

• Encinitas: 7.750%

• Escondido: 7.750%

• Imperial Beach: 8.750%

• La Mesa: 8.500%

• Lemon Grove: 7.750%

• National City: 8.750%

• Oceanside: 8.250%

• Poway: 7.750%

• San Diego (City): 7.750%

• San Diego County (unincorporated areas): 7.750%

• San Marcos: 7.750%

• Santee: 7.750%

• Solana Beach: 8.750%

• Vista: 8.250%

These rates are crucial for correctly calculating the sales tax on goods and services sold within these jurisdictions. It is important to apply the correct sales tax rate for the specific city where your business is located or where sales transactions occur.

Should you have any questions regarding these tax rates or need assistance with sales tax compliance, please do not hesitate to reach out to us.

2024 Tax Season Updates - Part II

Continuing from our previous communication, here is the second part of the summary of the income tax changes for 2023. These updates are critical for your tax planning and compliance:

Qualifying Surviving Spouse Filing Status:

• A taxpayer may use this status for two years following the year of their spouse's death, subject to meeting five specific criteria.

Terminology Change for Virtual Transactions:

• The term "virtual currency" on Form 1040 has been replaced with "digital assets," which are defined as digital representations of value on a cryptographically-secured ledger.

• All filers of Forms 1040, 1040-SR, or 1040-NR must answer a question regarding transactions in digital assets.

Taxation of Digital Assets:

• When receiving digital assets as payment for services, the income reported should be the U.S. dollar value of the digital assets at the time they are received.

Required Minimum Distributions (RMDs) Age Increase:

• RMDs must begin at age 73 for individuals who reach age 72 after the year 2022.

RMD Excise Tax Reduction:

• The excise tax for failing to take an RMD is decreased from 50% to 25%, with a further reduction to 10% for IRAs if the failure is corrected promptly.

Energy Efficient Home Improvement Credit:

• A nonrefundable credit of up to 30%, capped at $1,200 annually, is available for specified energy-efficient home improvements.

• There are limits on credit amounts for windows, skylights, doors, and energy audits.

Clean Energy Credits:

• A credit for 30% of expenditures, up to $2,000, for the purchase of specific heat pump equipment and biomass stoves and boilers installed from January 1, 2023, until December 31, 2032.

• Up to a $7,500 credit is available for new clean vehicles, depending on specific battery materials and components, subject to vehicle MSRP and taxpayer's modified adjusted gross income (MAGI).

Credit for Used Clean Vehicles:

• A nonrefundable credit for purchasing a used clean vehicle is available, either $4,000 or 30% of the sale price (up to a $25,000 sale price), whichever is less. Eligibility is subject to the taxpayer's MAGI.

Please assess how these changes might affect your tax situation. Our team is here to help you understand these updates and provide the necessary guidance. Feel free to contact us with any questions or for further assistance.

2024 Tax Season Updates - Part I

As we navigate through the 2023 tax year, it's important to stay informed about the various tax changes that could affect your tax planning and filings. Below is a simplified summary of the key income tax updates for this year:

Education Savings Bond Program:

• For married couples filing jointly, the income phase-out begins at $137,800.

• For single filers, qualifying widow(er)s, and heads of household, the phase-out starts at $91,850.

Qualified Long-Term Care Insurance Deduction Limits:

• Age 40 or younger: $480

• Age 41 to 50: $890

• Age 51 to 60: $1,790

• Age 61 to 70: $4,770

• Age over 70: $5,960

Long-Term Care Per Diem Limitation:

• The 2023 per diem limit for long-term care insurance benefits is $420.

Social Security Taxable Earnings:

• For 2023, the earnings limit subject to Social Security tax is $160,200.

Saver's Credit AGI Limits:

• Married filing jointly: $73,000 AGI limit

• Head of Household: $54,750 AGI limit

• All other filers: $36,500 AGI limit

Health FSA Contributions:

• Maximum contribution for 2023 is $3,050.

• Up to $610 of the unused amount may be carried over, if your plan allows.

Affordable Care Act (ACA) Subsidies Expansion:

• Under the ARPA, individual subsidies for ACA plans are increased, extending benefits to more taxpayers, including those previously ineligible due to income.

Small Business Health Insurance Premium Tax Credit:

• Employers with fewer than 25 full-time equivalent employees (FTEs) paying average wages under $61,400 may be eligible for a tax credit.

ACA Shared Responsibility Penalties:

• For large employers not offering health insurance: $2,880 annual penalty ($240 per month).

• For large employers that do offer insurance, but employees get a tax credit through an exchange: $4,320 annual penalty ($360 per month).

Health Savings Account (HSA) Limits:

• Minimum deductible for self-only High Deductible Health Plan (HDHP): $1,500; max out-of-pocket: $7,500; max contribution: $3,850.

• Minimum deductible for family HDHP: $3,000; max out-of-pocket: $15,000; max contribution: $7,750.

• Additional catch-up contribution for those 55 and older: $1,000.

2023 Standard Mileage Rates:

• Business travel: 65.5 cents per mile.

• Charitable service: 14 cents per mile.

• Medical travel: 22 cents per mile.

• If using the business rate, the basis reduction rate is 28 cents per mile.

Please review these changes carefully to understand how they may impact your financial planning for the current tax year. If you have any questions or need further assistance, do not hesitate to reach out.

California State Disability Insurance Tax Change

Please be aware of a significant update in the payroll tax structure that affects all California employees starting in 2024.

California State Disability Insurance (SDI) Payroll Tax Change:

• Traditionally, the California SDI payroll tax of 1.1%, which funds the state’s disability insurance program, was applied to wages up to a cap of $153,164.

• Starting in 2024, California has removed this wage cap, and the 1.1% payroll tax will now be applicable to all wage income without limit.

• Consequently, the highest individual income tax rate on wage income in California will rise to 14.4%.

It is crucial for all employers and employees to take note of this change as it will impact net income and payroll processing. If you have any questions regarding how this change affects your payroll operations or if you require assistance in adjusting to the new legislation, please contact us.

Beneficial Ownership Reporting Requirements

BOI Reporting Overview: Beneficial Ownership Information (BOI) is the identification of individuals who have direct or indirect ownership or control over a company. As of March 24, 2023, corporations and LLCs are required to disclose BOI to the U.S. Department of the Treasury. This requirement comes under the Corporate Transparency Act, passed in 2021 to thwart the misuse of business entities by malefactors.

Reporting Timeline: Entities formed or registered to conduct business before January 1, 2024, have until January 1, 2025, to submit their initial BOI report to the Financial Crimes Enforcement Network (FinCEN).

Entities Required to Report:

• Domestic Reporting Companies: U.S.-based corporations, LLCs, or similar entities established through state-level registration.

• Foreign Reporting Companies: Foreign entities, including corporations and LLCs registered to do business in the U.S. through state-level filing.

Exemptions: Several entities are exempt from BOI reporting, including but not limited to publicly traded companies, certain nonprofits, and large operational companies. Notably, there are 23 categories of exemptions:

• Securities reporting issuers

• Banks, credit unions, and related institutions

• Money services businesses, brokers or dealers in securities

• Investment companies and advisers, including venture capital fund advisers

• Insurance companies and state-licensed insurance producers

• Entities registered under the Commodity Exchange Act

• Accounting firms and public utilities

• Pooled investment vehicles, tax-exempt entities

• Large operating companies and their subsidiaries

• Inactive entities

Definition of Beneficial Owner: A beneficial owner is someone who either possess substantial control over, or owns at least 25% of, a reporting company's ownership interests.

It is essential for all entities to review whether they fall under this reporting requirement or qualify for an exemption. Should you need further clarification or assistance in complying with the BOI reporting, please don’t hesitate to reach out.