Details about the 2022/2023 disaster-delayed tax return and tax payment deadlines

The IRS has issued disaster relief notices for storms in California. Taxpayers who live in (or business taxpayers whose principal place of business is located in) any county in California except Lassen, Modoc, or Shasta, generally have until October 16, 2023, to file their federal tax returns and pay tax owed for the 2022 tax year. Also, first, second, and third quarter 2023 estimates can be paid on October 16, 2023, without incurring penalties.

Feds have extended the tax filing deadline but what about your state tax return?

Way back in March 2021 the Treasury Department announced that the filing deadline for 2020 individual income tax returns was extended to May 17, 2021. But, what about your state income tax return (if you have a state income tax to pay)? Don’t just assume that your state return due date is also extended.

The IRS tax return extension which may not work for you.

The IRS just heaped more confusion on everyone with their extension of the “regular” filing due date to May 17 from April 15. To top off the confusion, this extended due date DOES NOT include business tax returns and DOES NOT include your April 15 personal estimated tax payments.

2020 Tax Organizer and 2021 Tax Season Office Schedule

If we prepared your 2019 tax return your 2020 tax organizer is on the way to you. We have updated the organizer for several tax changes that occurred in the last few weeks. If you need any help getting your 2020 tax records ready or have any questions at all don’t hesitate to give us a call.

IMPORTANT NOTES ABOUT OUR PHYSICAL OFFICE SCHEDULE

While the entire team at Scholl & Company is in full working operation, our physical office locations have some schedule and procedure adjustments.

Wow! Imagine paying zero taxes when selling your business.

Yes, you are indeed reading the headline correctly. Just imagine, you started your C corporation business and just sold it for $5 million and you don’t owe any federal taxes at all on the sale! Thanks to good old (enacted originally in 1993) Internal Revenue Code §1202, along with some more recent tax law tweaks, the zero tax-bite is available for those businesses that are “qualified small business corporations” (QSBC).

QSBC_Small_Business_Sale.jpg

Of course, as with most things tax, there are a number of rules and details to follow and meet. You may even already have a tax code-defined QSBC. But, whether you are thinking of starting a business or if you already have a business and want to see if qualifying as a QSBC makes sense, paying zero taxes on the sale of your business stock is certainly a big incentive.

Then, additionally add to the benefit pile that the Tax Cuts and Jobs Act (TCJA) with its new 21% corporate tax rate, and it makes the small business corporation benefits potentially even more attractive.

The difference between a QSBC and a garden-variety C corporation is that if your corporation can qualify as a QSBC the stock sale is potentially eligible for:

  • a 100 percent federal income tax gain exclusion (think, tax-free capital gains), and

  • a federal-income-tax-free gain rollover break (again, think tax-free)

When QSBC status is available for a start-up business, it can potentially dictate against the conventional wisdom that operating as a pass-through entity (LLC, S corporation, etc.) is usually the right way to go. But, the only way to know is to perform the proper planning for business formation, finance structure, and taxes. This means getting together with your CPA in the planning phase of your business is critical.

What if you already have an existing business? Exploring restructuring far enough ahead of any potential sale of your business or time-frame when you think you may put your business on the market may allow you to take advantage of the QSBC benefits.

100% Gain Exclusion (Tax-Free Capital Gains)

To qualify for tax-free capital gains, you must:

  • acquire your QSBC stock after September 27, 2010

  • hold your QSBC stock for more than five years

And your tax-free capital gains from the sale of a particular QSBC. In any year can’t exceed the greater of

  • 10 times your aggregate adjusted basis in your QSBC stock you sell, or

  • $10 million reduced by the amount of eligible gains that you've already taken into account in prior tax years from sales of this QSBC stock ($5 million if you use married filing separate status)

The Devil is in the Details

Of course our lawmakers did not feel like including every business in this tax benefit. Qualified businesses do not include:

  • the performance of services in the fields of health, law, engineering, architecture accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any other business where the principal asset is the reputation or skill of one or more of its employees;

  • banking, insurance, leasing, financing, investing, or similar activities;

  • farming (including raising or harvesting timber);

  • production or extraction of oil, natural gas, or other natural resources for which percentage depletion deductions are allowed; or

  • the operation of a hotel, motel, restaurant, or similar business

Also, the corporation’s gross assets cannot exceed $50 million before the stock is issued and immediately after the stock is issued (which considers amounts received for the stock).

Selling Before 5 Years?

For you serial entrepreneurs that get that offer you just can’t refuse before the five year qualification period has run there is a tax-free gain rollover deal for QSBC shares held more than six months.

Once you have more than six months under your belt, you can sell your QSBC shares and roll over your eligible capital gains to a new QSBC even when you fail the five-year requirement. The rollover provision allows you to sell QSBC shares on a tax-deferred basis without losing eligibility for the gain exclusion break when you eventually sell the replacement stock.

Too Much At Stake Not to Plan

I’ve touched only on some of the rules and issues for this valuable tax planning opportunity. But I wanted to give you a good handle on how this idea might work to your benefit. If you would like to spend some time with me or my team going over the possibilities for you, please call us at 831-758-5966 or email us at info@schollcpa.com. Your success is our bottom line.

Urgent Tax Moves to Make Before Dec 31

URGENT tax steps to take before year-end!
Starting 2018, the tax overhaul that President Donald Trump signed into law this past Friday caps the deductions for state and local income and property taxes at $10,000 combined. This is a significant blow to homeowners in expensive housing markets like California. If you pay more than that and itemize your taxes, it makes sense to try to pay as much of your California and local tax bill before 2018, when you can still use the old rules to take a larger deduction.