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 15th 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
Imitation may be the sincerest form of flattery, but when scammers pose as the IRS it means trouble for taxpayers. Identity thieves may contact taxpayers through fraudulent calls, emails, texts or social media messages pretending to be the IRS. Here are tips to help taxpayers know when the IRS is contacting them.
Letters and notices
A letter or notice is usually the first way the IRS will contact a taxpayer. When a taxpayer receives a suspicious letter or notice, they can check to see if it’s really the IRS:
- Log in to their secure IRS Online Account to see if a copy of the notice or letter is in their file.
- Review common IRS letters and notices at the Understanding Your IRS Notice or Letter page on IRS.gov.
- Contact IRS customer service directly to authenticate it, if they weren’t able to authenticate in their online account.
- Verify that any collection notice from a private collection agency has the same Taxpayer Authentication Number as the Notice CP40 the taxpayer received from the IRS. Taxpayers can visit Private Debt Collection Frequently Asked Questions to learn more about verifying a private collection agency.
Phone calls
After first mailing a notice or letter to a taxpayer, IRS agents may call to confirm an appointment or discuss items for a scheduled audit. Taxpayers should know that:
- The IRS doesn’t leave pre-recorded, urgent or threatening messages. Scammers will tell victims that if they do not call back, a warrant will be issued for their arrest. Anyone making threats is a scammer.
- Private collection agencies contracted by the IRS may call taxpayers to collect certain outstanding inactive tax liabilities, but only after the taxpayer and their representative have received written notice.
- The IRS and its authorized private collection agencies will never ask a taxpayer to pay using any form of pre-paid card, store or online gift card. Taxpayers can review the IRS payments page at IRS.gov/payments for all legitimate ways to make a payment.
Email, text and social media
The IRS doesn’t first contact taxpayers by email, text message or social media channels to request personal or financial information. Some common electronic scams that thieves use are:
- Sending phishing emails to taxpayers.
- Posing as an IRS social media account to contact taxpayers about a fake bill or refund.
- Texting taxpayers about fake “tax credits” or “stimulus payments.”
These messages will often direct taxpayers to click fraudulent links they claim are IRS websites or other online tools. Again, the IRS will mail a letter or notice before calling or emailing, and it will never contact a taxpayer by social media or text message.
In person visits
The IRS recently ended most unannounced visits to taxpayers by agency revenue officers. Ending these unannounced visits to taxpayers will improve overall safety for taxpayers and IRS employees.
Tax Tip 2023-112
Good records will help you monitor the progress of your business, prepare your financial statements, identify source of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns.
Everyone in business must keep records. Keeping good records is very important to your business. Good
records will help you do the following:
- Monitor the progress of your business.
- Prepare financial statements.
- Identify source of receipts.
- Keep track of deductible expenses.
- Records can show whether your business is improving, which items are selling, or what changes you need to make.
- Good records can increase the likelihood of business success.
- You need good records to prepare accurate financial statements. These include profit and loss statements and balance sheets. These statements can help you in dealing with your bank or creditors and help you manage your business.
- The profit and loss statement shows the activity of your business for a given period of time.
- A balance sheet shows the assets, liabilities, and equity in your business on a given date.
- You will receive money from many different sources. Your records can identify the source of your receipts. You need this information to separate business from nonbusiness receipts and taxable from nontaxable income.
- You may forget expenses when you prepare your tax return, unless you record them when they occur.
- You need good records to prepare your tax return. These records must support the income, expenses you report. Generally, these are the same records you use to monitor your business and prepare your financial statement.
You must keep your business records to support any audit by a government agency. If the IRS examines any of your tax returns, you may be asked to explain the items reported. A complete set of records will speed up the examination.
Recordkeeping cannot make you money, but it can keep money from walking out your door!
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:
- Detailed General Ledger
- Profit & Loss Statement
- Balance Sheet Statement
- Working Trial Balance
- Year End Payroll Reports
- Year End Payroll Summary
- Bank Statement Reconciliation
- Statement of Cash Flow
- List of all new assets and furnish a description of purchased, date and cost.
- Furnish information on all assets sold, date and amount received.
- Do you maintain a mileage log for all your business vehicles.
- Do NOT include personal expenses in with your business expenses.
- 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.
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!
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.
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.