Ready, Set, File! Tax Season 2024 Updates

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

Roger Harris: Welcome, everybody. It's time for another federal Updates podcast. This is Roger and Annie and Annie. How are you doing?

Annie Schwab: I'm doing great. We're hitting February, we're tax season's kicked off and we're busy. Yeah. Hey.

Roger Harris: Yes, we're recording this as tax season has started most. Well the federal returns [00:00:30] are now being filed. There's still some forms and we'll talk about that in states are issues. So if you're we're going to talk a lot today about kind of things anticipating that you're listening to this at the beginning of a filing season. If you don't get around to listening to this till May, you probably need to find another podcast because you will have already worked your way through that. But hopefully you'll find some some helpful hints and just some updates as to where we are and what's kind of swirling around. So, uh, we're going to talk [00:01:00] a little bit about you as a practitioner. We'll talk a little bit about, you know, what the taxpayers need to be doing updates you on some of the things that we always update you on IRC beneficial owner. And we'll talk a little bit about all that's swirling around in Washington with regard to we get a lot of questions internally about, you know, the tax bill that has been proposed and where that stands and what looks like. Does it mean. Yeah. And what, you know, what do you do about it. So all right and [00:01:30] let's get started. What are you why don't you kick us off with some just some again some free stuff filing season or filing season suggestions.

Annie Schwab: Well the season the season kicked off on Monday, January 29th. So it's going, um, you know, of course, same kind of tips that the IRS always provides. You know, the fastest way to get your refund is to file use direct deposit, which at this point I think most of the taxpayers are doing that anyway, even if they're filing their own returns. It's just [00:02:00] so easy to do. Um, and then there's, you know, there's some certain types of credits for individuals that the IRS, as similar to prior year, has said that, you know, those refunds will take a little bit longer. Um, generally a refund comes within like 21 days, sometimes faster, sometimes maybe a day or two slower. But, you know, if you're if you're a, if you're filing and you're getting the earned income credit or the additional child tax credit, none of those refunds for those returns filed with [00:02:30] those credits will begin until mid-February. So if you filed your return, you know, mid January and 2021 days has gone by. It may be later in February, early March. Right. The IRS just takes a closer look at those because that's those are areas that tend to be abused.

Roger Harris: There was a delay put in on purpose to make sure that some of those people claiming those credits, uh, were legit and gives them a little more time to get some information in their systems to do some matching.

Annie Schwab: Yeah. And [00:03:00] like I said, you know, it once mid-February rolls around, you should they should be good to go 21 days from there. And you can always go to where's my refund? I mean that you can Google where's my refund. Um, it's an IRS like a website where they put in your social, your AGI the year, you know, a couple of like what kind of tax do or refund are you expected. And it kind of gives you where you are. Um, so you can always, you know, do that. But give it give it at least two weeks before you start.

Roger Harris: I think [00:03:30] most states have developed the same kind of where's my refund? I can't speak for all of them, but I think most of them have. So your client should be able to track the status of both their federal and state refund without calling you every day and saying.

Annie Schwab: Yes, exactly.

Roger Harris: Why haven't I gotten my check yet or when's it coming and that sort of thing.

Annie Schwab: So and for states, you know, go check the Department of Revenue website because it either could have one of those where you track your refund. Some states may not open filing as soon as the feds do. I know this well, last year and again [00:04:00] this year, a lot of states are making revisions to forms. So if that's the case, the forms could be delayed. So and then I feel like it's almost every day I get a notification that there's another extension for this disaster or that disaster, um, disaster relief, which then means those states have to incorporate those forms into that particular tax year. So that could not only cause a delay in the returns being available for e-file, but also keep that in mind. If you have a lot of clients who maybe [00:04:30] live in different states or whatnot, um, you know, follow up with that. Yeah.

Roger Harris: I mean, states can actually be a bigger problem sometimes than the feds because depending on how often their legislature meets, how closely they follow a federal law, what, you know, what special changes they have. So if it's not just I mean, you should, I assume, know the rules or what happens in the primary state you're in state. Yeah. Some of those other states you may file 1 or 2 returns in. They may, you know, be trying to change for some law [00:05:00] they passed or they're still trying to get their forms and their tax law consistent with any changes that may have happened at the federal level. So yes, states can. Sometimes be a bigger hold up than than the, uh, the federal.

Annie Schwab: That's true. And some states follow the federal deadlines. Some states are different. I know a handful of states. The deadlines May 15th instead of April 15th. So just also, you know, double check that. But the generally the Department of Revenue, um, state sites [00:05:30] are pretty good. Um, so at least you can get your basic information there. And if you're.

Roger Harris: Really lucky, you live in a state with no state income tax. And you can ignore this whole last five minutes of.

Annie Schwab: Yay for.

Roger Harris: Texas and you and you have less taxes to pay, at least income.

Annie Schwab: Tax, I don't know, our property taxes are really high.

Roger Harris: You get it a different way.

Annie Schwab: They get one way or another, you're paying for it. Yeah. Um, but yeah. And then just a heads up on a couple of the business return forms, there was a delay, um, pretty much related to a lot of those [00:06:00] energy credits that were new this year. The delay was just until the end of January. I have seen I know our software is now allowing for e-file of of those forms, but it could be, you know, slightly delayed. You know, it's the advanced manufacturing credit and, you know, the qualified commercial clean vehicle credit. We've talked a lot about that. So there's maybe eight of them I believe as it deals with some new credits. So your software may give you a diagnostic saying oh yeah this this isn't ready or [00:06:30] it's pending or, you know, new releases coming later. So as a tax practitioner, you know, whatever software you're using, there's going to be an avenue to see what's the status of the forms. Um, you know, if there's going to be new updates, releases, bulletins, whatnot that allows you to kind of see where you are. So maybe pin that to your, you know, your toolbar or something and take a look at it.

Roger Harris: And softwares are different. So just if you talk to one of your colleagues and they're able to do something, that [00:07:00] doesn't automatically mean your software is ready to do it, they're usually fairly close and and getting things done. But yeah, it could be a I don't know. We've seen some instances a week or two difference for reasons we'll never understand.

Annie Schwab: But yeah. And like for some reason I know like Colorado is one of ours that comes late. But there's other other states that we've been found that other people aren't. So I don't really know the politics in, in all of that, um, so to say. But it's, you know, should [00:07:30] be close, you should be able to file close together.

Roger Harris: And one other thing, when you come into dates to file, I mean, depending on the returns that we're talking about here, I think we're certainly hopefully talking about relatively simple returns that we're filing now because we all know the issues with broker statements and when they're coming. And yeah, uh, I know I looked the other day at my brokerage website and it said, well, we'll get you the first one by the 15th, but then the real one will show up at the end of February. So [00:08:00] be careful not to get caught up with what the broker houses are saying is their first attempt at the statement.

Annie Schwab: And yeah, I've heard a lot at last year's, specifically a lot of revisions or corrected forms, especially if you were dealing with digital assets. Yeah. So if you have a client that maybe dabbles in that, it might be good to just sit still for a bit, or if.

Roger Harris: Your client invests in partnerships or entities. [00:08:30] So those returns have to be prepared before the information can be accurate. I know we've I've seen a lot of those where you get one right at the end of filing season because they just got through filing some entity return that impacted. Yeah.

Annie Schwab: You're waiting on the K-1. Yeah.

Roger Harris: So so you know again true. Don't be in too big a hurry. It's not really always the software's issue or the IRS or the state or whatever the case may be. It may just literally be that the information you need isn't really [00:09:00] available until a later date. Now you can, you know, if somebody brings you everything but that, you can get everything else entered in and be ready for the last piece to not. You don't have to wait to start, but try to and we'll talk about being organized. But, uh, we never know. Filing season starting is kind of a moving target. What does that really mean? And it starts for some people, doesn't start for everybody. And there's a lot of factors that go into that.

Annie Schwab: Well. [00:09:30] And we'll talk about this also. I mean there could be legislation that's retroactive. Yeah. That returns early may not even be a.

Roger Harris: Good idea is always fun if you've done this as long as I have. You've seen how that works and it's never pretty. And, uh, yeah, we'll talk about that as we move forward in this podcast. But let's, uh, let's just hope that doesn't happen. But politicians could care less what we think they do, what they think is best for them.

Annie Schwab: I feel like tax season just gets more [00:10:00] and more crunched every every year, you know, later start later release of forms filing season the busy part of filing season. Just. Gets so tight and.

Roger Harris: You know that that brings up an interesting thing that's not on our agenda to the extent that we have an agenda. But, you know, a lot of people want an extended deadline. They want to kick April 15th down the road, some for weeks, some for months. And I really question, does that change anything or does it just give everybody [00:10:30] else that creates these headaches for us more time to create the headaches? That's the you know, if you give a brokerage house till June to do something, they'll probably do it in June. So we'll have the same problem. It'll just be later in the year. So and I know a lot of people say, let's just get it over with, you know, just don't extend the deadline for first of all, there's no discussion anywhere about doing it. So don't run off and say, I listen to a podcast and they send it. Tax deadlines being extended. There has not been any talk of it. It does [00:11:00] take, you know, somebody to do something. This is it's not as simple as it sounds, but, you know, a lot of the problems that we have, maybe some would be solved by a longer deadline, but most of them I think, would just be delayed till the longer deadline. Your clients aren't going to bring you the information any sooner.

Annie Schwab: That's the that's the hard part. Just gives people more time to make changes and be lazy, I guess. A couple of tips I have here, Roger. Just, um, as we're kicking off [00:11:30] tax season, we we remind our office owners all the time that go log in to your PTEN account and to your E services account and take a look at the records under your PTEN and your even the scammers are getting smarter. Identity theft is going nowhere. Um, if anything, it's going up. But the IRS is recommending that all tax practitioners monitor those accounts to verify the number of returns that are shown underneath. It's not going to be perfect. There is a [00:12:00] timing delay, but let's just say you file 250 returns and you go and check your PTEN or your E fin. And it says that you did 1000. Well that's a red flag right. If it says you did 248 you're probably okay. Um, but it is I mean, it's just put a little reminder on your calendar every couple of weeks or something to just say, log in, check and make sure you know, nothing's been compromised. Um, believe me, we have had an office compromised and is not an easy fix.

Annie Schwab: It is not a quick fix. [00:12:30] Um, so you just protect yourself. If something happens, know it quickly so you can get get it resolved. One other thing I will mention as well is if you don't have a written security plan, it is required for all taxpayers. It's required by law. Um, there's templates out there and if you don't know what I'm talking about, you can Google, you know, secure tax preparer, written security plan. Um, the AICPA has some templates that you can use. The IRS [00:13:00] has templates. Um, there are plenty of companies that can assist, but basically it's something that should be a living document. Um, something that you want to revisit, update, revise from time to time. Uh, and you'll see, you'll see that when you go to, uh, renew your PTEN, there's like, they actually ask you, you know, are you aware you're supposed to have one, you have to check the box to move forward. So like my my tip here is if you don't have one, go grab a simple template, get something [00:13:30] so that you have it for this season. And then, you know, in May really dive into it and make it part of your firm policy. Right.

Roger Harris: Because it's more than just checking the box. I mean, there's a reason you have to have a security plan. It's because it's important, because of the kind of data that we have access to and our clients share with us. And, uh, how valuable we would be to a hacker if they got anything. So a lot of people say, well, I just want something to check the box. Well, no, you really do need a security plan. Yeah, you should [00:14:00] be checking that box because you have a good security plan, and you can check the box with confidence, but you have to have one regardless. But it's not there just to make you check a box. Exactly.

Annie Schwab: And and this is not new. This is not even last year new. It's been been around for a while. There was, um, some leniency as it relates to penalties associated with not having a written security plan, but that was lifted last summer, actually. So if you're like, oh yeah, but they, [00:14:30] you know, they kind of let us slide. Well the sliding is over. Um that's right. You do need to have one in writing. And, um, you know, like I said, there are some templates out there. Uh, so take a peek at that and see.

Roger Harris: Right, right. And you talk a little bit about, I mean, this is not new, but every year we're particularly if we're e CPAs, we're guided by circular 230, though theoretically we all should. Baby. Got it. Or follow the rules. And and I think it's good to remind people of what our responsibilities [00:15:00] are. What our, uh. Due diligence requirements are what what what is our responsibility? I mean, we're kind of the protector of the tax code to some extent, in the sense that we make the determination at the front end of what goes on that return. And yet we're not auditors. So talk a little bit about circular 230 as we remind people of what their obligations are heading in.

Annie Schwab: Right. And so it's like you said, it's been around [00:15:30] for a while. There's numerous, um, sections of it. Um, I'll mention a few today. I'm not going to go into great detail, but one that we all need to realize is we have a due diligence requirements for accuracy and also for signing and advising of the tax return. So accuracy would mean that you you know, it seems reasonable. And all of these words have definitions that are very, very gray. But establishing a process establishing [00:16:00] procedures in your office, you know, how are you reviewing the accuracy of the return? Do you have a reviewer or a preparer? Do you have a checklist? Do you have I don't know, do you tick and tie? Do you? How do you scan and cross reference and all of those kinds of things? Do you ask questions? Are you using an organizer with maybe yes and no questions? Are you looking at, let's say, two year comparisons? Are there fluctuations or large changes. Do you do you ask your clients about these things? Um, one of the [00:16:30] ones that someone they always ask me is, well, I didn't keep all my, you know, non cash donation receipts. There's probably like $500 that. Yeah $500. And every year it's the same. It's $500. How many miles did you drive. Yeah.

Roger Harris: You know what did I take last year. Well that's.

Annie Schwab: Irrelevant exactly. And the one where, you know, you're talking to the client and you ask him a question and they go, ooh, and look up at the ceiling like there's some magical answer up there that, you know, is gonna. So you [00:17:00] have to follow protocol. You have to follow procedures, ask the right questions, know what questions to ask. And that kind of leads us into another section of circular 230, which is competence. You know, get your your education, study the the changes on the forms, understand what your diagnostics are telling you. Don't take on an engagement that you're not familiar with. If you don't do trusts and estates, don't take one on. If you're not familiar with nonprofits, let's not go down that route. [00:17:30] So there's, you know, there's some and it seems so logical. But believe it or not, there are some really. Incompetent prepares that hold themselves out there. And the whole point of circular 230 is to protect our profession and to protect the taxpayers.

Roger Harris: Right. And again, clients are coming to you expecting you to have certain levels of competence. And, and yet it's you're not expected to know everything. I mean, there's going to be areas of [00:18:00] tax law that you're not qualified to handle. And you should refer that to someone else and not try to. Mask the fact that you don't know what you're talking about.

Annie Schwab: So yeah, you know, attorney practice in different areas of law. Same, same. Yeah.

Roger Harris: There there's a lot of things here if you're not familiar with, you know, pay attention to what you sign on each tax return, which you know, is why you're not an auditor. It talks about, you know, it's true and accurate to the best of your ability [00:18:30] based on what you were furnished as opposed to being an auditor. And that's going to be important when we get into talking about beneficial ownership, because they're asking whoever fills that form out to sign a different level of certification. And that's one of the challenges we face. But you're not swearing. It's accurate, but you're swearing it's accurate to the best of your knowledge with the information you were furnished. And then you get into, well, how much digging do I have to do? And you also get into different levels of assurance based on when do I disclose [00:19:00] a questionable issue. There's a lot in circular 230 if you're if you really haven't paid attention to circular 230 and you're in this business, you really need to to go look at it because and the.

Annie Schwab: Irs offers webinars on this and plenty of plenty of organizations cover this. Um, so you can certainly find one out there because.

Roger Harris: I'm sure everybody listening knows you can be penalized too, not just the taxpayer. And the IRS is at least talking about paying more attention [00:19:30] to the role that, uh, practitioners play in. We hear it a lot in employee retention credit, you know, in terms of some things that are being kicked around there, but in all levels of what we do, they they want us to do our job. They're not after us per se, but they're not going to condone people who don't try to learn, don't care about doing things right. Certainly if you just make up, as some people do, stupid information. So 230 is important. Yes. If you haven't paid attention [00:20:00] to it or you haven't really understood it, it's a good thing to do. Also, Annie, and you can talk a little bit about this. We're heading into a tax season. We're all worried about the hours and the struggles and how we're going to keep from, you know, putting our health at risk. And I think a lot of that is is helped by having a good idea on your firm what your workflow is, what your rules are. Talk a little bit about, you know, how to use a system if that's the right [00:20:30] time to to manage the the work of a tax season.

Annie Schwab: Sure. I'm happy to talk about that. We talk about it all the time at pageant. We um yeah, we have developed we try to develop processes to assist our owners walking through all the steps of a tax return. So everyone has the same, the same goal right during tax season. Right. To move through the tax return workflow, tax return process as quickly as possible with the least amount of mistakes. And so [00:21:00] you could have, you know, you step one and everybody goes through a similar process. But this is just an example. You know you're onboarding a client and you're asking for information or getting the organizer. You're reviewing what's come in. Are we missing anything? Do I need to ask more questions? You know what what what was different from the year before? Then you're somebody preparing the preparing the return, getting into the software data entry. Someone's probably reviewing the tax return. If you're a one man shop, that probably could be the same person. [00:21:30] And then here's the here's the final product. And you've got to get a draft of it to to the taxpayer, who then signs the 8879 basically approving the, the work. And now you've got to send a bill and you have to collect your fees and you have to e-file. And then you've got to track your filing because if it gets rejected, you only have a certain amount of time to resubmit or send a correction. And then you also have to determine, you know, who needs a file, an extension, and if so, do they have to send a payment.

Annie Schwab: And so it's like this. It's [00:22:00] like a snowballing effect of, you know, you're just trying to get to the end of the hill, um, as fast as possible without making mistakes. And so what we, we encourage our office owners to do is establish a workflow and basically drop the stages of your tax return process into, let's say, a bucket, and then decide what who is responsible for that bucket? Who what technology [00:22:30] are you using to accomplish the goal of that bucket? Um, do you have the right technology in the right spot? Do you have the right people in the right spot? You know, where's the bottleneck? Where's the highest level of efficiencies? Where's our, you know, lowest level of efficiency? How do we resolve it? How do we identify it? And that goes I mean it's it's a it goes through a cycle of is your staff trained or you're using the right technology. Are you training your clients to get you what you need? [00:23:00] Are you as maybe the owner or the last person signing the return? Are you the bottleneck? Have you delegated? There is enough duty. So it's it's a very it's a broad conceptual idea of a workflow. But all tax practitioners are having the same process, the same cycle, maybe not in the particular buckets or maybe not the same technology, but I would say tax parishioners have a goal of getting the work out the door accurately [00:23:30] and being able to get home and have dinner with your family. Right? You know, nobody wants to work 20 hours a day. Um, yeah.

Roger Harris: And every office may not have the same process, but every office should have a process that is true.

Annie Schwab: And and, you know, the size of your office, the number of employees, the types of returns, you know, or is it tax only clients? Is it tax and accounting. You know.

Roger Harris: There are advising who who gets priority when times get tight and things like that. So you need and and you'll [00:24:00] hear this later. We're going ahead and say it now. And the first thing you should do when tax season's over is evaluate the process. You used to see if it's the right one and what changes would you make. And make sure you get input from the staff that are involved in it to see what what they would suggest. Because you know, tax season, you know, is busy. You know, the days are still 24 hours long and they're still seven days a week. But you have all this work to get done and you need a system to to [00:24:30] do with it. As Annie said, at pageant, we spend a lot of time trying to help our offices, uh, develop that system. But it also starts with you and saying, you know, you need to take breaks. You need to take time off. You need to make time for family. You need to you need to prioritize yourself and your family and your staff's family as part of this system. Uh, because that'll help you make the right decisions when it comes to how do you charge for something? What will you put up with what you want? [00:25:00] Uh, you know, we need to understand what we, from a health standpoint, health being mental, physical relationships, you know, what is our are we willing to work seven days a week, 20 hours a day? I don't think so. I hope not, yeah. Um, because if you are, your system is going to be elastic and it's just going to fill your time.

Annie Schwab: So and it's a process, you know, I think like you said, you need to evaluate. You need feedback from your staff. You need feedback from your clients. You need [00:25:30] to evaluate the software pieces, the choices you know, the portals, the e-signatures, the organizers. You know, all of these tools that you implement. Um, are you completely paperless? Are you running a virtual office? Are you having your staff come in? Um, and so I think and it's hard right now because it's you're like in it, right? You're there and you don't have time to take a step back. But I think throughout the, throughout the tax season, jotting down a couple of things, thinking about ways that [00:26:00] maybe implement changes for more efficiency, at least identify the bottlenecks, maybe identify the clients that are just eating so much time and energy from from you or your staff. Keep all of that in mind so that when April is over, improvements can be made. You can streamline the process, I think is the main goal.

Roger Harris: And one last thing I'll say is that clients are more acceptable and willing to accept things than you probably think. Um, [00:26:30] we always use the clients as the excuse for not making tough choices. Well, my clients won't let me do it or this or that. Yeah, uh, I don't think that's as true as you think it is. I think they'll do. They they they come to you for a reason. They believe you are good at what you do and they don't want to replace you. But if you set rules, I think they'll follow them because they don't want to go find somebody else. So make sure you're willing to set rules [00:27:00] and tell them what they have to do and not let them run your practice. You got to decide pretty early on who's going to run your practice. It can be you, or it can be your clients. And I can tell you a firm run by your clients is not a lot of fun to work in.

Annie Schwab: Pricing. Think about pricing there too. Exactly. Don't don't underprice your services where we value your services and your clients value your services. So get paid for it.

Roger Harris: Price is a good way to get [00:27:30] people to pay attention.

Annie Schwab: Yes, yes. And from from experience, we have learned over the past at least two years we've had an implementation about, you know, pricing structure and, you know, that kind of thing. And more clients stay than you think when you raise your client, when you raise your prices. We you know, we had firms that really, you know, maybe went up just a little bit thinking people would balk or get upset or argue over it. And [00:28:00] they were like, I wish I'd have done more because nobody left. And so it's, you know, consider your pricing. And if you haven't done a price increase or you haven't examined your pricing structure, you know, are you talking on the phone for free all the time, or you're responding to emails and just sort of part of the day and, you know, consider consider how your pricing, um, because you might be leaving something on the table.

Roger Harris: Yeah. And it's a good way to to kind of test your, uh, your limits with people. [00:28:30] Somebody as I've told a lot of people, if somebody didn't get mad about your price, then you're way too cheap for everybody, because, you know. But that's okay. That's actually okay. Most of your clients are appreciative of what you do and probably know you're worth more than you're charging, but they're not going to tell you. Right. So all right, it's also a time that we are targets for oh, uh, that's right. The scammers out there and they're pretty good.

Annie Schwab: So they are good. And there's a [00:29:00] new one coming out all the time. Um, I saw one about a new client scam. While they're, you know, they pose as a potential client. They're asking you to help them, you know, generally through email. But basically they're trying to gather sensitive information from tax professionals because we have a ton of client data and we have a ton of access to to bank accounts and Social Security numbers and all kinds of stuff. Um, I will tell you that the IRS is really good, I think really good, um, at updating their announcements [00:29:30] regarding new scams. So if they see something come in or something is being reported, they'll drop it on the website. They'll send out a news alert. Um, so keep an eye on that. I mean, if you see it's coming through the IRS, maybe, maybe just stop and pause, take a minute and look at it. There's also we fall for it. But you get these emails and you click on something and the scammers are really good. They make, you know, the the logos look perfect. [00:30:00] Everything. I mean, it looks like I've seen ones that look just like an IRS notice. I mean, perfectly done. And it's a scam. So just don't be be thoughtful when you get an email from someone maybe you don't know or something that looks a little odd, maybe don't click on it. Um, and then there are very specific steps on the IRS website for reporting identity theft or phishing scams. So if you do come across one or identify one, go ahead and report it because you're [00:30:30] helping out your fellow practitioners there by helping them out. Maybe they'll get the get the scammers. Terrible to say, but I don't know.

Roger Harris: Yeah, it's hard, but they are good. I mean, there's a lot of money in some of the stuff that they do. If you're not, you know, now what we try to do at Paget is we try to monitor this. And he talked about which I agree with. The IRS is getting much better at alerting us to the kind of scams that people are seeing. So one of the things that we do, of course, as soon as we get the alert, we pass it on to everybody else in our network. [00:31:00] So if you don't have a network or someone that's doing that for you, you need to to make sure you go and get set up of getting those kind of communications directly from the IRS because, you know, one mistake can destroy your whole tax practice. Uh, and it may be something that the IRS has already, because, again, it's it's it's amazing how good some of this stuff is, like, hey, I'm looking for an E, I need a tax return. Are you interested? And you need to check. Yes. [00:31:30] And it's over, you know. But now this is pretty good about saying watch for this one. So, um, if you're not in a position today to gather that information, you really need to, to figure out how to, to get in the loop with that, because it can it's like I said, it can you talk to anybody that's been hacked or whatever you want to call it, you know, ransomware or any whatever it is, you don't want to deal with it. And ever but particularly during tax season. Yeah.

Annie Schwab: And some of the [00:32:00] scams, I mean, yes, there are after tax practitioners because we we have access to this, but they'll go after the taxpayers too. So we'll talk a little bit later about, you know, tips for taxpayers. I mean, the IRS does not send you an email. The IRS does not call your phone. I mean, there are simple things. Things that you can communicate to your clients that will protect them. You know, if they get a phone call, this is, you know, so-and-so at the IRS. Um, you know, just hang up. But but we'll go over some of that, too. Yeah.

Roger Harris: All [00:32:30] right. Let's move into the topic. We can't ever avoid talk a little bit because it's going to impact us. And there's been some changes. Uh, employee retention credit. Even if you never did the first IRC. Uh, you may have somebody come to you wanting to do one of the few things that are available to us right now. So any talk about what's going on here while we're in tax season as it relates to the employee retention credit.

Annie Schwab: Right. Um, okay. So the employee retention credit I will do a brief history [00:33:00] real quick. Um, this has been around for several years. It is a program that came out during the pandemic. The goal of it was for employers to keep their employees working, and as a result, the IRS was quickly putting into place, um, procedures to allow employers to get credit for basically paying their employees. And, and so and you've got the credit by filing the, uh, 941 so it was something that was done through the payroll returns. Um, it [00:33:30] does affect and still affects the income tax returns. But there were so much fraud and you probably heard the Terme IRC mills, there was so much fraud associated. Um, companies were coming in and telling everybody that they qualified and filing the forms. And there are very specific, detailed qualifiers, um, in order to get the credit. What ended up happening is the IRS sort of like took a break and said, hey, put put the brakes on here. There's we have to get a handle on this. Um, the fraudsters are [00:34:00] getting better. The employers are getting duped. Um, the tax practitioners are put in a really hard place of not perpetuating the fraud, but also, you know, want to lose your client. Um, and so they put placed a moratorium, which is still in A currently. We are still in a moratorium where they basically stopped processing, um, IRC claims. So if, you know, I forget what the exact date, but as of that date, um, if the claim was already sitting there, [00:34:30] it's basically in a warehouse. It's not getting processed. They allowed additional returns, additional, um, claims to be filed. So you could, up to a certain point, continue if you felt like you qualified. Then they started offering some withdrawal options, basically saying, hey, um, you haven't processed mine. Can I just withdraw it or I got my refund, but I still have my check. Can I just, like, not cash it and we'll just pretend like nothing happened?

Roger Harris: I thought about it and probably realized I wasn't supposed to get this. [00:35:00]

Annie Schwab: Yeah. Um, and they actually promoted the withdrawal program. The IRS did. They had some webinars. There was a lot of articles about it. Um, there was a lot of chatter about sort of the withdrawal program. And what do you do and how do you tell your client, and what if you what if you did not prepare the IRC claim, but now your client wants you to withdraw and can you do it? And how do you do it? And what do you need to attach? And da da da da da da da. Um, and I do think there was [00:35:30] probably a fairly good response to the withdrawal program. But then came another program, and that program was the voluntary. It's called a voluntary program, um, where you can sort of raise your hand and say, okay, I probably I didn't deserve this. How do I pay it back? How do I give it back? And so, you know, it was it's also another program that I this part of it I didn't think got as much. Um. Advertising [00:36:00] because so?

Roger Harris: So it came out right before Christmas.

Annie Schwab: It came out at a bad time. It was December 21st. So that's when the volunteer IRC volunteer program begins. And the program allows you to only have to pay back 80%. And there are installment options available and the very easy to fill out a form. So if you're like, I'm sorry, I got the money, I, I shouldn't have sort of get there's no penalties. Right? The 20% that you don't have to pay back is not considered taxable income. [00:36:30] You don't there's no like I said, no interest or penalties. You don't have to go back and re amend returns. Um, and and the form is fairly simple. There's an e file form. It's form 15 434 I believe. And it's, it's broken into quarters and you send it to a certain fax number. They collect some information of who helped you prepare it. I guess they're trying to go after some of the mills.

Roger Harris: Trying to find who the crooks were.

Annie Schwab: So they made the program fairly easy. And actually, 80% [00:37:00] is not not bad.

Roger Harris: It's 80%. No penalties, no interest, no need to amend returns, no need to pick up the 20% in income. I mean it, I think given what we had, it was as fair as you could have asked them to do.

Annie Schwab: It's just unfortunate if, you know, you were an employer and you got the money and you spent the money thinking that you were, you know, deserving of it. And so now you're kind of stuck paying back money that you don't have anymore. But that's [00:37:30] the way it goes.

Roger Harris: And the bad thing about it, from a, from a tax practitioner standpoint, is you have until March 22nd. Yes, to take advantage of that. And after March 22nd, there's no 80%. It's 100%. There are penalties. There is interest. There is everything you could imagine. So that's a firm hard date that falls right in the middle of a filing season. So and just.

Annie Schwab: We've asked I haven't had any inclination that they're considering moving that.

Roger Harris: No, no I don't [00:38:00] I think they believe and I tend to agree with them. If if you're questioning the validity of the money, you got to go find somebody to help you take care of it and do it. Now, we're not going to see if you don't put a deadline. Then people just wait. And then when they catch up, I want to give it back, you know? Right.

Annie Schwab: So. Right. No. So I had to be a deadline. I just I mean, I.

Roger Harris: Wish it had been.

Annie Schwab: After.

Roger Harris: March 26th.

Annie Schwab: Well it was December 21st and then they basically gave three months. And that's how you got March 22nd, which [00:38:30] theoretically.

Roger Harris: So that's what you got to do. So if somebody comes to you and got the IRC. You've got to consider the voluntary program. If it's legitimate, they're still amended returns that have to be done, that nothing's changed on legitimate claims. And we'll talk about this. But if they came to you as a small business owner, haven't gotten the IRC, but were eligible as of the recording of this podcast, they're still eligible and you can still make an application. And [00:39:00] yeah, right. We'll you know, we'll mention briefly what could happen to that. But if they come to you today and they say, I heard about this IRC thing, uh, and you do the research and they're eligible. So there's you could be impacted about by the IRC during this filing season. And clearly you need to be aware of that March 22nd date. Because you don't want to forget to mention that to somebody who will immediately tell [00:39:30] you on March the 23rd that they would have done it had you told them. And then. Right.

Annie Schwab: And I'm still getting I'm still getting calls from the mills. I get texts and emails. I mean, they're still promoters out there really pushing this. So it wouldn't be, you know, unheard of for a client of yours to, to hear about it or, you know, fall for one of them. Yeah.

Roger Harris: And I'm going to go ahead and take just a second. Then we'll get to beneficial ownership. Yeah. Because IRC is referenced, a lot of us have heard about a tax bill [00:40:00] that's out there. Yes. Uh, it has passed the House. That's all it has done. It is not law. It has passed the House. It has been sent to the Senate. The Senate is about to go on recess for two weeks. And the three key elements that you need to be aware of one impacts IRC. It would retroactively end the IRC program as of January 21st, 31st, 31st of this year. So now we're already past that date. So does that mean [00:40:30] that date will hold if it takes till May to get this bill passed? Or if they do it and we don't know. But but as the bill is written the IRC program would end. So really I went back and told you earlier they're still eligible. They should file for it. Well, as we sit here today, we're in February. If they stick to the January 31st date, that won't work because it.

Annie Schwab: Has to pass the Senate first, but.

Roger Harris: It has to pass the Senate and they have to leave that date in there. It was in the House. But the Senate's got some the other [00:41:00] things that are in that bill. And again, it's a bill. It's only passed the House. It is not law is some R&D credits going back to the old way of expensing from amortizing. And the one that could create a nightmare is they're changing the child tax credit. So you're sitting there thinking well should I file returns. What if they change it. The IRS has indicated that the changes contemplated in the law, if the law happens to the child tax credit, they will be able to recalculate [00:41:30] those credits. So do not hold up filing returns. Uh, if the only reason you're not filing it is because you're concerned that the child tax credit that your software is calculating would turn out to be wrong. The IRS has said their systems can, and we've seen this happen before. I can't remember on the back end.

Annie Schwab: Yeah.

Roger Harris: Yeah. Where they'll fix it. Yeah. So so you know but again it's not law. So there's no reason to hold up. But even if it passes uh, they have indicated they could, [00:42:00] uh, fix the child and some other stuff in there, but those are the big ones. Uh, but again, it's not a law. And as we see every day, if you watch the news of what goes on in Washington, ain't nothing guaranteed. So, you know, don't ask me what chances I think the law has, because I would answer everything now in Washington at best, is 5050.

Annie Schwab: Good to know. We'll keep following it. And we'll certainly do another podcast. Should should it get if it passes, if it changes.

Roger Harris: And yeah, but that's it. Let's touch briefly [00:42:30] on something else that we've got to deal with during this filing season. We've talked about it before, but any a brief rundown of where we are with beneficial ownership and and talk about what we're telling our offices right now, their role is as it relates to this beneficial.

Annie Schwab: We've mentioned this on quite a few of our previous podcasts. We've gone into quite a bit of detail about what beneficial owner information reporting is. Again, this is something that is through FinCEN. It is not an IRS, [00:43:00] um, requirement. However, it is landing on the plates of a lot of tax practitioners. And basically what it is, it's a form that needs to be filled out, um, that provides information on beneficial owners. So, um, kind of decision makers, let's say of a company, um, it is focused mainly on smaller businesses. So there's not really a generally we seek these kinds of things on large businesses, but this focuses on small business [00:43:30] owners and it's something that needs to be reported. It has to be done timely. And because it's FinCEN there are some very high penalties associated, including jail time. I mean, it's like kind of yeah, I.

Roger Harris: Mean, they're serious about.

Annie Schwab: It. They're serious about it. Um, the problem is that the the community, it's new. There's been very little communication. There's a huge knowledge gap about what even needs to be filed, how to file it, when to file it. [00:44:00] Um, and it's sort of but it's here, like it became law in January 1st. Basically what it says is that this form, which includes the beneficial owner information, needs to be filed within 90 days of, I'm sorry, within 30 days.

Roger Harris: Did I get that right? 90. If it's a new company, 90.

Annie Schwab: If it's a new company, a change is 30 days. But if you're in existence before the beginning of January, so if you are in existence prior to January 1st, [00:44:30] you have until the end of the year of 2024. So if you have clients that are in, you know, need to file this form, and you had them and they were in existence prior to January 1st, we are telling our office owners just to sit tight. You have until the end of the year to to file the form. The issue is if you file it now, if something changes and I'm going to use an example, if the address of one of the shareholders [00:45:00] changes, they're only allowing you 30 days to make that adjustment. And so you would have to be very much involved in each of your clients businesses to know if something changed. Did you know someone else now has authority to sign at the bank? Well, now they have to be on it. That's a change only if 30 days. So the the timing is not great. And with such an information gap, the public is not even aware of this filing requirement. And it's not something done with the tax return. [00:45:30] It's something through FinCEN. So it's not even, you know, an annual let's say form, I don't know. Roger. That was pretty quick for.

Roger Harris: Yeah.

Annie Schwab: And for the intensity of this.

Roger Harris: Yeah. The concerns that the industry has is the certification. We talked about what you sign when you sign a tax return. The certification on these is much higher. There's some concerns about some of the decisions you would have to make or the advice you would have to give could, could put you in the practice of law which the states regulate, which would be serious. [00:46:00] Then there's some concerns about the liability that we have if we don't identify a beneficial owner properly, because it's not strictly how much it's 25% and above, that's a given. But as Annie mentioned, certain controls or substantial controls could give you. So so there's, uh, this is and it she mentioned small business. It's 20 or fewer employees. It's less than 5 million. So it's the smallest end of the small business spectrum. And it's new. It's not publicized. Well [00:46:30] that we don't know anything about our due diligence requirements. We don't know if we're practicing law. We don't know what we should charge. The penalties are $500 a day, up to 10,000. You can go to jail. So we're trying to find ways, because our clients are going to expect us to help them with this. They're going to look at it as just a form, fill the damn form out and let's move on. Yeah, I wish it was that simple. And so we're telling our offices, have patience. Let us try to work with FinCEN to make it work. No one disputes the law was a well intended [00:47:00] law. We need to catch money laundering. Oh, yeah. Small business. Absolutely. It's how it's being implemented. And it's going to either make it terribly expensive for small businesses to turn to third parties because of the liability they have to assume, or they're just not going to do it because they don't.

Annie Schwab: I think I think that's the the bad part. I think there's going to be a lot of just pure I we're just ignoring it. That doesn't apply to me. I've never heard of it. I don't know how to do it. Yeah. Yeah.

Roger Harris: So so my advice to the people listening [00:47:30] to this podcast, if you have clients that are small businesses with 20 or fewer employees, if you don't know about it, first of all, figure out what's going on, learn about it. Yes. I wouldn't advise you at this point to jump into doing it, but until you fully understand and we as an industry fully understand and hopefully get a little time with FinCEN to get some concessions or some changes that make it workable. If your business didn't start until or started before January, you got all year, so [00:48:00] there's no rush. Sit tight. Take take advantage of tax season. Inform people. Tell them about it. Tell them you got a handle on it. Even if you don't tell them you will or whatever. Right, right, right. But, but don't rush to file the forms yet until we can see if we're going to get any kind of changes or things that make it workable for us. If you have somebody that wants to form a new company, an LLC, because this applies to LLCs, anything registered with the state, send them to attorney and let them deal with it, because they actually, whoever forms the entity is has to be disclosed [00:48:30] on this form. Yeah.

Annie Schwab: You don't want to be on this form.

Roger Harris: Yeah. I don't want to be on the form. So just if you if this is the first you've heard about it, you need to go read about it. If you have any small business customers. Uh, but our we're in a holding pattern right now. We're learning every day. We hear a little bit something new. We heard something new today because insurance companies, you know, carriers are a little concerned about what will they cover? What won't they cover, you know, what are you what's your due diligence to have coverage. [00:49:00] So we're hearing something every day. I think time is our ally. The longer we wait, the more we'll know and the better we'll be suited to help our clients. But make sure they know about it. And because there's also scammers come in all different shapes and sizes and they'll be showing up soon if they haven't already with this, uh, there's already and I'm not saying everybody that's come up with it now. There's already companies offering well, I'll do your initial report and I'll monitor your activity and all this sort of stuff. Uh, some are more likely to do [00:49:30] it, others some put more burden on the taxpayer than others. So time is our friend. Let's take it. Let's get through tax season. Let's understand more about what the lawyers are going to say. The insurance companies are going to say, Fincen's going to say, and then we'll we'll find a solution. But it's not there yet.

Annie Schwab: Right. A lot of good information. Roger.

Roger Harris: Yep. We're done. Right for this one.

Annie Schwab: For this one we'll be we'll be jumping on and another one later this month. Uh, we'll bring you some updates on [00:50:00] different topics. And of course, if anything changes with that bill and the Senate, we will be sure to let you.

Roger Harris: Well, we'll be back to know. So again, good luck during tax season. You've probably this probably isn't your first. You've made it through them before. Let's just work to make this one better than the ones before. And better means better for you, better for your employees, better for your clients, and better for your family. And exactly that starts with with us. So any final parting words for today?

Annie Schwab: No, I think I think we covered a lot [00:50:30] today. Hopefully you enjoyed listening to tell your friends like us, share us, um, and listen to us again. Thank you so much.

Roger Harris: Thank you Annie, thank you for listening. We'll be back again with another federal tax update podcast. See you.

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
Ready, Set, File! Tax Season 2024 Updates
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