Once again, we are looking at the end of 2024 coming quickly and soon, we will be preparing 2024 taxes.

As you know, taxes are not just an April 15^th issue.  There is rarely any decision you choose to make or must make that does not affect your taxes.  That is why I am here 24/7 for you, applying the tax law to your situation in a complete and accurate manner and, most importantly, utilizing the tools to have you pay the lowest legal amount of tax.  My knowledge of your individual tax situation and circumstances gives you the confidence that we have filed correctly and in your best interest

The Internal Revenue has instituted a new program called Free-File.  Do not be misled.

The IRS Free File program is a Public-Private Partnership (PPP) between the IRS and the Free File Alliance, a coalition of leading tax preparation software companies.   IRS Free File partners are online tax preparation companies that offer what is called the “IRS Free File” program, which provides free electronic tax preparation and filing of federal tax returns at no cost to qualifying taxpayers (some may also offer free state returns).  The IRS Free File program PPP is not a traditional contractual arrangement; this partnership represents a balance of joint responsibility and collaboration that serves the interests of taxpayers and the Federal government.  The online tax preparation software partners are part of the  Free File Alliance, which coordinates with the IRS to provide free electronic federal tax preparation and filing to you.  This non-profit, public-private partnership is dedicated to helping millions of people prepare and file their federal taxes online for free.

The IRS does not endorse any individual partner company.

My fee includes my time and expertise, answering your questions and planning for all your tax filings.  It has remained commensurate with the services offered and the value provided.  I am focused on you and your tax situation throughout the year.

 

While your income may prohibit you from the use of IRS Free-File, be aware that if you choose to use this service, there is no tax planning or consideration for saving tax dollars made available.  IRS is just providing you software.

 

Also, many of you may remember what your mother told you, “you get what you pay for”.  Because this is a Free-File service you would think the service provided by the IRS costs the American Taxpayer nothing.  Wrong! 

 

The IRS will continue in 2025 with the Free-File Alliance.  The 2024 filing season had 140,803 taxpayers in 12 states file their taxes using Direct File.

Costly: Direct File would require hundreds of millions of dollars of taxpayer funds annually.

• The IRS estimates Direct File will cost $64 to $249 million annually.
• The Treasury Inspector General for Tax Administration notes, “Direct File cost estimates [by IRS] could not be substantiated.
• The IRS’s estimate included costs associated with providing customer support, product development, i.e., labor costs, and technology, i.e., hosting fees, software licensing fees, etc.  Yet when the IRS was asked for documentation supporting how it arrived at these various cost estimates, it could not provide any.
• Tony Scott, former CIO for President Obama, said: “The estimated costs of this project are very likely grossly understated, based on a sampling of other government software development projects.”

 

Where IRS Direct File falls short 

As part of IRS Direct File, there is a customer service option that offers – according to the IRS – very limited and general guidance.  Customer service does not have access to taxpayer information, and they cannot provide personalized advice.  This is where the tax professional’s expertise shines through – providing personalized advice and recommendations based on training, technology, and access to authoritative research.

 

Our firm and I am very respectful of our relationship and take great pride in offering you the best tax planning, preparation and representation available.  If you have any questions, please know I am here to serve you.

 

Sincerely,

Cris Nelson

 

 

 

If you’re in business and use QuickBooks to keep track of income and expenses for the year, you should do the following:

 

For the year, you must maintain accurate accounting records, and this includes saving your bank records and maintaining all your income receipts and expense receipts. You must maintain your records under the CASH method of accounting and furnish year-end statements to your accountant. This includes year end:

 

1. Detailed General Ledger
2. Profit & Loss Statement
3. Balance Sheet Statement
4. Working Trial Balance
5. Year End Payroll Reports
6. Year End Payroll Summary
7. Bank Statement Reconciliation
8. Statement of Cash Flow
9. List of all new assets and furnish a description of purchased, date and cost.
10. Furnish information on all assets sold, date and amount received.
11. Do you maintain a mileage log for all your business vehicles.
12. Do NOT include personal expenses in with your business expenses.
13. Personal expenses paid by your business should be shown in a draw or distribution account.

 

If you’re a General Partnership, you must have a partnership agreement or if you’re a Partnership LLC, you must a have an operating agreement along with your partnership agreement. If you wish your LLC to be an S Corporation, you will need to file Form 2553 and if you want to be taxed as a C Corporation, a copy of Form 8832 needs to be filed.

 

If you’re an “S” Corporation, or a “C” Corporation, you must have a Corporate Minute Book and keep it current each year and stock certificates must be issued to each shareholder.

 

Every business should have an “Accountable Reimbursement Plan” for all their employees. By having this, it is a business expense and not income to the employee.

 

Provide copies of each.

 

You should not attempt to form any of these entities without consulting with legal counsel.

 

You should have regular meetings with your accountant/tax professional, bookkeeper, legal counsel, and insurance representative. To be successful, you need good people and good records.

 

The October 16, 2023, extension filing deadline is coming up, and many taxpayers who requested an extension are now choosing a tax return preparer. Most tax return preparers provide honest, quality service, but there are some bad apples out there – from unethical preparers to outright scammers. When hiring an individual or firm to prepare a tax return, taxpayers need to understand how to choose a tax preparer wisely and what questions to ask.

Things to consider when choosing a tax return preparer

• Ensure the preparer signs and includes their PTIN. By law, anyone who is paid to prepare or help prepare federal tax returns must have a valid Preparer Tax Identification Number. Paid preparers must sign and include their PTIN on any tax return they prepare. Not signing a return is a red flag that the paid preparer may be looking to make a quick profit by promising a big refund or charging fees based on the size of the refund. Taxpayers should avoid these unethical tax return preparers.
• Make sure the preparer is available year-round. If questions come up about a tax return, taxpayers may need to contact the preparer after the filing season is over.
• Review the preparer’s history. Taxpayers can check with the Better Business Bureau for information about the preparer, any disciplinary actions, and the license status for credentialed preparers. Other resources include: the State Board of Accountancy’s website for CPAs; the State Bar Association for attorneys; and the IRS Directory of Federal Tax Return Preparers for enrolled agents, or verify an enrolled agent’s status online.
• Ask about service fees. Taxpayers should avoid tax return preparers who base their fees on a percentage of the refund or who offer to deposit all or part of the refund into their own financial accounts. Be wary of tax return preparers who claim they can get larger refunds than their competitors.
• Ensure their preparer offers IRS e-file. The IRS issues most refunds in fewer than 21 days for taxpayers who file electronically and choose direct deposit.
• Understand the preparer’s credentials and qualifications. Attorneys, CPAs and enrolled agents can represent any client before the IRS in any situation. The IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications can help identify many preparers by type of credential or qualification. Tax return preparers who participate in the Annual Filing Season Program may represent taxpayers in limited situations if they prepared and signed the tax return.

Once a taxpayer has selected a tax preparer, they should stay vigilant

• Good preparers ask to see records and receipts. They’ll also ask questions to determine the client’s total income, deductions, tax credits and other items. Taxpayers should avoid a tax return preparer who e-files using pay stubs instead of W-2s. This is against IRS rules.
• Taxpayers should review the tax return before signing it and ask questions if something is unclear or inaccurate.
• Any refund should go directly to the taxpayer – not into the preparer’s bank account. Taxpayers should check the routing and bank account number on the completed return and make sure they’re accurate.
• Taxpayers are responsible for filing a complete and correct tax return. They should never sign a blank or incomplete return and never hire a tax return preparer who asks them to do so.

 

Tax Tip 2023-109

Starting a new business can seem overwhelming for new entrepreneurs or even seasoned professionals. The IRS has resources to help new business owners understand the tax responsibilities of running a business.

Here are a few things any entrepreneur needs to do when starting their business.

Choose a business structure

 

The form of business determines which income tax return a business needs to file. The most common business structures are:

• Sole proprietorship: An unincorporated business owned by an individual. There’s no distinction between the taxpayer and their business.
• Partnership: An unincorporated business with ownership shared between two or more members.
• Corporation: Also known as a C corporation. It’s a separate entity owned by shareholders.
• S Corporation: A corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders.
• Limited Liability Company: A business structure allowed by state statute. If a single-member LLC does not elect to be treated as a corporation, the LLC is a “disregarded entity,” and the LLC’s activities should be reflected on its owner’s federal tax return as a sole proprietorship.

Choose a tax year
A tax year is an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either:

• Calendar year: 12 consecutive months beginning January 1 and ending December 31.
• Fiscal year: 12 consecutive months ending on the last day of any month except December.

If an individual files their first tax return using the calendar tax year and later begins business as a sole proprietor, becomes a partner in a partnership, or becomes a shareholder in an S corporation, they must continue to use a calendar tax year unless they get IRS approval to change it or meet one of the except

 

ions listed in the instructions to Form 1128, Application To Adopt, Change, or Retain a Tax Year.

Apply for an Employer Identification Number
An EIN is also called a Federal Tax Identification Number. It’s used to identify a business. Most businesses need one of these numbers, but some don’t. For example, a sole proprietor without employees who doesn’t file any excise or pension plan tax returns doesn’t need an EIN. The EIN checklist on IRS.gov can help business owners know if they need an EIN.

It’s important for a business with an EIN to keep the business mailing address, location and responsible party up to date. EIN holders should report changes in the responsible party to the IRS within 60 days.

Pay business taxes
The form of business determines what taxes should be paid and how to pay them.

Issue Number: Tax Tip 2023-108

 

Have questions????  Give us a call!

Natural disasters can strike without warning. Sometimes even the most diligent taxpayers are left without the important personal and financial records they need. People may need documentation for tax purposes, federal or state assistance programs or insurance claims.

Here are some steps that can help them reconstruct their important records.

Tax records

• Taxpayers can get free federal tax return transcripts immediately using Get Transcript on IRS.gov.
• They can also order transcripts by calling 800-908-9946 and following the prompts.
• People who use a tax professional to file taxes should keep their contact information in a safe place.

Financial statements
Financial statements from credit card companies or banks are usually available online. People can also contact their bank to get paper copies of statements.

Property records

• Homeowners may be able to contact the title company, escrow company or bank that handled the purchase of their home or other property to get documents related to their home.
• Many property records are available online from tax assessors or other government agencies. Check local government websites for information.
• Taxpayers who made home improvements can get in touch with the contractors who did the work and ask for statements to verify the work and cost. They can also get written descriptions from friends and relatives who saw the house before and after any improvements.
• For inherited property, taxpayers can check court records for probate values. If a trust or estate existed, taxpayers can contact the attorney who handled the trust.
• Insurance companies often keep records related to property maintained in a home. Taxpayers should keep their property insurance contacts handy.
• Car owners can research the current fair-market value of most vehicles via resources available online and at most libraries. These include Kelley’s Blue Book, the National Automobile Dealers Association and Edmunds.

 Using a Durable Power of Attorney rather than a Form 2848 in Tax Matters

 

Normally, a taxpayer must sign an IRS Form 2848, Power of Attorney and Declaration of Representative, to allow someone to represent them in a tax matter with the IRS — the representative must also have certain professional credentials. In some cases, however, a taxpayer is unable to complete and sign a Form 2848 because they become physically or mentally incompetent. What can you do to prepare for the day when you or someone you know may be in that situation? Plan ahead! In many cases, you may be able to use a “durable power of attorney” — often used for estate planning or other purposes — to overcome a legally incompetent taxpayer’s inability to complete a Form 2848.

Durable powers of attorney created for estate planning or other purposes give your designated agent or “attorney-in-fact” authority to make healthcare and financial decisions. The word “durable” means the power of attorney has staying power and will remain in effect if you later become incompetent. Needless to say, the durable power of attorney must be created before you become physically or mentally incompetent. For a durable power of attorney to work for federal tax matters, however, specific information required under the Internal Revenue Code and regulations needs to be included. The requirements related to use of durable power of attorneys in federal tax matters are stated in Reg. 601.503(b), which can be found in Publication 216, click below.

If care isn’t taken in preparing the durable power of attorney, it may not be sufficient to authorize your agent to act for you in tax matters for the IRS. In that case, your agent may also have to be designated a guardian or similar fiduciary, which is typically done by a state court and can be a lengthy process. Once your agent is designated a guardian or similar fiduciary, they would then have to file an additional form (Form 56) with the IRS that informs the IRS of the fiduciary relationship.
​​​​​​​
For more information about using durable powers of attorney as a substitute Form 2848 and about Form 56, give me a call.

Taxpayers who make home energy improvements in 2023 may be able to take advantage of tax credits for a portion of the qualifying expenses. The credit amounts were increased, and types of qualifying expenses were expanded, by the Inflation Reduction Act of 2022.

Who can claim energy credits. There are two energy-related credits available to taxpayers making qualifying improvements to their home: the Energy Efficient Home Improvement Credit or the Residential Energy Clean Property Credit. A taxpayer may claim these credits in the year the taxpayer makes a qualifying improvement to their primary home. Usually, a taxpayer’s primary home is where the taxpayer spends most of their time. In addition, to qualify for an EEHIC, the improved home must an existing home located in the United States.

Note. Generally, a taxpayer may claim these credits only for qualified improvements to their primary residence; however, a taxpayer may be able to claim energy-related credits for certain improvements to a second home if the taxpayer does not use the second home as a rental property. In addition, renters who purchase energy efficient appliances and other products for their rental home may be able to claim these tax credits.

Taxpayers can claim an Energy Efficient Home Improvement Credit for many home improvements that meet certain energy efficiency requirements. This includes:

• Exterior doors,
• Windows, skylights,
• Insulation materials,
• Central air conditioners,
• Heat pumps and heat pump water heaters,
• Biomass stoves and boilers, and
• Home energy audits

Generally, the maximum credit a taxpayer may claim each year is:

• $1,200 for energy property costs and certain energy efficient home improvements, with limits on doors ($250 per door and $500 total), windows ($600) and home energy audits ($150)
• $2,000 per year for qualified heat pumps, biomass stoves or biomass boilers.

The actual amount of the taxpayer’s credit is a percentage of the total cost of the improvements in the year of installation. In certain circumstances, the credit may be capped.

The EEHIC has no lifetime dollar limit. A taxpayer can claim the maximum annual credit every year they make eligible improvements until 2033.

The EEHIC is not refundable and cannot be carried over to another tax year. So, it might make sense to take a large project, like replacing windows, and do some of it over several years.

Taxpayers who invest in renewable energy for their primary home may be able to claim the Residential Clean Energy Credit. Qualified RCE credit improvements include:

• Solar, wind and geothermal power generation,
• Solar water heaters,
• Fuel cells, and
• Battery storage

Generally, the credit amount is a percentage of the total cost of the improvement in the year of installation. For tax years 2022-2032 that percentage is 30%. Generally, there is no annual maximum or lifetime limit.

The Residential Clean Energy Credit can be claimed for qualified improvements to a taxpayer’s new or existing home located in the United States.

An informed taxpayer and their tax professional can use these benefits to assist in paying the lowest legal amount of tax.

 

If it sounds too good to be true, it probably is.

The IRS has sounded the alarm repeatedly regarding a scam involving the Employee Retention Credit (ERC). Third parties have been aggressively promoting that businesses may be eligible for the ERC when they are not.

The ERC is a refundable tax credit that was introduced during the COVID-19 pandemic to provide an incentive to employers to keep employees on the payroll during a government shutdown or significant decline in gross receipts. The ERC was available to eligible employers for qualified wages paid after March 12, 2020, and before October 1, 2021 (with an exception for recovery start-up businesses through December 31, 2021).

The eligibility requirements, applicable time periods, and dollar limitations changed several times due to the passage of various federal legislation thereby claiming the ERC is far more complex than these ERC schemes make out.

Perhaps you have heard advertisements, phone calls or text messages claiming your business is eligible for the ERC and claim the application process is “easy.” These third parties will then charge large upfront fees or charge a fee based on a percentage of the refund amount the ERC generated. However, these ERC scams lie about eligibility requirements and your business will not only need to return the refund and amend employment tax returns but may be subject to penalties and interest.

There is no statute of limitations on IRS review of ERC claim.

If you would like to discuss the ERC, please reach out and we can work together to determine if you truly qualify for the credit. If you have claimed the ERC through a third party, please contact us so that we can help you resolve any possible underpayment or erroneous refund that occurred.

As always, you and your business are in our best interest.

The base Medicare Part B monthly premium for 2022 increases to $170.10/month (from $148.50/month for 2021).

The higher premiums some taxpayers have to pay for 2022 vary depending on the taxpayers’ modified AGI (MAGI) as shown on their 2020 income tax returns. The various MAGI levels increased a small amount with the exception of the maximum MAGI levels which stayed the same (except for MFS where the maximum MAGI level actually went down). The exact costs and modified AGI levels can be found at medicare.gov by clicking on the “Your Medicare Costs” tab and then on “Part B Costs”. The top of the page shows the premiums for 2021 and the bottom of the page shows the premiums for 2022.

The highest Medicare Part B premium for 2022 is $578.30/month (up from $504.90/month for 2021) and applies to:

– Individuals with modified AGI of $500,000 or more.

– Married Filing Jointly taxpayers with modified AGI of $750,000 or more.

– Married Filing Separately taxpayers with modified AGI of $409,000 or more ($412,000 for 2021).

The Infrastructure Investment and Jobs Act of 2021 (IIJA) was signed into law on Nov. 15, 2021. The IIJA includes IRS information reporting requirements that will require cryptocurrency exchanges to perform intermediary Form 1099 reporting for cryptocurrency transactions. Generally, these rules will apply to digital asset transactions starting in 2023.

As you are aware, if you have a stock brokerage account, then whenever you sell stock or other securities you receive a Form 1099-B at the end of the year. Your broker uses that form to report details of transactions such as sale proceeds, relevant dates, your tax basis for the sale, and the character of gains or losses. Furthermore, if you transfer stock from one broker to another broker, then the old broker is required to furnish a statement with relevant information, such as tax basis, to the new broker.

The IIJA expands the definition of brokers who must furnish Forms 1099-B to include businesses that are responsible for regularly providing any service accomplishing transfers of digital assets on behalf of another person (“Crypto Exchanges”). Any platform on which you can buy and sell cryptocurrency will be required to report digital asset transactions to you and the IRS at the end of each year.

Occasionally you may have a transfer transaction that is not a sale or exchange. For example, if you transfer cryptocurrency from your wallet at one Crypto Exchange to your wallet at another Crypto Exchange, the transaction is not a sale or exchange. For that type of transfer, as with stock, the old Crypto Exchange will be required to furnish relevant digital asset information to the new Crypto Exchange. Additionally, if the transfer is to an account maintained by a party that is not a Crypto Exchange (or broker), the IIJA requires the old Crypto Exchange to file a return with the IRS. It is anticipated that such return will include generally the same information that is furnished in a broker-to-broker transfer.

For the reporting requirements, a “digital asset” is any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology. Furthermore, the IRS can modify this definition. As it stands, the definition will capture most cryptocurrencies as well as potentially include some non-fungible tokens (NFTs) that are using blockchain technology for one-of-a-kind assets like digital artwork.

You may be aware that when a business receives $10,000 or more in cash in a transaction, that business is required to report the transaction, including the identity of the person from whom the cash was received, to the IRS on Form 8300. The IIJA will require businesses to treat digital assets like cash for purposes of this reporting requirement.

These digital asset reporting rules will apply to information reporting that is due after December 31, 2023. For Form 1099-B reporting, this means that applicable transactions occurring after January 1, 2023 will be reported. Whether the IRS will refine the Form 1099-B for digital asset nuances, or come up with an entirely new form, is yet to be seen. Form 8300 reporting of cash transactions will presumably follow the same effective dates.

If you use a Crypto Exchange, and it has not already collected a Form W-9 from you (seeking your taxpayer identification number), expect it to do so. The transactions subject to the reporting will include not only selling cryptocurrencies for fiat currencies (like U.S. dollars), but also exchanging cryptocurrencies for other cryptocurrencies. A reporting intermediary does not always have perfect information, especially when it comes to an entirely new type of reporting. Thus, the first information reporting cycle for digital assets may be a bit unsettling.

I am here to help you and can provide solutions for any challenges that may develop.

If you have questions or concerns about the digital asset reporting rules, please do not hesitate to contact me.