Accounting
How the 2024 election and Congress will decide taxes
With next month’s election looming as a referendum on so many issues, the recent history of Congress offers a few hints on what may happen to taxes, according to legislative experts.
Financial advisors, tax professionals and their clients trying to prepare for changes to the Tax Cuts and Jobs Act ahead of
K&L Gates is one of the top lobbying firms with more than $47.8 million worth of business in the last three years
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The upcoming deadline at the end of 2025 presents many different scenarios, according to Mary Burke Baker, a government affairs advisor who is the leader of the tax policy practice in the Washington, D.C. office of
“Once there’s a tax title moving, then everybody wants to throw their thing at the wall and see if it sticks,” Baker said. “And, as we also all know, for better or worse, the tax code is seen as the solution by both parties for everything — whether it’s U.S. competitiveness, jobs, supply chain or social policies. So that’s going to put a lot of pressure on tax legislation next year.”
Advisors and their clients aiming to understand how the process will play out under either party should likely consult the recent history of
The Byrd Rule forbids the Senate from using the reconciliation process for any bills that raise the deficit beyond 10 years or make any changes to Social Security. That latter “fairly obscure” aspect of Byrd likely rules out any provisions “exempting Social Security benefits from income tax,” Evans said.
“That’s why the TCJA stuff expires now, because it had to, under the Byrd Rule, limit the duration of the bill,” he said. “It limits the scope of the bill. The Byrd Rule comes into effect, and that limits the scope of the bill. Obviously, things that are not budget related are not to be included. You have big debates about whether something is really incidental to the budget or not. But we have seen proposals regarding abortion, proposals regarding minimum wage and proposals regarding immigration reform excluded from the scope of the budget reconciliation bill because of the Byrd Rule.”
Even if former President Trump wins, Republicans are still “going to be very conscious of adding to the debt,” according to Ryan Carney, a government affairs advisor
“There’s some knowledge of how he would govern and what his tax priorities would be,” Carney said of Trump. “At the same time, his signature legislation from his first term is expiring, so, unsurprisingly, a big priority — should Republicans win and get the trifecta of the House, Senate and the White House — would be to extend the Tax Cuts and Jobs Act, probably using the reconciliation vehicle. They would want to include bonus and research expensing into that 10-year extension as well. But 2025 is going to be a very different debt environment from 2017.”
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The question of whether one party will sweep Congress and the White House will decide whether the expiration of the laws provides “an opportunity with a capital ‘O’ or an opportunity with a small-case ‘O,'” according to Bruce Heiman,
“If not, I think you’re going to have a lot more negotiation and compromise,” he said. “Whoever controls, there are going to be slim majorities. And so you’re going to have to be working with both sides. Second, Harris has just less experience working with Congress than Biden did, necessarily. She’s been newer to Congress, and she also has fewer personal relationships with members in a more polarized environment, too. All of which means it’s harder to get things done, a greater need for compromise and more pushing toward the middle.”
“Timing is everything.” We’ve heard this turn of phrase often in all sorts of scenarios. And if you have clients who are starting a new business or transitioning from a sole proprietorship or partnership to an LLC or corporation, it’s absolutely relevant!
Whether someone incorporates their business now as the year comes to a close or waits until the new year can affect their company in various ways. In this article, I’ll discuss those impacts and explain why some clients might find the option to do a delayed filing attractive.
Business formation timing considerations
First things first, let’s discuss the three timing options business owners have when forming an LLC or corporation — midyear, end of year or January 1 (a.k.a., the start of the new year).
Midyear
Registering a business entity with a midyear effective date means the company will be subject to all the tax and reporting requirements associated with their LLC or corporation for that year. And existing businesses that switch to an LLC or corporation mid-year must submit two sets of income tax returns: one for the business structure it operated as during the months before its incorporation date and another set for the remainder of the year when it operated as an LLC or corporation.
End of year
December is an extremely hectic month for Secretary of State offices across the country, which can create a backlog of filings and potentially result in an effective date a month or more into the new year. Typically, states must receive and process an entity’s registration form before it’s considered effective. So, even if someone requests an effective date in December or on January 1, the actual effective date might be later if the state is unable to process the registration before the requested effective date. In other words, states generally do not make effective dates retroactive.
January 1
A January 1 effective date has some perks. It gives the LLC or corporation a clean start — e.g., existing businesses only have one set of tax forms for the tax year vs. the two required if switching entity types midyear. Also, in states that levy LLC franchise taxes, an LLC that files with an effective date of January 1 would not have to pay those fees for the previous year. For example, if a business files its LLC formation paperwork in November 2024 but requests an effective date in January 2025, the LLC won’t have to pay a state franchise tax for 2024. Likewise, the LLC or corporation’s other corporate formalities kick in for that year rather than for the year before.
How to ensure a January 1 effective date
Typically, a business registration filing will be effective on the date the state processes the forms. The processing time may vary between just a few days to several weeks, with expedited filings completed in five to ten business days.
A delayed filing, however, gives business owners some control over when their corporation or LLC goes into effect. In states that allow delayed effective dates, business owners can submit their formation paperwork in advance and set a future date for when they want their entity to be officially registered. Different states have different rules for when they’ll accept a delayed filing.
For example, here are several states’ requirements for how far in advance business owners may request a delayed effective date:
- Alabama – Up to 90 days before the requested effective date;
- California – Up to 90 days before the requested effective date (note that in California, LLCs and corporations that submit their formation paperwork after December 18 will be considered to be in business effective January 1 the next year, provided they do not conduct business between December 18 and December 31 of the current year);
- Florida – Up to 90 days before the requested effective date;
- Illinois – Up to 60 days before the requested effective date;
- Pennsylvania – Up to 90 days before the requested effective date;
- Rhode Island – Up to 90 days before the requested effective date;
- Texas – Up to 90 days before the requested effective date;
- Virginia – Up to 15 days before the requested effective date.
The below states do NOT allow delayed effective dates:
- Alaska
- Connecticut
- Delaware
- Hawaii
- Idaho
- Louisiana
- Maryland
- Minnesota
- Nevada
- New Jersey
How can your clients request a delayed filing?
As your client or their representative completes the forms to establish their LLC or corporation, they should consider their desired effective date and make sure they submit their delayed filing within the state’s acceptable time frame. For instance, if someone wants to form an LLC in Rhode Island with an effective date of January 1, 2025, they can submit their delayed filing as early as Oct. 2, 2024. The company’s Articles of Organization (LLC) or Articles of Incorporation (corporation) should reflect the desired effective date. If the state doesn’t have a designated field on its form to request an effective date, your client can add a provision to request a specific date (if the state will allow it).
Is a delayed filing for everyone?
Whether a delayed filing makes sense for a client depends on their situation. As we discussed, submitting business formation paperwork before the end of this year to request a January 1 effective date next year can make tax filing time less cumbersome and potentially avoid some extra compliance fees. But sometimes, a delayed filing won’t be the way to go. For example, some consultants or other professionals may not want to wait that far in the future to get their entity up and running because they need an earlier effective date to secure a significant client.
Final thoughts
Delayed filings provide business owners with control over the official registration date of their business entities. By filing business formation ahead of time and requesting a delayed effective date of January 1, business owners may avoid potential paperwork processing backlogs at the state and eliminate extra paperwork at tax filing time. Moreover, it enables entrepreneurs to file their registration forms before the end of the current year for the following year without being on the hook to pay certain fees (like an LLC franchise tax) and submit certain reports (like annual reports) for the year when the registration forms were filed because the entity was not yet effective then.
As with all business concerns with legal and financial ramifications, your clients should seek expert professional guidance when considering whether a delayed filing will be advantageous for them. That’s where your expertise can make a tremendous difference! And for any questions beyond the scope of the matters you’re licensed to address, please direct your clients to the appropriate resources.
Within SAP Fieldglass, Joule can recommend best-fit templates to generate job postings and statements of work with prefilled information such as the start date and the number of skilled workers needed. Joule embedded across the SAP Business Network can analyze, categorize and transform unstructured invoice rejection errors into structured, actionable insights to reduce the cost of resolving exceptions. Further planned capacities will eventually help match suppliers with new business opportunities. Within SAP Ariba, Joule will enable users to create RFPs and request help with routine inquiries and surface risks. These capabilities will also provide buying recommendations along with supplier summaries from different data sources. In addition, a sustainability scorecard from SAP Ariba helps customers make decisions that align with their organizations’ environmental, social and governance objectives.
Overall, Joule will manage 80% of the most frequently performed tasks in the SAP Ariba portfolio of intelligent spend management and business network solutions.
Krisztian Bocsi/Bloomberg
During his presentation yesterday at SAP Spend Connect Live, Manoj Swaminathan, president and chief product officer for intelligent spend and business network at SAP, noted that the company has accounted for people’s concerns regarding security and privacy.
“SAP is dedicated to delivering best-in-class solutions infused with AI, empowering you to prioritize strategic initiatives over mundane tasks,” he said during his keynote. “We understand and hear the concerns surrounding data security when implementing AI, which is why we have made no compromises in ensuring our AI capabilities set the standard for compliance. From third-party advisory boards to adhering to the
Beyond Joule’s integration into the wider portfolio of SAP products, he also announced the upcoming release of the SAP Ariba Intake Management solution, designed to address how businesses handle employee requests and process orchestration, starting with procurement. It provides employees with a single place to go for procurement inquiries and visibility on their status. The solution collects employee requests, orchestrates processes across landscapes and applications, and provides visibility on status while shielding employees from process complexity. SAP plans to make SAP Ariba Intake Management available in the first quarter of 2025.
Swaminathan also announced that SAP Business Network will launch a new promote subscription in the first quarter with value-added features to help suppliers differentiate themselves, attract new buyers and grow their businesses. Swaminathan said the subscription will give suppliers recommendations to improve discoverability, advanced search results, supplier profile verification and network catalog APIs. With the help of generative AI tools, suppliers can load their full suite of offerings into the network catalog faster and with enhanced product descriptions and summaries. The new promote subscription will help suppliers identify sales opportunities based on regional search data and use advanced insights to track business growth on the network.
He also announced a new analytics add-on with AI capabilities for SAP Fieldglass solutions, which helps procurement, vendor management and HR professionals to implement agile multichannel talent strategies. The analytics add-on for SAP Fieldglass solutions lets users review performance against over 50 external workforce key performance indicators; access global market intelligence including rates, talent supply and demand, and time-to-hire trends; and track sustainability initiatives such as spend with diverse suppliers and worker health and safety, while observing cost overruns, worker fatigue, and on- and offboarding compliance.
“With SAP Business AI as the foundation of our intelligent products, customers can improve productivity and gain insights from their spend data no matter where it sits,” said Swaminathan. “Whether it is managing cost, mitigating risk or supporting scope three emission reduction, SAP empowers companies with the right solutions for agile and effective spend management and supply chain functions.”
The Internal Revenue Service says it has processing underway on some 400,000 claims for the Employee Retention Credit, representing about $10 billion of eligible claims.
Work on the claims for small businesses and others is ongoing as the agency continues to wade through claims from the complex — and at times misused — pandemic-era credit. A significant number of the ERC claims came in during what the IRS calls “a period of aggressive marketing” by promoters, leading to a large percentage of improper, ineligible claims.
“In recent weeks, the IRS has made substantial progress in separating eligible claims from the wave of ineligible claims that have come in,” said IRS Commissioner Danny Werfel in a statement, “and we continue working to refine our models to identify more eligible claims.”
The claims being processed include eligible and ineligible claims, with most being processed for approval. Checks are being mailed for eligible claims with refunds.
The ERC program increasingly became the target of aggressive marketing well after the pandemic ended. Some promoter groups called the credit by another name, such as a grant, business stimulus payment, government relief or other names. The IRS is continuing to work denials of improper claims, intensifying audits and investigating potential fraud and abuse.
Last month, the agency opened a
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