GJC Advisor

2024 Year-End Tax Planning BUSINESSES

Dear Friends,

We are pleased to present the 2024 Year-End Tax Planning Guide.

In today’s evolving U.S. and global tax environment, the tax implications of business decisions are not always intuitive. Integrating tax considerations throughout the decision-making process can help businesses unlock potential tax savings and efficiencies as well as identify and mitigate tax risks. Whether shifting supply chains, pursuing mergers and acquisitions, implementing sustainability initiatives, or adjusting workforce strategy — embracing a total tax mindset while modeling the tax impact of these decisions can lead to better outcomes that add value to your organization. Strategic long-term tax planning remains vital for businesses aiming to reduce their overall tax liabilities and optimize cash flow. With 2024 being an election year, and with some of the changes enacted under the Tax Cuts and Jobs Act scheduled to expire at the end of 2025, keeping up with tax developments is critical to maintaining an effective comprehensive tax strategy. This 2024 Year-End Tax Planning Guide identifies key tax strategies and other tax developments businesses should consider as they close out the year and revisit tax planning strategies for 2024 and beyond.

For more information and assistance, please contact us. Unless otherwise noted, the information contained in this guide is based on enacted tax laws and policies as of the publication date and is subject to change based on future legislative or tax policy changes.

Have a safe and healthy Holiday Season!

GJC

Tax Accounting Methods

Corporations and pass-through entities may have opportunities to effectively improve their federal income tax positions and, in turn, enhance their cash tax savings by strategically adopting or changing tax accounting methods. Companies that want to reduce their current year tax liability (or create or increase a current year net operating loss (NOL)) should consider accounting method changes that accelerate deductions and defer income recognition. On the other hand, for various reasons (for example, to utilize an NOL), companies may choose to undertake accounting methods planning to accelerate income recognition and defer deductions. Importantly, when undertaking any future tax planning, companies should also keep in mind current tax that could result based on the outcomes of the 2024 presidential and congressional elections.

ASC 740 Year-End Guide

Correctly accounting for and disclosing income taxes under ASC 740 is complex. As the end of the year draws closer, now is a good time to evaluate your company’s income tax accounting policies.

That is especially so this year, given the impending effective date of Accounting Standards Update (ASU) No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which the Financial Accounting Standards Board (FASB) issued in late 2023. Given the potential complexity of the ASU’s new requirements, firms should consider whether processes, systems, and internal controls should be modified to facilitate effective implementation.

Special attention should be given to your tax function’s internal controls, which are vital to reducing risk and capitalizing on available resources.

This year-end planning guide walks you through the most important aspects of the ASU, as well as what to consider in designing strong internal tax controls that can help reduce reporting errors.

Business Incentives & Tax Credits

I. Credit for Increasing Research Activities: Proposed Changes to Form 6765

The IRS announced the release of a revised draft of Form 6765, Credit for Increasing Research Activities, on June 21, 2024, that reflects feedback from external stakeholders. This follows the IRS’s efforts to tighten documentation requirements for claiming the research credit. In September 2023, the IRS previewed proposed changes to Form 6765, adding new sections for detailed business component information and reordering existing fields. These changes aimed to improve information consistency and quality for tax administration but were criticized as overly burdensome.

The updated draft retains Section E from the previous version but requires additional taxpayer information. The “Business Component Detail” section, now Section G, is optional for Qualified Small Business (QSB) taxpayers and those with total qualified research expenditures (QREs) of $1.5 million or less and gross receipts of $50 million or less. Additionally, the IRS reduced the number of business components to be reported in Section G, requiring 80% of total QREs in descending order by amount, capped at 50 business components. Special instructions will be provided for taxpayers using the ASC 730 directive. The revised Section G will be optional for all filers for tax year 2024 to allow taxpayers time to transition to the new format. As outlined by the IRS, Section G will be effective for tax year 2025.

Corporate and M&A

During 2024, the U.S. Department of the Treasury and the IRS issued important tax guidance for U.S. corporations — including long-awaited proposed regulations on the corporate alternative minimum tax and final procedural regulations on the stock repurchase excise tax. These and other key tax developments corporate taxpayers should consider when planning for 2024 and beyond include:

Corporate Alternative Minimum Tax Guidance Includes Detailed Proposed Regulations
IRS, Treasury Issue Final Procedural Regulations on Stock Repurchase Excise Tax
Tax Court Rules for Taxpayer on Related Party Advances
IRS Rules Stock Contributions Will Not Result in Deemed Dividends or Application of Gift Tax
Uncertainties Surround Treatment of S Corporation State Law Conversions
IRS Rules Professional Corporation Arrangement Requires Consolidation

Customs and International Trade

As 2024 comes to a close, companies that import tangible merchandise into the U.S. should consider available duty mitigation strategies. The Biden administration has maintained all existing Section 301 China tariffs (either 25% or 7.5% as imposed under the Trump administration) and recently announced its final determinations for steep tariff hikes on certain Chinese-origin products such as electric vehicles, batteries, semiconductors, solar cells, etc. Former president Trump also indicated his intention to more than double the existing China tariffs and impose widespread tariffs up to 20% on all U.S. imports.

Duty drawback, the first sale rule (FSR), and cost unbundling can help U.S. importers legitimately mitigate the impact of normal duties, as well as the additional tariffs. These measures can have a significant financial impact on businesses’ profitability given that customs duties are an “above the line” cost, i.e., they are always cash.

Global Employer Services

I. SEC Settlement Date Change Affects Equity Compensation Plan Administration

Effective May 28, 2024, the Securities and Exchange Commission (SEC) amended the rules under the Securities Exchange Act of 1934 to shorten the securities transaction settlement cycle for most broker-dealer security transactions. As a result, companies should verify that their payroll tax procedures can meet the deposit rules for equity compensation.

Settlement dates are referred to as T+1, T+2, T+3, and so forth, and “T” stands for transaction date, the day the transaction takes place. The numbers 1,2, or 3 denote the number of subsequent days on which the transfer of money and security “settlement” takes place. Weekends and public holidays are not included in the day count.

Prior to the change, the standard settlement cycle for all stocks was T+2, but is now T+1, which accelerates the date on which participants in equity compensation plans utilizing a same-day sale arrangement become the shareholders of record entitled to appreciation, dividends, etc. Plans such as stock-settled restricted stock units (RSUs), stock options, stock appreciation rights (SARS) and Employee Stock Purchase Plans (ESPPs) will all be impacted.

International Tax

I. Proposed Dual Consolidated Loss (DCL) Regulations

The Department of the Treasury and the IRS on August 6 released proposed regulations on the dual consolidated loss (DCL) rules and their interaction with the Pillar Two global taxing regime. The proposed regulations also make several changes to how DCLs are calculated and introduce a new disregarded payment loss rule.

DCL Rules

The DCL rules apply to ordinary losses of a dual resident corporation (DRC) or a separate unit. A separate unit for purposes of the DCL rules is a foreign branch or hybrid entity that is owned by a domestic corporation. S corporations are not subject to the DCL rules, and domestic corporations will be treated as indirectly owning a separate unit that is owned by a partnership or grantor trust.

Subject to certain exceptions, such as certifying no foreign use, under Section 1503(d), a DCL of a DRC or separate unit generally cannot be used to offset U.S. taxable income of a domestic affiliate (no “domestic use”). This means that the DCL may be used only for U.S. federal income tax purposes against the income of the DRC or separate unit that incurred the DCL.

Partnership Tax

The IRS in the past year has continued to ramp up its scrutiny partnerships’ tax positions, including several pieces of new guidance taking a multi-prong approach to partnership “basis shifting” transactions that the agency views as having the potential for abuse. At the same time, IRS is dedicating new funding and resources to examining partnerships.

These developments, along with some new reporting and regulatory changes, mean there are a number of tax areas partnerships should be looking into as they plan for year end and the coming year:

Evaluate Partnership ‘Basis Shifting’ Transactions That Are Subject of New IRS Scrutiny
Plan for Partnership Form 8308 Expanded Reporting and January 31 Deadline
Review Limited Partner Eligibility for SECA Tax Exemption
Consider Effect of Proposed Rules on Transactions Between Partnerships and Related Persons
Double-Check Positions on Inventory Items and Unrealized Receivables Under Section 751(a)
Keep an Eye on Challenges to IRS Rules, Including Partnership Anti-Abuse Rules, Under Loper Bright
Watch for New Form for Partners to Report Partnership Property Distributions
Prepare for Partnership Obligations Under Corporate Alternative Minimum Tax Regulations

State and Local Tax

With thousands of taxing jurisdictions from school boards to states and many different types of taxes, state and local taxation is complex. Each tax type comes with its own set of rules — by jurisdiction — all of which require a different level of attention.

This SALT guide can help companies with 2024 year-end planning considerations, and it provides guidance on how to hit the ground running in 2025.

State PTET Elections

Roughly 36 states now allow pass-through entities (PTEs) to elect to be taxed at the entity level to help their residents avoid the $10,000 limit on federal itemized deductions for state and local taxes (the “SALT cap”). Those PTE tax (PTET) elections are much more complex than simply checking a box to make an election on a tax return. Although state PTET elections are meant to benefit the individual members, not all elections are alike, and they are not always advisable.

Tax Automation and Innovation

An effective tax function needs the breadth and depth of technical knowledge to assess the impact of tax changes on a business’s overall tax liability and adjust tax strategies accordingly. That requires adaptability to meet tighter reporting deadlines while dealing with shrinking headcounts, demands for more real-time information, and the expectation of cross-functional collaboration. In other words, business leaders are pushing tax departments to do more work more quickly and accurately than ever before.

That’s where tax automation and innovation comes in. The end of the year, which falls between compliance and reporting busy seasons, is the perfect time to prepare an organization for quick-win transformation and deploy data readiness best practices to ensure a streamlined close.

What Can the Tax Function Feasibly Accomplish Before Year End?

Companies can use the precious post-compliance season to lay the groundwork for tax process implementation and improvements to go off without a hitch during the tax provision reporting period, which is the most compressed deadline during the tax life cycle. This year, that may include additional complexity because of the OECD Pillar Two reporting requirements. So, what can feasibly be done in two to three months?

Transfer Pricing

I. Transfer Pricing and BEAT Planning

The base erosion anti-abuse tax, known as “BEAT,” introduced as part of Tax Cuts and Jobs Act in 2017, was intended to prevent taxpayers from reducing their U.S tax liability by shifting profits through payments to related parties in low-tax jurisdictions outside the U.S. To be subject to the BEAT, U.S. taxpayers must meet the following two requirements:

A three-year average of gross receipts greater than $500 million (excludes regulated investment companies, REITs, or S-Corps); and
A base erosion percentage for the taxable year of 3.0% or more (2.0% for banks and special entities), where “base erosion” percentage is defined to be the sum of all base erosion payments (defined below) divided by the total amount of deductions for the year.

GJC is an Independent Member of the BDO Alliance USA

GJC-CPA.com

State PTET Elections

What Can the Tax Function Feasibly Accomplish Before Year End?

Related Posts