Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!

Roger Harris: [00:00:07] Well, hello and welcome to the first ever Federal Tax Update podcast. I'm Roger Harris and I'm joined today by Annie Schwab. We're both from Paget. So Annie, welcome to our first ever podcast.

Annie Schwab: [00:00:20] Thank you, Roger. I'm excited.

Roger Harris: [00:00:21] Yeah. Before we get started, just briefly, a little bit about Annie and myself and Paget. Paget has been in business since the 1960s where a primarily an accounting and tax firm for small businesses. We have 300 locations across the United States and we're pleased to be here and share a little bit of what we see as the upcoming tax season and some of the things that we all need to be focused on and worrying about. But before we get into it, Annie, tell me a little about your background and then then I'll tell them a little bit about mine.

Annie Schwab: [00:00:50] Perfect. Well, I've been in the practice for over 20 years. I'm a CPA. I've experienced quite a lot over the last couple of years. But most importantly, I have been with Paget for 12 years and loving every minute of it.

Roger Harris: [00:01:05] Well, and I've been with Paget, actually go back to the Walter Paget days who founded the company. So I've been around for a long time. I've actually run a Paget office and have worked in the corporate entity for over 20 something years. And again, we're we're excited about this podcast. We hope we can share some interesting information. And in any, you know, this may be whatever normal is now, this may be the first normal tax season we've had since COVID. We don't have a lot of the challenges that we faced over the last three or four years. So do you agree? Well, whatever normal is, is this.

Annie Schwab: [00:01:40] Going to be our normal tax.

Roger Harris: [00:01:41] Season?

Annie Schwab: [00:01:42] We are. We are here. Yes. It's the first post-COVID traditional tax season. Hopefully no extended deadlines and things like that, even.

Roger Harris: [00:01:51] Though the deadline is not April 15th this year.

Annie Schwab: [00:01:53] That's true. It's April 18th. For those of you taking notes, April 18th, you do get an extra day or two. But yeah, we we've compared to previous years, this tax season should be fairly smooth. I don't want to jinx anything because there are certainly not an easy tax season, but hopefully we will not have any retroactive legislation or extensions or, you know, no more COVID, more COVID.

Roger Harris: [00:02:17] And and we'll talk a little bit later about the kind of the politics of the tax season and where we are now. We probably won't get a lot of changes. But as you said, the new norm is where we are today. But we don't know what that means in terms of surprises. But anything else about what we need to talk about going forward or are we ready to jump in to a few of the things that will impact tax season like IRS? Has more money and therefore, hopefully a lot.

Annie Schwab: [00:02:48] More money, right?

Roger Harris: [00:02:49] Yeah. Yeah.

Annie Schwab: [00:02:51] $80 billion.

Roger Harris: [00:02:52] Yeah. Well, as we sit here and record today, that $80 billion, you can't be in the tax business and not have heard all the discussion about hiring all the IRS agents, some people said they're going to be armed. What are they going to be doing? What? What? What? Is that true? What does it mean for us? How does it impact our day to day activities? What are your thoughts on good, bad that we have this money? What's it going to do with it? How is it going to impact us on a day to day basis?

Annie Schwab: [00:03:22] Well, it's funding for lots of different projects. Clearly, there'll be some enhanced enforcement with $80 billion. There is more than half of that right now earmarked for enforcement. But again, we really hope to see, for example, customer service improvements. If anyone has tried to reach the IRS in the past couple of years, you have sat on hold. You have felt like you've been ignored, time consuming, a lot of frustration there. So I certainly expect to see some customer service enhancements, maybe some catch up on that backlog. We've seen backlog for several years now. A lot of that was COVID related, but still practitioners reaching help, calling in the practitioner hotline. You know, those would all be wonderful uses of that money. I do think they're going to do more audits. And will the wealthy be targeted? You know, who's going to be targeted? Is it small businesses? You know, that that will have to wait and see. But but it is a lot of money. Now, remember, that money just is not just this, right.

Roger Harris: [00:04:24] It's not all dumped on them at once.

Annie Schwab: [00:04:26] That's right. It's spread over ten years. So there should be a plan. The IRS has has put out some indicators of what the what their focus is are going to be. So is it good? Is it bad? I guess it depends on who you are, but I think it's going to be great for the practitioners. I really hope to see some improvements with customer service and processing. Those backlogs were really hard for a lot of taxpayers and practitioners in the last couple of years.

Roger Harris: [00:04:51] Yeah, yeah. I think we're going to have to separate the politics versus the practical in this money because the politics of it is, well, even today, the Republicans first bill they passed in the new House was to repeal the money that allowed them to hire these people. But that will never get through the Senate and never be signed by the president. So it was just a political statement. But the question is, how will the IRS properly spend this money? Will it be focused on customer support, which we would all support versus unnecessary enforcement? But also keep in mind, the IRS is like everybody else. Hiring is difficult. Finding people that are qualified to do the job is going to take a while. Just because you have money to hire 84,000 people doesn't mean you'll have 84,000 people lined up at the front door that you want to hire. And then the IRS has a very extensive long training program to get these people up to speed.

Annie Schwab: [00:05:46] Several years.

Roger Harris: [00:05:47] Right. It depends on the job. It can take up to three years to train a revenue agent to go out and be on their own in the field. So we all have to be patient to see how this money is going to be spent, what will be the real impact on the IRS and therefore on practitioners and ultimately on taxpayers? To me, it's like the old thing that we always saw the dog chasing the car and we always wondered what happened if they caught it. Well, the IRS has been chasing money for years. Well, they've caught it now. So the next three, five years are going to be critical to see whether this money leads to a better customer service organization, more enforcement or more of the same. So I don't think we'll see anything this tax season as a direct result of this probably or we won't recognize.

Annie Schwab: [00:06:35] Fortunately not.

Roger Harris: [00:06:36] Yeah, but.

Annie Schwab: [00:06:37] Yeah, I think we're going to have some backlog and still some customer service issues, but heading down the right road is the way to go.

Roger Harris: [00:06:43] Let's look across on the right. Let's hope we're going the right going the right direction because this if they don't do this right, they may never get this kind of money again.

Annie Schwab: [00:06:52] Exactly.

Roger Harris: [00:06:53] Like I said, they've caught the car. So let's see what they can do now as we head into tax season. And some things just always change, whether it's COVID or not. I mean, there's inflation and adjustments. I know it doesn't make a real impact day to day. And a lot of what we do because our software does it. But can you talk a little bit about the kind of things that, you know, have changed just so that we're aware of them, even though, again, most of these kinds of changes, software addresses?

Annie Schwab: [00:07:19] Oh, absolutely. So, I mean, we've always got our tax brackets, right? Everybody talks about what tax bracket are you in? You know, what's my tax rate? Well, just like last year, there are seven tax brackets. I'm talking about individuals here right from anywhere from like 10% is going to be your lowest tax bracket. It was 10% last year. It's just that the income threshold has gone up a little bit. But basically the tax brackets run from 10% to 37%. We've got a ten, 12, 20 to 24, 32, 35, 37, if you really want to know all of them. Right. But but those brackets, you know, increase over time, you know, basically inflation adjustments. We've also got the standard deduction. Most of you are probably familiar with that. The standard deduction increased slightly from last year. It was, I think, 12 550, and this year it's 12 950. So not a surprise. Therefore a little bit of an increase. And obviously, you know, there's different thresholds for single married filing joint, married, filing, separate head of household. Those filing statuses have been around for years. And I don't think that they're changing. So you've still got your same filing status. There's no personal exemption that went away a couple of years ago and it's not coming back. So, again, we've got we've got no personal exemption deduction there. But, you know, a couple of other things that tend to fluctuate with inflation. Got milage rates. We've actually got the 2023 mileage rates that came out. But 2022 is going to be a little different with mileage. If you remember, like mid-summer with inflation and gas prices going up, the mileage mileage rate jump to. So I don't know, Roger, if you've given any thought to how you're going to collect these mileage brackets from your clients this year, because you've got to have the mileage from the beginning part of the year, right? Was that 58.5%? And then, you know, June hits, I'm sorry, July hits and it jumps to 62.5. So now you've got to have it both. You've got to have both.

Roger Harris: [00:09:09] And it impacts not just business mileage and in fact, medical mileage, charitable mileage. I've been in this long enough that I've been through one of these before. This isn't the first time it's happened. It's not so much that we don't know. And again, our software is going to know that the mileage rate for those different times, it's that our taxpaying clients don't follow this. They have no idea what the mileage rates were last year, what they are this year, or that they change. So those that are smart enough to bring you their mileage are going to bring it to you for the calendar year. Yeah, and you're going to have to come back and say, I'm sorry, this thing changed this year, so I need you to go back and give me the ones between January and June 30th and then after that. So it's going to take if you haven't sent out your organizers or whatever, however you inform your clients about changes, that might be a good one to to point out just to save them from having to go back and and bring them in a second time broken out between the first half of the year and the second half of the year. Again, it's happened before, but it's something that practitioners might remember. But I you know, taxpayers come to us so they don't have to worry about this stuff. So I guarantee you they don't know that the rate change. And as Annie said, it's already changed again for 23 and who knows if it'll change multiple times in 23, but it's just one more.

Annie Schwab: [00:10:26] So places have finally settled and inflation has has, I think. Well, but.

Roger Harris: [00:10:32] I think we're up to over, what, 65 and a half or 23.

Annie Schwab: [00:10:35] Five and a half. Yep.

Roger Harris: [00:10:37] Getting up there, it's a good thing if that rate goes down.

Annie Schwab: [00:10:40] That would be.

Roger Harris: [00:10:40] True because that means gas prices have gone down. So let's hope that they go. We do have a multiple change in 23 and instead of going up, they're going down.

Annie Schwab: [00:10:49] That would be nice. I wouldn't be. And this could be a great opportunity to remind your your clients here to documentation are there are so many apps there are so many ways to track your business mileage, you know, and some of them are like, oh, it's a couple of miles here or a couple of miles there, but really documenting that mileage, using a log of some sort, whether even if you write it down, old school, pull the notebook out in your car and write it down. It's really important to keep that documentation, not just this year, but in any year when you're trying to take business model or medical mile or charitable miles.

Roger Harris: [00:11:18] Yeah. And if you have clients who do a lot of traveling for business, there are so many apps out there now that track those type of things, which is not only good for them, but it makes your life simpler at the end of the year where not information's somewhere else.

Annie Schwab: [00:11:32] So so that's a couple of the thresholds and changes and tax filing stuff. But, but there's something that we still need to talk about, Roger. And it's it's been around since COVID. A lot of people probably think it has gone to the wayside, but the employee retention credit is still around, it is still available and it's going to affect this tax season again.

Roger Harris: [00:11:52] Yep. I don't know anybody who watches TV or turns on the radio, hasn't been heard, hasn't heard a lot of the ads recently. From what we'll call IRC meals, advertising that the credit is still there and it's still available. Now I know a lot of people in our business did not have clients or did not assist clients in doing the employee retention credit. They didn't have time or didn't want to learn it. Thought it was too complicated. So the assumption is, well then I don't have to worry about it. You know, it's nothing for me to do. Annie, I don't think that's true.

Annie Schwab: [00:12:29] That is definitely not the case. Because if a client comes to you in 2022, hey, look, the IRC is a was a great opportunity for small businesses to get money while they kept their employees being paid through the pandemic. The problem is when you filed all of these IRC claims, you didn't actually get the money in your hand until probably 2022. Some people may have gone in 2021. Yeah, but it took so long and some people are still waiting for their money. It took so long for the IRS to process these returns and get the money in the hands that a lot of people who got it in 2022 are just assuming it's a 2022 reporting. Right. And it's really not. It's really not. They're going to have to take a look at how 2021 was filed. You might even have to go back and amend. It's going to be a real it's going to be a real bugger this tax season, I can tell you, because, yeah, if you're going to anybody questions.

Roger Harris: [00:13:21] If anybody comes to you that has a business with wages in payroll or they are invested in through a K-1 or something and have a business that they have to report, the money probably arrived in 2022. But the credits were generated in 20 and 21. And a thing that's not known by a lot of people is that you don't include those credits when you receive them in 2022. You have to go back and amend the returns either in 20 or 21 where the wages were paid that generated the credits. So if someone comes to you with a QuickBooks report for their business or ak1 where they're an investment in the business, the first thing you got to ask them is did that business receive retention credits? And if they did, were they mistakenly included in the 2020 information that you're looking at? Because that's wrong.

Annie Schwab: [00:14:12] 2022. 2022, Roger 2022 Right.

Roger Harris: [00:14:15] The 2022 return, if they included them as income in that year, that was wrong. They have to go back and amend 20 and 21. So that means that the QuickBooks Report or the K one is probably wrong and it has to be fixed. Then it opens up the opportunity for you to go back and amend the 20 and 21 returns. But again, these URC mills aren't promoting that. That even has to be done. So some people may say, I got the money, I've done nothing, but we're going to have to have discussions about the I.R.S. with our clients, our business clients, whether we were engaged in generating those credits or not.

Annie Schwab: [00:14:52] And yeah, and getting north on that. Yeah. And it goes beyond that because even if someone qualified for the I.R.S. and hasn't taken advantage of it, there's still time. Still time, still an opportunity to do it right. There's still money. It's not like they're going to run out of money. It wasn't like PPP loans or anything where there was a cap. Small business owners can still get that money. Yeah, Just missed an opportunity.

Roger Harris: [00:15:17] Yeah, it's just the statute of limitations issue for the quarter that it was done. And it's a lot of money.

Annie Schwab: [00:15:22] It is, and it.

Roger Harris: [00:15:24] Is. And a lot of people think again, repeat. I'm repeating myself, but I want to make sure if you didn't deal with it and you ignored it and didn't want to mess with it and don't think you have to deal with it if you do tax returns for people in business who had wages in 20 and 21, you're going to have to deal with this, potentially deal with it either in the terms of what Annie was just talking about, going back and getting them the money that they're entitled to or making sure that the credits when they were received. So you got to know how much was received and when it was received, was it handled properly? Or does that create more opportunity for amended returns or corrections or whatever the case may be? But just because you didn't do any RC claim or didn't care to earn, learn about it, you can't ignore it. It's going to be an issue this tax season.

Annie Schwab: [00:16:17] Yeah, and Roger, when you're talking about amending returns, it's not just those payroll returns or the business tax return. It's the individuals who are getting the K ones. It sort of trickles down. There's multiple steps here for this, right, Which is why it is complicated and the rules changed and got you know, FAQs came out and different states, different stipulations were made first it was, you know, just you had to lose a certain amount of money compared to the quarter before. And then and then it went to, you know, was was there a government shutdown and what was the government shutdown period for that? Now we've got this supply chain interruption qualifier. You know, that's really what those URC mills are focusing on, right?

Roger Harris: [00:16:57] Yeah, they're.

Annie Schwab: [00:16:57] Tapping into that to produce. It's it is complicated. It's like you said, it's a lot of money. It's worth it.

Roger Harris: [00:17:04] And it's got to be done correctly because the IRS has already said the two things they're going to focus on in their audit profiles for Irks. Number one is that whole idea of supply chain interruption as a qualification because there's so much perceived gray area and that it's not as black or it's not as gray as people want to make it, but so they're looking for abuses there to say they're eligible when they're really not. And then the other one, which is what we're talking about, is that you did not amend the returns when the credits were received because that kind of helps offset the penalties or the amount of money that the government's handing out as they recover some of it from the returns that were there. So it's a big deal. It's a lot of money. It's something that we just can't ignore. And again, these RC mills or creating a lot of credits and I can I can almost hear the questions that people want to ask. Well, when my client brings in ak1 and I ask them, they're not going to know the answer to that. They're just an investor. So what am I supposed to do? They don't know if there was an I.R.S. They sure don't know how much it was, and they don't know if returns were amended. You're going to have to send them back to whoever did those returns for answers, because we may be talking about a lot of money. I mean, it's this isn't like, you know, $500. This could be 500,000. And you don't want to have a return done improperly. It causes your return to be wrong. So. It's not perfect. It could have been done better, but Congress created it, the IRS administered it. And there's blame to go on both sides. But it is what it is to us. So but but it's.

Annie Schwab: [00:18:48] Going to make tax season hard. It's going to make it potentially really additional work. The workload challenge.

Roger Harris: [00:18:54] If you have a lot of business clients especially.

Annie Schwab: [00:18:56] Yeah.

Roger Harris: [00:18:57] Or investors in businesses where they get K one. So it's going to be tough. Again, we have to think about it. But don't ignore the fact that there's also a huge opportunity for businesses in any Senate, and I'm going to repeat it if they are eligible and don't have their money yet, watch the statute of limitations. But you can still do a lot of work in that area and get these people those dollars. And then subsequent to that, you'll get the I.R.S. work for the amended returns. And also, keep in mind if these people got that money. And delay amending returns. In other words, if you say, well, okay, you got the money, I need to go amend those returns, I'll do it sometime in the future. The IRS is pretty lenient in waiving penalties, but they're not waiving the interest. So the longer you wait to amend those returns, the bigger the interest is building up on those amounts of tax that are paid on those amended returns. So there is a sense of urgency. It's, you know, you don't have to drop everything and do it, but you need to understand if it's a huge claim that requires an amended return, if you put it off too long, your client's going to get a nice bill for interest, probably won't get the penalty. And if they do, you can probably get it abated. But that interest is going to stick, at least as of right now. It's it's being assessed and it's being collected. So, yeah, there's a there's a certain amount of urgency, even if it's all done properly, to get those returns amended as soon as possible. So there you go. You thought you didn't have to worry about I.R.S., but.

Annie Schwab: [00:20:35] It is an opportunity and there's always opportunities, right? Right. During tax season, I mean, just the traditional ones, like married filing joint versus married filing separate. You can run an analysis on that. You know, looking at quarterly estimates, tax planning, one that's always been around. And we do this a lot, Roger. We talk to our clients a lot about reasonable salary.

Roger Harris: [00:20:57] Right?

Annie Schwab: [00:20:57] Taking distributions before reasonable salary, business structure, education, there's all kinds of stuff. And another one that really got big during COVID is this whole idea of the Texas state tax implications, because so many people were working from home could have been in a different state or you were higher a lot. Now it's you higher wherever you can get the talent, right? I mean, you could hire somebody to work remotely for a company multiple states away. So there's a lot of opportunities that present themselves during tax season. So it's really important really for for a tax preparer to kind of have that helicopter view as they start working on tax returns, get to know your client, see, see if there's something out there that you can do to add some value to your services. Yeah.

Roger Harris: [00:21:41] Yeah. Because I think ultimately for us to continue to be successful in this, we're going to have to be more than just. Human calculators of taking information and plugging it in. We're going to have to be able to be advisors for our clients. We hear a lot about advisory services. Oh, yeah, COVID is created. I mean, you just mentioned this whole idea of hiring people. You know, we're all having trouble finding good qualified employees. So one of the ways we're solving that problem is allowing them to be remote by hiring remote people. We may have a staff where I mean, we have people gosh, I'm trying to think of how many states we have in now, and that creates a nexus to that state. And it's certainly going to create some payroll tax issues. It may create income tax filings. Who knows what it'll create? They're going to turn to us and we're to be their advisors. So every challenge in the tax business is also an opportunity. We just choose whether to take the opportunity we're forced to deal with the challenge.

Annie Schwab: [00:22:39] That's well-said. Exactly.

Roger Harris: [00:22:41] And we need to be more of an advisor and help people and we need to help them because their challenges are our opportunities to to be better serving them. And at the end of the day, without apologizing, that's how we make money, you know? So there's a lot of those things.

Annie Schwab: [00:22:58] Yeah. Roger, did you see that article? It was just a few weeks ago. You know, it was, I think, accounting today about the biggest challenging face challenges facing tax practitioners this year. And the number one was staffing. Yeah, it's been the number one, I think, for three years now. There's something called quiet quitting where you've hired people and they only do just enough to continue to maintain their job. I mean, finding really good staff is so hard. It's so hard.

Roger Harris: [00:23:26] But and we're going to have to be flexible in things that we do. I mean, if we look around, I mean, we learned a lot in COVID, you know, that has nothing to do with COVID itself. But we got into remote hiring. We got people who are used to working from home. And it's hard in a well, sadly, and some people learned they like not working as much as working. So that shrunk the pool of who we can hire. But, you know, so long this profession has been hung up on this almost badge of honor that we work 80 hour weeks and we work long hours and we work weekends. And, you know, from January to April 15th, we never see our families. We go try to sell that to a person looking to join this profession and say, well, if you join me, I'm going to make you come to an office, work 80 hours and never see your family for three and a half, four months, you're never going to hire anybody. So we have to change the way we do our business if we want to be competitive in the marketplace of people so our employees aren't going to put up with it, so we shouldn't put up with it. So one of the challenges that we're all going to face, because we've done this this way for years and we thought once we got out of COVID, we'd go back to normal.

Annie Schwab: [00:24:42] Normal. Not going back to that normal.

Roger Harris: [00:24:44] We're not all coming back to the office. We're not all going to work those long hours. So a big challenge if we want to be competitive in the marketplace, is to change the way we do our business and find ways. And and we don't have time. And maybe we'll cover this in a future podcast to talk about all the things that you have to do to be successful. But you're going to have to change. And if not, you're going to always struggle to find new employees and good employees because they're going to go work for someone who's adjusted some work life. I get off the soapbox on that.

Annie Schwab: [00:25:15] That's what work life balance. I mean, that's been a term used for years now and it's it's relevant now.

Roger Harris: [00:25:23] It's real.

Annie Schwab: [00:25:23] It's real. It's real. It's real. Yes.

Roger Harris: [00:25:25] It's real. Yeah. All right. What else? What else we.

Annie Schwab: [00:25:29] Need? Oh, man. This tax season, we've got some challenges. So if you remember, let's let's talk about those K two and K threes. They were around last year. We did get some reprieve for that 2021 tax season. But it's back. It's back. And while there are quite a few exceptions, tell us what the K two and K three are before I go off.

Roger Harris: [00:25:49] K two and K three are part of the entity returns where foreign activity is reported to shareholders or partners or members or whatever you want to call them. Within those companies there has evidently been and this is way above my grade level, a lot of underreporting of foreign taxes in foreign tax activity in pass through entities. So Congress and the IRS came up with this thing, I guess, last year to increase the reporting necessary to partners and shareholders through the entity return that created this this massive amount of numbers that had to be filled in. In many instances, the numbers are all zero. But practitioners complained, and I think rightly so, that if I don't have any activity, why do I need to have all this reporting? And the IRS is gone back and forth to try to find a kind of a balance between giving the government the information they need and not burdening. The practitioner and or tax payer with extra work. So any where are we today? Because we're stage two? We had something for last year. Now we have something this year. Where are we today in terms of what do we need to do to comply with the K two and K three requirements?

Annie Schwab: [00:27:02] So like you said, there are some exceptions. Basically, if you have no or limited foreign activity, then you don't need to complete those forms, but you do need to notify the partners and the shareholders and that it's going to be furnished to them through their K one or you don't need to complete the forms and it doesn't need to be furnished to them at all. They can also ask for it. A partner or a shareholder can can reach out and say, Hey, am I going to get this form or am I not going to get this form? But you know, what's happening is the folks and the IRS has made updates to it. There's a time frame that you've got to let your shareholders or partners know whether or not they need to do this. K two or K three. You've got the practitioners preparing these pass through returns and what do they need to do? What do they need to give to the shareholders? Maybe they don't need to give it to the shareholders. So again, it's going to be a lot of asking questions, walking through the steps, Do I need to file, Do I not need to file? Do I meet some of these exceptions? What's the timing of this? So some thought, some thought process for sure. Like you said, there's going to be I think there's going to be a lot of it's just zeros, you know, there's nothing there. There's nothing. There's nothing to report.

Roger Harris: [00:28:13] There's nothing to report. There was no foreign activity. There's no foreign shareholder. There's no and a lot of this is going to be dependent on what our software allows us to do. Sometimes it's easier to just tell the software complete K2 and K three and they'll all be zeros, but you're fine if you don't want to complete those. As any mentioned, we have to notify the shareholders. I'll use that term. It could be partners that we're not going to do that and we're supposed to give them time to request them if they need them. But with the recent change that that notification isn't due until the return is due. By the time you give them that information, the returns already do. So what do they do?

Annie Schwab: [00:28:49] So it's yeah, yeah.

Roger Harris: [00:28:51] Figure out how your software gives you or what flexibility it gives you, because if it just says check here, and particularly for clients, I think most of our clients well, I'm not going to say that because hopefully we have such a large audience all over the world that we have people who deal with a lot of foreign taxpayers. But assuming your clients have little or have no activity of any type foreign, either activity or shareholders, just figure out if I check this box, it fills it in and I'm done with it. If not, you're going to have to have some sort of notification. Don't know if your software will give you that wording or what know. So we're going to have to be aware of the requirement and then adapt it to our client base and our software to find the best solution for us. I hope for most of us, it's not something where we have to actually calculate and track information. We just have to make sure we fill out the tax return properly.

Annie Schwab: [00:29:46] It's going to be something that needs to be addressed, not just overlooked. This tax season, we got Reprieve in 2021 and so everybody sort of said, Oh, we'll kick that can down the road, but it's back. It's going to be something back. It's back. And, you know, it's something that we're going to have to focus on. Taxpayers are going to have to learn what a K2 in ak3 is.

Roger Harris: [00:30:06] Yeah, well, like I said, hopefully it's just a bunch of zeros and we can either check a box and move on or give out the notifications and be done with it. Yeah, there's always cryptocurrency. Anything new in cryptocurrency? I mean, we've heard about brokerage.

Annie Schwab: [00:30:22] Statements.

Roger Harris: [00:30:23] That you get for stocks and bonds, but that's not.

Annie Schwab: [00:30:25] Here yet. No, no. We were expecting the IRS was going to have enhanced reporting requirements for some of the brokerage firms for cryptocurrency, but that got delayed, too. So we're going to basically get similar documentation that we saw last year. Now, the Bitcoin and cryptocurrency, I mean, they've taken a beating, a real beating. So, you know, I'm guessing we're probably going to see a lot more statements with losses. But yeah, we're not going to get you know, we're not going to get this pretty brokerage statement that gives us column A, B, C, and we just drop it into the tax return. You're going to have to continue to take a look at it, talk to your clients about it, and make sure that you're reporting it. So, you know, taxpayers are going to remain obligated to report any income received from these transactions involving digital assets. And they're going to have there's a question, too, on the tax return on page right there, page one, there's a question that says, you know, have you been involved in buying or selling or transactions? I'm not remembering the wording perfectly, but you're going to answer yes or no right there on the front of the tax return. So whether that's a question in your organizer, something that you're going to have to ask your clients, you've got to answer that question yes or no, and then report the sales.

Roger Harris: [00:31:36] Yeah. And it's more and more people are dealing in cryptocurrency, but maybe since they're all losing money, they'll get out of it and make our lives easier.

Annie Schwab: [00:31:44] Since we've got to remember those wash. Rules, you know, for losses. There's been a lot of chatter. There's been some articles written about it. But currently watch those rules do not apply to crypto. So, you know that term harvesting losses, you know, it's been a popular term as we were nearing year end. You know, you're probably going to see a little bit of that in your client documentation this year.

Roger Harris: [00:32:08] And that's okay, as long as it's crypto.

Annie Schwab: [00:32:10] Yeah, yeah.

Roger Harris: [00:32:11] Yeah. That's that's part of the laws that have to be changed, so.

Annie Schwab: [00:32:16] Mm hmm. All right, Roger, Here's the big one. You ready? Yep. We've been waiting on it. It's the 1099 K, the famous $600 limitation for reporting transactions. Right. Your thoughts, Roger? I'm dreading it this way. Dreading it?

Roger Harris: [00:32:32] Yeah. Well, this is something that and again, this will say how much you were paying attention during the Christmas holidays to what was going on in the tax world a couple of years ago. The legislation dropped the reporting of 1099 K I'm sure all of you know is the historically has been the statement that our business owners got for their credit card activity, credit and debit card activity. It was to help make sure that businesses were reporting their income a couple of years ago as a way to raise some money in some bill that they were passing. They wanted to catch primarily the gig economy. So they took the threshold from 20,000 to require a 10.99 K and dropped it to 600 to be consistent with the miscellaneous or non employee compensation. So all of a sudden there's a big drop. So all of a sudden everybody who you say Venmo or PayPal or some app to get paid was going to have to deal with a 10.99 K that came in. For example, let's say you had a yard sale and you sold 3000 worth of junk and all the payments you accepted Venmo for.

Roger Harris: [00:33:47] We were potentially looking at a chance of getting a 10.99 K for $3,000 from Venmo. And we know that everything we sold, at least we think we know everything we sold, we sold at a loss. So now how am I supposed to deal with that $3,000 of income when I actually lost money on those items that I sold? So that was the challenge we had going into December. We were all getting ready to get all these 10.99 ks. We had very little, if any, guidance on what we're supposed to do about it. And the whole profession was in a panic. So we were all writing letters to the Congress, to the IRS. We were saying, God help us or stop this insanity, whatever it was. And I want to say it was December 21st. The IRS said, we get it, so we're going to put a one year delay on it. So the first good news is you should not receive 1099 KS for 2022 unless there are $20,000 or more.

Annie Schwab: [00:34:52] That was the rules last year. They basically.

Roger Harris: [00:34:53] Delayed going back.

Annie Schwab: [00:34:55] To last year's rules of the exceed 20,000 and more than 200 transactions.

Roger Harris: [00:35:00] So so we got rid of the yard sale, theoretical ten, nine, nine. So we hope now we hope that doesn't mean they won't have already been in the system and be issued. But shortly after that and I made the 21st may have been the day of the fax versus the day of the delay. I may get the dates wrong.

Annie Schwab: [00:35:18] All right.

Roger Harris: [00:35:18] All right. It was all right around Christmas. The IRS finally gave us some fake news about what to do with those 1099 KS. If they came or what we should do with those types of transactions, which I thought, well, maybe if you'd have given us this back in the summer, we wouldn't have been so hard for the delay. But anyhow. What was interesting in their fax is it pointed out some activities that we probably should have been reporting for however long.

Annie Schwab: [00:35:47] You're right.

Roger Harris: [00:35:47] And the fact that a 10.9 K was going to be issued shouldn't have changed anything. And they gave a really good example. So I'm going to try to be I'm a little old for this, but I'm going to try to be relevant to to the current environment here. Let's say you were lucky enough to get for Taylor Swift tickets and you only need it to because you were taking your. Significant other daughter, whoever. So you paid $100 for those tickets, but you sold two of them on Venmo for $1,000 apiece. So you make $900 on each of those tickets. Okay. You're not going to get a 10.99 from Venmo, but you still are supposed to report that as a taxable event. And that was true before this rule. So literally, how many of you have sold tickets to a concert, to a sporting event? Whatever the case may be. And it never crossed your mind that you had a taxable event. What you do, the 1099 case, will change that, but that's true today. So in my example, if I sold those two tickets for 1000. Paid 100 for them, I made $900 on each one of those. It goes on the 80 was 8949 as a short term gain and I pay tax on.

Annie Schwab: [00:36:56] Whether I get it ten 797. And then it flows to the.

Roger Harris: [00:36:59] All that sort of stuff. Yep, yep. Well, let's say all of a sudden. Taylor Swift becomes completely. Nobody's interested in her. So those other two tickets are worthless. So later on I sell those other two for $10. So I lost $90 on each of those. Well, in my world I take the 90 I lost on each ticket and offset the 900 I made. You can't do that. Nope. Because the rules say the taxable event is reportable. The event loss can only be offset to the extent of the income or break even. Yep. So we learned in this whole 1099 K thing that probably a lot of our folks have been underreporting. Again, selling sports tickets, concert tickets and all that. Again, I say that just to give you some background on what these transactions are going to look like when we have to start reporting them, I doubt most of your clients are going to come in and start telling you about all the concert tickets they sold and all the sports tickets they sold until they get those ten, nine nines.

Annie Schwab: [00:38:04] Right.

Roger Harris: [00:38:05] And then you're going to need to know how they're reported, depending on whether, again, they held them for more. I don't know if you can hold a concert ticket for a year or a sports ticket for more than a year and get long term capital gain. But that's the problem that we're going to face. Again, what we're hoping Congress will do, because we think it's going to take congressional action since they set the limit in the bill, is that that 600 might move up to something a little more reasonable, like 5000. So at least we won't be dealing with. Challenges of getting a 10.9 on K for $800 and then asking our client, well, what did you sell? You know, because sure enough, if they jokingly said this is where you're going to see one of those 884,000 ERs agents that have a gun, if you believe some people walking around to yard sales, making sure that you didn't sell something in a profit. So, you know, it's going to be an interesting problem for us to deal with whenever they reconcile what the number is. But it's going to mean that a lot of these transactions that we've just never heard about, we're going to suddenly hear about, and it's going to be important that we learn how to deal with them. But I think for the most part, we're not going to have to worry about it until this time next year.

Annie Schwab: [00:39:19] But the FAQs were really clear. This time they were you. What line to put it on To give you examples, the last goes here, the proceeds go there, the cost base. And so at least we have clear guidance, which I mean, heck, sometimes we wait years for clear guidance when something.

Roger Harris: [00:39:35] So if they had done this, like I said in the summer, we might have said, okay.

Annie Schwab: [00:39:39] Yeah, yeah, yeah.

Roger Harris: [00:39:40] Okay, no, but we have a year and hopefully we'll get a little bit of increase in the threshold.

Annie Schwab: [00:39:46] I understand hundred day.

Roger Harris: [00:39:48] Low, that's way too low. I mean that's, that's one good yard sale. I mean, now I don't know how many of you have given your Social Security number to Venmo. I haven't. So I don't know how they're going to issue. Could have ever issued me a 10.99 in the first place.

Annie Schwab: [00:40:01] Well, some apps do different things. Some say is this for goods or services? And you can mark it like this and they track, you know, if you pay, for example, let's say you're paying your gardener or your housekeeper or some poor man, you know, a certain amount periodically, I mean, those are going to be kind of red flags. You know, you see $50 every other week or something like that. But yeah, I don't know how the tracking is going to work with it, but each app's a whole different.

Roger Harris: [00:40:26] Yeah, hopefully this year they'll take advantage of it. Maybe this is wishful thinking and work with the third party vendors to tell them how what they're supposed to do and clarify their questions. Obviously work with practitioners like us, which they've done in these FAQs on how we're supposed to deal with it once we get them, but also educate taxpayers as to what this is and what it means so that they're not. Because if they do send them out this year, I think half of our clients would have just thrown it away and said, Well, I don't know what this is.

Annie Schwab: [00:40:53] I've never I know during COVID, I cleaned out every closet, I cleaned out every drawer, I posted stuff on Marketplace, put it on the curb. It disappeared. It was easy as pie, right? Yeah. So.

Roger Harris: [00:41:04] Well, see how much tax you own all up for When you do your taxes, you'll go back and track every penny of that.

Annie Schwab: [00:41:10] I do like a marketplace sale. I love it. I use it all the time.

Roger Harris: [00:41:14] Yeah, well.

Annie Schwab: [00:41:16] All right, Well, okay, here we are again. Tax season. But what happened to the extenders? It's common. I know, I know. I was waiting and waiting and waiting. We always have last minute tax extender legislation and I was following the news. I was wondering if it was going to get thrown in a bill at the last minute. We did get that omnibus funding package bill.

Roger Harris: [00:41:37] But yeah, there was the omnibus bill was the last vehicle for so much of our year end tax changes have to find a bill to get attached to to actually make them happen, and that's usually budget related or military related, something that you know, is going to pass this year. It was the omnibus, but we have such a political environment in Washington now. It's so hard to get anything through that. Getting anything extra added to a bill that they think will pass has become terribly difficult. So the only bill that passed that could have given us extenders or could have given us last minute changes was the omnibus funding bill. All that we got out of that is something called the Secure 2.0 Act, which will probably do a whole podcast on which was a retirement bill that was bipartisan and was sitting out there waiting to get passed on its own, and there just wasn't any way to do it. So that attached it to the omnibus bill. None of the proceeds from there really kick in until 2023. So it's not going to impact you a lot right now.

Annie Schwab: [00:42:38] Tax planning, maybe? Yeah, tax planning.

Roger Harris: [00:42:41] There's some interesting stuff in there. One of the things I just throw this out and again, we'll deal with it in the future in more detail is one of the interesting things is if an employee pays student loans. The employer can use those payments as if they were contributions to a retirement plan and provide matching funds up to a certain level of student loan payments. There's so much around student loans and things like that. And different retirement.

Annie Schwab: [00:43:06] I know, was was largely focused on enhancing retirement savings for. Right. You know and there's going to be a lot of stuff but like you said not 2022 filing stuff more 2023 20. Opportunities. But unfortunately the traditional tax extenders do not get in there. So, you know, we've got, you know, bonus depreciation goes back to 80%. It's not 100%, but there's some other there's some other stuff. There were some research expenses that were. Capitalized are now amortized over the year instead of being fully expensed. I mean there's there's some things in there. I know there was some stuff about energy credits the child tax credit, the enhanced child tax credit that I've heard a lot of talk about it. There was hopes that it would get in there at some point, but it didn't make it so. It didn't.

Roger Harris: [00:43:49] Make it. Yeah, And we're in a situation now with the Republicans controlling the House, the Democrats controlling the Senate and the White House. It's hard to see a lot of bipartisan tax legislation getting through because now it's going to take bipartisanship. It's got to either start in the House or pass the House wherever it came from. So this next couple of years may be lean years for tax changes, which in some ways is good because it means we don't have to deal with a lot of new things, but sometimes there's necessary changes and. I don't remember the date, but sooner or later, the so called Trump tax cuts expire. Yeah, and if they don't get extended by Congress, then we go back to the pre things like the 199. A deduction would go away if we don't extend those. So eventually we're going to have to get. Congress to work if we want good tax policy, because a lot of what we have today is just bad policy. Dumped on the IRS and said make this work. And sometimes the people who suffer the most or not are taxpayers. But.

Annie Schwab: [00:45:02] Again.

Roger Harris: [00:45:02] I think we'll get much of that right now.

Annie Schwab: [00:45:05] No, I think I think it's going to be quiet, quiet for a while.

Roger Harris: [00:45:09] A lot of talking. No action.

Annie Schwab: [00:45:11] Yeah. Yeah, I think so, too. So, I mean, hopefully we can get through to April 18th, serve our clients, keep it quiet and keep it calm.

Roger Harris: [00:45:22] Get back to whatever normal is.

Annie Schwab: [00:45:25] Famous last words, right? But yeah, but yeah again we find ourselves right in the middle. Tax season seems to come fast every year.

Roger Harris: [00:45:34] Yep. Well, we've survived them before. We'll survive them again. Let's just. Let's hope we can make it a little easier on us and better for our clients. Anyway. About. I think we're about out of time, aren't we?

Annie Schwab: [00:45:45] Yeah. Yeah, we're getting. We're getting there. But this was fun, Roger. I had fun doing this podcast.

Roger Harris: [00:45:51] I hope everybody in Jordan hope you'll come back for our next one. We're going to try to do these on a regular basis and keep you current and try to make it informative and entertaining at the same time. And that's a big task with taxes, but we'll do our best.

Annie Schwab: [00:46:05] Hey, better than just reading articles and tax legislation and that's no fun. Yeah.

Roger Harris: [00:46:11] Yeah.

Annie Schwab: [00:46:12] Let us do the hard work. We'll read it and tell you about it.

Roger Harris: [00:46:15] Yeah. Andy, thank you. This was fun. I enjoyed doing it. Yeah. We'll we'll be back and try this again in the near future. So tell your friends about it. Tell them to come join us and we'll see you soon.

Annie Schwab: [00:46:29] Until then, stay happy. Stay healthy. Happy New Year, everybody.

Roger Harris: [00:46:33] Happy New Year.