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20 Jun 2023

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SECURE 2.0 ACT … NEW RULES FOR YOUR 401(K) OR IRA

Dozens of Provisions Intended to Improve Retirement Security

The Secure 2.0 Act was signed into law in late December 2022. The legislation builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 to further strengthen the retirement system—and Americans’ financial readiness for retirement.

Surveys conducted by the Fed report a retirement crisis for many Americans:

only 75% of non-retirees have any retirement savings whatsoever, and
only 40% feel that their retirement savings are on track.

While version 2.0 of the Secure Act introduces over 90 provisions intended to improve retirement outcomes, here are the 5 Key Takeaways.

Expanded access to retirement plans,
Raising the age for Required Minimum Distributions (RMD)
Limiting costs to withdraw funds,
Increasing retirement savings, and
Lost & found database.

Here’s a look at the major provisions of the Act as they relate to the above 5 categories.

Expanded Access to Retirement Plans

Beginning in plan years after December 31, 2024, 401(K) and 403(b) plans will be required to automatically enroll participants at the time they become eligible under the plan provisions. All current 401(K) and 403(b) plans are grandfathered. Note: Employees retain the option to not participate.

Initially the automatic enrollment amount is at minimum 3% and no more than 10%. In subsequent years, the amount increases until it reaches at least 10% but no more than 15%.

Prior to enactment of the Secure 2.0 Act, employers were required to allow part-time workers to participate in the employers’ 401(K) plan once they have attained:

One year of service with 1,000 hours, or
Three consecutive years of at least 500 hours of service each year.

The new rules reduce the three-year minimum to two years effective January 1, 2025.

Raising the Age for Required Minimum Distributions (RMD)

Under the old rules, participants were generally required to begin taking distributions from their retirement plans at age 72. Effective January 1, 2023, the new RMD rules raise the age to 73 … with a further increase to 75 on January 1, 2033.

One benefit of the change may be enjoyed by plan participants who choose to move retirement plan assets to a Roth IRA. The amount converted be taxable. That said, Roth accounts don’t require RMDs during the owner’s lifetime … plus qualified withdrawals down the road are tax-free. That is in stark contrast to traditional 401(K) and IRA plans.

Limiting Costs to Withdraw Funds

Prior to the change in rules, early distributions from tax-advantaged retirement accounts such as 401(k) plans and IRAs are subject to an additional 10% tax. Under the new provision, employees can withdraw emergency expenses from their accounts for “unforeseeable or immediate financial needs relating to personal or family emergency expenses.”

Those emergencies may include withdrawals for:

Domestic abuse victims
Individuals with terminal illness
Qualified disasters

Plan participants are limited to one distribution of up to $1,000 per year and have the option to repay it within three years. No further emergency distributions are allowed during the three-year repayment period unless repayment has been made.

The emergency withdrawal provisions are effective after December 31, 2023.

Increasing Retirement Savings

Saver’s Match: The new rules provide for eligible low-income earners who make contributions to retirement plans to receive a nonrefundable tax credit paid in cash. The credit is equal to 50% of plan contributions, up to $2,000 per individual to be deposited in the taxpayer’s retirement plan account.

The tax credit is effective for tax years beginning after December 31, 2026, and is scheduled to phase out between $41,000 and $71,000 in the case of taxpayers filing a joint return ($20,500 to $35,500 for single taxpayers and married filing separate; $30,750 to $53,250 for head of household filers).

Higher Catch-up Limit for Ages 60-63: Employees who have attained age 50 have been permitted to make catch-up contributions up to $6,500 over and above the basic limits. Now, for tax years beginning after December 31, 2024, the catch-up limit is extended for taxpayers between 60 and 63 years old. The new limits … the greater of $10,000 or 50 percent more than the regular limit in 2025.

IRA Catch-up Limit Indexed for Inflation: The Act indexes the contribution limit for years after 2023.

Retirement Savings Lost & Found

Retirees and plan administrators sometimes lose track of each other’s contact information due to changes in name and/or address. The act mandates the creation of a retirement savings lost-and-found online searchable database to be managed by the Department of Labor. The database is to be established within two years of the date of enactment of the act. The database will allow individuals to search for plans and the contact information of the administrator of any plan in which they are or were a participant or beneficiary.

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20 Jun 2023

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IRS CAUTIONS POST TAX-SEASON SCAMS CONTINUE

Taxpayers, Businesses & Tax Professionals Be Aware

IRS Commissioner Danny Werfel sums up the threat: “Scammers are coming up with new ways all the time to try to steal information from taxpayers. People should be wary and avoid sharing sensitive personal data over the phone, email or social media to avoid getting caught up in these scams. And people should always remember to be wary if a tax deal sounds too good to be true.”

It’s key to observe Werfel’s alert and watch out for these scams throughout the year. While many of these schemes peak as people prepare their tax returns during tax season, fraudsters remain active throughout the year seeking to steal money, personal information, data and more.

Each year, the IRS has been rolling out its list of the Dirty Dozen… a catalog of the most common tax scams, classic cons and sophisticated avoidance schemes to minimize taxes. Here’s the Dirty Dozen” summary for 2023. Click on the link for more detail on any of the following.

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30 May 2023

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BACKLASH BY STAKEHOLDERS TO NEW 1099-K REPORTING

The IRS Listened and Postponed Implementation

Let’s start with some history and definition of the issues. IRS Form 1099-K is an information form typically provided to freelancers or small business owners who receive payments of income from a client via a third-party payment system. Third-party settlement organizations generally include banks or other organizations (e.g., Venmo, PayPal, or Cash App) that process credit card transactions on behalf of a merchant and make an interbank transfer of funds to the merchant from a customer … often identified as self-employment income.

Prior to passage of the American Rescue Plan Act (ARPA) of 2021, third-party settlement organizations were not required to file Form 1099-K to payees with 200 or fewer transactions during the calendar year with aggregate payments of $20,000 or less. The ARPA amended the minimum payment amount to $600, for one or more transactions beginning in 2022.

Apparently, this revision was prompted by the convenience of Venmo, PayPal, or Cash App which resulted in many individuals paying personal expenses as well as payments associated with goods and services with these apps.

Unless the account or payment is designated as personal, it will trigger a reporting requirement if the annual amount exceeds $600. The person receiving the funds could receive a Form 1099-K, and the IRS will expect to see that income reported on his or her tax return. Payments incorrectly classified as business (goods or services) will trigger a Form 1099-K as well.

The new $600 minimum triggered widespread criticism. Lowering the threshold from $20,000 to $600 substantially increases the number of Forms 1099-K that will be issued. Additionally, the revision lacked clear guidance from the IRS which generated more taxpayer confusion. Those concerns coupled with the existing IRS backlog and impact on the upcoming filing season caused stakeholders to urge the IRS to postpone the implementation of the new reporting requirements.

Happily, The IRS responded in Notice 2023-10 to delay lowering the threshold for Form 1099-K reporting by a year. The $20,000 and 200 transactions thresholds remain in place through December 31, 2023.

The IRS emphasized the lower reporting threshold (any number of transactions totaling $600) remains in effect for calendar years starting after December 31, 2022. This one-year delay does not apply to any of the other Form 1099-K rules not modified by the ARPA.

Taxpayers should continue to track and report their taxable income from all sources electronic and others. When using electronic payment systems, such as PayPal, Venmo, and Cash App, make sure personal payments like gifts or reimbursements to friends are properly classified as an amount paid for something other than goods or services.

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30 May 2023

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AGGRESSIVE EMPLOYEE RETENTION CREDIT PROMOTERS

Business Owners & Managers Be Careful!

You may be planning to apply for the Employee Retention Credit … tax credit that could add up to a maximum credit of $26,000 per employee. Perhaps you already have done so.

You’re aware of, and perhaps responded to, solicitations by third-party advisers urging business owners to engage them to navigate the shoals of applying for the Employee Retention Credit (ERC). Typically an added inducement is the promise of no up-front fees … just a share of the credit your company receives from the IRS.

In this year’s annual Dirty Dozen summary, the IRS posted the following:

Employee Retention Credit claims

Taxpayers should be aware of aggressive pitches from scammers who promote large refunds related to the Employee Retention Credit (ERC). The warning follows blatant attempts by promoters to con ineligible people to claim the credit. The IRS highlighted these schemes from promoters who have been blasting ads on radio and the internet touting refunds involving Employee Retention Credits. These promotions can be based on inaccurate information related to eligibility for and computation of the credit. Additionally, some of these advertisements exist solely to collect the taxpayer’s personally identifiable information in exchange for false promises. The scammers then use the information to conduct identity theft.

In this article, we offer a summary of the ERC requirements and benefits. Additionally, we’ll share some cautionary thoughts for those of you who are contemplating or have already enlisted the services of a third-party ERC adviser.

What is the ERC?

The ERC is a refundable payroll tax credit rewarding businesses that continued to pay employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020 to Dec. 31, 2021.

The credit may be as much as $5,000 per employee in 2020 and up to $7,000 per employee per quarter (for the first three quarters) in 2021. That could add up to a maximum credit of $26,000 per employee.

Eligible employers can claim the ERC on an original or adjusted employment tax return for a period within those dates.

Employer Eligibility: An employer is eligible for the ERC if it:

Sustained a full or partial suspension of operations limiting commerce, travel or group meetings due to COVID-19 and orders from an appropriate governmental authority or,
Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021 or,
Qualified in the third or fourth quarters of 2021 as a recovery startup business.

Click here for more detail on each of the above eligibility requirements.

Filing Deadlines: Employers have until April 15, 2024, to file Form 941-X for the eligible quarters in 2020; and until April 15, 2025, for eligible quarters in 2021.

Note: Wages reported as payroll costs for PPP loan forgiveness or certain other tax credits can’t be claimed for the ERC in any tax period.

Employers … Be Careful!

Third-party advisers are typically new operations put together to capitalize on the preparation of ERC applications for employers. Lack of experience along with aggressive marketing often results in improper advice regarding employer eligibility and computing the amount of credit claimed.

Employers must become aware of the risks associated with engaging third-party promoters. Here are four critical concerns to be addressed:

Often, third-party advisers do not make it clear to employers that they will need to amend their business’s federal income tax return for the corresponding period because any payroll taxes used in the computation of the credit are no longer deductible.
Receipt of the refund from the IRS does not preclude the agency from examining the employment tax return and disallowing the credit. Employers are always responsible for the accuracy of the information reported on their tax returns. Improperly claiming the ERC could result in repayment of the credit, plus penalties and interest.
Employers that have received the ERC may be an audit target given the anticipated expansion of new IRS agent hires.
In the event the IRS disallows the ERC claim, fees paid to third-party companies may not be refundable.

Employers Considering Engaging a Third-party Adviser

Here are performance criteria to help evaluate the value a prospective adviser brings to the strength of your company’s ERC qualifications, filing efforts and subsequent follow-up.

At your request, a legitimate capable adviser will:

Describe its history as tax advisers including whether the practice is exclusively devoted to ERC claims.
Detail their policy to provide audit defense plus refund fees if all or part of the ERC claim does not survive an IRS audit.
Not claim a high IRS audit success rate as the IRS audit program is so new that success claims are meaningless.
Demonstrate a solid understanding of the facts and circumstances of your business operations before the pandemic as well as during each quarter of the pandemic … with special attention to the wage limits during the first three quarters of 2021?
Prepare a written account of the specific state or local governmental orders your business was subject to and a description of the impact of each on your business operations.
Review with you any circumstances pertinent to your ERC claim where the IRS guidance regarding ERC eligibility is unclear and that the adviser’s interpretation may prompt scrutiny by the IRS.
Not present a sense of urgency for you to act by asserting the available funding for ERC claims is fast being depleted. Not so! See above for filing claims deadlines.
Make it clear to you that qualified wages applied in ERC computations are no longer deductible on your business income tax return?

Employers Who Already Engaged a Third-party Adviser and Filed an ERC Claim

If you now have second thoughts about the advice that led up to your ERC claim filing, your best next step is to seek counsel from an independent tax adviser to review the merits of your claim and the adequacy of your documentation.

If your independent review results in the recommendation to amend or withdraw your ERC filing (Form 941-X), you may be able to sidestep interest and penalties … along with the time, expense and stress of an IRS audit.

Alternatively, if your independent review delivers written opinion that your claim has a solid foundation based on relevant ERC tax law … at the very least you will be able to demonstrate your intent to honestly pursue support of your claim with appropriate facts.

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13 Feb 2023

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IRS PROMISES A SMOOTHER 2023 TAX SEASON

That’s In Contrast to the Challenges of the Last 2 Years

If you weren’t frustrated and inconvenienced by inefficiency in responses by the IRS, certainly you know one or more taxpayers who have … or heard of the considerable backlog in unprocessed returns and unissued refunds for the past two tax years. According to the U.S. Government Accountability Office, “Partly as a result of the COVID-19 pandemic, IRS has faced significant return processing backlogs and a decline in customer service since 2020”.

That said, the IRS is projecting less frustration for both taxpayers and the Agency this tax season. There is evidence that operational improvements have been in the works for months and were implemented effective with the official opening of the 2023 tax filing season on Monday January 23.

In a statement by acting IRS Commissioner Doug O’Donnell, “This filing season is the first to benefit the IRS and our nation’s tax system from multi-year funding in the Inflation Reduction Act. We’ve trained thousands of new employees to answer phones and help people. While much work remains after several difficult years, we expect people to experience improvements this tax season.”

So, the expectation is this year should be a better experience for taxpayers, with the IRS having:

Received additional funding,
Added 5,000 customer service representatives to help answer phones and provide other services,
Reduced a large backlog of tax returns that handicapped the agency.

The IRS has cautioned taxpayers with the following: Many different factors can affect the timing of a refund after the IRS receives a return. Although the IRS issues most refunds in less than 21 days, the IRS cautions taxpayers not to rely on receiving a 2022 federal tax refund by a certain date, especially when making major purchases or paying bills.

Now let’s put these predictions in perspective from the viewpoints of both the National Taxpayer Advocate and the Director of the Professional Managers Association, representing IRS managers and non-bargaining unit employees.

Keep in mind that choosing the standard mileage rate is optional. Taxpayers retain the alternative to calculate the actual costs of operating their vehicle if it has been used for business more than 50% of the time. That said, the standard rate generally must be used in the first year the car is operated for business use as described above. In subsequent years, either the standard mileage rate or itemized expenses may be preferred.

National Taxpayer Advocate (NTA)

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. Its stated purpose is to ensure that every taxpayer is treated fairly and understands their rights. TAS staff advocates are prepared to help taxpayers to deal with otherwise unresolved tax problems.

The National Taxpayer Advocate reports to Congress annually on the prior tax year’s challenges at the IRS … including recommendations to remedy any problem issues. In her report, Advocate Erin Collins presents two contrasting observations.

“The bad news is that taxpayers and tax professionals experienced more misery in 2022.”
“The good news is that since the close of the 2022 filing season, the IRS has made considerable progress in reducing the volume of unprocessed returns and correspondence.”

As evidence of the second point above, the IRS has slashed its 2022 unprocessed backlog of 4.7 million individual returns, 3.2 million business returns and 3.6 million amended returns … down to roughly 400,000 individual returns and about 1 million business returns.

Given this progress, the report finds the IRS is “poised to start the 2023 filing season in a stronger position.” With that optimism, Collins also cautions that improvements won’t happen immediately. “As employees are trained and report for duty, I expect we will start to see improvements in service, probably by the middle of 2023.”

In summary, Collins wrote, “We have begun to see the light at the end of the tunnel. I am just not sure how much further we have to travel before we see sunlight.”

Professional Managers Association (PMA)

Chad Hooper is Executive Director of the PMA. He commented on the conclusions presented in the NTA report to Congress.

“The latest National Taxpayer Advocate report underscores the importance of consistent dedicated funding for the IRS. In the last year, the IRS has leveraged additional funding and new authorities to reduce the backlog and onboard new staff. These improvements make a real difference for taxpayers and set the nation up for a less stressful filing season.

Still, it will take more than one year to rebound the IRS from a decade of budget cuts and staff reductions. We urge Congress to heed the progress that has been made and continue rebuilding the IRS’s capacity to serve taxpayers.”

We are less than a month into the period that 2022 tax returns were accepted for processing
So, let’s see what happens between now and the tax filing deadline of Tuesday, April 18.

16 Jan 2023

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IRS BOOSTS MILEAGE RATE BY NEARLY 5%

Vehicles Used for Business Qualify for Tax Savings of 65.5 Cents Per Mile

Tax Break for taxpayers who drive an automobile, van, pickup or panel truck for business, charitable, medical or moving purposes.

Effective January 1, 2023, taxpayer-drivers who fit the above profile enjoy a 3 cents bump in the mileage rate … up from the 62.5 cents midyear increase in 2022. The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile … clearly more expensive in recent months.

Here’s a quick summary of the expanded IRS provisions:

65.5 cents per mile driven for business use.
22 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces.
14 cents per mile driven in service of charitable organizations … unchanged from 2022.

Notably, the new mileage rates apply to qualifying vehicles regardless of how they are powered … gasoline, diesel, electric and hybrid … all good-to-go.

Note: Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.

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19 Dec 2022

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GET READY FOR TAX-TIME!

Learn About 4 Changes and 8 ‘To-Do’ Actions

Here we are in the closing days of December 2022. In addition to enjoying the Holiday Season, it’s also an excellent time to get ready to visit with your tax-preparer to make year-end, tax savings decisions. Your objectives: lower your tax bill and boost your retirement savings.

In this issue, we’ll start with a recap of changes in the tax code that may affect you, followed by a checklist to prepare for a smooth tax season.

4 Changes that Affect 2022 Federal Tax Returns

If you received third party payments in tax year 2022 for goods and services that exceeded $600, expect to receive your Form1099-K by January 31,2023.
The following tax credits will return to 2019 levels … reduced from tax year 2021 … Child Tax Credit; Earned Income Tax Credit and Child & Dependent Care Credit. Affected taxpayers will receive a significantly smaller refund.
If you file your taxes taking a standard deduction, you may not take an above-the-line deduction for charitable donations.
For tax year 2022, the American Rescue Plan Act of 2021 temporarily expanded eligibility for the Premium Tax Credit by eliminating the rule that a taxpayer with household income above 400% of the federal poverty line cannot qualify for a premium tax credit.

Tax-time 8-Item ‘To-Do’ List

Paycheck Checkup: Make sure the right amount of tax is withheld from your earnings. If not, you need to submit a new Form W-4, Employee’s Withholding Certificate to your employer. All taxpayers should check, but especially those who fit the following profiles:

Are a two-income family or someone with multiple jobs
Work a seasonal job or only work part of the year
Claim the child tax credit
Have dependents age 17 or older
Itemized your deductions in previous tax years
Have high income or a complex tax return
Had a large tax refund last year
Had a tax bill last year
Received unemployment at any time during the year
Experienced a significant life-changing event, e.g., marriage, childbirth, adoption, home purchase.

A quick way to make sure you are having the right amount of tax taken out of your pay is to use the IRS Tax Withholding Estimator. It will help you to lessen year-end tax bills or estimate your refund.

Important! If you have a substantial portion of income not subject to withholding, (e.g., self-employed, investors, retirees, those with interest, dividends, capital gains, alimony, and rental income), you may need to pay quarterly installments of estimated tax.

2. Unemployment Compensation: You may be one of millions of Americans currently receiving unemployment compensation … or did so earlier this year. If that’s the case, it’s important for you to know that the IRS considers unemployment benefits as taxable income.

Withholding is voluntary. That said, you may choose to have a flat 10 percent withheld from your benefits to cover all or part of your tax liability. To do that, fill out Form W-4V, Voluntary Withholding Request (PDF) and give it to the agency paying the benefits. Do not send it to the IRS. If the payor has its own withholding request form, use that form instead.

If you don’t choose voluntary withholding, or if the withholding isn’t enough, you can make quarterly estimated tax payments. Fourth quarter 2022 payments will be due on January 17, 2023.

As an unemployment benefit recipient, expect to receive a Form 1099-G, Certain Government Payments (PDF) from the agency paying the benefits. The form will show the amount of unemployment compensation you received during 2022 as well as any federal income tax withheld. This information, along with your W-2 income, will be included in your 2022 federal tax return.

Note: Unlike some other states, the Commonwealth of Virginia does not tax unemployment earnings.

3. Other Types of Payments to Check for Withholding: The IRS urges taxpayer to check the following sources of payments to check for withholding:

Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund
Railroad unemployment compensation benefits
Disability benefits paid as a substitute for unemployment compensation

4. Investment Gains/Losses: If you own stocks, bonds, mutual funds or other investments … check with your investment advisor to determine any realized gains or losses that may affect your tax status.

5. Make your charitable contributions … before the end of the year to ensure your deduction.

6. Remember your RMDs if you are 72 years of age or older: Your required minimum distribution (RMD) must be withdrawn before December 31. Failure to do so may result in a 50% penalty. RMDs are applicable to the following retirement plans: Traditional IRAs, Simplified Employee Pension (SEP) IRAs, Rollover IRAs, most 401(k) and 403(b) plans, as well as most small business accounts.

7. Check if you have contributed to tax-advantaged accounts: Contributions to Health Savings Accounts, IRAs, 401(k)s and 529 Plans provide significant tax savings. Important: Be aware of deadlines to contribute as they vary depending on the plan.

8. You may want to consider a Roth conversion: You and your tax advisor/preparer may decide to convert your existing IRA to a Roth IRA. The deadline to do so is December 30, not December 31.

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20 Sep 2022

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INFLATION REDUCTION ACT

Key Tax Provisions … a Summary

The Inflation Reduction Act, was signed into law on Aug. 16. It includes numerous tax provisions that relate to both businesses and individuals … including clean-energy-related tax incentives, and expanded funding for IRS enforcement.

This month’s article offers a summary outline of key provisions of the Act.

Business

Individuals

Internal Revenue Service

The foregoing outlines key provisions of the Inflation Reduction Act as it applies primarily to small businesses and individuals. There are many other provisions that apply to larger entities that are renewable energy oriented and measures to address potential climate change issues.

For more on how the above applies to your circumstances,
be sure to give Pearson & Co a call or drop an email. We’ll respond immediately

20 Jul 2022

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AVOID TAX SCAM VICTIMHOOD

IRS Annual List of Tax Scams –Taxpayers Beware in 2022!

Compiled annually for more than 20 years, the Dirty Dozen lists a variety of common scams that taxpayers can encounter anytime. The IRS identifies problematic transactions through taxpayer examinations, promoter investigations, whistleblower claims, data analytics, document matching, and marketing material review.

The objective of the agency is to raise awareness of threats by fraudsters to steal money and personal information from honest taxpayers.

The IRS warns taxpayers to be aware of these scams aimed at fleecing innocent victims. This year’s list is divided into five groups outlined below. The IRS reminds taxpayers to watch out for and avoid advertised schemes, many of which are now promoted online, that promise tax savings that are too good to be true and will cause taxpayers to legally compromise themselves.

“Taxpayers should stop and think twice before including these questionable arrangements on their tax returns,” said IRS Commissioner Chuck Rettig. “Taxpayers are legally responsible for what’s on their return, not a promoter making promises and charging high fees. Taxpayers can help stop these arrangements by relying on reputable tax professionals they know they can trust.”

Note: The following is not intended as a complete description of each scam … just a heads-up to alert taxpayers when solicited to engage in certain tax avoidance schemes. Click here for in-depth detail.

1) Potentially Abusive Relationships

The 2022 Dirty Dozen begins with four abusive transactions that involve charitable remainder annuity trusts, Maltese individual retirement arrangements, foreign captive insurance, and monetized installment sales.

Use of Charitable Remainder Annuity Trust (CRAT) to Eliminate Taxable Gain.
Maltese (or Other Foreign) Pension Arrangements Misusing Treaty.
Puerto Rican and Other Foreign Captive Insurance.
Monetized Installment Sales.

2) Pandemic-related Scams

Taxpayers are still at risk from criminals who continue to use the COVID-19 pandemic to steal people’s money. Taxpayers should be alert to potential fake emails, phone calls or texts seeking your personal information. Note: The IRS will never initiate contact with taxpayers via email about a tax bill or refund.

Likely alerts to scams:

Tax refund frauds;
Unemployment fraud resulting in inaccurate filing of 1099-G forms
Fake employment offers
Fake charities seeking contributions.

3) Offer In-compromise “Mills”

Offer in Compromise or OIC “mills,” typically appear in local advertising heralding how they can settle a person’s tax debt for a fraction of what’s owed … for a fee of course. Often, the reality is that taxpayers could have worked directly with the IRS at no additional cost.

4) Suspicious Communications

Suspicious communications are crafted to trick or scare the recipient to respond before thinking … referred to as “phishing”. Phishing is the fraudulent practice of sending communications purporting to be from reputable companies to induce individuals to reveal sensitive personal financial information, money, passwords, Social Security numbers and more. The fraudsters’ intent is to use this information to file false tax returns and tap into financial accounts, among other schemes.

Four common phishing communication vehicles are:

emails
social media posts
phone calls
text messages

5) Spear Phishing Attacks

Spear phishing frauds are known to target specific individuals as well as distinct groups. As described in 4) above, the bad guys’ intent is to steal taxpayer data and identities to file fraudulent tax returns for refunds. Virtually any type of business or organization may be subject to a tailored spear phishing attack. Again, be highly skeptical of communications requesting your financial or personal information.

Take a look at this report of a recent spear phishing email sent to tax preparers. The IRS logo was prominently displayed along with a variety of subject lines such as “Action Required: Your account has now been put on hold”. The objective of the communication was to steal tax professionals’ software preparation credentials. Unwary recipients who clicked on a link were sent to a website requesting the tax preparer’s account credentials thus revealing sensitive client information.

If any of the foregoing seems unclear as to how it applies to your specific circumstances, please keep in mind that Pearson & Co. will help.
Give us a call or drop an email. We’ll respond immediately.

20 Jul 2022

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2 ENHANCED TAX BREAKS APPLY FOR REST OF THIS YEAR

Meal Deductions Extended & Mileage Rates Increased

The Internal Revenue Service has announced two tax savings benefits … the extension of the 100% deduction for the cost of business-related food and beverages purchased from a restaurant plus an increase in the allowable mileage rate deduction. Learn more below.

Enhanced Business Meal Deduction – Here’s What Businesses Need to Know

Beginning in 2021, businesses are permitted to deduct the full cost of business-related food and beverages purchased from a restaurant. That enhanced deduction is continued for tax year 2022 … a sizable increase in tax savings from the usual limit – 50% of the cost of qualifying meals.

Here are the qualification requirements to benefit from the enhanced deduction:

The business owner or an employee of the business must be present when food or beverages are
Meals must be from restaurants, which includes businesses that prepare and sell food or beverages to retail customers for immediate on-premises or off-premises consumption.
The cost of the meal can include taxes and tips.
The cost of transportation to and from the meal isn’t part of the cost of a business meal.
Payment or billing for the food and beverages occurs after December 31, 2020, and before January 1, 2023
The expense cannot be lavish or extravagant. An expense isn’t considered lavish or extravagant if it is reasonable based on the facts and circumstances. Meal expenses won’t be disallowed merely because they are more than a fixed dollar amount or because the meals take place at deluxe restaurants, hotels, or resorts.

Note: Grocery stores, convenience stores and other businesses that mostly sell pre-packaged goods not for immediate consumption, do not qualify as restaurants. The same holds true for employer-operated eating facilities, even if they operate under contract by a third party.

Business owners may be able to deduct the costs of meals and beverages provided during an entertainment event if either of these apply:

the purchase of the food and beverages occurs separately from the entertainment
the cost of the food and beverages is separate from the cost of the entertainment on one or more bills, invoices, or receipts.

Mileage Rate Increased

Effective July 1, the standard mileage rate for the final 6 months of 2022 has been increased by 4 cents per mile to 62.5 cents per mile. Likewise, the new rate for deductible medical or moving expenses (available for active-duty members of the military) is increased by 4 cents to 22 cents for the remainder of this year.

“The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices,” said IRS Commissioner Chuck Rettig. “We are aware a number of unusual factors have come into play involving fuel costs, and we are taking this special step to help taxpayers, businesses and others who use this rate.”

Additionally, other items comprise the calculation of mileage rates as well … such as depreciation, insurance and various fixed and variable costs.

Midyear increases in the optional mileage rates are rare. The last time the IRS made such an increase was in 2011.

Note: For travel from January 1 through June 30, 2022,
taxpayers should use the rates set forth in Notice 2022-03 PDF.

See the chart below for a quick reference to the increases described above.

For more on how these tax breaks apply to your specific circumstances,
be sure to give Pearson & Co a call or drop an email. We’ll respond immediately.

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