There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.

Roger Harris: Hello again everyone. Welcome to another federal tax update podcast. It's Roger and Annie and we're back from Dallas and doing this solo again.

Annie Schwab: That's right. Back to work. Yeah.

Roger Harris: It was great to see you in Dallas. And I [00:00:30] hope if you listen to that episode you enjoyed it. If not, go take a listen to it. It's a little different than what we normally do, but it was fun to be together.

Annie Schwab: Yeah, it was fun. It's something different. We had to lighten it up a little bit.

Roger Harris: Yeah, you got to break it up every now and then. So what are we going to talk about today? What's what's the theme of today's podcast?

Annie Schwab: The theme of today's podcast is why is it a tough time to be trying to plan for taxes for year end for next year? Just kind of looking ahead, why is the environment [00:01:00] right now so hard to determine what steps are actually smart ones to take, or ones maybe you shouldn't take? So planning for the unknown? There you go. That's kind of our theme.

Roger Harris: And it's not all just taxes. There's a lot of unknowns and some other things and we'll talk about them. But it's a it's an odd year as we are completing one deadline. One more to go as we record this. Normally we turn straight into just our normal. Well, let's look [00:01:30] ahead and let's do tax planning. But we've got a lot of other stuff to consider and to plan for and to consider getting done between now and the end of the year. So yeah, it's a good a title as I can think of because.

Annie Schwab: Well, we're so used to planning, you know, bunching expenses or shifting income from one year to the next, depending on what's more advantageous. But this year it really is like, what is the law going to be? What's going to happen at, you know, come next year or the year after or even, you know, [00:02:00] could we see anything retroactively change in 2024? Yeah.

Roger Harris: You just we don't know. Um, right. I mean, we to your point, I mean, yeah, typically when we do year end planning, we have some consistency or predictability, maybe is a better word and what the law is going to be. And we look where do we put income to get the lowest rates. Where do we put deductions to get the biggest benefit. And that still may be true. That still may be the right thing to do. But there is some uncertainties out there [00:02:30] that start with the fact that, and I'm sure this won't be a shock to anybody, because if you turn on your TV or radio, you know it. There's an election going on. And we've heard that I can remember off the top of my head, tax proposals from $25,000 credit to buy a house to.

Annie Schwab: I heard that no.

Roger Harris: Tax on tips. Yep. To no tax on Social Security. To no tax on overtime To increase child tax credit. All [00:03:00] of these things which I notice are all beneficial to voters. You know, nobody's now they do talk about raising some taxes. And all of that's in the context of an election and the expiration of the tax, Tax Cuts and Jobs Act at the end of 2025. Correct. Um, and these are things I just mentioned, have nothing to do with the Tax Cuts and Jobs Act. So these are on top of that. So the uncertainty going into 2025 is are we going to get [00:03:30] any of these things or is this all just election talk. Um, yeah. And and.

Annie Schwab: Not just the presidency, the House and the Senate, you know, hugely.

Roger Harris: Important because if one party were to run the table, uh, taking over the white House, the House and the Senate, depending on which that party is, there's no guarantee the Tax Cuts and Jobs Act could make it to the end of To 2025. You know, the Democrats are really much opposed to it. They didn't support it [00:04:00] when it passed back in 17. So if they were to run the table, are they going to allow it to run all the way through 2025 because they've got the power to stop it immediately to make changes mid-year or first quarter or whenever they could all get together on something. So, uh, the results of the election could impact the short term status of the Tax Cuts and Jobs Act.

Annie Schwab: Well, and I imagine that whoever the president is, they're going to want to come [00:04:30] out with a bang, you know, get something out there, get something known for their for their term. Um, so I don't think there's going to be a lot of just waiting around. I think it's going to be on fire. I think we're going to be going as soon as, as soon as the election is over.

Roger Harris: Unless we get a divided government where one party has one of the two and the other party has the other two the other, then it gets hard to get anything done. So and the one thing we have to remember when it comes to the Tax Cuts and Jobs Act is doing [00:05:00] nothing. It goes away on its own.

Annie Schwab: That's right. It will expire 1231 25 and revert back to where we were in 2017, which, you know, if I had to name what, you know, describe what the tax return even looked like in 2017, it would take me a minute. I'd have to go back and and look and see because it's, you know, it's been some time now.

Roger Harris: Yeah, yeah, it's been a while since, you know, certain certain things that now we just assume are the law. And, and I'm going to ask you to go through some of these. [00:05:30] Oh, sure. We have to go back and start remembering what, what goes away and what comes back. Because if you remember when the Tax Cuts and Jobs Act was first instituted, some people were happy about it and some people weren't. Like, if you live in New York or California, you weren't really thrilled about the cap on state and local taxes at $10,000, because that wouldn't cover a small house in either of those two states, so you'd be happy to see that go. But then you got to consider whatever else [00:06:00] would go or come back with it. So let's let's go back in time. Sure. Let's do a little reminiscing and remind people if nothing happens, what does our tax law look like at the end of 25?

Annie Schwab: Sure, sure. So, um, the Tax Cuts and Jobs Act did lower the individual tax rates. Um, kind of shifted the tax brackets a bit. So if you would say maybe restructured them. Um, it did double the standard deduction. But remember we used to have that personal exemption. [00:06:30] Took it out. So it removed. Yeah. Took that away but doubled the standard deduction. Lots of impacts on schedule A like itemized deductions. Roger mentioned the Salt. But there are some 2% miscellaneous deductions that just went off the table. Um we'll go through some of those. The increased child tax credit that's very big on on both sides. We've heard that, you know, different amounts proposed by both parties, the reduced AMT burden on taxpayers. So there were [00:07:00] fewer individual taxpayers subject to AMT through the Tax Cuts and Jobs Act. And if you recall, that's when the Qbi deduction, the section 199 a deduction came into play. So that you know that that does affect some business owners. There were some more favorable depreciation limits for qualified property. So you could you know get you could take depreciation faster more up front than spreading it out over the life of the asset. [00:07:30] So that's just that's just a few. There's no way we're going to get through all of them. But um you know.

Roger Harris: And not all of them would go away. There are some parts of the Tax Cuts and Jobs Act. Well, I don't know if they're part of it, but there's there's a belief that there's some universal approval, like increasing the child tax credit seems to be popular on both sides of the aisle.

Annie Schwab: So no matter the dollar amount, how.

Roger Harris: Much and what. And, you know, uh, Harris has proposed a different credit. In the first year, [00:08:00] child was born of 6000, then an increased child tax credit after that. You haven't heard that from Trump in the Republicans. You've heard from an increased child tax credit. Um, the the 199 A is definitely the qualified business deduction that's definitely falling on party lines. Republicans say businesses can't do without it. Democrats say it's a gift to the rich or whatever. Um, so there's huge disagreement in that area. There's [00:08:30] some common ground on, um, R&D credits.

Annie Schwab: That is another big one.

Roger Harris: So I think you can look and say that child tax credit R&D credits are going to probably fit in no matter who takes control. We'll see something there. What was interesting, and I don't know if you saw it today. We we subscribed to Checkpoint Edge. It's a Thomson Reuters research product and our offices have it as well. There was an interesting article today about some discussion in the Senate Finance Committee between Republicans [00:09:00] and Democrats about fairness in the tax system and how that, you know, and so, you know, politics get into this. And we've even heard things like taxing unrealized gains for high income people. And there's a whole discussion of whether that's even constitutional, because our Constitution addresses an income tax. That's right, a wealth tax, if that's what you call it, may or may not be constitutional. And God knows the record keeping that would require. Yeah. And then you get into, okay, we hear 400,000 [00:09:30] is some sort of line to say, well we're not going to hurt anybody over 400. But we are we have differences even between Biden and Harris over capital gains rates.

Annie Schwab: I saw that, too.

Roger Harris: You know, Biden wanted to go to some level and Harris has a different one. So there's just huge amounts of uncertainty that our political system is going to kind of dictate which direction we go. Yeah. And depending [00:10:00] on and I'm not making a political stance here, I'm not I'm trying to be as neutral and listen to these things. Some of the stuff I hear, it's like, come on, how are you going to do all this tax free on this and tax free on that and tax free on this, because at some point we're going to go broke as a country if we don't collect enough. Right. Yeah. But you know if it gets a vote they're going to promise it. So I don't know that you can believe all of that. I'm old enough to remember when Social Security benefits weren't taxed. The Clinton Clinton administration started that. So, [00:10:30] um, but I also heard, and I didn't know this, that the money collected from that tax goes into keep Social Security solvent. I don't know if that's true or not. It seems like money in Washington is fungible. They can collect it from anywhere and say it went anywhere. But so so it's going to be an interesting year, and the election is going to have a lot to do with it. And you're right. You know, it's not just the white House, it's the Senate and the House. Yeah.

Annie Schwab: And I like I said it, it's unpredictable at this moment. So making an assumption how. Yeah. [00:11:00] How could you possibly plan. Um, I guess I honestly, I guess what I would say if you were trying to plan, I would just get your facts straight that if nothing happens, this is kind of where we go and then just, you know, follow along in the news. We know child tax credits up there, R&D is up there. The Salt deductions up there. Capital gains rates like you said are up there. And those are I feel like those are like the big the big rocks that could could help with planning. But to know exactly what's going to happen is impossible. [00:11:30] Yeah.

Roger Harris: And I think we have to have good, honest discussions with our clients that, you know, we can only plan based on what we know. So we know what we think we know about the tax code for next year. But things can change. I would put just because it takes a while for anything to happen in Washington. My gut tells me we'll have most of the Tax Cuts and Jobs Act for 2025, unless one party just rolls in the election.

Annie Schwab: Huh? [00:12:00]

Roger Harris: You know.

Annie Schwab: If I can see that.

Roger Harris: If you don't have 60 votes in the Senate, it's going to be hard to force anything. But if either party were to get 60 votes in the Senate, the white House and the House, they can do anything they want to and they might. So I think it's safe to say we have to plan for the law that is on the books for 2025, but I think it would be negligent not to talk to your clients that as they make decisions, if they make big income decisions based on that, that they have to at least consider [00:12:30] the fact that things could change. And what looks like a great decision today could turn out to have been the wrong decision. If events that we couldn't predict or didn't know were going to happen actually happen, right?

Annie Schwab: Well, there's some like we can talk about like the rates, for example, the individual tax rates. If nothing happens, then that lowest that right now our lowest rate is 10% and our highest rate is 37%. And there's different brackets in between. But if, if, if the [00:13:00] Tax Cuts and Jobs Act sunset sunsets excuse me, then the top rate would go back up to 39.6. So you know those kinds of things the standard deduction. Remember it had doubled. So we're going back to half. Would that would they bring back the personal exemption. You know like and what dollar amount would that be. Because we're talking numbers from 2017. So if you look at you know inflation adjustments what what is that actually mean in tomorrow's dollar.

Roger Harris: Yeah. And how do you tell somebody how [00:13:30] to plan for a moving expense that's currently not deductible for most people. And could be or employee business expenses. I remember when the top Tax Cuts and Jobs Act first passed, all these people who were claiming business expenses as an itemized deduction, kept wanting to claim them, and it took about 3 or 4 years for them to realize they couldn't.

Annie Schwab: They're going.

Roger Harris: Nowhere. They're going nowhere. They may come back. Who knows? Because once you get to that level of changing the tax code, all bets are off.

Annie Schwab: Well, yeah, and I do. I really think the the mortgage interest deductions [00:14:00] would change and the Salt deduction would change. And I think both of those have, uh, strong opponents and proponents on both sides of that. So yeah, I don't.

Roger Harris: Think people realize the mortgage interest deduction did change with the Tax Cuts and Jobs Act in terms of the maximum amount, plus how we treat equity, home equity and equity, those sorts of things versus what they were before. So it's going to be an interesting 25 is going to be. Well, first of all November is going to be an interesting election. I was about to.

Annie Schwab: Say, don't get don't don't go that far, because I think between now and November it's still pretty exciting.

Roger Harris: Yeah, [00:14:30] I just want it over with. I'm tired of the commercials. Uh, just watch football. Yeah, well, now they're butting into football. Every commercial on a football. Oh, yeah. That's political. So I'm ready for it to be over. I think we'll have a little better idea of where taxes are going after the election, but who knows? So this is an interesting year. Now, there is one thing, Annie, that is new this year. Well, I don't know if. Let me make sure I'm getting my dates right. It's going to be new for most of us, [00:15:00] things we're going to have to deal with. We got a lot of energy credits that came through what was called the Inflation Reduction Act. And yeah, uh, not sure what energy credits have to do with inflation, but there you go. Um, but one that we're all going to have to be dealing with. It may not be obvious. And talk a little bit about it, if you will, this people who bought, uh, electric vehicles.

Annie Schwab: Yes. And it is a super hot topic and but what's even more important is that when this year comes [00:15:30] to a close and you're getting ready to prepare taxes, you're going to need that time of sale report. So remember, uh, the seller of an electric vehicle has to go on to a website, enter information. They can calculate the amount of credit based on different criteria. And then there's something that says at the time of sale, this is the credit. Now the buyer of the vehicle has two options. The buyer can either take the credit on their income tax return and pay full price [00:16:00] for the car, or they can reduce the the price of the car right then and there and actually pay less for the car. But then you can't double dip and also get the credit. And so you got to have this, this sheet of paper and the calculation of the credit at the time of sale is dependent upon your adjusted gross income. So you're estimating an adjusted gross income. So that could also have changed significantly from when you calculated the credit to when you go to file your taxes, and when you take [00:16:30] delivery of the car and all these, all these little things that are new. There's even a new form. It's a form 8936. Six. So that's something that you're going to have to ask your clients about. They're going to have to get a copy of that if they lost it. There's a way to go get it and have those those discussions. I think the the vehicle, the max amount is 7500 for the clean vehicle credit. And then there's um depending on uh, and depending on the minerals or something that [00:17:00] are used, you can get 3750. So battery components or requirements or something along those lines.

Roger Harris: New and used I think you know the calculation because there's different you can use different years of AGI based. That's true year it comes lower I think the calculation we're all used to doing calculations. I think the the thing that we're going to have to remember is to ask our clients if they bought an electric vehicle and took a credit at the dealer, because they may think [00:17:30] they the taxpayer may think, well, I handled it all at the dealer. I don't need to tell my tax preparer I bought an electric vehicle, but we have to do some form of reconciliation, if you will, to what the dealer did. And anytime you bring in a third party, like a car dealer in, some are going to be very good at it and do it all the right way and give them all the documents and give them all the warnings, and others are going to not. So we have to make sure we get engaged with our taxpayers to make sure [00:18:00] that what they may think is a non-reportable event on their tax return, because they dealt with it at the time of the purchase. We still need information because I'm guessing if there's nothing on the tax return, the IRS is going to send a bill for whatever the dealer said we gave them.

Annie Schwab: Yeah, absolutely. I don't know how they'll do the reconciliation, but, um, I do know that they need the the bill of sale as proof and that there's a way if for a buyer [00:18:30] lost it, misplaced it. We never got it. Whatever it is that there's a place that you can go to get a copy. So that's going to be like some training of of your clients. And I'm sure there'll be mismatches. And I you know, there's always going to be something when you are doing a new calculation like that. And I keep saying clean vehicle credit. But that's also hybrids. So the plug in hybrids also also count. So I definitely recommend making sure you have something on your your tax organizer to identify. You know, did [00:19:00] you purchase a clean vehicle maybe a couple of examples of what those are. And that way it doesn't get overlooked. Yeah.

Roger Harris: And unfortunately we all know that everybody fills out their organizer completely and correctly. So, uh, even if it's there, I'm assuming most of the tax software companies are going to have some basic questions and.

Annie Schwab: Or diagnostic or FYI something. Yeah. Um.

Roger Harris: But we need to make sure we, we push the client because again, it's not something they've ever had to deal with before. It's [00:19:30] going to appear to them when they handled it at the sale that I did it. I've already taken care of. So just going to be an aggravation maybe at the during tax season. Just one more thing to to deal with. But you know.

Annie Schwab: There you go. And to be honest, I haven't heard much talk in between the candidates about increasing this or removing this. Or have you heard much talk about anything related to the clean vehicles? No, I don't.

Roger Harris: Guess there's not [00:20:00] a constituency for clean vehicles because, you know, they they want to give away tip tax on tips. I saw that to the the waiters and waitresses. And they want to give out Social Security. When they're talking to old people. They want to give it houses when they're talking to young people that can't buy in. So I don't know where the constituents for electric vehicles are, but if they ever show up in front of one of them, I'm sure they'll tell them they're going to increase this to and make it easier. And it's yeah, you know, and again, how much of that's just politics and what will actually happen. But we have to we have [00:20:30] to be aware because your clients are going to hear it. I guarantee you somebody's going to come in and say, I don't have to pay tax on my overtime because I already I heard I think it was Trump that said it. So you're going to have to say, well, first of all, that's in the future. It's not law yet. And just because it's said in the campaign doesn't make it so. And the most interesting thing, this is the one comment I'll make. And I don't even think it's political. I think it's factual. The interesting thing, if they, since both parties have said taxes [00:21:00] on tips should go away, I can't wait to see what the true amount of tips people actually earn is, because now they'll have, they'll be able to turn them all in for the first time in their life.

Annie Schwab: The first.

Roger Harris: Time? Yeah. So it may it may be a trick to get everybody to admit how much they earn, and then they'll go back and start taxing it again in a year or two after they've admitted what they got.

Annie Schwab: Hey, nothing. I don't put anything beyond us. I think. Yeah, anything can [00:21:30] happen at this point, but I have heard that, and I'm sure there'll be other hot topics that come up in the next couple of weeks that maybe are like, oh, we didn't think about that. Um.

Roger Harris: And it's always the devil in the details. I'm not going to tax your tips, but I'm going to tax your wages at three times the regular rate or something. I mean, yeah, it's that's the thing about tax reform. It's at the end of the day you somebody says, you know, we get asked a lot because we're in the small business community to offer comments on 199 eight. You know, they want us to say, well, it's saved the world [00:22:00] that without that. And what would it mean if they repealed it? And my answer is always, well, what do they get in exchange? Yeah, I mean, I don't.

Annie Schwab: Know, give something up to get something.

Roger Harris: Now, if you don't give them anything and you just repeal it, yes, that will be a huge tax increase on most small businesses. But if you're going to take that away and cut their tax rate in half, I don't know how they'll feel about it. So until I can see the entire picture, I don't have an opinion on one piece of the tax law [00:22:30] until I see what? Because it's a trade off. We're we're trading this for that. And until we see the whole package, each individual piece gets a lot of attention. But at the end of the day, a small business owner cares more about the end result than how they got there.

Annie Schwab: Yeah, and we're talking a lot about individual tax provisions and small business, you know, things that affect small business owners. But there was a lot in the Tax Cuts and Jobs Act. There was stuff related to states and gifts. There were stuff about retirement plans. So I mean, it's it is a [00:23:00] huge piece of legislation and we're we're barely just hitting the surface. So keep that in mind and they'll.

Roger Harris: Be different winners and losers, just as there were when the law was passed. If it were to go away, they'll be different winners and losers, but it won't typically be because of one. I mean, there's situations where one piece of the law could have a hugely adverse effect on someone, but generally speaking, you've got to factor it all in that, you know, that was the thing that I found interesting when they gave up Itemized deductions for [00:23:30] moving and expenses. If their tax rates went down enough, they didn't care because they paid less. Now, what they really wanted was the tax rates to go down and the deduction. But at the end of the day, their taxes may have gone down. They didn't care if their taxes went up. They care. That's that's been my when somebody says how do you how does people feel about, you know, complexity and taxes? I said, no one complains about complexity if their taxes go down.

Annie Schwab: It's all about the bottom line. It's the.

Roger Harris: Bottom line. And this is going to be no different.

Annie Schwab: Well, [00:24:00] and in all honesty, the IRS could take a hit on this too because I mean, their their their funding I guess the IRS tax professionals, there's enough going on right now that, you know, it could affect how much funding the IRS retains or gets in the future.

Roger Harris: Oh, there's no question about it. Because remember, and again, it was the Inflation Reduction Act gave the IRS unprecedented Increases in funding. And we'll talk a little bit about what they've [00:24:30] done with some of that money. Yeah. But the Republicans have opposed it. The Democrats supported it. Democrats had the vote. So the money is there.

Annie Schwab: Some of it got clawed back even already.

Roger Harris: They have clawed some of it back in negotiations. But there's still a big pot of money there that's allowed the IRS to do some things that we'll talk about that I think have been positive that, at least from the IRS perspective, wouldn't have been possible without that money. Now, you can argue whether they could have taken it from, but their message is this is only available possible because of the funding. But, you [00:25:00] know, that's a political, uh, remember when this came out, 84,000 armed agents?

Annie Schwab: Oh, yeah. I remember all the pictures, social media of all these armed, you know, with rifles, all the IRS agents carrying guns, knocking on doors. I remember thinking, yeah, that is not what's happening.

Roger Harris: And while we and while we were in Dallas, we had the pleasure of spending an hour with the IRS commissioner, Commissioner Werfel. Yeah. And a good part of that, he talked about some of the things we're talking about in terms of how this money [00:25:30] has helped the IRS, what they've done with it, what they're doing with it. Uh, talk a little bit about what he said and your your impressions of the commissioner and how you felt about that meeting.

Annie Schwab: Yeah. I mean, so obviously it was the first time I had personally met him. I know you get to visit with him often, but, um, it was very exciting, unique situation sitting around a big square table. Um, some professionals in there, and he's sort of just sitting. Of course, all of his bodyguards are there [00:26:00] too, but security detail. Um, but, you know, he's sitting there and you could just. I mean, he was so intense. He was listening to everybody looking everyone straight in the eye, really trying to understand what they were saying. And he went, you know, around the room. And he focused. He took notes. He was trying to to really be to be a listener. He wasn't lecturing, he was listening. And you could see that he actually cared. And [00:26:30] I think after probably 45 minutes, 50 minutes in, we had come down to like three main at least topics in this in the room. And that was about the IRS funding and their technology and their hiring, and how are they hiring and how long does it train people and how they shift people from, you know, this phone line or this service line during tax season, but then kind of reallocate their resources post tax season? And what does that look like? And is that good? [00:27:00] What are the benefits. And you know, what are some of the cons, I guess, of, of having, um, being in a spot where you're basically having enough people retire as you are hiring and so you're not even though you've got the money to hire, you're you're losing the qualified candidates as well.

Annie Schwab: Um, so that was interesting just to hear how the numbers work, I guess behind the scenes, as far as you know, how many people you have answering the phones or how many people are, you know, sending out notices or doing audits or [00:27:30] what the other really big thing, and this will not be a shock to anyone, is the tax scams are off the charts and we talk about IRC all the time, but it's beyond that. It's um, I guess in his words, the fraudsters are smarter and can build the infrastructure fastest. Yeah, and we can't keep up. We we're unable, you know, we we implement changes and we implement safeguards. But I mean, these fraudsters are way ahead. Um, so that's [00:28:00] something that we, they are trying to get a handle on. An example of that is obviously the IRC, IRC mills. Um, and then also tax professionals. Um, we're struggling to I mean, there's it's hard to hire. We're not necessarily billing for our value. Um, so there's not as many people coming into the tax profession. I saw today. Who was it? Uh, somebody proposed getting rid of a plan to get rid of the 150 hours [00:28:30] for CPAs.

Roger Harris: Yeah. And another one of the big firms laid off 100 and something thousand.

Annie Schwab: I saw that, too. Yeah.

Roger Harris: So?

Annie Schwab: So we're seeing, you know, the profession's hurting, but there are clients out there to to get, um, people are always looking, so we're kind of struggling with a balance, I guess I could say. I don't know. I've really enjoyed the lunch with him. Um, I really enjoyed listening to what other tax professionals had to say. I don't know. Hopefully I'll get to do [00:29:00] it again. Yeah.

Roger Harris: And it was interesting too, because he had some of his executive team in the room with him, and at times he would hear something from a tax professional and would then look at them and say, what are we doing about this? Here's what we should do. Or go, you know. So it was it was immediate, but it was interesting to hear, I mean, how they shift people, which again, doesn't surprise me if you know that they shift people during the filing season. But and the fact that they're hiring, I think he said that they're somewhere in the 95,000 currently, [00:29:30] and their goal is to get over 100. And well.

Annie Schwab: They were hiring on the spot at these IRS forms. I mean, right, they're offering people a job. So I definitely would agree that they are aggressively hiring. Yeah, they are out there trying to get good people to come work for them now.

Roger Harris: And the sad and frustrating thing, and we've all dealt with it, is that when you lose someone with 20 years of experience and replace it with somebody with two months of experience, it's a completely [00:30:00] different environment to work with them, and you can't fix that overnight. But at least they're able to bring people in now and put people in in the chair. They're not going to have the same experience. So I think as we as we've all seen before, when we see new people, we're sometimes going to have to help train them because they're going to learn from the textbook, and we're going to teach them what the real world is like.

Annie Schwab: And he did he did mention, you know, there's [00:30:30] going to be a learning curve. And so sometimes you could call the IRS and you're going to get somebody on the phone that's efficient and quick and, you know, solves problems. And then you're going to get somebody who who's more new has to go talk to a manager, maybe doesn't come up with the answer as quickly. But you know, there's tax practitioners can also use the tax priority the practitioner priority line. So don't forget about that if you're having trouble getting through. Although the numbers are there were lots of improvements with the technology turnaround time. [00:31:00] We had mixed feelings about the the callback feature. Um, but sometimes it was very working very well and sometimes you didn't get a callback. So, um, I don't know, Annie.

Roger Harris: You mentioned IRC that came up, as it always does with a meeting with the commissioner. Talk about some of this stuff. There's some new stuff that maybe, I don't know if it's new to some of you on this call. It's it's relatively new. Let's remind people, you know, at least what the new stuff is. And we can talk a little bit about what [00:31:30] the IRS is, opinions and thoughts are as it relates to this going forward.

Annie Schwab: So if you have heard any of our podcasts, um, we always talk about the employee retention credit. It's something that I wish would go away, but it is still around. And sort of where we sit today is one there's a voluntary disclosure program. So this is for those who, um, it's only for ERC claims for 2021. The 2020 [00:32:00] period is closed. So this is another voluntary.

Roger Harris: This is the this is.

Annie Schwab: It came back or got modified, I guess I should say. Um, but basically you get a reduction in penalties by voluntarily disclosing improper claims. So if you Had best intentions or went to a mill and you thought you qualified and you got your money, but you're now like I that I was wrong. I didn't qualify. You can voluntarily disclose it and you will [00:32:30] have a eliminate the penalties and interest associated. Now, the reason we're talking about it so much is that the timing on this, this program will end November 22nd of this year. So you have an amount of time to pay to to correct the claim and pay back, um, the amount of the credit that you got at a 15% discount, it was 20, but now it's 15. So you still, if you pay it back, you don't have to pay it all back. [00:33:00] There are payment plans for it. Again, it's the 2021 period. You don't have to go back and amend the tax return. So that's another, you know, so if you have a client that, you know, got the money or, or claimed the credit and shouldn't have, and now they want to make it right. This program is available through November 22nd of this year.

Roger Harris: So and this is the second time the first one you could pay back 80%. This one's 85. They didn't comment and I don't think they would if we asked will there be [00:33:30] another one after this. So this may be your last chance to get the money paid back.

Annie Schwab: Yeah. Given that the 2020 period is closed and we're just looking at the 2021 claims, which was more money than the 2020 period. Um, but I, I don't anticipate another one. But I've been wrong before, so you never know.

Roger Harris: And he also talked about the they are processing some claims. Again I think we've talked about this on making sure we have on podcast and they're kind of putting them in three [00:34:00] buckets. One bucket where they're, they've they're doing it. They took the moratorium time. And let's make sure people understand this. They weren't just sitting around doing nothing. They were trying to decide how to better process the claims to determine the legitimate ones before the money goes out versus the ones that might be fraudulent. And they came up with a lot of analytics and a lot of studies. And so now some claims are being paid in full. No questions. Right. Some are being rejected. [00:34:30] There's just obvious, like you said, you're entitled to $100,000 and you didn't have wages of 20,000 for the whole year.

Annie Schwab: And we can see that.

Roger Harris: Yeah, we can see that on your. 941. Yeah. So some are just obviously being rejected. And then there's some in the middle where they're asking for additional information. But all of that takes a long time. So the sad part about it is the people who filed legitimate claims [00:35:00] and needed the money in the pandemic, they may get it, but will they still be too late?

Annie Schwab: Yeah I know.

Roger Harris: Will they still be around? So, uh, it's still out there, IRC still out there. I think everybody feels like you. Annie. If we could just go away, we'd all be better. And, yeah, we're still barred from preparing an amended return if we don't know that the claim that they got was accurate. So we I know we brought that up with the commissioner. That seems a little stupid [00:35:30] to say. It can be 100% wrong, but you won't take back 30% of it on an amended return. You'd rather keep it 100% wrong and me refuse to amend the return, which puts me in a bind, because then they're going to go somewhere else.

Annie Schwab: Somebody down the street will do it, or they'll.

Roger Harris: Just never do it. And now you've got you've got a collection problem and enforcement problem, and you're chasing 100% of the money instead of 70% of the money. So I don't know if we'll see [00:36:00] any changes on that, but it's it's this IRC. It's not going anywhere anytime soon. And even if you didn't ever file a claim for a small business, you may have a taxpayer come to you this tax season that you're going to have to deal with?

Annie Schwab: It's got to be got to ask the question, did you get it? Did you get the money? Yeah. What year. What period did you amend your returns. You know so it's going to be it's going to be a lot. But I did like the the visual that he gave us when we were sitting in that [00:36:30] room. He was sort of like, you know, if you had a, a timeline of, of claims, you kind of chopped off the ones that were a go and sent the money and you kind of chopped off the ones that were blatantly wrong. And so you're left with, you know, these, that group in the claims that are going to take longer to process, but that they will continue to go through them, they may ask for backup information, um, maybe make changes to the to the calculations, I don't know, but, um, at least we see a little bit of progress and I feel and they don't even have [00:37:00] the, the bandwidth their staff to to go through this. So we talked about resources and reallocating and triaging employees. But in order to get through these, these claims, they have to pull people from somewhere else. So it's sort of a tough it's a tough place to be in. I would not want that job, I can tell you. Yeah.

Roger Harris: This is a signal of where we all, you know, on one hand, we want the IRS to process these claims because all our clients are legitimate and they need the money. At the same time, we want them to answer the phone. We want them to respond to notices [00:37:30] quickly. We want them to do all these other things. And yet when you're understaffed and underfunded, you're you're moving people around. And something like the IRC is becoming because there's massive amounts of money being handed out in this program. And so you're having to allocate a lot of resources to it. That makes our life a little more difficult in dealing with the IRS and our more traditional ways, because a lot of the people that we would be working with are now over here trying to help either [00:38:00] get the money out or keep the money in if it's not legitimate. So so let's see. So we're in the fall. All we got. Changing potential, changing tax law. We got IRC still hanging over our heads.

Annie Schwab: Presidential election.

Roger Harris: Presidential election. Another deadline? Yes. And we have beneficial ownership. That all has to be done by the end of the year. As of today. So [00:38:30] let's let's go back through.

Annie Schwab: Sure, sure. For people that.

Roger Harris: Aren't familiar with it or any updates that we might have on it, let's talk a little bit about where because beneficial ownership is something while you're handing planning for taxes, planning for IRC has to be done by the end of the year.

Annie Schwab: Yes, you can't wait until busy season to address this one. You have to get in front of it and get in front of it quickly if you haven't done so. So it's beneficial. Owner information reporting. You may have heard the term boy [00:39:00] what? I guess if there's anything you're going to take away on this topic today is be ready to talk to your clients, especially as we get closer to year end. So this is from this is the Corporate Transparency Act. It's not IRS. It's with FinCEN which is the Financial Crimes Enforcement Network. You know, not an IRS initiative, but it has become a huge burden on tax professionals who want to assist their clients in preparing this form. But [00:39:30] because it could be seen as the practice of law, generally, CPAs generally tax practitioners cannot do that type of work. So it wouldn't be covered by insurance. And this is the scariest part. This is the scariest part of it all. This new reporting requirement as of December 31st you have to file your initial report. Or you could be subject to a penalty of $10,000 fine and up to two [00:40:00] years in prison. Now, that's for willfully providing false information, but a clear definition of what that actually means has not been provided. So you're looking at, you know, small business clients who may or may not have even heard about this, um, having to do something not with the IRS, but something with FinCEN, not on April 15th. Not an annual thing, but for an initial report December 31st of this year. And it's [00:40:30] something that is to me is so difficult because there's so many small business owners who are completely unaware. They just have no idea. They have no idea. And, you know, they're Vincent says they're not going to go after, you know, the good guys. We're just trying to get the the bad, the bad ones. But what does that really mean? And I don't know, I don't think I'd hang my hat on that if it was me. Well, they won't tell you.

Roger Harris: What it is. So you have to assume the worst. And yeah, [00:41:00] the sad thing about this is for businesses, and this again applies to any business that set up with your Secretary of State? So your sole proprietors, unless you know they're exempt over here, it can't wait till you see them during tax season. So for your small business S Corp that comes to you in February with their tax information, that's too late. It had to be done by December. So you've got to figure out how to communicate with your clients before the end of the year and [00:41:30] have time to give them the information that they need so they can give you the information that you need. So you can file the report by December 31st. So you've got to start thinking about it today. Yeah. You can't wait until you see these businesses during tax season. You've got to understand what is beneficial owners. Some of it's black and white. You own 25%. You're a certain officer. But if you have certain types [00:42:00] of influence on certain activities, that requires you to be on this form. So it's something that if we could wait and do it during tax season, we could almost make it part of our filing routine.

Annie Schwab: Yeah. And there's been a lot of pushback AICPA, Nasba IRS. I mean, I know you're going back to DC this week to go to go talk about it, right. There's a lot of pushback, a lot of requests for extensions. [00:42:30] A lot of, you know, why is the penalty have to be so high. You know, those kinds of things. But as of right now, we have not seen we haven't seen FinCEN kind of come out with, you know, an extension period or a change of of, you know, who is required or who can be exempt and that kind of thing. So right now it stands and it's coming up fast.

Roger Harris: Yeah, because FinCEN, at least as of today, and you mentioned I'll be in DC going up on the hill and [00:43:00] that'll make sense in a minute has shown no interest in delaying it or clarifying some of our questions. They believe that they're going around, and I get probably once a week, an update from FinCEN. See, we went to Kansas and we told this group about it and we went over here. There's also pending lawsuits floating around out there. So FinCEN seems pretty dug in that we're going to keep this on the current timeline, meaning by December 31st, every business that was [00:43:30] set up by the Secretary of State prior to the start of this year must file a report. Now, remember, if you started a business this year, they had 90 days. So when that taxpayer shows up in your office in February with their corporate return that was formed in 2024, and you ask them, can I see your boy? They're going to go, what are you talking about? They're already late because they only had 90 days. They would be late anyhow because you're in February. We don't have any guidance as to what we're supposed [00:44:00] to do and what happens when we file it late. So. But Congress is at least beginning to hear some of the problems or some of the perceived problems. And there is talk of a delay. I mean, there's talk of repeal. I don't know that that's possible.

Annie Schwab: I don't know. I mean, the lawsuits have not shown to be making progress. Yeah. Um, you know, to to repeal. Could it happen? I [00:44:30] guess so, and I will say you mentioned the secretary of State's FinCEN seems to be working with several of the states where they would share information back and forth. So you would maybe get a notice a taxpayer when they created a new entity with the state, get like sort of a reminder or a notice that you have to file this in a certain period of time. Um, just another way of sort of letting the small business owners know that. But they're not working with all 50 states yet. They're not they're not cross-checking data at this point.

Roger Harris: Um, [00:45:00] and some states will send out. They'll go through their database of everybody that was set up in their database, and they'll send them a notice, you know, as a general information. So if you get a small business client of yours calling you and say, hey, I got something from the secretary of state, what is it? It's probably some sort of notification about having to do this boy report. Uh, so, I mean, but last we heard, less than 10% of the businesses that are estimated to have to do this have done it so they can say all they want that it's they're doing a good job [00:45:30] of educating, but less than 10%. Yeah. So so again, it's it's one more thing we have to deal with during this next 4 or 5 months while we're trying to figure out how to do tax planning, while we're trying to wrestle with the end, not the end of but the latest version of IRC and do our normal day to day work. And boy is going to be a big one. I would make one suggestion, something that we did here in Paget to get prepared for this. Either [00:46:00] for yourself or for one of your better clients. Go ahead and go through the process, because you're going to hear that filing that initial form only takes 10 or 15 minutes. That may be true in a perfect world, but just accessing the right form, getting making a decision whether to use the online or PDF version and make sure.

Annie Schwab: You get a copy.

Roger Harris: Make sure you keep a copy because there's no guarantee you'll be able to find it again after you file it. [00:46:30] Um, to understand what information you need, where you go to fill out a form, uh, what a client has to give you for you to be able to. We focus our defense and focuses. I should say we don't. Fincen does. Well, it only takes ten minutes to fill out the form, but that ignores everything it took to get to be prepared to spend those ten minutes. And the risk if something is wrong, and then the real risk is going to come [00:47:00] in future years. Whatever you put on that initial form, if something of substantial nature, and I'm not going to want to get into it today, but it's changes, including the documentation that you gave to prove that Annie Schwab is really Annie Schwab. You only have 30 days to make that correction or the penalty kicks in again. So the first year is probably the easiest of all the years to avoid a penalty. But I would suggest and Annie, I know it was kind of eye opening to us [00:47:30] to go through filling one out, just starting as if we were doing this for the first time, which we were in actual form, and finding the website, selecting the right way to do it, seeing how the form worked and knowing how you had to.

Annie Schwab: Upload the driver's license.

Roger Harris: Upload and all. Yeah, go through it. So you don't want to be doing this. What my fear is there's two fears I have. One is we're all going to be crunched in trying to do this the last two weeks of the year. And [00:48:00] then the second fear is as soon as you finish, Congress is going to delay it. And so all that time that you spent, um, yeah, is going to be wasted. But hopefully we'll get an indication if that's possible. And, and I don't know how you can charge what it's really worth. I mean, that's something we're wrestling with is how much can we charge for something that FinCEN is telling everybody only takes ten minutes.

Annie Schwab: Yeah, but you don't want to be associated with something that gets hit with penalties [00:48:30] and, you know, time in jail because you didn't upload the new driver's license when it expired, you know. Right.

Roger Harris: No. There's again, it's just this is going to be an end of the year, probably like we haven't seen in a while because we got boy we got potential for significant tax changes. While I'm repeating myself because I've already said this probably 3 or 4 times on this call. Uh, but it's going to make these next four months Once we get through the October 15th deadline, we got Thanksgiving, we got Christmas. [00:49:00] We're probably all going to scramble around to try to get our CPE requirements in for the end of the year. Yeah, you got boy, you got tax potential tax changes. You got an election. It's going to be kind of an interesting end for 2024.

Annie Schwab: Yeah I think so too.

Roger Harris: I don't know that I've had I'm tired now. Yeah. Yeah. If you're tired now you're going to be really tired come December.

Annie Schwab: And just thinking of it all. Yeah.

Roger Harris: It's just going to be a very interesting [00:49:30] situation that, you know, we're going to go through this year. And again, I've done this for a long time, and I don't think I've ever had anything with quite this combination of things that we're going to have to deal with. And that's why, you know, we encourage our people and I encourage our listeners, charge what you're worth because you're going to earn it this year.

Annie Schwab: Mhm. Yeah. And we'll keep doing these podcasts and if something changes or something you need to know. Check back with us because we'll bring it to you.

Roger Harris: Yep. We will do everything we can [00:50:00] to to keep you on the cutting edge of information, whether you like it or not. You know we don't, right? We don't make the information. We just report it.

Annie Schwab: So. That's right. That's right.

Roger Harris: Final thoughts, Annie, before we wrap up today.

Annie Schwab: No, I hope maybe this week when you're in DC, you can, uh, have some influence on an extension for Bowie or bring back some, some new hopeful, uh, possibilities.

Roger Harris: But yeah, I'd like another year to sort through some of it because there's some just underlying, I think, issues with the whole system [00:50:30] besides the deadline and lack of awareness, but it's going to fall back on 435 House members and a portion of the Senate, all who are running for reelection, to think this is important enough to act on while they're trying to keep their job. So, jeez, we'll see. Who knows?

Annie Schwab: Well, Roger, it's been fun, as always. Yeah.

Roger Harris: I hope we can get together again. It's good to see you in Dallas. Glad to be back doing it this way. But it's always fun to do [00:51:00] it together. And I hope that you guys that are listening are, uh, happy about our podcast. If you are, share it with people. We're we're always excited in Dallas to run up on people who had listened to the podcast. Yeah. And it was kind of nice to hear that there actually are people at the other end of this. Yeah. So, Annie, I'm done for the day. How about you?

Annie Schwab: Me, too. I'm done. Little league baseball tonight. That's what's on my my agenda.

Roger Harris: Well, I'm going to go pack and get ready to go to DC, so. All right.

Annie Schwab: Well, thanks, everyone for listening. [00:51:30]

Roger Harris: Annie, thank you as always. Thank you for listening. And join us again soon on another federal update podcast. Bye, everyone. Bye.