Author: Nick Eusanio, Esq., LL.M.

OBBBA, Explained: What the “One Big Beautiful Bill Act” Means for Businesses,Funds, and Founders

Nick Eusanio, Esq., LL.M. Leave a comment

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) became law, reshaping several core business tax rules, including those in the incentives and international tax landscapes. Below is a concise guide to the provisions most likely to affect closely held businesses, sponsors, and growth companies—and where to focus next.

  1. Interest expense limits (163(j)): back to EBITDA, with a new twist
    • For tax years beginning after December 31, 2024, the section 163(j) cap reverts to an EBITDA measure (generally allowing more interest than the current EBIT approach). But, effective for tax years beginning after December 31, 2025, OBBBA also brings capitalized business interest under 163(j) (unless it is required to be capitalized under sections 263(g) or 263A(f))—closing a common workaround that capitalized interest could avoid the limitation. Review 2026+ models and debt documents now; consider how the new ordering rule (generally calculating the section 163(j) limitation before application of interest capitalization provisions) affects cash tax and timing.
  2. 100% bonus depreciation: permanent—plus a real-property expansion
    • OBBBA permanently restores 100% expensing for qualifying property acquired and placed in service on or after Jan. 19, 2025. It also creates temporary 100% expensing for certain “qualified production property”—specified U.S. nonresidential real property used in defined production activities—if construction begins after Jan. 19, 2025 and before Jan. 1, 2029, and the property is placed in service before Jan. 1, 2031. Capital-intensive manufacturers (including ag processing, chemicals, autos, and semiconductors) should map capex projects to these windows. 
  3. R&E (section 174): current expensing is back (domestic), with limited retro relief
    • For tax years beginning after Dec. 31, 2024, domestic R&E may again be expensed currently (or capitalized by election). Foreign R&E remains 15-year amortization. Under one special transition rule, certain small businesses can retroactively expense domestic R&E for tax years beginning after Dec. 31, 2021—a refund opportunity worth exploring but which requires amending tax returns or a change in accounting method. For all taxpayers that paid or incurred domestic R&E expenses after Dec. 31, 2021 and before Jan. 1, 2025, a second special transition rule effective for tax years after Dec. 31, 2024 permits an election to deduct the remaining unamortized balance of domestic R&E expenses over a period of  one or two tax year(s),
  4. QSBS (section 1202): faster tiers, bigger caps, broader access
    • For stock acquired after July 4, 2025, OBBBA replaces the five-year wait with a 3/4/5-year framework: 50% exclusion at 3 years, 75% at 4, 100% at 5. It also raises the issuer’s gross-assets cap to $75M (from $50M) and lifts the gain cap to the greater of $15M or 10× basis (except for taxpayers that fully utilized the exclusion amount in a prior year), indexed for inflation from 2027. Growth-stage companies and early-stage investors should tighten cap-table/QSBS tracking now, especially across follow-on rounds.
  5. 199A: pass-through deduction expanded and made permanent
    • Owners of qualifying pass-throughs get long-term certainty: the 20% 199A deduction is extended and made permanent (not increased to 23% as earlier drafts floated). The OBBBA also increased the taxable income limitation phase-in amounts to $100,000 to $150,000 for joint returns ($50,000 to $75,000 for separate filers). Finally, the OBBBA changes include a $400 minimum deduction amount for active QBI of at least $1,000 (amounts to be increased for inflation in following years). Re-test blocker structures and owner-level models.
  6. International tweaks: steadier rules, fewer cliffs
    • GILTI / NCTI:
      • Effective for tax years beginning after Dec. 31. 2025:
        1. The GILTI regime is reshaped by removing the qualified business asset investment (QBAI) reduction to GILTI, and renaming the inclusion as a taxpayer’s net CFC tested income (NCTI). 
        2. The statutory deduction under section 250 for a taxpayer’ total NCTI and associated section 78 gross-up amount is reduced to 40% (versus prior 50%) for tax years beginning after Dec. 31, 2025. 
        3. The OBBBA further trims the deemed paid foreign income tax haircut to 10% (instead of the prior 20%) with respect to NCTI. 
        4. Deductions allocated and apportioned to a taxpayer’s NCTI inclusion for foreign tax credit limitation purposes are confined to: (a) the section 250 deduction associated with the NCTI inclusion; and (b) any additional deductions directly allocable to the NCTI inclusion. Specifically, no interest expense or R&E expense amounts are allocated or apportioned to NCTI for foreign tax credit  limitation purposes.
      • Finally, the OBBA adds a new 10% disallowance for taxes paid or deemed paid on any previously taxed earnings and profits (PTEP) distributions of NCTI after June 28, 2025. 
    • FDII / FDDEI:
      1. Effective for tax years beginning after December 31, 2025:
        1. The OBBA also strikes the QBAI adjustment from the FDII framework.
        2. The OBBA permits deduction of 33.34% of the corporation’s total foreign-derived deduction eligible income (FDDEI) – dispensing with the prior FDII measure.
        3. Interest expense and R&E expense are no longer allocated or apportioned for purposes of calculating DEI and FDDEI.
      2. Effective for transactions after June 16, 2025, certain categories of income are not treated as deduction eligible income (DEI) or FDDEI – for instance gain from sale or disposition (or deemed) of intangible property (see section 367(d)(4)) or any other property subject to seller depreciation, amortization or depletion.
    • BEAT: Effective for tax years beginning after Dec. 31, 2025, the BEAT rate is increased to 10.5% for most taxpayers (11.5% for specific banks and securities dealers). 

      Cross-border groups should re-test ETRs and foreign tax credit positions under the revised definitions and mechanics.
  7. What didn’t make the cut
    • Some headline items that weren’t included in the final law: (i) the headline U.S. corporate income tax rate of 21% is retained and made permanent (versus previously considered reductions); (ii) carried interest stays the same (the Tax Cuts and Jobs Act (TCJA) three-year holding period rule for long-term capital gains tax treatment still applies), and (iii) the proposed “revenge tax” (section 899) on residents of “unfair foreign tax” jurisdictions was dropped.

Quick action list (Q3–Q4 2025)

  • Debt & LBO models: Re-run section 163(j) under EBITDA for 2026+; factor in the elective capitalized-interest inclusion and the new ordering rule. 
  • Capex timing: Align construction and placed-in-service dates to capture qualified production property expensing; adjust procurement/contractor timelines now.
  • R&E cleanup: Separate domestic vs. foreign R&E; evaluate retro expensing/refund opportunities for small businesses and accelerated relief for others.
  • QSBS hygiene: Confirm issuer status, asset levels, and issuance dates; build tracking for the new 3/4/5-year tiers and higher gain caps.
  • Re-evaluate global structures with fresh ETR calculations based on the latest GILTI / NCTI, FDII / FDDEI, and FTC limitation changes. 

Bottom line: OBBBA offers meaningful cash-tax savings opportunities (bonus depreciation / section 168(k), R&E expense deduction / section 174, QBI deduction / section 199A, QSBS exclusion / section 1202) while limiting others (prior section 163(j) capitalization workaround). Savvy business taxpayers will time projects and transactions to the statute’s effective dates, conduct appropriate diligence, and prepare documentation accordingly.

This post provides general information and does not constitute legal or tax advice.

Questions or want a tailored OBBBA impact review?

Contact Nick Eusanio, Partner, Tax Planning & Compliance — DBL Law

Are Personal Injury Settlements Taxable in Kentucky or Ohio?

Nick Eusanio, Esq., LL.M. Leave a comment

When it comes to personal injury settlement proceeds, the U.S. federal and state income tax treatment can significantly affect how much of your recovery you keep. Whether you’re a personal injury plaintiff, attorney, or tax advisor, thoughtful structuring and characterization of a settlement is essential.

Here’s a high-level summary of how federal, Ohio, and Kentucky income tax law treats personal injury settlement proceeds, and how to structure a settlement agreement for tax efficiency.

💡Personal Injury Settlements Can Be Tax-Free

Under Internal Revenue Code (IRC) § 104(a)(2), certain damages received on account of personal physical injuries or physical sickness are not taxable. So, these proceeds aren’t included in federal gross income under IRC § 61, which otherwise broadly includes “all income from whatever source derived.”

To support tax-free payments, especially for Kentucky or Ohio taxpayers, attention to the relevant legal framework and aligning structuring and documentation of the settlement are critical.

🔍 The Federal Income Tax Framework: IRC and Treasury Regulations

Under federal income tax law:

  • IRC § 61 is the starting point, which states that gross income includes all income of a taxpayer unless a specific exclusion applies.
  • IRC § 104(a)(2) excludes from gross income damages received (other than punitive damages) on account of personal physical injuries or physical sickness.
  • Treas. Reg. § 1.104-1(a), (c) confirms that the exclusion applies to both lump-sum and periodic payments and clarifies the scope of injuries that qualify.
    • For instance, it is also possible to exclude settlement amounts attributable to emotional distress, but that emotional distress 🧠 must be directly related to the personal physical injury sustained, unless the amount is for reimbursement of actual medical expenses related to the emotional distress and such amount wasn’t previously deducted under IRC § 213.
    • 💭 Note: Punitive damages and damages unrelated to physical injury—like reputational harm or contract claims—are taxable.

🏛️ State Income Tax Law: Ohio and Kentucky Generally Follow Federal Law

  • Ohio Revised Code § 5747.01(A) and Kentucky Revised Statutes §§ 141.010 and 141.019 state that both Ohio and Kentucky generally conform to the federal definition of gross income, with certain state-specific adjustments.
  • So, if your settlement proceeds are excluded under IRC § 104(a)(2), they are also excluded from Ohio and Kentucky state income tax, unless a specific modification exists (which does not in Ohio or Kentucky income tax law).

📝 How to Structure the Settlement Agreement

The tax characterization of a settlement isn’t solely based on what the payment is called—it depends on what the payment is actually for. Still, clear language in the agreement helps support favorable tax treatment.

Recommended provisions to include:

  1. Purpose – Clearly state that the agreement is a settlement instead of pursuing a potential or existing claim or legal action under statutory or common law involving personal physical injuries or physical sickness.
  2. Characterize Settlement Proceeds into Appropriate Buckets –  
    State amounts of any payments attributable to personal physical injuries or sickness and affirm that the parties intend those payments to be excluded from gross income under IRC § 104(a)(2) and Treas. Reg. § 1.104-1(a), (c). Specifically allocate any settlement proceeds to other buckets if relevant, like punitive damages which are taxable.

⚖️ Final Word

Not every settlement dollar is tax-free. But with smart planning and a well-structured agreement, plaintiffs in Kentucky and Ohio can often shield personal injury settlements from both federal and state income taxes.

Tax advice should always be tailored to the specific facts of the case—so if you’re drafting a settlement agreement or receiving a payout, consult with a tax attorney who knows how to structure these arrangements properly.

Tax Implications of Employer Gifts to Employees

Nick Eusanio, Esq., LL.M. Leave a comment

Corporate gifting is a thoughtful way to reward and recognize employees. But, as with all transactions, tax is an important consideration. The Internal Revenue Code (IRC) treats gifts from employers differently than personal gifts. Even seemingly small offerings like holiday bonuses or gift cards can trigger tax and withholding obligations. This post summarizes how the general rules apply to both the employer and the employee.

1. What is a “Gift”?

Under IRC § 61, almost anything paid by an employer to an employee is income, unless a specific exception applies. IRC § 102(a) allows taxpayers to exclude value from a gift in the personal context, but not when it comes from an employer (see IRC § 102(c)). Following are some general taxability rules for certain items “gifted” by an employer to an employee.

2. Cash & Cash‑Equivalent Gifts = Taxable Compensation

Below are the general rules regarding cash and cash equivalent gifts from an employer to an employee.

Employee side:

  • It’s treated like wages. Employees must report the full amount as income on their Form 1040.

Employer side:

  • Employers must withhold regular income tax, Social Security, and Medicare, and report the gift as wages on Form W-2.
  • Deductible as ordinary business expenses under IRC § 162—just like salaries and bonuses.
  • Subject to payroll taxes (employer match for FICA, FUTA, SUTA) because this is wage income.

3. Non‑Cash, Nominal Gifts can = “Gifts”

Gifts of tangible personal property—think mugs, plaques, small gift baskets—are typically exempt as de minimis fringe benefits under IRC § 132(e), if they are all of the following:

  1. Not cash or cash equivalent;
  2. Infrequent;
  3. “Nominal” in value (commonly considered $100 or less per gift) and administratively impractical to track; and
  4. For business purposes.

It is important to note that there are specific rules for certain other types of employee fringe benefit which are not covered by this article. Those other employee fringe benefits include the following: qualified transportation fringe, no-additional cost service, working condition fringe, qualified employee discount, qualified moving expense reimbursement, qualified retirement planning services, or qualified military base realignment and closure fringe.

Employee side de minimis fringe benefits:

  • These are not taxable if they meet those criteria—no income or withholding.

Employer side de minimis fringe benefits:

  • Fully deductible as ordinary business expenses.

4. Achievement & Retirement Awards Get Special Treatment

If your gifts are used as achievement awards (e.g., length of service, safety milestones), there’s a separate set of rules under IRC §§ 74(c) and 274(j). These may allow up to $1,600 per employee per year (non‑cash or cash equivalent; clearly certified program required). But, the rules here are detailed and have specific requirements, so it is important to consult with a tax professional when planning to structure achievement awards intended to be treated as non-taxable employee gifts.

Summary & Employer Tips

For both employers and employees, cash and cash-equivalents = taxable compensation.
When using infrequent, non-cash, nominal gifts, it can be a win-win: tax break for employers, tax-free perk for employees.

So, employers:

  • Think twice before handing out gift cards—automatically treated as cash.
  • Outside of qualified achievement or retirement awards (which should be planned with a tax professional) stick to infrequent, low value (not the proverbial gold watch!), tangible gifts to recognize employees.
  • Document purpose, amount, date, and recipient to support deductions.

As always, it’s important to have an experienced tax attorney evaluate the specific facts, circumstances, and applicable law when considering employee gifts that may not fit neatly within the above general rules, such as other fringe benefits (besides the de minimis fringe benefit rule discussed above) or qualified achievement or retirement awards.

Simplify Nonprofit Structuring with LLCs

Nick Eusanio, Esq., LL.M. Leave a comment

When a nonprofit operates through multiple affiliated entities—all furthering the same exempt purpose [for example, under section 501(c)(3)]—structuring those affiliates under one or more LLCs can provide significant efficiencies. As a tax attorney practicing in this space, I help nonprofit clients balance liability protection, tax compliance, and administrative efficiency with their commercial goals, using LLCs. Below are some important considerations for this type of planning.

U.S. Federal Income Tax Considerations

A nonprofit parent that has already obtained tax-exempt status (by filing a Form 1023 application for exemption and receiving IRS approval) can form one or more single-member LLCs, which default to treatment as a disregarded entity for U.S. federal income tax purposes. This type of structuring can provide some key benefits:

  1. Administrative simplification & cost efficiencies: No need for additional filings of Form 1023 application for exemption filings, or annual Form 990 tax exempt organization income tax returns. As long as the LLC meets the typical organizational and operational tests (was organized for and is operated for the same exempt purposes as the parent), it need not apply to obtain its own federal tax exemption, and its income, expenses and assets flow through to and are reported on the parent company’s Form 990 each year.
  2. Risk management: Utilize multiple LLCs to isolate activities presenting higher risk from those with relatively lower risk, as well as separate key assets or property from entities conducting activities with higher risk. Assuming adherence to proper corporate governance principles, each LLC provides liability protection like a corporation. This structuring can help a nonprofit group efficiently manage its overall risk profile.
  3. Commercial branding: LLCs are easy to form and operate, offering flexibility to align the group’s desired commercial branding with various operating entities, whether unified or specific branding based on the entity and activity.

U.S. State & Local Tax Considerations

U.S. federal income tax exemption does not guarantee exemption from state and local taxes. Importantly, states levy various types of taxes, such as income, franchise, property, and sales and use taxes. Below are some key considerations in the state and local tax context:

  1. State & Local Tax conformity to the Internal Revenue Code (IRC): For purposes of income tax, states and localities may or may not follow the IRC, or may follow the IRC generally but provide state statutory exceptions to certain IRC provisions.
  2. Other State & Local Tax types: States and localities may require specific tax exemption applications for different tax types. Additionally, the state and local requirements for these tax exemption applications may differ based on entity type and/or tax treatment of the entity (i.e., corporation, LLC, partnership), or location of the entity or its assets or property.

As always, it’s important to have an experienced tax attorney evaluate the specific facts, circumstances, and applicable law in this type of structuring. With proper planning, it is possible for nonprofits to achieve administrative simplification and cost efficiencies in the federal, state and local tax contexts using LLCs.

The Kentucky Red Tape Reduction Initiative: Top 3 Benefits to Kentucky Investors, Entrepreneurs, Start-Ups, and Small Businesses

Nick Eusanio, Esq., LL.M. 1 Comment

Governor Matt Bevin’s Kentucky Red Tape Reduction Initiative, formally announced on July 6, 2016, is further evidence that Kentucky is a great state for entrepreneurs, start-ups, small businesses, and investors. This is third article in this Biz&TaxHax series focused on key Kentucky-based programs, initiatives, credits, and incentives that benefit Kentucky small businesses, start-ups, entrepreneurs, and investors. Our prior posts in this series summarized the Top 5 Benefits of the Kentucky Small Business Tax Credit and the Top 5 Benefits of the Kentucky Angel Investment Tax Credit. In addition to those tax credit programs, Governor Bevin’s Red Tape Reduction Initiative is a strong pro-business step that Kentucky companies and business owners have desired for decades. This Kentucky Red Tape Reduction Initiative aims to provide the following key benefits to Kentucky investors, entrepreneurs, start-ups, and small businesses:

  1. Review, Identify, and Remove Burdensome Kentucky Business Regulations.

Governor Bevin began the Kentucky Red Tape Reduction Initiative by commissioning cabinet secretaries to begin a thorough review of Kentucky regulations currently in place, and has also asked Kentucky companies to weigh-in with their thoughts as to which regulations may be overly burdensome or unnecessary. Through the process, the state has determined that there are over 4,700 regulations currently on the books in Kentucky. In fact, Governor Bevin recently cited a report of findings in a study of the number and breadth of Kentucky administrative regulations, which shows that Kentucky administrative regulations increased by 250% between the years 1975 and 2015. This statistic is further proof of the problem that Governor Bevin is trying to remedy – that Kentucky has been one of the most highly regulated states in the U.S.

As a breath of fresh air for Kentucky small businesses, start-ups, entrepreneurs and investors, the Red Tape Reduction Initiative has already generated over 14,000 visits to the program’s website and over 500 suggestions from business owners to be evaluated. This is in addition to the review work that the Governor’s own staff members are conducting. By all outward appearances, it seems the Governor and his administration are committed to reducing the regulatory burden that has plagued Kentucky entrepreneurs, start-ups, and business owners for too long. This is a strong step in the right direction, and we’ll look forward to continuing updates that hopefully demonstrate progress in eliminating unnecessary and over-burdensome government regulation in Kentucky.

  1. Transform Government Regulators into Regulation Managers with an Attitude of Efficiency and Effectiveness.

The Governor’s above-noted call to current action for review, identification, and removal of unnecessary and over-burdensome Kentucky regulation was not his only directive. Governor Bevin is also encouraging regulators that are part of his Kentucky government administration to adopt a more pro-business attitude. Through this instruction, the administration hopes to create an environment of regulation managers who are focused more on the intent, efficiency, and effectiveness of Kentucky’s various regulatory frameworks and individual regulations as practically applied to the real here-and-now Kentucky businesses and issues they face. This is a key positive aspect of the Kentucky Red Tape Reduction Initiative. If Kentucky regulators maintain a pro-business attitude in the future, it will certainly help Kentucky entrepreneurs and start-ups get off the ground and small businesses expand, and should encourage investors to offer more capital, more frequently, to Kentucky companies.

  1. Encourage Job Creation and Investment.

A key stated purpose of the Kentucky Red Tape Reduction Initiative is to spark investment in existing Kentucky companies as well as new Kentucky business ventures, bringing additional jobs to the Commonwealth. Obviously, for entrepreneurs, start-ups, and small businesses seeking to grow, obtaining necessary capital is a key goal and access to capital can be a significant hurdle. Along with the Kentucky Small Business Tax Credit and Kentucky Angel Investment Tax Credit, the Red Tape Reduction Initiative provides additional incentive for: (i) Kentucky entrepreneurs, start-ups, and small businesses to expand their ventures and hire new employees in Kentucky; and (ii) investors to invest their capital in Kentucky entrepreneurs, start-ups, and small businesses. Not only should these initiatives and credits increase business growth and profits, but they should also lead to reduced costs to consumers, who often times pay increased rates for goods and services as a result of companies passing-through their internal costs of compliance with over-burdensome state regulations.

As always, for investors, entrepreneurs, start-ups, and small businesses dealing with Kentucky regulations, it is best to consult an experienced Kentucky business attorney. A Kentucky business lawyer can fully evaluate your facts and circumstances along with applicable law and guidance to develop the most effective, efficient, and proper solution to your Kentucky regulatory compliance and planning needs.

College Tax Credits: Parent & Student Primer

Nick Eusanio, Esq., LL.M. Leave a comment

Parents and students, by now, you’re certainly in the full chaos of the academic year – spending that hard-earned money to help your child get the education necessary to pursue a great future career. Before too long, you’ll also be working through the challenges of gathering information and documents for tax return filing season – and by then you’ll be keenly aware of just how much you’re spending to obtain that all-important college degree. Likewise around tax filing time, you will probably be searching for and considering what summer jobs, internships, or other opportunities may be available to help pay for or defray some of the cost of college now, or at least help bolster your child’s prospects for future employment to repay college debt.

While the cost of college education can definitely be burdensome, and tax season is a drag for most, there are some federal tax provisions that can help relieve some of that burden and make you excited (ok, maybe just less anxious!) about tax season. That’s why this article is dedicated to summarizing the most useful information regarding available college tax credits for parents and students.

Biz&TaxHax Tip: Biz&TaxHax hopes this article proves useful in your quest to save money on, and make the most of, your education. In that spirit, we also want to be sure to introduce you to our friends and colleagues at Nunan Vogel Rowe (NVR), who are experts in career coaching, especially college-to-career coaching. Biz&TaxHax likes to team with like-minded professionals to bring you the most relevant, useful information to help you plan and find solutions to your challenges. NVR is certainly a golden resource for students and their parents navigate the key planning and decision-making that makes all the difference in future career prospects. To do this, NVR’s leaders draw on their experiences as big-company executives with strong backgrounds in identifying, recruiting, evaluating, and developing the best talent in industry. Simply put, they’ve been there and done that one-thousand times over, and can help you tremendously.

Available College Tax Credits & General Requirements

There are two college tax credits available, these are the:

  1. American Opportunity Tax Credit; and
  1. Lifetime Learning Credit.

Each of these education tax credits has its own specific requirements, but both share the following general requirements:

  1. You, your dependent or a third party paid qualified education expenses during the tax year for,
  1. An eligible student who was enrolled at an eligible educational institution, and
  1. You, your spouse, or a dependent listed on your tax return is the eligible student.

Generally, these education tax credits exist for eligible students attending an eligible college, university, or vocational school, and the amount of credit allowed is limited based on the amount of eligible expenses and taxpayer’s income level. Although a particular taxpayer will often qualify for both the American Opportunity Tax Credit and the Lifetime Learning Credit, a taxpayer may only claim one of these credits for a given tax year.

 American Opportunity Tax Credit (AOTC)

The American Opportunity Tax Credit is available to any taxpayer who pays qualified expenses for an eligible student. A taxpayer, the taxpayer’s spouse, or the taxpayer’s dependents can all be eligible students, and the American Opportunity Tax Credit allows a credit for each eligible student. A substantial number of taxpayers who are eligible for the American Opportunity Tax Credit will qualify for the $2,500 maximum credit amount, which is a per year, per student maximum. But, it is important to keep in mind that a taxpayer can only claim this credit for four tax years for each eligible student, and only for eligible students who have not completed their first four years of college education prior to 2016.

Biz&TaxHax Tips: In considering whether you may be able to claim the American Opportunity Tax Credit, the following are important points to keep in mind, but you should always contact an experienced tax attorney or tax consultant to fully discuss your facts and circumstances and help make this determination:

  1. Qualified Education Expenses: Tuition, fees, and certain other expenses that are required for enrollment or attendance at an eligible educational institution constitute qualified education expenses. Common other expenses that qualify are expenses for books, supplies, and equipment that are needed for a course of study. Some types of expenses that do not qualify are: insurance, medical expenses (including student health fees), room and board, transportation, or similar personal, living, or family expenses.
  1. Credit Amount: To claim the full $2,500 tax credit, your qualified expenses for an eligible student must be $4,000 or more (and you must not be limited by income-level).
  1. 40% Refundable: The American Opportunity Tax Credit is 40% refundable, meaning that even if you owe no federal income tax, you may be able to claim up to $1,000 in refund for each eligible student (again, subject to income-level limits and the amount spent on qualified educational expenses).
  1. Income Limits: For 2016, single taxpayers with a modified adjusted gross income (MAGI) of $80,000 or less, and married taxpayers filing jointly with a MAGI of $160,000 or less, may claim the full $2,500 credit (again, assuming enough qualified educational expenses to support it). This credit phases out as the various types of taxpayers’ incomes rise above these levels, and the credit vanishes when MAGI is $90,000 (single, head of household, some widows and widowers) or $180,000 (married filing jointly).

Lifetime Learning Credit

Undergraduate and graduate students alike are eligible for the Lifetime Learning Credit, which provides a tax benefit of up to $2,000 per tax return (rather than per student, like the AOTC). Another important distinction between the Lifetime Learning Credit and the AOTC is that the Lifetime Learning Credit is not refundable, meaning that a taxpayer with no tax liability will not receive a refund for the amount of this tax credit that he or she is eligible to claim. But, one positive difference with the Lifetime Learning Credit is that a student need not be a half-time student at the eligible educational institution to qualify; rather, the student can be pursuing a course of study part-time to maintain or improve job skills or as part of a degree program at an eligible educational institution.

Biz&TaxHax Tips: If you are evaluating whether you may qualify to claim the Lifetime Learning Credit, these are some helpful tips to discuss with a tax lawyer or tax consultant, who can help you analyze eligibility and claim the credit:

  1. Qualified Education Expenses: Qualified education expenses include tuition and fees required for enrollment or attendance at the eligible educational institution, and other fees required for coursework there. Any additional expenses do not qualify.
  1. Credit Amount: The maximum amount of the credit is $2,000, and the credit is calculated as a percentage (20%) of eligible expenses for all eligible students listed on the return. So, to claim the maximum credit, a taxpayer must have paid at least $10,000 in qualified expenses for the year.
  1. Income Limits: Single taxpayers with MAGI of $55,000 or less, and married couples filing jointly having a MAGI of $111,000 or less, may claim the full Lifetime Learning Credit for 2016. The credit diminishes as income levels rise, and it vanishes at $65,000 (single, head of household, some widows and widowers) and $131,000 (joint filers) of MAGI.

Other Education-Related Tax Benefits

Even if you do not qualify for one of the college tax credits, you may be able to benefit from one of the following other education-related tax benefits:

  1. Grants for Scholarship and Fellowship, which are usually tax-free if they are used to pay for tuition, required fees, books, and other course materials, but are taxable if applied to room, board, research, travel, or other expenses.
  2. Deduction for Tuition and Fees
  3. Deduction for Student Loan Interest (up to $2,500/year, depending on amount of interest paid and income level).
  4. College Savings Bonds, the interest on which is generally tax-free depending on the taxpayer’s income level, the time of purchase, and taxpayer’s age at the time of purchase.
  5. QTPs (Qualified Tuition Programs) such as a 529 Plan.

As always, for parents and students considering eligibility for college tax credits like the American Opportunity Tax Credit and Lifetime Learning Credit, or other education-related tax benefits, as well as related planning, reporting and payment obligations, it is best to consult an experienced tax attorney or tax consultant. A tax lawyer or tax consultant can fully evaluate your facts and circumstances along with applicable law and guidance to develop the most effective, efficient, and proper solution to your tax compliance and planning needs.

The Kentucky Angel Investment Tax Credit (KAITC): Top 5 Benefits to Kentucky Investors, Entrepreneurs, Start-Ups, and Small Businesses

Nick Eusanio, Esq., LL.M. 1 Comment

As noted in Biz&TaxHax’s prior article, outlining the Top 5 Benefits of the Kentucky Small Business Tax Credit, Kentucky is a great state for entrepreneurs, start-ups, small businesses, and investors alike. The second of this series, this article highlights the top 5 benefits the Kentucky Angel Investment Tax Credit provides for Kentucky investors, entrepreneurs, start-ups, and small businesses. The Kentucky Angel Investment Tax Credit has wide-ranging application, offering the following key benefits to Kentucky investors, entrepreneurs, start-ups, and small businesses:

  1. The KAITC Incentivizes Investment in Kentucky Start-Ups and Small Businesses.

The stated purpose of the Kentucky Angel Investment Tax Credit is to encourage qualified individual investors to make capital investments in Kentucky small businesses, create additional jobs, and promote the development of new products and technologies in Kentucky. Obviously, for entrepreneurs, start-ups, and small businesses seeking to grow, obtaining necessary capital is a key goal and access to capital can be a significant hurdle. The KAITC provides additional incentive for investors, both in Kentucky and those in other states, to invest their capital in Kentucky entrepreneurs, start-ups, and small businesses.

  1. Broad Eligibility: The Requirements for a Qualifying Investor, Qualified Investment, Qualified Small Business, and Qualified Activity Encompass a Wide Base.

The KAITC is available to Qualified Investors making Qualified Investments in Qualified Small Businesses that are conducting Qualified Activities. That sounds like a lot of qualifiers. But, in reality, the definitions of the terms are not overly restrictive. Below is a summary of the relevant qualifiers:

Qualified Investor: (1) an individual, accredited investor according to Reg. D of the U.S. Securities and Exchange Commission, who (2) holds no more than 20% ownership in and is not employed by the Qualified Small Business prior to making a Qualified Investment in the business, (3) is not the parent, spouse, or child of someone who would fail to satisfy requirement # 2, (4) seeks a financial return on the Qualified Investment, and  (5) has become a Kentucky Economic Development Finance Authority (KEDFA) certified Qualified Investor.

Qualified Investment: (1) a minimum cash investment of $10,000 made by a Qualified Investor in a Qualified Small Business, (2) offered and executed in compliance with all applicable state and federal securities laws and regulations, (3) in exchange for equity interest in the Qualified Small Business, (4) having been pre-approved by the KEDFA as a Qualified Investment.

Qualified Small Business: (1) a legal entity registered and in good standing with the Kentucky Secretary of State and otherwise maintaining all state licenses and other permits required, (2) comprised of 100 or fewer full-time employees, (3) actively and primarily conducting (or planning to conduct upon receiving a Qualified Investment) a Qualified Activity within Kentucky, (4) maintaining more than 50% of its assets, operations, and employees within Kentucky, that (5) either (a) has a net worth of $10 million or less, or (b) has had $3 million or less in net income after federal income taxes for each of the two preceding fiscal years, which (6) has not received investments qualifying for more than $1 million in total angel investor tax credits, and (7) has been pre-certified as a Qualified Small Business by the KEDFA.

Qualified Activity: A knowledge-based activity related to the Office of Entrepreneurship focus areas that include, but are not limited to: Bioscience; Materials Science and Advanced Manufacturing; Environmental and Energy Technology; Information Technology and Communications; and Health and Human Development.

If you are a Kentucky entrepreneur, own a Kentucky start-up, or run a Kentucky small business, there is a good chance your company could become a Qualified Small Business eligible to receive a Qualified Investment from a Qualified Investor. An experienced Kentucky tax lawyer or Kentucky tax consultant can help you navigate the process of applying to become a Kentucky Qualified Small Business, opening your company up to a larger pool of capital sources. Additionally, if you are an investor wishing to invest in Kentucky small businesses, a Kentucky tax attorney or Kentucky tax consultant can help you apply to become a Qualified Investor and take advantage of the Kentucky Angel Investment Tax Credit.

  1. Generous Credit Rate and Up to $200,000 in Credit Each Year.

The Kentucky Angel Investment Tax Credit provides Qualified Investors a credit of up to 50% (in enhanced incentive counties) or up to 40% (all other counties) of their Qualified Investments. Depending on the amount of the Qualified Investment and the location of the Qualified Small Business, the KAITC can provide up to $200,000 of tax benefit per calendar year.

  1. Carryforward of Unused Credits.

A credit approved under the KAITC program is first applied against any tax due on the return for the calendar year for which the credit was granted. But, if the credit is not fully utilized in the award year, the Qualified Investor may carry forward the remaining amount of credit to offset against tax due for up to the next 15 years. This is important, as often times entrepreneurs, start-ups, and small businesses may not have significant taxable income and tax liability in initial years. This 15 year carry forward enables a Qualified Investor in a Kentucky Qualified Small Business to recognize the benefit of the Kentucky Angel Investment Tax Credit in later years when their investment may be generating more taxable income and thus the investor may have more tax liability.

Biz&TaxHax Tip: The KAITC is a non-refundable credit, meaning that a taxpayer cannot obtain a cash refund for the difference between the credit and the taxpayer’s tax liability for a particular year. Rather, as noted above, the taxpayer may carry forward any unused portion of the credit for offsetting future tax liability, for up to 15 years.

The KAITC is transferrable for out-of-state investors, meaning investors who are located outside Kentucky, who may not have Kentucky tax liability, can still reap the benefit of this tax credit. To do so, a nonresident/out-of-state Qualified Investor may sell its Kentucky Angel Investment Tax Credit to a Kentucky taxpayer and that Kentucky taxpayer may use the credit to offset Kentucky tax liability.

Biz&TaxHax Tip: A nonresident Qualified Investor who wishes to transfer the KAITC to a Kentucky taxpayer must follow certain procedures outlined by the Kentucky Department of Revenue. So, it is best to consult an experienced Kentucky tax lawyer or Kentucky tax consultant to ensure proper transfer of the Kentucky Angel Investment Tax Credit.

As always, for investors, entrepreneurs, start-ups, and small businesses considering eligibility for the Kentucky Angel Investment Tax Credit and related planning, as well as Kentucky tax reporting and payment obligations, it is best to consult an experienced Kentucky tax attorney or Kentucky tax consultant. A Kentucky tax lawyer or Kentucky tax consultant can fully evaluate your facts and circumstances along with applicable law and guidance to develop the most effective, efficient, and proper solution to your Kentucky tax compliance and planning needs.

Ohio Department of Taxation Issues Billing Notices Re: Federal Adjusted Gross Income (FAGI) Discrepancies

Nick Eusanio, Esq., LL.M. Leave a comment

Ohio Department of Taxation Issues Notices of Deficiency Related to FAGI Discrepancies

The Ohio Department of Taxation recently began issuing notices to Ohio taxpayers regarding discrepancies between the information reported on their Ohio individual income tax returns and that contained on their federal personal income tax returns. The Ohio Revised Code requires taxpayers to file particular information on their Ohio return consistently with what they reported on their federal return. One specific item that must match between federal income tax returns and Ohio income tax returns, is the line reflecting Federal Adjusted Gross Income, or FAGI. Accordingly, to the extent an Ohio taxpayer’s federal individual income tax return reports an amount of FAGI that does not match the amount reflected on the Ohio taxpayer’s state personal income tax return, particularly if the federal FAGI amount is larger than that reported to Ohio, that taxpayer is likely to get a Notice of Deficiency from the Ohio Department of Taxation.

A Proactive Approach is Key to Resolving an Ohio Notice of Deficiency

This is an important issue for any Ohio taxpayer, including entrepreneurs and small business owners. In the event you receive a Notice of Deficiency from the Ohio Department of Taxation, you should be proactive in addressing the issue. First, if you dispute the discrepancy or discrepancies identified in the Notice of Deficiency, you can resolve the matter by providing proper documentation to, and if necessary, negotiating with, the Ohio Department of Taxation. Alternatively, if you agree with the Notice of Deficiency, it is important to ensure that any amount due is properly and timely paid, and that the required amended Ohio income tax return is accurately and timely filed with the Department. An experienced Ohio tax attorney or Ohio tax consultant can help you effectively and efficiently dispute a Notice of Deficiency, or accurately and timely file an amended return and pay the additional tax due, ensuring that the additional payment is properly applied and credited. A proactive approach with the assistance of an Ohio tax lawyer or Ohio tax consultant can greatly: (1) increase your chances of demonstrating any errors in a Notice of Deficiency, and reducing or eliminating the amount of additional tax the Department claims is due; and (2) reduce the likelihood of the Department imposing interest and penalties on any late-paid additional tax due, as well as penalties for failure to file or late filing of a required amended return.

As always, Ohio taxpayers (including Ohio entrepreneurs and small business owners) facing Ohio tax controversies such as Ohio tax audits, Ohio tax examinations, Ohio tax notices, or Ohio tax assessments, as well as wishing to understand their Ohio tax compliance obligations and planning opportunities, it is best to consult an experienced Ohio tax attorney or Ohio tax consultant. An Ohio tax lawyer or Ohio tax consultant can fully evaluate your facts and circumstances along with applicable law and guidance to develop the most effective, efficient, and proper solution to your Ohio tax controversy, compliance, and planning needs.

The Kentucky Small Business Tax Credit (KSBTC): Top 5 Benefits to Kentucky Entrepreneurs, Start-Ups, and Small Businesses

Nick Eusanio, Esq., LL.M. 2 Comments

Kentucky is a great state for entrepreneurs, start-ups, small businesses, and investors alike. This article, focused on the Kentucky Small Business Tax Credit, is the first in a series of Biz&TaxHax articles that will outline some of the key benefits that exist in Kentucky for entrepreneurs, start-ups, small businesses, and investors. The Kentucky Small Business Tax Credit has broad application to Kentucky companies, providing the following top five benefits to Kentucky small businesses, start-ups, and entrepreneurs:

  1. Broad Eligibility: Many Companies Can Qualify for the Kentucky Small Business Tax Credit.

Assuming other requirements are met, the KSBTC is available to for-profit companies with 50 or fewer full-time employees. Additionally, this tax credit includes businesses in the retail, service, construction, manufacturing, and wholesale industries. This means that if you are a Kentucky entrepreneur, own a Kentucky start-up, or run a Kentucky small business, there’s a good chance you could qualify for the Kentucky Small Business Tax Credit.

  1. Rewards Investment in New Kentucky Jobs and New Kentucky Equipment and Technology.

Entrepreneurs and start-ups that are on their way to becoming established small businesses, and small businesses that are growing into larger ones, are continuously purchasing additional technology and equipment and hiring new team members. The good news is, the Kentucky Small Business Tax Credit rewards Kentucky entrepreneurs, start-ups, and small businesses for those very actions: hiring new employees and buying new technology and equipment.

Biz&TaxHax Tip: It is great the KSBTC focuses on rewarding expenses that Kentucky companies are already incurring, but it is important to note that there are specific requirements and thresholds for qualification relating to: (1) eligible employees hired (must be new, full-time position; certain requirements for wages paid and hours worked); (2) qualifying equipment and technology (does not include real property, consumable supplies, or inventory (generally); expenditure of at least $5,000); and (3) the timing of the new hires and equipment/technology expenses (generally, a company must have hired an employee for at least one new full-time position and invested at least $5,000 in qualifying new equipment or technology in the past 24 months), to name a few. An experienced Kentucky tax attorney or Kentucky tax consultant can help navigate these specific requirements to determine if your company is eligible for the Kentucky Small Business Tax Credit.

  1. Up to $25,000 in Credit Each Year.

The KSBTC provides a credit against tax liability for each calendar year that a Kentucky entrepreneur, start-up, or small business qualifies. Depending on the number of eligible new positions created and the amount of investment in qualifying technology or equipment, the Kentucky Small Business Tax Credit ranges from $3,500 up to $25,000 per calendar year.

Biz&TaxHax Tip: Given the timing requirements noted in the tip to #2 above, it is a good idea to discuss your hiring and investment plans with your business attorney or tax lawyer early and often. If your timing for hiring and investment is flexible from a business standpoint, your tax attorney or business lawyer can help you plan for maximizing the Kentucky Small Business Tax Credit in a particular year or over a period of years.

  1. Carryforward of Unused Credits.

A credit approved under the KSBTC program is first applied against any tax due on the return for the calendar year for which the credit was granted. But, if the credit is not fully utilized in the award year, the taxpayer may carry forward the remaining amount of credit to offset against tax due for up to the next five years. This is important for entrepreneurs, start-ups, and small businesses, as often times in the initial years they are in expenditure and growth mode, and may not have significant taxable income and tax liability. This five year carry forward enables small businesses, start-ups and entrepreneurs to recognize the benefit of the Kentucky Small Business Tax Credit in later years when they may generate more taxable income and have more tax liability.

Biz&TaxHax Tip: The KSBTC is a non-refundable credit, meaning that a taxpayer cannot obtain a cash refund for the difference between the credit and the taxpayer’s tax liability for a particular year. Rather, as noted above, the taxpayer may carry forward any unused portion of the credit for offsetting future tax liability, for up to five years.

  1. Broad Applicability to Different Tax Liabilities.

The KSBTC may be used by a taxpayer to offset tax liability on a Kentucky individual income tax return, limited liability entity tax return, or corporation income tax return. So, the KSBTC’s broad applicability benefits a wide range of taxpayers, from entrepreneurs and pass-through entity owners who may be primarily concerned with the individual income tax and limited liability entity tax, to small businesses that may be subject to the corporation income tax.

Biz&TaxHax Tip: Depending on a particular taxpayer’s structure (such as sole proprietor, partnership, limited liability company, S corporation, C corporation) and other factors, the taxpayer may be subject to one or more of the taxes noted in #5 above. So, it is best to consult an experienced Kentucky tax lawyer or Kentucky tax consultant to ensure proper tax compliance and utilization of the Kentucky Small Business Tax Credit.

As always, for entrepreneurs, start-ups, and small businesses considering eligibility for the Kentucky Small Business Tax Credit and related planning, as well as Kentucky tax reporting and payment obligations, it is best to consult an experienced Kentucky tax attorney or Kentucky tax consultant. A Kentucky tax lawyer or Kentucky tax consultant can fully evaluate your facts and circumstances along with applicable law and guidance to develop the most effective, efficient, and proper solution to your Kentucky tax compliance and planning needs.

Ohio Financial Institutions Tax (FIT) Return Filing Deadline Approaching

Nick Eusanio, Esq., LL.M. Leave a comment

Update to financial institutions subject to the Ohio Financial Institutions Tax: the due date for filing the annual Ohio FIT Return is Monday, October 17, 2016. If you are unsure whether your company is subject to the Ohio Financial Institutions Tax, check out Biz&TaxHax’s prior article outlining the Top 10 Things You Need to Know about the Ohio FIT. Ohio FIT taxpayers are required to file any Ohio FIT Annual Report or Estimated FIT Report and make any payment electronically through the Ohio Business Gateway (OBG). Additionally, if your business is an Ohio FIT taxpayer with eligible tax credits to apply against the Ohio FIT, be sure to prepare and the FIT Credit Schedule with the Ohio FIT Return. 

As always, an Ohio tax lawyer or Ohio tax consultant can fully evaluate your facts and circumstances along with applicable law and guidance to develop the most effective, efficient, and proper solution to your Ohio FIT compliance and planning needs. Please contact me should your company need assistance related to the Ohio Financial Institutions Tax.