January 22, 2024
2023 Tax Year Reminders for Insurance Companies
As we prepare for 2023 tax filings, there are some changes and reminders for taxpayers to consider for the upcoming deadlines. Although there were not sweeping changes for this year, we have highlighted below some of the items that taxpayers should consider as they prepare for the 2023 tax filings.
Phaseout of Bonus Depreciation Begins
The passage of the Tax Cuts and Job Act (TCJA) in 2017 changed the allowable bonus depreciation from 50% to 100% through tax year 2022. Starting in 2023, the allowed bonus depreciation will decrease every year by 20% until it fully expires on January 1, 20271. While the Tax Relief for American Families and Workers Act of 2024 proposes an extension of the 100% bonus depreciation allowance, this is only proposed and not yet final2. We will continue to monitor this proposed act and provide updates for any changes that could affect our clients.
The allowed bonus depreciation for the 2023 tax year will be 80%, giving taxpayers an opportunity to combine both Section 179 and bonus depreciation to accelerate deductions. Section 179 is applied first, and any remaining depreciation can be further accelerated with bonus depreciation. Section 179 allows taxpayers to take an immediate deduction on the full amount of certain assets such as vehicles and software. Note that Section 179 can only be used to the extent that the taxpayer has taxable income and is also limited to a certain amount of fixed asset additions within that year, both are limitations that bonus depreciation does not need to consider.
Meals Revert Back to 50% Deductibility
The Consolidated Appropriations Act of 2021 amended Code §274(n) for tax years 2021 and 20223. This amendment temporarily allowed businesses to deduct 100% of food and beverage expenses from restaurants that were incurred in these two years. This amendment, partnered with the CARES Act, was set out to aid the American taxpayer after the economic effects of the COVID-19 pandemic.
Businesses should be aware that this deduction will be reverting back to 50% for allowed business meals incurred for tax year 2023, whether or not they are purchased from restaurants.
Temporary E-Signature Regulations are now Permanent
The IRS has historically only accepted handwritten signatures for certain paper-filed tax forms, but due to the pandemic, it was required to update this requirement. During the COVID-19 pandemic, the IRS put into place temporary exceptions to allow electronic signatures on certain paper-filed forms submitted to the IRS. These exceptions were set to expire on October 30, 2023, but instead were extended indefinitely. The IRS noted a very positive experience from taxpayers, tax professionals, and IRS employees with the allowance of e-signatures.
It is important to note that this permanent change only applies to certain tax forms and specific types of electronic signatures. Some examples of forms that allow e-signature are Form 1120-PC, Form 1120-L, and Form 8832. A full list of qualifying paper-filed forms and types of e-signatures allowed on these forms can be found here.4
IRS Announces New Tools to Improve Online Communications
The IRS is creating a new online option that will ease the process of correspondence between the taxpayer and the department itself. Starting in 2023, certain taxpayers now have the option to respond to specific notices electronically. These efforts will likely aid in reducing the necessary time and effort to settle tax issues.
Beginning with tax year 2023, certain notices sent to taxpayers from the IRS will include a link for the taxpayer or their tax professional to access a portal. Within the portal, applicable documents can be uploaded and the taxpayer will receive immediate confirmation that the IRS has received these documents. This option is currently only available for a limited type of notices sent out by the IRS. The full list of notices can be found here5. We expect that the online communication option for Form CP05A, information request related to a refund and Forms CP06 and CP06A, relating to the Premium Tax Credit, will likely affect our clients the most.
The IRS is currently working towards expanding these capabilities towards other notices. Johnson Lambert will continue to monitor and provide updates as more information becomes available.
New Statutory Disclosures arise from the Inflation Reduction Act
The National Association of Insurance Commissioners released INT 23-03, providing updates to statutory disclosures related to the Inflation Reduction Act (IRA) of 2022. The IRA enacted a corporate alternative minimum tax (CAMT), which generally applies a 15% minimum tax to corporations with financial statement income exceeding $1 billion in the prior three taxable years6.
For financial statements ending on or after December 31, 2023, companies must disclose on their statutory financial statements if the CAMT applies, as well as additional disclosures if it does apply. For the full list of disclosure requirements, see here7.
Beneficial Ownership Information Reporting
The Corporate Transparency Act (CTA) created the beneficial ownership information (BOI) reporting rule, scheduled to take effect on January 1, 2024. See our article here for more information on this new reporting rule and how it may affect certain taxpayers.
- https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-a-comparison-for-businesses ↩︎
- https://www.finance.senate.gov/imo/media/doc/the_tax_relief_for_american_families_and_workers_act_of_2024_technical_summary.pdf ↩︎
- https://tax.thomsonreuters.com/blog/irs-tax-tip-explains-key-aspects-of-enhanced-business-meal-deduction-for-2021-and-2022/ ↩︎
- https://www.irs.gov/newsroom/details-on-using-e-signatures-for-certain-forms ↩︎
- https://www.irs.gov/newsroom/taxpayers-can-now-upload-more-documents-to-irs-new-online-option-for-9-notices-can-help-resolve-issues-faster ↩︎
- https://www.irs.gov/newsroom/treasury-irs-issue-interim-guidance-on-new-corporate-alternative-minimum-tax ↩︎
- https://content.naic.org/sites/default/files/inline-files/INT%2023-03_0.pdf ↩︎
Disclaimer: The content contained herein is provided solely for educational purposes to Johnson Lambert LLP’s intended audience, and should not be relied upon as accounting, tax, or business advice because it does not take into account any specific organization’s facts and circumstances.