News and Tip of the Day


Small Business Taxes & ManagementTM--Copyright 2024, A/N Group, Inc.

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March 28, 2024

News

The IRS further postponed (IR-2024-82) until Aug. 7, 2024, various tax-filing and tax-payment deadlines for individuals and businesses affected by the Aug. 8, 2023, wildfires in Hawaii. Previously, the deadline was Feb. 15, 2024. In general, this means that affected individuals, businesses and tax-exempt organizations will now have until Aug. 7, 2024, to file their 2023 returns and pay any taxes due. This is in addition to the expansive relief, announced last August, shortly after the wildfires occurred. The IRS is offering relief to Maui and Hawaii counties, the two areas designated by the FEMA. Individuals and households that reside or have a business in these localities qualify for tax relief. The current list of eligible localities is always available on the Tax relief in disaster situations page on IRS.gov.

When the IRS is looking to collect money it can consider retirement accounts as assets. In George E. Kosmides (T.C. Memo. 2024-138) the IRS appeals officer (AO) denied the taxpayer's ppartial payment installment agreement and listed the taxpayer's retirement account as an asset. The AO could not separate the taxpayer's personal expenses from business ones. The AO determined the taxpayer was not eligible for an offer-incompromise because he determined hhe could pay the liability in full by the collection period expiration date. The taxpayer rejected the AO's proposed installment agreement. The AO determined his expenses were small enough to make the offered installment agreement payments. The taxpayer countered that because of a preexisting medical condition should he lose his job he might lose his primary health insurance. The AO found that argument was too speculative. The Court found no abuse of discretion by the AO.

Tip of the Day

Mortgage loans over limit . . . If you incurred home acquisition debt on your home after December 15, 2017 your interest deduction will be limited. You can only deduct the interest on the first $750,000 (before that it was $1,000,000). Your software may flag the issue, and provide you with a worksheet that will handle the calculations or it may perform the calculations automatically. In some cases you might have to make a manual computation. For example, you paid interest of $25,413 on a $853,975 loan. Only 87.8% of the interest is deductible. The balance on the loan is available from Form 1098 from the mortgage lender.

 

March 27, 2024

News

The IRS is reminding (IR-2024-80) taxpayers that time is running out on for taxpayers who have unclaimed refunds for tax year 2020. The deadline is May 17 to submit tax returns. After that you're out of luck. Under normal circumstances the deadline would be April 15, but in 2021 filing was delayed because of the COVID pandemic. Click on the link for further information.

Bought, sold, got digital assets for goods or services, etc.? The IRS has published Digital Asset Reporting and Tax Requirements with the basics and links to other documents.

Tip of the Day

Home office deduction . . . If you qualify and you've decided to take it work through the numbers carefully. Much fewer taxpayers qualify to itemize than in the past and if itemizing isn't advantageous you won't miss the portion of real estate taxes and mortgage interest that you would have deducted and use the percentage of the home's area to find the home office deduction for interest and real estate taxes. On the other hand, if you can itemize it might be better to take the full deduction for those items on Schedule A and use the simplified method for the home office expense.

 

March 26, 2024

News

The IRS announced (IR-2024-81) tax relief for individuals and businesses in the Wrangell Cooperative Association of Alaska Tribal Nation that were affected by severe storms, landslides and mudslides that began on Nov. 20, 2023. These taxpayers now have until July 15, 2024, to file various federal individual and business tax returns and make tax payments. The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). Currently, this includes the Wrangell Cooperative Association of Alaska Tribal Nation. Individuals and households that reside or have a business in this locality qualify for tax relief. The same relief will be available to any other Alaska localities added later to the disaster area. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

The IRS has issued proposed regulations (REG-108761-22) that would identify certain charitable remainder annuity trust (CRAT) transactions and substantially similar transactions as listed transactions, a type of reportable transaction. Material advisors and certain participants in these listed transactions would be required to file disclosures with the IRS and would be subject to penalties for failure to disclose. The proposed regulations would affect participants in these transactions as well as material advisors but provide that certain organizations whose only role or interest in the transaction is as a charitable remainderman will not be treated as participants in the transaction or as parties to a prohibited tax shelter transaction subject to excise taxes and disclosure requirements.

Tip of the Day

Form 8606 . . . If you made contributions to a nondeductible IRA last year, you took distributions from a traditional IRA and you made nondeductible contributions to a traditional IRA in 2023 or an earlier year or you converted part, but not all of your traditional IRA (including a SEP etc.) to a Roth, Roth SEP etc. and you made nondeductible contributions to a to a traditional IRA in 2023 or an earlier year you've got to file a Form 8606 with your return.

 

March 25, 2024

News

IRS Advice Memorandum AM 2024-001 discusses the liability of certain third-party payers (TPPs) for an underpayment of certain employment taxes resulting from improperly claimed credit that was claimed by the TPP for a common law employer client on an employment tax return filed by the TPP under its own Employer Identification Number (EIN). Specifically, you inquired about the liability of TPPs for underpayments of employment tax where the Employee Retention Credit (ERC) was improperly claimed.

Tip of the Day

Basis in inherited property . . . It's always important to get inherited property that you intend to sell or hold for investment appraised--even if there's no chance of incurring an estate tax liability. That's because when you sell the property you'll need some sort of proof of basis for any gain or loss. But if the property is a rental property that you intend to keep the stepped up basis will enable you to claim more depreciation and either create losses or reduce reportable propfits.

 

March 22, 2024

News

The IRS is reminding business owners who claimed the Employee Retention Credit that tomorrow, March 22, is the last day to either withdrw their claims or apply to the ERC Voluntary Disclosure Program to avoid penalties and interest and payback any improper credits received at a reduced amount. IR-2024-75 describes seven warning signs that a claim could be incorrect. The News Release also provides links to resources to assist.

Tip of the Day

Losses on small business stock . . . It's not unusual for a small S or C corporation stock to become worthless or sold for much less than the owner's investment. Sec. 1244 allows you to take an ordinary rather than a capital loss. That could result in a lot bigger deduction. There are a number of restrictions, the critical ones being you're the initial holder of the stock, the initial capitalization can't exceed $1 million, and the entity must be an operating company. There are some others, but most businesses will pass the tests. Check with your tax advisor.

 

March 21, 2024

News

Notice 2024-31 provides for adjustments to the limitation on housing expenses for purposes of Section 911 of the Code for the 2024 tax year. These adjustments are made on the basis of geographic differences in housing costs relative to housing costs in the United States. If the limitation on housing expenses is higher for the 2024 tax year than the adjusted limitations on housing expenses provided in Notice 2023-26, qualified taxpayers may apply the adjusted limitations in this notice for the 2024 tax year to their 2023 tax year.

Tip of the Day

Tax on early distributions from IRAs, etc. . . . Distributions from qualified penion plans and IRAs before age 59-1/2 are generally subject to a 10% excise or penalty tax. But there are a number of exceptions, and, as a result of a recent tax law change a significant number more than in the past. See the instructions for Form 5329 and IRS Publication 590-B.

 

March 20, 2024

News

Even smaller businesses may have multiple entities or operate in more than one state. Dealings between related entities can gen generate IRS scrutiny. In the case of The Coca-cola Company and Subsidiaries (T.C. Memo. 2023-135) the issue was betwwen the U.S. parent company an a Brazilian affiliate. And related foreign transactions are of paricular interest to the IRS. Here the company claimed payment by the Brazilian affiliate to the U.S. for use of the company's intangibles was blocked by a Brazilian legal restriction. The Court found that Brazilian law did not restrict payments back to the U.S. to the extent claimed. The deficiencies proposed by the IRS resulted from adjustments to the transfer-pricing and the allocation by the IRS of prices on intangibles. The standard to apply is an arm's-length price between entities. The IRS can reallocate income between related entities if the current approach distorts income. States also use this to prevent taxpayers from allocating income to low or no tax states and keep it out of high-tax states

Tip of the Day

Note as wages . . . If you're working for a startup you may receive a note instead of a check for part of your services. If the note is secured you've got to include the fair market value of the note (discounted by an amount that depends on the payment terms) in income. Later payments on the note will be partly nontaxable and partly taxable. On the other hand, if the note is unsecured and nonnegotiable, only when you receive payments on the note are they includible in income as compensation.

 

March 19, 2024

News

You may be above to reocover your litigation costs if you take on the IRS and you're the "prevailing party". However, there are a number of requirements that must be met. In Champions Retreat Golf Founders, LLC, Riverwood Land, LLC, Tax Matters Partner (T.C. Memo. 2023-134) the LLC operated a golf course and donated a conversation. The IRS (in an earlier casw) challenged the deduction. The Tax Court sustained the IRS's disallowance of the deduction but that was reversed on appeal. The Tax Court was asked to value the amount of the donation and did so. Since the taxpayer won it's case it sought recovery of litigation costs. The Court noted that to be the "prevailing party" a party must "substantially prevail" with respect to the amount in controversy or "the most significant issue or set of issues presented" and must satisfy certain net worth requirements. The IRS agreed that the taxpayers "substantially prevailed" in the case. When a taxpayer seeks both administrative and litigation costs, the Court applies a bifurcated analysis to determine whether "the position of the United States" was substantially justified in the administrative proceeding and the litigation. To be substantially justified, the position must have a reasonable basis in law if legal precedent substanitally supports the IRS's position given the vacts available to the IRS. The Court noted that the IRS's position may be substantially justified even if incorrect "if a reasonable person could think it correct." The Court held the IRS's position to be substantially justified anddenied the taxpayer his litigation costs.

Tip of the Day

Checking your return . . . We're assuming either you've hire a tax preparer or you're doing your return on a computer. The computer will check for many errors on the return, but not all. For example, missing information on a W-2 might be flagged, but generally not numbers such as the amount of withholdings. The compputer will pick up ertain missing forms, and unchecked boxes where a statement, such as to whether or not you traded in digital assets, but not whether you entered the right number. Some items to check for which can produce real headaches if wrong include social security numbers, the routing and account numbers for direct deposit of a refund or withdrawal for a payment. Check to make sure estimated taxes for the year are entered correctly. You may not be tax savvy, but you can check a self-prepared or professional prepared return to make sure all dividend and interest items have been entered and check the amounts for reasonableness. Do the same for W-2s, other 1099s such as pensions and do a scan of Schedule A. Often discrepancies are large enough to spot without detail checking. For example, you don't remember your spouse's salary, but you recall it's about $150,000s. If all you see on the return is $50,000, you've got to check further. The law imposes a duty on you to review even professionally prepared returns.

 

March 18, 2024

News

In some cases the IRS can waive a deadline, but in most a deadline is absolute barring some unusual circumstances such as a weather disaster, call to active duty, etc. Those exceptions a few. In Paul Andrew Frutiger (162 T.C. No. 5) the IRS issued a Notice of Determination to the taxpayer denying his claim for innocent spouse relief. The taxpayer filed an untimely Petition with the Tax Court seeking review of the IRS's determination. The IRS asked the Court to dismiss the case for lack of jurisdiction (i.e., the petition was filed late). The taxpayer argued that the deadline to file a petition from a denial of innocent spouse relief is not jurisdictional and asks that the Court hear his case on equitable grounds. The Court noted a filing deadline is jurisdictional if Congress clearly states that it is. The Court held the 90-day filing deadline in Sec. 6015(e)(1)(A) is jurisdictional and that because the taxpayer failed to file his Petition within the 90-day deadline, it did not have jurisdiction to hear his case.

The IRS is warning taxpayers who filed incorrect ERC (Employee Retention Credit) that the deadline for correcting claims and avoid penalties and interet and even get a discount on repayment by apply to the ERC Voluntary Disclosure Program by March 22. There's also a claim withdrawal process for businesses whose claim is pending. For more information, go to March 22 Deadline Approaching to Resolve Incorrect Employee Retention Credit Claims

Tip of the Day

Help your tax preparer . . . More than a few taxpayers go to their tax preparer with a pile of unorganized papers and then complain about the bill. Many preparers base their fees on a formula (e.g., a certain amount per rental property, per form, etc.) but don't ignore the time involved. Most preparers who have been doing taxes for a while realize many individuals don't understand all the paperwork they receive, but virtually anyone can put the material in some order. Here are some tips.

 

 

March 15, 2024

News

Sec. 119 allows an employee to exclude the value of meals and ladging furnished to him if provided for the convenience of an employer. For example, a geologist working on site in a remote area of Canada. Sec. 911 provides that taxpayers may exclude a certain amount of income (indexed for inflation) earned in a foreign country while living there. You may also be entitled to a housing cost allowance. While Sec. 119 and 911 may sound generous, they come with a number of strict rules. For Sec. 911 the strting requirement is that they live in the country for a certain amount of time. In Nicole Diane Henaire (T.C. Memo. 2023-131) the taxpayer was employed at a military base in Auzstraila and while there lived in housing provided by the U.S. Air Force. She signed an agreement that she would waive claiming the 911 election to comply with provisions of an agreement between the U.S. and Austraila. The Court found the agreemen to be valid. In addition, she did not establish that her abode was outside the U.S. In addition, she was not entitled to exclude from her gross income under Sec. 119 the value of the housing she was provided in Australia. She did not establish that her employer provided her lodging for its own convenience, that she was required to accept those lodgings as a condition of her employment, or that the lodgings were on the employer's premises.

Tip of the Day

Premium Tax Credit . . . The penalty for not having health insurance is gone but if you got health insurance through the Marketplace you probably also got the advance premium credit. While the credit might have been issued accurately based on your income, you still have to reconcile the amount received and your income reported on the return using Form 8962. The IRS is still updating information on the credit. See the latest Fact Sheet FS-2024-04.

 

March 14, 2024

News

The IRS, concerned that some taxpayers are being misled, is reminding taxpayers and heath spending plan administrators that personal expenses for general health and wellness are not considered medical expenses under the tax law. This means personal expenses are not deductible or reimbursable under health flexible spending arrangements, health savings accounts, health reimbursement arrangements or medical savings accounts (FSAs, HSAs, HRAs and MSAs; see IRS Publication 969). Some companies are misrepresenting the circumstances under which food and wellness expenses can be paid or reimbursed under FSAs and other health spending plans. Some companies mistakenly claim that notes from doctors based merely on self-reported health information can convert non-medical food, wellness and exercise expenses into medical expenses, but this documentation actually doesn't. Such a note would not establish that an otherwise personal expense satisfies the requirement that it be related to a targeted diagnosis. The cost of a reduced carbohydrate diet as a substitute for a diabetic would not be deductible. If the plan does reimburse or pay for such items, the plan will cease to be qualified.

Tip of the Day

Medical expenses . . . There's a good chance ordinary medical expenses like doctor's co-pays won't be deductible because only those above 7.5% of your adjusted gross income are deductible so, for example, on $100,000 of income only he amount over $7,500 qualifies. Second, because the standard deduction is so high and only $10,000 of state and local taxes are deductible, your chances of exceeding the standard is less likely than in pre 2017 years. But you should put the numbers in the computer and let the software decide. What counts as medical? Clearly health insurance, doctors, hospitals, prescriptions, and dentists. But orthodontists, travel to and from doctor and hospital visits, medicare payments for social security recipients, and over-the-counter medicine (prescribed or not) and menstrual care products also qualify. So do immunizations, tobacco and drug cessation programs alnd obesity weight-loss programs. Other items and costs may be covered, see IRS Publication 969)

 

March 13, 2024

News

The IRS annnounced (IR-2024-68) the full launch of its Direct File pilot program and taxpayers can use the program to file in 12 states (Arizona, California, Massachusetts, New York. The program isn't for everyone but many taxpayers can qualify. The program is aimed at taxpayers with W-2 income who claim the standard deduction, and the earned income tax credit, the child credit, and the credit for other dependents and claim the student loan interest deduction. Other than W-2 income you can have up to $1,500 of interest, Social Security benefits, and unemployment compensation. There's also a restriction on the tpes of health insurance; you can't use direct file if you purchased health insurance through the marketplace.

Tip of the Day

Government interest . . . Interest on U.S. government securities is generally tax exempt by state taxing authorities and broken out separately on brokerage statements. However entering it properly in your tax software can be tricky.

 

March 12, 2024

News

Announcement 2024-10 (IRB 2024-11) addresses the Federal income tax treatlment of certain lead service line replacement programs for residental property owners. Lead in drinking water from lead plipes can cause serious health risks, particularly to young children. Typically the line up to the property owner's property line belongs to the water company or municipality; from the property line into the residence, the line is owned by the property owner. The Federal government and manystate governments require that the privately-owned portion of the lead service line be replaced simultaneously with the other relevant parts of the water system that contain lead. The IRS has considered the Federal income tax treatment of the lead service linereplacement programs. In both scenarios, the public water system controls all or virtually all aspects of the replacement work. While there are factual variations, the IRS has determined that these variations do not warrant a different outcome under the Federal tax laws. Accordingly, the replacement of lead service lines under the programs described above does not result in income to the residential property owners.

Tip of the Day

Municipal bond funds . . . There are some funds that invest exclusively in the obligations of one state such as California, New York, Massachusetts, etc. But for even those you've got to check carefully. Some of the interest may be a preference item for alternative minimum tax purposes. If your fund has holdings in a number of states, the fund will give you a percentage breakdown of the income by state (as a percentage). Be careful when computing the amount excludable in your home state. Usually it's entered as an "add back". For example, Madison Fund has paid you $1,000 in muni bond interest. For federal purposes it's all nontaxable. But only 9% of the income came from your home state. That means $910 (91%) of the amount excluded for federal purposes has to be added back on your state return. If you're using a tax program, they'll be a place to enter state information. If you have to file in more than one state check carefully how your software works.

 

March 11, 2024

News

Deposits in excess of the annual limit to an IRA are subject to an excise tax equal to 6% of the excess contributions. Under the law as it existed before 2022, a taxpayer's failure to file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, generally caused the limitations period for assessment of Sec. 4973 excise tax to remain open indefinitely. In Clair R. Couturier, Jr. (162 T.C. No. 4) the taxpayer filed tax Forms 1040 for the years 2004-2008 but did not file Form 5329 for any year. The Consolidated Appropriations Act, 2023 amended Sec. 6501 providing that the filing of an individual's income tax return will start the running of a limitations period on assessment of Sec. 4973 excise tax. It provides that a six-year period of limitations will apply where a taxpayer has filed a Form 1040, but not a Form 5329, for the tax year(s) in question. The taxpayer argued that the change applies retroactively and that the notice of deficiency was issued more than six years after the 2004-2009 returns were filed. The Court held the revised statute is applicable only with respect to tax returns filed on or after December 29, 2022 and, since the taxpayer's returns were filed prior to that date, the assessment of the excise tax was appropriate.

Tip of the Day

Review changes with financial adviser . . . When you signed on with your investment adviser you discussed your risk tolerance and he crafted a portfolio based on that information and some other inputs. You should review your situation every year with your tax and investment advisor. Putting 30% of your funds in tax exempt bonds might have made sense when you were working but not now that you're retired. You could be generating more income in other ways. Or you might be more risk tolerant now that uncle Fred passed away and left you $5 million. Many life style changes can affect your investment strategies.

 

March 8, 2024

News

The IRS, in response to disruptions to the supply of fuel for diesel powered highway vehicles resulting from wildfires, will not impose a penalty when dyed diesel fuel with a sulfur content that does not exceed 15 parts-per-million is sold for use or used by diesel-powered vehicles on the highway in certain counties in Texas. This penalty relief begins on February 23, 2024, and will remain in effect through March 22, 2024, and applies to the following counties in the state of Texas; Archer, Armstrong, Bailey, Baylor, Briscoe, Carson, Castro, Childress, Cochran, Collingsworth, Cottle, Crosby, Dallam, Deaf Smith, Dickens, Donley, Fannin, Floyd, Foard, Garza, Gray, Gregg, Hale, Hall, Hansford, Hardeman, Harrison, Hartley, Haskell, Hemphill, Hockley, Hutchinson, Kent, King, Knox, Lamb, Lipscomb, Lubbock, Lynn, Moore, Motley, Nacogdoches, Newton, Ochiltree, Oldham, Parmer, Potter, Randall, Roberts, Sherman, Stonewall, Swisher, Terry, Throckmorton, Upshur, Wheeler, Wichita, Wilbarger, Yoakum and Young counties. For more information see IR-2024-67.

The IRS announced (IR-2024-66) will open 70 Taxpayer Assistance Centers (TACs) on Saturday, March 16, from 9 a.m. to 4 p.m., to provide in-person help across the nation. These special Saturday hours are part of the agency"s continuing transformation efforts to improve taxpayer service. This marks the second of four special Saturday hours to help taxpayers. The IRS also plans special Saturday openings for April 13 and May 18 and also has expanded hours at many locations on Tuesdays and Thursdays to help taxpayers. At TACs, people meet face-to-face with IRS employees to get help with tax account issues. During these special weekend events, people can visit offices in 70 cities and communities, including the District of Columbia and Puerto Rico. During the events, people can make payments by check or money order, get help with identity authentication and ask about account adjustments, to name a few available services. The IRS can"t accept cash payments during the special Saturday openings. Tax return preparation services are also not available.

Tip of the Day

Need a loan? . . . Not so fast. Many small businesses are undercapitalized and have trouble securing a loan from traditional sources. there are a number of online sources for getting a loan, but the cost is often exorbitant. While some are legitimate, there are sources where the interest rate can easily exceed 100%. Approach nontraditional sources cautiously.

 

March 7, 2024

News

T.D. 9988 contains final regulations concerning the election under the Inflation Reduction Act of 2022 to treat the amount of certain tax credits as a payment of Federal income tax. The regulations describe rules for the elective payment of these credit amounts in a taxable year, including definitions and special rules applicable to partnerships and S corporations and regarding repayment of excessive payments. In addition, the regulations describe rules related to a required IRS pre-filing registration process. These regulations affect tax-exempt organizations, State and local governments, Indian tribal governments, Alaska Native Corporations, the Tennessee Valley Authority, rural electric cooperatives, and, in the case of three of these credits, certain taxpayers eligible to elect the elective payment of credit amounts in a taxable year.

Notice 2024-27 requests additional comments on any situations in which an election under Sec. 6417(a) of the Code could be made for a credit that was purchased in a transfer for which an election under Sec. 6418(a) is made. Such sequence of events is referred to as "chaining" in this notice. Comments regarding chaining will inform the ongoing review by the Department of the Treasury and the IRS of the tax credit transfer market for eligible credits under Sec. 6418(f)(1) and any potential future rules that would be consistent with the statutory framework, as well as the legislative purposes, of Secs. 6417 and 6418.

Tip of the Day

Cash payments to vendors . . . If you've got a business or a rental property at some point you'll encounter a vendor who will ask for cash--no check, or credit card. Or he may ask for the check to be made to cash. If the payment involves services you'll have to provide a 1099. That can serve as proof of payment. If you're not required to issue a 1099 you've got to be able to show proof of payment or the IRS can disallow the deduction. Your best bet may be to withdraw the the exact amount in cash from your bank account and make the payment immediately. Keepl in mind that you'll still need an invoice with some description of the work performed. Just keep in mind hat the IRS can disallow virtually any expense withhout both an invoice and proof of payment (check, credit card receipt).

 

March 6, 2024

News

The courts look at a number of factors when deteriming whether an activity is a business or simply a hobby. In Wolfgang Frederick Kraske (T.C. Memo. 2023-128) the taxpayer was an IT professional with a PhD. in electrical engineering. He work 50 weeks for a consulting company and purported conducted an activity reported as a business on Schedule C of his tax return. The taxpayer had ambitious business plans and met with several other professionals but from the court transcript it appears only one other individual was regularly involved and the involvement of these individuals was not detailed. The activity incurred losses for all but nine years; that lone year produced no income nor any loss. The activity had gross receipts in only three years. The Court noted the taxpayer failed to maintain complete and accurate records that suggested the activity was not carried on in a business like manner. That was one of the nine criteria for determining whether the activity was a business or a hobby. The taxpayer lost on all but one of the other factors and that one was deemed neutral.

Tip of the Day

Do I have to report that income? . . . With small exception, yes. Just because you didn't get a Form 1099 doesn't mean you don't have to report it. There's no deminimus or safe harbor amount either. And you can't net your expenses against your income to arrive at zero net income. There can be some situations where the cash you receive is really a gift. For example you repair your neighbor's car and he gives you $600 for 5 hours of work. You never solicited the payment. This could be a gift. Talk to your accountant about it.

 

March 5, 2024

News

To help taxpayers with filing, the IRS released IR-2024-27 debunked some common myths to help taxpayers understand what to do with Form 1099-K. Following feedback from partners and to help avoid taxpayer confusion, the IRS announced in Nov. 2023, that the reporting threshold for Form 1099-K, Payment Card and Third Party Network Transactions, would not change for 2023. The reporting threshold requirements remain over $20,000 in payments and over 200 transactions. The IRS continues to see misinformation circulating about why taxpayers may or may not have received a Form 1099-K. IR-2024-57 lists some common scenarios involving these forms. More information is also available at IRS.gov for what to do with Form 1099-K and frequently asked questions.

Tip of the Day

Office in the home . . . If you have a sole proprietorship or you have to work from home because you have no available office, you may be able to take this deduction. The space must used on a regular basis and the use of the space must be exclusively for business. (For more details on what qualifies, see IRS Publication 587.) You can take either a portion (based on square footage) of your home expenses or rent or a "safe harbor" amount of $5 per square foot, but no more than $1,500. Talk to your accountant if multiple businesse suse the same office.

 

March 4, 2024

News

The IRS's Free File Guided Tax Software service has seen a year-over-year increase of nearly 10% so far this filing season, according to recent statistics. Through Feb. 24, 943,000 taxpayers had filed tax returns this tax season through IRS Free File, a 9.7% increase from last year's comparable period when 860,000 tax returns were filed. The Free File increase occurs as the IRS continues to see a strong start to the 2024 filing season. Through Feb. 24, the IRS had delivered more than 28.9 million refunds to taxpayers worth $92.9 billion. The average refund this year is $3,213, up 4.3% from 2023. Those with an AGI over $79,000 can use the IRS's Free File Fillable Forms. This product is best for people comfortable using IRS form instructions and publications when preparing their own taxes. Virtually any use of computer aided tax preparation will increase the accuracy over a hand prepared return. For more information on Free File as well as links to resources, go to IR-2024-58.

Tip of the Day

Tax preparer cautions . . . It's sad to say that fraudulent return preparers keep popping up. The best way to avoid them is to use a CPA, attorney, or enrolled preparer. Most taxpayers don't need a tax attorney and they can be expensive. If you don't need accounting help with a business an enrolled agent may be all you need. Enrolled agents are licensed by the IRS and must take courses to maintain competency. CPAs must maintain competency and are licensed by the state. None of these three choices wants to take a chance on losing their license for any acts. That's not a guarantee they're honest, but it significantly increases the chances. If you don't need much more than the accountant in your office who prepares returns on the side, you should only accept a recommendation from someone who has used him or her for a couple of years.

 

March 1, 2024

News

In the continuing effort to improve tax compliance and ensure fairness, the IRS announced a new effort today focused on high-income taxpayers who have failed to file federal income tax returns in more than 125,000 instances since 2017. The new initiative, made possible by Inflation Reduction Act funding, begins with IRS compliance letters going out this week on more than 125,000 cases where tax returns haven’t been filed since 2017. The mailings include more than 25,000 to those with more than $1 million in income, and over 100,000 to people with incomes between $400,000 and $1 million between tax years 2017 and 2021. These are all cases where IRS has received third-party third party information—such as through Forms W-2 and 1099s—indicating these people received income in these ranges but failed to file a tax return. Without adequate resources, the IRS non-filer program has only run sporadically since 2016 due to severe budget and staff limitations that didn’t allow these cases to be worked. With new Inflation Reduction Act funding available, the IRS now has the capacity to do this core tax administration work. For more information, go to IR-2024-56

The IRS is reminding taxpayers (IR-2024-54) that an electronically filed tax return will be rejected if the taxpayer is required to reconcile advance payments of the premium tax credit (APTC) on Form 8962, Premium Tax Credit (PTC), but does not complete the form in the software and submit it with their tax return. Taxpayers must file Form 8962 if any family member was enrolled in Marketplace health insurance and IRS records show that APTC was paid to their Marketplace insurance company. Taxpayers use Form 8962 to reconcile their APTC with the PTC they are allowed. This reconciliation is required even when APTC fully subsidizes the cost of Marketplace insurance, and no premiums are paid by the taxpayer.The IRS has been seeing an increase in the number of taxpayers who are not including the required Form 8962 when using tax software to file their returns.

Tip of the Day

Collected unemployment but no 1099-G? . . . The amount you received is still taxable. Many states no longer automatically send a 1099-G but make you go online to get a copy. Another point, many individuals fail to have taxes withheld on the unemployment payments. It's all taxable and can add up quickly. Having just 5, 10, or even 15% for federal may not be enough if you have other sources of income such as from your spouse's job, another job during the year, etc.

 

February 29, 2024

News

The IRS announced (IR-2024-55) tax relief for individuals and businesses in parts of Washington state affected by wildfires that began on Aug. 18, 2023. These taxpayers now have until June 17, 2024, to file various federal individual and business tax returns and make tax payments. The IRS is offering relief to any area designated by the FEMA. Currently, this includes Spokane County. Individuals and households that reside or have a business in this locality qualify for tax relief. The same relief will be available to any other Washington state localities added later to the disaster area. The current list of eligible localities is always available on the disaster relief page on IRS.gov. Filing and payment relief The tax relief postpones various tax filing and payment deadlines that occurred from Aug. 18, 2023, through June 17, 2024 (postponement period). As a result, affected individuals and businesses will have until June 17, 2024, to file returns and pay any taxes that were originally due during this period. This means, for example, that the June 17, 2024, deadline will now apply to:

In addition, individuals and businesses that had an extension to file their 2022 returns will also have until June 17, 2024, to file them. However, tax-year 2022 tax payments are not eligible for this relief because they were originally due last spring, before the disaster occurred. Finally, penalties for failing to make payroll and excise tax deposits due on or after Aug. 18, 2023, and before Sept. 5, 2023, will be abated as long as the deposits were made by Sept. 5, 2023.

The IRS is reminding taxpayers (IR-2024-53) that recent improvements to Where's My Refund? on IRS.gov provide more information and remains the best way to check the status of a refund.The Where’s My Refund? tool provides taxpayers with three key pieces of information: IRS confirmation of receiving a federal tax return, approval of the tax refund and issuing date of the approved tax refund. Information for returns from tax years 2023, 2022 and 2021 is available. The webpage has been updated to include:

Check the links above for more information and additional resources.

Tip of the Day

Carryforward items . . . If you're switching software or decide to do your owen return and have used a preparer in prior years, you need to make sure you're picking up any carryforward items. The most common ones are the capital loss carryforward, passive activity loss carryforward, Section 179 asset expensing and the business use of home carry8forward. But there are a number of others. See our checklist at Carryforward Items.

 

February 28, 2024

News

The IRS announced (IR-2024-51) tax relief for individuals and businesses in parts of California affected by severe storms and flooding that began on Jan. 21. These taxpayers now have until June 17, 2024, to file various federal individual and business tax returns and make tax payments. The IRS is offering relief to any area designated by the FEMA. Currently, this includes San Diego County. Individuals and households that reside or have a business in this locality qualify for tax relief. The same relief will be available to any other California localities added later to the disaster area. The current list of eligible localities is always available on the disaster relief page on IRS.gov. The tax relief postpones various tax filing and payment deadlines that occurred from Jan. 21, 2024, through June 17, 2024 (postponement period). As a result, affected individuals and businesses will have until June 17, 2024, to file returns and pay any taxes that were originally due during this period. This means, for example, that the June 17, 2024, deadline will now apply to:

Also, penalties for failing to make payroll and excise tax deposits due on or after Jan. 21, 2024, and before Feb. 5, 2024, will be abated as long as the deposits were made by Feb. 5, 2024.

The IRS haa issued (frequently asked questions (FAQs) in Fact Sheet 2024-05 related to the United States Department of Agriculture's (USDA) Discrimination Financial Assistance Program. The Inflation Reduction Act of 2022 (IRA) provides financial assistance for farmers, ranchers, and forest landowners who experienced discrimination by the USDA in farm lending prior to 2021. As a result, USDA created the USDA Discrimination Financial Assistance Program (Program). To be eligible to participate in the Program, an individual must have experienced discrimination by USDA in USDA farm lending or be a debtor with assigned or assumed USDA farm lending debt that was the subject of USDA discrimination.

Tip of the Day

Change your name? . . . Your name and social security number on your tax return have to match. If you change your name because of marriage, divorce should report the name change to the Social Security Administration (SSA). And don't forget to notify the SSA if your child's last name changes.

 

February 27, 2024

News

While the IRS does occassionally slip up in their paperwork, challenging their procedures and recordkeeping rarely is productive. In Stephen R. Kelley and Isabelle Kelley (T.C. Memo. 2023-126) the taxpayers, despite receiving over $300,000 in salary, reported no taxable income and claimed some $96,000 in tax withholdings. The IRS used W-2s and 1099s to arrive at a taxable income number for the taxpayers. They argued that the automated underreporter system (the system flags errors based on W-2s, 1099s, etc.) and isn't not capable of "thoughtful and considered determination," nor of "consideration, resolution, conclusion, and judgment." The IRS countered by noting that tax examiners perform an in-depth analysis of each case flagged with steps taken to resolve the discrepancy. The Court sustained the IRS deficiency notice and the accuracy-related penalty.

Tip of the Day

Separate bank accounts . . . If you have a regular business, whether it's a corporation or a sole proprietorship, you need a separate bank account for the business. But what if it's just a rental property or a side business you work occasionally? Now it depends more on the number of transactions. You still have to maintain good books and records, but you may not need a separate bank account. However, you should be able to identify any deposits going into the account. For a rental property, that might be easy. You're charging $2,150 monthly rent and there are 12 deposits of that amount during the year. You may have a couple of big expenditures, but most are relatively small repair expenses. Be sure to keep receipts. If you've got several properties you should consider a separate bank account for the group.

 

February 26, 2024

News

In 23rd Chelsea Associates, L.L.C., Related 23rd Chelsea Associates, L.L.C., Tax Matters Partner (162 T.C. No 3) the taxpayer, a partnership, constructed a residential rental property in New York City during 2001 and 2002. Construction was financed by a loan from the New York State Housing Finance Agency (HFA). The HFA funded the loan by raising $110 million in bonds, some of which were tax exempt under Sec. 103. The partnershp claimed low-income housing credits (LIHCs) under Sec. 42 for tax years 2003 through at least 2009. In calculating the yearly credit, it included in the property's "eligible basis" a portion of the various financing costs it incurred in connection with the HFA loan, including bond fees that the HFA passed on to the partnership. In a notice of final partnership administrative adjustment for tax year 2009, the IRS determined that the partnership should not have included any of the financing costs in eligible basis. The IRS accordingly proposed to reduce the partnershiop's LIHC for tax year 2009 and also proposed an increase in tax under the credit recapture provisions of Sec. 42(j) with respect to tax years 2003–08. The Tax Court held that the term "adjusted basis" in Sec. 42(d)(1) has the meaning given to it in Sec. 1011(a), and accordingly the uniform capitalization rules of Sec. 263A apply and that all financing costs, including bond fees, incurred “by reason of” the taxpayer's construction of residential rental property, see Treas. Reg. §1.263A-1(e)(3)(i), and before the end of the first year of the credit period, are includible in eligible basis for purposes of the LIHC. This is true whether or not the bondholders are exempt from federal income tax under on the bond interest. The Court did not sustaing the IRS's adjustments.

Tip of the Day

Help your tax preparer . . . More than a few taxpayers go to their tax preparer with a pile of unorganized papers and then complain about the bill. Many preparers base their fees on a formula (e.g., a certain amount per rental property, per form, etc.) but don't ignore the time involved. Most preparers who have been doing taxes for a while realize many individuals don't understand all the paperwork they receive, but virtually anyone can put the material in some order. Here are some tips.

 

February 23, 2024

News

The underreporting of income often comes with a finding of fraud. In Abdul Khaliq Mustafa Muhammad (T.C. Memo. 2023-124) the IRS used the bank deposits method to reconstruct the taxpayer's gross income from a Schedule C business. The taxpayer, who had an MBA degree as well as several other degrees and was an IRS employee reported substantial expenses with only nominal gross receipts from a side business for three years at issue. The IRS reconstructed the income because the taxpayer failed to maintain adequate books and records. At trial the taxpayer did not challenge the results of the reconstruction. As a result, the Court found the IRS's findings deemed admitted. The IRS also added the fraud penalty to the deficiency notice. The Court noted that summary judgment on the issue of fraud when issues of motive and intent are material. The Court denied summary judgment on the fraud penalty and held that they should remain for trail.

Tip of the Day

Another EFIN scam . . . This one is a variation on an older one. The IRS is warning tax preparers that the scam inolves spearphishing targeting tax professionals with an email from a tax software company asking them to fax back their electronic filing information number (EFIN). Once it has the number it can steal client data and file fraudulent tax returns. For more information and how to report the scam see Tax Tip 2024-11.

 

February 22, 2024

News

Rev. Rul 2024-6 (IRB 2024-10) announces that the interest rates will remain the same for the calendar quarter beginning April 1, 2024. For individuals, the rate for overpayments and underpayments will be 8% per year, compounded daily. Here’s a complete list of the new rates:

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus three percentage points.

The IRS has announced (IR-2024-46) plans to begin dozens of audits on business aircraft involving personal use. The audits will be focused on aircraft usage by large corporations, large partnerships and high-income taxpayers and whether for tax purposes the use of jets is being properly allocated between business and personal reasons. The IRS will be using advanced analytics and resources from the Inflation Reduction Act to more closely examine this area, which has not been closely scrutinized during the past decade as agency resources fell sharply. The number of audits related to aircraft usage could increase in the future following initial results and as the IRS continues hiring additional examiners.

Tip of the Day

Corporate aircraft usage . . . As noted above the IRS is planning a crackdown on personal use of corporate aircraft, particularly larger ones and jets. Armed with new tools and most likely a lax attitude to recordkeeping and compliance after a decade of passing on the issue the IRS is likely to generate more than adequate returns on its investment. But in addition, it's likely to learn new audit techniques from the project which might be applicable to other areas such as auto usage. While your business may not have a corporate jet, or anything close, but tightening up your recordkeeping and compliance for autos and travel and entertainment could save money later.

 

February 21, 2024

News

Rewards programs, custoomer deposits, etc. can be income when received or may not, depending on the facts and circumstances surround the transaction. In Hyatt Hotels & Subsidiaries (T.C. Memo. 2023-122) some of the hotels in the program were company owned, some were owned by third parties. When a participating traveler received rewards points for a stay at a Hyatt-branded hotel, Hyatt required the hotel owner to make a payment into an operating fund, which was held by a Hyatt subsidiary and known as the Gold Passport Fund (Fund). When a participating traveler redeemed rewards points for a stay at a [*2] Hyatt-branded hotel, Hyatt would make a compensation payment to the hotel owner out of the Fund. Portions of the Fund's unused balance were invested in marketable securities and resulted in realized gains and accrued interest. Hyatt also used the Fund to pay administrative and advertising expenses that it determined were related to the Program. The taxpayer included none of the receipts in gross income for tax purposes. The Court held that the revenue was includible in the taxpayer's gross income and that the taxpayer's treatment of the funds was not a method of accounting subject to Sec. 481 adjustment. Finally, the Court held the taxpayer was not entitled to adopt the trading stamp method of accounting to account for the revenue and expenses.

Tip of the Day

Farmers and fishermen . . . The IRS is reminding farmers and fishermen who chose to forgo making estimated tax payments by January that they must generally file their 2023 federal income tax return and pay all taxes due by Friday, March 1, 2024. The special March 1, 2024, deadline allows farmers and fishers to avoid any estimated tax penalties. The special March 1, 2024, deadline applies to anyone who qualifies as a farmer or fisher and did not make an estimated tax payment by Jan. 16, 2024. Those who made a qualifying payment by Jan. 16, 2024, can wait until the regular April 15, 2024, deadline to file and still avoid estimated tax penalties. See Publication 505, Tax Withholding and Estimated Tax, for details. The deadline is April 17, 2024, in Maine and Massachusetts. For this purpose, a farmer or fisher is anyone who received at least two-thirds of their gross income from farming or fishing during either 2022 or 2023.

 

February 20, 2024

News

Electronic filing is the safest approach if you want to prove timely filing. If you mail your return, do so certified, return receipt requested. Simply mailing the return is insufficient if it doesn't arrive on time. In John Peters Zaimes (T.C. Memo. 2023-121) the taxpayer was unable to show he timely filed the return or that he had reasonable cause for failure to do so.

The IRS will try and work with taxpayers to satisfy any outstanding liabilities, but you must meet certain requirements. In the case of Farid Rafiee and Misuk P. Rafiee (T.C. Memo. 2023-119) the taxpayers argued they did not have sufficient liquid assets to satisfy the liabilities. The first settlement officer (SO) noted the taxpayers failed to make an offer-in-compromise or an installment agreement. A second SO noted the taxpayers were not in compliance with their return filings or estimated taxes. The Court noted the second SO balanced the intrusion of the proposed levy against efficient government collection of taxes and that the taxpayers could liquidate assets to pay the liability without incurring a hardship.

Tip of the Day

Home equity loan . . . Interest on home equity loans hasn't been deductible for over five years now. But there's an exception. If the proceeds from the home equity loan are used for home improvements such as a new kitchen or bath, you can deduct the associated interest. Keep in mind there's an overall cap on qualified mortgage interest of $750,000 of loan proceeds. Caution. You want to be able to show the amounts drawn down on the loan went for the home improvements. Using a check written on the home equity account and paid to a supplier or contractor is the safest way, but you may have other options. Talk to your accountant.

 

February 16, 2024

News

The IRS has announced (IR-2024-42) tax relief for individuals and businesses in parts of Michigan affected by severe storms, tornadoes and flooding that began on Aug. 24, 2023. These taxpayers now have until June 17, 2024, to file various federal individual and business tax returns and make tax payments. The IRS is offering relief to any area designated by the FEMA. Currently, this includes Eaton, Ingham, Ionia, Kent, Livingston, Macomb, Monroe, Oakland and Wayne counties. Individuals and households that reside or have a business in these localities qualify for tax relief. The same relief will be available to any other Michigan localities added later to the disaster area. The current list of eligible localities is always available on the disaster relief page on IRS.gov. The tax relief postpones various tax filing and payment deadlines that occurred from Aug. 24, 2023, through June 17, 2024 (postponement period). As a result, affected individuals and businesses will have until June 17, 2024, to file returns and pay any taxes that were originally due during this period. This means the June 17, 2024, deadline will now apply to:

In addition, individuals and businesses that had an extension to file their 2022 returns will also have until June 17, 2024, to file them. However, tax-year 2022 tax payments are not eligible for this relief because they were originally due last spring, before the disaster occurred. In addition, penalties for failing to make payroll and excise tax deposits due on or after Aug. 24, 2023, and before Sept. 8, 2023, will be abated as long as the deposits were made by Sept. 8, 2023.

With certain exceptions distributions from IRAs, pensions, etc. are taxable. However, in Joseph Michael Balint (T.C. Memo. 2023-118) the taxpayer was incarceraated and gave his wife power of attorney that appointed her as his agent. His wife made the withdrawals outside of the scope of her power and the husband probably received no benefit. The Court found the distributions were not taxable to him.

Tip of the Day

Check those 1099s . . . While the ones for interest income from your bank are likely to be correct. But you should take a quick look at your mortgage interest statement to make sure the amounts are reasonable. Look for taxes paid (if appropriate), loan balance, and total interest paid. Check for the address of the property, too. Chances are you only look at your brokerage statement occasionally and now is a good time. If you get any 1099-MISC (most likely for rent you receive) or 1099-NEC (for self-employment income) check them out, at least to make sure they're reasonable. While big businesses rarely make mistakes when generating these, a small business might. And keep in mind the IRS does a good job of matching 1099s. If you see an error, get it corrected now. It could be difficult later.

 

February 15, 2024

News

The IRS is encouraging taxpayers to visit IRS.gov and use online tools to get answers quickly and avoid phone delays during the anticipated peak demand for IRS phone lines around the Presidents Day holiday. This year people can easily find step-by-step help to file their personal federal income tax return. The IRS also has a variety of information available on IRS.gov to help taxpayers, including a special free help page. IRS.gov's expanded tools and information make that easier for taxpayers, especially during this peak period for IRS phone calls. The IRSis also reminding taxpayers that Presidents Day weekend, when many people prepare their taxes, historically marks a peak period for IRS phone lines. During the two-week February period following Presidents Day, the IRS recommends turning first to the self-help tools available online on IRS.gov to avoid delays.

The IRS announced (IR-2024-41) special Saturday hours for the next four months at specific Taxpayer Assistance Centers (TACs) across the country. The special Saturday openings will take place from 9 a.m. to 4 p.m., on Feb. 24, March 16, April 13 and May 18. Offices in dozens of states, the District of Columbia and Puerto Rico will be open during this special four-month event, with no appointments required. Currently, more than 50 locations plan to be open on Feb. 24, and more than 70 offices are scheduled for the March 16 event. The IRS encourages taxpayers to visit the special Saturday hours for participating TAC locations. The IRS encourages everyone to first check IRS.gov for information about these special openings before traveling to an office. They may even find an online resource, such as the Interactive Tax Assistant tool, to answer their question or resolve their tax concern and avoid traveling to an office. For more information click on the link above.

 

February 14, 2024

News

You may be able to escape certain penalties, such as the accuracy-related penalty, if you can show you relied on competent professional advice. In John R. Johnson and Estate of Judith E. Johnson, Deceased, John R. Johnson, Personal Representative (T.C. Memo. 2023-116) the taxpayer tried to do so for two issues but failed to convince the Court he met the requirements. The two main issues were (1) the incorrect depreciation applied to a building and (2) the incomplete documentation associated with a charitable contribution of property. With respect to the first issue the taxpayer claimed a seven-year life for the depreciation of a commercial building including the accompanying land. The proper life for a commercial building is 39 years and land is not subject to depreciation. The claimed charitable contribution amounted to $152,000. An incomplete Form 8283, Noncash Charitable Contribution was attached to the return. The taxpayers failed to obtain a qualified appraisal for the building. The recipient of the building did not sign the Form 8283 and the taxpayers did not receive a contemporaneous written acknowledgment from the recipient. The description of the property was "building" with no identifying information. The taxpayers claimed they relied on their CPA. The Court noted that reasonable reliance on the advice of an independent, competent professional as to the tax treatment of an item may meet the requirement of ordinary business care and prudence. The taxpayer's education and business experience are relevant to the determination of whether the taxpayer's reliance on professional advice was reasonable and in good faith. In order for a taxpayer to reasonably rely on advice of a professional, the taxpayer must prove (1) the adviser was a competent professional who had sufficient expertise to justify reliance, (2) the taxpayer provided all necessary and accurate information to the adviser, and (3) the taxpayer actually relied in good faith on the adviser's judgment. The taxpayer presented no they relied on their CPA for either the depreciable life of the property or that the tax assessment by the county would suffice as a qualified appraisal. The Court found the taxpayer liable for the accuracy-related penalty on both issues.

Tip of the Day

Withholding on pensions . . . Maybe you're retiring this year. Or your uncle left you an IRA or annuity. Or you suddenly find yourself with a windfall of invested funds. In these and a number of other situations you're unlikely to have anything automatically withheld. In the case of periodic payout of a IRA or annuity, you may be able to have enough withheld. But in many cases recipients opt for the minimum, 10%. And that's totally inadequate if you and your spouse have combined salaries of say $120,000 a year. You're more likely to be in the 22% bracket or higher. You've got two options--take a quick look at a tax chart and find your top rate and use that as the rate for withholding or start making quarterly estimated payments. Talk to your accountant to avoid an April surprise or an estimated tax penalty.

 

February 13, 2024

News

Loans between related parties are not unusual in small businesses. The interest can be deductible--and income to the recipient--and principal repayments nontaxable, but like in many other situations, documentation is critical. But in Short Stop Electric, Inc (T.C. Memo. 2023-114) the IRS claimed that no debtor-creditor relationship existed and that advances to the corporation were a contribution to capital and the payments from the corporation to the shareholder was a dividend. The Court looked at 10 factors normally examined to determine if a bona fide debt exists. The Court found that while a formal note existed it was disregarded in practice and the factors pointed to a contribution to capital rather than a debt. With respect to another issue the taxpayer claimed it relied on competent professional advice for its position but testimony of a CPA showed that was not true.

Tip of the Day

No gain until you sell . . . So you bought 100 shares of Madison Inc. at $10 and it's trading at $900 a share. What a score? Or is it? You haven't really made a cent until you sell at least enough of your shares to recoup your investment plus a dollar. It may sound like we're splitting hairs, but more than one investor has seen an investment go up sharply and then see the price retreat while continuing to hold with the expectation that it'll recover and go on to new heights. Knowing when to sell is just as important as knowing when to buy.

 

February 12, 2024

News

The IRS announced (IR-2024-34) the launch of a new page on IRS.gov explaining the Employer-Provided Childcare Tax Credit, an incentive for businesses to provide child care services to their employees. The information is available at IRS.gov/employerchildcare. This tax credit is designed to help employers cover some of the qualified child care facility and resource and referral expenditures associated with providing child care services to their employees. A qualified child care facility is one that meets the requirements of all applicable laws and regulations of the state or local government in which it is located. The credit is limited to $150,000 per year to offset 25% of qualified child care facility expenditures and 10% of qualified child care resource and referral expenditures. Employers should complete Form 8882, Credit for Employer-Provided Child Care Facilities and Services, to claim the credit for qualified child care facility and resource and referral expenditures. The credit is part of the general business credit subject to the carryback and carryforward rule. This means employers may carryback unused credit one year and then carryforward 20 years after the year of the credit. Taxpayers whose only source for the credit is from pass-through entities can report the credit directly on Form 3800, General Business Credit.

Tip of the Day

Another scam . . . While first reported over a year ago, this scam appears to have resurfaced. It's another phishing approach where the email pruports to be from the IRS with a refund of a designated amount. Basically the scammer is looking for your social security number and other information needed to file a return or use the info for other purposes such as filing false medical insurance claims. Guard your social security number, all health insurance information, age, children's names, ages, etc. And this tax season you can ask your accountant to truncate the social security numbers on your tax returns to 4 digits.

 

February 9, 2024

News

The IRS is alerting (IR-2024-36) tax professionals of a scam email impersonating various software companies in an attempt to steal Electronic Filing Identification Numbers (EFINs). The IRS is warning that scammers are posing as tax software providers and requesting EFIN documents from tax professionals under the guise of a required verification to transmit tax returns. These thieves attempt to steal client data and tax preparers' identities, creating the potential for them to file fraudulent tax returns for refunds. To help protect tax professionals against this emerging scam, the IRS is hosting a special series of educational webinars aimed at the tax community. The sessions will begin Feb. 12 and run each day next week. The IRS has already received dozens of reports of the scam targeting tax professionals. They should be alert for a scam email that includes a U.S.-based area code for faxing EFIN documents and also provides instructions on obtaining EFIN documentation from the IRS e-Services site if unavailable. Scam variations being seen use different fax numbers for software vendors. Other warning signs of a scam include inconsistencies in the email wording and a German footer in the email. The IRS cautions tax professionals who receive these should not respond to the email and should not proceed with any of the steps displayed in the email. Click on the link above for the text of the email, dates and time of the webinars, and links to additional related resources.

Tip of the Day

Putting money in an IRA . . . There's almost no excuse left not to be putting money into a qualified plan. A high percentage of employees are covered by a 401(k) or SIMPLE plan. If your employer makes matching contributions, you should definitely be in the plan. If you're not, covered (the retirement plan box on your W-2 will tell you) you can put money into a deductible IRA, a nondeductible IRA, or a Roth. If you are covered you may still be able to fund an deductible IRA depending on your adjusted gross income. How much? For 2023 it's $6,500 unless you're age 50 or older, then you can add another S1,000. Double the amount if both spouses qualify. But once 2023 is gone you can't make up for it. What's the difference? A lot. $1,000 for 10 years and you'll have about $15,000 at 7%; $1,000 for 30 years and you'll have $101,000 at the end. Even if it hurts a little--put off the new boat or car for another year, take a cheaper trip for vacation, etc. But don't put off paying down the credit cards. If your AGI is near the threshold, ask your accountant or check your tax software. Once you've got all your info entered completely, the limits will be automatic based on that retirement checkbox on your W-2, your age, etc.

 

February 8, 2024

News

The IRS announced (IR-2024-35) tax relief for individuals and businesses in parts of West Virginia affected by severe storms, flooding, landslides and mudslides that began on Aug. 28, 2023. These taxpayers now have until June 17, 2024, to file various federal individual and business tax returns and make tax payments. The IRS is offering relief to any area designated by FEMA. Currently, this includes Boone, Calhoun, Clay, Harrison and Kanawha counties. Individuals and households that reside or have a business in these localities qualify for tax relief. The same relief will be available to any other West Virginia localities added later to the disaster area. The current list of eligible localities is always available on the disaster relief page on IRS.gov. The tax relief postpones various tax filing and payment deadlines that occurred from Aug. 28, 2023, through June 17, 2024 (postponement period). As a result, affected individuals and businesses will have until June 17, 2024, to file returns and pay any taxes that were originally due during this period. For more information, click on the links above.

Tip of the Day

COD income . . . When a creditor such as a one holding a car loan cancels all or a portion of the amount you owe him, he's required to send you a Form 1099-C for the amoun of debt forgiven. That has to be reported as income. But there are several exceptions to the rule. The most frequently used one is if you are insolvent (your liabilities exceed your assets). The amount of the cancelled debt up to the amount of your insolvency is not income. Another is the cancellation of debt a stockholder owes a corporation. See IRS Publication 4381 for more information.

 

February 7, 2024

News

The IRS has revised frequently asked questions (FAQs) for Form 1099-K, Payment Card and Third Party Network Transactions, in Fact Sheet 2024-03. The revised FAQs provide more general information for taxpayers, including common situations, along with more clarity for industry and what organizations should send Forms 1099-K. The FAQs are in addition to a recently updated Understanding your Form 1099-K on IRS.gov page and other communications resources. Following feedback from taxpayers, tax professionals and payment processors and to reduce taxpayer confusion, the IRS announced in Notice 2023-74 to delay the new $600 Form 1099-K reporting threshold for third party settlement organizations for calendar year 2023. The agency is treating 2023 as an additional transition year, which applies to taxes filed this year. As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023, although taxpayers may still receive a form for amounts less than the required reporting amount. The updates to the FAQs contain substantial changes within each section:

The IRS has released Revenue Procedure 2024-13 containing the limitation on depreciation deductions for certain autos first placed in service in 2024. There are two tables, one for autos which qualify for additional first-year depreciation and one for those that don't. The Rev. Proc. also provides the dollar amount of the lease inclusion amount for passenger autos with a lease term beginning in calendar year 2024. For 2024 there is no inclusion amount for autos with a fair market value of less than $62,000.

Tip of the Day

Due dates . . . The first important due date is March 15. That's the due date for S corporation and partnership returns. It's also the date for filing an extension request for these entities. Individual tax returns are due April 15, a Monday this year. That gives you the weekend to agonize over your return or prepare an extension. Residents of Maine and Massachusetts have two more days, until the 17 because of Patriot's Day and Emancipation Day. Regular (C) corporation tax returns are due April 15, or you can file for an extension.

 

February 6, 2024

News

The IRS announced (IR-2024-32) tax relief for individuals and businesses in parts of Maine affected by severe storms and flooding that began on Dec. 17, 2023. These taxpayers now have until June 17, 2024, to file various federal individual and business tax returns and make tax payments. The IRS is offering relief to any area designated by the FEMA. Currently, this includes Androscoggin, Franklin, Hancock, Kennebec, Oxford, Penobscot, Piscataquis, Somerset, Waldo and Washington Counties. Individuals and households that reside or have a business in these localities qualify for tax relief. The same relief will be available to any other Maine localities added later to the disaster area. The current list of eligible localities is always available on the disaster relief page on IRS.gov. The tax relief postpones various tax filing and payment deadlines that occurred from Dec. 17, 2023, through June 17, 2024 (postponement period). As a result, affected individuals and businesses will have until June 17, 2024, to file returns and pay any taxes that were originally due during this period. Click on the first link for more information.

Tip of the Day

Check state filing requirements . . . Many business may now be required to file sales and income taxes in more states. The frequency of filing often varies between states and depends on the volume for employment, sales and excise taxes. For example, in state A may require quarterly (up from annual) sales tax filing if the annual volume exceeds $100,000. At $1,000,000 you may have to file monthly. In some cases you may have to file monthly if the monthly volume exceeds at certain amount. For example, you normally file quarterly but for December your volume was enough to require monthly filing. These thresholds can from time to time. Much the same rules apply to employment taxes. Make a chart of the required filing to make sure you don't miss the changes.

 

February 5, 2024

News

The IRS has posted a free online video of a recent 2023 Form 1099-K webinar, a resource among many helpful videos at irsvideos.gov. The webinar focused on various issues for taxpayers who receive income typically reported to them on Form 1099-K, including those who often use popular payment apps and online marketplaces. The webinar reflected the Nov. 21 IRS announcement that in general, reporting requirements for Form 1099-K will remain the same for 2023, which require payments over $20,000 with over 200 transactions to be reported. The IRS also announced it is planning for a $5,000 reporting threshold in 2024. Among other things, the webinar covered:

The webinar also included a live question-and-answer session. It was closed-captioned, and a full transcript is also available. For more information go to IRS.gov.

A spouse may avoid joint liability on a tax return if he or she meets a number of conditions. In Sydney Ann Chaney Thomas (162 T.C. No. 2) the taxpayer and her spouse filed joint federal income tax returns for 2012, 2013, and 2014, but did not pay the full amount of tax shown on each return. After the husband's death, she sought relief from joint and several liability pursuant to Sec. 6015(f). The IRS denied her request, and she petitioned the Tax Court seeking a determination under Sec. 6015(e). The taxpayer and the IRS agreed that she met the seven "threshold conditions" that must be satisfied for a requesting spouse to be eligible for equitable relief under Sec. 6015(f). But they disagree on whether, under the facts and circumstances, she is entitled to relief. The taxpayer contended that she was entitled to a streamlined determination to grant equitable relief under Sec. 6015(f). In the alternative, she contended that she was entitled to relief under the equitable factors set forth in Rev. Procs. 2013-34 and 2013-43. The IRS disputed both contentions. The Court was also asked to consider an evidentiary issue. The IRS objected to the admissibility of certain letters in the administrative record on the ground that they are inadmissible hearsay. The taxpayer countered that the letters are admissible regardless of the hearsay rule given that Sec. 6015(e)(7) instructs the Court to review the administrative record, which includes the disputed letters. The Court hald that applying Rule 802 of the Federal Rules of Evidence, the Court overruled the IRS's hearsay objection. The Court also held the taxpayer was not entitled to equitable relief under Sec. 6015(f).

Tip of the Day

Health insurance from the marketplace . . . While you may have all your 1099s and W-2s by now, one form you or your older children may not have is your 1095-C. You may not receive that until early March and it could be necessary if you also received health insurance through the marketplace. If you got an advance payment toward your health insurance you must report and reconcile the amount on Form 8962.

 

February 2, 2024

News

The ink is barely dry on a House bill that would make a number of beneficial changes to the tax law. But don't get too excited about the proposals outlined below. While the bill had bipartisian support in the House (vote of 357-70), the Senate is far less enthusiastic. You should also keep in mind that some of the provisions would apply to 2023 taxes--a problem (though) not insurmountable) now that the IRS has the forms in "final" format and filing season has officially started. Here are the highlights:

Tip of the Day

Read the instructions . . . Whether you do your own return or have it prepared professionally, you should be aware of the tax law changes that took effect during the past year. This publication covers many of them during the year and with tax tips during the filing season, but there are almost always changes in state laws as well. Even if you use software to prepare your return, downloan the instructions. Most states will highlight the changes on the first few pages.

 

February 1, 2024

News

As part of an ongoing process to educate and inform people about the Employee Retention Credit (ERC), the IRS will host a free ERC Voluntary Disclosure Program webinar on Thursday, Feb. 8 at 2 p.m. EST. The 75-minute webinar will focus on:

Though primarily aimed at tax professionals, who can earn one continuing education (CE) credit for participation, the webinar may also be useful to others interested in this topic, such as employers who are exploring options to resolve an inaccurate ERC claim that was processed and paid. The webinar also includes a live question-and-answer session. Those who want to attend need to register for the Employee Retention Credit Voluntary Disclosure Program webinar. For more information go to IR-2024-30.

Tip of the Day

Rolling over an IRA? . . . If you don't do a trustee-to-trustee transfer, you've got to be careful. By now you should be aware of the one-per-year rule. But there's another trap. If, instead of rolling over cash from the account, you transfer assets such as stock the assets you put into the new account must be the same as the ones taken from the old. For example, Fred withdraws 100 shares of Madison stock from his IRA. He sold the stock during the 60-day grace period but bought new stock and contributed it to the new account. The IRS considers that a taxable withdrawal. If you're under 59-1/2 the action would be subject to the 10% penalty. And, since the contribution to the new plan could exceed your annual contribution limit you'd be subject to a 6% penalty until the contribution is corrected. The safest approach is always a trustee-to-trustee transfer.


Copyright 2023-2024 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536


 

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