The Tax Department’s rules require that companies report to the IRS whether deductions they’ve taken in order to reduce their taxable income.
These deductions include itemized deductions like state and local income taxes and property taxes.
But in the case of state and federal income taxes, the rules don’t specify which deductions are deductible.
Instead, the IRS generally requires companies to report whether they have used the deductions for items like paying state income taxes.
While the IRS is required to track the deductions, some companies have used them as a way to minimize the amount of tax they owe.
In response to this loophole, the Tax Department has released a series of rules aimed at making sure companies don’t use deductions as a vehicle for paying less tax.
In general, the regulations require companies to keep records of all deductions they use to reduce taxable income and include them in their tax returns.
However, there are exceptions.
For example, companies may use a deduction for personal use or a charitable deduction, or a deduction from other sources like stock dividends or deferred compensation.
The rules also require companies who deduct items from their tax return to report those deductions in their quarterly reports, which are submitted to the Internal Revenue Service.
The IRS is also working on rules to require that some deductions, like state income tax, be reported in order for taxpayers to be allowed to deduct them in a tax return.
The rules are expected to be finalized by the end of the year.
Read more from ESPN Cri in the tax-related news section