Wednesday, April 7, 2021

Application Period for Wavemaker Reopens



The application period for the Wavemaker Fellowship has reopened. 

The Wavemaker Fellowship is available to graduates who have incurred student loan debt during the completion of an associate degree, bachelor's degree, or graduate degree, and are pursuing careers in science, technology, engineering, mathematics, or design-related fields -- including life, natural or environmental sciences; computer, information or software technology; advanced mathematics or finance; engineering; industrial design or other commercially related design field; or medical or medical device technology in the state.

Any resident or nonresident with higher education loan debt who is employed in Rhode Island in one of the fields mentioned above is encouraged to apply. The maximum annual Rhode Island tax credit awarded under the Wavemaker program is $6,000 for graduate degree holders, $4,000 for bachelor's degree holders, and $1,000 for holders of an associate degree. All applications must be submitted by midnight, May 4, 2021, for consideration.

For more details on the Wavemaker program, click here and here.

Friday, April 2, 2021

Recent Legislative Changes to Support Massachusetts Taxpayers

 



Some important, recent legislative changes will have an impact on Massachusetts taxpayers. The changes affect the treatment of unemployment income and Paycheck Protection Program [PPP] loan forgiveness. Additionally, the individual income tax filing and payment deadline was recently extended.
 
We have updated the FAQs covering these changes and will continue to add to them with new information to answer taxpayer questions. A Technical Information Release with updated guidance will be issued soon.
 
Unemployment Income Deduction
For tax years 2020 and 2021, taxpayers with household income under 200% of the federal poverty level may deduct up to $10,200 of unemployment income per person. Review the chart on our FAQ page for detailed information on the deduction. Please note that the income threshold for Massachusetts taxpayers is different from the federal income threshold. Some Massachusetts taxpayers may be eligible for a deduction on their federal tax return but not on their Massachusetts tax return. 

The taxpayer does not have to do anything. Any taxpayer who claimed unemployment income on their 2020 return will be contacted directly by DOR by mail with information. DOR will handle any calculations to determine if a refund is due to a taxpayer. If a taxpayer is entitled to a refund, a check will be mailed after satisfying liabilities. There’s no need to file an amended tax return.

If a taxpayer who received unemployment income has not yet filed a 2020 return, all unemployment income should be reported on the return [line 8a for residents or line 10a for
nonresidents/part-year residents], and if eligible for a deduction, the deduction amount should be reported on line 9 of Schedule Y.

PPP Loan Forgiveness
Recent legislation excludes forgiven PPP loan amounts from gross income for Massachusetts personal income taxpayers for 2020. Learn how income from PPP loans is treated by reviewing the FAQs on the DOR website.

New extended deadline for individual income tax filing and payment
A reminder that the deadline for filing and paying 2020 Massachusetts individual income tax was extended from April 15 to May 17, 2021. This change is addressed in FAQs.

Tuesday, March 30, 2021

Important message from MA DUA


Please be aware of current scams. Massachusetts residents have received text messages and emails that include a link requesting claimants enter their login and password on a site that looks similar to UI Online. If you have received such a message, please do not respond. 

Responses to requests from DUA should only be uploaded through your secure account at https://uionline.detma.org/Claimant/Core/Login.ASPX or  https://ui-cares-act.mass.gov/PUA/_/. DUA will never ask you to reply to a text or email with your personal information.

DUA takes fraudulent claims seriously and we are working closely with state and federal law enforcement agencies to protect claimants’ information. We want to assure you that there is no evidence of a state data breach.

The following considerations are suggested to help you protect your online profiles and account information.

  • As part of our online security protocol we recommend that you check your UI profile information often (at least 1x per week) this includes your logon, password, name, contact information. Change your information back and report any discrepancies or changes not made by you immediately to DUA by calling (877) 626-6800

  • When checking your UI profile, pay close attention to your payment selection to be certain the payment type and / or account information is correct

  • Be alert to any unknown email sources containing links. Never click on a link unless you are expecting one or you know the sender and recognize the email address – this may be a phishing scheme to obtain access to your computer

  • Create security credentials that you will remember but are hard for others to guess. Do not give your security credentials to ANYONE – DUA will never contact you asking for that information

  • Report any changes or suspicious activity involving your UI claim immediately to DUA by calling (877) 626-6800

  • Monitor communications from DUA often in case you receive a message that a change has been made to your account or to make you aware of an ongoing scheme that has affected claims or warnings from other UI agencies

  • DUA WILL NOT ask you to verify your eligibility for unemployment benefits, or for personal information by email, phone or text message. If you receive an email, phone or text message and you are unsure if it came from DUA, contact us by calling (877) 626-6800

  • If you believe someone is using your identity to falsely claim unemployment benefits, please complete our secured form at www.mass.gov/unemployment-fraud to alert us.

Here's some common unemployment scam techniques to watch out for.

Monday, March 29, 2021

Rhode Island Division of Taxation Issues Guidance on Tax Treatment of Unemployment Benefits




The Rhode Island Division of Taxation today posted an Advisory that provides guidance about the tax treatment of unemployment compensation.

The Division is in the process of revising certain forms and instructions relating to the guidance and will post the revised documents as soon as possible. The Division will let its stakeholders know immediately after the revised documents are posted.

To view the Advisory, click here.

Friday, March 19, 2021

Division announces Rhode Island will follow IRS deadline change



PROVIDENCE, R.I. – The Rhode Island Division of Taxation announced today that it has postponed – until May 17, 2021 – the deadline for individuals to file their Rhode Island personal income tax returns and make related payments for the 2020 tax year to follow the deadline change announced by the IRS on March 17, 2021. 


The deadline for filing Rhode Island resident and nonresident personal income tax returns for the 2020 tax year, and for making related payments, normally would be April 15, 2021. 


The United States Treasury and the Internal Revenue Service recently announced that the April 15, 2021 due date for federal filings and payments by individuals relating to the 2020 tax year has been moved to May 17, 2021. 1 


The Division announced today that the April 15, 2021, due date for certain Rhode Island filings and payments by individuals relating to the 2020 tax year also has been moved to May 17, 2021 to follow the IRS announcement. 


“We recognize the many challenges that Rhode Islanders have faced, and continue to face, amid the global pandemic,” said Rhode Island Tax Administrator Neena Savage. “By aligning our deadline with the federal deadline, we hope to provide a convenience for taxpayers, tax preparers, and others as a measure of relief during these trying times,” she said.


The relief is automatic; taxpayers do not need to file any special forms or contact the Division in any way in order to qualify. Please remember, the IRS deadline change only impacts individual resident and nonresident personal income tax returns and not estimated payments still due April 15, 2021. 


The Division is awaiting formal IRS guidance regarding the due date change and will provide additional details regarding state tax filings and payments impacted by the change within the coming days.

Massachusetts Follows IRS to Extend Due Date of Individual Tax Filings to May 17th

 


Individual Income Tax Returns and Payments
Now Due May 17, 2021

The deadline has been extended for both filing individual income tax returns and making payments from April 15, 2021 to May 17, 2021. 

What you need to know:

  • The income tax filing and payment deadline has been moved to May 17, 2021 for individuals only. The date change does not affect taxpayers other than individuals filing personal income tax returns and making payments.
  • The extension date of October 15 for personal income tax filing is unchanged.
  • Estimated payments due April 15 are not impacted by the date change and remain due on April 15.
  • Taxpayers who have already filed their personal income tax returns, but have not made the associated payment, will have until May 17 to make the payment.

Sunday, January 31, 2021

1041 (Sch K) Excess Deductions on Final Fiduciary Return

William Delaney, EA
Westwood, MA

Oh, those are miscellaneous itemized deductions and we lost them on form 1040,

Schedule A as a result of the 2017 Tax Law. Well, as it turns out, that isn’t quite so.

They are alive and well and better than ever!

When correctly preparing a final form 1041, excess deductions (meaning deductions

which exceeded income but did not create a business Net Operating Loss (NOL) should

carry-over to Schedule K-1, box #11 (code A). When preparing the beneficiary’s

personal 1040 return, this was a misc. itemized deduction on Schedule A, subject ti the

2% floor. These deductions were repealed by TCJA 2017. It was believed that the

1040 excess deductions carryover was lost to beneficiaries, but there was some

conflicting information on this. Even so, the deduction was subject to the 2% floor and

might not survive at all if the new standard deduction was larger than your total

allowable Schedule A deductions.

The IRS to the rescue. For tax year 2020, any deductions which fall under IRC Sec.

67e) [excess deductions] should transfer to Schedule 1, line 22 [which is the TOTAL

line]. Drake inserts the description: ED67(e). What happens now? The full amount

(not subject to a 2% adjustment) appears on form 1040, line 10a. This gives us the full

allowable standard deduction + the full excess deductions allowance. As our late friend

and Chapter Vice President Marty Heffan was fond of saying---what’s not to love!

My thanks to a valued colleague, Ellen Briscoe, EA, who practices in NM, for telling me

about this.

Friday, January 15, 2021

How to (Try) to Deduct Your Personal Income Tax Liability Against A Business Entity's Taxable Income in Rhode Island

William Delaney, EA
Westwood, MA

Wait a minute…we all know that our personal income tax liability for pass-through income is paid on RI Form 1040, and it isn’t the tax liability of our business (pass-through) entity. They can’t pay our tax without creating taxable income for us due to the payment being classified as a distribution. The corporation or other entity isn’t our personal piggy bank! We all know that---or do we? Shall we continue?


If you attended our splendid state update virtual seminar on Jan. 6 and 7, you heard our speaker from Rhode Island’s Division of Taxation, Leo Lebeuf illustrate and explain the inner workings of making a §44-11-2.3 election. Under this RI General Law enacted in

2019, a pass-through entity (defined under statute as any of the following---S corp.,

general partnership, limited partnership, limited liability partnership, a “member” of an

LLC, a beneficiary of a trust and last, but by no means least, a sole proprietor) may

“elect” to pay the “owner’s” income tax on the entity’s “net income” at a fixed rate of

5.99% .


An owner is defined as an S corporation shareholder;, a partner in one of the specified

types of partnerships; a member of an LLC; a trust beneficiary: or a sole proprietor.


Net income is defined as income reported on Schedule C (sole proprietor) or Schedule

E (other entity types) after removing any Sec. 179 depreciation.


Fine, so what is the point? You write a check out of your sole proprietorship account

(assuming that you have an account specific to your Schedule C activity) or you write

the check out of an account linked to one of the other defined pass-through entities.

How does that become a business deduction on the applicable federal form and the

applicable state form? On this, the statute is silent (do you hear any alarm bells going

off?). Instead, we are referred to IRS Notice 2020-75 (11/10/2020) which the Division of

Taxation apparently believes has somehow given federal approval to the classification

of this type of entity payment as a deductible tax on the federal entity return (yes, that

includes Schedule C). Read on, and let’s see if this interpretation is correct…


The stated purpose of the Notice is to announce that the Treasury and the IRS

“…intend to issue proposed regulations to clarify that State and local income taxes

imposed on and paid by a partnership or an S corporation on its income are

allowed as a deduction by the partnership or S corporation in computing its non-

separately stated taxable income or loss for the taxable year of payment….


The taxable year of payment was interpreted by the RI presenter as meaning the year in

which payment was made; I believe that the correct interpretation of this language

would be the taxable year for which the payment was intended (such as an ES#4, paid

in Jan. 2021, for tax year 2020).


Note also that the purpose statement mentions only two entities, while the RI pass-

through entity also includes a member of an LLC; a beneficiary of a trust; a sole

proprietor. This would cause me to think that the state’s interpretation of the Notice as

covering their expanded definition of a pass-through entity is not correct.


However, does the Notice at least bless the concept that the payments made by either

an S corporation or one of the several partnerships would be interpreted as an income

tax imposed on the entity? It seems to hinge upon a statement in section .02(2) under

Background.


“In enacting section 164(b)(6) [of the Internal Revenue Code], Congress provided that

‘taxes imposed at the entity level, such as a business tax imposed on pass-through

entities, that are reflected in a partner’s or S corporation shareholder’s distributive or

pro-rata share of income or loss on a Schedule K-1 (or similar form) will continue to

reduce such partner’s or shareholder’s distributive or pro-rata share of income as under

present law.’ H.R. Rep No. 115-466, at 260n 172 (2017).


What is §164(b)(6)? It’s the recently enacted SALT limitation. So, if you haven’t

already guessed, it is a back-door approach by RI to get around the SALT limitation.


Will it work…


First, we see how (if it works) the State of RI legislature is thinking. If it is paid by the

entity, and meets the definition of an “entity tax under this subsection” [see §(b)(2) of the

law], that makes it a tax on the “net income” of the entity which is then allowed as a

deduction on the entity’s tax return. If the entity deducts it, that reduces the pass-

through income on the owner’s personal income tax return. So, you can deduct your

personal income tax (if paid by the entity) as an expense against your reportable pass-

through income (the entity adjusts your income downward). You can, according to the

RI legislature, also deduct it directly on your sole proprietorship tax return (so long as it

is not paid from a non-business checking account or credit card, etc.).


After setting forth this interpretation of what is permitted under the federal tax code,

what did RI tell us regarding the state income tax return? First, the payment by the

entity is claimed as a credit against tax liability on the owner’s personal income tax

return. This, effectively, credits the owner as having paid the tax from his/her own

funds. [§(c)(1) of the law]. Second, the entity must reverse the deduction for state tax

paid so that the state version of the owner’s K-1 does not receive the benefit of a state

tax paid deduction. [§(c)(2) of the law]. In other words, the state K-1 is grossed up.


Now let’s return to the federal Notice and read under section 3. Forthcoming

Proposed Regulations. Under .02(1) we find: “…the term ‘Specified Income Tax

Payment’ means any amount paid by a partnership or an S corporation to a State, a

political subdivision of a State…to satisfy its liability for income taxes imposed…on the

partnership or S corporation. Let’s think about this wording…


There must be an income tax liability imposed on the entity. Under the RI statute which

we are reviewing, there is no “income taxes imposed” liability, because the statute

makes no mention of a new tax. In fact, the statute is not even triggered unless an

entity “elects” to make a payment. If the entity does not make the election, the state

doesn’t swoop in and impose the flat rate tax of 5.99%; the state does nothing. You just

file a state tax return without all of the rigmarole. So, is Mr. Lebeuf correct when he

says---why not make the election?


Specified Income Tax Payment (see second preceding paragraph – above) is further

explained/defined…”Thus, this definition solely includes income taxes described in

section 164(b)(2) for which a deduction by a partnership is not disallowed under

§703)a)(2)(B), [state and local taxes], and such income taxes for which a deduction by

an S corporation is not disallowed under §1363(b)(2) [not applicable to our situation].


Now for the punch line…the Notice then goes on to say “…without regard to whether

the imposition of and liability for the income tax is the result of an election by the

entity or whether the partners or shareholders receive a partial or full deduction,

exclusion, credit, or other tax benefit that is based on their share of the amount

paid by the partnership or the S corporation to satisfy its income tax

liability…and which reduces the partners’ or shareholders’ own individual income

tax liabilities…”


So, does it matter if the tax is only self-imposed by election and not uniformly imposed

whether or not you do anything? Apparently it does not, and your Editor now believes

that the position of the RI Division of Taxation is a correct interpretation of the Notice.

Took me a long time to reach this conclusion. One caveat, however. There is no

federal authority for applying the Notice to sole proprietors, trusts, and single member

LLCs which default to disregarded entity tax status. To this extent, I disagree with the

RI Division of Taxation. I don’t see it in the Notice or in the federal tax code.

Thursday, January 7, 2021

Chapter's First Virtual Event A Success!

Thank you to all of our attendees and speakers who made our first virtual event a success over the last 2 days. We had some great discussions led by the Massachusetts Department of Revenue, Rhode Island Division of Taxation, MA/RI Chapter member William Delaney and NY Chapter member and speaker extraordinaire Kathryn Keane.

Instructor Kathryn Keane @ Our Chapter's First Fully Virtual Education Meeting January 2021

MassTaxConnect Upgrade on January 19, 2021

 


MassTaxConnect Upgrade on January 19, 2021
What you need to know
 
MassTaxConnect will shut down on January 15 for the upgrade
The shutdown to complete the upgrade of MassTaxConnect begins next week on Friday, January 15 at 5:00 pm and will end at 6:00 am on January 19. We chose a holiday weekend for the transition to minimize disruption.
 
Plan for estimated tax payments due on January 15
Estimated payments should be submitted before 5:00 pm on January 15. Processing of payments scheduled in advance for withdrawal on the 15th may be delayed but will still be considered to have been made on time.
 
If you intended to make a payment before January 19, DOR will provide some relief. For example, if your estimated tax payment, due January 15, is submitted by January 22, DOR will treat your payment as having been made by January 15. If you are making a bill payment or payment for a return due January 20, any payment made by January 22 will be credited to your account as of January 15.
 
Some things remain the same
The good news is that along with the improvements comes simplicity. There is no need to change your username and password, they remain the same. You will have access to all your information on January 19, including any changes you made to your account right up until the shutdown. All client information will be available after the upgrade.
 
MassTaxConnect video tutorials
The new tutorials are being produced now to reflect the new screens and new processes for MassTaxConnect. They will be available to you when MassTaxConnect is back online at 6:00 am on January 19. Please bookmark the video tutorial page to answer any of your questions about navigating through MassTaxConnect after the upgrade. We think you will find MassTaxConnect very familiar and hope you appreciate the modern design that’s based on user navigation. You’ll also find it easier to access your accounts.
 
Information
Take a look at the sneak preview of the upgrade for a glimpse at the new homepage, account page, improvements to managing access to accounts for those in your group, and a simplified third party view. You will also find more on the upgrade at the information page, including FAQs.
 
More to come
Keep an eye out for a new chatbot feature later in 2021. The chatbot will provide users with instant answers to simple questions, providing a better user experience.

Wednesday, January 6, 2021

MASS/RI Tax Treatment of Certain Federal Cares Act Provisions

William Delaney, EA
Westwood, MA

For personal income taxpayers, Massachusetts has adopted the Internal Revenue Code in effect on January 1, 2005.  For corporation income tax taxpayers, Massachusetts has adopted the Internal Revenue Code as currently in effect.  As you might imagine, this could result in conflict as to how certain recently adopted federal legislation applies to Massachusetts income tax returns.  A few examples…

 

2020 Recovery Rebates to Individuals.  The $1,200/$2,400 rebates are NOT included in MA gross income.

 

Extended/expanded unemployment benefits.  Federal gross income includes unemployment compensation, whether regular, extended or otherwise described.  Likewise, they ARE included in MA gross income.

 

Tax-favored withdrawals from Retirement Plans.  The type of withdrawal which is included in federal gross income ratably over a three-year period, is included in MA gross income at the same time and in the same amount. 

 

PPP Loan Forgiveness.  To the extent that there is loan forgiveness under the CARES Act, the federal “rule” (as clarified under the recently enacted Covid-19 Relief Legislation) is that there is NO loan forgiveness income and any expenses paid from such funds are eligible for the appropriate income tax deduction without restrictions.

 

MA rule for individual taxpayers – the loan forgiveness is included in MA gross income (i.e. it is taxable); the federal deductions are allowed, without restriction.

 

MA rule for corporation taxpayers – the loan forgiveness follows the federal code and is NOT included in MA gross income (i.e. it is not taxable); the federal deductions are allowed, without restriction.

 

Corporation charitable contribution deduction limitation (the 10% rule).  The CARES Act temporarily (for calendar year 2020 only) suspends the 10% of taxable income limitation on the charitable contribution deduction by increasing it to 25%.

MA has adopted the same provision.

 

See MA TIR 20-9 (7/13/20) for more information.

 

Rhode island – conforms to the federal code and has automatically adopted the changes resulting from both the CARES Act and the Covid-19 Act.