Gearing Up for Q4: Tax Prep Tips and Insights

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Roger: Hello, everyone. Hello, Annie.

Annie: Hey, Roger. How are you doing?

Roger: I'm good. It's another federal tax update podcast with Annie and Roger, and.

Annie: We're back.

Roger: Today. Since it's pretty much everywhere you go. It's hot. So we're going to try to touch on a lot of things that are hot during the summer as we are in the middle of another year heading into the extension deadline, whatever else is out there. So we're just going to be jumping all over the place.

Annie: So let's do it.

Roger: So let's start. So we are we mentioned the deadline, October 15th. So that's the next big deadline. Now, when I say October 15th, I know there's deadlines all over the place based on storms. Oh, yeah. Looks like we may get one any minute right now, so I may have a new deadline before this podcast is over. But you know, we're talking about that. But what are some of the things that we should be doing as we sit here? We're recording. I don't know when you're listening to this, we're recording this in, say, early August. What should we be doing? What should we if we want to be proactive in doing something in which I think is a good thing and not just reacting to the world around us, what are some of the things we should be doing?

Annie: Well, we we talked about things that we could do right after April 15th or April 17th through the summer. And those were a lot of sort of look back, evaluate what went well, what didn't go well, identify bottlenecks. You know, look at your client list and your pricing. If you had to, you know, educate your staff or move stuff around or find a new piece of technology or any of these types of things, hopefully that was done or is in the process of getting done as we come to an end of summer. And the reason is, is because the fall deadline is right around the corner and the last thing you want is to try to be implementing changes or new technology or dealing with, you know, pricing of clients when you're also trying to do what I usually find is more complex returns for the September and October deadlines that maybe were put to the side during the spring busy season. So sometimes you get the it could be that the clients were just lazy or maybe a new client, but generally speaking, I think the clients whose records are more in disarray or maybe complex transactions occurred, those were the ones that perhaps got on extension and they need you to focus and be at your best to avoid errors and mistakes. And so getting some administrative maybe I'd call it stuff done during the summer so that you're ready for, you know, an eight week push, so to so to say for the the fall busy season.

Roger: Yeah. And another thing, you're contemplating changing your tax software. Oh talk to your the company you're considering switching to and see if they'll give you a trial version or something and try to do 1 or 2 returns during the extension period in the new software. It's a good idea to help you decide whether you want to fully commit to it. You know, in the the busy season of of January through April. So while you don't have again in every firm is different some people do as many returns in October as others do and guess what we call the busy season. But it's a good time to to say, you know, let me let me do 1 or 2 returns, understand what's different about it and make a decision of whether you want to make a change.

Annie: Compare it between the two softwares, even if you have the time to do it in both. And yeah.

Roger: Parallel. Make sure you can come up with the same answer twice. Yeah, you're supposed to. At least they could both be wrong. But at least you're supposed to be both be the same. So yeah, yeah. So we got to be. And you may have touched on this, but we do, you know, depending on how many extensions you've got, don't, don't let the taxpayer control when they come in. You can do returns today. You don't have to wait till October 1st, so.

Annie: Oh, absolutely not. Hopefully you've been picking away at that extension list all summer long and you're getting it to a reasonable number that you can, you know, get the returns completed timely, accurately.

Roger: But but some of your taxpayers are kind of like we are April 15th comes and you go, it's over. Well, you filed an extension for them and they quit thinking about it. And yeah, whatever you needed them to do that they didn't do in April 15th, I can promise you they're not thinking about it today. So, yeah, make sure you're reaching out, trying to have your staff and everybody push people so you can spread that workload out between now and October 15th and not be all of a sudden having everybody wake up on October 1st and go, Oh my God, I got to do this. I got to do that because Andy asked for this. Don't, don't let them control your tax season. You need to you need to control it more than they do.

Annie: So, yeah. And it's not just the current year extensions, too. I mean, if you if you've got a new client or a client that was delinquent and you've got multiple years of tax returns to do or you identify, you when you were doing the tax return this year, something was in error from previous year. And you have to go back and amend just because we're here and we are very involved in the IRC. I will also say that if you have clients that you're having to navigate the IRC with, let's do it now. Let's not wait until the deadline and if you don't know what I'm talking about, you can hear us on a previous podcast talk all about the IRC, almost any.

Roger: Of our previous podcast.

Annie: Any of our podcasts.

Roger: Yes, we can talk about. Yeah. I mean because it's still out there and you're going to be dealing with it either in amending returns or dealing with clients who got it and shouldn't have got it, people who deserve it and haven't got it. So it's a good time to kind of re reexamine that because it's not going anywhere and it.

Annie: Is not.

Roger: There. There's some new information For those of you who haven't listened to our recent podcast, talk a little bit about what's kind of new. That the IRS has come out with that that is relevant to the employee retention credit because we got to talk about it on every podcast. So let's go. I'm going to get it out of the way and.

Annie: Let's do it. Yeah. So I'm going to throw out this number. There are over. The IRS has received over 2.5 million claims for the IRC during the pandemic pandemic up until now, and the deadline is not over. The money doesn't go away. The program doesn't end. I mean, eventually you'll the statute will run out. But there if you qualify, you can still file and get the money. It's not a bucket of funds that once it runs out you're you're out of it. And now the IRS is saying that they are processing returns, You know, 90 days, three months is basically and that's normal. That's normal. That is not considered a backlog. And legitimate tax preparers right now are they're trying to comply with the rules. And the clients are being tempted by aggressive marketing measures by the IRC claims. So you've got, you know, tax practitioners who really have studied and and worked through all of the legislation and gone through the FAQs and stay up to date with new information coming out. And yet you still hear on the radio and you get texts and emails about, you know, oh, you qualify for the IRC. You know, Covid affected your business, you get it, you get the money, you get this, I can help you call me, blah, blah, blah. And so what's happening is you've got sort of an education kind of split here and it's causing that tax practitioners and small business owners are both just kind of in a bind of trying to navigate what's right, what's wrong, what to do in certain situations.

Roger: Yeah. And you know, again, you're probably going to have somebody show up. That's own extension. If you have small business clients, it's going to say, Well, look what I got. I got all this money. So good time just to kind of re refocus or reeducate yourself. Maybe it's a better way to put it to say this is what I need to be thinking about and, and see where we stand with it, because it's it's going to stay out there. The IRS has issued some some guidance. If you are dealing with claims in terms of particularly the supply chain interruption, they just came out with some recent guidance on that. So if you've got clients who went to the mill and were told they qualify based on supply chain, there's some good chief counsel guidance to help you determine whether they're really eligible or not. So suggest the.

Annie: Irs is on.

Roger: At that. I mean. All right. On the top of the Dirty dozen.

Annie: Okay. I was going to say, because the IRS is all over this, it's listed as the number one on the Dirty dozen list. It's the the audit notices are coming out. I mean, it's on fire. This is not going away. But you're right.

Roger: Made it to number one on the dirty dozen tax schemes or whatever they call it. So it's number one with a bullet to use an old record.

Annie: I know, I know. But you're right. There are other things that other than extensions and other than IRC, you know, that that also includes things like estimated tax payments. So if you had a client that came in, you filed their taxes in April and they owed a bunch of money or maybe maybe the opposite. Maybe they got this huge refund, you know, have you talked to them about making estimated tax payments or adjusting their withholdings? Because what you don't want to do is get to the end of the year or even worse, January of the next year and realize that your client should have been paying money in all throughout the year.

Roger: Yeah. And what's your strategy? I mean, think about it. We're we're past the first two estimated tax installments already. You haven't done going into the third quarter. Do you need to to revisit that and look for ways? Remember, you can use payroll to catch up shortages.

Annie: That is a great tip.

Roger: That actually could go through three by the time you do the return.

Annie: Yeah, because so if you recall, you're supposed to pay a sort of pay as you go. So as you earn the money, you send in payments, which is very easily done through if you're a W-2 employee. Right. Every paycheck there's some taken out and sent to the government. So you're generally in the clear. But if you're a small business owner and you're making quarterly estimated taxes, those are supposed to cover the previous period, the income associated with the previous period. So if you miss one or you're late with one or you underpaid one, it's kind of hard to catch up because it's kind of broken into quarters a way around that is to adjust the withholdings. Hopefully the taxpayer or the spouse's taxpayer has a W-2 job or some source of income that has withholdings, because if you withhold extra further along in the year, it's considered to be paid equally over the 12 month period. Right. So it's not like cut into installments when you do withholding. So that is a tip. If you identify a client that's really behind on estimates and has the ability to increase withholdings on a W-2 or some other source of income, they can avoid the underpayment or late payment penalties.

Roger: And you can mean it almost sounds. You know, sometimes we think that the advantage is in the tax code. If they're in our favor, there must be something wrong with them. But they're there for a reason, not that one. I mean, you could literally pay all your estimated tax in a payroll check on December 31st. And it's going to be divided equally throughout the year. So keep that in mind. Again, by the time you do the tax return, you may have already missed three of the estimated tax payments. It's better to do it over the rest of the year. But you could even get to December and and fix it all in a big bonus check or payroll check or something.

Annie: Exactly. I've had clients whose business will cut them a bonus at the end of the year and they send it all in as estimated tax payments. Mean it just.

Roger: Goes all the way back. Now, if you don't do that, you're going to get an IRS. Notice that you did. You are. So we're seeing more and more people getting notices for different things. So I think one of the things that maybe we don't do as much as we. I don't know if we should do more. That means we're getting more notices. But there's a right and a wrong way to respond to an IRS notice. And again, the response can be, because I don't owe it, I shouldn't be charged penalties in interest. I mean, who knows what it can be. But talk a little bit about the right way to to deal with the ever increasing because remember, IRS collection notices were suspended during the pandemic. They were restarted. So they have you're going to have clients getting penalty notices that probably we'd all forgotten that they were even getting.

Annie: I mean, there's there was such a backlog and a timing difference. I mean, it could it could be that the notice was sent in error or the calculation was improper or something. You know, this you could get a notice. That said, we we requested information to support this. And you've already sent the supporting documentation in. It's just when the notice went out, they hadn't opened the envelope with the supporting documentation. So it could be all sorts of things. But there are some tips here on responding to the IRS. Every notice that comes out has a specific time that you need to respond by, right? It's never open ended. And if you don't respond, it's not going to go away. No.

Roger: So ignoring the no notice behind that notice.

Annie: Yes. And the penalties and interest will continue to accrue. So the first thing is when you you know, if your client brings you a notice or maybe you're getting copied on your client's correspondence with the IRS, what I do is I take a highlighter out and I highlight the response date, the tax period of the the period in question. The is it a 1040 for 2020? Is it a 1041 for 2022, whatever the period is. And I make sure that I am corresponding with my client to make sure we have the information requested in this notice so that when the response letter is written and there are several, I think we're up to 12 notices that can be addressed online through the portal. But historically.

Roger: Which is new, that's a good thing the IRS is doing, right?

Annie: Yeah, but historically and still a lot of these notices are done by letter, right? And so you're usually writing or typing on behalf of the client. So I always suggest on the IRS notice when on your response always list the taxpayer's name, Social security number and the type of return, the tax year of the return or the period covered and the date of the notice. And so I this is just what I've done. I'm not saying this is the only way to do it, but I always start with Dear Sir and Madam or Madam, I'm writing on behalf of Client A in response to your notice dated August 31st, a copy of which is attached your notice indicates state whatever the notice is saying or asking of you, in our opinion, state Again, what the notice is asking is incorrect or inaccurate or because of explain your your explanation. And I always use at the end I respectfully request the service either abate penalties or update the client account for this information provided or just the return to reflect x, y, z. Common gentle, appropriate professional language that is clear concise. You've got all the relevant information. So whoever opens the envelope even has a copy of the return, a copy of the notice, and a copy of any supporting documentation. All right there, hopefully stapled together. And they don't pull it all apart. You know, it goes on and on and on. But those are some some tips that can help avoid any issues with responding to an IRS notice.

Roger: Yeah, And one other thing that I've tried to do when I've gotten those, particularly when, let's say they get a bill from the IRS and says they owed $1,000 and I think they really just owe them 600. You know, I'm not questioning the full amount. I'm questioning why it's a thousand and not 600. One thing that I've found that helps in that situation is to go ahead and acknowledge in the notice that they owe the 600 and in fact, send that money with that notice. So now whoever's on the receiving end of that has got to I don't know, they go through this thought process, but, you know, I'm thinking they do. It makes me feel good. Is it worth the effort for $400? It's clearly worth the effort for a thousand because you said, no, I don't owe anything. Well, if I got to write you a letter for 400, I might as well write you one for a thousand. But. If I send you 600 of the 1000 and I make a reasonable argument, maybe they go, okay, it's just in our best interest to take the 600 because the back and forth with the extra 400 is not worth it. Worth it. Again, it's going to always come down. It's not that you sent them 600 and you kind of bought your way out of it. You're not negotiating with them saying, Hey, would you take 600? I mean, you got to have a reason that you think 600 is the right number. But if you agree at 600 and you stop any interest accruing on the 600. Yeah, that's true. It's got some economic benefits as well. So I've had some success with that. When you just go ahead and say, look, I'm not disputing the full amount here, but in fact I'm going to go ahead and send you what I think is the right amount. And then we'll we'll see what happens. And and I like that.

Annie: Yeah.

Roger: So, I mean, you know, it's not 100 I don't think it's anything 100% perfect. I think the problem to some extent with any time you're trying to have penalties abated and and explain the difference in penalties and interest when you're talking about asking for removal.

Annie: Generally if a penalty can be abated. So you can request that penalties be abated due to reasonable cause or some very clear, concise, plausible reason. Generally interest is not abated. I'm not saying it can't be, but in general, if you had access to the funds, then interest will be collected for that time period for which you had the funds. Yeah, Yeah. It's so much.

Roger: Harder to get interest because again, the service is argument and I think it's reasonable is you had use of that money for some period of time and it was our money, ours being the IRS. So since you had it and we didn't, we should be entitled to interest because if you borrow money from the bank, they charge interest and you've in essence borrowed money from the IRS. So, you know, we'll discuss the penalties, which are usually the heavier and bigger and heavier. Yeah, but I mean, there are reasons they're very specific. You can look in the IRS website and their guidance and see the specifics there, but it's pretty much got to be. The IRS is fault and nothing you could control if you want to get the interest. Now you can ask for it. You know you. Doesn't hurt to ask. But yeah, you're going to have much less success on getting interest activated.

Annie: And on the flip side, when the IRS has your money, your refund. They do pay you interest. So, you know, it's not just a one way street there.

Roger: And interest rates are up some. But, you know, for the most part, interest rates have been down. So it's not a lot of money. But the other thing I'll say when it comes to IRS notices is, you know, there's different notices for different reasons. And, you know, as Annie said, if you ignore the first one, you get a second one. If you know the second one, you get a third one, there's going to be one of those notices that says, hey, it's over. If you don't respond to this one and.

Annie: Oh, they'll.

Roger: Garnish your wages. Huge problems.

Annie: And that's a lot to reverse that whole cycle. Once that cycle goes down and they're garnishing wages or they're putting, you know, claims on other things or holds on other sources.

Roger: It's they're proposing taxes that you can't I didn't know it, but you didn't respond. So now you do owe it. So, you know, just be careful. And clients sometimes probably one of the most frustrating things that I have dealt with over my career is the clients don't bother to bring you the notice until it's about the third one.

Annie: Either that or like the day before the responses.

Roger: Do I just read this? I got to do something by tomorrow and all the real pertinent information is in that first notice. That third and fourth notice is just saying, Hey, we've already written you once. Deal with it. But you don't even know where it came from. That's all. Back in that first notice. So, yeah, again, hopefully the other thing that'll help, hopefully as we get more online accounts for taxpayers and for businesses and for us, the IRS is doing a better job that they'll hopefully be ways to go into an online account and and access that information.

Annie: That's going to be so great.

Roger: Yeah, because.

Annie: Just to be able to log in and handle all of that without corresponding through snail mail and wondering if it got lost and waiting for a response to come back and.

Roger: Or just not even knowing Where in the world did this amount come from? I mean, there's nothing says, Hey, last time I wrote you a letter, you owed me $5,000. Today you owe us $5,100. Pay it and you have no idea where it came from. So you know what? I don't even know how to dispute it. Maybe you do. Maybe you don't. So, yeah, encouraging clients to make sure you get those notices sooner than later. First of all, it gives you more time to do it. And it certainly is important if you get that third or fourth notice when the real bad stuff's getting ready to.

Annie: Roger, I had a client one time who was so afraid to open the envelope, they received a correspondence from the IRS and was so afraid to open it. They just brought it to me and had me open it. So that and it was it was a simple matching notice. It it was nothing to be afraid of. But there is something about getting a piece of mail from the service, the IRS, that really can really affect, you know, get get people all worked up. So, you know, keep that.

Roger: In mind. They didn't bring it to me, but they wouldn't open it till I came there. You know, like, what do you think is in there that I can open and it's not going to hurt? But if you open it, first of all, they didn't write it to me, so it's not going to hurt me at all. I'm happy to open.

Annie: I can open.

Roger: It. Right. I mean, I'm just going to tell you what it says. But yeah, people are funny. They get a letter from the IRS. Yeah. And but they also learned how to recognize as a check versus a letter.

Annie: Oh, well, then, yeah, they.

Roger: Open the.

Annie: Weight of the envelope.

Roger: Yeah. Oh, no. They knew immediately what. What the checks look like. Something else that's happening this summer and hate to keep coming back to it but IRC audits. Oh yeah. Again we're moving post getting the money. Now. We're into all the different phases of amending returns and audits. Talk a little bit about what those entail in terms of what are they looking for, Can they move beyond the IRC and look at the underlying returns? What kind of documentation are they expecting the small business owner to have? If the IRS says it's time to to look?

Annie: So far from what we've seen and I have actually seen a notice, the notice was specific to the IRC and the form nine 4941 So it wasn't an audit of the taxpayer's business return or S corporation, it was focused just on the IRC. Now it's a four ish page letter that comes in the mail and it's very specific. In fact on it will say the on the top right hand corner, it'll say the client's name, the period that they're auditing, the form that they're auditing, it could be one quarter, it could be two years, who knows, for the IRC calculation. And in there it actually says you have an appointment with so-and-so at this date and this time to address the rest of what's included in the letter. And it says you need to call if you need to reschedule. But also in that letter it is 16 bullet points of things that the auditor may request of you. And depending on, let's say, you know, there are basically three different ways that you can qualify for the IRC, whether it was a partial or complete government shutdown, whether you had a decline in gross receipts compared to a previous period. And there's a lot of nuances with that one or a supply chain interruption, which is the one that the mills are technically focusing on because it's the most gray ish area.

Annie: So what the what the 16 points are saying is, you know, I need copies of the the forms, the 941, the payroll data. I need proof that you qualify. I need specific proof of the that the calculations of the credit were accurate. And it goes and it goes through all of these items. So it's very comprehensive but clear. I would say clear. So it could be that if you prepared the IRC for a client, you have all this stuff right and you can prove your calculations and why they qualified. But if your client went to a third party, a mill, another company, another firm and and now they're being audited, you're going to have to do two things. You're going to have to. Get the information, all the support that the mill used or the third party used, the clients going to have to provide that to you, or you're going to have to recreate the records to verify the qualifications and the calculations of the CRC. So that's a really important to know, especially if you did not do the CRC for the client.

Roger: And if you didn't do the ERC, I would first of all try to get the because again, they are restricting this audit to the ERC claim they're not. So for their tax return, at least so far. So far, right. The first bit of advice I would get was try to get the firm who prepared the ERC to do the audit representation.

Annie: Oh yeah. If you can find that mill and they're still around. Absolutely.

Roger: Because they should have all the documents that are necessary if you're going to get engaged to do it. Well, if you did it, you should have. The only thing you may not have that we've seen listed is a copy of the forgiveness letter on a loan if one was there. Yeah, You got to have some copy of the mandate that was issued and I think most of that's online.

Annie: You can get from the website, you can get that from the website, the state website or county website.

Roger: There's some kind of periphery stuff that's not calculated, but if you calculated it, they're not going to ask you for anything you don't have. But if somebody else did it and a client comes to you, the first thing I'd do is try to send them back to whoever did it. Hope they're still in business. Hopefully they're especially if you.

Annie: Don't think it was legit, if you didn't think the client qualified and they went to a third party, you definitely don't want to be a part of that.

Roger: Even if it's legit. I mean, I can't defend. Well, how did you decide this person's wages were this? Well, I didn't do it, so I don't know. I'm going to have to call them anyhow. Let them do it, you know, And yeah, but again, I'm afraid we're going to find situations as time passes and these audits pop up from mills that are no longer in place. To your point, we're going to be saddled with all the work and we're going to have no choice. If we can win the argument, they're eligible, right? Let's assume we can win that argument. I still don't have any documentation to prove why this is the number, so I'm going to have to try to work backwards from the records to find out how to get to the number that I didn't come up with in the first place. So this going to be a massive amount of work for us depending.

Annie: On the number of employees and the periods for which there was a partial or full shutdown.

Roger: And yeah.

Roger: And they're starting and the IRS is and and the IRS has said for all of you that are going to fall back on, Joe Biden said we're not auditing anybody under 400,000. That doesn't apply here.

Annie: Nope, nope.

Roger: Is a whole nother you can't audit me because Joe Biden said didn't make 400. Now, he didn't say it exactly that way. He said, we aren't going to increase the audits on people under 400,000. He was not going to just say because if you if you made a statement, we're not going to audit anybody under 400,000, 99% of the country tomorrow would make less than 400,000. And the other one.

Annie: Absolutely. We know that. Exactly.

Roger: So it's not that. But the IRS has said this is you know, they're still going to be able to do the enforcement necessary in the I.R.S. claims. And first of all, where does the 400,000 apply before the credits? After the credits, what year?

Roger: Who knows?

Annie: It's just some arbitrary number.

Roger: Don't think you're going to skate around this and say, because I don't make 400,000, I don't have anything to worry about. They're starting. They're going to continue to happen. You're going to see more of them start thinking about how you're going to handle them. If they come up and everyone's going to be different. You did the claim. You didn't do the claim. The claim was legitimate. The claim wasn't legitimate. You know, all these different things that are going to that are going to come up.

Annie: So and Roger, there's so much that we still don't even know. And that's the frustrating thing. Well, well, what if you if you agree, okay. If you raise your hand and you say, you know, I went to a mill and I got it and I and I didn't qualify for it. And so now you want me to repay it. But I spent the money. And so or I you know, I the credit was 500,000, but I gave 100,000 to the mill. So now I only have four. Like, I mean there's all these sorts of questions or what if there was just like a small little error and you want to amend it? Can you can you even amend it or, you know, can you get on a payment plan if you do have to pay it back?

Roger: What there's a.

Roger: Lot really happen and hopefully by the time it does, we'll have gone and seen you touched on it. You know, we told them they didn't qualify. They went to a bill, they got the money, They came back to you and said, I can't amend your returns. You weren't entitled to it and you got to pay it back. I'm not paying it back. And then next thing you know, they get an audit. Now they're coming to you and going, Yeah, yeah, you're right. We should pay it back. Help me Now we need some guidance on a how to do it. Should we do it before the audit? During the audit? What about the fees that were paid? There's some discussion even that the fees aren't deductible because it was an illegal claim or something.

Annie: Yes, I heard that. I heard that. And those. So the fees that you paid the mill are are deductible when you pay them as a business expense. Remember, the credit has to go back to the year for which the wages were associated with. So you've got, you know, people doing this and going back to this period and that period, it does get confusing.

Roger: And we need some clearance and.

Roger: Some guidance to clarify a lot of these issues. In terms of can I deduct the fees and why are you making me take the credits back to one year? And I got to claim the fees in another year and I'm going to have to pay you money and pay you penalty and interest, and then you'll owe me money. And it's just. We're supposed to get guidance, so. All right, let's get off IRC.

Roger: Okay. Okay.

Roger: Ten, nine, nine. Kay. Anything different from the last time we talked about 1099 case?

Annie: So just to recap, historically 1099 cases have been for there's a threshold, an annual sales threshold threshold and that was 20,000. And then there was a transaction threshold and that was 200. So you needed to prepare 1099 for business. If there was greater than 20,000 in sales or more than 200 transactions, then we had legislation that significantly dropped that down to $600 being the sales threshold and completely eliminated the transaction requirement that was supposed to come into effect. But everybody was kind of up in arms. Oh my gosh, what are we doing? Nobody knows about it. We haven't received guidance, you know, or what if this and all these scenarios. And so it sort of got extended. So we're in this like waiting period. And I think both sides are in agreement that 20,000 might have been too high, but 600 is probably too low. Right. And so but but what what's the right threshold? And I believe in June, there was a $5,000 threshold proposed. I don't think it's still proposed unless I'm wrong. I think I don't think anything is final, but it's something we're going to have to focus on because we're going to get an influx of 1099 forms tax. Taxpayers are going to get them. Businesses are going to get them. The IRS is going to get copies that need to be addressed and opened. So, I mean, I don't know. I don't know what the right threshold is. I understand the theory behind it. But, you know, is it just has it just too low? Is it just going to cause havoc? And I don't know. What do you.

Roger: Think? Well, it's too low at 600.

Roger: For the 600.

Annie: Yeah, I think so, too.

Roger: But and there are bills in Congress to increase it all over the place from 5000 to unlimited. And going back to the original rules and all those sorts of things. But that's going to take Congress to actually do something. So you can't count on that till it happens. The the companies, the Venmo's, the companies like that, they're they're all geared up and ready to do it and they're asking for different information. And you got to pay attention to how you use the app and whether you say it's a business or personal and all those sorts of things. Yeah. Um, the one thing I would say everyone, if you haven't become familiar, the IRS put out some FAQs on how to deal with the 1099 case.

Roger: If those were good. They were very.

Roger: Good.

Roger: Very good.

Roger: Because if the law doesn't get changed, you're going to have people get 1099 KS for selling stuff at a yard sale or sports tickets or something where they may or may not have made money. Now let's make sure the law has not changed. It's the reporting that has changed.

Roger: So that.

Roger: Is correct. A lot of the things that the 1099 KS will generate tax on were already taxable. We just nobody talked about it. Now we'll be.

Annie: Talking. Didn't report it. Yeah.

Roger: So make sure you're familiar with how and what information you're going to need. If you get a 1099 K and you are convinced that they don't owe the money so.

Annie: Well, and in those FAQs, like I said, we both agree those were really detailed. But it goes it goes through I mean you can go IRS 1099 FAQs and it'll pop right up. But there's several of them and it's very specific. This gets reported on this line of this form on this tax return. And it and it kind of walks you through it. And if you read through them, you would you'd get sort of the idea and you'd be fine as a tax preparer. Now, explaining all of that to, you know, someone who sold a bunch of stuff on Marketplace, you know, that's going to be a different story. So that's why the threshold matters. But, you know, I don't know. I don't know where we.

Roger: Land on that.

Roger: Right now. The threshold is $600 because we don't have any.

Roger: Well, that's what it is.

Roger: Talk. So to those of you that send out newsletters to your clients during tax season, you should start alerting them to watch for these forms.

Annie: Yeah, don't throw them away.

Roger: Yeah.

Roger: Make sure you get them. Organizers, I'm sure, are going to have something about that in there. But if you have the ability to customize or again, we're going to have to really if they don't pass a law that changes this and we may still you know, if they pass the law too late, they still may send the forms out because these companies are getting sick of preparing for it and then every year being told not to. But yeah, you should take advantage of the the summer and start educating your clients that this is potentially coming. In fact, it is coming unless something changes.

Roger: Exactly.

Roger: What they are, Watch for them. Make sure you get. Because if you ignore it, then they're going to eventually get a notice saying you didn't report this when they may not have owed any tax on it. But like everything else, you don't. You didn't acknowledge it and you didn't cover it. So keep an eye out for it again. Right now, it's 600. Congress has talked about it, but I'll jump ahead to a slide. Congress ain't working till the end of till Labor Day. They've gone home. They went home about a week ago. They're going to be gone the entire month of August. They'll be back after Labor Day. They got a few more important things to deal with by the end of the year, then 1099. But it is on the radar. There are a couple of bills out there that would again, some would raise it slightly, some would raise it at all. Some would repeal it. But for right now, it's 600.

Roger: 600, and that's where we are.

Annie: Another thing coming to the pipeline that I don't I don't think this is going to get changed. I just think that there's been a lack of communication. And so I feel like it's going to just come up right there at the end of the year. But the mandate for information returns that used to be 250, it is now ten, right? So that so if you prepare ten informational returns and it's not like ten W-2s and and ten, 1099, if you do six and five, you're over the threshold, right? So that is something that starts in the beginning of the year and it's tracked by Ian. So if I don't know, ADP does the 1099 or the W-2s and then your client says, Hey, can you can you do this one 1099 for me, if ADP already hit that ten threshold, you're required to file for that 11 even though you're.

Roger: Only doing one 1099.

Annie: Even though you're only doing the one. So a little new, little kind of quirky things with the rules which forms and it's like an aggregation kind of thing, but it has gone from 250 to 10 and that is a major decrease and that is going to going to affect a lot of small businesses who traditionally just, you know, do after the fact payroll or paper or paper file them. You need to make sure that you start talking and thinking about that.

Roger: The reality is, if you don't have a process in your office today for filing these forms, take advantage of the summer and the fall to set one up and just do them all. I mean, we don't need multiple systems in our offices. We don't say, Well, this client, we do paper, this one, we do electronic. We're almost approaching this. Like when now it almost seems comical when electronic filing of tax returns started.

Roger: I remember, you know.

Roger: I remember all the excuses. Well, they don't they want to mail it themselves. They want paper and they don't want, you know, to have money taken from their bank account. They want to mail them a check. And now it's like we would never do anything on paper. So this is going to.

Roger: Charge for that.

Roger: So just if you don't have your system set up for electronically filing W-2s and 1090 nines, take advantage of the summer, get your system in place and just do it for everybody.

Roger: Just then you don't have to worry.

Roger: How many does this one have? I mean, does that one have. Oh my God. I thought they only had seven. Now they got 11, you know, so. Yeah. So just. Suck it up.

Annie: There's some there's some really good apps out there or software or tools, online tools, I should say, that can really streamline that process. So it doesn't have to be a big headache. You just have to find the right tool.

Roger: Or just good.

Annie: Software that works for your office.

Roger: And you know, again, you're going to be a more efficient firm. You're going to be a better firm if you do everything you can electronically. I think one of the big frustrations at the IRS is that so many 940 ones are still being done on paper, even though they can be done electronically. Yeah, And some states are requiring you to file their forms electronically and you still do the paper for the IRS. It's just habit. You know, we just got to change and.

Roger: Yeah, just.

Roger: Set up, set up a firm to be electronic. It's not only going to make your life simpler while you're doing it, but it's going to make your firm more valuable when it comes time to sell. Because most of the people who are going to want to buy your firm are going to look at you and go, You're still doing what on paper, you know?

Roger: Yeah, they want.

Annie: The modernized.

Roger: Firm. They want the modernized firm.

Roger: What's some other stuff that's that's coming down the pipe that's out there?

Annie: Yeah. We're running out of time. Roger.

Roger: How are we?

Annie: Let's see. You know, it's getting close. Uh oh. I think most of you are going to like this. The IRS has announced that there's a change in policy and there will no longer be unannounced visits for to taxpayers by revenue officers. Right. So no one's going to come knock on your door claiming that they're an IRS agent. They have ended that for now.

Roger: You will now get a letter, you may get an in-person visit, but you will get a letter announcing what I didn't realize because I was actually in a in a briefing when they made this announcement, it's done primarily for the safety of the IRS agents.

Roger: Oh, yeah.

Roger: That they were, you know, can you imagine in today's world, as sad as this is to say that if you walk up to a door and knock on it unannounced and say, I'm with the IRS, there's a chance the person on the other side of the door is going to have a gun in their hand when they open the door. And I'm not sure why, but there's a lot of scammers out there saying they're with the IRS. So this was pushed by the union that represents the IRS employees to say you're you're sending our people out into dangerous situations just to knock on the door and say, I'm with the IRS and this kind of world. So now they're going to send you a letter and they're still going to want to visit and meet in person. But it'll be preceded by a letter.

Annie: And it'll be scheduled and confirmed. Right? So you'll get confirmation on both ends that this is a legitimate IRS agent coming to your office for a specific reason.

Roger: Right.

Roger: So now if someone just knocks on your door and says, I'm with the IRS, it probably is a scammer.

Roger: No, it is.

Roger: I mean, you can shoot them, but it probably means.

Roger: No, no. Oh, gosh.

Roger: But it does mean they're probably not legitimate IRS agents. Exactly. What about something? We've talked about it before. It's still out there. We still are waiting for guidance. What about the Corporate Transparency Act?

Annie: So that is actually something that came about in 2020 that is starting this January. So we've had a lot of time here to deal with something that's called the reporting of a beneficial owner. And basically that affects nearly all small businesses. In fact, it there's exemptions for larger publicly traded companies. But for the small business owner, there's a new reporting requirement that again, starts in January that a company needs to identify and report information about their beneficial owners. And there's specific people and criteria, but we are still waiting for this form. And it gets tricky because this is through FinCEN and so the penalties are so high. I mean, it's.

Roger: $500 a.

Roger: Day.

Annie: Up to $10,000 and I think that potentially could have jail time. So, you know what it get to that? Probably not. But the problem is, is that this is so close to being live and we're still like, what's going on? What does this mean? What is the form look like? What is the form asking? Where are the instructions for the form? What do we do if an owner changes who needs to be? You know, sometimes the agent there's this term agent that also gets listed. So let's say Roger helps somebody incorporate or something, and now Roger's listed as the agent for this entity and Roger Disengages, how does he get his name off of all of this information? You know, You know, so there are some specific questions that are still pending. But with the penalties so high in the start date so soon, it's kind of.

Roger: And and the anxious there's.

Roger: Some one year timelines. There's some 30 day timelines. Yeah. Don't don't say most a lot of our clients we don't engage with in regular intervals.

Roger: Where if something.

Roger: And know the 30 days could have expired before we ever became aware of it or knew of it. And now what do we do? How do we. So, again, Congress is looking at this because we have, though, the bill was passed a long time ago. We're still waiting for the basic the form and some some rules to follow. There's some attention being paid in Congress to think and maybe we should delay this because, you know, it's going to be the end of the year before we know it. And people still don't know what to do. And are we going to you know, they keep saying, oh, we'll be lenient in that first year. Well, what does that mean?

Roger: Yeah.

Roger: And the change of ownership is not all. It's a it's even the title is a little confusing when it says you're a beneficial owner because you can be covered and your ownership didn't change, but your duties changed.

Roger: And decision.

Annie: Making could get you on.

Roger: That list.

Roger: Banking relationships. Because this is all about catching, evidently, and it doesn't surprise me there's a lot of money being laundered through small business, illegal money being laundered through small business for which the IRS and FinCEN doesn't have enough information to go track it. So this the intent of all this is to create more records of who owns the businesses, who makes the decisions in the businesses. So as they're trying to chase down laundered money, they'll have more information to do it. So that's scheduled to kick in January 1st.

Roger: Yep.

Roger: I don't know when, if and if we'll get what we need, but Annie Mae, it's pretty important and.

Annie: It is.

Roger: Important. Very important if you do.

Roger: It because it gets.

Roger: Expensive.

Annie: Exactly.

Roger: And dangerous.

Annie: We we've been tracking it. It's. It's on our radar. So if something comes through, we will let you know through a podcast. But it should be on your radar, too. It's it's coming.

Roger: Up. So what other.

Annie: Things coming up are unless something changes many of the provisions of the Tax Cuts and Jobs Act of 2017, they they sunset, they expire and everything reverts back, including some subsidies that were part of the Obamacare. So, you know, we we do need to watch see what's kind of going on with the 24 presidential elections because that could result in how new legislation is comes about or expiring items get extended or something happens retroactively. So there's a lot of changes. If nothing is done, there could be a lot of changes that just fall into our lap in 2025.

Roger: The elections going to have a lot to to. To do with what tax law looks like right after the election because of the Tax Cut and Jobs Act expiration. Yeah, and.

Roger: There's a lot of provisions in there.

Roger: Who knows who will be in charge? It may come down to who's not in prison, gets to win, you know?

Roger: Oh, God. Don't go there.

Roger: We're we're heading towards what appear to be some. Not great choices, but it's going to be important because there's a big part of the tax law that is set to expire. If you do nothing, it expires. The Tax Cuts and Jobs Act goes away.

Annie: And given that no one can make an agreement on anything or at least come to some sort of negotiation that works for both parties, I'm not sure that anything will happen.

Roger: Hopefully there'll be a slight honeymoon period. However, the election turns out that right after the election, before we get into the next one, important things can be decided while there's hopefully some good feelings between the two parties. But I think a lot of that depends on who who wins and who loses.

Roger: It wins. Yeah.

Roger: One last thing before we wrap up. This is also a good time for any of you who want to make changes to your overall work environment. You know, you're working too many hours. You want to update your technology. You want to look at your staff, engage your staff, figure out what went right during tax season, what went wrong, what changes can we make to make our firm better before you just dive head first into the extensions and then into another tax season? Because yeah, you don't kill yourself in this industry.

Annie: Yeah.

Annie: You definitely don't take a vacation.

Roger: It's too hot outside to do.

Roger: Anything else, so you might as well stay inside and work on your farm and make it better because.

Annie: I can't wait for fall.

Roger: Well, all in football.

Roger: I'm ready for it.

Annie: Yeah, right up your alley. Yep.

Roger: So anything else? Any. Great.

Annie: That's all I've got for today. I'm sure we'll have more on all the pending legislation and, you know, more on IRC on.

Roger: Our next podcast.

Roger: And IRC is never going to go away. I'm convinced now it's just going to be here forever. It'll just be. Same song. Different verse.

Annie: Yep. Well, thanks so much, Roger. This was.

Roger: Great. Thank you.

Roger: Annie, as always, thanks for your. Your great job and help on this. And thank you, everybody, for listening. And we will hope to see you soon on another federal tax updates. Bye, everybody.

Roger: Bye.

Creators and Guests

Annie Schwab, CPA
Annie Schwab, CPA
Franchisee Operations Manager at Padgett Business Services
Roger Harris, EA
Roger Harris, EA
President at Padgett Business Services
Gearing Up for Q4: Tax Prep Tips and Insights
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