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

Roger Harris: Hello, everybody. It's time for another federal tax update podcast. This is Roger Harris and I am joined for now by Andy Schwab. Andy, how are you today?

Annie Schwab: I'd be better if it wasn't storming and lightning and all my lights are flickering and I happen to be in Texas, and we are having a full 24 hours [00:00:30] of 100% chance of rain. Um, so, I mean, I guess the grass is happy, but I don't know about anybody else.

Roger Harris: Yeah. So, um, so we're going to we're going to do this, and, um, we've had a little trouble keeping Andy connected. And if, uh, if somehow in the middle of this, unfortunately for our listeners, you're going to be stuck with me for the rest of the show. But hopefully we can get through this and, uh, dodge the thunder and the lightning and cover a few things. So, uh, [00:01:00] let's start while everything's working. And, uh, we're kind of, you know, it's it's post April 15th, right? And what we thought we would do is kind of look back at, first of all, look back at some things that happened while most of you were with your head down in tax season. If you've listened to the podcast or in tax season, we're going to be repeating some things. But we thought the first thing we should do is kind of bring some people up to speed of something they might have missed, uh, while they were tied down during tax season. And then we'll [00:01:30] talk about a few things that we think would be a good idea to start doing. Now. That and I say tax season's over April April 15th is over. We know tax season's never over.

Annie Schwab: I was about to say I'm not sure it ever ends. It just rolls from one to the next.

Roger Harris: Yeah. But there's still some at least a symbolic uh message in April 15th. So we'll we'll consider April 15th to have been a major milestone. So, so we'll, we'll consider what happened. Now that April 15th [00:02:00] is over, hopefully you've taken some time off. And that's the most important thing, is to kind of recharge your batteries and, uh, reintroduce yourself to your family. But but before we get to post 15, let's go talk, because there were some fairly substantial things going on during tax season. And, Annie, we can't do a podcast, it seems like, without talking about the employee retention credit. And and there was some important information that came out, uh, a few months. Well, I guess it's probably [00:02:30] a few weeks ago, but it.

Annie Schwab: Was actually March 20th. So I mean, it was I mean, you were in the heat of tax season when we received. Yeah. So let's start there. I mean, we always need to talk about it. Um, so I think it's a good place to start.

Roger Harris: Yeah. So go ahead. What happened on on March. Whatever you said 15th, 20th.

Annie Schwab: The 20th of March.

Roger Harris: 20th of March. What did the IRS do to. I don't know if this makes our life easier or more confusing, but go ahead.

Annie Schwab: And well, it was nice to get something at least. [00:03:00] So on March 20th we got three new FAQs. Um, and they were related to how to treat the IRC. Um, the credit. And we had been waiting for a while, so, I mean, I guess I'll take it on March 20th. Um, then not at all, but and I understand they they were trying to get something out to give guidance to those who had qualified for the IRC, received the money, whether they received it in 2025, 2024, 2023, depending on when they [00:03:30] got it. Um, and so what it did was it made it. Well, the first one, I guess, uh, solidified that if you had taken the employee retention credit and you adjusted your wage expense, whether you went back and amended it or it was, you know, right, then you got it and you hadn't filed the return, you did the right thing. So based on the original rules, for however many years now we've had where the in the period in which the wages were paid for [00:04:00] the IRC credit, you needed to go back to that year, amend the return to reduce the wage expense. And then obviously, if it was an entity, you would amend the personal return, and that's what many people did. Um, there were also lots of people who were not completely sure if they were going to get the full amount, or maybe they were waiting to get the money before they went back to amend. And we've spoken at nauseam at the regarding [00:04:30] the delays associated with the processing of IRC. They even had it on hold for a while and then brought it back, and then a moratorium. Moratorium. And then I mean, we've seen it from where people have gotten 3 or 4 quarters, but they're still waiting on one, or it was changed, or they got a notice asking for more information, or they got a notice, a disallowance letter. So it's just been kind of all over the place. So to get these three FAQs was good. And like I said, the first one basically, you know, if you did what was initially set [00:05:00] out.

Roger Harris: What the law said.

Annie Schwab: Said at the time, then that's fine. You don't you don't have to go back. But what we did finally get some guidance on was if you got the IRC, but you didn't go back and reduce the wage expense in the year that the claim was credit was generated. Um, now they're saying that you can report it in the year that you receive the funds. So that means not going back years potentially and amending [00:05:30] returns. And at this point they're just saying add it into income in the year in which you received the money. Seems, you know, nice, easy clear cut. Of course, nothing's ever that clear cut. We've, you know, had scenarios where what if it was in my best interest to go back or what if the entity type changed or what if they're, you know, all different scenarios and I get what the IRS is doing. They were there were they were doing this in an effort to get around the statute [00:06:00] of limitations.

Roger Harris: Right. The problem they had is the statute was running on some of these years, and people were questioning whether they had to amend the returns anymore because the statute had run out. And so this is kind of a way to get around that problem by saying, well, you don't have to amend. You just include it in the year that you got the money. Right. Which for a lot of people is 24 and 25. Not exactly.

Annie Schwab: And they're still I [00:06:30] mean, they're technically they're still processing claims. I mean, I've not seen anything unless you have where there's no longer a backlog. I mean, I still think I know the disallowance notices or the request for additional information. Um, those kinds of letters are still going out. And so I assume that they definitely still have claims to be processed.

Roger Harris: Yeah. I mean, there's nothing they haven't officially said they are are not processing, you know, and we'll talk a little bit later about the upheaval at the IRS. Right. But, you know, I [00:07:00] think they marshaled all their resources to get through the filing season, which again, we'll talk about later, but was, from IRS perspective, fairly smooth. Mhm. So you know those people came from somewhere. And so I'm not sure how many IRC checks were being sent out, you know, between January and April 15th. And honestly how many will be sent out after April 15th, while we're still waiting to see how many IRS people still have jobs. But yeah, a couple of interesting things in there. Number [00:07:30] one, they made it very clear that they thought that the return should have been amended as soon as you could reasonably expect to get the refund, not get the refund. And I know some people did that, but most people weren't comfortable that you were even going to get the money or get the right amount. So I think that's the you know, that's a hurdle that people, I think could have gotten around by saying, how was I going to know when and if I was going to get the money with all the confusion? So they kind of said, you should have done [00:08:00] it this way, but because you didn't. Now we want you to include it in the current year, which brings up a lot of questions that people have. Well, how can you do that? You know, the statute has run. You told us we had to amend.

Annie Schwab: So it could be challenged.

Roger Harris: Oh, I'm sure somebody will. I mean.

Annie Schwab: Yeah, I mean.

Roger Harris: Somebody will challenge anything.

Annie Schwab: I mean, what we have is the FAQs and what we should rely on based on what we have is the FAQs. But I, I'm with you. I think that someone's going to challenge [00:08:30] the legitimacy of putting it in the current year if the statute has.

Roger Harris: Has run.

Annie Schwab: Expired, especially given there were so many delays in processing, like who would have reasonably thought they would have gotten their money because people weren't getting their money so. Right? Um, I don't know.

Roger Harris: And I think the other reason, and I think this was a conscious decision, they wanted to make sure that people who had done it properly didn't feel like they got penalized by [00:09:00] people who waited until the statute ran out and they got to get out of jail. Free card. So I think there was a couple of things that this these FAQs tried to address. Number one, to try to treat all people equally, that if you got the ERC, you're going to pay, you're going to do something with those credits to either reduce wages or include it in income. And secondly, to kind of walk around the statute of limitation problem. Now somebody will probably test it. And [00:09:30] I know we've had some of our own people say, well, this doesn't seem legal. This doesn't seem like something we can do. I mean, I guess you can take that position if you want to be the one to fight it. But, um, right now the IRS says put it in wages in the year that I mean, excuse me, put it in income in the year that you received it. If you choose to ignore that, I think your client needs to understand, because I don't believe the IRS did this without some basis that they believe they can defend. [00:10:00] Now, is it the right basis or not? So, you know, I think most people are going to include it in the in the year they got it. I mean, the frustration that really happened was when it came out on March the 20th and the corporate return deadline had just passed and you could have done it. Now you got to now you still got to amend the return.

Annie Schwab: Now you got to go back. Right.

Roger Harris: But, you know, but I think if, you know, if you want to challenge the legality of this, do it at your own peril and make sure your clients are all [00:10:30] on board, because I don't know what they'll do if you fight it. And the IRS is right now. I know what they'll do. I don't know how your client will feel like the additional penalties and interest.

Annie Schwab: Definitely worth a discussion with your client if they're not, you know, if there's some sensitivity or some pushback with regards to including it in the in the current year.

Roger Harris: But the IRS has said what they want us to do. So yeah, it's it's like ignoring any other part of the tax law. The IRS says this is what you do. You can if you can make an argument that that's illegal, then more [00:11:00] power to you. But that's not what they said. They said, do it this way. And that's our position right now, is until something other than a theory is out there, we're telling our folks to put it in the current year.

Annie Schwab: All right, IRC check you did that one.

Roger Harris: Now we kept talking about boy and we got some new information on that during, uh, filing season. And, um, any what what did we learn [00:11:30] during filing season?

Annie Schwab: That was another one where there, there was a filing requirement for beneficial owner, um, information reporting and then there wasn't. And then there was a court case and then another court case and then maybe and then who knows? And then finally during tax season, I can't remember the exact date, but there currently is not a requirement to file. Treasury is not enforcing beneficial owner reporting. Remember this is through FinCEN. This is not something [00:12:00] that is regulated through the IRS, but the Treasury has found that it is not enforceable. The original filing deadline was approaching and we saw a lot of opposition voiced against this one. Penalties were super, super high um, including jail time. Two there was very little, um, guidance. The the portal so to say on the FinCEN website was open. Um, the form itself was a bit cumbersome. [00:12:30] There was some weird language I would say in there. I, I don't even remember what the compliance percentage was, but it was extremely low as we were approaching that that filing deadline, which was January 1st of 2025. So I wasn't shocked to see that it was put on hold. Um, I don't personally, I don't think it's over. I do think that it could return in some form or fashion, maybe focusing more on foreign entities, doing the reporting, [00:13:00] um, providing some exemptions from, from, you know, small businesses or, or US based businesses. I think the I understand the intention of FinCEN. The goal of a program like this was to try to prevent, you know, fraud.

Roger Harris: Yeah. All the money laundering.

Annie Schwab: Exactly. Um, but it was it was a very much a burden on tax professionals, small business owners. Um, the communication [00:13:30] education part of it was lacking. Um, and with such high penalties and jail time, it was truly unfair, in my opinion. But what will happen now? I mean, we don't we don't know. I think, Roger, you've seen some more of those in support of BOE coming up now and voicing their opinion.

Roger Harris: Yeah, because the law is still there. What Treasury did was say, we're not going to enforce it or charge any penalties for noncompliance. Then they came in and said, and we're [00:14:00] not going to be fighting. You know, if you remember, there were court cases that, you know, one judge would rule something, they'd go fight it and the judge would be ruling, would be taken down. Then another judge somewhere would rule something. So Treasury did two things. This was because of the new administration coming in and the new new people in Treasury. They first of all said, we're not going to enforce the penalties. And they said, we're going to revamp who has to comply, to your point. Focusing on more foreign businesses and people that they [00:14:30] deem to be higher risk. And then they said, and we're not really going to keep fighting these court cases to make people do it. What happened when they took that position is the people who support this and believe that the that the law is a law and that it needs to be enforced. They're now coming back and trying to get the courts to rule that you have to enforce it. You have to do all these things. Um, I'm not a lawyer. I have no idea what the cases are, uh, what leeway [00:15:00] Treasury has. And again, the law is still on the books. Uh, they've just stopped charging penalties, and they have said we're not going to go to court to try to make people do it. So for and people who have done it, no problem there. You know, there it's.

Annie Schwab: Actually so open. I mean, you can go to the website and file a report.

Roger Harris: There are still people trying to promote. You have to do it to make money off of it.

Annie Schwab: That's true. Of course. So that's right.

Roger Harris: Yeah, it's probably the same ERC people, [00:15:30] but there you go. That's a different issue. But so as of right now, um, you don't have to do anything. It's still a law, but there's no penalty for not doing it. I don't think this administration is going to do anything dramatic to bring back mass reporting requirements, unless a court forces them to, and makes them go back to Congress to get some sort of change to the law. But we'll see. But so that [00:16:00] burden has been taken off of our plate for right now. Uh, again, those that have done it, they're fine. You know, there's probably a legitimate reason to have some sort of reporting if they could solve some of the problems, or maybe it'll come back at some point in the future. But I don't think it's a high priority, uh, certainly for this administration.

Roger Harris: Yeah. Yeah.

Annie Schwab: So what is happening in DC? You were there just last week, I believe. [00:16:30]

Roger Harris: I was there last week. We'll we'll we'll.

Annie Schwab: You made it home safely, right?

Roger Harris: Yeah I did. Um, there's some interesting things going on right now. Let's let's hold the IRS for for last on this discussion. Sure. Um, as we all know, we have the Tax Cuts and Jobs Act that expires at the end of this year. And there's a lot of, uh, back and forth in terms of extending it, what to add to it, that sort of thing. And [00:17:00] since the Republicans control the white House, the House and the Senate, they're using something called budget reconciliation. And again, if you've heard us talk about this before, I apologize. We're just trying to bring the people who haven't been watching it during filing season to bypass the 60 vote filibuster in the Senate. They're using something called budget reconciliation to help them extend the Tax Cuts and Jobs Act. That's the Republicans. Um, what happened [00:17:30] during filing season is the House and the Senate agreed to the broad Spending. And for the government that says this is how much money we're going to spend, this is how much we're going to cut. This is all so the kind of the the dollars we're put into it. And that was resolved between the House and the Senate. The House had a bill. The Senate had a bill. They ultimately came together and they passed that. Now the real work starts, and this is actually starting this week when they came back, is [00:18:00] now they have to go in and work within the parameters of this bill, that this reconciliation bill, and actually decide what is the tax cuts that get extended, what are the spending cuts that are going to be put into place to help pay for this? And this is where it really gets, uh, you've heard a lot of talk as if this has already been done, but really it hasn't.

Roger Harris: This is starting this week. There's 3 to 4 weeks of where they're going to be [00:18:30] holding hearings in the Senate. And the Senate will come up with some plan. The house will come up with a plan. Then they'll have to come together and agree on that. And I heard this morning the, uh, the House hopes to get their plan out by the end of May. And the Senate hopes to have the whole thing resolved by the 4th of July. Oh, wow. And everyone seems to think that that may be aggressive because we don't. The hard part's going to be if you want to add things like tax on no tax on tips, that's [00:19:00] going to cost money a lot. Yeah. And then what are you going to cut somewhere else to pay for that. What are you not going to extend. And then you got the salt cap.

Annie Schwab: Well the salt has been in discussion for I mean the salt the 1099 a deduction. Um, I feel like child tax credit, earned income credit. All of those are have been tossed around with different scenarios from from both sides, I think. I think the tax on tips was something a [00:19:30] little bit more recent on the Republican side. Um.

Roger Harris: Well, even I want to say, uh, the Democrats, uh, Vice President Harris even endorsed that in a, in a political campaign. But then when you get into the real world and get away from the politics of it, and you start saying, how does that bill look? What what what do you call a tip, what tips are exempt? Then you have to start saying, well, how much revenue does the government lose? Because you've got a lot of people in the federal [00:20:00] government. And I think they're right that we've got to control our budget deficit. It's just expanding or ballooning, and it's easy to give people stuff. Yeah, it's harder to find a way to make it be paid for. And how to what are you going to cut? You hear a lot about cutting Medicare and Medicaid. Again, nothing has happened officially yet, but there are studies out there or groups in Congress that say you can't accomplish what you put in your big bill if you [00:20:30] don't cut it, and then you add tax on tips, or no tax on overtime and no tax on tips. Uh, no tax on Social Security. Well, now you've got to cut more or take away from something else. That's the process that starts now. So the kind of the meat is going to be on the bones between the house doing what they're going to do and the politics that they have to deal with. And the Senate do what they have to do. And there's probably zero chance they'll do the same thing.

Annie Schwab: So they're going to have to negotiate. I mean, I know they're not really they [00:21:00] don't do that so well, but they're going to have to do something because if they do nothing, the Tax Cuts and Jobs Act expires and there are a few provisions I shouldn't say everything. There are a few provisions that were made permanent. But the ones that we're just talking about Salt, R&D, 1099 deductions, those are not permanent. Those will revert back to pre tax rates.

Roger Harris: Tax rates, tax rates that would go back up. You mentioned I was in Washington last week. I [00:21:30] had a few meetings on the Hill. I think there's some political realities and some some reality setting in. Uh, you know, the tax on tips is probably, you know, harder to do than people think, both from a how do you do it standpoint and what it would cost. I think it's going to be hard to get everything that was promised in the election and extend the Tax Cuts and Jobs Act and increase the Salt deduction and increase the child tax credit. You know, something's not going to make [00:22:00] the cut. But the process is starting now. They're back for 3 to 4 weeks. Again. The House is goal is to come up with their blueprint if you want to call it that. By the end of May, the Senate hopes to have everything reconciled. You know, again, only the way politicians talk. I would love to have the president sign this on the 4th of July. Well, okay. You know.

Annie Schwab: Yeah.

Roger Harris: All right. So that's where that is. Uh, the real work is starting now, and I don't want to discount the reconciliation part because it was hard [00:22:30] to get deficit hawks and spenders to agree to a to a number, which they did. But now you got to get into the details and we'll keep an eye on it and we'll see what looks like it's going to make it. There was a hearing on the Small Business Committee on the House side that focused almost solely on 1099 A. That's a very big political football, if you will. The Democrats say it helps the rich. The Republicans say small businesses can't survive without it. So we'll have to reconcile all of [00:23:00] that. So that process is starting and it'll be interesting to watch.

Annie Schwab: Yeah, I know I feel like in the news, on the radio, everywhere you go, all you, you know, more cuts to the IRS staff, more closing of certain groups, committees, you know, and it's it's like, how are they going to get all this done if they, if people keep I guess even resigning, I mean, people are resigning left and right, taking the the buyouts early retirement buyouts. So I [00:23:30] don't it'll be interesting to see what can happen when you're letting people go.

Roger Harris: Yeah. Because at some point now again the a lot of this cutting because the ice in the older agency, they're cutting in all the agencies. But I think I'm correct that of the federal budget only 8% is salaries. So if you cut every employee out of the federal government, you couldn't balance the budget. So some of this again, and I'm not saying that every agency in Washington can't do with less people and less money. I'm sure they can. I'm not [00:24:00] smart enough to know how much less, but that's not going to solve the budget problem. There's there's there's a lot of big ticket items that are going to do that, but it is creating a real problem, as I was when I was in DC last week, I was in the IRS for some meetings. And as you can imagine, the morale of the people there are are just it's awful because they don't know if they have a job. And what's really unfortunate is they don't even know how many people that they work with [00:24:30] have either taken one of the offers to be bought out, and how many jobs are being cut. I mean, it's gone. I know one department one day was going to be eliminated entirely. Then the next day it was going to keep 50%. Some departments are being eliminated.

Roger Harris: This, uh, in total. I'll tell you something. And you don't even know this. I had a call from someone at the IRS. I think those of us who meet with them have become counselors. In many instances, employees [00:25:00] are calling, you know, asking for our opinion, our help, uh, in many instances, looking for a job, you know, to have a backup plan. But but I found out today, and I thought, God, I can't imagine working in this environment is what they're finding out is that every Friday, one department's. This is just within the IRS. I don't know if this is all agencies. One department of the IRS is there Friday, and what that means is that Friday, people [00:25:30] get their notice that you're here's your buyout, you're fired. Whatever the case may be, and you don't know when your Friday is until that Friday arrives. So you find out on the Friday this is your department. And sometime today you will get some sort of communication telling you what your options are. If you have any, your option may be you're out, you don't have a job for you, or it may be we're cutting your department down from 100 people to ten [00:26:00] people. And now you got to figure out how to do the work of 100 with ten.

Annie Schwab: Or.Decide if you want to stay at that point.

Roger Harris: If you want to.Stay,

Annie Schwab: If your.Team is getting eliminated, I imagine that there would be workers that have said, I've had it, I'm out, you know?

Roger Harris: And sadly, a lot of the more senior people are getting the better options to take their early retirement. So so, you know, we're going to begin finding out what the ultimate size of the IRS is. And this is important when tax reform comes. Because if you [00:26:30] listen to our podcast, uh, right before this with Terry Lemons, he kind of walked through when a tax bill happens, how many different parts of the IRS somebody's got to design a form. The lawyers got to interpret the law. You know, the help people have to come up with, uh, the ability to help taxpayers. You got to have guidance. So, you know, it's an all encompassing, uh, job at the IRS. And when will this happen in relation to the staffing that's left at the IRS? And because a lot of the staffing [00:27:00] reductions are voluntary, they don't know until they know, you know, a whole department could voluntarily leave. And then you got to move people who aren't experienced. And so it's you know, I feel sorry for them. I'm sure there's some justification for some of the cuts that are being made, but it's really demoralizing the The agency at a time, you know that. I mean, I sat there and listened to to an employee start to tear up saying, I've been here 27 years, I don't [00:27:30] want to leave. But my options were such that I had to take the buyout for the good of my family.

Annie Schwab: Right, right.

Roger Harris: There's a 27 year old senior executive of the IRS who already took the place of another senior executive of the IRS 30 days ago. So now we're on our third person in this position, and I don't know who you fill it with.

Annie Schwab: Well, and I will say, I thought this tax this past tax season ran smoothly. I compared to previous [00:28:00] ones, I thought the return processing time was good. I mean, I'm not going to say that the phone answering, you know time wait time was.

Annie Schwab: Perfect but significant improvements, a lot of technology, new technology, online portals, advancements. And I really hope that with these cuts that we don't lose some of those. I know the direct file was was on the chopping block. I've seen commentary about, you know, how many people would be there [00:28:30] to process versus answer phones or, or even do the IRS forums. Do they have people who can even staff the forums? There's usually five in the summer. I don't know how many years they've been going on, but for a long time, in my opinion and, you know, you get the taxpayers get concerned. You get you get the taxpayers concerned. Am I going to be able to get my refunds as fast as I've done in the past X number of years? And then you have the other side that's saying, well, I mean, there's nobody there to audit [00:29:00] me. I may as well, you know, walk a very fine line and see what happens. So neither one of those is a good place to be.

Roger Harris: No, it's a it's a very difficult time. Anyhow, look, let's face it, the IRS is an easy agency to.

Annie Schwab: Of course.

Roger Harris: Be critical of and to to want to cut from. But they do provide a very important role in our voluntary tax system. They need the proper number of people and money to do their job. I have no idea what those two numbers are. How many [00:29:30] people they need or how much money they need. But they need to be able to do their job to to get refunds out, process tax returns, get the guidance out, and have enough compliance to to help people feel the need to to do things properly. And this is where you collect all the money, you know, the politicians, you know. But look, this is not the first time this has happened. The Clinton administration a few years ago cut like 30% of the employees. It's just this pendulum back and forth. They'll [00:30:00] survive. But it's a very, very, uh, depressed workforce right now. The ones that stay, I mean, but they're confident that whatever happens, they'll do their job. But they got to see who it is, And we're having a difficult time. You talk about people. I mean, we're on. What am I trying to figure out? If you remember, Commissioner Werfel.

Roger Harris: Um, when President Trump came in they, uh, uh, President Trump nominated [00:30:30] someone to be IRS commissioner despite the fact that Commissioner Werfel had a five year term. So kind of seeing the handwriting on the wall, Commissioner Werfel went ahead and resigned.

Annie Schwab: Yeah.

Roger Harris: And that has happened before. And usually what happens is you appoint an acting IRS commissioner until the permanent commissioner gets confirmed by the Senate. Well, we're on number four.

Annie Schwab: Of four, I think.

Roger Harris: Yeah. Um, the current one, I think is a is probably the best. Well, I don't want to say that because the first Doug O'Donnell was a [00:31:00] career IRS employee, and he'd been acting commissioner before. Um, he was the first one. He resigned. Then Melanie Krause came in behind him, another career IRS official. She resigned. Uh, Then they appointed one of the whistleblowers in the Hunter Biden case.

Annie Schwab: Uh, Michael, um, what's his.

Annie Schwab: Name?

Roger Harris: He was in chief counsel of the IRS. I think he lasted a couple of days. [00:31:30]

Annie Schwab: Or something like.

Roger Harris: No, that's. No, he's the one we have now. Michael Faulkner is the person who comes from Treasury. It doesn't matter what his name was. He didn't last but 2 or 3 days. I think I was in meetings longer than he was acting commissioner.

Annie Schwab: Right.

Roger Harris: Um, and now we have, uh, Michael saying, I hope I'm saying his name right. Falkender. Who is the deputy Treasury secretary? Uh, he will be in Treasury whenever we get a permanent commissioner. So. And he's got some IRS experience. [00:32:00] So he's probably a good person to kind of work through this. But we're on number four. And the person that Trump nominated, Billy Long, a congressman from Missouri, we still don't have hearings for a permanent.

Annie Schwab: Yeah. Why?

Roger Harris: I don't have any idea. I don't know. So we're on our fourth acting and there's no hearing set. And now we're going into this whole battle on reconciliation and all that. Yeah. I don't know why this. So we. I don't know who the IRS commissioner [00:32:30] will be and for how long.

Annie Schwab: Right.

Roger Harris: Uh, but at times, excuse me. Like this. At the IRS, a good, strong leader is, I think, critical to, you know, re-energizing and motivating the workforce and getting people, uh, back in line and deciding how to allocate their resources to to meet all their needs. And, you know, how are they going to upgrade technology to do things because you don't have people to do them?

Roger Harris: So who knows?

Annie Schwab: I [00:33:00] don't know, but I, Billy Long, I've been waiting to hear when that confirmation was going to be. So maybe he's maybe he's changing his mind. I'm totally speculating.

Roger Harris: Yeah, we have no idea. We really have no earthly idea of of why he has not been. I mean, there's some pushback to him because he was involved with some URC.

Annie Schwab: Right.

Roger Harris: Firms. Um, he doesn't have a strong tax background, but, uh, everything I had heard when I was on the hill is that he would [00:33:30] be confirmed. So if you're going to get if you're going to confirm.

Roger Harris: WHy don't you just go through the process? I mean, it's going to be a rough confirmation hearing because all his dirty laundry like everybody's is, is going to be aired out. But it's like I said, very interesting times. The IRS, you know, we've made it through April 15th. Um, obviously people are still filing tax returns to be processed. Refunds still have to be sent out. Payments have to still be made. People are still going to cheat. You're going to have to do compliance.

Roger Harris: And [00:34:00] we're.

Annie Schwab: To go out all the above.

Roger Harris: Of this changes, and I hope very soon we can get some stability over at the IRS, and everybody will know if they're safe, that they can come to work every day knowing this is their job. And, uh, we can see how how they can do more with less, because that's what they're going to be asked to do. And I think they just want to know what their situation is.

Annie Schwab: Yeah.

Annie Schwab: Job security is I mean, everybody wants to feel like [00:34:30] they're secure in their job and they're wanted in their job and they're respected in their job. So hopefully we can get there.

Roger Harris: Yeah.

Roger Harris: And again, we're going to have a lot of, um, junior people doing things that senior and in positions. And those junior people may be as talented or more talented than the senior people that they replace. But a lot of years of experience is is.

Roger Harris: Walking out the front door.

Annie Schwab: The training and the learning curve could could take some time depending on.

Roger Harris: Yeah.

Roger Harris: Okay. I think [00:35:00] that's pretty much everything that got us through the I don't know if some of this is current. So it didn't end.

Roger Harris: On April 15th, but I kind of it kind of gets us to to where other than watching the tax reform and what happens at the IRS. Let's move on, Annie, and talk about some things that now that again, I keep on to say tax season is over. Let me say that April 15th is over.

Annie Schwab: Yeah.

Roger Harris: Uh, what what are some things that we should be thinking about in our business? Uh, to [00:35:30] hopefully be able to react to whatever is different or maybe different or needs to be different in our firm going forward.

Annie Schwab: Yeah. I always recommend after after tax season, a busy season that obviously go take some time, go travel sleep. But you know go visit with loved ones, do all that all those things. But don't let the experience of the past tax season just go to the wayside. So there are a lot of things that you need to go [00:36:00] back as a business owner, as a firm owner, and reflect on and see, you know, what, what were the real pain points or what were our successes and how do we prevent repeating things that were super challenging to us? And how do we solidify maybe relationships with different softwares or insurance? So I do really encourage one to think about your tax software, um, especially if you're under a certain contract of time and it's coming up. [00:36:30] There are a lot of really great softwares out there. Um, but what you want to look for is one that's sufficient for your level of complexity in your firm. Um, and obviously, you know, price matters too. So finding, you know, a tax software that does what you need it to do at a, you know, an affordable price for you. Um, and no one likes change. I mean, we don't like change in anything. And certainly switching from one software to another, [00:37:00] um, not only is there the conversion of the data from a particular software to a new one, but there's also going to be a learning curve for your staff. So that that to me is a is a big decision whether to continue on with what you have or if there's something that's more appropriate for your your size, your complexity of your clients. Um, and then, you know, start looking at it, doing the research, thinking about what is it, what is the timeline look like? If I do want to go with a different tax software?

Annie Schwab: Um, because you're going to [00:37:30] convert.

Annie Schwab: How would I get trained up so.

Roger Harris: How do I learn it? Yeah.

Roger Harris: Because we all know this is the time of year every software company is going to bombard you.

Roger Harris: With incentives to move to their company. So it's a it's a good time from a cost standpoint to make this evaluation. But but Annie's points are are important. That price is just one consideration. And and I'm not sure it's the the most important consideration. You shouldn't pay a lot of money for a software that has stuff [00:38:00] in it. You don't do.

Annie Schwab: Right.

Roger Harris: But by the same token, don't try to work with something that's less than what you need just because it's cheaper.

Annie Schwab: Cheaper.

Roger Harris: Uh, so, uh, take advantage of the fact that the software companies are coming after you to get you to switch or pay. They're going to either ask you if the current guy is going to make you want to pay now, and everybody else is going to want to make you switch. So it's a good time to examine, is this the right technology? Did this software fit our firm? Did it, you know, um, does [00:38:30] it have things we don't need? Does it not have things we do need? And consider if this is a time to switch. Because you can make the switch now. And your learning curve that you mentioned, Annie, can be part of working through the extension process.

Roger Harris: You can start learning the new software. You don't want to try to learn the software next filing season.

Annie Schwab: Absolutely not.

Roger Harris: And you certainly don't want to convert because some and that's you make a really important point. Some firms some softwares will convert easily from A to B, [00:39:00] some won't. So You know.

Annie Schwab: Again, consideration.

Roger Harris: Yeah. Because think about all the data that's in your current software that would have to potentially go to a new software and making sure that it all moves smoothly. And then again, the learning curve for your staff, the learning curve for you. But this is a good time to make that evaluation and make sure your staff is part of this evaluation. Yeah, they're probably spending as much time in many offices in [00:39:30] the software, maybe more than you are.

Annie Schwab: Yeah.

Annie Schwab: And that's what you bring up a good point. Your staff, you know, they've been working with the clients, maybe more hands on with the clients than you have. I always encourage, um, the firm owners to talk to their clients about, I'm sorry, talk to their staff about, you know, who are the clients that were not making money on? Who are the ones that are rude to you or drive you crazy, or never return emails or phone calls, or you're always trying to track down information from them? I mean, at some point, you know, a [00:40:00] client evaluation, is this a client that I want? Um, and and if not, then that's a conversation, not a. Oh, you know, ghost them and they'll go find somebody else. I mean, have the conversation. You know, we're no longer a good fit. Um, I, you know, I'm going to give you a disengagement letter. I'll be happy to work with your with your new tax preparer if they, you know, need copies of returns or something. But just because they're a current client doesn't mean that they, you know, [00:40:30] are fit for you. Um, or maybe they're just not profitable. I mean, if you're not making money, then, then why are you working for free on this particular client? So that's talking to your staff about their engagements with the client. Um, and that brings up pricing, too. I always say if you haven't lost a client by raising your prices, then you haven't raised your prices enough.

Annie Schwab: Right, right.

Roger Harris: You got to run at least 1 or 2 off.

Annie Schwab: At least that kind of sets, sets the bar. So go back and see what your pricing is. [00:41:00] Um, there's, uh, if you can do less work and make the same or more amount of money, then you're winning. So I think that should be a goal after tax season. You know, can I raise prices? And if I lose 1 or 2 I'm not actually, you know, making less money than I did before, but I'm doing less work. And that sounds like a win to me.

Roger Harris: Oh it is. And another thing that really kind of drives me crazy when I hear this is, well, why are you taking on new clients? No, I'm [00:41:30] too busy. So think about that. If you have people lined up at your door to use your services and you won't let them in the door, then you better have the perfect client list. Because you're better off in many instances, is to let these new people in because they'll pay your price. They fit your niche market. They're better to work with, and let some of those clients who don't do those things, move [00:42:00] on. I mean, a lot of times people are afraid to get rid of clients because they don't know where the next one's coming from. I don't think that's the case anymore.

Annie Schwab: I don't think that's the case right now. I think people are.

Roger Harris: There's plenty of clients out there that'll fit our little pay, our price.

Annie Schwab: To hire staff, but it's easier to get the clients.

Roger Harris: Yeah.

Roger Harris: So it's a great time to analyze your client list while it's fresh on your mind.

Annie Schwab: Mhm.

Roger Harris: Be fair to the clients. Go ahead and address the issue. I mean there's a lot of ways to [00:42:30] address it. You mentioned one. You just don't fit our profile anymore. So I'm you know I want you to go ahead and find someone else for next year and we'll cooperate in that. The other way to do it is through pricing. You mentioned that you can just go to people and say, I just want to make you aware that our price next tax season will go up by $100, 50%, whatever, and they will naturally move on. In many instances, or if they don't, they're paying you more money. So you win either way. So take [00:43:00] time to really do a deep dive into your customers and your clients. And I would say look hard at the extensions that you have. If they're all because people haven't gotten you information that you know they have, then why do I need those clients? Um, now, if they're on extension because you couldn't get to it, that's not their fault. But analyze clients at this time of year and start thinking and be fair to the clients if you know you don't want them next year. Don't wait till next tax season to tell [00:43:30] them. Give them time to go find someone to take on their, uh, their work and cooperate in that transfer because you're the one that started it, the process.

Roger Harris: So look at technology and we talk about tax software primarily. But I would look at every software you have in your firm.

Annie Schwab: Look at your workflow the processes what what what tech are you utilizing to assist in a particular workflow. You know, how are you getting the information? How are you getting signatures? How are you collecting [00:44:00] data? How are you getting paid? I mean, all of those things are part of a process. And so especially if you think you're the bottleneck as the firm owner, which a lot of times that's the case, you know, how can you make that more efficient. Think about a you know, maybe it's a piece of technology, maybe it's hiring another staff, maybe it's, you know, shuffling people in your firm to different roles to help take things off of your plate. Um, all of that is, is really good [00:44:30] to just kind of evaluate, sit on it, think of, think of where the pain points are, bottlenecks are, and the best way to resolve them.

Roger Harris: Yeah.

Roger Harris: And while you're looking at clients look for extra opportunities for billings. Look at look at situations that came up during the filing season where, uh, maybe Regular meetings that you get paid to to have to plan or [00:45:00] make you aware of certain things. Annie, I'm sure you probably got some examples. I'm kind.

Annie Schwab: I mean, let's just take the, you know, the clients that come in and they have massive balance due with their tax return. And every year it just seems to get bigger. And you keep telling them you either need to adjust your your withholdings or we need to have quarterly meetings and get you set up on estimated tax payments. I mean, those and I guess you could go the other way too. You know, huge refunds. Why are you giving the government your money to hold all year and then waiting for your refund? [00:45:30] Let's look at your W-4. Let's see what we can do to to get that more in line so that we're not having these huge discrepancies in either direction when you file tax returns. Yeah, I think those that's an easy discussion because I don't know, a client that wouldn't say, oh yeah, I want more money in my paycheck or I really like tax season scares me because I always have to write these huge checks. So, you know, those are. Those are good. Um, there's some other ones, too, you know, entity selection. You know, maybe you've got some [00:46:00] schedule C business owners that, you know, have been considering maybe going to be a s, you know, talk to them about what that means, how that that changes how they operate, what that means for them for tax purposes.

Annie Schwab: Um, we've we've honed in on a couple of, um, on a couple of webinars, uh, sorry, podcasts in the past about reasonable salary and what that means and how shareholders get paid versus partners get paid, and when's it a distribution [00:46:30] and when should it be a salary? And so those are all same thing with employees. And 1099, you know, are your clients characterizing their workers correctly. You know, are they treating them as employees when they should be. Um, you know, are they are they issuing the 1099. Are they getting the information they need from these contractors so they can prepare the 1099? All of those are really great discussions. Um, I mean, small business owners need to have those things told [00:47:00] to them periodically so that they are always on the radar. Um, and then they come to you when they need advice or help or see something changing with their business structure.

Roger Harris: Yeah.

Annie Schwab: Um, come to you for for help.

Roger Harris: Yeah.

Roger Harris: And, and in many instances, they're already paying for the cost of these meetings and penalties. So, I mean, there may be people that are paying $800 in estimated tax penalties that they should pay you the $800 and not pay the penalty. It's not going to cost them any more. Plus, [00:47:30] in addition to eliminating the $800 penalty as what you mentioned, you can find tax advantages. You can have discussions.

Roger Harris: So Look at your customer base in terms of business opportunities to create, uh, regular non-tax season meetings to eliminate estimated tax penalties, save taxes, do all these things. A lot of those, like I said, a lot of those dollars that they're paying an estimated tax penalties should be paid to you to avoid those penalties, you know. You know, [00:48:00] if you ask a client, well, you've you're paying a $750 estimated tax penalty. If you would meet with me once a year, wouldn't you rather give me the 750 than the IRS because I might actually save you? Lower your taxes as well. You know, and go through those things. So take the opportunity while it's fresh on your mind, to see where client billing opportunities are, are available. Uh, that help your client. They're not you're not just out there selling.

Annie Schwab: Well, that builds a relationship. [00:48:30] It's more contact with the client throughout the year. You're building more of that trusted advisor, um, role. So it's a win win.

Roger Harris: Yeah.

Roger Harris: So we're after April 15th. We're going to look at our we're going to bring our staff in. We're going to get their input. Because you should also get input on the staff is how did we work together. What did how did we all work? And are there things that we could have changed? How is our communications the way it should be? You know, did we do duplicate work because we didn't communicate properly? And [00:49:00] are we utilizing technology properly? You know, is our software what we need? Is it too much? Is it too little? Is it too expensive? Um. And then look through our clients. Are they the clients we want to keep? Clients we want to get rid of. Client billing opportunities. Do all that now while it's fresh in your mind. And start working today to make next tax season better.

Roger Harris: And easier. Because you know what I'm saying? If you keep doing [00:49:30] the same thing and definition of insanity is doing the same thing and expecting different results. Yeah, your tax season next year is not going to change. Probably going to get worse if you don't make changes. Because number one, God only knows what the IRS situation will be. Uh, what if we get changes that are, you know, applicable to this tax season and tax law? And how are we going to communicate that and do all this sort of stuff. So, um, take some time now to, to look back and talk about what, [00:50:00] what can be done better and do it while you can.

Annie Schwab: Yeah.

Roger Harris: What else do we have before we wrap up?

Annie Schwab: That's all I had for for today. I know, I know, everyone is hopefully enjoying some some family time travel time. The summer's here. I know I'm planning my summer trips. Um, I don't know what you've got planned for your summer, but I'm ready.

Roger Harris: I'm doing a lot of traveling, but it's mostly if you if you are attending some of the IRS forums [00:50:30] Annie mentioned or the Natpe tax, um, you know, we'll be there. Come by.

Annie Schwab: And find.Us.

Roger Harris: Um, we've got some interesting podcasts lined up in the future. Um, so I'll be doing a lot of traveling, I traveling. I think I looked the other day and it's kind of depressing when you look at it. I think I got 8 or 9 flights already booked with Delta for the summer.

Annie Schwab: Delta likes you.

Roger Harris: Yeah i mean, not a single one. I mean, there's some nice places, but not a single one of them's a vacation. So it's it's [00:51:00] all work related. But, uh, that's what the summer is. This is when, you know, we get out and hopefully we'll see a lot of you. I know last year at the forums, we were very excited. A lot of people came up to us and said.

Annie Schwab: Yeah.

Roger Harris: We heard we listened to your podcast. And that makes us that makes us feel good. And we actually did a podcast last year from, uh, from the Dallas Dallas one.

Annie Schwab: Yeah.

Roger Harris: Maybe we'll do that again this year.

Annie Schwab: We'll see.

Annie Schwab: I'll be in New Orleans.

Roger Harris: Yeah. Well, I that's one of the that's one of my flights that's already booked. So so [00:51:30] unless something changes I plan to be there as well. Any last wrap up points for for today?

Annie Schwab: No, I enjoyed this. I'm glad we were able to catch people up on maybe some things that they missed during tax season, and then shed some light on some things that they can do to look forward and make the next tax season even better. So thank you Roger.

Roger Harris: Thank you Annie. And like Annie said, if you haven't gotten away yet, go take some time off. We're gonna go meet your family. Go introduce yourself to your family.

Roger Harris: Um, yeah.

Roger Harris: And thanks to all of you for [00:52:00] listening. And, uh, I hope we do see you this summer at some of the meetings that we'll be at. And I hope you will tell some of your friends to give this podcast a try. You know, let them listen once, and then it's up to us to make them come back after that first one. So. All right. Well, Annie, thank you. Thank you for listening to today's Federal Tax Update podcast. We'll be back with another one here shortly. And, uh, enjoy the summer, everybody.