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March

The three-monitor problem: A beginner's guide

By Ted Needleman

 

I have to admit, when it comes to using multiple monitors, I was somewhat late to the game. I’d been using a USB display monitor along with my laptop for many years. With the small display on several of my laptops, it’s often hard to work with wide spreadsheets and other documents and applications which, even when displayed edge to edge, are hard to read. But somehow, it just didn’t seem to be very urgent to transform that experience to my desktop and larger displays.

 

Then, several years ago, I started doing technical edits where I had to compare figures contained in a report with the source spreadsheets. After the first few, switching back and forth between the report and the source spreadsheets was not only tiresome, but also introduced errors into the report when I transposed figures or misread them while bouncing back and forth.

 

Obviously, it was time (actually, way past time) for me to add a second monitor. My primary display is a 24-inch Samsung that I’ve had for five years. A quick trip to Walmart and $100 later, and I had a second, 19 inch display monitor. Hooking it up wasn’t difficult. Though the Intel NUC I use as my production machine is not internally expandable, it does provide a single HDMI port along with a DisplayPort. The DisplayPort uses a cable with a USB Type-C connector on one side, and an HDMI connector on the display side. They’re pretty common (though not as common as a standard HDMI cable), and I ordered a couple (to have spares) from Amazon for a few bucks each.

 

The Systems menu in the Windows Control Panel makes it easy to assign which monitor is the primary. The most time-consuming part of the process was obtaining the second display.

 

This has worked well for the past year or so, but I’m now finding that I keep switching my primary display back and forth between the document I’m working on, and my email accounts, which I check constantly while I’m working.

 

The more the merrier

If two displays are good, then three must be better, right? So, when I saw an HP 24-inch display for $108 on sale, I went for it. Only then did I realize I only had two video ports. Fortunately, the review pile had the answer — a USB-C to Dual 4K HDMI adapter. DisplayPort can use several different connectors. One is a miniDisplayPort connector, but the other DisplayPort-compatible connector is the newer USB-C oval connector, which is what I have on my Core i7 NUC.

 

The $56 IOGEAR GUC3CHD22 adapter plugs in to the Type-C DisplayPort connector and has two HDMI jacks in the rear. Plug in the DisplayPort connector and two HDMI cables, and you have a three-monitor setup. I went into Windows Control Panel, selected the System icon, and set up the priority of the displays (the center display is usually the primary), downloaded and installed the DisplayLink driver, and I was ready to go.

 

Fortunately, I have a really large computer desk.

 

If you want to add a second display to your laptop, or if you simply don’t have the room for a large second display, I can recommend Lenovo’s M14 14-inch USB display. It simply plugs into a USB Type-C port (or a DisplayPort connector), and is powered by the port. If your laptop case is big enough, it’s a really great travel companion along with your laptop.

 

If the $225 Lenovo is a bit rich for your budget, there are plenty of lower-priced alternatives from vendors such as Viewsonic and AOC. But I’ve always had good luck with Lenovo products (and their predecessor IBM ThinkPads) over the years, so I tend to recommend them fairly often. And the M14’s fold-out stand also contains two USB Type-C ports, so you’re not losing the port the display is plugged into.

 

In any case, whether you go big or small, I encourage you to try a dual (or triple) monitor setup if you aren’t already using one. I think you’ll find it greatly increases your productivity.

 

 

 

Inspector general faults IRS Free File program

By Michael Cohn

 

The complexity and insufficient oversight of the IRS’s Free File program, which is supposed to provide free tax software to most taxpayers, results in low taxpayer participation in the program, according to a new government report.

 

The report, from the Treasury Inspector General for Tax Administration, comes in the wake of controversy that erupted over the Free File program last year and led to changes for this tax season. A series of articles by the investigative news site ProPublica found that some of the tax software vendors that participated in the program such as Intuit and H&R Block were making it difficult to find the free versions of their software by manipulating search results. People in search of the free tax software could find it by going through the official Free File portal, but search engines like Google would favor the vendors’ own sites. In late December, the IRS announced that it had signed a new agreement with Free File Inc., formerly known as the Free File Alliance and opened the revamped Free File program last month (see our story). The Free File program covers the majority of taxpayers, whose adjusted gross income was $69,000 or less in 2019.

 

Under the new agreement, tax software vendors who are part of the Free File program won’t be allowed to exclude their Free File landing page from an organic internet search. They have agreed to ensure a link on their sites is available to return taxpayers to the IRS Free File website at the earliest feasible point in the preparation process if they don’t qualify for the Member's Free File offer. They have also agreed to regularly survey taxpayers who have successfully e-filed a tax return through the Free File program and will report their results on a quarterly basis to the IRS.

 

The new report released Wednesday by TIGTA found that the complexity, confusion and lack of taxpayer awareness about the operation and requirements of the Free File Program are contributing reasons why many eligible taxpayers don’t participate in it. Last year, only 2.5 million (or 2.4 percent) of the 104 million eligible taxpayers obtained a free return filing through the program. In contrast, more than 34.5 million taxpayers who met the Free File program criteria used the members’ commercial software to file their tax returns.

 

TIGTA contacted a sample of 200 taxpayers who met the Free File program criteria but used a Free File member’s commercial software and was informed by 87 of the taxpayers (that is, 43 percent) they were charged a fee to prepare and e-file their federal tax return. Based on these results, TIGTA estimated that more than 14 million taxpayers met the Free File Program criteria and may have paid a fee to electronically file their federal tax return in the 2019 filing season.

 

TIGTA found that not enough actions have been taken to educate taxpayers that the only way to participate in the Free File Program is through the IRS website. IRS and Free File management told TIGTA that, to participate in the program, taxpayers need to access the IRS.gov Free File web page and choose a link on the web page directing them to a Free File member’s website. However, that provision isn’t in the earlier memorandum of understanding between the IRS and Free File Inc., and most taxpayers are unaware of this requirement.

 

In addition, TIGTA found the IRS doesn’t provide adequate oversight to ensure that the Free File Program is operating as intended and in alignment with the memorandum of understanding. Taxpayers aren’t made aware of protections in the old MOU and don’t have a process to report their concerns.

 

TIGTA made nine recommendations, including that the IRS develop and implement a comprehensive outreach and advertising plan to inform eligible taxpayers about the Free File Program and how to participate, ensure that management performs quality reviews of MOU adherence testing that Free File Program analysts conduct on Free File Inc. members’ websites and software, clearly inform taxpayers of their rights and protections in the Free File Program, and develop a process for taxpayers to provide feedback or concerns on their experience using Free File.

 

IRS management agreed with six of TIGTA’s recommendations and partially agreed with the other three recommendations. The IRS also pointed to its new agreement with Free File Inc. to make it easier to locate the free tax software. “To implement program improvements in advance of the 2020 filing season, the IRS and Free File Inc. (FFI), our partner in the Free File program, executed an updated agreement on Dec. 26, 2019, that will make the program more taxpayer friendly and will strengthen consumer protections in several key areas,” wrote Kenneth C. Corbin, commissioner of the IRS’s Wage and Investment Division, in response to the report.

 

He noted, however, that a report that the IRS commissioned from a government contractor,

 

He pointed to the above changes in the agreement, but pointed to a report that the IRS commissioned from MITRE Corp., a government contractor, that found many taxpayers seek free tax prep and filing services by using terms like “free tax filing” in commercial search engines.

 

“The current Memorandum of Understanding provides the means for a satisfying taxpayer experience when they navigate to Free File member sites directly, through links, or through search engines,” Corbin noted. “It is also important to recognize that taxpayer preferences for return preparation and filing options are influenced by factors that may include discomfort with self-preparation of their tax returns or a desire to take advantage of refund products or other services offered by paid tax return preparers and firms.”

 

Sen. Ron Wyden, D-Ore., the top Democrat on the Senate Finance Committee, criticized the IRS in response to the report. “The TIGTA report confirms recent reporting—the Free File program is a mess,” he said in a statement Wednesday. “The IRS has done a poor job promoting the program, which is why few eligible taxpayers even know it exists. Working folks end up shelling out money to for-profit companies for services that should cost nothing. It’s unacceptable. The good news is that recent IRS reforms to the program do right by taxpayers, barring participating companies from using shady practices to steer eligible taxpayers toward paid products and taking a step toward a free public filing service, which I have long pushed. The IRS must be vigilant in enforcing these reforms, and Congress must provide the IRS the resources to develop a free public service.”

 

 

Gig work growing inside companies

By Daniel Hood

 

Forget Uber and TaskRabbit: A growing cohort of the gig workforce is actually working long-term inside traditional companies — and they’re pretty happy about it, according to new research from ADP.

 

According to a study of data from 18 million workers at 75,000 companies, one in six workers inside those companies is a gig worker, or over 16 percent of their workforce. Roughly half of those are 1099-MISC contractors, and half are short-term W-2 workers, according to Ahu Yildirmaz, co-head of the ADP Research Institute, which produced the study, “Illuminating the Shadow Workforce: Insights into the Gig Workforce in Businesses.”

 

The number of these gig workers has grown 15 percent over the last decade, at a rate faster than the overall workforce, and they’ve increased their share of the workforce by 2.2 percentage points.

 

Perhaps more important is the fact that their attitude toward their work status is very positive.

 

“Only 10 percent of respondents say they’re doing it because they can’t find traditional work. So it’s really a choice,” Yildirmaz told Accounting Today. “I was surprised — I wondered if they were doing it because they can’t find jobs, but that’s not the case. These are really highly skilled people who don’t need benefits.”

 

That’s particularly true of the 1099-M contractors, who tend to be older — 30 percent are over age 55, versus the 20 percent who are over 55 in the broader workforce — and with much less uncertainty around their work than you might expect, with over half (53 percent) reporting that they worked all year for the same company. They’re also well-compensated and happy in their work: Almost 40 percent reported that “doing what I enjoy” is of primary importance to them.

 

“What we are seeing is that these 1099 workers are skilled workers, they’re older, they’re tenured, and they are doing skilled work — accountants, IT specialists and legal are good examples,” explained Yildirmaz. “It feels like the baby boomers are retiring traditionally, but they’re actually staying in the workforce, with no need for benefits, no financial worries — they just want to continue to work. They want to have a purpose, they like the flexibility, they like the way they control how they work, and there’s demand for them because employers are finding it incredibly challenging to find skilled workers. … There is a huge need for experienced accountants, for instance, and for IT specialists.”

 

Accompanying the growth in this type of business-driven gig work is a shift in attitudes.

 

“We know that contractors and freelancers were always there, but the ‘gigging’ of the world is impacting how they look at the world of work,” said Yildirmaz. “And people are also living longer — they don’t want to leave the workplace. Contractors didn’t used to be older workers. … Millennials are reporting that they’re 1099-M workers, but they say they’re doing traditional work. They don’t see this work as untraditional. The mindset is very different now.”

 

The mindset is also different on the employers’ part. The average 1099-M contractor costs roughly $300 more than a regular employee, but it’s an expense companies seem willing to incur.

 

“Now you have to think, ‘Do I want to hold onto all my skilled workers? Do I want to own and retain them?’” Yildirmaz said. “Ten or 20 years ago, 1099-M employees were really about cost savings or companies preparing for recession. It was a P&L issue, but I don’t think that’s the case now. This is a very natural outcome of labor and supply in the economy. There’s demand for the skilled worker, and there’s supply, mostly coming from this cohort” of older workers.

 

 

 

States want real-time sales tax remittance, but what will it take to get there?

By Scott Peterson

 

Massachusetts Governor Charlie Baker recently released the 2021 budget proposal for the state, which includes a plan that will require businesses to remit sales tax from digital transactions on a daily basis.

 

The two-phase plan will apply to electronically remitted sales and use tax, local option meals tax and room occupancy tax, and is slated to go into effect on July 1, 2023. While there has been successful enforcement of real-time remittance in other countries, like Austria, Italy and Poland, the reality of implementing daily returns in the U.S. is contingent on a range of factors, stretching from technology to channels of communication.

 

How Massachusetts plans to modernize sales tax

 

The first phase of the plan will require large businesses to remit the sales tax collected during the first three weeks of the month in the fourth week, rather than by the 20th of the following month. This would apply to vendors whose overall liability in the previous 12 months is more than $100,000. Phase two will require all retailers and third-party payment processors, like credit card companies, to remit tax from electronic transactions on a daily basis.

 

Under the plan, payment processors will file monthly reports with each seller, identifying the tax owed to the state on each sale. In addition, payment processors would file monthly reports with the state’s Department of Revenue, identifying the payments that were made to each seller during the month and the amount of tax paid to the state on the business’s behalf.

 

What needs to happen to make real-time sales tax a reality?

The proposal by Massachusetts isn’t a first in the U.S. In fact, this is the third time the state has pushed for faster sales tax remittance since 2015, and similar proposals have been seen in Connecticut, Nebraska, New York and Puerto Rico. While we can expect that many states will be watching closely to see how Massachusetts’ efforts go, there are a host of challenges that must be overcome before real-time remittance becomes a reality in the U.S.

 

Some of the key challenges include communication gaps, resource constraints and inadequate technology. More specifically:

 

Communication gaps between businesses and payment processors

Under the rules laid out in the proposal, payment processors will be required to remit sales tax on behalf of the sellers. However, in order to do so effectively, payment processors will need to know how much of each sale is tax, and that information must come directly from the seller. As it stands today, very few sellers supply the breakdown of their electronic sales to payment processors.

 

While the breakdown of electronic sales data is most likely available for most businesses, digesting and transmitting the data to payment processors will take time, money and technological resources. Without reliable sales information from sellers, it would be nearly impossible for payment processors to remit the correct amount of tax, and even harder for a state to enforce the liability on the payment processor.

 

Resource constraints among businesses

The success of this proposal assumes that every business that meets the state-specified threshold has the resources available to take a process that currently happens once a month and execute it every day. In nearly every state, the payment date for returns is the 20th of each month, primarily because businesses need that amount of time to close their books. Additionally, many businesses are unaware of how much tax they have collected until they close their books on a monthly basis.

 

The fluidity of sales is another factor that will have to be taken into consideration. For example, if a buyer makes a purchase on Tuesday and returns it the next Monday, the seller is required to return the sales tax on that purchase. As it stands, businesses often have the ability to handle the return of sales tax charged for returns because the transactions generally happen within the same month and they can make the adjustments before they remit the tax to the state. In addition, businesses will also remain responsible for the filing and accuracy of sales tax on check and cash sales. For many businesses, complying with real-time remittances would mean that they would have to completely overhaul their reporting processes and technology, costing them time and money.

 

Technological shortcomings across state revenue agencies

Not only will businesses have to grapple with the expense and difficulty of preparing their systems for real-time remittance, so will state revenue agencies. For state agencies to be able to accept daily remittances from thousands of sources and assign each remittance to the appropriate account, they will be forced to invest heavily in technology and personnel resources to keep pace with the added demand. Further, at the end of the month, the tax agency must be able to accept a return from a retailer and match the sales information on the return with remittances from multiple sources.

 

After states and businesses overcome all of these challenges, there is still no improvement to the accuracy of the tax calculation, only a faster time to remittance. In order for real-time sales tax remittance to become viable in the U.S., governments will need to provide an ample amount of guidance to businesses and payment processors to ensure they have a clear understanding of new requirements. States will also need to work with the private sector to assist businesses that lack the resources to adhere to and manage real-time compliance. At the end of the day, perhaps the most daunting challenge facing both parties is having the technology in place to handle the more frequent demand for remittance, which is something that states and businesses will need to agree on to make this type of regulation work.

 

 

 

Which States Rely the Most on Federal Aid?

By Janelle Cammenga

 

State-levied taxes make up the vast majority of each state’s general fund budget, and thus are the most obvious source of state revenue. But state governments also receive a notable amount of assistance from the federal government. In fiscal year (FY) 2017, 22.9 percent of state revenues came from federal grants-in-aid.

 

Federal aid is allocated to states for a variety of purposes, primarily to supplement state funding for programs or projects deemed to be of national interest, such as Medicaid payments, education funding assistance, infrastructure assistance, and more. Some federal aid is awarded in the form of competitive grants, while other federal funding is given according to formulas established by law. Formula grants usually incorporate factors like population size, poverty statistics, and state matching dollars for distributing federal aid among states. Competitive grants are awarded on a discretionary basis and are more likely to fluctuate from year to year.

 

The map below shows the extent to which federal aid comprised each state’s total general revenue in FY 2017 (the most recent year of data available). That year, the states where federal aid made up the largest share of general revenue were Montana (46.1 percent), Wyoming (44.5 percent), Louisiana (43.7 percent), Mississippi (43.3 percent), and Arizona (43.1 percent). The states for which federal aid made up the smallest share of state general revenue were Hawaii (20.7 percent), Virginia (21.1 percent), Kansas (23.3 percent), Utah (24.2 percent), and Minnesota (26.0 percent).

 

 

States that rely heavily on federal grants-in-aid tend to have sizable low-income populations and relatively lower tax revenues. States with relatively lower reliance on federal aid tend to collect more in taxes and have smaller low-income populations, although some exceptions exist. Notably, although North Dakota and Alaska impose relatively modest taxes on residents, both are resource-rich states that export much of their tax burdens through severance taxes, yet their reliance on federal aid differs greatly.

 

 

California worker classification law stokes worries

By Roger Russell

 

California Assembly Bill 5, which went into effect Jan. 1, 2020, was intended to protect workers in the gig economy by reclassifying many of them as employees, rather than independent contractors, including those who drive for Uber and Lyft.

 

Supporters of the law claim it will benefit workers by allowing them the ability to organize, as well as to claim overtime pay, unemployment insurance and workers’ compensation. Critics say that it will hurt small businesses such as cleaning services that rely heavily on independent contractors, since they won’t be able to hire their extra workers as employees, and will be forced to forego some of their larger jobs.

 

The law essentially codifies the “ABC Test,” which tips the independent contractor-employee classification heavily in favor of employees. In order to be considered an independent contractor, a worker would have to meet all three prongs of the ABC Test:

 

A. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

 

B. The worker performs work that is outside the usual course of the hiring entity’s business; and,

 

C. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

 

When a client hires a nanny, housekeeper, or senior caregiver, they have to navigate a host of tricky issues such as taxes and employment and labor laws.

 

Connecticut has an ABC test under case law, according to Michael Knight, a CPA and partner in Fairfield, Connecticut-based Knight Rolleri Sheppard CPAs LLP.

 

“It’s an albatross around the neck of self-employeds,” he said. “They can be good on the federal side because they follow straightforward rules, but the ABC test is an amorphous test that captures anybody.”

 

The expectation is that more states will follow California’s lead and codify the test, according to Nancy Dollar, an associate at law firm Hanson Bridgett. Three other states — New York, New Jersey and Illinois — are considering similar bills.

 

“Our clients are very concerned about this,” she said. “Dynamex Operations West v. Superior Court was the California Supreme Court’s ruling that set forth the ABC test in 2018. AB 5 takes that test and puts it into law. It shifts the burden heavily in favor of a default classification of a worker as an employee.”

 

“What’s difficult is that it’s not a multifactor test where you can say, ‘We’re good on this one.’ You have to meet all three of the tests,” she said. “Otherwise you are an employee. It’s much stricter than prior case law.”

The Dynamex decision came out only within the last two years, Dollar observed: “A lot of businesses claimed that Dynamex did not apply to them. AB 5 codified this, and clarified it by defining who it applied to. It gives exemptions, but they are very narrow. A lot of lobbyists didn’t get their way, and a lot of our clients will be shocked. Most will find that they are subject to the ABC test.”

 

Certainly there will be a big fight, even a constitutional challenge,” she predicted. “Uber says it won’t reclassify its drivers because, as a tech platform, their work falls outside its usual course of business. Uber, Lyft, eBay, Airbnb and other third-party platforms will claim that their business is not providing services — they are simply an intermediary platform for a digital marketp. That’s what they would argue to get out of the second prong of the test.”

 

This can be supported by the way the company reports payments to the workers, Dollar indicated. ”Companies handling payments to third parties have the option of using Form 1099-K rather than the 1099-MISC typically supplied to independent contractors,” she said. “By doing this, the companies are positioning themselves as a ‘TPSO’ or third-party settlement organization.”

 

“A 2018 private letter ruling from the IRS affirms that a ride-share company is a TPSO so it can use Form 1099-K,” she said. “It also said that multiple riders would be considered part of a single transaction for purposes of payment reporting on Form 1099-K. This is important because AB 5’s reporting thresholds are high. It applies only to workers with more than 200 transactions and $20,000 in income in a year.”

 

The fight has just begun, according to Dollar. A case filed on Dec. 30, 2019, by Uber and a number of workers seeks “declaratory, injunctive and other relief” determining that California Assembly Bill 5 is unconstitutional.”

The pleading states that AB 5 violates the equal protection and due process clauses of the 14th Amendment to the U.S. Constitution, the Ninth Amendment, and the contracts clause of Article 1 of the U.S. Constitution, as well as the equal protection clause, the inalienable rights clause, the due process clause, the “Baby Ninth Amendment,” and the contracts clause of the California Constitution.

 

 

 

The future of tax law hinges on the 2020 election

By Omair Taher and Dustin Stamper

 

The upcoming presidential election presents an important crossroads for tax policy. The outcome has the potential to shape the Tax Code for both businesses and individuals for years to come.

 

The Tax Cuts and Jobs Act of 2017 remains one of President Donald Trump’s signature legislative achievements, but its future is still in doubt. Republicans chose to sunset nearly all the individual provisions in the bill by 2026 in order to comply with procedural hurdles that allowed the Senate to pass it with fewer than 60 votes. The outlook for extending the individual changes is uncertain, and efforts to repeal parts of the bill before then will be fierce.

 

The ultimate outcome for tax policy rests not only on who wins the election, but also on the tax platform each side settles on. Democratic candidates for the presidency have offered a variety of different ideas, but have appeared to coalesce around common concepts. They have broadly pledged to repeal parts of the TCJA, and there is widespread support for ideas such as raising the corporate rate, increasing taxes on investment income, creating a wealth tax, increasing estate taxes, taxing financial transactions, and using taxes to combat climate change. Many of the most significant proposals are discussed below, and the accompanying slideshows from Grant Thornton provide details on each candidate’s positions on individual tax issues and business tax issues.

 

Increase the corporate rate

Nearly every Democrat running for president has pledged to undo the steep corporate rate cut enacted by the TCJA. On the moderate end, Sen. Amy Klobuchar and former Massachusetts Governor Deval Patrick have proposed raising the corporate rate to 25 president, while former Vice President Joe Biden, Michael Bloomberg and Sen. Michael Bennet support an increase to 28 percent. Sen. Bernie Sanders and Mayor Pete Buttigieg have called for restoring the pre-TCJA rate of 35 percent. Sen. Elizabeth Warren’s “real corporate profits tax” plan calls for keeping the current 21 percent rate, but imposes what amounts to a corporate Alternative Minimum Tax of 7 percent on every dollar over $100 million reported to investors as “profit.”

 

Increasing the top corporate rate is likely to be at the center of any Democratic president’s tax reform efforts. Democrats have been extremely critical of the TCJA’s corporate rate cut, arguing that it hasn’t increased business investment and wages as intended, but has led to stock buybacks. Raising the rate and spending the money elsewhere will almost certainly be a key tenet of any Democratic administration’s priorities.

 

Repeal some or all of the TCJA

The TCJA has been broadly attacked by Democrats as a handout to the wealthy and corporations. As such, many candidates have singled out specific provisions enacted by the bill in additional rate cuts. For example, Warren has called for an end to full expensing and bonus depreciation, and has instead proposed a depreciation system tied to a property’s actual loss in value. Bloomberg and Bennet have proposed repealing the pass-through deduction.

 

Raise the top individual rate

Several candidates have expressed general support for raising the top rate on individuals, which was lowered from 39.6 percent to 37 percent by the TCJA. Biden, Bloomberg and Klobuchar have all said they would restore the 39.6 percent top rate. Bloomberg has also proposed a 5 percent surtax on incomes above $5 million. Buttigieg has also indicated that he would bump up the top rate but has not specified by how much. Sanders has proposed the most significant change so far, raising rates on income above $250,000 with a top rate of 52 percent on income above $10 million.

 

Despite the proposals, calls to raise the top individual rate have not proven to represent the heart of Democratic platforms. Democrats have increasingly turned their attention to developing more targeted approaches to narrow the wealth and income gaps, such as wealth taxes, estate tax increases, and increased rates on capital gains taxes.

 

Implement a wealth tax

Most federal taxes are imposed when money or property changes hands, but a wealth tax proposes to change that, taxing assets on their very existence and underlying value. Warren, Sanders and Tom Steyer have specific wealth tax plans, and several others have indicated their approval for the concept. Both the Warren and Sanders plans only target multimillionaires and billionaires, taxing household net worth at graduated rates. Although Warren laid the groundwork for the concept with her plan, Sanders’ plan is more aggressive, imposing a 1 percent tax on household net worth above $32 million that rises gradually to 8 percent on wealth over $10 billion. Sanders also halves the wealth thresholds for single taxpayers. Warren’s wealth tax has only two thresholds, kicking in at 1 percent on household net worth over $50 million and again at 6 percent on wealth above $1 billion. Warren initially proposed a 2 percent tax on the second threshold, but raised it in order to help pay for “Medicare for All.”

 

The wealth tax is arguably the most contentious tax proposal among Democrats, with some candidates describing it as punitive. It may have even served as an impetus for billionaire Michael Bloomberg’s entrance into the race. However, it has become a defining proposal for Warren and Sanders, and has the support of several other candidates.

 

Reform treatment of capital gains

Democrats have broadly identified increased taxes on capital gains as a means of raising taxes on high-income taxpayers. To this extent, at least six of the remaining candidates have definitively backed the idea of eliminating the preferential tax rate for capital gains and instead taxing them as regular income.

 

Democrats have also begun exploring a more fundamental change in the way capital gains are taxed, discussing proposals that would require taxpayers to mark to market their capital assets. Under these proposals, certain investments would be taxed on any change to their fair market value at the end of each year, regardless of whether the investments are sold or exchanged. The move shares features of a wealth tax: It imposes tax without any realization event. But it is less transformative, as it still only taxes a measure of implicit income. Warren is the only candidate to explicitly propose a mark-to-market regime, but it has support among important Democrats in Congress. Senate Finance Committee ranking minority member Ron Wyden, D-Oregon, has a version in his own tax reform bill. Warren’s version would apply to the top 1 percent of households and exempt retirement accounts.

 

Payroll tax increases

Several candidates have targeted payroll taxes for Social Security and Medicare. Democrats have largely called for raising the wage cap on Social Security taxes, but few have offered details. Warren and Sanders propose lifting the cap once wages reach $250,000, and Warren would also increase the rate at that point to a 14.8 percent rate while applying it to net investment in income (at a $400,000 threshold if filing jointly).

 

Warren’s plan shares some similarities with a proposal recently introduced by House Democrats: The Social Security 2100 Act (H.R. 860) would gradually raise Social Security payroll contributions on employees and employers from 6.2 percent to 7.4 percent over 23 years. It keeps the wage cap but applies the tax again on wages above $400,000.

 

Overhaul the estate tax

Democrats have proposed several different ideas to reform the estate tax, including restoring it to 2009 levels, imposing higher rates on larger estates, eliminating the stepped-up basis for inherited capital assets and generally making it more equitable. Warren and Sanders both propose lowering the estate tax exemption from the $11 million enacted by the TCJA to $3.5 million. Sanders also proposes a new rate structure, with a minimum tax of 45 percent on estates up to $10 million and a top rate of 77 percent on estates of $1 billion and above. Warren also proposes to raise rates, but she has not offered specifics.

 

Tax financial transactions

As a purported effort to curb heavy speculation on Wall Street, several candidates have backed a financial transactions tax. The tax would be imposed on trades of stocks, bonds, and derivatives, generally at rates equal to just a fraction of 1 percent. Sanders would tax trades of the three instruments differently, at rates ranging from 0.002 percent to 0.1 percent, whereas Warren and Andrew Yang propose a single rate of 0.1 percent. Even Buttigieg has offered general support for the idea.

 

Use the Tax Code to combat climate change

Nearly all of the Democratic candidates support a carbon tax, but none put forward a plan or elaborated on what it would entail. Several have also come out in favor of ending subsidies and “tax breaks” for the fossil fuel industry, but again have provided little details. A number of candidates support credits and other tax benefits to encourage investment in technology and processes that can reduce carbon emissions and promote renewable energy solutions. Biden has offered several proposals in this regard, including incentives for carbon capture, use and storage technology, credits and subsidies that allow businesses to upgrade to more efficient, low-carbon equipment, credits to combat climate change in housing and a full electric vehicle credit.

 

Outlook

Many of the proposals would represent significant shifts in the basic foundations of tax policy. However, not everything may actually be achievable even if a Democrat wins the White House. The likelihood of any one proposal becoming law under a Democratic president would depend on both the make-up of Congress and how the proposals shift during the general election, when platforms often moderate. Some of the proposals appear to have less traction within the caucus, such as the wealth tax, while others, like increased rates on corporations and capital gains, enjoy more widespread agreement.

 

Either way, the outcome of the election remains critical. The scheduled expiration of much of the TCJA could give Democrats significant leverage if they maintain control over any major lever of power.

 

 

Tax pros gear up to navigate New York’s complex remote sales tax law

By Shaun Hunley

 

Tax preparers are gearing up for a challenge in the Empire State. New York’s new remote sales tax law has made a confusing situation even murkier, as the ripples of the Wayfair decision continue to linger in evolving tax law.

 

The June 21, 2018, decision in South Dakota v. Wayfair, Inc. confronted the constitutionality of a law South Dakota passed in 2016 requiring online retailers to collect sales tax from a business if it generates more than $100,000 in annual sales to South Dakota residents, or 200 or more separate transactions with state residents.

 

Up until that point in time, remote sellers had taken their lead on this issue from a 1992 Supreme Court ruling — Quill Corp. v. North Dakota — that only required them to collect sales tax on purchases if they had a physical presence in the state where the goods were bought. After more than 40 states had asked the court to overturn the 1992 precedent, it handed down a 5-4 decision in June 2018 that effectively made it legal for states to collect tax from remote sellers.

 

While that digital tax added a layer of complexity for tax professionals, it seemed relatively straightforward: States would begin issuing guidance in light of the court’s decision, and preparers would adjust accordingly. But things haven’t been that simple, especially in New York.

 

In January 2019, the state issued its first comment on the Wayfair decision. In doing so, it provided an exception to a remote digital tax for small remote sellers. According to the guidance, businesses with no physical presence in New York would need to collect New York sales tax only if, in the immediately preceding four sales tax quarters, they made more than $300,000 in gross sales of tangible personal property delivered in the state (for both taxable and exempt sales); and conducted more than 100 sales of tangible personal property delivered in the state.

 

But this past June, just six months later, the state enacted S.6615, and, in the process, signaled the deluge of confusion to come.

 

The new law increases the sales threshold from $300,000 to $500,000, and does so for remote sellers effective June 21, 2018, the day of the decision of the Wayfair case. In essence, New York is enforcing a retroactive economic nexus that went into effect six months before it was announced.

 

Is this kind of retroactive statute fair, or even constitutional? It’s open for debate. Some detractors point to a June 1994 Supreme Court case — U.S. v. Carlton — that addressed the retroactive disallowed application of a 1987 estate tax deduction to a 1986 transaction. In her concurring opinion, Justice Sandra Day O’Connor wrote about her issue with retroactive taxation: “The governmental interest in revising the tax laws must at some point give way to the taxpayer's interest in finality and repose,” she wrote. “For example, a ‘wholly new tax’ cannot be imposed retroactively, United States v. Hemme, 476 U. S. 558, 568 (1986), even though such a tax would surely serve to raise money.”

 

Still, what seems like judicial common sense has yet to carry much legislative weight. It appears that New York won’t be shying away from retroactively enforcing the 2018 Wayfair decision until the Supreme Court tells the state not to, and it’s not the only state to take this stance.

 

Around the country, CPAs and tax practitioners are watching offshoots of this issue crop up in Texas, California and Kansas. Elsewhere, states are extrapolating beyond the Wayfair case’s reach and applying the same standard to income tax (i.e., if a company derives income from internet sales, it needs to file an income tax return in the state, not just sales tax). As one can imagine, this has created more filing requirements, and more complexity for tax pros.

 

Where does that leave those tax preparers? For those who may not have the resources to conduct a nexus study to advise clients on where to file, it leaves them with some high-stakes guesswork. And that’s doubly problematic if there is any client pushback on the tax pro’s determination. Ethically, tax professionals need to tell clients to file in the state, but there are already anecdotal instances of clients refusing to follow their advice.

With the sellers liable for tax if they don’t collect and penalties for failure to file, the financial pains could mount quickly. As a result, accountants may find themselves caught in the crossfire between eager tax jurisdictions and defiant clients. That’s a recipe for volatility, and it’s one that tax pros will have to walk a tightrope to navigate.

 

 

 

Lawrence Summers wants to target the rich, but not through a wealth tax

By Rich Miller

 

Former Treasury Secretary Lawrence Summers proposed a suite of steps the U.S. government can take to raise trillions of dollars more in revenue from the rich without adopting a wealth tax.

 

They include higher levies on capital gains, the closure of loopholes and shelters disproportionately used by the wealthy, and stepped-up Internal Revenue Service oversight of tax returns, especially those filed by the rich.

 

In a paper being presented at a Brookings Institution conference on Tuesday, Harvard University economist Summers (pictured) and his co-authors argue that their “pragmatic approach” is superior to the wealth taxes championed by Democratic presidential candidates Bernie Sanders and Elizabeth Warren.

 

Because the proposed reforms build on the current tax code, they would be easier to administer and “more likely to be implemented successfully than riskier, untested alternatives that are vulnerable to political attacks, legislative impasse and legal challenges,” according to the paper. Summers is a paid contributor for Bloomberg Television.

 

Summers and his co-authors — University of Pennsylvania law and finance professor Natasha Sarin and research assistant Joe Kupferberg — said their proposals have the potential to raise more than $4 trillion over the coming decade. That would help the government pay for services for an aging society and for steps to combat inequality, while avoiding an excessive build-up in debt.

 

Democrats’ priorities

Democratic lawmakers are considering how to raise taxes in a way that would make it easier, technically as well as politically, for Congress to pass a measure quickly should their party win the presidency in November. That money could be used to fund the policy priorities of the Democratic candidates, such as expanding health care and child-care access, investing in renewable energy, or forgiving student-loan debt.

 

Some in Congress have publicly expressed concern that a number of the ideas floated by presidential contenders, such as the wealth tax, could be difficult to design or face constitutional challenges that would delay implementation.

 

The Sarin-Summers-Kupferberg plan includes many of the same elements embraced by presidential candidates ranging from former vice president Joe Biden to Sanders. Taxing capital-gain income at the same rate as wages, increasing audits on the wealthy and corporations and hiking levies on offshore corporate profits are fixtures of Democratic tax plans in 2020.

 

They would also do away with the carried interest loophole and cap tax deductions, such as mortgage interest, at 28 percent.

 

The proposal, though, does include two potential political red flags for key constituencies — small businesses and charities — if this were to get serious consideration in Congress.

 

The plan calls for the repeal of a 20 percent deduction for some pass-through businesses, a new provision in the 2017 tax law intended to give small businesses similar tax benefits to those that corporations were receiving.

 

Corporate rate

While the plan would raise the corporate rate slightly — to 25 percent from 21 percent — it would still be far below the 35 percent it was prior to President Donald Trump’s tax overhaul. However, small business owners would presumably see their tax benefits disappear and pay a top rate of 37 percent.

 

Churches, colleges and other nonprofits might balk at a change that would curb tax breaks for appreciated stock. Currently, donors can claim a write-off for the full value of the asset, and avoid any tax on the capital gain.

 

Summers, Sarin and Kupferberg acknowledged that it is unlikely that the wide range of changes they are proposing could be implemented quickly. They suggested that the initial focus of the reforms should be on substantially beefing up IRS resources, which they said could raise $1.2 trillion in new revenue over 10 years.

 

“Our belief is that the best path forward is through a combination of deterring illegal tax evasion — by investing more in an underfunded Internal Revenue Service — and reducing legal tax avoidance by broadening the tax base and closing loopholes that enable the wealthy to decrease their tax liabilities,” the authors wrote.

 

(Michael Bloomberg is seeking the Democratic presidential nomination. Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.)

 

 

Senate Republicans prod IRS to crack down on electric vehicle tax credits

By Michael Cohn

 

A group of Republican lawmakers has sent a letter to Internal Revenue Service commissioner Chuck Rettig warning about misuse of the electric vehicle tax credit.

 

Senate Finance Committee chairman Chuck Grassley, R-Iowa, joined Sen. Ron Johnson, R-Wis., John Barrasso, R-Wyo., and a dozen of their GOP colleagues in asking Rettig for more information about how the IRS enforces the electric vehicle tax credit in light of a recent report from the Treasury Inspector General for Tax Administration that found systemic problems with the tax-credit program.

 

Last September, TIGTA released an audit report finding that taxpayers improperly claimed $72 million in tax credits for electric vehicles and that the IRS “does not have effective processes to identify and prevent [these] erroneous claims.”

 

The senators noted that the problems were a continuation of some that were detected years ago. “Notably, in 2011, TIGTA released an audit finding $33 million in tax credits for plug-in electric drive motor vehicles — one in five of every claimed tax credit — were awarded to individuals who owned vehicles that did not qualify,” they wrote. “In other words, despite recognizing this fraud eight years ago, it has not only persisted but become even more widespread.”

 

The tax credits, of up to $7,500, help taxpayers offset the purchase of a qualifying plug-in electric drive vehicle. Last September, TIGTA reported that between 2014 and 2018, 16,510 individual tax returns received potentially erroneous electric vehicle tax credits. If controls were in place or the returns had been reviewed, claims totaling $81.7 million could have been potentially disallowed.

 

“It is troubling that these improper payments continue and have more than doubled in size in the eight years since they were first reported,” the lawmakers wrote. “The apparently systemic problems with the electric vehicle tax credit are even more concerning as Congress considers a potential $16 billion expansion to the program, which overwhelmingly benefits wealthy electric vehicle owners in one state.”

 

The senators were likely referring to California. The credit begins to phase out when at least 200,000 qualifying vehicles have been sold for use in the United States. Tesla was the first to reach the 2000,000 sales mark in the third quarter of 2018, followed by GM in the fourth quarter of that year.

 

 

Democrats push IRS to protect low-income taxpayers from private debt collectors

By Michael Cohn

 

A group of Democratic lawmakers from the Senate and the House, led by presidential candidate Sen. Elizabeth Warren, D-Mass., has written a letter to Internal Revenue Service commissioner Chuck Rettig asking him to enforce a recent law that is supposed to prevent private debt collectors from pursuing tax debts of people facing economic hardships, and those who receive money from the government’s Supplemental Security Income or Social Security Disability Insurance programs.

 

The Taxpayer First Act was passed by Congress last year with the goal of strengthening taxpayer services and protections and overhauling the IRS appeals process. One of its many provisions excludes SSI and SSDI recipients, and taxpayers experiencing economic hardship, from the IRS’s controversial Private Debt Collection program, which gives private contractors the ability to collect long overdue tax debts on behalf of the IRS.

 

Warren, who is the top Democrat on the Senate Subcommittee on Financial Institutions and Consumer Protections, wrote the letter in conjunction with Sen. Sherrod Brown, D-Ohio, who is the ranking Democrat on the Senate Banking, Housing and Urban Affairs Committee; as well as Sen. Ben Cardin, D-Md., a member of the Senate Finance Committee; and Rep. Jimmy Gomez, D-Calif., a member of the House Ways and Means Committee.

 

They pointed to the IRS's recent record on protecting SSI and SSDI recipients and low-income taxpayers from being referred to private debt collectors. In the past the IRS has declined to exclude SSDI recipients from having their debt assigned to private debt collectors, and the agency went so far as to rescind a directive from the National Taxpayer Advocate to exclude taxpayers with incomes below 250 percent of the federal poverty level from the PDC program. A new report from the National Taxpayer Advocate warns that the IRS is calculating taxpayers' income for the purposes of determining economic hardship in a way that misses hundreds of thousands of low-income taxpayers.

 

"Because the IRS has refused to implement National Taxpayer Advocate recommendations dating from 2016 to take these steps, we write to ensure that your agency is preparing to fully implement the new requirements of the Taxpayer First Act," the lawmakers wrote. "The Taxpayer Advocate Service has already developed a more accurate and practical method for determining economic hardship [...] The IRS should adopt the more rigorous method developed and used by the Taxpayer Advocate Service to ensure the agency is not putting vulnerable taxpayers at increased risk — and violating the Taxpayer First Act."

 

The IRS revived the private debt collection program in 2017 after Congress included a provision in a 2015 highway funding bill requiring the agency to restart it (see IRS revives private debt collection program). The IRS had shut down the program twice before because it failed to collect as much money as anticipated, and taxpayers had complained about the debt collectors’ harassment tactics. The new program was supposed to include more safeguards for taxpayers, especially at a time when so many scammers use threatening robocalls to impersonate IRS agents demanding immediate payment for taxes. However, there are still problems with the program, even though its proponents say it is doing a better job at collecting overdue tax debts. Last month, the Senate Finance Committee released a report showing that the private contractors had collected $213 million in the fiscal year ending Sept. 30, 2019, far more than the $82 million collected in fiscal year 2018 and $6.5 million in fiscal year 2017.

 

The lawmakers have requested responses from the IRS no later than Feb. 6.

 

Earlier this month, Warren and Brown sent a letter to the IRS criticizing the introduction of a risky pre-authorized direct debit payment option to the private debt collector program. In 2018, Warren, Brown and Cardin introduced legislation to repeal the IRS’s authority to contract with private debt collectors to collect unpaid taxes.

 

 

IRS gives banks leeway on notifying IRA owners about RMD change

By Michael Cohn

 

The Internal Revenue Service is giving financial institutions a break when it comes to notifying owners of individual retirement accounts about taking their required minimum distributions after a new law increased the age for taking RMDs from 70½ to 72.

 

The SECURE Act was signed into law last month and includes a number of changes to IRAs and 401(k) plans with the goal of increasing access to tax-advantaged retirement accounts. Among them was a change in the age by which people are required to start taking minimum distributions from their IRAs, and it allows individuals to continue to make IRA contributions indefinitely. Prior to passage of the SECURE Act, financial institutions were required to notify by Jan. 31 any IRA owners who turn 70½ in 2020 about the RMD that would need to be made for 2020. But since the SECURE Act changed the age triggering the RMD requirement from 70 and ½ to 72, these notices are no longer due under the amended law.

 

The IRS issued Notice 2020-06 on Friday, saying that if an RMD statement such as a Form 5498 is provided for 2020 to an IRA owner who will attain age 70½ in 2020, the IRS won’t consider such a statement to be incorrect, provided that the financial institution notifies the IRA owner no later than April 15, 2020, that no RMD is due for 2020. The IRS said it is providing the relief because of the short amount of time after the enactment of the SECURE Act that financial institutions have had to change their systems for furnishing the RMD statement.

 

 

IRS offers tax relief for student loan debt discharges

By Michael Cohn

 

The Internal Revenue Service and the Treasury Department are offering a safe harbor to provide relief to taxpayers who borrowed money to attend a nonprofit or for-profit school and had their student loan debts discharged.

 

Revenue Procedure 2020-11 provides a safe harbor extending relief to additional taxpayers who took out federal or private student loans to finance their attendance at a nonprofit or for-profit school. The IRS and Treasury are also extending the relief to any creditor that would otherwise be required to file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure.

 

The Treasury Department and the IRS said Wednesday they have determined that it’s appropriate to extend the relief already provided in Rev. Proc. 2015-57, Rev. Proc. 2017-24 and Rev. Proc. 2018-39 to taxpayers who took out federal and private student loans to finance their attendance at nonprofit or other for-profit schools not owned by Corinthian College Inc. or American Career Institutes, Inc. Both of the for-profit education chains went out of business after enticing tens of thousands of students to take out pricy loans. The Department of Education agreed in 2017 to forgive $30 million in student loans from American Career Institutes, and in 2018 the Department of Education allocated $150 million for Corithinian students, although the Education Department has also come under fire for continuing to try to collect on the debts from former Corinthian students.

 

In many cases, discharged debts are taxable under federal law, so the revenue procedures provide tax relief for former students who attended schools and were left with high levels of student loan debt.

 

The new revenue procedure provides relief when the federal loans are discharged by the Department of Education under the Closed School or Defense to Repayment discharge process, or where the private loans are discharged based on settlements of certain types of legal causes of action against nonprofit or other for-profit schools and certain private lenders.

 

Taxpayers within the scope of the revenue procedure will won’t have to recognize gross income as a result of the discharge, and taxpayers shouldn’t report the amount of the discharged loan in gross income on their federal income tax return.

 

In addition, the IRS said it would not assert that a creditor must file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure. To avoid any confusion, the IRS is strongly recommending that these creditors not furnish students nor the IRS with a Form 1099-C.

 

 

Int'l tax authorities take ‘day of action’ against evasion

By Jeff Stimpson

 

The U.S., the United Kingdom, Canada, Australia and the Netherlands undertook a global day of action to stem offshore tax evasion this week.

 

The action was part of investigations into a financial institution in Central America whose products and services are believed to be facilitating money laundering and tax evasion worldwide. The “day of action” involved evidence, intelligence and information collection using search warrants, interviews and subpoenas.

 

This is the first major operational activity for the Joint Chiefs of Global Tax Enforcement (the J5), which was formed in 2018 to fight international tax crime and money laundering. “[It’s] the first of many,” said Don Fort, U.S. chief of IRS criminal investigation. “We are able to broaden our reach, speed up our investigations and have an exponentially larger impact on global tax administration.”

 

“Significant information” was obtained and investigations are ongoing, according to J5.

 

“This … should degrade the confidence of anyone who was considering an offshore location as a way to evade tax or launder the proceeds of crime,” said Australian Tax Office deputy commissioner and Australia’s J5 chief Will Day. “Never before have criminals been at such risk of being detected.”

 

“The J5 are closing in,” added Simon York, chief and director of Her Majesty’s Revenue and Customs Fraud Investigation Service.

 

 

Most taxpayers confident about tax prep

By Michael Cohn

 

Taxpayers are feeling good about their tax-filing abilities, according to a new survey, with 89 percent indicating they feel confident they have their withholdings set up correctly and 95 percent saying they're confident that they're taking all the deductions they can.

 

The survey, by the financial information site FinanceBuzz, found that 55 percent of the respondents believe they pay too much in federal taxes, while 43 percent said it's "just right." Those who identified themselves as a Republican were slightly more likely to feel they pay too much in taxes (57 percent) as opposed to those who identify as Democrats (52 percent).

 

In addition, 79 percent of the respondents said they prefer to receive a tax refund at tax time.

 

More than two-thirds (67 percent) of Americans plan to file their tax returns in January or February.

For the full survey results, visit https://financebuzz.com/taxes-survey.

 

 

 

 

Treasury considers extending April 15 tax deadline over coronavirus

By Laura Davison

 

Treasury Secretary Steven Mnuchin said he supports extending the 2019 tax-filing deadline beyond April 15 to provide relief from economic disruption caused by the coronavirus outbreak, and he’ll recommend that step to President Donald Trump.

 

Speaking on Capitol Hill Wednesday, Mnuchin said the delay would be a “good stimulus” for small businesses and individuals affected by the economic fallout from the global health crisis.

“We think we can provide over $200 billion of liquidity into the economy by delaying certain tax payments,” Mnuchin said at a House Appropriations Committee hearing.


Treasury officials have been discussing the idea of extending the Internal Revenue Service’s payment deadline as the Trump administration considers measures to relieve economic pressure on citizens, businesses and government agencies dealing with the impact of the virus.

 

Mnuchin said his department can delay the payments without permission from Congress. The delayed tax payment idea is part of discussions exploring how the Treasury Department can independently address the economic consequences of the virus. Mnuchin also held discussions with House Speaker Nancy Pelosi on Wednesday about an economic stimulus package.

 

Mnuchin said he is looking for ways to fund the tax deadline extension.

 

A Treasury spokeswoman said no decision has been made. Spokespeople for the IRS and White House didn’t immediately respond to requests for comment.

 

Deadline extension

The virus outbreak in the U.S. has prompted localized school closings, interrupted supply chains and forced businesses and government agencies to consider having employees work from home.

 

The April 15 deadline is outlined in the tax code, though it includes exceptions for when the 15th falls on a local holiday or weekend. It also gives the Treasury secretary latitude to delay the deadline in disaster situations.

 

The IRS also routinely extends the deadline for victims of natural disasters. For example, the agency granted victims of recent tornadoes in Tennessee until July 15 to file. In 2018, the IRS delayed the due date by a day when the computer system crashed on the filing deadline and taxpayers were unable to submit their returns.

 

“Depending on the circumstances, the IRS may grant additional time to file returns and pay taxes,” the agency says on its website. “Special tax law provisions may help taxpayers and businesses recover financially from the impact of a disaster, especially when the federal government declares their location to be a major disaster area.”

 

“The cleanest way to do this is for Congress to pass a law saying how long the delay would occur and what tax forms and tax liabilities are delayed,” said Nicole Kaeding, an economist with the National Taxpayers Union Foundation. “Assuming Congress does not do that, the Treasury secretary has broad authority.”

 

Helping taxpayers

Taxpayers can already automatically request a six-month extension to file their returns, though that doesn’t postpone the deadline to pay any liability they may owe. That bill would continue to accrue interest and penalties until it is paid.

 

An extension of the April 15 filing deadline would give taxpayers more time to pay their tax bills without additional costs.

 

“I think it would help all taxpayers,” Senate Finance Chairman Chuck Grassley said Wednesday. “People don’t have to take advantage of it but if they want to, it’s all voluntary. And it’s something that can be done right now.”

 

Mnuchin also indicated that he may keep the U.S. Treasury bills issuance at a steady level to fund a possible extension to the April 15 tax deadline. Treasury bill issuance was set to fall in the second quarter as it historically does due to seasonal factors related to the April tax filing date. Issuance drops as tax season approaches because the federal government can rely on incoming tax revenue to support funding needs.

 

“We’re already working on funding that — that shouldn’t be an issue since we would have been downsizing our Treasury bills programs,” Mnuchin said Wednesday to reporters on Capitol Hill.

 

‘Complex considerations’

Some taxpayers are also facing a tax deadline just days away. Businesses organized as partnerships must file their returns by March 15. Many businesses and self-employed individuals also face a second April 15 deadline: they have to pay estimated quarterly taxes for this year, which could exacerbate cash-flow issues for businesses hard hit by a coronavirus-related downturn.

 

Delaying the federal deadline could create another problem, however, since most states also require returns be filed to their revenue departments by April 15.

 

“So while the simple idea of ‘move the date back and give taxpayers more time’ may seem good and easy, the issue is one with many complex considerations on exactly how to do it and how long to do it,” said Mark Steber, senior vice president and chief tax officer at Jackson Hewitt Tax Service Inc.

 

More than 59 million individual tax returns had been filed as of the last week in February, the most recent statistics the IRS has available. That’s approximately one-third of the tax returns the agency is anticipating to receive this year.

 

 

 

 

The end of laptops? and other tech news you may have missed

By Gene Marks

 

Hundreds of new tools for small businesses, the rise of ransomware, eight other recent technology developments you may have missed, and how they’ll impact your clients and your firm.

 

1. Is the low-end laptop obsolete?

Yahoo reviewed The NexDock 2 this past month, sharing that the new device could serve as a replacement for laptops that are considered low-end. At first glance the NexDock 2 — which goes for $259 — looks like any other normal laptop. The device has a full-sized display, regular keyboard, and contains standard USB ports. What sets the device apart from a typical low-end laptop is that it comes without a fan, internal memory or CPU. The way NexDock 2 works is by hooking it up to LG, Huawei or Samsung phones, turning it into a full-sized computer by mirroring phone displays. (Source: Yahoo)


Why this is important for your firm and clients: A laptop/phone mashup? Hey, why not, particularly if it can replace more expensive laptops and keep costs low, while still delivering satisfactory performance. According to Yahoo’s tests, the device performed as pretty darn well as any other laptop and comes at a much lower cost.

 

2. Microsoft Teams went down because of a really dumb reason

Last month Microsoft Teams was down for several hours, causing multiple issues with the service for its users. The snafu that caused the major disruption ended up being a very basic oversight — Microsoft simply neglected to renew the SSL certificate. That’s dumb. The SSL certificate is what permits a secure connection to form between a web server and a web browser. Instead of being able to start off their work week efficiently, users were getting a notification about a failed HTTPS connection. (Source: Engadget)


Why this is important for your firm and clients: The outage disrupted hundreds of thousands of users and — like any outage — undermined the confidence in the company’s cloud-based system. And for what reason? Not renewing an SSL certificate? It’s pretty dumb and, yes, we can feel sorry for the person at Microsoft who let this slip by. But there’s another lesson here: When did your web team last check to make sure your SSL certificates and domain registrations were completely up to date? If a giant tech company like Microsoft can make this mistake — and suffer an outage as a result — I’m thinking that your firm and many small-business owners could also be at risk and suffer even greater consequences.

 

3. Amazon invested $15B and launched 225 new tools and services in 2019

Amazon revealed last month in a press release that it invested $15 billion and launched 225 services and tools. The services and tools — geared mostly toward small and medium-sized businesses and worldwide third-party sellers — resulted in U.S. small businesses selling on Amazon breaking records of their own, with over 15,000 of those businesses reaching more than $1 million in sales, and over $500,000 in sales for just about 25,000 businesses. Some of the services credited with the growth are Amazon Live, Growth Navigator, New Product Optimizer and the company’s Brand Analytics and Brand Dashboard, to name a few. (Source: Amazon)

Why this is important for your firm and clients: Amazon has certainly had a negative effect on some small businesses. But many others have prospered by selling on the online giant’s platform. And, as the company likes to remind us, it continues to invest billions in tools to help these same small partners. If your clients are selling products online, you can help them weigh the pros and cons of being an Amazon merchant. But to me, it’s a tough place to avoid, considering the tools it provides and the markets you can reach. And no, I’m not being paid to write this.

 

4. Ransomware attacks have grown, and they’re crippling cities and businesses

According to newly released data, 205,280 businesses and organizations indicated they fell victim to a ransomware attack in 2019, which is up 41 percent from 2018. Security companies have provided data showing that ransomware attacks have escalated in severity compared to years ago when typically, only individuals fell victim and had to provide a couple of hundred dollars to get their information and files returned. Ransomware attacks have become so sophisticated that they are now capable of crippling businesses and cities across the United States. In the last part of 2019, the average ransom to get files returned was $84,116, nearly double what it was earlier in the year. (Source: New York Times)

Why this is important for your firm and clients: Ransomware continues to be a major security challenge for businesses, particularly small businesses that lack the resources to properly defend against it. But there are things you and your clients can do: Get training. Get anti-virus software. Get an online backup application. Most importantly, make sure you’re running the most recent versions of your operating systems. Doing that will go a long way toward helping you avoid being shut down by a ransomware attack.

 

5. Macs now twice as likely to get infected by adware

Research has revealed that there has been a more than 400 percent increase in Mac security threats for both businesses and consumers over the past year. According to a report, in 2019, detections of adware were at 11.0 detections per system, as compared to 4.8 in 2018, nearly double the number of threats detected on PCs last year. Apple has not been able to contain “potentially unwanted programs,” or PUPs, and adware in the same way that they have been able to catch malware, which has made it simpler for cybercriminals to go after Macs. Although the adware and PUP threats are not as detrimental as malware, the rise in this issue is becoming a cause of nuisance and concern for Mac users. (Source: PCGamer)


Why this is important for your firm and clients: Once upon a time it was Microsoft that was far and away the No. 1 target for malware. But that’s changed a lot over the years. The takeaway is that securing your network and individual devices is no less important regardless of whether you have a Windows or macOS environment.

 

6. Payments power small businesses’ mobile banking adoption

Research published at the end of last year by J.D. Power revealed there has been a significant year-over-year increase in the portion of SMBs using their banks’ mobile banking apps, rising to 61 percent from 53 percent in 2018. The surge is speculated to have come from the desire that small-business owners have to be able to access similar convenience and automated digital opportunities that they have access to in their own lives on a day-to-day basis. Being able to give and receive payments appears to be at the center of this growth, as small-businesses owners can save time in their daily tasks by paying rent and utilities easily and also use their mobile apps to accept payments on-the-spot at a jobsite as well. (Source: Pymts)


Why this is important for your firm and clients: It’s slow, but it’s happening: more and more businesses are biting the bullet, incurring the expense and moving toward more online and mobile payments. Fewer checks are being sent in lieu of electronic payments. Yes, doing this is initially time-consuming, costly and disruptive. But once the transition has been made you’ll find your cash management (and projections) to be much improved.

 

7. Vimeo’s new app helps small businesses create professional videos

Video platform Vimeo revealed last month its newest creation, called Vimeo Create, which contains several creative video tools geared toward helping marketers and small businesses more easily take advantage of the benefits of using video on social media or marketing platforms. Businesses are able to either utilize templates that are designed by professionals or choose to create a brand new video. (Source: Tech Crunch)


Why this is important for your firm and clients: While YouTube may have a greater reach, Vimeo arguably offers more features, more storage and potentially more bang for the buck if you’re just looking for a platform to host videos that will be used for business purposes and your intention is not to become a YouTube celebrity. The idea of Vimeo Create is that it will provide more and better resources for businesses who may not have the funding or time to put into video production.

 

8. Voice ordering will soon be impacting restaurants in a big way

There are now 74.2 million Americans who use smart speakers, but only 7.9 percent of them have used the devices to buy food and beverage products. That's going to change. Voice shopping is projected to grow to reach $40 million in revenue by 2022. (Source: Street Fight Mag)

Why this is important for your firm and clients: Steve Fredette, the co-founder of point-of-sale service provider Toast, writes that "in advance of this increase in adoption, restaurants will need to ensure they will be compatible with connected consumer devices. In order to keep up with the likes of Dunkin’, Denny’s and Domino’s, restaurants of all sizes need to optimize their tech stacks and diversify their strategies. As voice ordering gains ground as the next big idea in restaurant technology, industry players must consider investments and partnerships needed to integrate virtual voice-ordering assistants into their ordering apps and optimize menus for digital-first experiences."

 

9. CRM watch list 2020 winners have been revealed

Paul Greenberg — an author and expert focusing on CRMs — announced on tech website ZDNet his picks for the CRMs to watch this year. Greenberg analyzes CRM systems based off of various criteria such as privacy, marketing and corporate social responsibility, to name a few. Microsoft scored highest in the financial statement category, which included multiple criteria and didn’t rely solely on revenue. Salesforce scored highest when it came to the quality and focus of its mission and vision and how well it defines its vision and mission statements. For the outreach category, Salesforce came out on top for the larger program distinction, while Zoho won in the single person distinction. All CRMs that were submitted are scored in several categories based on the impact they had during the previous year. (Source: ZDNet) (Disclosure: My company, The Marks Group PC, sells some of the above products).


Why this is important for your firm and clients: Greenberg’s annual “watch list” is required reading for any partner, small-business owner or manager looking to either replace their existing CRM system or buy one for the first time. Paul’s experience in the CRM industry is unmatched and his recommendations should be taken seriously.

 

10. This machine makes 700 pieces of sushi per hour

California roll, anyone? The Suzomo machine is the newest player in the culinary robot field, with the ability to make perfect sushi rolls in mere seconds. While finding a talented sushi chef at a reasonable wage is proving to be difficult, the machine is able to make approximately 700 pieces of fresh sushi per hour, tasting just like handmade sushi rolls. The company says the popularity of its machines has grown quickly, allowing restaurants to run efficiently with less staff. (Source: ABC 7)


Why this is important for your firm and clients: “Less staff” are the two most important words here. As minimum wage and other benefits drive up compensation costs, many smaller restaurants are looking for ways to keep overhead (and employment headaches) to a minimum — and so they’re investing in technology. An automatic sushi maker is only one example of how robotics are speeding up food preparation … with no bathroom breaks needed. Smart advisors should be making their restaurant clients aware of this major trend.

 

 

 

Taxpayers fear math mistakes and not having enough money

By Michael Cohn

 

Making a mathematical mistake and not having enough money are the biggest Tax Day fears of taxpayers, according to a new survey.

 

Both of those fears were cited by 30 percent of the taxpayers polled by the consumer finance site WalletHub, edging out identity theft (21 percent) and getting audited (19 percent).

 

WalletHub’s 2020 Taxpayer Survey found that 37 percent of the taxpayers polled said they would move to a different country for a tax-free future, 26 percent would get an “IRS” tattoo and 19 percent would stop talking for six months.

 

The survey also showed that 34 percent of the respondents believe charities would make the best use of their tax dollars, nearly two and a half times the percentage of people that trust the federal government the most with their taxes.

 

“There are a variety of reasons why roughly 222 million Americans think the government does not spend their tax dollars wisely,” said WalletHub CEO Odysseas Papadimitriou in a statement. “We feel the pain of this big outlay of hard-earned money like a punch in the gut. Not to mention, every election season, there’s a lot of talk about waste, fraud and abuse costing the country billions. You really can’t blame people for feeling like their money might not be in the right hands after hearing that refrain over and over.”


WalletHub also issues research on states with the highest and lowest tax rates. The lowest tax rate is in Alaska, while the highest is in Illinois, according to the company.

States with the Lowest Tax Rates

States with the Highest Tax Rates

1. Alaska

42. Rhode Island

2. Delaware

43. Iowa

3. Montana

44. Ohio

4. Nevada

45. Wisconsin

5. Wyoming

46. Nebraska

6. Florida

47. Kansas

7. Utah

48. Pennsylvania

8. Idaho

49. New York

9. Colorado

50. Connecticut

10. Tennessee

51. Illinois


The site found little difference among Democratic and Republican-led states. Overall, the average red-state tax rate is 10.67 percent, just under the average blue-state rate of 10.93 percent. The site also identified other areas of agreement between Democrats and Republicans, even in a highly polarized election year environment shortly after an impeachment.

 

Democrat and Republican respondents agreed that rich people do not pay their fair share in taxes, and that poor and middle-class people do pay their fair share in taxes. Both agreed that their tax rates are too high.

 

However, the survey also found some areas of disagreement. Most of the Democrat respondents said corporations should pay higher taxes rates than consumers, but most Republican respondents didn’t agree. Democrats who responded to the poll said health care should be the biggest priority in the 2020 elections, followed by taxes. The Republican respondents voted for national security, health care and immigration ahead of taxes.

 

 

 

The Wayfair burden on small businesses

By Roger Russell

 

The Supreme Court’s 2018 ruling in South Dakota v. Wayfair has had momentous ramifications across the board as states, tax practitioners and businesses adapt to the burdens it generated, and the House Committee on Small Business Subcommittee on Economic Growth, Tax, and Capital Access recently held a hearing on the decision’s impact.

 

The states lost no time in reacting to the decision, Grant Thornton principal Jaime Yesnowitz, testifying on behalf of the American Institute of CPAs, told the committee.

 

“Collectively, we have seen swift and dramatic state legislative and administrative responses to Wayfair, but such responses are not entirely consistent from state to state,” he said. “Almost every state imposing a general sales tax has adopted some form of economic presence requirement on remote sellers through new statutes, regulations, and/or policy. About half of the states adopted the same alternative economic thresholds at issue in Wayfair — more than $100,000 in sales or at least 200 separate transactions to the in-state market will subject a remote seller to the sales tax. The other half of the states have adopted discrete variations on what constitutes economic presence subjecting a remote seller to the sales tax, including: higher thresholds of $500,000 (such as California and Texas); a requirement that both the transaction and sales thresholds are met (such as Connecticut and New York); or currently in at least one state, Kansas, economic presence once the first sale is made to an in-state customer.”

 

And there is significant lack of uniformity in determining how and when economic thresholds apply, Yesnowitz indicated: In calculating the economic threshold based on sales, for instance, some states count only the amount of taxable sales that remote sellers have made to a state’s customers, leaving the exempt sales out. “Other states use the aggregate gross sales amount,” he said, “raising the possibility that a remote seller must register (unless a state says otherwise), even in the case where the vast majority of the remote seller’s sales are not subject to the sales tax because the item is for resale or subject to an exemption. Other states may specifically exclude sales for resale, but not other exempt sales, in the gross sales calculation.”

 

“And since states adopted these provisions independently, different enactment and effective dates result in a lack of uniformity with respect to when each rule begins to apply, which forces taxpayers to navigate different implementation dates from state to state,” he said.

 

Moreover, the decision has inspired states to adopt economic nexus legislation that goes well beyond the sales tax issues addressed in Wayfair, Yesnowitz said. He noted that most of the states that impose a sales tax have also adopted marketplace facilitator legislation, under which remote businesses that facilitate transactions on online platforms, often between unrelated purchasers and sellers, are required to register, collect and remit sales taxes on these transactions.

“And since Wayfair, a number of states including Massachusetts, Pennsylvania and Hawaii, have adopted legislation or policy imposing economic nexus standards subjecting remote businesses to income taxes,” he said.

 

The end result is prohibitively expensive and time-consuming sales tax compliance on small businesses, according to Yesnowitz. “If left unchecked, the lack of uniformity in which the states have reacted to Wayfair could impair the ability of small businesses to grow, result in a loss in productivity that impairs the economy as a whole, and hamper their accountants’ ability to efficiently and effectively serve them,” he said.

 

The AICPA suggests that a reasonable balance be set between the states’ rights to tax income and sales within their borders, and the needs of individuals and businesses to operate efficiently.

There are currently three bills in Congress that seek to respond to the situation in one way or another, according to Yesnowitz: the Online Sales Simplicity and Small Business Relief Act; the Stop Taxing Our Potential Act; and the Protecting Businesses from Burdensome Compliance Cost Act.

 

The proposed bills address the Wayfair fallout by reinstituting a physical presence standard, by prohibiting retroactivity, or by setting a national sales threshold.

 

“A couple of these were offered up both before and after the Wayfair decision,” Yesnowitz noted. “A lot of folk endorsing those are from non-sales tax states.”

 

“It will be difficult to pass any tax legislation in an election year,” he told Accounting Today. “Having said that, the fact that the subcommittee is taking on the issue at least offers small businesses a glimmer of hope that Congress could intercede. The actions of the states over the past 18 months since Wayfair was decided have really put this front and center for small businesses that need to react.”

 

Scott Peterson, Avalara’s vice president of U.S. tax policy and government relations, agreed.

“The small-business witnesses [at the hearing] were caught off guard by the Wayfair decision,” he said. “They’re representative of small businesses caught by surprise, and are still figuring out what to do and how to do it.”

 

One of the witnesses described how complicated it is for the small business to not collect taxes. “The point is very valid,” said Peterson. “Most states use a ‘gross sales’ mechanism, which measures every sale. This creates situations where businesses may make very few taxable sales but must still maintain exemption certificates and report non-taxable sales. Wholesalers have to get sales tax licenses even if they don’t charge sales tax. At some point the states should evaluate how they determine who is subject to any kind of reporting requirement.”

 

“Model legislation uses the phrase ‘gross sales,'" Peterson noted, “so a lot of states picked up on it. States should find new terminology for ‘gross sales.’”

 

Peterson doesn’t believe anything will happen at the federal level to ameliorate the situation, noting that current thinking is to get rid of the sales tax or switch to one rate across the board.

“These ideas have been rejected since 1994,” he said. “Historically, state lawmakers don’t want to be responsible for taking away local control over sales tax collection. One-third of sales tax collected in the U.S. is local.”

 

What can Congress do?

“It was very gratifying that Congress is listening to witnesses that are suffering the pain,” said George Salis, a tax attorney and principal economist and tax policy advisor for Vertex Inc., who attended the hearing. “They are the lowest taxpayers on the totem pole. They have to put up with complicated state regulations and tax complexity. The law looks fluid and uncertain to them. Large taxpayers can afford a staff of tax lawyers and CPAs, but small businesses barely have enough for an outside CPA and lawyer, if at all. The hearing was preliminary troubleshooting to see if and how Congress can fix the situation.”

 

“The question is, what kind of intervention can Congress provide that would be lawful, that wouldn’t violate the Commerce Clause? The chairman and ranking member on the subcommittee are looking for a simple, straightforward solution,” he said. “That kind of solution would have to come from the states themselves.”

 

“It’s been 18 months since the Wayfair decision, and everything is still unaligned,” he observed. “Wayfair, at this moment, is favoring the states, and large taxpayers that have the staff and can afford software, but the small businesses are being left out. We’re passing the burden on to taxpayers that can’t afford it.”

 

Meanwhile, an additional trend is developing among states looking to leverage the ability to increase their revenue in the wake of Wayfair. A proposed bill in the West Virginia Senate requires marketplace facilitators to collect and remit all municipal lodging taxes. This is significant because, to date, platforms like Airbnb and VRBO have only collected and remitted state lodging taxes, leaving municipal taxes as the responsibility of short-term rental hosts. West Virginia is clearly looking to collect more revenue from a single marketplace source.

 

“This is the latest in a trend,” said Pam Knudsen, director of compliance services at Avalara.

“Airbnb and VRBO already remit on behalf of property owners in West Virginia,” she said. ”In numerous cases, marketplaces realize this is coming and have done voluntary compliance agreements with local jurisdictions to collect and remit on their behalf. Marketplaces have thus far mostly collected state but not local tax, so this is the big change. Where demand is high enough, marketplaces have voluntarily decided to collect and remit on behalf of locals ahead of any legislation or mandate to do so.”

 

“This simplifies the tax remittance process to get it from a single platform rather than from thousands of property owners,” she explained. “But it adds a level of complexity for property owners if the marketplace platform is only paying state taxes, but not local lodging taxes.”

 

 

 

Tax deployed as Europe’s biggest weapon to halt climate change

By Bloomberg News

 

The region with the highest taxes in the world is weighing how to use them in the fight against climate change.

 

The European Union’s executive arm began work on revising the way it puts levies on fuel and electricity. It’s also looking at a far more controversial plan that would tax imports from polluters outside the bloc on their carbon footprint.

 

The measures are aimed at making sure global competition doesn’t undercut its companies that are focused on shifting away from fossil fuels toward a low-emissions business model.


“Taxation will have an essential role to play in delivering on our climate commitments,” Paolo Gentiloni, the EU’s economy chief, said on Wednesday. Environmental taxes are more growth-friendly and “can encourage more responsible behavior and help offset the costs of the environmental transition,” Gentiloni said.

 

A consultation period on the rules began Wednesday, and an impact assessment along with legislative plans are due next year.

 

The proposals by the European Commission, which are subject to approval by EU governments and the bloc’s assembly, will address the minimum tax rates covering energy products. They aim to fix imbalances between petrol and diesel rates, Gentiloni said. They will also seek to phase out reductions, exemptions and subsidies for fossil fuels and promote renewable energy and energy efficiency.

 

Wednesday’s announcements came as the Commission unveiled the outline of laws that will make it binding for the bloc to eliminate its net carbon emissions by 2050, essentially turning Europe into the world’s first climate-neutral continent. The EU has what might be an even bolder proposal in the works for preventing the rest of the world from wiping out those cuts, and killing lots of European jobs at the same time.

 

The program would involve taxing some of the carbon produced by the European factories’ global competitors through what’s known as a border carbon adjustment mechanism. The commission wants to ensure that imported goods makers face the same costs of emissions as European companies.

 

“We need to safeguard against companies shifting production to parts of the world where standards are more lax,” Gentiloni said. “That’s where the carbon border adjustment mechanism comes in.”

 

The EU is well aware that it might be on thin ice, and that the plan risks opening a new source of international trade tensions, since other countries might call it a tariff, and a potentially illegal one at that. That’s part of the reason the Commission launched a process to collect feedback and comments from citizens and stakeholders to inform its preparatory work.

 

“Before any proposal is made, the various options must be carefully assessed, in particular with respect to WTO rules and other international commitments,” Gentiloni said.

 

 

 

CPAs seeing signs of elder fraud

By Michael Cohn

 

CPA financial planners are noticing scams perpetrated against their elderly clients, according to a new survey by the American Institute of CPAs.

 

When asked what types of financial abuse or fraud they’ve seen with elderly clients, CPA financial planners cited phone or internet scams most frequently, at 75 percent, followed by the inability to say no to relatives (60 percent) and identity theft (49 percent). Other common scams or abuse they’ve noticed include support for non-disabled adult children (43 percent), credit card theft (30 percent) and being taken advantage of by an in-home caregiver (26 percent).

 

On the positive side, CPAs are seeing fewer clients victimized by many common scams this year compared to 2015. Falling victim to fraud is more likely to have a substantial emotional impact (68 percent) on the elderly than a substantial financial impact (32 percent).


“Everyone is vulnerable to financial abuse and exploitation,” said Susan Tillery, who chairs the AICPA’s PFP Executive Committee, in a statement Wednesday. “However, the elderly are highly susceptible because companionship is an enticing allure for them. This can be due to the disintegration of the traditional nuclear family, death of spouse or friends, and the isolation that accompanies declining health. Financial exploitation of the elderly impacts much more than their finances. When someone they depend on for companionship abuses that trust, they can be emotionally distraught and withdraw from family and friends. One of the challenges specific to working with the elderly that CPA financial planners encounter is assessing their elderly client's desire to provide financial help for a family member, against their own continuing financial needs.”

 

A 92 percent majority of CPA financial planners said they have dealt with diminished capacity in their clients by ensuring powers of attorney and health care proxies are in place. Two-thirds (66 percent) of the survey respondents said they arranged to contact their client’s other professionals and relatives. Other measures they said they have taken include getting authorization to contact their client’s attorney (44 percent), moving money to a trust (37 percent), and automating their client’s annual required minimum distributions from their qualified retirement accounts (34 percent). Nearly a quarter (23 percent) of the CPA financial planners polled had their clients move into a previously selected assisted care facility.

 

 

 

Yet another wrinkle from the Wayfair decision

By Roger Russell

 

While the Supreme Court decision in Wayfair has led many states to expand their sales and use tax base to include digital transactions, Maryland and Nebraska have introduced bills that would tax gross receipts from digital advertising — a move that could hit major tech companies hard if it’s taken up nationally.

 

To an extent, the two states are following the lead of a number of European countries that have already enacted or are planning to enact such a tax. Like their counterparts in Europe, they target U.S. tech companies that receive revenue from digital advertising.

 

A digital advertising tax is principally a tax on U.S. tech companies, observed Mike Bernard, chief tax officer at Vertex: “Digital advertising is a $100 billion global activity. What countries, and now states, are saying, is ‘You know what — that’s a lot of money, so why not put a tax on it?’”

 

The states’ two proposals take different approaches, according to Charles Kearns, partner at law firm Eversheds Sutherland (US) LLP. Maryland’s Senate Bill 2 would apply to annual gross revenues of at least $100 million from digital advertising services in Maryland.

 

Digital advertising services are defined as “advertisement services on a digital interface, including advertisements in the form of banner advertising, search engine advertising, interstitial advertising, and other comparable advertising services.”

 

“The Nebraska bill, L.B. 989 … would expand the sales tax base to include sales of ‘digital advertisements,’ which are defined as ‘an advertising message delivered over the internet that markets or promotes a particular good, service, or political candidate or message,’” he said.

 

Not for everyone

You won’t see DSTs in places like Virginia or Iowa, or Wyoming, California and Texas, according to Bernard: “Those are among the handful of states that have successfully courted big tech companies to put tech or data centers in their states. Those states already have physical presence over companies with a data center in their state. ... But Maryland and Nebraska were not successful in attracting such investments, and they want a piece of the action.”

 

“They hope that the consumer at their home computer will click on the digital ad, and to the extent that the revenue stream is targeted to Maryland residents, the state will slap a gross receipts tax on the revenue. Of course, that raises the question of how will they know that the ad is targeted at residents,” he continued.

 

“Application software exists that can tell where logins are located. They can differentiate a Maryland IP [address] from a non-Maryland IP. The second test is a physical address in Maryland associated with mail service,” he said

 

But that raises the issue of double taxation, Bernard observed.

 

“It could end up with someone who has an IP address in one state and a mobile address in another. A tech company would conceivably be obligated to pay tax in both Maryland and Nebraska, and if more states enacted such taxes, the potential would grow,” he said. “The U.K. and France aren’t exposed to those issues because they have a unified tax system, while the U.S. has 50 states plus the District of Columbia to contend with.”

 

“The thought was that the Wayfair decision would bring an additional expansion of service revenue,” said Bernard. “Digital advertising affects the decision to buy. The better approach would be to simply continue to tax the actual financial transactions related to that consumer. Don’t tax the ads, tax the results. Or if they want to increase the sales tax rate, just do it, but don’t go out and pass a DST that has federal and state impairment. It doesn’t make sense to pass another tax regime that will have stiff challenges.”

 

Roadblocks ahead?

In addition to problems with the sourcing rules, the proposals are certain to be challenged on the basis of constitutional provisions and the Permanent Internet Tax Freedom Act, according to Bernard. The Internet Tax Freedom Act, originally enacted in 1998, expired and was renewed several times until the PITFA made it permanent. “Both of these proposals would be open to constitutional and PITFA challenges,” he indicated.

 

Scott Peterson, vice president of U.S. tax policy and government relations at Avalara and the first executive director of the Streamlined Sales Tax Commission governing board, agreed: “The point of the Internet Tax Freedom Act is to prohibit states from discriminating against electronic commerce.”

 

“What Maryland is doing is closer to the European approach than Nebraska,” he said. “All Nebraska has done is expand their sales tax to include digital advertising. Maryland has an excise tax on digital advertising. The big difference between a U.S. state and a European country is the Constitution. You have to have a legitimate state interest when a challenge is based on equal protection issues. A state is supposed to treat like people in a like manner. Can the state come up with a reason that is so overwhelming that it legitimizes treating one form of advertising differently than another form of advertising? Not only the U.S. Constitution, but the constitutions of Maryland and Nebraska have equal protection clauses.”

 

The Permanent Internet Tax Freedom Act prohibits states from taxing e-commerce differently from non-e-commerce.

 

“The first argument opponents will make against either the Maryland or Nebraska law is, ‘Show us in your law where you would tax a non-electronic version of the same thing.’ If they don’t tax the non-digital version, it’s a violation of the act to tax the digital version,” he explained.

 

Although other states would appreciate any additional revenue from taxing digital advertising, it is likely that most will wait to assess the success of Maryland and Nebraska.

 

“If these two states are successful, other states will jump on the bandwagon, but it’s not likely they will be successful,” said Peterson.

 

 

 

Digital tax talks may result in trade war even if Democrats win

By Laura Davison

 

A brewing fight about which country has the right to tax some of the world’s most profitable companies, including Facebook Inc. and Alphabet Inc.’s Google, could devolve into a multi-front trade war, regardless of whether President Donald Trump is still in the White House.

 

Even if a Democrat wins the presidency in November, it could be tempting to continue the Trump administration’s policy of using trade sanctions to retaliate against new taxes on U.S. tech companies.

 

A tit-for-tat trade war is already building with France, which passed a 3 percent tax on large tech companies that went into effect at the start of 2019. The U.S. responded with the threat of tariffs on $2.4 billion worth of French cheese, sparkling wine and makeup, prompting the European Union to consider tariffs on U.S. goods.

 

All sides have agreed to a tax cease-fire until the end of the year to see if a broader global agreement can be worked out at the Organization for Economic Cooperation and Development.

 

“Democrats have been as opposed to the digital services taxes as Republicans,” Brian Jenn, a former Treasury official during the Obama and Trump administrations, said. “While very few Democrats are a fan of tariffs, it looks like the tariff approach at least bought a temporary victory in the case of France.”

 

The U.S., along with more than 130 countries, is currently negotiating at the OECD about a new international tax system that would redefine which countries can tax which corporate profits. A revamped global tax code could apply not just to tech companies, but also to other multinational firms that have customers in countries where they don’t currently record profits.

 

Worst case scenario

Negotiators need to reach an agreement this year before several countries — including France, Canada and Italy — plan to move forward with their own taxes on tech giants.

 

A retaliatory tariff fight with the U.K could begin even sooner. That country’s version of the tax is set to go into effect in April, and U.S. officials have suggested responding with tariffs on car exports.

 

That could be the worst case scenario for companies such as Amazon.com Inc. that could end up paying taxes to several countries on the same income. And they have reason to worry — it’s far from certain that there will be a deal this year.

 

“I’m very skeptical that the U.S. will agree to this proposal by the end of this year — or ever,” said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics. “It’ll be a long period of friction until we get a true settlement.”

 

One of the main challenges of the ongoing talks is to reach a consensus by December that is sufficiently robust to halt the proliferation and imposition of digital services taxes, said Manal Corwin, the principal in charge of international tax policy at accounting firm KPMG.

 

Without enough of a deal to keep the parties at the negotiating table, U.S. companies could face taxes from the approximately dozen countries that have proposed the idea, causing either a Republican or a Democratic administration to fend off levies on income that the U.S. views as within its right to tax.

 

“There aren’t a lot of other tools in the toolbox to address unilateral taxes in a meaningful way,” said Jenn, who has also served as a U.S. delegate to the OECD and is now a partner at law firm McDermott Will & Emery.

 

Seeking consensus

A progressive candidate, such as Senator Bernie Sanders, with a history of opposing free trade measures, could be inclined to use trade sanctions as a way to fight back, said Jeff VanderWolk, a former OECD official who is now a partner at law firm Squire Patton Boggs. Former Vice President Joe Biden, who has traditionally supported trade agreements, may be less inclined to take that approach, he said.

 

The negotiations are centered around two main points: establishing a global minimum tax so companies can’t avoid taxes entirely, as well as reallocating taxing rights, meaning some countries with many customers or users of a digital service could tax some of the profits even if the company doesn’t have business operations there.

 

U.S. Treasury Secretary Steven Mnuchin said after a G-20 Finance Ministers meeting in Saudi Arabia that there’s “pretty much consensus” about the minimum tax. The point of contention is reallocating taxing rights, which the U.S. wants to be optional for companies.

 

The OECD estimates that its approach -- revamping taxing rights and a minimum levy — would result in countries collecting $100 billion more a year in tax revenue.

 

Such an agreement could end up hampering the proposals from some Democratic presidential candidates to raise taxes on corporations. If other countries have the right to tax some of Google and Facebook’s profits, that means the U.S. won’t get a cut of that money. That could mean they’d need to find revenue from other sources to fund their policy priorities.

 

‘Reliable system’

The OECD plan “is structured so that those companies would pay more tax abroad, regardless of U.S. tax policy,” Daniel Bunn, vice president of global projects at the Tax Foundation, said. “The potential U.S. tax take from highly profitable companies based in the U.S. would shrink whether we have a policy of higher taxes on businesses or not.”

 

It’s still not clear how the U.S. would fare under the global approach. The U.S. would lose the right to tax some profits from highly profitable technology and pharmaceutical companies, but could gain some of that back from foreign companies that have lots of U.S. customers, including French luxury brand conglomerate LVMH Moet Hennessy Louis Vuitton SE or German carmaker Mercedes-Benz AG.

 

Facebook Chief Executive Officer Mark Zuckerberg said this month he approves of the OECD efforts, even though it would increase his company’s overall tax bill, because it would create a “stable and reliable system going forward.”

 

The OECD digital tax talks have created strange bedfellows. In Congress, the response has been unusually bipartisan with key Republicans and Democrats both supporting the administration’s efforts to come up with a global deal. And the Trump administration is coming to the defense of Amazon and Facebook, two companies the president frequently criticizes.

 

There’s skepticism, however, that Congress would actually be able to pass the legislation required to implement any deal reached at the OECD. Lawmakers have been publicly supportive of participating in the negotiations, but they might not ultimately like the outcome, said Sam Maruca, a former IRS official who has represented the U.S. at the OECD.

 

“The U.S. is paying lip service to the process. Treasury is convinced that they’re not going to be able to get it through Congress,” Maruca, now a partner at law firm Covington & Burling, said. “When push comes to shove there’s likely to be a lot of gnashing of teeth.”

 

 

 

Tax Strategy: Inside the SECURE Act

By Mark A. Luscombe

 

The SECURE Act, enacted on Dec. 20, 2019, as part of the Further Consolidated Appropriations Act of 2020, includes a variety of new provisions designed primarily to encourage adoption of qualified retirement plans and to make those plans more flexible and portable. At least one provision, scored as a revenue raiser, could have a negative impact on taxpayers by accelerating required distributions after death and eliminating so-called “stretch IRAs.”

 

1. Expanding plan coverage. Employers are encouraged to set up multiple-employer plans with other like-minded employers. This permits them to spread the plan operation costs and reduce the burden on any one small employer. The employers in an MEP no longer need to be in a shared organizational relationship. These open MEPs, or pooled employer plans, can be administered by a pooled plan provider, such as a bank or insurance company. Also, a violation of ERISA rules by one employer in the MEP will no longer necessarily disqualify the entire MEP. Nondiscrimination testing and correction of plan qualification defects must still be applied by each employer separately.

 

To further encourage small employers to set up retirement plans, the credit for small-employer pension plan startup costs is increased and extended to apply to added automatic enrollment costs. The revised three-year credit for start-up costs is equal to the greater of $500 or the lesser of $250 times the number of non-highly compensated employees who are eligible to participate or $5,000. The three-year credit for implementation of automatic enrollment is $500. Automatic enrollment is also encouraged by increasing the cap from 10 to 15 percent.

 

Qualified plans are now required to offer elective deferrals to long-term, part-time employees — employees with at least 500 hours of service in three consecutive 12-month periods. Service before Jan. 1, 2021, need not be considered. These part-time employees may still be excluded from matching, nonelective contributions and discrimination testing.

 

2. Plan flexibility. In order to help avoid retirees exhausting their retirement plan assets before death, the law provides a safe harbor from liability for plan sponsors in the selection of an annuity provider. While this is designed to encourage annuity options so that employees will not outlive their retirement plan assets, some are also concerned that the change, combined with high annuity fees, may result in reduced overall benefits for retirees. To help alleviate those concerns, new lifetime income disclosures are required in annual benefits statements. However, there will be a need for additional guidance in order to determine the assumptions to be used in calculating these amounts. The law also provides for increased portability of lifetime income options such as annuities.

 

The safe harbor for making non-elective contributions is streamlined.

 

The list of permitted penalty-free distributions is expanded to a qualified birth or adoption up to $5,000.

 

There also is a relaxation of the nondiscrimination rules to protect older, longer-service participants, where testing problems often developed for plans closed to new participants.

 

IRA holders will now be able to delay the start of required minimum distributions until age 72, for those who reach age 70 ½ after Dec. 31, 2019, and will be able to continue making IRA contributions after age 70 ½, starting for contributions for the 2020 year.

 

There is a relaxation of the notice and adoption requirements for 401(k) safe harbor plans.

 

The Consolidate Appropriation Act also includes provisions outside of the SECURE Act reducing the minimum age for making distributions from a pension plan to a participant who has not separated from service from age 62 to age 59 ½, and extending permitted distributions from qualified plans to include victims of presidentially declared disasters.

 

3. Participant protections. Under the SECURE Act, employer plans are prohibited from making plan loans through credit cards and other similar arrangements.

 

Taxable non-tuition fellowships and stipends and nontaxable “difficulty of care payments” earned by home health care workers will now count as compensation for purposes of IRA contributions.

 

4. Rules for special plans. The act includes provisions on the treatment of custodial accounts on termination of Sec. 403(b) plans, clarification of retirement income account rules relating to church-controlled organizations, and special rules for minimum funding standards for community newspaper plans. The Pension Benefit Guaranty Corp. premiums for cooperative and small employer charity pension plans are also modified.

 

The SECURE Act also increases the benefits provided to volunteer firefighters and emergency medical responders.

 

Permitted distributions from 529 plans are expanded to include certain expenses associated with registered apprenticeship programs and up to $10,000 of qualified education loan repayments.

 

5. Administration. Changes to administration requirements include allowing certain retirement plans adopted by the filing due date for the year to be treated as in effect as of the close of that year.

 

Certain group plans are permitted to file a combined annual report. The plans must share the same trustee, the same named fiduciaries, the same administrator and plan administrator, must have the same plan year, and must make the same investment options available to participants and beneficiaries.


The revenue raisers

The SECURE Act modifies the required distribution rules for designated beneficiaries of retirement plans. Beneficiaries who are not “eligible designated beneficiaries” will no longer be able to take distributions over their life expectancy but instead over a maximum of 10 years, limiting so-called “stretch IRAs.” Eligible designated beneficiaries include a spouse, a minor child of the owner, a disabled or chronically ill person, or a person no more than 10 years younger than the owner. This change is likely to make it advisable for IRA holders and plan participants to review their beneficiary designations as well as their estate plans. Longer payouts may be possible by designating the estate or a trust as a beneficiary, rather than an individual.

 

In order to help cover the costs of these retirement plan changes, the SECURE Act also increases the failure-to-file penalty and the penalties for failure to file retirement plan returns. The new law also increases required information sharing to help administer excise taxes.


Summary

The SECURE Act offers many changes that plan sponsors and individuals will need to review carefully if they want to take maximum advantage of some of the new flexibility offered. Most plans are likely to require amendments. The change to the beneficiary distribution rules warrants a review of designated beneficiaries in qualified plans and a review of estate plans to make sure there are no unintended consequences from the new distribution rules. New coverage requirements will warrant a review of how an employer handles part-time employees.

 

In general, these provisions apply to plan amendments made on or before the last day of the first plan year beginning on or after Jan. 1, 2022 (Jan. 1, 2024, for governmental plans). The short time period between the enactment date, Dec. 20, 2019, and the date many provisions are effective, Jan. 1, 2020, will result in some confusion for which timely clarifying guidance from the IRS is likely to be essential.

 

 

 

How to help your small business clients navigate the SECURE Act

By Jessica Curtin

 

Planning for a secure retirement is a top-of-mind priority for almost every American worker. Yet, according to a recent study by the Federal Reserve, one-quarter of those who are not retired say they have no retirement savings or pension whatsoever. At the end of 2019, a significant step was taken in addressing the retirement crisis with the passage of the Setting Every Community Up for Retirement (SECURE) Act. The purpose of the SECURE Act is to incentivize employers to offer retirement plans as well as to improve individual retirement savings outcomes for the millions of Americans without adequate retirement savings.

 

In considering your role as trusted advisor, your clients — both individuals and small business owners — will be looking to you for your expertise in understanding both the potential tax implications of the SECURE Act, as well as its other benefits.

 

Here are just a few of the Act’s many important provisions to share with your clients:

 

Tax incentives

Prior to the SECURE Act, small employers could claim up to 50 percent of their ordinary and necessary eligible retirement plan startup costs, up to $500. Under the new law, the tax credit will now offer eligible employers a maximum of $5,000 for introducing a retirement plan for employees. The credit extends over a three-year period, for a potential total credit maximum of $15,000.

 

In addition, a new annual tax credit of $500 will be offered to qualifying small employers who add automatic enrollment features to their newly established or existing 401(k) plan or SIMPLE IRA. This credit is available for three years, starting with the first taxable year in which automatic enrollment is included.

 

Open multiple employer plans or pooled employer plans

While Multiple Employer Plans (MEPs) have existed for some time, the SECURE Act introduced Pooled Employer Plans (PEPs), a type of “open MEP,” allowing for two or more unrelated employers to join through a pooled plan. While single employer 401(k) plans are still heavily utilized, there can be many perks of MEP/PEPs for businesses looking to reduce administrative burden and fiduciary liability.

 

For small employers interested in offering 401(k) plans but who may have been reluctant to do so, PEPs may be a viable solution at a reasonable cost. These plans are administered by a pooled plan provider that acts as the named fiduciary and plan administrator, responsible for providing required notices, filing the Form 5500, audits, and other day-to-day administrative functions — work typically done by the employer when sponsoring an individual plan. PEPs also designate trustees to collect and hold the assets of the plan and can delegate investment management to alternate fiduciaries. Each participating employer has the responsibility of selecting and monitoring the pooled plan provider and any other named fiduciaries.

 

Traditional IRA contributions

The SECURE Act also eliminates the maximum age for traditional IRA contributions. Now, individuals can continue to make contributions past age 70 ½.

 

Increase in age for required minimum distributions

Prior to passage of the SECURE Act, minimum distributions were required from retirement accounts beginning at age 70 ½. This has now increased to age 72 for those who reached 70½ prior to the end of 2019. Those who have started RMDs but haven’t reached age 72 also need to abide by the old rules too.

 

Fiduciary safe harbor

The SECURE Act also has introduced a fiduciary safe harbor for 401(k) plan sponsors that include lifetime income products in their retirement plan investment offerings.

 

This safe harbor protects the plan sponsor from liability for any losses to beneficiaries or participants if the insurance provider fails to meet its financial obligations. The safe harbor applies only where a provider is chosen after fulfilling the criteria of a thorough examination of the financial capability of the insurer and determining that the cost of the guaranteed retirement income contract is reasonable, and the same standards are periodically reviewed.

 

Increased penalties for failure to file or provide disclosures

Retirement plan providers should also be aware of increased penalties coming out of the SECURE Act. Providers need to be concerned with timely filing of the Form 5500, providing plan change information on Form 5500, filing Form 8955-SSA, and providing proper disclosures related to taxability of plan distributions. All of the previous penalty amounts related to these infractions have increased by a factor of 10 — failure to file Form 5500 results in a penalty of $250 per day, not to exceed $150,000, and failure to file a required notification of change to information reported on Form 5500 results in a penalty of $10 per day, not to exceed $10,000.

 

As the provisions of the new SECURE Act are rolled out, with some in effect as early as Jan. 1, 2020, it’s important your clients are armed with the tools they need to make sure they are reaping the benefits while complying with the rules. In a world where regulatory matters are evolving at a rapid pace, understanding how changing laws and tax incentives impact your clients will strengthen your reputation as a trusted business advisor.

 

 

 

The 10-second rule

By Kyle Walters

 

A new client of ours — a very nice couple — came to see me the other day. I thought the meeting was going well, but 15 minutes in, the husband interrupted and asked, “Can we please pause this meeting?”

 

When I asked him why he wanted to stop the meeting, he said, “You keep saying ‘Right?’ at the end of your sentences. It sounds like you’re asking us a question, but you answer it before we can respond. Are you actually asking us if we understand?”

 

That was tough to hear, but my client was right. Even worse, I started wondering how many clients had been sitting through my rambling without bothering to say anything to me. I walked away from the meeting realizing that I had to do a much better job of facilitating two-way conversations with clients. That’s when I decided to implement the “10-Second Rule.”

 

Here’s how it works: If I find myself talking for more than 10 consecutive seconds during a client meeting, I make myself stop and ask the client an open-ended question and give them ample time to respond.

 

Our accounting firm has several partners, and I work on the advisory side, helping their clients with financial planning, investments, etc. So, when meeting privately with those clients, I get to hear their candid feedback about how they feel about the relationship they have with their CPA. One of our partners always gets rave reviews from our clients. Every one of his clients tells me the same thing: “The reason I really like working with him is because he’s so smart and because I feel like he really listens.”

 

That gave me pause. I’ve sat in on meetings with this partner; he rarely speaks. When he does speak, it’s only to ask a thought-provoking question or to offer a concise point. Whether he realizes it or not, my colleague is following the 10-second rule. Again, after you’ve spoken briefly, don’t say anything else until you’ve asked your client an open-ended follow-up question — a question that can’t be answered in yes or no fashion. And then you need to let them talk, because your client should be doing most of the talking at each meeting — not you.

 

Listening builds business

As we go deep into busy season, you’re going to be tempted to mail it in for some of your client meetings. The good news is that clients have a high sense of urgency to get things done this time of year. So, it’s a great time of year to set the table for bigger-picture future conversations with your clients as well.

 

I know you’re pinched for time. Taking this approach may add a few minutes to your meeting time, but it’s a great opportunity to plant a seed for a later planning meeting with that client over the summer. Use this time to determine what’s going to add value going forward in your relationship once the taxes are out of the way.

 

As mentioned earlier, clients should be doing at least 80 percent of the talking when they meet with you. They’ve already committed to working with you. You don’t need to sell them on your firm or show them how smart you are. You need to help them solve a problem they’re having. To do that, you need information.

 

Go from talking to saying something

When you only have 10 seconds to work with, you really have to think about what you’re trying to communicate to your client — and it has to matter. It’s easy to fall back on an old habit of just talking — rambling on without any structure or time constraints. The problem is your client doesn’t understand most of what you’re talking about. And if they don’t understand any of it, they’re certainly not going to understand your five-minute diatribe and will start to check out.

 

As a rule of thumb, make a couple of probing statements and then ask an open-ended question. That’s going to cause two things to happen:

1.It’s going to force you to have a more open dialogue with your client.


2. It’s going to take you from talking to actually saying something.

 

Breaking bad habits

If you suspect you’re talking too much at client meetings, have an administrative assistant sit in and take notes. Have your admin keep track of how often you exceed the 10-second rule. You may be mortified when you hear the answer. (I know I was.) I used to spend about 90 percent of client meeting time doing the talking and only 10 percent of the time listening. I was completely overloading them with information in a language they couldn’t understand. I doubt they retained any of it. I learned the hard way, but now my talking-to-listening ratio is much better, and my clients are happier.

 

If you don’t have an administrative assistant handy, just use the voice recorder on your phone. You may be shocked when you play back the recording. Just make sure to inform clients ahead of time that you’re recording the meeting, so you don’t want to miss anything.

 

As you’re getting deep into tax season, the goal of your client meetings is to deliver specifically what they need and to deliver it as concisely as possible. Whether you use the 10-second rule, the 2-to-1 sentence rule or any other rule of thumb that drives better dialogue, remember your job is to be a listener, not a talker. You want to extract great details and information that will lead to better planning conversations down the road and cement your role as your client’s most trusted advisor.

 

 

 

An unexpected inventory deduction in the TCJA?

By Roger Russell

 

Both online retailers and stores now have the opportunity for a new inventory deduction when buying goods, according to Tom Wheelwright, a CPA and CEO of WealthAbility. Under the previous rules, products could only be deducted when they were sold.

 

“The potential savings are significant, and we’ve seen this new deduction literally save a business. It can mean the difference between a business surviving and thriving or going under. For example, if someone is carrying $300,000 of inventory at the end of 2019, the business could get a $300,000 deduction in 2020,” he said. “In the first year of applying this new law inventory deduction, this change can result in major tax savings for retailers.”

 

Previously, the requirement was to use after-tax dollars for building inventory, Wheelwright noted, “so this change may well have significant, positive impacts on retailers. As a result, inventory is becoming a tax-beneficial purchase instead of a tax liability.”

 

Under the Tax Cuts and Jobs Act, a retail owner can write off inventory for the year it is purchased, as long as the item is under $2,500 and their average annual gross receipts for the past three years are under $25 million. “The TCJA allows small businesses to treat inventory as ‘non-incidental materials and supplies,’ the cost of which can be deducted when paid,” Wheelwright explained.

 

“Instead of only those with sales under $10 million being able to use the cash method, now that limit is $26 million,” he added. “This change gives a lot more businesses the opportunity to use the cash method of accounting, so they don’t have to pick up receivables and payables in income and expense.”

 

“Suppose you have a client with $500,000 inventory on the books,” he posited. “If you make a change to the cash method of accounting, then you would likely end up with an additional deduction in that amount for the year you make the change.”


Wheelwright cites as authority the explanation of the law by the staff of the Joint Committee on Taxation — the so-called Blue Book.

 

“On page 113, footnote 465, it states that if you elect to treat inventory as non-incidental materials and supplies, then anything under $2,500 can be deducted. That’s the only place that says this,” he said. “It doesn’t say it in the law itself, and there are no regulations on it. Although the Blue Book is technically not the law, it is the explanation of the law by the people who wrote the law, so it is usually pretty reliable.”

 

The inventory deduction on purchases versus sales is an example of moving toward a consumption tax approach for small business, according to Wheelwright. "For inventory, historically, you did not get to deduct it until you sold it. Under the new law, the provision effectively says that you can deduct it when you buy it instead of waiting until you sell it.”

 

“Income tax has traditionally been thought of as a tax on all of the net income of a business owner. The new tax law radically changes this. Now, any money reinvested into a business, including into inventory, is tax-free,” he said. “It doesn’t matter whether the business belongs to the retail, service, manufacturing, real estate, energy or agricultural sector. Business owners now have greater incentives than they previously had to increase investments in many areas, including inventory.”

 

“The new law encourages production and punishes consumption by rewarding business investments that fuel the economy,” he said.

 

 

 

 

IRS proposes new rules for deducting meals and entertainment

By Michael Cohn

 

The Internal Revenue Service has released a set of proposed regulations for businesses to follow when deducting meals and entertainment, in response to the 2017 tax overhaul.

 

The Tax Cuts and Jobs Act got rid of the deduction for any expenses related to activities typically considered to be for entertainment, amusement or recreation. It also restricted the deduction for expenses related to food and beverages offered by employers to workers.

 

The regulations proposed Monday by the IRS aim to address the elimination of the deduction for expenditures related to entertainment, amusement or recreation activities and give guidance to figure out whether an activity is considered to be entertainment. The proposed rules also deal with the limitation on the deduction of food and beverage expenses.

 

The proposed regulations can have an impact on taxpayers who pay or incur expenses for meals or entertainment. The proposed rules mainly adhere to a notice that the IRS released in 2018, Notice 2018-76, spelling out transitional guidance on the deductibility of expenses for certain business meals.

 

“Initially many were concerned it was not clear that meals had not been included as part of entertainment, since in prior acts Congress had treated meals as a subset of entertainment,” wrote Ed Zollars of Kaplan Financial Education in his Current Federal Tax Developments blog. "But the IRS indicated in the preliminary guidance given in Notice 2018-76 that the agency did not believe the law barred deductions for most meals. The preamble to the proposed regulations confirm this treatment.”

 

The proposed rules note that while the Tax Cuts and Jobs Act eliminated the deduction for entertainment expenses, Congress didn’t amend the provisions relating to the deductibility of business meals. That means taxpayers can generally continue to deduct 50 percent of the food and beverage expenses associated with operating their trade or business, including meals consumed by employees on work travel. However, as before the enactment of the TCJA, no deduction is permitted for the expense of any food or beverages unless the expense is not lavish or extravagant under the circumstances, and the taxpayer (or the taxpayer’s employee) is present while the food or beverages are being provided.

 

Taxpayers impacted by the change and others can send in comments on the proposed regulations. The IRS plans to hold a public hearing on these proposed regulations on April 7, 2020.

 

 

 

Is Maryland’s digital service tax innovative or insane?

By Shaun Hunley

 

Want to open Pandora’s Box? Talk to a tax professional about digital services taxes. In nearly every incarnation they have taken on, digital services taxes have proven controversial. Whether domestically, where at least half of the states in the U.S. have made waves by enacting digital provisions of some kind, to foreign governments like France nearly inciting a trade war with the U.S., digital taxes are not without their critics.

 

But Maryland’s proposal to tax digital ads has sailed right past controversial to land in the realm of is this really happening?

 

The structure of Maryland’s digital ad tax, which is the first major policy pitched by Senate President Bill Ferguson (D-Baltimore City) under his pledge to modernize the tax code, is unique. According to the Washington Post, the proposal would levy as much as a 10 percent excise tax on revenue companies receive from selling digital ads that target Maryland IP addresses.

 

At first blush, that may seem like the type of progressive-thinking tax that states should be leveraging. Not only does it ensure that ads that are targeted at users of Facebook, Google, Twitter and the like are taxed like any other ad buy, but legislative analysts estimate that Maryland’s plan could generate as much as $250 million per year for the state.

 

However, once you start to peel back the layers of enforcing this type of tax, the mechanics of it all seem incredibly complex and unwieldy.

 

Most notably, there’s the issue of enforcement. It’s one thing to itemize business expenses or show a company’s total gross revenues. But unlike those metrics that are easier to cross reference and confirm, states would have to rely on a huge data dump from technology companies to enforce this tax. Just how feasible is that? It’s hard to say.

 

It’s possible that there’s a path for auditors to check which IP addresses accessed certain ads, but without knowing the inner workings of how these companies collect this data, it’s possible that state enforcement officials would be shooting in the dark. Needless to say, enacting a tax without a clear path to enforcing it seems ill-advised.

 

Then there are the seemingly inevitable privacy issues. Technology companies have already been dogged by privacy concerns. Just as recently as last week, Facebook settled a lawsuit for $550 million in Illinois that carried serious privacy implications. Could a case be made that this type of tax violates similar individual privacy rights?

 

It’s possible. A tax aimed at IP addresses would undoubtedly require the tracking of geotags and location services. Many social media users sign over these rights when they agree to a site’s terms of service, but what if they opt out of location service tracking? Can a company still access those records if, say, a New York resident takes a weekend trip to Maryland, uses a Maryland-based WiFi connection, and receives targeted ads? That seems like a sticky legal situation waiting to happen.

 

Overall, this seems to violate the basic rules of good tax policy: equity and fairness. Tax law is not supposed to single out companies of a certain sector, size or profitability. It’s hard to imagine anyone making a case that this law doesn’t do exactly that. Tack on the very real enforcement, reporting and privacy concerns, and it seems like a perfect example of good intentions gone wrong with flawed execution.

 

Without communicating a thorough plan to both monitor and enforce, Maryland lawmakers are simultaneously creating a different avenue for avoidance and a huge source of confusion for companies that file in the state. Only time will tell how this will play out, but, if it does pass, don’t be surprised if the legacy of Maryland’s digital ad tax isn’t measured in revenue, but instead, in the avalanche of headaches it creates for tax professionals in its wake.

 

 

 

 

7 things you may not know about IRAs

Make sure you aren't overlooking some strategies and potential tax benefits.

FIDELITY VIEWPOINTS

 

Key takeaways

  • IRAs are available to nonworking spouses.
  • IRAs allow a "catch-up" contribution of $1,000 for those 50 and up.
  • IRAs can be established on behalf of minors with earned income.

 

It's the time of year when IRA contributions are on many people's minds—especially those doing their tax returns and looking for a deduction. The deadline for making IRA contributions for the 2019 tax year is April 15, 2020.

 

Chances are, there may be a few things you don't know about IRAs. Here are 7 commonly overlooked facts about IRAs.

 

1. A nonworking spouse can open and contribute to an IRA

A non-wage-earning spouse can save for retirement too. Provided the other spouse is working and the couple files a joint federal income tax return, the nonworking spouse can open and contribute to their own traditional or Roth IRA. A nonworking spouse can contribute as much to a spousal IRA as the wage earner in the family. For 2019 and 2020, the limit is $6,000, or $7,000 if you're over 50. The amount of your combined contributions can't be more than the taxable compensation reported on your joint return.

 

2. Even if you don't qualify for tax-deductible contributions, you can still have an IRA

If you're covered by a retirement savings plan at work—like a 401(k) or 403(b)—and your 2019 modified adjusted gross income (MAGI) exceeds applicable income limits, your contribution to a traditional IRA might not be tax-deductible.1 But getting a current-year tax deduction isn't the only benefit of having an IRA. Nondeductible IRA contributions still offer the potential for your money and earnings to grow tax-free until the time of withdrawal. You also have the option of converting those nondeductible contributions to a Roth IRA (see No. 7, below).

 

3. Beginning in 2019, alimony will not count as earned income to the recipient

Unless the new tax rule changes, you will likely not be able to use money received as alimony to fund an IRA beginning in tax year 2019.

 

That's due to changes in the law introduced by the Tax Cuts and Jobs Act of 2017: Alimony payments from agreements entered into January 1, 2019 or after, are no longer considered taxable income to the recipient—and the source of IRA contributions must be taxable earned income. Alimony agreements entered into prior to December 31, 2018 are grandfathered in; they are tax-deductible for the person making the payments, and count as income to the recipient. It is the date of the agreement that decides the taxation of the alimony payment; not the year of receipt of the funds.

 

4. Self-employed, freelancer, side-gigger? Save even more with a SEP IRA

If you are self-employed or have income from freelancing, you can open a Simplified Employee Pension plan—more commonly known as a SEP IRA.

 

Even if you have a full-time job as an employee, if you earn money freelancing or running a small business on the side, you could take advantage of the potential tax benefits of a SEP IRA. The SEP IRA is similar to a traditional IRA where contributions may be tax-deductible—but the SEP IRA has a much higher contribution limit. The amount you, as the employer, can put in varies based on your earned income. For SEP IRAs, you can contribute up to 25% of any employee's eligible compensation up to a $56,000 limit for 2019 contributions and $57,000 for 2020. Self-employed people can contribute up to 20%2 of eligible compensation to their own account. The deadline to set up the account is the tax deadline—so for 2019 it will be April 15, 2020 (for a calendar-year filer). But, if you get an extension for filing your tax return, you have until the end of the extension period to set up the account or deposit contributions.

 

5. "Catch-up" contributions can help those age 50 or older save more

If you're age 50 or older, you can save an additional $1,000 in a traditional or Roth IRA each year. This is a great way to make up for any lost savings periods and make sure that you are saving the maximum amount allowable for retirement. For example, if you turn 50 this year and put an extra $1,000 into your IRA for the next 20 years, and it earns an average return of 7% a year, you could have almost $44,000 more in your account than someone who didn't take advantage of the catch-up contribution.3

 

6. You can open a Roth IRA for a child who has taxable earned income4

Helping a young person fund an IRA—especially a Roth IRA—can be a great way to give them a head start on saving for retirement. That's because the longer the timeline, the greater the benefit of tax-free earnings. Although it might be nearly impossible to persuade a teenager with income from mowing lawns or babysitting to put part of it in a retirement account, gifting money to cover the contribution to a child or grandchild can be the answer—that way they can keep all of their earnings and still have something to save. The contribution can't exceed the amount the child actually earns, and even if you hit the maximum annual contribution amount of $6,000 (for 2019 and 2020), that's still well below the annual gift tax exemption ($15,000 per person in 2019 and 2020 or with gift splitting, a married couple could gift their child $30,000 a year.)

 

The Fidelity Roth IRA for Kids, specifically for minors, is a custodial IRA. This type of account is managed by an adult until the child reaches the appropriate age for the account to be transferred into a regular Roth IRA in their name. This age varies by state. Funds in the custodial IRA do not count toward assets when considering Expected Family Contributions for college. Bear in mind that once the account has been transferred, the account's new owner would be able to withdraw assets from it whenever they wished, so be sure to educate your child about the benefits of allowing it to grow over time and about the rules that govern Roth IRAs.

 

7. Even if you exceed the income limits, you might still be able to have a Roth IRA

Roth IRAs can be a great way to achieve tax diversification in retirement. Distributions of contributions are available anytime without tax or penalty, all qualified withdrawals are tax-free, and you don't have to start taking required minimum distributions at age 72.5,6 But some taxpayers make the mistake of thinking that a Roth IRA isn't available to them if they exceed the income limits.7 In reality, you can still establish a Roth IRA by converting a traditional IRA, regardless of your income level.

 

If you don't have a traditional IRA you're still not out of luck. It's possible to open a traditional IRA and make nondeductible contributions, which aren't restricted by income, then convert those assets to a Roth IRA. If you have no other traditional IRA assets, the only tax you'll owe is on the account earnings—if any—between the time of the contribution and the conversion.

 

However, if you do have any other IRAs, you'll need to pay close attention to the tax consequences. That's because of an IRS rule that calculates your tax liability based on all your traditional IRA assets, not just the after-tax contributions in a nondeductible IRA that you set up specifically to convert to a Roth. For simplicity, just think of all IRAs in your name (other than inherited IRAs) as being a single account.

 

 

 

IRS plans visits to high-income taxpayers who didn’t file returns

By Michael Cohn

 

Internal Revenue Service officials said Wednesday they will be visiting approximately 800 taxpayers who earn over $100,000 a year and haven’t filed one or more tax returns in prior years.

 

Thanks to recent budget increases, the IRS has been able to hire more revenue officers to handle tax enforcement, and the agency plans to increase its visits to high-income taxpayers amid criticism that it focuses too much on auditing low-income taxpayers who claim the Earned Income Tax Credit. The visits are mainly aimed at reminding non-filing taxpayers about their obligations to file and pay their taxes, and bringing them into compliance.

 

“Our priority is to step up our face-to-face compliance efforts with the high-income non-filing population," said Paul Mamo, director of collection operations at the IRS’s Small Business/Self Employed Division, during a conference call with reporters. “We have several thousand employees stationed across the country tasked with collecting delinquent taxes and securing tax returns, both business and individual tax returns, in a fair and equitable manner.”

 

He noted that the revenue officers will be visiting taxpayers who have already received correspondence from the IRS reminding them of their tax-filing delinquency. “All of them have been in contact with us through some sort of correspondence,” said Mamo. “There have been several contacts made with these taxpayers over the course of several months and in some cases several years.”

 

The IRS revenue officers will be carrying at least two forms of identification on their visits to reassure taxpayers they aren’t scammers.

 

“High-income and other taxpayers who don’t file their tax returns when they’re required to are engaged in noncompliance, and addressing that noncompliance is a priority for the IRS, as part of our overarching responsibility to ensure fairness and equitable treatment to all taxpayers, including those who do comply with the tax laws,” said Hank Kea, director of IRS field collection operations.

 

The visits will be starting this month. “These visits are going to be taking place across the country, with our initial visits occurring this month, during February and March, to some of the most egregious higher-income delinquent filers, and then there will be subsequent visits to other higher-income delinquent filers that will be taking place during the year,” said Kea. “When our revenue officers contact these taxpayers, they will explain to them their rights. They will educate them as to their tax filing and payment, and the revenue officer will work with the taxpayer to appropriately resolve their noncompliance, whether that's restricted to the unfiled return and, of course, any taxes that are owed as a result.”

 

He noted that the IRS can go beyond just visits all the way to criminal prosecution. “In those instances where the taxpayer refuses to file or pay their taxes, it’s important to remember that the IRS has a number of options, including civil enforcement actions, and even when appropriate considering pursuing criminal cases against those who refuse to comply with the law,” said Kea. “Taxpayers who don’t file and pay their taxes when they’re required to are engaging in noncompliance, and that's a huge priority for IRS enforcement.”

 

Accounting Today asked about whether the effort was meant to counter recent articles about how the IRS is more likely to audit low-income taxpayers than high-income taxpayers.

 

“We look at a fair and balanced approach,” Mamo responded. “As far as collection efforts, we have folks across income levels, both low and high, which we are talking about today. Our collection efforts are focused on all stratospheres of income.”

 

“From the standpoint of field collection, and our field revenue officers who will be going out on these higher-income non-filer cases, it stands to reason we would be sending revenue officers out because oftentimes when you have a higher-income, non-filer type of case, the financial situation and the filing scenario may be a bit more complex,” said Kea. “We have a variety of ways that we address noncompliance. In this case we’re focusing our field-facing revenue officers toward some of these higher-income non-filer cases, but there are other ways the IRS addresses noncompliance, whether you’re talking about other types of issues, other income levels, etc.”

 

 

 

Senate Democrats introduce bill to eliminate GILTI tax loophole

By Michael Cohn

 

Sen. Ron Wyden, D-Ore., the top Democrat on the Senate Finance Committee, and Sen. Sherrod Brown, D-Ohio, have introduced legislation to block the Treasury Department from providing a way for multinational corporations to choose the lowest available tax rate.

 

The legislation involves the provision in the Tax Cuts and Jobs Act of 2017 that imposes a Global Intangible Low-Taxed Income, or GILTI, regime on multinational companies (see our story). GILTI offers a special low tax rate for U.S. multinationals, enabling them to pay a 10.5 percent tax on their foreign earnings, or half the 21 percent corporate tax rate.

 

Multinationals can additionally lower this reduced tax rate by claiming credits for taxes paid to foreign countries, though long-standing rules limit the amount of these “foreign tax credits” a company may take (see our story). However, some multinationals were dissatisfied with the combination of limits on foreign tax credits and the new GILTI regime, and so they reportedly lobbied Treasury for a way out of paying what they owe.

 

The senators contend the Treasury Department went beyond its legal authority to create the desired tax break for the multinationals in proposed regulations. The regulations propose an elective exemption from paying any GILTI taxes on certain income, if companies pay at least an 18.9 percent effective tax rate on that income. The GILTI High-Tax Exclusion would allow companies to choose how they want to be taxed under the GILTI regime. Corporations naturally will only use the exception when it cuts taxes on their offshore income.

 

“When the big multinational corporations said ‘jump,’ the Treasury Department asked ‘how high?’ Treasury has overstepped its authority to unilaterally give companies billions in tax breaks on top of the hundreds of billions in tax breaks they’ve already received,” Wyden (pictured) said in a statement Wednesday. “Our bill would block the proposed giveaway that essentially allows corporations to choose the lowest available tax rate. Working families don’t get this perk and big corporations shouldn’t either.”

 

 

 

Tax refunds down almost 5% as U.S. filing season gets underway

By Laura Davison

 

The number of tax refunds issued so far this tax season is down almost 5 percent compared to last year, an indication that many Americans didn’t withhold enough from their paychecks and could face bills from the IRS.

The IRS issued more than 10.8 million tax refunds through the week ending in Feb. 7, according to statistics published Thursday. The agency had issued nearly 11.4 million at the same point in the tax filing season last year.

 

The statistics show that the number of tax returns submitted and processed are roughly in line with last year, down only 0.4 percent, according to the IRS’s figures. The amount of the average refund, at $1,952, is up $3.
 

The decline in the number of refund checks was a sore point during last spring’s tax filing — the first after President Donald Trump’s $1.5 trillion tax cut went into effect — as many taxpayers expected to see benefits from the law that cut income tax rates, boosted the child tax credit and increased the standard deduction.

 

The number of refunds and the average check size at the beginning of the 2019 tax season were significantly lower than the previous year, but the gap narrowed as more people filed. At the end of the year, the IRS reported it issued about 343,000 fewer refunds than the year prior.

 

More than 80 percent of filers received a tax cut under the new law, but changes in withholding rates meant that many got the tax cut in small chunks in their paychecks throughout the year, rather than in one large payment after filing their tax return.

 

Withholding calculator

The IRS has created a withholding calculator to help taxpayers determine how much they should withhold to get the refund they want. The agency also released an updated W-4 form in January for employees to direct how much their employers should take out of their paychecks. Workers starting new jobs will automatically fill out the new form, but any employee can update their withholding on the new form even if they aren’t changing jobs.

 

Another factor could be contributing to the lower number of refunds: intentional delays. The IRS holds all payments that contain some refundable tax credits, such as the earned income tax credit, until mid-February to screen them for fraud.

 

The IRS is encouraging taxpayers to use the agency’s website to get answers to questions and file electronically to receive their refunds more quickly, especially as more people file their taxes over the President’s Day weekend.

 

“Filing electronically reduces tax return errors as the tax software does the calculations, flags common errors and prompts taxpayers for missing information,” the IRS said in a statement Thursday.

 

 

 

IRS sees spike in data breaches for tax pros this year

By Michael Cohn

 

The Internal Revenue Service, along with its Security Summit partners at state tax authorities and tax prep companies, urged tax professionals and taxpayers Friday to use the free, multi-factor authentication feature offered on tax preparation software products, as nearly two dozen tax practitioner firms have reported data thefts to the IRS so far this year.

 

The IRS noted that use of multifactor authentication is a free, simple way for tax practitioners to protect their clients and their own firms’ offices from data theft. Tax software vendors also provide free multi-factor authentication protections on their Do-It-Yourself products for taxpayers.

 

“The IRS, state tax agencies and the private-sector tax industry have worked together as the Security Summit to make sure the multi-factor authentication feature is available to practitioners and taxpayers alike,” said Kenneth Corbin, commissioner of the IRS Wage and Investment division in a statement Friday. “The multifactor authentication feature is simple to set up and easy to use. Using it may just save you from the financial pain and frustration of identity theft.”

 

Multifactor authentication should be familiar by now to many users of web and mobile applications. It means returning users need to enter their username and password credentials, along with another data point that only they know, such as a security code sent to their mobile phone. For example, thieves may steal passwords but will be unable to access the software accounts without the mobile phones to receive the security codes.

 

Multifactor authentication protections are now offered by many financial institutions, email providers and social media networks to safeguard online accounts. Users should always opt for multifactor authentication when it’s offered, but particularly with tax software because of the sensitive data held in the software or online accounts.

 

The IRS also reminded tax pros to beware of phishing scams frequently used by cyber thieves to get control of their computers. Fraudsters may claim to be a potential client, a cloud storage provider, a tax software vendor or even the IRS in their effort to convince tax pros to download malware attachments or open links. The scams typically come with an urgent message, implying there are issues with the tax professionals’ accounts that demand immediate attention.

 

The IRS also reminded tax practitioners that they can keep tabs on the number of returns filed with their Electronic Filing Identification Number (EFIN) every week. That helps ensure EFINS are not being misused. They can visit the IRS e-Services, page access the EFIN application and select EFIN status to view a weekly total of returns filed using the EFIN. If there seem to be be too many returns, tax pros should contact the IRS immediately.

 

For more information, visit the Identity Theft Information for Tax Professionals page, along with Publication 4557, Safeguarding Taxpayer Data, provides a comprehensive overview of steps to protect computer systems and client data.

 

 

 

IRS lets taxpayers use cash, but few people do

By Michael Cohn

 

The Internal Revenue Service introduced a new payment option in 2016 that lets individuals pay their taxes with cash at participating retail chains, but less than 700 payments have been made each year since the option was made available, according to a new report.

 

The report, from the Treasury Inspector General for Tax Administration, noted that through the partnerships established by the IRS, individual and business taxpayers can make a payment at more than 9,200 retail stores in 44 states. There’s no cost to the IRS to provide this option, but taxpayers are charged a fee of $3.99 per payment.

 

The cash option is available at participating PayNearMe payment locations (places like 7-Eleven and two other convenience store chains) in 44 states. PayNearMe is a private company that enables government agencies and businesses to accept cash payments remotely at retail stores.

 

The IRS began providing the cash option to make it easier for people without bank accounts to pay their taxes. According to the Federal Deposit Insurance Corporation, in 2017 there were 8.4 million households in the U.S. that had no checking or savings account, TIGTA noted. “Some of these unbanked households may need to pay their taxes with cash,” said the report. “In addition, some taxpayers with a checking or savings account may prefer to pay with cash. Previously, taxpayers could only pay with cash at a limited number of Taxpayer Assistance Centers.”

 

TIGTA decided to test the cash option for itself. Some of its own employees made cash payments at participating retailers and found that for the locations they visited, the payment option was user friendly and efficient. Taxpayers need to fill out an online application first, but TIGTA said it’s straightforward and requires information that’s readily available to the taxpayer, such as an address and date of birth.

 

TIGTA employees simulated the taxpayer experience by making 19 payments at 18 locations among the three participating retailers. The correspondence needed to make each payment was given to the taxpayer in a timely manner, and all payments were posted to online tax accounts on a timely basis.

 

Yet despite the usefulness of the program, relatively few tax payments have been made with cash at participating retail stores. Less than 700 payments have been made annually since the service was implemented.

While the number of taxpayers who would prefer to use such a service is unknown, TIGTA identified a number of reasons that could contribute to the low participation rate. First, the payment process requires taxpayers to scan a barcode at a participating retail store within seven calendar days of the bar code being issued. If it’s not scanned within these seven days, the bar code expires and a new bar code needs to be issued before a payment can be made. In 2018, more than 80 percent of the bar codes that the IRS issued expired. Second, the IRS doesn’t routinely advertise or promote the cash payment option, so most taxpayers are unaware the option even exists. Finally, while the external partnership increased the number of locations where taxpayers can pay with cash, TIGTA noted that geographic coverage could be improved. For instance, Mississippi has the highest percentage of unbanked households, but it has no participating retailer that accepts cash for tax payments.

 

TIGTA recommended that the IRS consider working with its outside partners to add more retailers in underserved areas. It also suggested the IRS consider extending or eliminating the bar code expiration time frame to reduce the burden on taxpayers. The report also recommended that the IRS do more public outreach to increase taxpayer awareness of the cash payment option and update its internal guidance. The IRS agreed with two of the recommendations, but disagreed with the one about the bar codes, saying there’s not enough evidence to suggest that taxpayers are harmed under the current bar code policy.

 

An IRS official pointed out that there was an increase in popularity of the cash option last year. “The usage of our Cash Payment Option has been historically low since the inception of the program in March of 2016,” wrote Kenneth C. Corbin, commissioner of the IRS’s Wage and Investment Division, in response to the report. “However, we have seen increased use in 2019 with 675 payments processed and over $210,000 received as of Oct. 18, 2019m for an increase in volume of more than 14 percent and an increase of dollars of more than 11 percent. This is a specific population that may have a need to pay with cash.”

 

 

 

7 Crazy Things People Have Deducted

By Ginita Wall, CPA

 

When it comes to U.S. taxpayers, there’s no end to the ingenuity applied when it comes to weird tax deductions and the crazy reasons given to justify them. Though some of them may seem like a reach, sometimes the IRS even goes along with it. Here are some unique examples that are not explicitly in the tax law but have been fought for by some taxpayers:

 

  1. Cat food. A junkyard was having a problem with snakes, which were attracted to the rats overrunning the yard. The owners of the junkyard started setting out cat food each night to attract feral cats, which caught the rats and decreased the number of snakes slithering into the yard to look for their next meal. The IRS allowed the junkyard to deduct the cost of the cat food as a business expense.

 

  1. Boob job. When is plastic surgery a business expense? When stripper Chesty Love gets one to improve her stage appeal. While the IRS initially said that plastic surgery was a personal expense, Ms. Love argued that her assets were stage props necessary to her act, and the IRS ultimately agreed.

 

  1. Babysitting costs. A stay-at-home mom wasn’t eligible for the child care credit as she wasn’t employed, but she found a way to deduct babysitting anyway – as a charitable donation! The IRS allowed the deduction, agreeing that the child care was necessary so she could leave the house to do volunteer work.

 

  1. A private jet. A taxpayer with a rental condo in a remote area bought a jet so he could fly to check on his income-producing rental. The IRS agreed that all the costs of operating the jet to fly to the remote area and back were deductible as a rental expense.

 

  1. Music lessons. If an orthodontist recommends that your child take up the clarinet to improve their overbite, the cost of the lessons to teach your child how to play a musical instrument could qualify as a tax-deductible medical expense.

 

  1. An extravagant party. Prior to the new tax reform law, throwing a big shindig and inviting your clients may have been tax-deductible entertainment if the main reason for the party was business entertainment. Some folks have gone overboard and tried to deduct the costs of their daughters’ weddings — that’s a no-no, even if you invite clients since the reason for the expense is strictly personal. Now there is no question as to what is appropriate, as beginning with tax year 2018, taxpayers can no longer deduct entertainment expenses for clients.

 

  1. A dog. If you need a service dog, you may garner a medical deduction for pet-related expenses, including training and transportation. Expenses related to a guard dog for a construction yard may be a justifiable business expense. But the family dog? It’s a no go (even if you give it a “human name” and treat it like one of the family).

 

Don’t worry about knowing what tax deductions you can legitimately claim. TurboTax will ask you simple questions and give you the tax deductions and credits you’re eligible for. If you have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent to get your tax questions answered all year long. A TurboTax Live CPA or Enrolled Agent can even review, sign, and file your tax return.

 

 

 

Michigan’s Marketplace Facilitator Sales Tax Law, Explained

by Jennifer Clark

 

Good news for marketplace sellers! The state of Michigan now requires marketplaces to collect sales tax on behalf of sellers on online marketplaces like Amazon or eBay.

 

This means that if you sell on a platform like Amazon, then Amazon will collect sales tax from your Michigan buyers on your behalf, and remit it to the state. 

 

But as usual, states manage to throw a monkey wrench in here and there when it comes to eCommerce sales tax. 

 

This post will explain what online sellers need to know about the Michigan marketplace facilitator law, and answer your frequently asked questions. 

 

Overview of the Michigan Marketplace Facilitator Law

 

Michigan’s marketplace facilitator law states that marketplace facilitators who generate $100,000 or more in sales, or generate sales in 200 or more separate transactions, must collect sales tax on behalf of third-party sellers on sales made through that marketplace.

 

Quick Facts about the Michigan Marketplace Facilitator Law

 

Frequently asked Questions about Marketplace Facilitator Laws

 

What exactly is a marketplace facilitator in Michigan?

Michigan law defines marketplace facilitators as a “person that facilitates retail sales for third-party marketplace sellers by listing or advertising the seller’s product for sale on its marketplace, and either directly or indirectly (through agreements with third parties or the facilitator’s affiliates), collects payment from retail purchasers and transmits that payment to marketplace sellers for consideration.”

 

Online sales platforms like eBay and Amazon are considered marketplace facilitators under Michigan law. 

A software like BigCommerce or Ecwid that allows online sellers to build and manage their own stores would not be considered a marketplace facilitator. 

 

Does this mean I can stop collecting Michigan sales tax?

It depends. Every business’s sales tax situation is unique to that business. 

Let’s look at a couple of common scenarios for businesses who have sales tax nexus in Michigan. 

Example #1: You only make sales on online marketplaces. 

In this example, you only sell on Amazon and Etsy. Because Amazon and Etsy are both now collecting sales tax from Michigan buyers on your behalf, you are not required to collect sales tax from your buyers. (However, as a seller with nexus in the state, you will still be required to file periodic sales tax returns. See “Does this mean I can cancel my Michigan sales tax permit?” below.)

Example #2: You sell on online marketplaces and your own online store and/or brick and mortar store.

In this case, you’d still be required to collect sales tax from buyers who purchase from you through your own online store (for example, via your BigCommerce or Magento store). And you would still be required to collect sales tax from your brick and mortar customers. 

Marketplace facilitator laws only cover marketplaces. The state still requires that merchants collect sales tax from buyers via sales channels where the marketplace facilitator laws do not apply.

 

Does this mean I can cancel my Michigan sales tax permit?

It depends. 

If you have sales tax nexus in Michigan:

Michigan’s marketplace facilitator law does not affect the sales tax registration requirements for existing sellers. So if you live or otherwise have sales tax nexus in Michigan (including Michigan economic nexus), then you are still required to hold a Michigan sales tax permit. This also means you are still required to file sales tax returns on due dates set for you by the state. 

Michigan requires that sellers with nexus in the state remain registered in order to remit the General Excise tax.

If you do not have sales tax nexus in Michigan:

However, if you are registered to collect sales tax in Michigan, do not have any other sales tax nexus (including economic nexus) in Michigan, and only make marketplace sales in Michigan, you can most likely cancel your sales tax permit. 

But first, a word of caution. We recommend checking directly with the state or a sales tax expert before cancelling your sales tax registration. This is because your business is now on the state of Michigan books and potentially on their radar should they decide that you still have sales tax obligations in the state of Michigan. 

Final note: It’s important to assess your business before making a decision about cancelling sales tax permits. Are you in a growth stage? Do you plan to expand and think you may have Michigan sales tax collection requirements in the future? Then you may want to hang on to your Michigan sales tax permit rather than cancelling it and going through the administrative hassle of registering again in the future. This business decision is up to you.

 

Do I still need to file a Michigan sales tax return?

If you are registered to collect sales tax in Michigan (i.e. you have an active Michigan sales tax permit) then the state still requires that you file sales tax returns.

If you only make sales via marketplaces, and all of your marketplaces collect sales tax from buyers on your behalf, then you may only be required to file a “zero return.” (This is a return showing that you do not have any sales tax to remit to the state.) (All see “Does this mean I can cancel my Michigan sales tax permit?” above.)

If you no longer have any sales tax to remit to the state of Michigan, we recommend checking directly with the state to determine if you can cancel your sales tax registration.

Be cautious here. If you are registered for a sales tax permit and do not file, the state can assess penalties even though you don’t have any sales tax to remit! We have, unfortunately, talked to too many sellers who have found this out the hard way when a tax penalty bill arrives.

 

What do I do with any Michigan sales tax I have already collected?

If you have already collected Michigan sales tax from buyers, it is vital that you remit that amount to the state. The only way to get in serious criminal trouble in sales tax is to collect sales tax from buyers on the state’s behalf but keep it in your own pocket. 

Example:

Let’s say you sell on Amazon and Michigan requires you to file and remit sales tax quarterly. Though Amazon began collecting sales tax on your behalf on January 1, if you have any sales tax in your bank account that you collected from Q4 2019, you will still need to remit that to the Michigan Department of Treasury or face a penalty. 

 

Does TaxJar handle this for me? 

Yes. 

TaxJar AutoFile Handles Michigan Sales Tax Automatically

TaxJar AutoFile automatically compiles your sales tax data the way the state of Michigan wants it filed. For example, many states, Michigan included, want sellers to break down their sales tax collected interstate (sales originating in Michigan sent to another state) and intrastate (sales made from Michigan to Michigan.) 

If a marketplace has collected sales tax on your behalf, TaxJar reports that directly to the state so that the state is aware you have met your sales tax obligations. 

Most states, Michigan included, also want you to break out your marketplace vs. non-marketplace sales. TaxJar AutoFile also does this automatically.

If you currently AutoFile your Michigan sales tax returns, you don’t need to do a thing. It’s handled!

 

TaxJar Reports Give You all the Info You need to File Manually

If you prefer to file manually, your TaxJar Reports also reflect what the Michigan Department of Treasury wants to see on your tax return. 

Also don’t worry that you will double pay. TaxJar accounts for sales tax collected on your behalf, and only shows you the amount you owe to the state out of your pocket.

Further reading on Michigan sales tax and marketplace facilitator laws:

Don’t have time to keep up with changing state legislation? TaxJar tracks it for you and can file your state sales tax returns automatically with AutoFile, so you can set it and forget it.

  Please note: This blog is for informational purposes only. Be advised that sales tax rules and laws are subject to change at any time. For specific sales tax advice regarding your business, contact a sales tax expert.

 

Not All Tax Returns Have Been Extended

Ross Fox, EA

Friday night, the IRS made it official regarding income tax returns due on April 15th; they are now due on July 15th. However, not all returns have been extended.

First, while I expect most states to conform to this deadline it may take a week or two for this to occur. The AICPA is maintaining a list. Local property taxes are also still due as normal (in most areas).

But when we look at federal returns, not everything was extended. Let’s look at this form by form:

  • Forms 1040, 1040-NR, 1040-SR, 1041, and 1120: These are now due on July 15th.
  • Forms 1040-ES: This is where it gets confusing. First quarter payments due on April 15th have been extended to July 15th. However, second quarter payments due on June 15th are still due on June 15th. There is legislation pending in Congress that would extend the deadline for paying the first three quarters of estimated tax payments to October 15th. Some states (e.g. California) have extended second quarter payments to July 15th.
  • Forms 1065 and 1120-S: These were due on March 16th and were not extended.
  • Form 720 (Excise Tax): These are still due on the original due dates.
  • Form 941 and Other Payroll Tax Forms: These are still due on the normal dates.
  • Form 990 (Non-Profits and Charities) Series: These are due on May 15th. As of today, they have not been extended.
  • Form 3520A: This was due on March 16th and was not extended.
  • Form 3520: This is still due on April 15th. However, an extension of time for Form 1040 extends the time for Form 3520. It’s unclear whether anyone not filing an extension has until July 15th to file Form 3520. The simple solution for anyone filing Form 3520 is to extend your return by filing Form 4868 or Form 7004.
  • Forms 4868/7004 (Tax Extensions): These are now due (assuming the underlying return has been extended) on July 15th. It is unclear how long an extension will be for (will extended returns be due on October 15th or January 15, 2021?).
  • Forms 8804/8805: The due dates of these have not changed from April 15th.
  • Form BE-10 Series: These are still due on May 29th. This is the required every five-year survey of US ownership of foreign entities.
  • Backup Withholding Payments: These are still due as normal.
  • FBAR (FINCEN Form 114): This was not extended. However, while the FBAR is due on April 15th, there is an automatic extension until October 15th.

I’m sure I missed a tax or two (and I’ll expand this as needed), but there are traps for the unwary.

 

 

 

Time out: How the deadline postponement is affecting tax preparers

By Jeff Stimpson

 

The pandemic has officially pushed filing day for the federal government and a growing list of states into the summer. As it’s done to many other aspects of society, the outbreak has also upended the definition of “reprieve” for preparers.

 

Is it a real breather? And what are clients saying?

 

“Breather? Ha!” said John Dundon, an Enrolled Agent and president of Taxpayer Advocacy Services, in Englewood, Colorado. “We’re pulling hair out over here and can only imagine our time and attention in highest demand for the unforeseeable future. Everyone is so confused and there is so much disinformation floating around.”

 

 “The official pushback of federal day came after so much drama!” said Manasa Nadig, an EA and owner at MN Tax and Business Services and a partner at Harris Nadig, in Canton, Michigan. “Between the time the government had tweeted out the news and the time the IRS confirmed it, I had been flooded with phone calls, text messages and emails.”

 

“Since I’ve been moving my office to home the last few days, it will help, but since I would have filed extensions for my clients anyway (and still plan on doing so to make sure Oct. 15 is still in play) plus will get done clients with tax liabilities first anyway, it won’t change my season significantly one way or the other,” said Brian Stoner, a CPA in Burbank, California.

 

“It is helping a little bit,” said Morris Armstrong, an EA and registered investment advisor at Armstrong Financial Strategies in Cheshire, Connecticut. “Frankly, the delay of the payment date may be more beneficial than the actual delay of filing date.”

 

“The postponement may have helped regarding completing everything by April 15,” said Twila Midwood, an EA at Advanced Tax Centre, in Rockledge, Florida, “but extra time has now resulted [in] fielding phone calls and emails, sending client newsletters regarding the postponement of tax payments followed by yet another newsletter regarding postponement of the filing date and working with those who had or have a balance due to accommodate for the July 15 date. All of this at non-billable time!”

 

Sheltering in place

Tax preparers are both affected and not affected by the isolation orders spreading nationwide. CPA Larry Pon in Redwood City, California, has been sheltering in place for several days, though of course prep is considered an essential business.

 

“We’re in the same category as marijuana dispensaries,” Pon said. “Good to know I am in an essential business. Accordingly, I’m sheltered in place here in my office. My business is not set up to work from home — I intentionally did that to separate work from home.”

 

Pon has switched face-to-face appointments to the phone. “We’re telling clients to send their information to us,” he said, adding that they can drop material personally but without contact, use a shipping service, email or fax or upload to secure sites. “I use FileShare and Verifyle. I’m not comfortable with Dropbox or Google Docs since I get a lot of phishing emails from them. If I need to share my computer screen, I use Zoom.”

 

“With most taxpayers quarantined or under self-quarantine this last week, many complicated clients have found themselves also working on their tax stuff, a.k.a. calling [us] with questions,” said Dundon in Colorado. “Being bombarded with complicated tax questions while in the mindset of efficient, mistake-free processing for our most favored early birds has been extraordinarily challenging.”

 

At the time of his response, the home state of EA Joel Grandon in Marion, Iowa, reported fewer than 70 cases of coronavirus. But “with multiple states issuing a self-quarantine order and many others rumored to be doing so, my clients are anxious to get their returns picked up,” he said. “Many of my clients are appreciative of the extended payment date and our snowbird clients are thankful with the extended filing date that they can wait until they come home in May to bring their documents to me. Many of them are nervous about mailing them when they are gone, and that demographic doesn’t exactly embrace the technology of portals.”

 

“A few [clients] have expressed relief in knowing that they don’t have to rush to get their tax information to their preparer. Most have already gotten their info in and are expecting their 2019 returns to be prepared by April 15,” said Bruce Primeau, a CPA at Summit Wealth Advocates, in Prior Lake, Minnesota. “It presents an opportunity for our clients who have balances due to hold onto their money for a bit longer to earn more interest income. That said, we always encourage clients to get their tax information to their preparer as soon as possible. It gets pretty frustrating when clients wait to deliver their information until just before the filing deadline and then expect a very quick turnaround.”

 

“Clients are happy,” Midwood added. “Those who [always] try to wait until the last minute will still wait until the last minute.”

 

“The most difficult part for me as an employer may be helping my administrative staff see the urgency of completing the season as close to April 15 as possible,” Grandon added.

 

When and if

“The IRS was not clear as to when the 4868 due date was,” said Bill Nemeth, president and education chair of the Georgia Association of Enrolled Agents, who added that his software provider has found out that the last day to file a 4868 extension is July 15 to extend the due date to Oct. 15. Filing a federal 4868 also automatically extends his state’s deadline to Oct. 15, Nemeth added.

 

“I’m filing 4868 in all required cases by April 15 because I don’t want to spend hours on the phone with the IRS down the road when they tell me their interpretation of these rules,” he said.

 

Other preparers have wondered when and if postponements are coming on other federal returns, such as the 8938, 3520, 3520A, 5471, 8865 and 8858. Questions also remain on quarterly estimated payments.

 

Advice on how clients can use the extra time varies. Pon, for instance, is letting clients choose. “One client wants to put off his payment to July 15 and invest the money in a U.S. Treasury fund,” he said. “I certainly do not recommend using this money to play this crazy stock market.”

 

And the preparers themselves? “I’m personally still paying my taxes on April 15 and June 15, since I may forget by July,” Pon said. “I’m expecting to see the number of cases going up before it goes down. I’m also looking forward to tuning on the news and this story not being the first story.”

 

 

 

Biggest tax procrastinators found in California and Las Vegas

By Michael Cohn

 

The states with the most tax-filing procrastinators are California and Nevada, while Las Vegas and Denver were the top cities for those who wait until the last minute, according to a new survey.

 

The survey, from the investment property exchange company IPX 1031, polled 1,000 Americans to learn more about their tax-filing habits. The company also analyzed Google search data from all 50 states and the 30 largest American cities during last year's tax season to figure out which cities and states could boast of the biggest tax procrastinators.

 

The researchers analyzed phrases and questions related to filing taxes such as: "Can I file taxes late?" and "I need a tax extension" along with"last day to file taxes" in addition to 50 other variations of common tax- filing keywords and phrases.

 

They found the states with the biggest tax procrastinators are;

1. California
2. Nevada
3. Texas
4. Colorado
5. Oregon
6. Washington
7. Hawaii
8. Georgia
9. Arizona
10. Maryland

 

The cities with the most tax procrastinators are:

1.Las Vegas
2. Denver
3. Seattle
4. San Francisco
5. Washington
6. Portland
7. Austin
8. Baltimore
9. Dallas
10. Houston
 

2.Taxpayers usually can file for an extension to put off filing their tax returns for an extra six months, although they’re supposed to pay any taxes due by April 15, or at least an estimate of them. This year, the Trump administration is considering extending the deadline even further because of the coronavirus, so procrastinators are likely to get even more time to file their returns.

 

The survey also asked several other questions and found that nearly a quarter of the respondents didn't know that Tax Day is April 15. The researchers also asked about predictions and plans for tax refunds. This year the survey respondents expect to receive an average tax refund of $1,982. The top ways they plan to use their refund include paying off debt (39 percent), saving (31 percent), investing (14 percent), vacation (8 percent), major purchases (4 percent) and other (4 percent).

 

Last year, the IRS received the most tax returns during the week of Tax Day (17,806,000 tax returns). The second most popular week to file taxes was the first week of tax season (16,035,000 tax returns).

 

 

 

The war on fraud: Protecting clients from tax scams

By Jeff Stimpson

 

An estimated one in every 10 American adults loses money in a phone scam every year — almost $10 billion overall. Tax season, of course, brings its own flood of fraud schemes — and there are even scams circulating now regarding the coronavirus. Reassurance about, and countermeasures to, money scams have become new branches of client service.

 

“Clients are and always have been concerned about frauds and scams," said Debra James, an Enrolled Agent at Genesis Accounting & Management Services in Lorain, Ohio. "We tell them the facts as we know them, one being that the IRS will never call prior to written correspondence and will never threaten lawsuits without a great deal of prior interaction, certainly not over the phone. We get many calls asking if the calls they get are legitimate, and we assure them that they are not.”

 

“Every time I have someone contact me regarding a call or letter or an email, I tell them to ignore these calls and we go over best practices to protect ourselves,” said Manasa Nadig, an EA and owner at MN Tax and Business Services and a partner at Harris Nadig, in Canton, Michigan. “I bring to their attention that the IRS and Social Security Administration never call taxpayers and are requiring tax professionals to have a written data security plan.”

 

The number of Americans ages 65 and over is projected to nearly double by 2060. And most would prefer to age in place and hiresenior caregivers if needed.

 

It’s hard to tell whether my clients are concerned in general or because I continually remind them of various scams and fraud alerts,” said Phyllis Jo Kubey, an EA in New York. “One of the toughest habits to break for my clients is emailing tax documents and other sensitive information. I use a secure messaging platform [and] my clients are getting better, but some still slip, whether it’s forwarding a W-9 that their subcontractor sent to them or a tax document they just downloaded on their phone.”

 

“When I tell my clients I won’t open an email attachment, and I tell them why, they gain a new level of understanding,” Kubey added.

 

Making the list

The most recent IRS Dirty Dozen tax scams includes several that clients might run into: fake emails, text messages, websites and social media attempts to steal personal information; tax-related ID theft when someone uses a stolen Social Security number or ITIN to file a phony return; or tax-time phone scams where aggressive criminals pose as IRS agents to steal money or personal information.

 

James McGrory, a CPA and shareholder at Drucker & Scaccetti in Philadelphia, recently had a wealthy family client who was contacted by someone purportedly from the Social Security Administration requesting her bank account information. “It was scary how much identifying information the scammer knew about the client,” McGrory said.

 

“While the client was extremely upset about the call, she was wise to not provide any additional information and she immediately hung up,” McGrory said.

 

The IRS Identity Theft Central page has information on helping preparers’ clients (both business and individuals) recover from ID fraud and theft, as well as information on liabilities. The American Institute of CPAs also offers an ID-theft prevention checklist and toolkit.

 

“On the occasion when we do get rejected returns because of a prior fraudulent filing, indicating that there is some ID theft, we have a protocol for completing the necessary forms for both federal and state to send in with their paper-filed returns at no additional charge,” James said. “We also counsel them on additional steps to take to protect themselves and to allay their fears.”

 

Winning the fight?

Tax fraud is supposedly down but some 15.4 million consumers still reported being victims of ID theft or fraud in recent years. Researchers claim that’s one of the highest levels since they began tracking the crime.

 

“Fortunately, the ID-theft issues we’ve seen with returns dropped significantly over the past two years,” Lawrence Pon, a CPA in Redwood City, California, adding that clients who previously had ID-theft issues now have the identity protection personal identification number, or IP PIN, from the IRS. “If we suspect any issues, we work with the IRS and state to get the clients that extra protection,” Pon said.

 

“Luckily none of my clients have been victims,” Pon added. “Of course this is a concern … The scammers never stop.”

 

 

 

Time out: How the deadline postponement is affecting tax preparers

By Jeff Stimpson

 

The pandemic has officially pushed filing day for the federal government and a growing list of states into the summer. As it’s done to many other aspects of society, the outbreak has also upended the definition of “reprieve” for preparers.

 

Is it a real breather? And what are clients saying?

 

“Breather? Ha!” said John Dundon, an Enrolled Agent and president of Taxpayer Advocacy Services, in Englewood, Colorado. “We’re pulling hair out over here and can only imagine our time and attention in highest demand for the unforeseeable future. Everyone is so confused and there is so much disinformation floating around.”

 

“The official pushback of federal day came after so much drama!” said Manasa Nadig, an EA and owner at MN Tax and Business Services and a partner at Harris Nadig, in Canton, Michigan. “Between the time the government had tweeted out the news and the time the IRS confirmed it, I had been flooded with phone calls, text messages and emails.”

 

“Since I’ve been moving my office to home the last few days, it will help, but since I would have filed extensions for my clients anyway (and still plan on doing so to make sure Oct. 15 is still in play) plus will get done clients with tax liabilities first anyway, it won’t change my season significantly one way or the other,” said Brian Stoner, a CPA in Burbank, California.

 

“It is helping a little bit,” said Morris Armstrong, an EA and registered investment advisor at Armstrong Financial Strategies in Cheshire, Connecticut. “Frankly, the delay of the payment date may be more beneficial than the actual delay of filing date.”

 

“The postponement may have helped regarding completing everything by April 15,” said Twila Midwood, an EA at Advanced Tax Centre, in Rockledge, Florida, “but extra time has now resulted [in] fielding phone calls and emails, sending client newsletters regarding the postponement of tax payments followed by yet another newsletter regarding postponement of the filing date and working with those who had or have a balance due to accommodate for the July 15 date. All of this at non-billable time!”

 

Sheltering in place

Tax preparers are both affected and not affected by the isolation orders spreading nationwide. CPA Larry Pon in Redwood City, California, has been sheltering in place for several days, though of course prep is considered an essential business.

 

“We’re in the same category as marijuana dispensaries,” Pon said. “Good to know I am in an essential business. Accordingly, I’m sheltered in place here in my office. My business is not set up to work from home — I intentionally did that to separate work from home.”

 

Pon has switched face-to-face appointments to the phone. “We’re telling clients to send their information to us,” he said, adding that they can drop material personally but without contact, use a shipping service, email or fax or upload to secure sites. “I use FileShare and Verifyle. I’m not comfortable with Dropbox or Google Docs since I get a lot of phishing emails from them. If I need to share my computer screen, I use Zoom.”

 

“With most taxpayers quarantined or under self-quarantine this last week, many complicated clients have found themselves also working on their tax stuff, a.k.a. calling [us] with questions,” said Dundon in Colorado. “Being bombarded with complicated tax questions while in the mindset of efficient, mistake-free processing for our most favored early birds has been extraordinarily challenging.”

 

At the time of his response, the home state of EA Joel Grandon in Marion, Iowa, reported fewer than 70 cases of coronavirus. But “with multiple states issuing a self-quarantine order and many others rumored to be doing so, my clients are anxious to get their returns picked up,” he said. “Many of my clients are appreciative of the extended payment date and our snowbird clients are thankful with the extended filing date that they can wait until they come home in May to bring their documents to me. Many of them are nervous about mailing them when they are gone, and that demographic doesn’t exactly embrace the technology of portals.”

 

“A few [clients] have expressed relief in knowing that they don’t have to rush to get their tax information to their preparer. Most have already gotten their info in and are expecting their 2019 returns to be prepared by April 15,” said Bruce Primeau, a CPA at Summit Wealth Advocates, in Prior Lake, Minnesota. “It presents an opportunity for our clients who have balances due to hold onto their money for a bit longer to earn more interest income. That said, we always encourage clients to get their tax information to their preparer as soon as possible. It gets pretty frustrating when clients wait to deliver their information until just before the filing deadline and then expect a very quick turnaround.”

 

“Clients are happy,” Midwood added. “Those who [always] try to wait until the last minute will still wait until the last minute.”

 

“The most difficult part for me as an employer may be helping my administrative staff see the urgency of completing the season as close to April 15 as possible,” Grandon added.

 

When and if

“The IRS was not clear as to when the 4868 due date was,” said Bill Nemeth, president and education chair of the Georgia Association of Enrolled Agents, who added that his software provider has found out that the last day to file a 4868 extension is July 15 to extend the due date to Oct. 15. Filing a federal 4868 also automatically extends his state’s deadline to Oct. 15, Nemeth added.

 

“I’m filing 4868 in all required cases by April 15 because I don’t want to spend hours on the phone with the IRS down the road when they tell me their interpretation of these rules,” he said.

 

Other preparers have wondered when and if postponements are coming on other federal returns, such as the 8938, 3520, 3520A, 5471, 8865 and 8858. Questions also remain on quarterly estimated payments.

 

Advice on how clients can use the extra time varies. Pon, for instance, is letting clients choose. “One client wants to put off his payment to July 15 and invest the money in a U.S. Treasury fund,” he said. “I certainly do not recommend using this money to play this crazy stock market.”

 

And the preparers themselves? “I’m personally still paying my taxes on April 15 and June 15, since I may forget by July,” Pon said. “I’m expecting to see the number of cases going up before it goes down. I’m also looking forward to tuning on the news and this story not being the first story.”

 

 

 

9 Reasons to Stop Doing Your Own Taxes

Gordon McNamee, CPA 

 

No matter your individual tax situation, it’s likely you have some sort of complication that comes from just living your life – whether it’s a marriage, a divorce, a rental property, or anything else, attempting your taxes alone isn’t going to bring about the optimal result.

 

Here are nine reasons to skip the DIY route with your taxes and hire a professional.

 

1. Software won’t stop you from making human errors.

Whether you’re a single taxpayer who owns rental apartments, a divorcee navigating alimony payments, or anything in between, mistakes are possible when you tackle your taxes by yourself. While you’re essentially stuck with the outcome your software spits out at the end, tax professionals are trained to spot errors and help you remedy them – saving you money in the process.

 

2. The questions that tax software asks are often not pertinent.

If you’ve ever used an off-the-shelf tax software program, you know that the process involves responding to a series of questions, filling in answers and being taken down a path that its algorithms are programmed to think makes sense. But there are some questions that are not so simple to answer. Some don’t make sense at all, some have complicated answers, and many of them end up wasting a lot of time and causing a ton of frustration.

 

Contrast this experience with how things go when you work with an actual tax professional with whom you’ve established a relationship and who knows what is going on in your life, and you’ll quickly see that there’s no comparison. Even if the program gives you the ability to call and speak with a real live human, the amount of time that it takes and the impersonality of the exchange is likely to leave you feeling far from satisfied, and still uncertain as to whether your return is actually reflecting the reality of your life. You’re far better off having somebody that has a sense of what you’ve been doing all year rather than trying to figure things out with a computer screen in the days leading up to the deadline.

 

3. Why make the burden greater when a family member dies?

In the year (or years) following the death of a partner, grief alone could be reason enough to enlist a tax professional to handle things. 

 

On top of that, widows and widowers must consider the technical issues they face on top of the emotional burden they’re carrying. For instance, which tax return specific income goes on, how to treat income both before and after the date of death, understanding any tax implications for the will, how to value inherited assets, and more. A tax professional can help you work through all these issues and relieve any unnecessary stress.

 

4. Getting divorced changes the entire tax game.

If your year included a separation or a divorce, you know all too well that things get complicated in a lot of ways. Not only do you need to grapple with questions about how to handle spousal support and asset changes based on division of property, but you also suddenly face the very real possibility that when your ex presents their new tax pro with your previous years’ tax returns, uncomfortable questions or previous errors may arise. If you’ve been using tax software, you may find it a whole lot easier to stop that practice and put a professional between you and those questions.

 

5. As a single parent, you need to understand your options.

If you are a single adult who has one or more children living with you and relying on you, you already have enough on your plate without having to worry about whether you’re better off filing ‘single’ or ‘head of household’, or how the various child tax credits and education credits apply to your situation. Working with an experienced and knowledgeable tax professional will provide you with the confidence of knowing that you are getting all of the deductions to which you are entitled, minimizing your liability and maximizing the refund you’re eligible for.

 

6. You are employing a nanny but haven’t talked about taxes yet.

This can be awkward. While people who pay babysitters on the books – i.e. filling out the proper forms and complying with rules and regulations – may undertake an extreme administrative burden, you also don’t want to casually issue a 1099 to a nanny who didn’t know it was coming.

As a household employer, you should avoid dropping a surprise like that on someone. Instead, hire an expert to manage the situation for you and ensure all sides are doing what’s proper.

 

7. You own rental property.

There’s no doubt that renting out a room can help defray mortgage costs, and there can be big investment upside to renting out an entire apartment or property, whether for a week, a month or a year at a time. But the tax implications of doing so can be extremely complicated. You need to understand how to allocate rental income and how to depreciate portions of your home, even if the land that it sits on is not depreciating. 

You also need to understand what can be categorized as a rental property vs a primary residence, and how you or your family members spending time there can impact your calculation. A tax professional will be your most valuable tool to make sure that you are using the correct depreciation rates, that you know what to do when you sell a property, and that you know how to deal with gains or losses.

 

8. If your compensation includes stock options, you need help.

Working for a tech company or start-up often means working in an employee-forward environment that may include benefits like ping pong tables, free lunches, and most important of all, stock options. Unfortunately, as amazing as it may feel to get what feels like a major financial gift in exchange for your loyalty and hard work, those options require special attention that no tax software is going to guide you through.

 

When you sell your stock and realize those financial advantages, your payroll department is not deducting taxes for them in the same way that they do your income. You have a couple of options, but only a tax professional can recommend which one is right. Wait until tax time and start inputting information into tax software and there’s a very good chance you’re going to find out that you owe the IRS a significant chunk of change.

 

9. You’ve repeatedly failed to file.

It’s all too easy to skip paying your taxes. You may simply have been too intimidated by the process, or feared owing too much, or thought that you didn’t have to because your company takes out taxes from your paycheck. Unfortunately, as common as those excuses are, they don’t eliminate your obligation to prepare and submit a tax return and any monies that you owe.

 

If you’ve fallen into this trap, the only way out is to go through it, and a tax professional is going to provide you with the best guidance, as well as a calming explanation of all of the things you need to do, why you need to do them, and how the process will impact you.

 

 

 

 

Employers can use payroll tax credits for paid leave for coronavirus

By Michael Cohn

 

The Treasury Department, the Internal Revenue Service and the Labor Department said small and midsized employers can start taking advantage of two new refundable payroll tax credits aimed at immediately reimbursing them, dollar for dollar, for the cost of providing coronavirus-related leave to their employees.

 

The relief was included as part of the Families First Coronavirus Response Act that was signed into law last week.

 

U.S. businesses with fewer than 500 employees can use the funds to provide employees with paid leave, either for the employee’s own health care needs or to care for their family members. Eligible employers will be able to claim these credits based on qualifying leave they provide between the effective date and Dec. 31, 2020. Equivalent credits are available to self-employed individuals based on similar circumstances.

On the surface, 199A and 163(j), look pretty straightforward, but looks can be very deceiving.

 

For COVID-19-related reasons, employees will be able to receive up to 80 hours of paid sick leave and expanded paid child care leave when employees’ children’s schools are closed or child care providers are unavailable. Health insurance costs are included in the credit. Employers won’t face any payroll tax liability. Employers will receive 100 percent reimbursement for paid leave.

 

To take advantage of the paid leave credits, businesses can keep and access funds they would otherwise pay to the IRS in payroll taxes. If those amounts aren’t enough to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.

 

For an employee who’s unable to work because of coronavirus quarantine or self-quarantine or has coronavirus symptoms and is seeking a medical diagnosis, eligible employers can receive a refundable sick leave credit for sick leave at the employee’s regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.

 

For an employee who’s caring for someone with coronavirus, or is caring for a child because the child’s school or child care facility is closed, or the child care provider is unavailable due to coronavirus, eligible employers can claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

 

Along with the sick leave credit, for an employee who’s unable to work because of a need to care for a child, eligible employers can receive a refundable child care leave credit. The credit is equal to two-thirds of the employee’s regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

 

President Trump had initially favored a payroll tax cut for employees and employers, but that sparked criticism that the money would deplete the Social Security Trust Fund and Medicare funds, and the benefits would not be felt so soon. The administration and Senate Republicans have instead pivoted to the idea of giving out $1,200 stimulus checks to individuals, $2,400 to married couples and an extra $500 for each child in the family (see our story). The amount of the so-called “recovery checks” would phase out for higher-income taxpayers. The plan would also delay the payment of employer payroll taxes. However, Republicans and Democrats in the Senate remain divided over several aspects of the $2 trillion package, and it failed to advance in the Senate on Sunday.

 

Distribution issues

When the stimulus package is ultimately passed, it will be up to the Treasury and the IRS to distribute the money. But that could take months, given the limited staff, budget cuts and antiquated technology systems at the IRS and experience from past efforts to distribute stimulus payments and tax rebate checks. According to Reuters, it took more than six weeks to distribute tax rebate checks in 2001 and almost three months to distribute stimulus payments in 2008.

 

Tax experts saw some advantages and disadvantages to the initial payroll tax cut concept.

 

Tim Speiss, co-leader of the Private Wealth Group at Top 100 Firm EisnerAmper, pointed to the payroll tax cuts that the Obama administration put in place for two years in response to the financial crisis, temporarily reducing both taxes from 6.2 percent to 4.2 percent. Under the Trump administration’s original proposal, the 6.2 percent payroll tax would go down to zero percent for the rest of the year.

 

“That could create a fair amount of savings,” said Speiss. “At 12 percent, you’re looking at something over $14,000 in potential tax abatements that an individual could use, spend and put back into the economy. Half of that amount would also allow a corporation to do the same thing. The real intent is to put money into the economy.”

 

Roger Brown, former special counsel in the IRS’s national office and head of tax and regulatory affairs at the blockchain technology company Lukka, doesn’t think a payroll tax cut would be as effective as other stimulus measures.

 

“I do think there are other things that Congress could do to help the middle class to deal with this economic downfall,” he recently told Accounting Today. “What was very unpopular in many states was limiting the state and local tax deduction to $10,000. For many people that was a tax increase at the federal level on people in the coastal states. Next, the R&D credits that are available could be partially targeted to the coronavirus. We should lift those caps, and rather than a simple tax cut, why not increase the tax credit that people could take? A payroll tax cut isn’t the only mechanism. You need to look at other liquidity raisers. They should allow people to take money out of 529 plans without penalty for the current year and allow for increased contributions to IRAs.”

 

One of the proposals in the Republican plan for the current stimulus package currently under consideration is waiving the 10 percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes.

 

 

 

Dealing with a Difficult Tax Preparer

Bob Mason, CPA

 

Although tax preparers are supposed to make your life easier, there are situations where your tax preparer can cause you more stress rather than reduce it. When your tax service or preparer does not give you answers to your questions or does not provide you with information about your return, that can signal that some issues need to be addressed. In some cases, that may mean looking elsewhere for tax preparation services, but that may not always be possible.

 

Whose Responsibility Is It to Ensure My Taxes Are Filed?

Although your tax preparer may have already made a commitment to you to review and file your tax return, the IRS does not consider this relationship. The IRS will always tell you that it is your responsibility to ensure that your tax return is filed on time and you meet all of your tax obligations. That means that even if your tax preparer does not return your calls, you are still on the hook when it comes to dealing with the IRS.

 

Filing late or not filing at all can come with penalties and interest. If you underpay your tax obligations, you may face similar consequences as well.

 

What If My Tax Preparer Isn’t Effectively Answering My Questions?

A good tax preparer will be able to address your questions as they arise. They should be able to tell you which items are important for your return and help you take advantage of every credit and deduction you can. If your preparer does not seem to know about specific concepts or does not answer your questions directly, that could be a sign that you may not have the most knowledgeable preparer. This is a good indication that you should look for a tax preparer with the credentials you require on TaxBuzz.

 

What If My Tax Preparer Isn’t Returning My Calls?

If you have tried calling your tax preparer a couple of times, but he or she is not returning your calls, then you may need to contact someone else. Perhaps your accountant has a firm manager or customer service representative that you can speak with to get a status update.

 

Keep in mind, however, that tax preparers are very busy this time of year, and they may not get back to you right away. If a week or two goes by without any update, you may need to take some additional action.

 

You might also want to follow up on your request for a call with something in writing. Having documentation of the attempts you have made to contact your accountant can be very helpful if there is a more serious problem occurring.

 

Can I Just Go Somewhere Else?

It is a good idea to keep copies of your tax documents for your records, just in case you have any issues with your tax preparer. If you gave your tax preparer the only copy of your tax documents, getting them returned so you can go elsewhere can be difficult.

 

However, you should be able to demand your paperwork back and go elsewhere, but your contract or arrangement with your tax preparer may state that you owe fees for work already completed, even if your return is not filed. Be sure to read any contract you sign with a preparer carefully before committing to them.

 

If your tax preparer has already filed your tax return, there is not much you can do about attempting to go elsewhere. Instead, you will likely just need to wait for the IRS to process your return. Filing at another place when your return has already been filed can trigger a “fraud” flag from the IRS, which will often delay processing your return. It could also cause the IRS to take a closer look at your return through an audit in some situations.

 

What Other Steps Can I Take?

If your tax preparer continues to be unprofessional, you can report him or her to the IRS. In fact, the IRS has a specific complaint form that you can use. Gather all of the information you have regarding the complaint, fill out the form, and mail the information to the IRS. If your tax return was not impacted, you can use this form.

 

Some of the most common complaints that the IRS receives include:

  • Failing to provide a copy of your tax return
  • Preparing returns with off-the-shelf tax software or IRS Free File
  • Falsely claiming to be a CPA, enrolled agent, or an attorney
  • Improperly using Preparer Tax Identification Numbers
  • Other various types of preparer misconduct
  • Failure to file documents on your behalf

 

Fraud is a very serious issue for every taxpayer, and there are situations where you may suspect that your tax preparer has taken your information and shared it with others or used it improperly. There are additional steps you can take to report fraud to the IRS as well.

 

How Can I Avoid a Difficult Tax Preparer?

Unfortunately, there are poor tax preparers out there, but you can take some steps to avoid them. Before you retain a tax preparer, do some research by asking friends and family.

 

It is also a good idea not to wait until the last minute to get your taxes started. Give yourself plenty of time to address any issues that arise long before your deadline.

 

 

 

Staying connected amid disconnection

By Gale Crosley

 

With offices closed, and staff and clients scattered, maintaining relationships (and sanity) can be hard. Below are eight tactics to manage a disrupted work environment for the duration, and help maintain productivity and healthy relationships.

 

The first four are specifically for firm leaders and managing partners, and the last four are for everyone trying to maintain their equilibrium while working from home.

 

MPs: Send a message

 

 

During these times, send an important message to your clients. An email from the managing partner should include a "right brain" message communicating calm, compassion, and confidence that the firm will support them through the business and personal impact of the crisis. It should reflect your own voice and come across as warm and human.

 

MPs: Manage your pipeline

Your prospect pipeline is your lifeline. Modify your pipeline process to include a separate section for clients at risk. Have your pipeline calls once every other week for 30 minutes. You might want to increase the time temporarily for more than 30 minutes to include conversation regarding clients at risk as well. You can define “at risk” however you want. This will keep you connected around the critical element of sustaining revenue.

 

MPs: Keep reaching out

If you are doing research calls to explore new markets, this is a perfect time to do them online, whether through Zoom, Google Hangouts, Skype or whatever method you prefer. Turn up the burners and keep your research call pipeline up. You’ll find out top issues among your clients and in the market, which will turn into consulting revenue.

 

MPs: Create communication among staff

Your people’s productivity will remain high not only due to your monitoring and statistics, but helping them with the emotional aspects of “sense of self.” Community communication is the best tool. Create small-group online calls of four to seven people through Zoom, Google Hangouts or whatever platform works best for you. I’ll call them circles. The objectives are to sustain emotional uplift and share best life-skills ideas.

 

Get circle leaders in place. Have each circle determine the best times for two calls a week. It could be at happy hour, first thing Monday morning, or any other time of their choosing.

 

Everyone: Keep the kids out

Create your own office space and keep the kids out. Put visible “signs” in place that you are “at work” so they behave accordingly.

 

Everyone: No pajamas

Get dressed! Continue to suit up for the game, whatever you decided your suit going to be. It will help you get in the zone mentally. A football player doesn’t go out on the field in sweatpants and a tee-shirt.

 

Everyone: Mind the clock

Stick to a schedule until you can trust yourself that you have some structure. Think of it as at-home training wheels.

 

Everyone: Accept the angst

Allow yourself to be OK with emotional angst around, “Who am I”? It is totally natural until you get familiar with a sense of self untied to your physical work surroundings. All the best as we navigate the immediate future.

 

 

 

Virus-panicked jury rushed polygamist tax case, defense says

By David Voreacos

 

A fearful federal jury issued a “sham” verdict in less than eight hours because it feared deliberating during the coronavirus outbreak, according to a lawyer for a Los Angeles businessman convicted of leading a biofuel conspiracy with a Utah polygamist group.

 

It may be the first instance of a U.S. defendant claiming that the coronavirus pandemic interfered with a criminal verdict. The outbreak has halted the murder trial of New York real-estate heir Robert Durst, led to a four-month delay in the trial of former Goldman Sachs banker Roger Ng and was cited in a trade-secrets case against Huawei Technologies Co.

 

Businessman Lev Dermen, 53, was found guilty Monday in Salt Lake City, where four members of the Kingston family admitted their role last year in a scheme to cheat U.S. tax authorities of $512 million through a program designed to promote clean fuels.

 

In a court filing after the trial ended, Dermen attorney Mark Geragos called the verdict a “complete travesty of justice.” He said the jury asked no questions of the judge in less than eight hours of deliberations that began last week. Dermen was convicted after a seven-week trial of all 10 counts including money laundering and conspiracy to commit mail fraud. He faces 20 years in prison each for several of the counts.

 

“The verdict was clearly not based on any reasoned consideration of the evidence or discussion about the case; rather, it was unfairly influenced by passion or prejudice as a result of panic and fear,” Geragos wrote.

 

Geragos wrote that the “ultimate confirmation of what a travesty and sham this verdict was” came when U.S. District Judge Jill Parrish asked the panel to identify the foreperson.

 

“Juror #11 pointed to the empty chair of the former face-mask wearing, pneumonia-diagnosed Juror #10, whose seat no juror would sit in after he was excused,” the lawyer wrote. “While pointing at the empty seat, Juror #11 said ‘him,’ identifying the excused juror as the foreperson.”

 

Prosecutors countered in a filing that there was “absolutely no basis” to Dermen’s claim that he was denied a fair and impartial jury. Jurors, they said, “did not send any notes regarding the Covid-19 epidemic and accordingly there is no basis to conclude that it played any role in their deliberations.”

 

Deliberations began March 12 and resumed Monday, so “the jury did not feel they were under any undue time pressure to render a verdict,” prosecutors wrote. “It has been seven days since Juror No. 10 was excused on account of pneumonia and fourteen days since Juror No. 1 was excused on account of the flu. These conditions do not appear to have spread to any other members of the jury.”

 

Over the weekend, Geragos had unsuccessfully sought a mistrial, citing the outbreak. After the verdict, the 10th Circuit Court of Appeals said that the courthouse would be closed to the public because of the virus pandemic.

 

“I can’t overstate the significance of this case in Utah,” John Huber, the U.S. attorney in the state, said at a news conference after trial. He said the Kingstons are a “close-knit, insular community, practicing polygamy” who were suspected of breaking the law for decades but had long flummoxed authorities.

 

The Kingstons, he said, engaged in tens of millions of dollars of fraud, but Dermen “took them into a new stratosphere.” The group cheated the Internal Revenue Service out of more than $500 million and tried to defraud taxpayers of more than $1 billion, Huber said.

 

Dermen and the Kingstons were the most significant of dozens of convictions around the U.S. of those who defrauded the IRS, which administers refundable federal tax credits that are intended to increase renewable fuel used and produced in the U.S. The Environmental Protection Agency established a renewable fuel standard program.

 

 

 

The Ugly Truth About Lying on Your Taxes

Jon Osborn, Enrolled Agent

 

Let’s face it. Nobody likes the idea of handing over their hard-earned money to the government. No matter how much you know and appreciate about what taxes pay for, there are few people who want to shoulder that responsibility instead of keeping their income for themselves, and fewer still who don’t hope that completing their tax returns will result in a big tax refund. But what happens when those hopes aren’t realized and your refund either falls short of what you expected or – worse yet – you owe money? Should you manipulate the numbers to put (or keep) money in your pocket?

 

The truth is that doing so is not just wrong – it’s illegal and puts you at real risk for being found guilty of tax fraud. If your numbers don’t make sense to the IRS, you are likely to face an audit, and if the audit finds malfeasance you might have to pay fines and penalties or even spend time in jail. Here’s what you need to know about why lying on your taxes is a mistake.

 

The IRS Knows More Than You Think

The first thing that anybody considering fudging the numbers on their taxes needs to know is that the W-2 and 1099s that you receive also get sent to the IRS. If you change your numbers, they are immediately going to see that things don’t match up. If you are being paid “under the table” in cash and they have reason to suspect it, they can see how much money you’ve been spending and can determine if it is out of line with the income you’ve reported. Either of these possibilities is likely to result in you being the subject of an audit.

 

What happens in an IRS audit?

When the IRS detects irregularities in your tax return, they conduct a comprehensive review of all of your financial information, comparing it to the information that you’ve provided on your tax return to look for disparities.

 

Fewer than one in 100 taxpayers will be subjected to an audit, but that doesn’t mean that it’s something you want to make yourself vulnerable to. The process is frustrating and stressful. It can also be expensive and time consuming. You will need to defend yourself, presenting documents from years’ worth of financial transactions, and you may require the assistance of an attorney or accountant to assist you.

 

Depending upon the amount of money that your misrepresentations would have saved or gained you, you can quickly end up spending a good deal more, especially because an audit can go back as far as six years. 

 

What happens if your audit reveals fraud or evasion?

Being audited doesn’t always result in negative findings, but if it does and you’re shown to have committed fraud or tax evasion, you can find yourself looking at significant penalties, fines, and even the potential of jail time.

 

Findings of a failure to pay what you owe will automatically mean that the payment you should have made was late, and therefore you will be charged a late payment penalty. If the finding is that your failure to pay or short-payment was purposeful, then you face the potential of being charged with fraud or tax evasion, which can lead to fines and even jail time, no matter how little you may owe compared to other, wealthier tax evaders. 

 

Fines can go as high as $250,000, and jail time can be assessed by the courts. There are roughly 3,000 tax evaders who are found guilty of criminal tax fraud every year, and it all starts with an IRS tax audit. Jail times depend upon the severity and specifics of the crime, and though criminal charges are a minimal risk, the potential still exists.

 

Other consequences of lying on your taxes

Though the majority of the risk you face when you lie on your taxes comes directly from the IRS, there are other consequences that you need to be aware of. You may find it more difficult to purchase a home or get a personal loan, because applications for credit frequently include providing copies of your tax return. While lowering your income has the potential of reducing your tax liability, it has the converse effect of reducing the amount of money you appear able to pay for a loan. If you haven’t filed a tax return at all, one of the first impacts of that will be a hit on your credit rating.

 

The alternative path to paying less in taxes

As tempting as it may be to artificially lower your income to reduce your taxes, doing so clearly presents real risk. That does not mean that you are stuck paying high taxes. There are plenty of legitimate ways to reduce your tax liability and increase your tax refund, and a tax professional is the best source of information and guidance on how to do that.

 

 

 

How to ask questions at work: A guide you didn’t ask for, but now need more than ever

By Amy Vetter

 

Many of us in the profession have suddenly found ourselves in a new world: everyone working remotely, indefinitely. I wrote this article before the coronavirus pandemic arrived in the United States, but now, in this confusing time, the ability to ask questions at work becomes all the more important.

 

“The answers are all out there,” Oscar Wilde once famously said, “we just need to ask the right questions.” As true as this aphorism is, it’s equally true that some people have more trouble asking questions than they do finding answers. The fear of asking for help or information is a common one, and its consequences are always negative. At best, a failure to ask for a hand at work will result in lowered efficiency. At worst, it can hamstring internal relations and lower client satisfaction. To avoid these undesirable outcomes, all you have to do is ask. So why do so many people struggle to do so?

 

An anxiety about looking weak or coming off as awkward keeps people from asking for what they need.

 

When a client hires a nanny, housekeeper, or senior caregiver, they have to navigate a host of tricky issues such as taxes and employment and labor laws.

 

“There is a tendency to act as if [asking for help is] a deficiency,” Garret Keizer, author of “Help: The Original Human Dilemma,” told The New York Times. “That is exacerbated if a business environment is highly competitive within as well as without. There is an understandable fear that if you let your guard down, you’ll get hurt, or that this information you don’t know how to do will be used against you.” Banishing that fear is difficult, but the rewards are more than worth it. If you struggle to ask for help at work, you need a framework for getting over the hump.

 

I recently spoke to Melissa Galasso of Galasso Learning Solutions about the difference that developing the ability to ask for help made on her life. She went from being a person so scared to ask for help that she didn’t even tell her friends she was taking her driving test when she was in high school to now championing the values of assistance and collaboration because of the benefits she has gained in her life.

 

“What I have found is that when you help others and others help you, it becomes this agreement,” she told me. “It's grown.”

 

There are plenty of excellent resources out there detailing professional situations when you can and should seek assistance, but this guide offers something a little different. What follows is a set of ironclad insights about asking for help that will lead you to ask better questions, ask them with more confidence, and get the answers you’re looking for.

 

You can ask anyone for help

In many workplaces, the chain of command is rigid. If you need to ask for paid time off, you go to a certain person. If you need supplies, you go to another. There is no such structure when it comes to asking for guidance, clarity or collaboration. The person you should ask for help is the best person to provide it. It’s just that simple. You should also be willing to ask for help or advice from team members underneath you. In fact, relying on your team and leveraging their expertise is one of the qualities of a great leader.

 

Ask early, ask often

Just because you’ve missed an official window to ask questions, it doesn’t mean that window is closed forever. When you are in the middle of a project and hit a roadblock, it can be tempting to power through rather than stopping and getting your bearings. While asking questions before the beginning of an assignment is optimal, you will usually come across problems you didn’t anticipate during the course of a project. When these challenges arise, there’s absolutely no shame in soliciting a hand or mind in overcoming them.

 

There are different types of advice

You should alter your approach, depending on the nature of your question or request. If you have a clerical or administrative question, you’ll likely need an exact answer. There’s no ambiguity in these matters, so the answers are black and white. That’s different from asking for perspective or input on a project. In these instances, you needn’t take someone else’s word as gospel. In either case, however, you should listen to the person providing the response and give them your respect.

 

Frame your question to get the answer you want

People often reframe or soften their line of questioning in the interest of being polite. For example, have you asked your significant other if they “want” to pick up the groceries? I’m guessing what you really wanted to know is whether they would do it. That may sound like a small thing, but in a professional context it can prove disastrous. Try to figure out exactly what you’re asking before you ask it. To do this, it can be helpful to write out a few versions of your question deciding on the best one.

 

Don’t look for the response you want to hear

Confirmation bias is the tendency to prioritize that which validates our preexisting beliefs over that which calls them into question. If you’re a Cubs fan, for example, you probably tend not to surround yourself with pro-White Sox opinions. In the workplace and in life, it’s important to seek out a variety of opinions and give them equal weight. After all, it’s not worth asking a question if you’re unwilling to hear the answer.

 

If you’re unsure, ask again

Not every answer is going to be crystal clear. If you receive one that is ambiguous or leaves you scratching your head, don’t be afraid to follow up. Maybe the person you’re speaking with didn’t understand you or perhaps you need to rephrase your request. Don’t worry about being a pest, because it’s much more bothersome to have to return to ask follow-ups rather than getting all you need in one shot. Whatever the reason for a miscommunication, don’t walk away pretending you have an answer when you don’t. If you really feel you can’t do anything else to better frame your request or inquiry, you’re better off looking for an alternative source.

Growing a culture of open communication starts by asking questions and seeking assistance. So let me ask you: What are you waiting for? See how this can not only benefit your career, but your life.

 

 

 

A spur to change

By Daniel Hood

 

Change is difficult and annoying and expensive — and all too easy to put off. The arguments against maintaining the status quo are theoretical; the cost and efforts involved in upsetting it, on the other hand, are quantifiable, and usually daunting. And so, in the end, we often change less quickly and less thoroughly than we need to.

 

You might well imagine that this is leading up to a discussion of the U.S. response to the coronavirus — and in a sense, it is — but it’s actually much more about the accounting profession’s slow response to two major trends, and why it must take this chance to change more quickly.

 

The first trend is about remote work. Survey after survey shows that young accountants prefer the flexibility of working from wherever they have an internet connection, but firms have been excruciatingly slow to give them this ability. They treat it as a perk, instead of a major retention tool and business continuity tactic.

 

The number of Americans ages 65 and over is projected to nearly double by 2060. And most would prefer to age in place and hiresenior caregivers if needed.

 

The fact is that the exigencies of social distancing and the need to slow the spread of the coronavirus are going to see more and more workplaces closed across the country, and those firms are that haven’t at least begun to roll out technologies and training and policies are going to find themselves struggling to rebuild workflows, maintain teams, and deliver what clients need.

 

There’s very little short-term advice I can offer to make up for lost time, other than to jump in with whatever ad hoc solutions you can make work, and to recommend near-constant communication. Make sure you and your teams are calling, emailing, Skyping, Slacking, texting and otherwise generally keeping in touch to a degree that seems excessive. In the end, it won’t be excessive — it likely won’t be enough. Long-term, though, I would tell you to let this crisis be a spur to creating a serious plan around remote work, so that you can create a more attractive workplace for young accountants, better serve clients and be ready for future disasters.

 

The other trend is around advisory work, which you can start working on right now. The need to shift focus from backward-looking compliance services to more proactive consultative services has been talked about a great deal over the past few years, but many accountants have struggled with how, exactly, to make that shift.
 

Here’s how: Start calling your business clients right now to discuss the challenges raised by the coronavirus. They’ll need help assessing cash flow and making smart projections, reviewing loan covenants, lining up bridge financing, talking to banks and lenders, figuring out staff loads and employee counts, handling disrupted supply chains and much, much more. Set up a short checklist of issues to go over with them, and then open the discussion to any other issues they may see, and how you can help.

 

Don’t worry about pricing for now — in fact, if you can make it clear in advance that this isn’t being billed for, all the better. This is a tremendous opportunity to change clients’ perception of you, and to change both how you present your services and your value to them, and how you view yourself and your firm.

 

There are, obviously, much more important things to worry about during the current crisis than creating a robust infrastructure for your staff to work remotely or becoming more consultative, but if you can come out the other side of coronavirus further along in either of those areas, it will at least be a silver lining to what promises to be a long and difficult time for all of us.

 

 

 

Firms go remote at breakneck speed in response to coronavirus

By Ranica Arrowsmith

 

Accounting firms across the nation are knee-deep in tax season, but now, they are also knee-deep in a crisis no one could have predicted: the coronavirus pandemic. As the severity of the disease and its spread became clearer over the past week, many national firms have quickly put together plans for their staff to telecommute, and are handling client meetings remotely as much as possible.

 

Fortunately, in 2020, many business clients are used to handling meetings and document transmission remotely. As early as March 3, a spokesperson for Piascik, a firm based in Glen Allen, Virginia, said, “Some of [the firm’s] clients have been grounded for several weeks, but most information can be transmitted electronically so it’s not slowing their side of things down.”

 

As the month has progressed, so has the disease, and especially in areas hit hard by COVID-19, firms started to see the necessity for limiting in-person contact.

 

On March 10, BDO issued a statement to clients assuring them: “We’ve assembled a cross-disciplinary team, working with our crisis management and business continuity practice professionals, to monitor the COVID-19 public health emergency and to put measures in place that help ensure both safety for our people and business continuity for our clients.”

 

The following day, Prager Metis announced its global offices would remain open. The firm added, “We have business continuity plans in place that will enable us to continue to provide a high level of service in the event that our team must work remotely. These plans include the use of various technologies, as we remain committed to delivering the service that you are accustomed to receiving.”

 

Rob Dutkiewicz, president of Southfield, Michigan-based firm Clayton & McKervey, acknowledged the value of in-person meetings, while reassuring clients that the firm has technology in place that would help them not skip a beat: “If anyone from Clayton & McKervey is scheduled to work with you or your organization in a way that requires face-to-face time, we will be in touch to discuss options to safeguard both the health of your team and ours," he said. "I admit to preferring face-to-face meetings, but recognize that we have excellent technology which allows us to accomplish most of our work via phone, through electronic file sharing, or using our LifeSize technology. As a reminder, LifeSize is a tool similar to Skype, which allows for security-protected face time from the comfort of a remote location.”

 

Most firm communications to clients hit the same notes: Their first concern is the health and well-being of staff and clients; they are following the guidelines of public health organizations like the World Health Organization and the Centers of Disease Control; and they will be using technology to accommodate any staff or client that needed to work with them remotely.

 

Going virtual on short notice

Over the weekend of March 16, New York City Mayor Bill De Blasio announced that city schools would be closing; the city of Hoboken, New Jersey, instituted a curfew, with other cities likely following suit; the Centers for Disease Control issued a guideline strongly discouraging gatherings of more than 50 people in New York; and the death toll worldwide surpassed 6,000. In short, midsized and large firms nationwide are now being forced to seriously consider going totally remote, quickly.

 

Large, national firms tend to have robust technological capabilities in place that allow for secure remote document transmission and remote work.

 

On Monday, March 16, Marcum LLP announced it would be going completely remote starting Tuesday through Sunday March 22, with plans to extend if necessary.

 

“From an information technology perspective, we have processes to deploy immediately when necessary,” said Molly Crane, co-chief human resources officer for Marcum, a global firm which also has offices in New York City as well as New Jersey, Pennsylvania and Connecticut. “We’ve had that in place already for remote work. Our IT team is very progressive, and at times like this we’re ahead of the curve.”

 

Before going totally remote, Marcum allowed its employees to work from home if they wanted to, but it also allowed them other flexibilities, such as taking later trains to avoid rush hour crowds. The key, Crane said, is to be supportive of employees who want to go remote, and not penalize them in any way.

 

Smaller firms may find themselves scrambling to adjust to virtual work quickly, and as was made clear by the firms that have been proactive in their client communications, technology plays a major part in preparedness for such a need.

 

“Beyond just discussing a preparedness plan, documentation and training are important,” said Nicole Fluty, product manager of OfficeTools for AbacusNext, which provides cloud hosting and other collaboration tools for professional services firms. “It’s what schools do as well. They have a communications plan — if we make a sudden change in how a firm is structured, how do we communicate this to staff and clients for full transparency? And if a firm has a smooth transition to going remote, client communication may not even need to happen — they won't even notice.”

 

 

 

5 tips for going remote now

By Ranica Arrowsmith

 

Firms across the United States are facing the reality of going remote quickly as COVID-19 spreads and states attempt to stem the contagion. Many larger and midsized firms already have telecommuting standard operating procedures in place, along with the technology to support it and a plan of action. However, many others do not.

 

As the world finds itself in a crisis, now is the time to take action quickly, even if a plan was not in place beforehand. Nicole Fluty, product manager for OfficeTools products at AbacusNext, talked to Accounting Today about some tips firms can consider now as they prepare to go remote on short notice.

 

Internet

In order to telecommute in any way, the first requirement is a given: internet access. Something we’re learning as schools in particular go remote across the country is how many students, especially those from lower-income families, do not have access to reliable internet connections. And in a pandemic, hanging out in public spaces is discouraged, so going to the local library is not an option.


“Some people really live off their cell phone,” Fluty said. “Identify the people who can quickly go remote, and who needs a week or two to get internet upgraded or installed? Can the firm do something in the interim, like provide hotspots?”

 

Devices

The next logical step to consider is access to appropriate devices. Consider whether your staff are working on laptops, and whether those laptops can go home with them. If staff do not have laptops, which staff have laptops at home, and which staff have home computers? Are these devices adequate for working from home for perhaps weeks or months?

 

Phone calls

“Everyone forgets about phone calls — how do we take incoming calls from clients calling into the office? How do we make that virtual?” Fluty said. “It may not even be possible on short notice, but think about what next steps firms can take to manage this in the interim. If it becomes long term, that’s again going to be a different solution.”

Calls coming into office systems can sometimes be forwarded to a cell phone — firms should identify who that person should be, and set up a system for how they will direct those calls. Another option is setting up a Google Voice account, which provides forwarding and voicemail services, voice and text messaging. Google Voice can be connected with an existing cell phone number, but not a landline. If a firm needs to connect the forwarding and call management service to a landline, it can first port the landline number to a mobile carrier; then, it can be ported to Google Voice. The one-time porting fee is $20.

 

Access

“Once you solve internet access and getting the right devices, it’s now about access to apps and software,” Fluty said. “Software-as-a-service and on-premise systems are very different, and not something you can fix very quickly. It can put you down for a couple days.”


Staff from firms that use cloud, or SaaS, software will likely be able to access those systems remotely from wherever they are. If a firm uses on-premise software or a mix of SaaS and on-prem, a time like the present shows why cloud hosting may be a good idea (certainly something to consider for the future). But in the interim, reach out to IT consultants and cloud hosting providers to see what immediate aid they can give you if you are forced to go remote quickly and without a plan.

 

Workflow

Finally, firms should think about remote workflow, Fluty said.


“What tasks and processes can we identify? How do we want to facilitate doing it online? Is everything ready to go very virtual? Do you have a portal, for instance?”


Client portals are a key piece of technology to consider during — of course, preferably before — a crisis. This will help firms keep track of documentation flow.

 

 

 

Should You Be in Business for Yourself?

Eva Rosenberg, EA

 

You're in business to have more control over your life and time, to earn more money than you could in a traditional job, and to build a future—and a legacy—for your family and the generations to come.

 

You're not in business to supply a flood of paperwork to the government. Nor are you sweating blood trying to meet your business, financial, and family obligations in order to buy your tax pro a new BMW. Yet, that's what it often feels like you're doing, as the local, state and federal governments pile on ever more reporting and licensing obligations.

 

Seriously, there's more to running a business than appears on the surface. Some people make it appear effortless—and they often go out of business quickly as a result. Others make it seem a gargantuan burden—and they end up hating every minute of it. They destroy their family and relationships in the process, blaming everyone else for their failures.

 

Then there are those people who start up, and everything goes right. Life is good. Family and social relationships remain solid, and they maintain balance in their lives. That's what I want for you.

 

 

Listening to the news, you often hear when large businesses fail. You're probably still shaking your head over the whole dot-com bust several years ago, wondering how all those businesses failed after raising millions of dollars in venture capital or through their initial public offering.

 

Well, the venture capitalists learned a hard lesson from that, too. And they are far more discerning about how they invest their funds these days. So, if you want their investment in your business, you will need to show well-thought-out structures and planning.

 

The businesses that failed went wrong in one (or all) of these three ways:

  1. They didn't have a realistic business plan.
  2. They didn't plan for success.
  3. They were run by immature and inexperienced people who simply blew all the money without looking for reasonable returns on their spending.

 

Comparing a Job and a Business

 

Be sure to understand these distinctions between a job and a business. People starting out on their own rarely realize just how many things they've taken for granted on a job. These are the things that just happened invisibly, in the background, taken care of by your employer's infrastructure. Even if you felt as though you were doing most of it for him or her, when you're on your own, the sidebar will show you just how many more things you'll need to oversee — things that will drain your time, patience, and resources.

 

One of the biggest complaints from people working for others is that they do not have control over their income. Their bosses can cut their commissions, territories, or bonuses at will — and often do. When you're in business for yourself, if you earn it, you reap the rewards.

 

Look at the left-hand column of this chart to see the invisible things being done on your behalf when you are an employee. Remember, when you are in business for yourself, YOU have to do all those things for yourself and your employees.

https://portal.clientwhys.com/sites/21318bate/chart-taxmama.png

 

Still want to be in business? Join me in this adventure on how to make your new or existing business more successful, profitable and tax savvy.


I am teaching a 12-part series of courses at CCH CPELink, based on the first 12 chapters of the book. Please join me – and invite your clients. They will want you to help them rebalance their tax and business plan each year.

 

(Hint: If you sign up for one of Wolters Kluwers subscription plans, this series of courses is included – and so much more! Plus, save about 30% over the cost of the course alone.)

 

The latest edition of my book, Small Business Taxes Made Easy contains complete updates about the business considerations, from the PATH Act of 2015, up to and including the Setting Every Community Up for Retirement Enhancement Act (SECURE Act); and the Taxpayer Certainty and Disaster Tax Relief Act (TCDTRA). The new book will be available by April 1st at the latest.

 

Disclaimer: This article is for general information purposes only, and is not intended to provide professional tax, legal, or financial advice. To determine how this or other information in this newsletter might apply to your specific situation, contact us for more details and counsel.

 

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