How is the Michigan Small Business Alternative Credit under MCL 206.671 calculated by a taxpayer that is a unitary business group? How do the disqualifiers and percentage reducers work?
The Michigan Small Business Alternative Credit is available to any taxpayer (other than insurance companies under Chapter 12 and financial institutions under Chapter 13) with gross receipts that do not exceed $20,000,000.00 and with adjusted business income minus the loss adjustment that does not exceed $1,300,000.00 as adjusted annually for inflation using the Detroit consumer price index and subject to certain additional disqualifiers. MCL 206.671(1). The taxpayer will also be disqualified if an officer or shareholder receives more than $180,000.00 in compensation or compensation plus share of business income exceeds that amount (allocated income disqualifier). MCL 206.671(1)(a).
“Taxpayer” is defined to include a unitary business group. MCL 206.611(5). The gross receipts and adjusted business income thresholds are those of the unitary business group (UBG) and are calculated at the group level. The allocated income disqualifier is calculated for an officer or shareholder using all amounts paid or allocable to the officer or shareholder by all entity members of the unitary business group. MCL 206.671(2)(B). The reduction percentages of the credit, which may reduce but not completely disqualify a taxpayer from the credit, are calculated in the same manner.
A disqualifier or reduction percentage applies to the entire UBG if such applies to any one member of the group. MCL 206.671(9). This credit is calculated without regard to intercompany eliminations.
Example X, a taxpayer that is a unitary business group is disqualified from taking the credit if that unitary business group includes a member that is an LLC taxed as a corporation and any one shareholder or any one member of the LLC receives more than $180,000.00 in shareholder compensation. The shareholder’s compensation is calculated by combining all compensation paid to the shareholder by all members of the UBG.
Example Y, the credit is reduced by 20% if the taxpayer is a unitary business group that includes a member that is a corporation and the compensation and director’s fees of an officer of that member corporation exceed $160,000.00 but are less than $165,000.00, calculated with compensation and director’s fees paid by all members of the group.
Michigan Small Business Alternative Credit – michigan.gov
Michigan is a state where having alternative energy sources could save you a great deal of money. With warm summers and cold winters, ensuring you have a solar panel system could help to save thousands of dollars a year. The key is finding a system that you can afford and will continue to lower your electricity rate through the years. In our guide providing the best Michigan solar incentives, we provide:
Why solar installations make sense
Rebates to help you save money on your solar energy system
Tax incentives that can help make a solar system possible
Although this is true, the question still remains: Is there a Michigan Solar Tax Credit 2022 ?
Michigan has no state-specific tax rebate program, there are local incentives for solar projects and the federal programs that help to keep down the cost of solar panels.
The Best Solar Incentives, Tax Credits, and Rebates in Michigan
The best solar incentive in Michigan is the Federal Solar Investment Tax Credit (ITC). This program is a great way to help homeowners keep energy costs down and get a sizable tax return the year they put their system in place.
Incentive
Summary
End Date
Federal Solar Tax Credit (ITC)
Michigan residents can take advantage of the Federal Solar Tax Credit and get a discount of 30% applied to their tax returns. If you purchase $20,000 worth of solar panels, you can get a credit of $6,000 on your next tax return. Remember, this does require you to come out of pocket first. Read More
December 31st, 2032
Net Metering
Net metering allows homeowners that create excess energy to use it as a credit on their next electric bill. Although net metering is not mandatory in Michigan, many providers take advantage of it and offer fair rates.
None
Commercial Loan Programs
For government and commercial solar installations in Michigan, there are various programs to help improve overall rates and availability of funds. Some of these can help with loans up to $100,000.
None
Residential Loan Programs
The Michigan Saves loan program will help homeowners secure financing ranging from $1,000 to $50,000 for their home energy upgrades and installations. The term of this financing can extend as long as ten years.
None
Michigan Residential Property Tax Exemption
Property taxes go up when a solar system is installed. With the Michigan Residential Property Tax Exemption, the costs are kept down, and you can upgrade your home without the financial burden of taxes increasing. Read More
None
Federal Solar Investment Tax Credit (ITC)
The Federal Solar Investment Tax credit is available in all 50 states, Michigan included. This program will give you a discount on your next federal tax return based on your home solar installation cost. This program was recently extended through the end of 2032 as a part of the Inflation Reduction Act.
The ITC allows you a tax credit of 30% of the cost of your solar installation. The solar system will need to be paid out of pocket and in full, with credit being returned and filed against any taxes you owe for that year. If you do not owe taxes the year that you installed your solar energy system, you can simply have this credit follow you until you need it.
Michigan Solar Energy Tax Credit
Michigan does not have a solar energy tax credit or rebate. Some states have an additional savings program that can be very beneficial and help to save additional money, but Michigan only allows for federal savings in this category. As we have mentioned, these programs can be adopted at any time, so it’s worth checking how they change through the years.
Michigan Solar Sales Tax Exemption
There is no tax credit for a residential solar system purchase in Michigan. You will still be subject to the 6% sales tax for your new solar power system purchases.
Michigan Solar Property Tax Exemption
Property taxes will increase with the installation of a solar system in Michigan. Luckily, a program will make your property taxes stay the same even after your solar installation. The solar property tax exemption ensures that even with this $20,000 or more upgrade to your home, your assessed value does not change, and taxes should remain level.
Michigan Net Metering
Michigan net metering creates more energy than your home needs and supplies some of that energy back to the utility company or reserves it when you need it the most. Most homeowners find that their solar system does not create enough energy on cloudy days or at night. Therefore you can bank some energy with the local utility company and have it offset your total costs.
The net metering program in Michigan is pretty good. The state does not mandate a certain amount of payment per kilowatt hour, and they don’t even require companies to offer net metering. However, some good programs with companies like DTE energy and others will help lower your total electric cost obligation at the end of every month.
Michigan Saves – Home Energy Loan Program
The Michigan Saves Home Energy Loan Program will help homeowners secure financing for energy improvements to their homes. The size of the loans this program offers range from $1,000 to $50,000, and they have low rates to help save money on interest.
Loan terms on these loans can be as long as ten years.
Lansing Board of Water & Light – Residential Energy Efficiency Rebates
In the city of Lansing, there are additional rebates for homeowners that make their homes more energy efficient. These rebates will vary depending on the type of system you are installing and the size.
The rebate is currently $500 per kW with a max of 4kW. Adding this in addition to the federal tax rebate and a Michigan Saves Home Energy Loan Program, can result in quite a bit of saving.
Commercial Michigan Solar Incentives
The commercial Michigan solar incentives are strong and will allow for a few extra benefits and loan programs that the residential programs do not offer. If a solar panel system could help your company or business with its green initiatives, Michigan is an excellent place to be.
Solar Incentives for Nonprofits and Businesses in Michigan
There are no specific solar incentives for nonprofit organizations in the state of Michigan. However, there are tax relief programs for nonprofits and loan funding programs that will apply to nonprofits and businesses.
USDA REAP Grant
The United States Department of Agriculture offers a REAP grant or Rural Energy for America program. This is in place to help agricultural producers secure renewable energy resources loans. The USDA will help ensure loan financing and grant funding for agricultural producers, making the process straightforward. Simply input your information, and they will be in touch about ways that you can save. Make sure you connect with the USDA at the beginning of your search for solar power, as they can offer tremendous guidance.
Federal Solar Tax Credit for Businesses in Michigan
For a federal corporate income tax return, there is a 30% credit against the cost of any system that was placed into the building during that year. This credit is the best option when looking for large bulk savings in the state of Michigan. Most businesses have a tax burden at the end of the year, and this can help offset that considerably.
The Federal Solar Tax Credit is still one of the best ways to save money on solar energy, and is in place through the end of 2032.
Michigan Commercial Net Metering
Net metering is also available at the commercial level for Michigan businesses and property owners. Net metering for commercial and governmental institutions not only helps with energy efficiency but can also make the building more sustainable and profitable long term.
The state of Michigan does not mandate commercial net metering. However, in the commercial and business sector, there are plenty of programs in place from large energy providers that want to ensure that this solar-created electricity is used properly to power as much of the grid as possible. The solar arrays put in place by commercial and business operations can create large amounts of energy.
Refundable Payroll Tax Credit
The refundable payroll tax credit is for businesses that meet specific requirements for alternative energy. Payroll taxes can be considerably reduced for businesses that take these green energy initiatives, saving thousands of dollars annually.
With this refundable payroll tax credit, you will multiply the payroll amount attributable to qualified employees by the income tax rate for that year. A qualified accountant can help with these programs, but it takes time and attention to detail to set this up.
City of Ann Arbor – Green Power Purchasing
The City of Ann Arbor Green Power Purchasing is designed to help local governments with their out-of-pocket expenses on solar initiatives. This program aims to reduce greenhouse gasses and increase the amount of solar and wind power in the city yearly.
To encourage this, the City of Ann Arbor has incentives and programs that help make this more appealing to businesses and government institutions. The four goals of this program include supporting onsite renewables and battery storage, developing more community solar programs, and launching solar landfill projects.
Michigan Saves – Commercial Energy Loan Program
The Michigan Saves Commercial Energy Loan Program can make it easier to afford a solar panel system for a business or commercial property. It’s smart to compare these loans from the PACE program and other sources to determine the best rate and the best term.
The Michigan Saves program offers considerably higher amounts of funding for businesses than they do for residential installations.
Michigan Local PACE Program
The PACE program allows property owners in the commercial or industrial sector to get financing for energy-efficient improvements to their property. The PACE program requires a $10,000 initial investment into energy-saving improvements.
PACE financing must be in place before starting your commercial solar project to ensure you get the best possible financing.
Why Go Solar in Michigan?
Michigan currently ranks 24th in the nation according to SEIA for being solar-friendly. The cost of installing solar options in Michigan has dropped through the years. Local governments have adopted home energy-saving programs to make it more affordable for homeowners that want to become greener. However, there is still no state savings program, which puts Michigan slightly behind.
A PV or Photovoltaic system will help make you less reliant on Michigan power providers and more self-sufficient. Most home solar systems do not produce enough electricity to power your home and electric vehicle completely, so some programs allow you to continue to move away from the grid and have a more evenly distributed generation of electricity in your home.
As great as it is to be dealing with creating your electricity and saving money, many Michigan homeowners want the system to help with environmental issues. Using a natural resource like wind, sun, or water to generate electricity will help the environment.
Sold on Solar for your home? Get a free quote from local solar installers.
The applicable exclusion amount consists of the basic exclusion amount ($12,060,000 in 2022) and, in the case of a surviving spouse, any unused exclusion amount of the last deceased spouse (who died after December 31, 2010). The executor of the predeceased spouse’s estate must have elected on a timely and complete Form 706 to allow the donor to use the predeceased spouse’s unused exclusion amount.
Purpose of Form
Use Form 709 to report the following.
Transfers subject to the federal gift and certain generation-skipping transfer (GST) taxes and to figure the tax due, if any, on those transfers.
Allocation of the lifetime GST exemption to property transferred during the transferor’s lifetime. (For more details, see Schedule D, Part 2—GST Exemption Reconciliation, later, and Regulations section 26.2632-1.)
All gift and GST taxes must be figured and filed on a calendar year basis. List all reportable gifts made during the calendar year on one Form 709. This means you must file a separate return for each calendar year a reportable gift is given (for example, a gift given in 2022 must be reported on a 2022 Form 709). Do not file more than one Form 709 for any 1 calendar year.
How To Complete Form 709
Determine whether you are required to file Form 709.
Determine what gifts you must report.
Decide whether you and your spouse, if any, will elect to split gifts for the year.
Complete lines 1 through 19 of Part 1—General Information.
List each gift on Part 1, 2, or 3 of Schedule A, as appropriate.
Complete Schedules B, C, and D, as applicable.
If the gift was listed on Part 2 or 3 of Schedule A, complete the necessary portions of Schedule D.
Complete Schedule A, Part 4.
Complete Part 2—Tax Computation.
Sign and date the return.
Make sure to complete page 1 and the applicable schedules in their entirety. Returns filed without entries in each field will not be processed.
Remember, if you are splitting gifts, your spouse must sign line 18 in Part 1—General Information.
Who Must File
In general. If you are a citizen or resident of the United States, you must file a gift tax return (whether or not any tax is ultimately due) in the following situations.
If you gave gifts to someone in 2022 totaling more than $16,000 (other than to your spouse), you probably must file Form 709. But see Transfers Not Subject to the Gift Tax and Gifts to Your Spouse, later, for more information on specific gifts that are not taxable.
Certain gifts, called future interests, are not subject to the $16,000 annual exclusion and you must file Form 709 even if the gift was under $16,000. See Annual Exclusion, later.
Spouses may not file a joint gift tax return. Each individual is responsible to file a Form 709.
You must file a gift tax return to split gifts with your spouse (regardless of their amount) as described in Part 1—General Information, later.
If a gift is of community property, it is considered made one-half by each spouse. For example, a gift of $100,000 of community property is considered a gift of $50,000 made by each spouse, and each spouse must file a gift tax return.
Likewise, each spouse must file a gift tax return if they have made a gift of property held by them as joint tenants or tenants by the entirety.
Only individuals are required to file gift tax returns. If a trust, estate, partnership, or corporation makes a gift, the individual beneficiaries, partners, or stockholders are considered donors and may be liable for the gift and GST taxes.
The donor is responsible for paying the gift tax. However, if the donor does not pay the tax, the person receiving the gift may have to pay the tax.
If a donor dies before filing a return, the donor’s executor must file the return.
Does Form 709 Need To Be Filed With 1040?
If you meet all of the following requirements, you are not required to file Form 709.
You made no gifts during the year to your spouse.
You did not give more than $16,000 to any one donee.
All the gifts you made were of present interests.
Gifts to charities.
If the only gifts you made during the year are deductible as gifts to charities, you do not need to file a return as long as you transferred your entire interest in the property to qualifying charities. If you transferred only a partial interest, or transferred part of your interest to someone other than a charity, you must still file a return and report all of your gifts to charities.
Note.
See Pub. 526, Charitable Contributions, for more information on identifying a qualified charity.
If you are required to file a return to report noncharitable gifts and you made gifts to charities, you must include all of your gifts to charities on the return.
Transfers Subject to the Gift Tax
Generally, the federal gift tax applies to any transfer by gift of real or personal property, whether tangible or intangible, that you made directly or indirectly, in trust, or by any other means.
The gift tax applies not only to the free transfer of any kind of property, but also to sales or exchanges, not made in the ordinary course of business, where value of the money (or property) received is less than the value of what is sold or exchanged. The gift tax is in addition to any other tax, such as federal income tax, paid or due on the transfer.
The exercise or release of a general power of appointment may be a gift by the individual possessing the power. General powers of appointment are those in which the holders of the power can appoint the property under the power to themselves, their creditors, their estates, or the creditors of their estates. To qualify as a power of appointment, it must be created by someone other than the holder of the power.
The gift tax may also apply to forgiving a debt, to making an interest-free or below-market interest rate loan, to transferring the benefits of an insurance policy, to certain property settlements in divorce cases, and to giving up some amount of annuity in exchange for the creation of a survivor annuity.
The gift tax applies to any digital asset. Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins. If a particular asset has the characteristics of a digital asset, it will be treated as a digital asset for federal transfer tax purposes.
Bonds that are exempt from federal income taxes are not exempt from federal gift taxes.
Sections 2701 and 2702 provide rules for determining whether certain transfers to a family member of interests in corporations, partnerships, and trusts are gifts. The rules of section 2704 determine whether the lapse of any voting or liquidation right is a gift.
Gifts to your spouse.
You must file a gift tax return if you made any gift to your spouse of a terminable interest that does not meet the exception described in Life estate with power of appointment, later, or if your spouse is not a U.S. citizen and the total gifts you made to your spouse during the year exceed $164,000.
Except as described earlier, you do not have to file a gift tax return to report gifts to your spouse regardless of the amount of these gifts and regardless of whether the gifts are present or future interests.
Transfers Not Subject to the Gift Tax
Four types of transfers are not subject to the gift tax. These are:
Transfers to political organizations,
Transfers to certain exempt organizations,
Payments that qualify for the educational exclusion, and
Payments that qualify for the medical exclusion.
These transfers are not “gifts” as that term is used on Form 709 and its instructions. You need not file a Form 709 to report these transfers and should not list them on Schedule A of Form 709 if you do file Form 709.
Political organizations.
The gift tax does not apply to a transfer to a political organization (defined in section 527(e)(1)) for the use of the organization.
Certain exempt organizations.
The gift tax does not apply to a transfer to any civic league or other organization described in section 501(c)(4); any labor, agricultural, or horticultural organization described in section 501(c)(5); or any business league or other organization described in section 501(c)(6) for the use of such organization, provided that such organization is exempt from tax under section 501(a).
Educational exclusion.
The gift tax does not apply to an amount you paid on behalf of an individual to a qualifying domestic or foreign educational organization as tuition for the education or training of the individual. A qualifying educational organization is one that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. See section 170(b)(1)(A)(ii) and its regulations.
The payment must be made directly to the qualifying educational organization and it must be for tuition. No educational exclusion is allowed for amounts paid for books, supplies, room and board, or other similar expenses that are not direct tuition costs. To the extent that the payment to the educational organization was for something other than tuition, it is a gift to the individual for whose benefit it was made, and may be offset by the annual exclusion if it is otherwise available.
Contributions to a qualified tuition program (QTP) on behalf of a designated beneficiary do not qualify for the educational exclusion. See Line B. Qualified Tuition Programs (529 Plans or Programs) in the instructions for Schedule A, later.
Medical exclusion.
The gift tax does not apply to an amount you paid on behalf of an individual to a person or institution that provided medical care for the individual. The payment must be to the care provider. The medical care must meet the requirements of section 213(d) (definition of medical care for income tax deduction purposes). Medical care includes expenses incurred for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body, or for transportation primarily for and essential to medical care. Medical care also includes amounts paid for medical insurance on behalf of any individual.
The medical exclusion does not apply to amounts paid for medical care that are reimbursed by the donee’s insurance. If payment for a medical expense is reimbursed by the donee’s insurance company, your payment for that expense, to the extent of the reimbursed amount, is not eligible for the medical exclusion and you are considered to have made a gift to the donee of the reimbursed amount.
To the extent that the payment was for something other than medical care, it is a gift to the individual on whose behalf the payment was made and may be offset by the annual exclusion if it is otherwise available.
The medical and educational exclusions are allowed without regard to the relationship between you and the donee. For examples illustrating these exclusions, see Regulations section 25.2503-6(c).
Qualified disclaimers.
A donee’s refusal to accept a gift is called a disclaimer. If a person makes a qualified disclaimer of any interest in property, the property will be treated as if it had never been transferred to that person. Accordingly, the disclaimant is not regarded as making a gift to the person who receives the property because of the qualified disclaimer.
Requirements.
To be a qualified disclaimer, a refusal to accept an interest in property must meet the following conditions.
The refusal must be in writing.
The refusal must be received by the donor, the legal representative of the donor, the holder of the legal title to the property disclaimed, or the person in possession of the property within 9 months after the later of:
The day the transfer creating the interest is made, or
The day the disclaimant reaches age 21.
The disclaimant must not have accepted the interest or any of its benefits.
As a result of the refusal, the interest must pass without any direction from the disclaimant to either:
The spouse of the decedent, or
A person other than the disclaimant.
The refusal must be irrevocable and unqualified.
The 9-month period for making the disclaimer is generally determined separately for each taxable transfer. For gifts, the period begins on the date the transfer is a completed transfer for gift tax purposes.
Annual Exclusion
The first $16,000 of gifts of present interest to each donee during the calendar year is subtracted from total gifts in figuring the amount of taxable gifts. For a gift in trust, each beneficiary of the trust is treated as a separate donee for purposes of the annual exclusion.
All of the gifts made during the calendar year to a donee are fully excluded under the annual exclusion if they are all gifts of present interest and they total $16,000 or less.
Does Form 709 Need To Be Filed With 1040? – IRS 2023
How To Get A Tax Extension Easy! – IRS Newsfeed 2023
WASHINGTON — As the tax deadline draws near, the Internal Revenue Service reminds taxpayers who need more time to file that getting an extension is quick and easy. An extension gives taxpayers an automatic six more months – until Oct. 16 this year – to file their tax return.
One of the easiest ways to get an extension is by using the IRS Free File program.
While an extension allows for extra time to gather, prepare and file paperwork, it’s important to remember that an extension of time to file taxes is not an extension of time to pay.
Taxpayers who owe taxes should pay their entire obligation, or as much as they can, by the normal deadline to avoid penalties and interest. The deadline this year is April 18 because the regular date of April 15 falls on a weekend, followed by a holiday in the District of Columbia.
Use IRS Free File to get an extension online
A quick and easy way to get an extension is through IRS Free File on IRS.gov. All individual tax filers, regardless of income, can electronically request an extension on Form 4868PDF by using the IRS Free File program partner software on IRS.gov. To get the extension, taxpayers must estimate their tax liability on this form and file it by April 18.
Get an extension when making a payment
Other fast, free and easy ways to get an extension include using IRS Direct Pay, the Electronic Federal Tax Payment System or by paying with a credit or debit card or digital wallet. There’s no need to file a separate Form 4868 extension request when making an electronic payment and indicating it’s for an extension. The IRS will automatically count it as an extension.
Important reminders
The IRS reminds taxpayers that payments are still due by the original deadline even if they request an extension of time to file a tax return. Taxpayers should file even if they can’t pay the full amount.
By filing either a return on time or requesting an extension by the April 18 filing deadline, they’ll avoid the late-filing penalty, which can be 10 times as costly as the penalty for not paying.
Taxpayers who pay as much as they can by the due date, reduce the overall amount subject to penalty and interest charges. The interest rate for an individual’s unpaid taxes is currently 7%, compounded daily. The late-filing penalty is generally 5% per month and the late-payment penalty is normally 0.5% per month, both of which max out at 25%.
The IRS will work with taxpayers who cannot pay the full amount of tax they owe. Other options to pay, such as getting a loan or paying by credit card, may help resolve a tax debt. Most people can set up a payment plan on IRS.gov to pay off their balance over time.
Some taxpayers get automatic extensions
Certain eligible taxpayers get more time to file without having to ask for extensions:
U.S. citizens and resident aliens who live and work outside of the United States and Puerto Rico get an automatic two-month extension to file their tax returns. They have until June 15 to file. However, tax payments are still due April 18 or interest will be charged.
Members of the military on duty outside the United States and Puerto Rico also receive an automatic two-month extension to file. Those serving in combat zones have up to 180 days after they leave the combat zone to file returns and pay any taxes due. Details are available in Publication 3, Armed Forces’ Tax GuidePDF.
When the U.S. president makes a disaster area declaration, the IRS can postpone certain taxpayer deadlines for residents and businesses in the affected area. Taxpayers in certain disaster areas do not need to submit an extension electronically or on paper. People can find information on the most recent tax relief for disaster situations on the Extension of Time To File Your Tax Return page.
Michigan Corporation and LLC Annual Filing Requirements
The deadline for paying your business tax is April 30 or the end of the fourth month following the end of the tax year.
You are required to file an annual statement for your LLC in the state of Michigan.
Annual Statements must be filed each year no later than February 15. However, a new LLC formed after September 30 does not need to file until the following February 15.
Your registered agent will receive the pre-printed annual statement form about three months before the due date or you can complete it online.
It costs $25 to file a Profit Corporation Annual Report and $20 to file a Non-Profit Corporation Annual Report. The cost of filing an annual statement for a Michigan LCC is $25.
The penalty for late filing is $10 per month or part month with a maximum of $50. These penalties are applied from May 16.
You can file your annual report online for which a Visa or Mastercard is necessary.
The corporation’s registered agent will receive the pre-printed report at their registered address.
If you do not file for an update then your corporation will be dissolved or withdrawn. Before this happens, the notice of dissolution or revocation and information about the missing updates will be sent to the corporation’s registered agent.
Profit annual reports must be filed no later than May 15 and Non-profit annual reports must be filed no later than October 1.
Online filing is available 90 days before the due date of the report or statement. To access the form you will need your LLC’s state-issued entity ID number.
To complete the Annual Statement form you need your resident agent’s name and address as well as your limited liability company’s registered address.
As a pass-through tax entity, most LLC’s do not pay federal income taxes as responsibility for this falls on their individual members.
Although some states apply a separate tax on LLCs for carrying out business there, Michigan does not.
If preferred, an LLC company can choose to be taxed as a corporation by filing an IRS Form 2553.
The Michigan Business Tax
The new law means that business income will be now taxed at 4.95 percent, the tax base being federal taxable income from business activity. Special provisions result in various taxpayers, such as construction contractors and auto dealers, have a reduced tax base as Business Income Tax and Modified Gross Receipt Tax will now be based on sales in Michigan.
A 21.99 percent surcharge is imposed and applies to the Michigan Business Tax liability generated by the Business Income Tax and Modified Gross Receipts Tax before any credit reductions. This will not exceed $6 million for any one taxpayer.
The Modified Gross Receipts Tax of 0.8 percent applies to all of the company’s gross receipts excluding any purchases from other firms or tax collected by the business. These purchases include:
Inventory that was purchased during the tax year and other depreciable assets.
Materials and supplies (this includes repair parts and fuel.)
Compensation of staff supplied to customers of a staffing company.
Payments by certain contractors to subcontractors.
Michigan Business Income Tax Extensions
If you miss the Michigan LLC Tax Deadline (business tax deadline) Four-month business extensions can be granted which gives you an additional 4 months after the end of your tax year. You can apply for this by filing Form 4 prior to your original deadline. Payment of your tax balance must still be made on time or penalties will have to be paid even if you are granted this extension. If tax is owed, then this must be paid with your Form 4 application. The Federal tax extension (IRS Form 7004) will not extend the deadline for your Michigan business filing.
Doing Business in Other States
If you carry out business in other states then you may need to register your LLC in those states. You need to find out the rules for the state where you are carrying out business. If you use another state as a business location, hire employees, or advertise your business there, you are likely to be regarded as doing business in that state. To register an out-of-state business, you will probably need a certificate of authority or similar document from that state.
Public Act 4 of 2023 – Retirement State Tax Changes
Any Questions? Call ATS Advisors! Michigans trusted tax and financial specialists.
Public Act (PA) 4 of 2023 (formerly House Bill 4001 of 2023) was recently signed by Gov. Gretchen Whitmer. The bill did not receive sufficient votes for immediate effect; thus, it won’t be effective until 90 days after the sine die adjournment, meaning 90 days after the adjournment of the current legislative session. The session will adjourn around the end of the calendar year, so the law will take effect sometime in March 2024.
PA 4 of 2023 phases in an income tax reduction for retirees over the course of four years, beginning with the 2023 tax year (filed in 2024). It allows retirees to choose between the limitations on the deductibility of retirement and pension income as outlined in the Income Tax Act of 1967, or the new limitations as outlined in PA 4 of 2023 (see comparison charts below). Retirees who want to use the limits of the new law should file their 2023 tax return after the law’s effective date. If filing before the law’s effective date, an amended return can be filed after PA 4 of 2023 takes effect.
For joint returns, the birth year of the older spouse can be used.
*Maximum amounts are adjusted annually for inflation and available each January.
The Michigan Office of Retirement Services will continue to evaluate what the new law means for our members as the phase-in continues. Please consult a tax professional regarding any questions you may have. For direct information, you can review the full law here. You may want to go here if you want to know the exact language used in PA 4 of 2023.
The Michigan Education Savings Plan (MESP) is a 529 college savings plan. The biggest benefit that the MESP offers over other savings accounts is the tax benefits. When you contribute to the MESP you are able to deduct Michigan state taxes on up to $10,000 of contributions per year. Like a Roth IRA, the funds are invested and grow for you tax-free. The MESP can then be withdrawn to pay for college costs completely tax-free. The other nice thing about the MESP is that your child can attend any school in the country and is not limited to Michigan schools.
The biggest drawback of the MESP is the restrictions on how the funds can be used. In order to get the tax benefits of the MESP, the funds must be used for college costs. However, there was a change to the MESP and other 529 plans in the most recent tax law. 529 plans, like the MESP, can now be used to pay for private elementary and high school tuition and expenses. $10,000 is the current annual cap for private elementary and high school costs that can be covered by the MESP. Any other use of the funds and there are taxes and penalties on any of the tax-free growth on the account. If your child doesn’t end up going to college or if he needs the funds to help pay for other expenses, the taxes and fees could really add up!
Can I Use Michigan MESP For High School? – ATS Advisors 2023
A 529 plan is a tax-advantaged savings/investment plan designed to encourage saving for the future expenses of a designated beneficiary (typically one’s child or grandchild). The plans are named after Section 529 of the Internal Revenue Code and are administered by state agencies and organizations.
All 529 account investment earnings are exempt from state and federal taxes. Withdrawals made for qualified expenses — which now include both K-12 and college education costs — are not penalized by taxes.
Michigan law further provides a state tax deduction for contributions made to a Michigan Education Savings Program (529) account, up to $5,000 for individuals and $10,000 for joint filers. The Michigan 529 Plan Tax Deduction is available for the amount of contributions minus the amount of qualified withdrawals made within a given tax year.
Types of Section 529 College Savings Plans:
There are two types of 529 college savings plans: prepaid tuition plans and savings plans:
Prepaid Tuition Plans allow for the pre-purchase of tuition based on today’s rates and then paid out at the future cost when the beneficiary is in college. Performance is often based upon tuition inflation. Prepaid plans may be administered by states or higher education institutions.
Savings Plans are different in that your account earnings are based upon the market performance of the underlying investments, which typically consist of mutual funds. Savings plans may only be administered by states.
529 accounts are education savings plans operated by a state or educational institution. They are named after Section 529 of the U.S. Internal Revenue Code that governs these types of savings plans. Contributions earn money from investments and are able to be used for an individual child’s educational expenses.
What kind of K-12 expenses can 529 dollars now be used for tax-free?
Changes made in 2017 to the federal tax code expand the definition of qualified expenses to include “tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.” This does not include tuition for pre-kindergarten schools or programs.
Legislation currently being considered by Congress would further expand the definition to include homeschool expenses, as well as several types of expenses that could benefit children enrolled in public or private schools: curriculum or online educational materials; tutoring services; AP, SAT, ACT or standardized achievement tests; dual enrollment higher-education programs; or therapies to help students with disabilities or other special learning needs.
Are separate 529 accounts needed for a child’s K-12 expenses and college expenses?
No. Federal law expanded the definition of qualified expense to include tuition for elementary and secondary education. This is in effect for 2018. A single 529 account for each child (considered the “designated beneficiary”) now may be used to pay for either elementary and secondary tuition, higher education expenses or both.
Who can set up a 529 account?
Any person can set up a 529 account and name an individual child as a beneficiary. Individuals do not need to have set up a 529 account in order to make contributions. Per IRS guidance, anyone can set up a 529 and name anyone as a beneficiary — a relative, a friend, even themselves. Check out the case studies below to see sample scenarios that show how a 529 plan may benefit a family like yours.
Michigan law also enables any of the following to open and contribute specifically to MESP accounts: “A state or local government agency or instrumentality, an entity exempt from taxation under section 501(c)(3) of the internal revenue code, an estate or trust, or a corporation that enters into a Michigan education savings program agreement.”
Are there any limits on 529 accounts?
There is no limit on 529 withdrawals to pay for higher education, but federal law limits withdrawals for elementary and secondary education expenses to $10,000 per year. Different 529 plans have maximum allowable account balances. For example, the MESP limits the amount to $500,000.
Also, according to the website 529 K12 Facts: “You can donate up to $15,000 per year ($30,000 if married filing jointly) beginning in tax year 2018 without incurring federal gift tax. Contributions of up to $75,000 ($150,000 if married filing jointly) also can be treated as having been made over a five-year period, for federal gift tax purposes.”
529 Example:
Parents start saving in a 529 plan at their child’s birth, contributing $250/month for 14 years (equaling $42,000). The tax-
deferred growth in the 529 plan’s earnings means $10,000 more of their own funds are available than if
they had invested in a standard taxable account. They decide to enroll their child in a private high school. Enough money is there to pay up to $10,000 for each year’s tuition, with remaining plan dollars free to help pay for higher education.
Here are 6 Changes to Michigan Taxes for 2022 according to Michigan.gov/taxes
Exemption allowances and the tax rate:
$5,000 for personal and dependent exemptions
$2,900 for special exemptions
$400 for qualified disabled veterans
$5,000 for number of certificates of stillbirth from MDHHS
4.25% tax rate
Flow-through Entity Tax Credit
A member of a flow-through entity that elected to pay the Michigan flow-through entity tax may claim a refundable credit, and will report an addition on Schedule 1. Tax year 2022 MI-1040 or MI-1041 returns claiming this credit are eligible for e-file. For additional information, see the instructions for MI-1040, line 29 and Schedule 1, line 2, or the instructions for Form MI-1041.
Schedule 1 Additions and Subtractions:
Line 25: Tier 3 Michigan Standard Deduction. Taxpayers who were born during the period January 1, 1953 through January 1, 1956, and reached the age of 67 on or before December 31, 2022, may be eligible for a Tier 3 Michigan Standard Deduction. This deduction is up to $20,000 for a return filed as single or married filing separately, or up to $40,000 for a married filing jointly return. Exemption(s) claimed on MI-1040, lines 9a and 9d, taxable Social Security benefits, military compensation (including retirement benefits), Michigan National Guard retirement benefits and railroad retirement benefits included in AGI may reduce the amount eligible to be claimed on this line. To determine your deduction, complete Worksheet 2.
Note: Filers who qualify for the Michigan Standard Deduction should not file Form 4884.
Line 27 – Senior citizens born prior to 1946 (or the unremarried surviving spouse of a decedent born prior to 1946 who also died after reaching age 65) may subtract interest, dividends, and capital gains included in AGI. This subtraction is limited to a maximum of $12,697 on a single return or $25,394 on a joint return, less any deduction for retirement benefits. (See page 16 in the MI-1040 Instruction Booklet)
Taxpayers born before 1946 may subtract qualified private pensions up to $56,961 for single or married filing separately filers and $113,922 for joint filers.
TIER 2
Taxpayers born January 1, 1946 through December 31, 1952 should not file Form 4884. A single filer may subtract $20,000 against all income and joint filers may subtract $40,000 against all income as the Tier 2 Michigan Standard Deduction on Schedule 1, line 23.
Taxpayers who receive retirement benefits from employment with a governmental agency exempt from Social Security may deduct up to $35,000 against all income for a single filer and $55,000 for joint filers. If both spouses on a joint return receive Social Security exempt retirement benefits, a standard deduction of $70,000 is allowed.
Surviving spouses who were born after 1945 and have reached the age of 67, have not remarried, and claimed a subtraction for retirement and pension benefits on a return jointly filed with the decedent in the year they died, may elect to the take the larger of the retirement and pension benefits deduction based on the older deceased spouse’s year of birth subject to the limits available for a single filer or the survivor’s Michigan Standard Deduction.
TIER 3
Taxpayers born January 1, 1953 through January 1, 1956 should not file Form 4884. Instead, taxpayers may be eligible for a Tier 3 Michigan Standard Deduction. This deduction is up to $20,000 for a return filed as single or married filing separately, or up to $40,000 for a married filing jointly return. Exemption(s) claimed on MI-1040, lines 9a and 9d, taxable Social Security benefits, military compensation (including retirement benefits), Michigan National Guard retirement benefits and railroad retirement benefits included in AGI may reduce the amount eligible to be claimed on this line. To determine your Tier 3 Michigan Standard Deduction on Schedule 1, line 25, complete Worksheet 2 in the MI-1040 booklet.
Surviving spouses who were born after 1945 and have reached the age of 67, have not remarried, and claimed a subtraction for retirement and pension benefits on a return jointly filed with the decedent in the year they died, may elect to the take the retirement and pension benefits deduction based on the older deceased spouse’s year of birth subject to the limits available for a single filer or the survivor’s Michigan Standard Deduction.
Taxpayers born after January 1, 1956 but before January 2, 1961 who have reached age 62 and receive retirement benefits from employment with a governmental agency exempt from Social Security may deduct up to $15,000 in qualifying retirement and pension benefits. If both spouses on a joint return receive Social Security exempt retirement benefits, the maximum deduction increases to $30,000. See Form 4884, line 18 instructions for more information.
Taxpayers born after January 1, 1956 who receive retirement benefits from a governmental agency exempt from Social Security and were retired as of January 1, 2013 may deduct up to $35,000 in qualifying pension benefits if single or married filing separately or $55,000 if married filing jointly. If both spouses on a joint return qualify, the maximum deduction increases to $70,000.
All other taxpayers born after January 1, 1956, all retirement and pension benefits are taxable and are not entitled to a pension subtraction.
Surviving spouse
If a surviving spouse claimed a subtraction for retirement and pension benefits on a return jointly filed with the decedent in the year they died and the surviving spouse has not remarried, then the surviving spouse may claim the retirement and pension benefits subtraction that would have applied based on the year of birth of the older of the surviving spouse or the deceased spouse. For more information, see instructions.
The General Property Tax Act provides for exemptions for certain categories of personal property including: Small Business Taxpayer Exemption, Eligible Manufacturing Personal Property and Act 328 – New Personal Property. These links will provide information on each of these exemptions including determining eligibility and how to claim the exemption. Email us if you have questions at State-Tax-Commission@michigan.gov.
Eligible Manufacturing Personal Property (EMPP) MCL 211.9m and MCL 211.9n Exemption
Beginning December 31, 2015, qualified new personal property and qualified previously existing personal property is exempt from taxation.
Qualified New Personal Property is defined as property that was initially placed in service in this state or outside of the state after December 31, 2012 or that was construction in progress on or after December 31, 2012 that had not been placed in service in this state or outside of this state before 2013 and is eligible manufacturing personal property (EMPP).
Qualified Previously Existing Personal Property means personal property that was first placed in service within this state or outside of this state more than 10 years before the current calendar year and is eligible manufacturing personal property (EMPP).
The small business taxpayer personal property exemption provides a complete exemption from personal property tax for industrial or commercial personal property when the combined true cash value of all industrial personal property and commercial personal property owned by, leased by or in the possession of the owner or a related entity claiming the exemption is less than $80,000 in the local tax collecting unit and the property is not leased to or used by a person that previously owned the property or a person that, directly or indirectly controls, is controlled by, or under common control with the person that previously owned the property. Form 5076 must be filed with the local tax collecting unit no later than February 20.
