Weaver: Beyond the Numbers

Beyond the Numbers host Rob Nowak, CPA, Real Estate Tax Partner interviews personal tax expert Justin Reeves, CPA, Partner-In-Charge, Dallas office to discuss the new K2 or K3 tax forms and what they mean.

“The purpose of these new forms is really, just a new way to present information that’s been required for over 60 years. The IRS has noticed, perhaps a lapse of reporting in the area as it relates to foreign tax credits, that’s ultimately what this is driven at calculating,” explained Reeves.

He continued to note that these forms give practitioners in the field a simple and efficient way for practitioners to provide information to individual shareholders in the case of S corporations or in partnership filings.

Nowak shared that the information regarding the forms can be misleading which are intended to assist taxpayers in having more gross income. For an individual or a trust who is claiming a foreign tax credit, the K2 or K3 form starts with foreign gross income, and on the form, there is total worldwide income or U.S only income. Ultimately, Reeves shared that the system helps drive down expenses allocated against their foreign-derived income, resulting in a larger credit.

Additionally, as with everything tax-related, there are exceptions that exempt some from having to complete these forms. Exemptions include if a taxpayer is in a partnership or a flow-through entity, has no foreign activity, never provided foreign income information in the past, and neither partners nor shareholders require this information for individual return, then you will not need a K2 or K3 form.

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Every year, legislators make new regulations and changes to the tax code, and 2023 is no exception. On this episode of On the Shop Floor, Weaver’s Partners-in-Charge of Manufacturing, Distribution, and Retail Services—Colby Horn and Jody Allred—sat down to talk with Weaver’s Tax Services Partner, Kurtis Dixon on the latest developments and tax changes in 2023.

-Big tax changes are coming in 2023 for businesses and clients

-Bonus depreciation will begin to phase out in 2023, and be fully phased out in 2027 (20% reduction each year)

-R&E costs will now have a five-year amortization attached

Dixon detailed some of the biggest changes happening in 2023 and modifications to how companies are taxed. One of those changes is in bonus depreciation, which has allowed businesses to deduct purchases upfront. “For years it’s been 100%, prior to that a mixture of 100% and 50%, so there’s been a lot of change, but we’ve been in an environment where you spend money, you take the deduction for tax purposes. That is changing in 2023. So that 100% bonus depreciation has changed to 80% now. So, if clients didn’t make some moves prior to year-end, and now they’re spending money, there’ll be less of that immediate tax benefit. And then in 2024 that changes to 60% and a ratchet down to 20% each year after, so bonus depreciation is a really big change,” Dixon said.

Another change comes in the form of IRC Section 174 expenditures, which are deductions related to research and experimentation (R&E). Previously, clients could easily “expense it”, meaning R&E costs could be expensed without the client needing to get as much into the details of whatever may have been researched and experimented on. Not so in 2023, when clients and businesses will have to look into their R&E more closely and determine what cost can, if any, be expensed. . “Now it is a five-year amortization. So, are you able to identify those costs? Are you able to deduct some of them if they weren’t classified in the past?” Dixon explained. With R&E costs now required to be amortize over a five-year period, getting these costs classified correctly is very important.

Kurtis Dixon has more than 15 years of experience in public accounting and focuses on providing tax compliance, planning and consulting services to businesses and individuals. Kurtis also has experience with preparation and review of income tax provisions. He earned his bachelor’s degree in accounting, master’s degree in taxation and Master of Business Administration degrees all from the University of Texas at Arlington.

Weaver is hiring an Audit Associate 1, based in their Dallas Office.

The Audit associate will work closely with Senior Associates and Managers to identify and resolve issues encountered in performance of financial statement audits through effective and timely communication.

They will also perform audit procedures as assigned and help with any other duties necessary to complete an audit engagement.

To see the full job description, visit MarketScale.com/careers.

Weaver provides a wide array of advisory services including risk advisory, transaction advisory, IT advisory, energy compliance services, forensics and litigation, financial institutions consulting and public company services.

Their Dallas office boasts a beautiful view of the city skyline and is central to many of the great amenities that the city has to work for. This is a great opportunity to advance your career with one of the best financial services companies in the industry.