Small Business Taxes &
ManagementTM--Copyright
2024, A/N Group, Inc.
For the full text of new Revenue Rulings, Revenue Procedures,
Regulations, etc. go to:
Internal
Revenue Bulletins
For a Tax Court Case:
Tax
Court Cases
For IRS News Releases (current month):
News
Releases and Fact Sheets
For Fact Sheets:
Fact
Sheets
For Letter Rulings and Technical Advice
Memoranda:
IRS
Written Determinations
For IRS Forms and
Publications:
Forms
and Publications
October 8, 2024
The IRS announced (IL-2024-01) tax relief for individuals and businesses in parts of Illinois that were affected by severe storms, tornadoes, straight-line winds, and flooding that began on July 13, 2024. These taxpayers now have until Feb. 3, 2025, to file various federal individual and business tax returns and make tax payments. Following the disaster declaration issued by the FEMA, individuals and households that reside or have a business in Cook, Fulton, Henry, St. Clair, Washington, Will, and Winnebago counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after July 13, 2024, and before Feb. 3, 2025, are granted additional time to file through Feb. 3, 2025. As a result, affected individuals and businesses will have until Feb. 3, 2025, to file returns and pay any taxes that were originally due during this period. Click on the link above for more details.The IRS has issued final regulations identifying certain syndicated conservation easement transactions as "listed transactions"--abusive tax transactions that must be reported to the IRS. Syndicated conservation easements have been included in the IRS' annual list of Dirty Dozen tax schemes for many years. In these transactions, investors typically acquire an interest in a partnership that owns land and then claim an inflated charitable contribution deduction based on a grossly overvalued appraisal. Going forward, participants and material advisors will need to report their participation in these transactions using Forms 8886 and 8918. The IRS previously identified certain SCE transactions as listed transactions in Notice 2017-10. These final regulations, consistent with Notice 2017-10, identify certain SCE transactions as listed transactions. The issuance of these final regulations clarifies that participants and material advisors must report these transactions, including any transactions that were completed in taxable years that are still open. This listed transaction regulation is part of a multifaceted IRS approach that is succeeding in protecting the integrity of the tax system. On a related front, the IRS has enjoyed significant success in the courts resulting in a number of syndicated partnerships having their grossly inflated easement valuations reduced for tax purposes to what the actual market value was at the time of the donation, with the partners claiming the inflated deduction often incurring substantial penalties.
Tip of the Day
S corporations and partnerships . . . The basic idea is that all the income and losses get passed through to the partners or shareholders. But that pass-through is nuanced. Not all items are passed through is partnership or S corporation income. Charitable contributions, interest, dividends, capital gains, expensing of assets, and a host of more obscure ones are passed through separately. For example, Madison Partners makes a $5,000 charitable contribution to hurricane relief efforts. Madison has two equal partners, Fred and Sue. Each get to deduct $2,500 as an itemized deduction on their parsonal return. Fred itemizes, but Sue doesn't so she gets no benefit. The same is true, but often o a much lager scale when expensing asses.
October 7, 2024
If you're contributing property (other securities quoted on a market) worth more than $5,000 you'll need a qualified appraisal. This is not the time to go cheap. In Savannah Shoals, LLC, Green Creek Resources, LLC, Tax Matters Partner (T.C. Memo. 2024-35) the IRS denied a deduction for a conservation easement, claiming failure to satisfy the substantiation and reporting requirements it argued that it failed to satisfy two reporting requirements: (1) it failed to attach a qualified appraisal to its return, and (2) the appraisal summary attached to its return provided inconsistent information rendering it ineffective. The Tax Court disagreed, holding that while the appraisal did not strictly comply with the qualified appraisal requirements, it provided sufficient information for the IRS to evaluate it and substantially complied with the requirements. However, on a second issue the Court found the taxpayer's experts overestimated the value of the property. The claimed amount of the donation was $23 million and the Court held the fair market value on the donation date of $480,000. Because the amount of the claimed deduction was more than 200% of the fair market value, the 40% gross valuation misstatement penalty applied to any underpayment of tax attributable to the valuation misstatement.Tip of the Day
Documentation . . . Some taxpayers know the requirements, but think they can create it later. And that frequently means when the IRS calls. It's not as easy as many think. Many agents and most Tax Court judges can spot a non-contemporaneous log. In one case the taxpayer supported a trip to the post office with a receipt. But his log claimed he was 75 miles away less than a half hour later. In another case a taxpayer claimed mileage to a client's office on a Sunday. In another case the taxpayer needed to show 1900 hours of work on his rental properties to claim he was a professional in real estate. Not only were some entries in the log suspect the Tax Court totaled the time and came up with only 1650 hours. Best to make that log at or close to the time of the event.
October 4, 2024
The IRS has announced (IR-2024-256) disaster tax relief for individuals and businesses in the Confederated Tribes and Bands of the Yakama Nation in Washington state affected by wildfires that began on June 22, 2024. Affected taxpayers now have until Feb. 3, 2025, 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 the Confederated Tribes and Bands of the Yakama Nation in Washington state. 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 localities added later to the disaster area.The IRS has issued guidance (Notice 2024-73) addressing long-term, part-time employees in 403(b) retirement plans under the SECURE 2.0 Act, which applies to 403(b) plans beginning in 2025. These plans are similar to 401(k) plans but are generally for employees of charities and public schools. Notice 2024-73 includes a question-and-answer section on the application of the nondiscrimination rules for 403(b) plans with respect to long-term, part-time employees, including application of the rules to permitted exclusions from participation for part-time employees and student employees. The notice informs the public that the Treasury Department and the IRS plan to issue additional guidance with respect to section 125 of the SECURE 2.0 Act, including proposed regulations with respect to the rules in this notice. The notice also announces that the final regulation the IRS plans to issue for 401(k) plans on long-term, part-time employees will apply no earlier than to plan years beginning on or after Jan. 1, 2026. A proposed regulation related to the rules for long-term, part-time employees in 401(k) plans was issued on Nov. 27, 2023.
The Internal Revenue Service announced (IR-2024-258) that Direct File will be available for the 2025 tax filing season in double the number of states than last year's pilot, and it will cover a wider range of tax situations, greatly expanding the number of taxpayers eligible to use the free e-filing service. For the 2025 tax filing season, eligible taxpayers in 24 states will be able to use Direct File: 12 states that were part of the pilot last year, plus 12 new states where Direct File will be available in the upcoming filing season. During the pilot last year, Direct File was available in Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington State and Wyoming. For the 2025 tax filing season, Direct File will also be available in Alaska, Connecticut, Idaho, Kansas, Maine, Maryland, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania and Wisconsin. In 2025, more than 30 million taxpayers in those 24 states will be eligible to use Direct File. Additional states could still join Direct File in 2025, and several states have expressed interest or announced that they will participate in Direct File in 2026. In addition to doubling the number of states where Direct File will be available, the service will also cover a wider range of tax situations for the 2025 filing season. During the pilot last year, Direct File covered limited tax situations, including wage income reported on a W-2 form, Social Security income, unemployment compensation and certain credits and deductions. For the 2025 filing season, Direct File will support 1099's for interest income greater than $1,500, retirement income and the 1099 for Alaska residents reporting the Alaska Permanent Fund dividend. For more information, click on the link above.
Tip of the Day
Private rulings from your state . . . The IRS issues private letter rulings directed to taxpayers with questions about a transaction where the tax consequences are unclear. The rulings are public, but the name and other information is omitted so the taxpayer can't be identified. Many states have a similar procedure. Thus, if there are no regulations, case law, etc. on the topic you can request a written determination asking, for example, whether a certain item is subject to sales tax. You can usually rely on the letter ruling, but only if the facts are the same as stated in the request. The good news is you can avoid getting hit with taxes and penalties if you request a ruling and the state later takes a contrary position. The bad news is if you don't like the ruling, you're stuck with it. Even if the state doesn't charge for a ruling (we don't know of any that do; the IRS does), there is an expense on your part. Requesting a ruling makes sense if the amount involved is substantial or the issue will recur. Talk to your tax adviser.
October 3, 2024
The IRS announced (IR-2024-08) tax relief for individuals and businesses in the entire state of North Carolina that were affected by Hurricane Helene that began on Sept. 25, 2024. These taxpayers now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments. Following the disaster declaration issued by the FEMA, individuals and households that reside or have a business in the entire state qualify for tax relief. Affected taxpayers with returns and payments with due dates postponed until Feb. 3, 2025, due to Tropical Storm Debby in North Carolina (NC-2024-07) will also now have until May 1, 2025, to file and/or pay. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Sept. 25, 2024, and before May 1, 2025, are granted additional time to file through May 1, 2025. As a result, affected individuals and businesses will have until May 1, 2025, to file returns and pay any taxes that were originally due during this period.Revenue Ruling 2024-23 holds that European Energy Exchange is a “qualified board or exchange” within the meaning of section 1256(g)(7)(C). European Energy Exchange is a regulated exchange of Germany that offers electronic trading.
Tip of the Day
Callable? . . . Some bonds, preferred stocks, certificates of deposit and other financial insturments are "callable". That means the issuer can redeem them by paying a certain amount. Why? Say a company issued a bond at 7% when interest rates were high. Rates subsequently fell to 4% and the company wants to refinance and lower its interest rate. It's similar to refinancing your home mortage or another loan. When the bond, or other instrument is redeemed it is said to be "called". There are a number of variations here, but usually the bond, etc. can't be called before a certain date and sometimes a premium is paid to the bondholder. For example, Madison 7% bonds are not callable before 2026 and then the issuer must pay a premium above the face value. The issuer could buy the bond in theopen market, but that would be more expensive. Once the specified date (or some other criteria) is met, you must surrender the bond if called. Sometimes call dates are staggered. The important point to remember is that you could lose a bond with a high interest rate. There are some certificates of deposit (CD) that also carry that problem. The six-month CD from your local credit union is unlikely to be affected. But the larger the CD (or any other instrument) , the higher the interest rate, and the longer the term, the more likely the CD is to have a call feature. Note. Preferred stocks are often though of a hybrid between a bond and common stock. They may have a conversion feature allowing either the issuer or the holder to convert to another instrument (often common stock).
October 2, 2024
The IRS announced (IR-2024-253) disaster tax relief for all individuals and businesses affected by Hurricane Helene, including the entire states of Alabama, Georgia, North Carolina and South Carolina and parts of Florida, Tennessee and Virginia. Taxpayers in these areas now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments. Among other things, this includes 2024 individual and business returns normally due during March and April 2025, 2023 individual and corporate returns with valid extensions and quarterly estimated tax payments. The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). For more information Besides all of Alabama, Georgia, North Carolina and South Carolina, this currently includes 41 counties in Florida, eight counties in Tennessee and six counties and one city in Virginia. Individuals and households that reside or have a business in any one of these localities qualify for tax relief. The same relief will be available to other states and localities that receive FEMA disaster declarations related to Hurricane Helene. Click on the link above for more information and links to additional resources. The IRS announced the Florida taxpayers affected individuals and households that reside or have a business in Alachua, Bay, Bradford, Calhoun, Charlotte, Citrus, Collier, Columbia, Dixie, Escambia, Franklin, Gadsden, Gilchrist, Gulf, Hamilton, Hernando, Hillsborough, Holmes, Jackson, Jefferson, Lafayette, Lee, Leon, Levy, Liberty, Madison, Manatee, Marion, Monroe, Okaloosa, Pasco, Pinellas, Santa Rosa, Sarasota, Sumter, Suwannee, Taylor, Union, Wakulla, Walton, and Washington counties qualify for tax relief. For an update and additional information, go to Tax Relief Hurricane Helene.In response to disruptions resulting from Hurricane Helene, the IRS announced (IR-2024-254) 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 on the highway throughout Alabama, Georgia, North Carolina, and South Carolina and in the following counties in Florida, Tennessee and Virginia:
This relief is retroactive to Sept. 26, 2024, and will remain in effect through Oct. 15, 2024. This penalty relief is available to any person that sells or uses dyed diesel fuel for highway use. In the case of the operator of the vehicle in which the dyed diesel fuel is used, the relief is available only if the operator or the person selling such fuel pays the tax of 24.4 cents per gallon that is normally applied to diesel fuel for highway use.
Tip of the Day
Moving? . . . Nearly everyone has or knows someone who has had a bad experience with a moving company. Sometimes it's the company, sometimes a subcontractor they use. Moving is often stressful enough but problems with the company can make it worse. The Federal Trade Commission has some tips on how to avoid problems at Avoid Scams When Hiring a Moving Company.
October 1, 2024
Notice 2024-70, which explains the circumstances under which the four-year replacement period under section 1033(e)(2) is extended for livestock sold on account of drought. The Appendix to this notice contains a list of counties that experienced exceptional, extreme, or severe drought conditions during the 12-month period ending August 31, 2024. Taxpayers may use this list to determine if an extension is available. Section 1033(a) generally provides for nonrecognition of gain when property is involuntarily converted and replaced with property that is similar or related in service or use. Section 1033(e)(1) provides that a sale or exchange of livestock (other than poultry) held by a taxpayer for draft, breeding, or dairy purposes in excess of the number that would be sold following the taxpayer's usual business practices is treated as an involuntary conversion if the livestock is sold or exchanged solely on account of drought, flood, or other weather-related conditions. Details, including an example of how this provision works, can be found in Notice 2006-82, available on IRS.gov.
Tip of the Day
New partnership reporting form . . . When property is distributed out of a partnership, LLC, or corporation your basis in the property is important for calculating gain or loss. The IRS has released a draft copy of Form 7217, Partner's Report of Property Distributed by a Partnership, along with draft instructions. The form must be filed with your annual return and a separate Form 7217 for each each time a sseparate distribution occurs where the distributed property is subject to Sec. 732.
September 30, 2024
In an audit the Treasury Inspector General for Tax Administration (TIGTA) found that CP14 notice, Notice 1155, Disaster Relief from the IRS, and Notice 1462, Important! You Have More Time to File and Pay Your Taxes Due to a Disaster, found that the notices do not include information that clearly informs taxpayers, residing in declared disaster areas, of the most important and relevant information they need--the time frame for which the taxpayer's tax filings and payments are postponed. As such, TIGTA estimated that potentially thousands of taxpayers in Federally declared emergency and disaster areas may have paid the balances owed before the postponed due date, as they were not aware of the timeframe for the disaster relief they were afforded. For the complete report go to www.tigta.gov/sites/default/files/reports/2024-09/2024ier019fr.pdfTip of the Day
Employee fraud . . . While internet scams get the headlines, employee fraud is a major concern. Small businesses can be particularly vulnerable because they don't have the internal controls to make fraud more difficult. There are more than a few stories about how an employee in a small company managed to embezzle $200,000, $400,000 or more. And those are the ones where the perpetrator was caught. There are probably many times that number where the business just incurs losses, is sold, or goes bankrupt without ever discovering the theft. Some studies suggest a better than 25% chance a small business has been defrauded to a significant amount by an employee. Your CPA has ideas on ways to discourage fraud and ways to protect your business.
September 27, 2024
The IRS announced (IR-2024-246) that the agency is opening a supplemental claim process to help third-party payers and their clients resolve incorrect claims for the Employee Retention Credit. Third-party payers report and pay clients' federal employment taxes under the third-party payer's Employer Identification Number. They handle clients' payroll and tax reporting duties. Some of these TPPs filed ERC claims for multiple employers. If a third-party payer's client has since determined it is ineligible for the ERC and wants to resolve their claim, it is the third-party payer that needs to correct it. This supplemental claim process lets a third-party payer that filed a prior claim with multiple clients “"withdraw" only some clients while maintaining the claims of the qualifying clients. The supplemental claim process is for third-party payers to which all of the following apply:
For more information and links to additional resources, go to IR-2024-246.
Businesses that claimed the Employee Retention Credit may have received IRS Letter 105-C if the IRS identified their claim as ineligible. Letter 105-C means the IRS disallowed, or denied, the Employee Retention Credit that a business claimed either as a refund or as a reduction of the tax owed for the tax period. The Understanding Letter 105-C, Disallowance of the Employee Retention Credit page on IRS.gov can help businesses learn about next steps if they disagree with the disallowance. This new page has information on:
Tip of the Day
Don't automatically jump on a trend . . . There are trends that will last and their are trends that will dwindle or fad away. It took a while for electric vehicles to be accepted. When it looked like they would be mainstream everyone jumped in. Now more than a few companies are backing down. Not giving up, but cutting back because the demand just isn't materializing at the level they anticipated. In some cases the market is there but there are too many suppliers chasing that market. Big companies have an advantage. They can toss money at the market and if things don't work out, they've got other products to fall back on. Smaller companies don't have that luxury. On the other hand, in many cases you can't ignore the market. There are ways to get your feet wet without drowning. How depends on a number of factors. Just don't bet the company until you know where things are going.
September 26, 2024
Rev. Proc. 2024-38 provides guidance regarding the income requirements for qualified residential rental projects financed with exempt facility bonds under Sec. 142(d) of the Code, and for qualified low-income housing projects under Sec. 42, certain income requirement provisions of which cross-reference to Sec. 142(d). Specifically, this revenue procedure provides guidance on the effect on the income requirements under Secs. 142(d) and 42 of the alternative income eligibility requirements for the Department of Housing and Urban Development-Veterans Affairs Supportive Housing (HUD-VASH) program, set forth in the notice published by the Department of Housing and Urban Development (HUD).Employment taxes on employee wages (federal withholding and FICA) are trust fund taxes and failure to withhold or pay them over is a serious issue with the IRS. In Rodney A. Taylor (T.C. Memo. 2024-33) the fact that the taxpayer's business had not paid over withholding taxes was clear. The issue for decision was whether or not the petitioner was a responsible person and, thus, liable for the trust fund recovery penalty. To manage the company's accounting and functions and, while doing so, embezzled between one and two million dollars. Some of the funds were recovered in a lawsuit but the petitioner did not use the funds to satisfy any of the employment tax claims. Since the petitioner was the sole shareholder and CEO of the company and controlled the financial affairs. He disbursed funds both to himself and a newly formed business. He hired and fired employees and delegated various tasks in operating the company. The Court heard the petitioner's arguments that he should not be held responsible, but the Court sided with the IRS.
Tip of the Day
Be alert for insurance changes . . . It seems to be almost every day we hear about new restrictions by companies on insurance policies. Clearly certain areas of the country such as Florida and areas of California are in the news with homeowner's policies, but insurers are getting picky about auto policies by sharply raising rates and screening new applications more carefully or pulling out of states entirely. In many cases insurers will refuse to cover properties with seemingly unrelated issues such as old roofs, peeling paint, etc. Umbrella policies are harder to get in some cases. Many insurers that routinely covered individual homes as rentals are not doing so or charging a premium. You may want to consider avoiding small claims (and save some money by increasing your deductible) and getting good advice before switching insurers just for a lower rate.
September 25, 2024
The case of Midwest Medical Aesthetics Center; Kathleen M. Stegman (T.C. Memo. 204-32) is more than just poor recordkeeping. The "med spa" preferred cash, but accepted other forms of payment. Checks were often made out to the sole shareholder, to cash, or where the payee was blank. The business used carbon copy receipt books to document transactions but purchased far more receipt books than would be indicated by the transactions recorded. In addition, a couch was purchased for the office, but used in the home; the lease expenses for two luxury vehicles was categorized as supplies expense with both vehicles used perdominantly for personal purposes; payments to the sole stockholder were labeled as "management fees"; expenses were claimed for construction work but interviewed employees reported no construction work was done at that time. An employee testified being paid for after hours work to destroy certain files. There were other instances of funds diverted for personal purposes but claimed as business excpenses. The Court sustained the notice of deficiencies for the years at issue and also found the taxpayer liable for imposition of the civil fraud penalties.
Tip of the Day
Invoice can be critical for sales tax purposes . . . You ship equipment to Madison Inc. in Nebraska, but the billing address is Madison's corporate office in New York. You're registered to do business in New York. You want to make sure the destination is on the invoice. If it's not New York may claim you should have collected New York sales tax on the sale. It might also try to source the sale to New York for the allocation of sales on your income tax return. Rules vary among the states so talk to your tax advisor. If you're the buyer make sure the item is shipped directly to its ultimate destination.
September 24, 2024
The IRS has announced (Notice 2024-68) the 2024-=2025 special per diem rates for taxpayers to use in substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home, specifically (1) the special transportation industry meal and incidental expenses (M&IE) rates, (2) the rate for the incidental expenses only deduction, and (3) the rates and list of high-cost localities for purposes of the high-low substantiation method. The notice provides the rates and list of localities for the period October 1, 2023 to September 30, 2024. The special MI&E rates for taxpayers in the transportation industry are $80 for any locality of travel in the continential U.S. For purposes of the high-low substantiation method the per diem rates are $319 for travel to any high-cost locality and $225 for travel to any other locality withn the continental U.S. (CONUS). For meals only, the rates are $86, and $74. The Notice also lists the high cost areas for the 2024-2025 year.
Tip of the Day
Earn 17% interest on your money . . . There's an old saying, if it sounds too good to be true, it probably is. If you could get that return on your money everone would be fighting to get in on it. The same is true of other "deals". If that supplement actually cured . . . don't you think the drug companies would have taken advantage of it and be selling it? Or they'd be enough demand that no one would need to advertise it? You don't have to be an FDA inspector to know that fish isn't fresh.
September 23, 2024
You can get relief from the immediate payment of your tax liability from the IRS, but you've got to meet certain criteria. In George McDonald White (T.C. Memo. 2024-31) the an Office of Appeals Officer (AO) denied the collection alternatives advanced by the taxpayer because he was not current on either his estimated tax payments or his tax returns despite advising the taxpayer of the requirement to do so before the IRS could accept a collection alternative. The Court found the AO satisfied the procedural requirements imposed by law, and the taxpayer did not suggest otherwise. The Court sustained the IRS's determination to proceed with collection of the tax liability in accordance with the notice of determination.Tip of the Day
Back to the office? . . . Or stay at home? One big company recently announced everyone was going back to the office 5 days a week. Is that the answer? It will depend on your business. Some businesses need the collaboration of the office. An online meeting won't work efficiently for them. But if you've been doing any sort of work from home, you've got to convince your employees of the need to go back. Possibly the worst thing you can do is call employees in with no legitimate business reason Especially if they've been working from home and it appears to work. You've got to keep your employees as happy as you can. The labor market is still pretty tight. Some employees will definitely balk at coming back full time. If they're doing the job from home, and their work allows, a split week might be a viable compromise. And some employees may have moved to a remote location to take advantage of a lifestyle or other advantage in a location where commuting is not feasible. There are surely other considerations, including the cost of office space. Think it through carefully.
September 20, 2024
The Financial Crimes Enforcement Network has new webpage, Beneficial Ownership Reporting Outreach and Education Toolkit with an explanation of an entity's responsibility for filing Beneficial Ownership Information reports. The page contains links to other resources and a list of frequently asked questions.The IRS has updated its frequently asked questions in Fact Sheet 2024-30 for the Premium Tax Credit. These FAQs supersede earlier FAQs that were posted in FS 2024-04 PDF on Feb. 9, 2024. This revision is under the Affordability of Employer Coverage for Employees and for Family Members of Employees section, specifically Q11, to provide the required contribution percentage for determining whether employer coverage is considered affordable for plan years beginning in 2025. The revision is based on Revenue Procedure 2024-35.
The IRS is reminding (IR-2024-243) taxpayers to beware of promoters claiming their services are necessary to resolve unpaid taxes owed to the IRS while charging excessive fees, often with no results. These unscrupulous "mills" use aggressive marketing to make false claims of guaranteed settlements for "pennies-on-the-dollar," or will say there's a limited window of time to resolve tax debts through the IRS Offer in Compromise (OIC) program. The mills often have steep and give false assurances. While outside help is far from essential, you may need help putting together some of the documentation. Your first step should be in using the IRS Offer In Compromise Pre-Qualifier. By entering some basic info and your assets, income and expenses you'll find out if you're close to qualifying.
Tip of the Day
More on interest rates . . . In the last Tip of the Day we discussed interest rates. Here are two more points. First, while rates will come down more, subsequent cuts by the Fed could be a quarter point rather than a half. And rates will not drop as low as they have been in 2020 and 2021. They could drop to 2%, down from the recent 5.5%. That suggests an interest rate on mortgage loans of around 5%, which is a normal rate for normal times. Second, that may not be a huge help for the housing market. While mortgages may be cheaper and increase supply it's also likely to increase demand. Financing may be cheaper but house prices may not decrease. Talk to your financial advisor.
September 19, 2024
The IRS announced (IR-2024-241) disaster tax relief for individuals and businesses in parts of Pennsylvania affected by Tropical Storm Debby. Affected taxpayers now have until Feb. 3, 2025, to file various federal individual and business tax returns and make tax payments. This relief is comparable to that provided in other states impacted by Debby. The IRS is offering relief to any area designated by the FEMA. Currently, this includes Lycoming, Potter, Tioga and Union counties in Pennsylvania. Individuals and households that reside or have a business in any one of these localities qualify for tax relief. The same relief will be available to any other counties added later to the disaster area. The current list of eligible localities is always available on the Tax relief in disaster situations page on IRS.gov. The tax relief postpones various tax filing and payment deadlines that occurred beginning on Aug. 9, 2024, and ending on Feb. 3, 2025 (postponement period). As a result, affected individuals and businesses will have until Feb. 3, 2025, to file returns and pay any taxes that were originally due during this period. This means, for example, that the Feb. 3, 2025, deadline will now apply to:
Tip of the Day
Interest rates cut one-half percentage point . . . The Federal Reserve cut its interest rate by one-half of a percentage point today. That was more than some expected, but not a big surprise. Since many bank and installment loans, credit card debt, etc. are tied to this rate, some contractually, others more loosely. But this is not the last cut--far from it. So don't rush out to refinance a loan, and don't try and negotiate with your credit card company. Wait until rates get a bit lower before running the numbers. It will be more worthwhile after another drop or two. And keep in mind that a rate cut was anticipated and was probably priced in a many markets. For example, mortgage rates started falling before the announcement today and the Dow started climbing before the announcement, peaked at the announcement and then ended the day 100 points lower.
September 18, 2024
T.D. 9991 contains final regulations that provide guidance on the statutory requirement that a recipient's basis in certain property acquired from a decedent be consistent with the value of the property as finally determined for Federal estate tax purposes. In addition, the final regulations provide guidance on the statutory requirements that executors and other persons provide basis information to the IRS and to the recipients of certain property. The final regulations regarding the statutory consistent basis requirement affect recipients of property acquired from a decedent if the inclusion of the value of the property in the decedent's gross estate increases the Federal estate tax liability. The final regulations regarding the statutory basis reporting requirements affect executors and other persons required to file an estate tax return based on the value of the decedent's gross estate and the amount of decedent's lifetime adjusted taxable gifts, as well as trustees making in-kind distributions of property initially acquired from a decedent that was subject to the statutory basis reporting requirements.REG-116787.23 contains proposed regulations to the premium tax credit that would amend the definition of "coverage month" and amend certain other rules in existing income tax regulations regarding the computation of an individual taxpayer's premium tax credit (PTC). The proposed coverage month amendment generally would provide that, in computing a PTC, a month may be a coverage month for an individual if the amount of the premium paid, including by advance payments of the PTC (APTC), for the month for the individual's coverage is sufficient to avoid termination of the individual's coverage for that month. The proposal also would amend the existing regulations relating to the amount of enrollment premiums used in computing the taxpayer's monthly PTC if a portion of the monthly enrollment premium for a coverage month is unpaid. Finally, the proposed regulations would clarify when an individual is considered to be ineligible for coverage under a State's Basic Health Program (BHP). The proposed regulations would affect taxpayers who enroll themselves, or enroll a family member, in individual health insurance coverage through a Health Insurance Exchange (Exchange) and may be allowed a PTC for the coverage. This document also provides a notice of a public hearing on these proposed regulations.
Tip of the Day
Homeowner's insurance premiums increase sharply . . . It's not nationwide but in some areas of the country premiums are skyrocketing. Insurers are being exposed in some areas to much greater risks and are having trouble getting reinsurance. Going without insurance is only an option if there are no loans on the property, but that's not a good option. The chance of a "total" of the home is low, but if it happens you could face a casualty you might never recover from financially. Consider increasing your deductible. Work through the numbers. Having to absorb an extra five or ten thousand via a deductible could save you from a disaster if you don't have coverage.
September 17, 2024
Usually the issue of a bona fide debt centers around the deduction for interest or whether there's a deductible loss. In Anathony Aulisio, Jr. (T.C. Memo. 2024-29) the taxpayer claimed the funds received from a trust were a loan. The Court examined the factors generally used to determine if a debtor-creditor relations exists and held there was no valid debt. As a result the Court held the funds transferred to the taxpayer were income, not proceeds of a loan. On another issue the Court held the taxpayer was not entitled to deduct a claimed NOL (net operating loss) carryforward deductions for 2015 because (1) he failed to provide sufficient evidence of the underlying NOL, including when it originated, and (2) he failed to show that any NOL was available to carry forward to the year at issue.
Tip of the Day
Borrow money on your stocks? . . . It can be a risky maneuver if you're not careful. If your business needs quick cash, you need a bridge loan on a new home, etc. borrowing on your stocks can make sense if you're sitting on a big gain and cashing in would result in a substantial tax bite that you may avoid shortly. But keep in mind that if you can't make the payments on the loan or your portfolio declines below a certain point, those stocks could be sold to cover the loan. And you could find yourself in a bad tax position where you have no options. You definitely want to know all the ramifications. Discuss the option with your a competent tax advisor before proceeding.
September 16, 2024
The IRS announced tax relief for individuals and businesses in the entire state of Louisiana, affected by Tropical Storm Francine that began on Sept. 10, 2024. These taxpayers now have until Feb. 3, 2025, to file various federal individual and business tax returns and make tax payments. The IRS is offering relief to any area designated by FEMA. This means that individuals and households that reside or have a business, anywhere in Louisiana, qualify for tax relief. The current list of eligible localities is always available on the Tax relief in disaster situations page on IRS.gov. The tax relief postpones various tax filing and payment deadlines that occurred from Sept. 10, 2024, through Feb. 3, 2025 (postponement period). As a result, affected individuals and businesses will have until Feb. 3, 2025, to file returns and pay any taxes that were originally due during this period. This means, for example, that the Feb. 3, 2025, deadline will now apply to:
Tip of the Day
Elder finances . . . Whether it's because mom is having trouble remembering things or because she's got aides living with her, credit cards in her possession can be dangerous. You might have to provide a card for an aide to enable him or her to purchase items, but you've got to monitor the use carefully. Consider keeping only one card and having alerts sent to you for all purchases over a set dollar amount.
September 13, 2024
The IRS has issued proposed regulations to provide guidance on the Corporate Alternative Minimum Tax (CAMT). The Inflation Reduction Act created the CAMT, which imposes a 15% minimum tax on the adjusted financial statement income (AFSI) of large corporations for taxable years beginning after Dec. 31, 2022. The CAMT generally applies to large corporations with an average annual AFSI exceeding $1 billion. Today’s proposed regulations provide definitions and general rules for determining and identifying AFSI. They also include rules regarding various statutory and regulatory adjustments in determining AFSI; determining if a corporation is subject to the CAMT, including rules for members of a foreign parented multinational group (FPMG) and the determination of the CAMT foreign tax credit.If you're going to court the parties are entitled to discovery. In the case of Ramesh C. Kapur and Chanda Kapur (T.C. Memo. 2024-28) the IRS sought information with respect to the evidence to support the taxpayer's claim for the Credits for Increasing Research Activities (research credits) under Section 41. The IRS had disallowed claimed research credits on the taxpayer's S corporation. The taxpayers made a Motion for a Protective Order to try and limit discovery and trial to a simple of projects at this stage of litigation. THe IRS contended that selecting a representative sample for discovery and trial is not possible without first considering preliminary information on all business components. The taxpayer's argued the cost would be disproportionate but the Court sided with the IRS and suggested a partial solution by limiting their claim to two projects they represented should be the sample.
Tip of the Day
$85,000 bill holds up $30 million deal . . . The owner of a multi-unit catering establishment was getting ready to sell out for almost $30 million. But one week before the closing a former supplier claimed a $85,000 bill was unpaid, holding up the sale. Depending on the circumstances, this could be a small nuisance or an expensive headache. In this case it was a big headache because the business wasn't generating enough cash to cover the interest payments on a mortgage on the building. Between that and legal fees, taxes, etc. delays were costing the owner well over $5,000 per day. Plan ahead. Make sure there are no outstanding debts that could hold up a sale.
September 12, 2024
The penalties for not filing federal income taxes can range from minor to very serious. In John C. Carnes (U.S. District Court, W.D. Missouri, Western Div.) the the Court found the taxpayer willfully attempted to evade and defeat the payment of income taxes due and owing by him for tax years 2012 through 2018 by committing the following affirmative acts, among others: (1) keeping his income in his attorney trust accounts to prevent the IRS from levying the accounts; (2) depositing $232,000 in fees and other income into his attorney trust accounts; (3) withdrawing cash from his attorney trust accounts to fund his personal and business expenses; and (4) using cash to gamble, and receiving cash from his gambling activities. The Court noted that "any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall. . . be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 . . . or imprisoned not more than 5 years, or both . . ." The Court denied a number of the taxpayer's motions including a motion to dismiss allowing the case to go to a jury trial.
Tip of the Day
Bonuses or raise? . . . They're usually not a direct substitute. In many situations you can't avoid paying regular raises to keep competitive with other employers. But bonuses are a way of compensating employees for a good year without becoming locked in to a higher wage structure which could negatively affect the business if there's a business reversal. Bonuses can vary with business conditions and can be eliminated in poor years.
September 11, 2024
The IRS announced (IR-2024-234) tax relief for individuals and businesses in Connecticut and New York affected by severe storms and flooding from torrential rainfalls that began on Aug. 18, 2024. Some communities in western Connecticut also experienced landslides and mudslides from these storms. These taxpayers now have until Feb. 3, 2025, to file various federal individual and business tax returns and make tax payments. The IRS is offering relief to any area designated by FEMA. This means that individuals and households that reside or have a business in Suffolk County New York and in Fairfield, Litchfield, and New Haven counties in Connecticut qualify for tax relief. The relief applies to returns due September 16, estimated payments due on that date and individual returns due October 15, as well as certain other returns. Click on the link above for additional information, links and resources. The same relief will be available to any other counties added later to the disaster area. The current list of eligible localities is available at NY-2024-08 for New York and CT-2024-11 for Connecticut.The Financial Crimes Enforcement Network has updated it Frequently Asked Questions page concerning the required Beneficial Ownership Information filings.
Tip of the Day
Not worth the effort . . . When told that taxes would take 40% (federal and state) of her short-term capital gain of $200,000 the taxpayer said "why even bother?" We've also heard the other side--sure the new pickup cost me $60,000, but it's tax deductible. Unless you don't care about money, neither statement makes sense. The woman who had the $200,000 gain was left with $120,000. Admittedly, taxes took almost half the gain, but she was still left with significant profits. The guy who got to deduct the $60,000 truck saved $24,000 in taxes, but still had to pay $36,000 for the vehicle out of his own pocket. The only time it's not worth working or the government picks up the entire cost is when tax rates reach 100%.
September 10, 2024
Military disabillity pensions may be excludable from gross income if they are the result of a combat related injury and certain other conditions are met. In Charles Scott and Linder Scott (T.C. Memo. 2024-27) the Court found that the taxpayer's benefits were not attributable to an injury or sickness he incurred during active duty in the armed forces. The taxpayers acknowledged receipt of the Form 1099-R, but argued he qualified for the exclusion. However he was not in the armed forces but a civilian employee for the U.S. Air Force. The Court sustained the IRS's deficiency notice and, since this was the second time the taxpayer advanced the same argument, warned him that additional assertions of the same argument could result in a penalty of up to $25,000.
Tip of the Day
Drafting your will . . . Don't take it lightly. Especially if you have a diverse group of assets. One of the first things to consider is that will may be invoked a number of years after its drafted. Many things can change over that time period, even if it's only 5 years. Yes, you can change the will it at any time, but few people do. Unless there's only one heir, after you outline what you want to do talk to a CPA knowledgeable about all the financial consequences. Then go to see an attorney to actually draft the will. Making a mistake here could be costly. For example, Fred has two assets. He leaves the brokerage account worth $500,000 to his son Andrew and his $500,000 IRA to his daughter Sue. Both children are in a reasonably high tax bracket. Fred dies and Andrew takes the brokerage account and the next day liquidates it. He pays no capital gain tax. Sue has to liquidate the IRA within 10 years and pay tax at ordinary income rates on the funds leaving her with a lot less than $500,000. And that's not considering the potential faster growth in the brokerage account.
September 9, 2024
The Secretary of the Treasury Janet L. Yellen and the IRS Commissioner delivered remarks (IR-2024-233) at the Austin, Texas, IRS campus to announce new milestones under Inflation Reduction Act initiatives to ensure wealthy individuals pay taxes owed, improve service for taxpayers through the Digital First Initiative and modernize foundational technology. An important objective is that high-income, high-wealth taxpayers pay the taxes they owe. The IRS in February 2024 launched an initiative to pursue 125,000 high-income, high-wealth taxpayers who have not filed taxes since 2017. These are cases where IRS has received third party information—such as through Forms W-2 and 1099s-indicating these people received income between $400,000 and $1 million or more than $1 million, but failed to file a tax return. Prior to the Inflation Reduction Act, the IRS non-filer program ran sporadically since 2016 due to severe budget and staff limitations that did not allow these cases to be pursued. With new Inflation Reduction Act funding, the IRS now has the capacity to do this core tax administration work. In the first six months of this initiative, nearly 21,000 of these wealthy taxpayers have filed, leading to $172 million in taxes being paid. The IRS in the fall of 2023 launched a new initiative using Inflation Reduction Act funding to pursue high-income, high-wealth individuals who have failed to pay recognized tax debt, with dozens of senior employees assigned to these cases. This work is concentrated on taxpayers with more than $1 million in income and more than $250,000 in recognized tax debt. The IRS was previously unable to collect from these individuals due to a lack of resources. After successfully collecting $38 million from more than 175 high-income, high-wealth individuals last year, the IRS expanded this effort last fall to around 1,600 additional high-income, high-wealth individuals. Nearly 80% of these 1,600 millionaires with delinquent tax debt have now made a payment, leading to over $1.1 billion recovered. This is an additional $100 million just since July, when Treasury and IRS announced reaching the $1 billion milestone. Click on the link above for dditional information.Revenue Procedure 2024-35 provides the applicable percentage table in Sec. 36B(b)(3)(A) of the Code for taxable years beginning in calendar year 2024. This table is used to calculate an individual's premium tax credit under Sec. 36B. This revenue procedure also provides the indexing adjustment for the required contribution percentage in Sec. 36B(c)(2)(C)(i)(II) for plan years beginning in calendar year 2024. This percentage is used to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage under Sec. 36B.
Tip of the Day
Pay off your mortgage? . . . There's no rule of thumb here. It depends on a number of factors. Most importantly, what's the interest rate on the note? It may be as low as 3% and as high as 7.5%. If you'ge got a rate on the high side that suggests paying it off. Second, what's your cash situation? If the mortgage balance is $200,000 and you're fully retired and sitting on $500,000 in liquid assets plus a significant portfolio paying off or substantially paying down is more attractive. On the other hand, if all you have is $100,000 and want to pay off a $80,000 loan, that's not a good idea. You'll be left with not much of a cushion for emergencies. And older individuals may find refinancing difficult. Your mortgage interest may or may not be deductible. If the interest is low and your medical expenses don't break the 7.5% threshold, chances are the interest won't be deductible if you're married (because the standard deduction will be higher). For a single individual, the standard deduction is lower and itemizing may be beneficial. And what can you do with the funds beside pay off the maortage. If you're actively investing in stocks or other investmants producing a high return, the money might be better in the market. Conversely, if the money is in a CD or savings account earning 3%, paying off the loan makes sense. While not a big consideration, have an installment loan such as a home mortgage or car loan can boost your credit score. Unless the choice is obvious (e.g., you've got a 7% mortgage) talk to your CPA or financial advisor and make sure he checks all the options.
September 6, 2024
The IRS is reminding businesses (FS-2024-29) that starting in tax year 2023 changes under the SECURE 2.0 Act may affect the amounts they need to report on their Forms W-2. The SECURE 2.0 Act allows for additional features in various employer retirement plans to encourage use of these plans. The provisions potentially affecting Forms W-2 (including Forms W-2AS, W-2GU and W-2VI) are:
Click on the link above for more information and links to other resources.
Tip of the Day
Renting a vacation home? . . . Sounds like a no-brainer. Get top dollar during the prime summer or ski season for a couple of months and still have the home available for personal use. And get the rentals to pay the mortgage and taxes. It often doesn't work out that way. Finding tenants can be more difficult than you might think. In some locations there can be considerable competition from other owners who have the same idea. If the property isn't rented for much of the prime time your income won't go far. Then there's always damage and maintenance expenses to consider. If the property is some distance away you should strongly consider a rental manager or real estate agent to assist. That will take a bite out of your gross. You'll have better luck if the property was rented regularly by the former owner. There's a good chance you'll get repeat business which makes marketing easier and the tenants more reliable. There are some areas that do really well. Houses in the Hamptons on Long Island are usually rented for a month or the season. It's not unusual for a season rental to generate $75,000 plus for just three months. Short-term rentals through an online service may be attractive, but they require much more attention. Homes on many lakes or near a ski slope can be a close second. WHile you may do well, don't depend on the rental income to cover the mortgage and taxes.
September 5, 2024
Normally a spouse is jointly and severally liable with his or her spouse for the liability on a tax return. Like many areas of the tax law there are exceptions. In Zofia Kraszewska, Petitioner, and Simon P. Ricks, Jr., Intervenor (T.C. Memo. 2024-26) the taxpayer and the IRS agreed that the wife should receive relief because because she was unaware of the understatement of the liability on their joint return. But the spouse not requesting relief is allowed to intervene (to avoid shouldering all the burden) and did so in this case. He claimed she did have an understanding of the finances. The Court found otherwise. It found the husband controlled all financial aspects of the household, maintained a joint checking account through which all income and expenses flowed. The wife was not involved in the preparation of the tax return. The wife did not see the return, but did sign it electronically. During an examination of the return the examiner concluded the wife was unaware of the deductions which gave rise to an underpayment. The Court concluded there was sufficient evidence to find that the wife was unaware nor had reason to be aware of the of the deductions which gave rise to the underpayment and sustained the IRS's position of innocent spouse relief.
Tip of the Day
S corporation returns . . . You must file Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations, with an 1120-S return if shareholders are claiming a deduction for their share of a loss, received a non-dividend distribution (money or property), disposed of stock in the corporation or received a loan repayment from the corporation. The form is used to calculate the basis of a shareholder. If you're using software, many of the computations will be automatic if the starting basis is on available. Even if you don't have to file the form it makes sense to keep it up to date for each shareholder to avoid problems later. See the instructions for more information.
September 4, 2024
The IRS is extending (MN-2024-01) tax relief to individuals and businesses in additional counties in Minnesota affected by severe storms and flooding that began on June 16, 2024. These taxpayers now have until Feb. 3, 2025, to file various federal individual and business tax returns and make tax payments. The additional counties are Brown, Houston, Martin, McLeod, Redwood, Renville and Sibley. As a result, the full list of counties qualifying for relief is Blue Earth, Brown, Carver, Cass, Cook, Cottonwood, Faribault, Fillmore, Freeborn, Goodhue, Houston, Itasca, Jackson, Lake, Le Sueur, Martin, McLeod, Mower, Murray, Nicollet, Nobles, Pipestone, Redwood, Renville, Rice, Rock, St. Louis, Sibley, Steele, Wabasha, Waseca, and Watonwan. For more information, click on the link above.The IRS has issued proposed regulations (REG-108920-24) concerning the program to allocate clean electricity low-income communities bonus credit amounts established pursuant to the Inflation Reduction Act of 2022 for calendar years 2025 and succeeding years. Applicants investing in certain clean electricity generation facilities that produce electricity without combustion and gasification may apply for an allocation of environmental justice capacity limitation to increase the amount of the clean electricity investment credit for the taxable year in which the facility is placed in service. This document describes proposed definitions and requirements that would be applicable for the program.
Tip of the Day
Know your investments . . . Once you venture away from stocks, frequently traded bonds, and mutual funds containing these investments, you should know what you're doing. ETFs (exchange traded funds) can be trickier than you think, as can funds restricted to a group of investments. Looking for a high-yield dividend fund? Be aware you'll probably be taking on added risk for the increased return. You want to measure the extra return against the extra risk. Your brother-in-law may have made big money trading puts and calls, but he hasn't told you about the year he lost half his trading funds. Check your brokerage account. Is your broker investing in something you don't understand? Either do some research to understand the investment or ask your broker to avoid such investments.
September 3, 2024
The IRS is offering tax relief (IR-2024-08) to individuals and businesses in additional counties in Iowa affected by severe storms, flooding, straight-line winds, and tornadoes that began on June 16, 2024. These taxpayers now have until Nov.1, 2024, to file various federal individual and business tax returns and make tax payments. The additional counties include Des Moines, Dubuque, Floyd, Howard, Jackson, Kossuth, and Mitchell. As a result to the complete list of counties qualifying for relief is Buena Vista, Cherokee, Clay, Des Moines, Dickinson, Dubuque, Emmet, Floyd, Harrison, Howard, Humboldt, Jackson, Kossuth, Lyon, Mitchell, Monona, O'Brien, Osceola, Palo Alto, Plymouth, Pocahontas, Pottawattamie, Scott, Sioux, Winnebago, Winneshiek, Woodbury, and Worth and Wright. Click on the link above for more information.
Tip of the Day
Noncompete agreement . . . If you're selling your business, more than likely you'll be asked to sign a noncompete agreement. Generally, there's nothing wrong with that. However, you should make it conditional on the buyer fulfilling his side of the deal. For example, if he defaults on the payments on a note, the noncompete becomes voidable. It gives you some leverage and allows you to get back in the business, if you want. Talk to your attorney. You'll probably want other guarantees.
Copyright 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