There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.
Roger Harris: Hello again everyone. It's time for another federal tax update podcast. This is Roger Harris and I am joined, as always by Annie Schwab. Annie. Good. I guess it's still morning for you.
Annie Schwab: It's still morning for me. But I'm glad to be here. Happy to be here. We've got tax season on its way. I feel like the month of February [00:00:30] has flown by already. But here we are.
Roger Harris: Yeah, yeah. This is, uh, we're recording this in, uh, February, a little after Valentine's Day. And, uh, if you're watching the news, you're seeing a lot of activity happening in DC, some that impact us, some that are just interesting to us. Um, and we're going to touch on some of that, give you a little behind the scenes to some of the stuff you're hearing in Washington, as well as talk a little bit about just tax season in general and some things that are going [00:01:00] on. And, um, it's definitely interesting times. Annie in Washington.
Annie Schwab: Never a dull moment, right?
Roger Harris: No. Every you never know from one day to the next what what we're going to hear or who got fired or who.
Annie Schwab: Yeah. That's true. Who's getting fired? What bills are getting passed, who's in trouble? Who's coming in? Who's going out? Um, I guess you can never, never a dull moment, but that keeps job security for us, right?
Roger Harris: Yeah. Well, yeah, and it certainly keeps questions. You mentioned bills. I mean, you know, we've talked before [00:01:30] about, you know, how is this all tax reform tax bill thing going to happen. And I think we mentioned there's the possibility of a single bill versus two bills and. Right. It appears that the House and the Senate are going in different directions right now. The House is trying to put together one bill, and the Senate is working on the first of two bills. Correct. All of that's got to be worked out and who knows when.
Annie Schwab: Yeah, and there's just so many different topics [00:02:00] that need to be addressed. You know, it's between immigration and energy and defense. And then you've also got, you know, tax reform and including, you know, Salt and R&D and child tax credit. 1099 sorry. 199. A deductions, those are still on the table, things that have been talking about for over a year now.
Roger Harris: So what's interesting is and we all probably heard about Doge, and we'll talk a little bit about it as it relates to the IRS. But you're now even hearing the tax reform come into the discussion [00:02:30] of Doge, and that you're hearing the Democrats say that all of this money they're trying to find and save is, according to the Democrats, being found. So they can then give tax cuts to the rich. So whether it you know, I guess taxes are always being talked about regardless of what it is. But we don't have any details about what's in the bill yet. I mean, we're still trying to figure out the process, like I said, one bill versus two. Who goes first? House. Senate. [00:03:00] Um, we are going to be faced with, uh, I believe it's March the 14th of government funding runs out.
Annie Schwab: Yes. Yes.
Roger Harris: So that's going to offer some opportunities, perhaps to tag some things we'll talk about later to that bill. Uh, because there's no way they're getting tax reform done by March the 14th.
Annie Schwab: I agree on that.
Roger Harris: Yeah. I think what the House is trying to do is and again, some of this you've heard us talk about, but it's helpful to kind of remind you this is all being [00:03:30] done under something called reconciliation. So they can get around the Senate filibuster. And the first step of that is putting a dollar amount to the bill. And I think that's what the House has tried to do, is to come up with how much money this one big bill will allow them to spend. And then you get into how do you spend it? What do you offset it with and costs and and, uh, we're not going to have that done. So we're going to be forced to extend the spending levels. If you remember, Trump tried [00:04:00] to get that done. What happened in DC? I remember before he was even president, there was some bill he was trying to get.
Annie Schwab: He was trying to.
Roger Harris: Get limit raised or something.
Annie Schwab: But it didn't happen. It didn't happen. No, it didn't happen. And to get one big bill as they refer to it, I mean, I don't I don't foresee that happening even by the summer. There's just so much if you're going to put everything into a single bill, I just think it's going to take so long. And I think that's why the Senate is proposing, you know, let's let's get something done in the first bill [00:04:30] and then maybe, you know, keep the the most controversial items for the end. But either way, I don't you're right. I don't think anything will happen before March 14th. Yeah.
Roger Harris: And in March we'll get to see because the government's going to run out of money. So we'll have to do something then. And we're going to talk about some, some interesting things that have been proposed, you know, that that bill may give the opportunity. Because here's one thing, and I'm probably repeating myself later, it's very hard to get a bill passed in Washington now. [00:05:00] So you're going to put all your efforts into this 1 or 2 big bills. And so everybody's going to take their little bill and try to.
Annie Schwab: Get it in, stick.
Roger Harris: It with one of the big.
Annie Schwab: Bills, hide it in there somewhere.
Roger Harris: Yeah. And get it through that way. So when we talk about these other bills don't look for them to pass. Now it's possible that they could pass by themselves if there's just complete agreement between House Republicans and House Democrats and Senate Republicans and Senate Democrats and the white House, if [00:05:30] it was something that was I mean, I guess if you said, you know, let's still celebrate the 4th of July, we might could get that bill passed, you know, because if somebody would oppose it. But, you know, but it would have such bipartisan support, it could stand on its own. But typically they have to find another bill to stick it to. So that March 14th deadline might present an opportunity for some of the things we're going to talk about. But. Right, I guess, Annie, we should talk a little bit about, uh, because it's just in the news [00:06:00] again, Doge, the government, uh, the agency that Elon Musk is heading up looking for, spending, uh, has showed up at the IRS.
Annie Schwab: Oh, absolutely. And we this has been something that I've been watching very closely, actually, because we spent all this time at the IRS forums, um, just, you know, months ago, and there were all these booths about hiring for the IRS and, you know, apply right here. And these are the positions available. And so as we saw the hiring go [00:06:30] up, we've now learned that all the new hires over the past, I don't know if it's exactly 12 months, but, um, no longer have a job. And those that originally took Trump's, um, buyout offer, the deadline has been put on hold. And now they're they're encouraging these workers who were previously going to take the buyout to stay through the end of tax season and actually until May.
Roger Harris: Right.
Annie Schwab: So there's a lot of fluctuation there. Some some people are out. Some [00:07:00] people are having to stay. I mean, it's it's a difficult place to work.
Roger Harris: Yeah it's tough. And I feel sorry because you mentioned, you know, we were at the forums last year and we actually knew some of the IRS people that were running hiring events. And, you know, you're making offers to to a lot of young people looking for their first job, who I guess had choices between taking the IRS job and taking something else. They chose the IRS job, and now they're being let go because, you know, unfortunately, they're all being looped [00:07:30] in or thrown into that pot of like the 84,000 armed agents we keep hearing about. Yeah. So all hiring is bad. But yeah, everybody, I think, with less than one year of service has been told they no longer have a job. Now that you may not feel that a lot, because most of those people were probably still being trained to training speed, but down the road will feel it.
Annie Schwab: Absolutely. And the ones that took the buyout for early retirement, you know, I'm sure their [00:08:00] work ethic right now is not the best because they take the deal and then they get told that, oh no, you can't take the deal. You have to stay and work through May. So I hope I don't get one of those people on the phone. I'm sure they're not the happiest of campers working at the IRS right now.
Roger Harris: And there is a concern. I've talked to a couple of IRS executives, and I think there is a genuine concern because none of them really know where this is going to end in terms of how much, how deep will the [00:08:30] cuts go in terms of people, what kind of money will they get? The one interesting thing is there does seem to be at least bipartisan, and I think even in the white House agree that the IRS is technology needs modernization.
Annie Schwab: And we've been hearing that for years. And even though they have.
Roger Harris: Made.
Annie Schwab: Strides. It is true, and they made great improvements. But it's still, you know, you're still below the bar. Yeah.
Roger Harris: So you may see money going to technology or modernization, but at what expense does that mean to the [00:09:00] people? And a lot of the the experienced people who have met their retirement eligibility, if things get too crazy, they may just they just leave. In fact, I'm not that anybody cares, but I'm going Thursday afternoon to a retirement party for one of the IRS executives who's been, you know, with the service for years. And when you start seeing people of that caliber and that experience leave, I hope at some point we all wake up and realize [00:09:30] we do need a functioning IRS for a tax system, and they're easy to jump on and pile on and criticize and blame and all those sorts of things. But at some point, if we're going to have a voluntary tax system, Somebody has got to collect the tax, somebody has got to put out the rules, somebody has got to enforcement. I mean, all those things have to be done. You know, you can't just say, get rid of the IRS. I mean, you can't you can say that, but practically you [00:10:00] can't do it. So it's it's some really, really interesting times. And, and, uh, I was there about a month ago and there were some genuine concern. And given what's happened in the last month, I can't imagine it's anything but worse. And we also, you know, we're still waiting to find out about the new commissioner. I think we've all right, mentioned his name. And, you know Danny Long or his first name. Right. Danny Werfel is the current commissioner. Right. Um, but Mr. [00:10:30] Long, who is a congressman, has been nominated for the position of new commissioner. Uh, interestingly, though, there's no hearings yet, right? I know, for his confirmation, so I don't know what that means. Uh, it may mean nothing.
Annie Schwab: I like Danny Werfel's letter though. His the letter he put out. It was very heartfelt.
Roger Harris: Yeah, hopefully I'll see. Hopefully he's going to the retirement party. Oh, nice chance to find out what he's doing. Yeah. Now that he's retired because he'll be in, he won't have any trouble finding work.
Annie Schwab: No, of course not. [00:11:00]
Roger Harris: Um, but he may just want to take some time off. Being commissioner is tough, but it's going to be interesting to see again. Uh, we have a new commissioner that has been nominated. Um, no hearing has been set. There's contradictory reports. You can imagine any job like IRS commissioner or secretary of X, Y and Z. There's a massive amount of paperwork that has to be submitted before any hearing. And at one point, none of the paperwork had been submitted. I've since heard that some of it may be submitted, [00:11:30] so I don't know if it's just this isn't important. There's an acting commissioner and Doug O'Donnell, and the IRS has operated with acting commissioners for years. So this is nothing.
Annie Schwab: Doesn't seem so urgent, I don't know. Maybe it's just not top priority or.
Roger Harris: Yeah. So, anyhow, interesting times at the IRS. Uh, we need a good, functioning agency. I'm sure, like any other agency and any other company for that matter, there's things they can do better. There's probably money [00:12:00] that is being wasted. But, you know, let's let's make sure we don't throw the baby out with the bathwater, as they say. And yeah, let's try to get it right. What about beneficial ownership? I guess that's just gone away now. Nothing else to talk about.
Annie Schwab: Oh, man. No, it's always there. It's always just sitting, waiting for. For something new. The beneficial owner, as you recall, was set to go and has since been placed on hold. There's been various lawsuits. Um, there's [00:12:30] been injunctions. There's been. I mean, basically, there is a current delay, um, for the beneficial owner reporting the deadline for businesses to report the information was delayed until January of 26, but that's just what stands at the moment. I feel as though any day I could open my computer and there would be something new on BOE. It fluctuates. I want to say nearly daily. There's something. There's some talk. There's something proposed there. I [00:13:00] was giving remarks. The Senate, the House. Um, although FinCEN is pretty quiet, they did come out and make a statement. I want to say early, late January, early February. But other than that, I haven't heard too much from FinCEN.
Roger Harris: Yeah. It seems, you know, we've had we've had an opening for a few days and then another court. So, I mean, so right now we've got a court ruling that is keeping everything shut down. Right. But the first interesting change was the new administration [00:13:30] did appeal the injunction. So. Correct. The Trump administration has said that they don't think the injunction is warranted, which we all wondered whether a new administration would be aggressive in it. So they are doing that. The point that you just made, Andy, FinCEN came out and said, well, when we win the court case or get the injunction removed, we're going to give everybody 30 days to catch up.
Annie Schwab: 30 days in the middle of the tax season.
Roger Harris: Middle of the tax season is.
Annie Schwab: Crazy. It's crazy.
Roger Harris: Crazy. [00:14:00] So you know now that puts everybody in. Well we need if if you're going to do that don't do it with a 30 day window. Right now the house did pass. It's unanimous. Now I'll explain what that means. A bill that would delay the enforcement of the FinCEN for certain businesses, only businesses that were in existence before January of last year. We don't know what happens to the other ones.
Annie Schwab: But to the new ones. Right?
Roger Harris: Yeah, but for them, they would get [00:14:30] an extension until January 1st of next year. It passed unanimously in the House. Now, that doesn't mean all 435 people came in and raised their hand and voted for it. It was one of those things that said, all in favor, say aye. Aye, aye. Opposed? No. And that's it. It's gone to the Senate. There is a comparable bill in the Senate now by Senator Scott. But here again, does that mean it's going to get go anywhere. Does that mean it'll get tacked.
Annie Schwab: On to something bigger or go on its own. How does it move forward or.
Roger Harris: Can [00:15:00] it move forward? But we're kind of between a race now between what happens first, a bill to put a permanent extension on the deadline, which will take congressional action or the court's ruling and removing the injunction. So here's the problem. If the courts move first and Congress waits 60 days to pass the bill and we only had a 30 day window, it's going to be irrelevant because we've already had to do everything.
Annie Schwab: It's going to be chaos is what it's going to be.
Roger Harris: So [00:15:30] we're having to watch what's going on and see who goes first. Congress. Uh. The courts. Does FinCEN then recognize there's a bill in the House and maybe one in the Senate and say, all right, we're not going to go 30 days. We're going to give you six months. Does the administration wake up and go, wait a minute, why are we appealing this? You know, it's just a very fluid situation. So any I guess we're still giving our offices the same advice as to what to do in these crazy times. Maybe [00:16:00] more importantly, because as you mentioned, we're in tax.
Annie Schwab: Tax season. I know I don't I don't think the tax preparers can can handle much more with a 30 day window is nothing. No not I mean in.
Roger Harris: March or April.
Annie Schwab: Yeah.
Roger Harris: Come on. So so again we're saying the same thing we've always said once all this craziness started happening, continue to gather the information necessary.
Annie Schwab: Inform, keep informing people and getting the word out.
Roger Harris: Then be ready [00:16:30] if you have to to act.
Annie Schwab: Yeah. Hurry up and wait. Yeah, hurry up and wait.
Roger Harris: I think the only thing that is consistent that I think we can take a message from here, is the repeal that beneficial ownership is getting no traction. Correct. Everybody seems to think we need it. We're just trying to buy some time to make it better. Uh, but there are, I say, nobody. There are certain bills out there that say, just [00:17:00] repeal it. Heal it. Right. But that doesn't seem to be getting any traction. This again, this extension got a, quote, unanimous vote. So I think we're going to have some sort of mentorship beneficial ownership reporting. I hope we get the rest of the year to work on it and make it better and more viable, but we're all just kind of still waiting. Still waiting.
Annie Schwab: I hope we can just wait until after April 15th and then have something.
Roger Harris: But please don't. [00:17:30] 30 days in the middle of tax season is like, that's about as blind an understanding of what the first of all, who these businesses are going to turn to for their help, and a complete lack of recognition of what these advisors are doing right now, right now, to ask them to stop everything.
Annie Schwab: And the penalties are so high they will have to, you know, return for an extension. Because now we got to go to focus on boy.
Roger Harris: And if history repeats itself after we stop everything [00:18:00] we're doing work a week on doing boy, another court will rule and knock it down again. So we need some certainty. We need some reasonableness. But that's been the case all along with boy. So we'll keep monitoring. We'll keep talking to you.
Annie Schwab: Yeah, we'll keep you posted. Hey, everyone, it's Annie. I'm popping in here because we have new information. Since the date that Roger and I originally recorded this. As of February 18th, the boy reporting requirement is now effective [00:18:30] again. There was an alert released by FinCEN the day after, on the 19th of February, and the new filing deadline for the vast majority of reporting companies is now going to be March 21st. So that was a 30 day extension from February 18th. And so now, if you are currently required to file by your deadline is March 21st. I say that with a small caveat here. Fincen did come out [00:19:00] and say that they will be assessing options to further modify deadlines for low risk filers. However, when we would get that. How long it's going to take them to assess that is still unknown. So as of today, as of you're listening to me here on the 21st of February, the deadline for boy filing is March 21st. And now back to the episode.
Roger Harris: Well, let's go ahead and knock out [00:19:30] the other thing we have to talk about everyone. Anything new on employee retention credit?
Annie Schwab: The disallowance letters are still going out. I still I'm still hearing from our offices that clients are getting you know, we've received your information. We need another 30 days. We need another 60 days to process. So it's really slow moving. And unfortunately, we still have that whole dilemma of the statute of limitation associated with this.
Roger Harris: So and some checks as you mentioned are being sent out again. They are. Yeah. [00:20:00] And there there are some bills out there telling the IRS to send more checks out, which seems odd when we're still working with fraud. But one of the bills that was proposed, I saw something today again, not that it's got any way to pass that it doesn't directly relate to IRC, but it captures IRC. It talks about all the pandemic related credits to extend the statute from 5 to 10 years so that they have time, as [00:20:30] they say, to catch the bad guys. Right.
Annie Schwab: So do the audits and do the numbers crunching and the statistical stuff to see if there's something that they can identify as, as needing attention. I should say.
Roger Harris: Yeah. Now all I've seen is, is that that's the extent of what I've seen.
Annie Schwab: And it's just proposed.
Roger Harris: So it's not it's proposed, you know, does it deal with the fact that what do we do about people who got the money and have an amended returns and not statutes running out? You know, we're all as practitioners sitting around trying to figure out what to do with legitimate claims [00:21:00] that were paid. Do we, in some instances the statute has already run out on could be ending those returns. Some it's about to run out. The service keeps telling us they're going to give us some information on what to do. And it's it's obviously not simple because we still don't have it. Have it. Right now, I don't know if this bill again, I just saw a summary that focused on the bad actors and putting them out. But maybe it addresses that. But so IRC is going to stay in the news. It's in the news. I don't think it's ever going to go away. [00:21:30] I've decided it's going to be a while with me the rest of my life, whether I want it to be or not. Um, and I hope we learn from our mistakes on creating easy money. Yes, this easily. Annie, let's talk about something that is real this year for the first time. Uh, well. Well, part of it's new for the first time.
Annie Schwab: A little bit a little bit new. A little bit.
Roger Harris: A little bit old. A little bit old. Okay, you got me, uh, 1099 reporting. We're seeing [00:22:00] forms actually come out for the first time. Uh, yes.
Annie Schwab: And it's been multiple years of conversations. This it was originally slated in 2022. I believe that this reporting threshold would be significantly lower all the way down to $600. Um, not there yet, but. 1090 1099 K reporting is the things that you you report payments for goods or services that you get. And the most common thing that you think debit cards and credit [00:22:30] cards that that is common. But what's also really common is all the payment apps. So like Venmo and PayPal and Cash Zelle, all of these payment apps have to report a form, a 1099 K form to the IRS, indicating the amount of the transactions. And that threshold for having to file this form was proposed to be $600 in 2022. And it's it's been kicked down, kicked down, kicked down. We are currently [00:23:00] for this year at 5000. There was 20,000 at some point. But um, but the following year we are expecting the the 2026 to be the 600 regardless because of so much talk for so many years, a lot of the payment apps were preparing. They had to they had to get their systems in order in order to meet the mandate to complete the 1099 K and submit it to the taxpayer and to the IRS that many of them had already established their systems. [00:23:30]
Annie Schwab: And so while it wasn't mandatory in previous years, it is this year and the forms are going out. And so what we're dealing with now is you do get legitimate 1099 K forms for payments for goods or services that are very much business related, get reported, let's say on schedule C or maybe schedule E for a rental property on the personal tax return. But you're also seeing 1099 K's being sent [00:24:00] out for personal payments. So I'll give you an example. Um, you know, you're sharing the cost of a ride in Uber. And so you Uber, your friend or somebody picks up the bill at dinner and then, you know, five other people send them 50 bucks. Uh, or, you know, I don't know about y'all, but I never go to the bank to cash checks, you know, holiday gifts and birthdays and all kinds of stuff. It just pops up in my, my Zelle or my Cash App or Venmo.
Roger Harris: Yeah, or Venmo or yard sale or concert tickets.
Annie Schwab: Facebook [00:24:30] Marketplace, all of these, all of these things that pop up in the app. Well, the apps, although some of them are starting to have the ability where you can mark it as non-business payment, but some of them don't and the app doesn't know what it's for. So the app, the you know, you're just getting these these reports. So the confusing part is what to do with the form when you get it. Um, like I said, if it's, you know, for business a schedule C or schedule [00:25:00] E, that's that's pretty straightforward. That's pretty straightforward. You know, it's just.
Roger Harris: Like the old credit card reporting, like you mentioned before that businesses were getting these forms before. Right. It should be included in the gross receipts that you probably already had. Right.
Annie Schwab: Um, but it's more of those, like sale of personal items. Transactions. Now look. A sale of a personal item has a gain on the sale of a personal item. I should say has always been taxable and should be reported. It's probably been overlooked [00:25:30] because, you know, I lost money on it. I don't have any. The IRS doesn't really know about it, and it just never really ended up on on the tax returns. But, um, you know, in, in theory, a gain on the sale of a personal item is taxable. Unfortunately, a sale of a personal item that results in a loss. The loss is disallowed, but that doesn't affect the reporting of it. And that's what's what's going to be eye opening this year, is that it sort of was just pushed to the wayside unless [00:26:00] there was a gain. Sometimes even the gain ignored. But this year the reporting of the sale, whether a gain or a loss, is very clear. And the FAQs from the IRS and I mean to the point clear where on the line. How do you get it there? How does it flow from the 89? 49 to schedule D to the to the report on the 1040. So just to if there's anything you take away from the conversation for 1099 [00:26:30] reporting is you're going to see more of it. When you get 1089 kHz. You need to talk to your clients about it. Let them know, okay, this is reportable. Is it the loss of nondeductible? Is there a gain? And then if you know whatever software you're using, you've got to figure out how to get it on the specific lines that the IRS has indicated. And there's many examples in in the FAQs. There's, you know, enter, you know, [00:27:00] the letter L and column F of this and that and then enter the Nondeductible here. And so it's pretty specific. Now navigating your tax software might be, you know.
Roger Harris: Figuring out how the software wants you to enter it. But right now a pretty good pretty good instructions.
Annie Schwab: I agree, I agree. So that's going to be some not not technically new, but something that you may you're probably going to see more of this year and probably need to have those conversations with your client. Why are you getting it? What [00:27:30] does this mean? You know, why is it being shown on this form? I've never had a schedule D before or something like that, but.
Roger Harris: Well, and if somebody walks in with a ten, 99 K for like $45,000 and they know what they're doing, you might want to look back to the previous years as well, because to Annie's point, this has always been taxable. If you made a profit. Right. And you know, if it's I don't know. Well, first of all, if it's $5,000, that's I don't know. I guess depending on what you're selling it could be significant. But you know, [00:28:00] they just showed up with it this year because they got a form that's probably wasn't the first year they did it.
Annie Schwab: Right. Right. And it is important to know that a single online transaction needs to be reported as that transaction. So let's just say you have two sets of tickets. I don't know, to a baseball game or something, a some sporting event. And you, you sold them for $1,000 and one set was $800 and the other set was 200. [00:28:30] So you got $1,000, but you sold these tickets for 800, and you sold these tickets for 200. Well, if you purchased the tickets for 250, there's one transaction of a gain and one transaction of a loss, and those are not combined or netted together. So that's that is a little tricky. And there it is specifically stated in the FAQs with an example of tickets sold and and that kind [00:29:00] of stuff. So just keep in mind that it might be worth revisiting the FAQs if you're not 100% sure how to report that, especially if there's multiple transactions. Multiple sales, throughout the year.
Roger Harris: Yeah. And you make a good point that the one thing you're going to have to make sure your clients understand is usually if you bought tickets, let's say you bought season tickets and you paid $5,000 for them and you sold ten of them for a gain, you can't say, well, I bought $5,000 [00:29:30] worth of tickets and only sold ten. It's a ticket, buy ticket or transaction by transaction. The same thing would hold true for clothes or whatever. You can't say, well, I sold $5,000 worth of clothes, but I bought 20,000. Well, you still have to go back to what's the basis of the item that you sold. And and losses don't offset gains unless you're in business, which I you know, most people aren't in business, so it's a little tricky. And clients are not clients are going to just tell you I didn't make money [00:30:00] off. Well, I didn't make any money because they're thinking of the losses that they had or what else they bought. But that's just not the way it works. You got to go back and dig into the individual transaction. And again, the IRS is going to get blamed for this. This is a bill Congress passed. They set the $600 limit. The IRS has been the one that has kept the limit above. And actually, one of the bills that got introduced the other day is criticizing them for doing that. Well. Just think of the criticism they would have got if they'd have gone at 600 [00:30:30] and let it start when it was going to start.
Annie Schwab: They have I mean, they have, you know, stair stepped it so that the merchants can, can get their systems in order and the taxpayers can know. So and the FAQs are really good. So this is not you know, this is not oh we don't know what's happening boy situation. You know this is pretty cut and clear now. Yeah.
Roger Harris: And and again if Congress doesn't act it will drop to 600 next year and 2026. See a lot more of them. Yeah. And [00:31:00] we'll just need to be prepared for how to deal with them. So if you haven't seen one yet, you probably will go refresh your, your memory. And, uh, again, the IRS has done their job, and maybe Congress will help us out and make this. I just hope we don't get it down to 600 because that's going to catch. We're going to get so.
Annie Schwab: Many, so many, so.
Roger Harris: Many 1099 if that's the.
Annie Schwab: Case, I don't know what the right number is. But no, I don't think it was 20. I don't think it's 600. No.
Roger Harris: Well, they pulled 600 out of [00:31:30] the air because that's what it was for non-employee compensation. But those are two completely different. Different I mean but that's typical, you know, hey, we already got this number. Let's just use it here. Well worked.
Annie Schwab: For that. Worked for this. So.
Roger Harris: House filing season going. We're we're sitting here we're I guess what about a month in. Uh yeah.
Annie Schwab: Just a few weeks in. I did go look at some stats. Of course. The stats just ran through January 31st. Um, it appears that there are fewer number of returns [00:32:00] being received and processed compared to last year. Um, and there's a decrease in, in e-filing. Maybe it's delays in forms, maybe it's who knows what it could be, but could.
Roger Harris: Be timing.
Annie Schwab: Could be timing. There's however, the ones that have been processed. The refunds are up. So that's good I guess. You know, the takeaway is there there are fewer returns being filed, but those who are who are filing are getting refunds and they're seeing the [00:32:30] refunds in larger amounts. Um, so that's I mean, it's so early in the tax season, I don't know how representative that is of of what to expect over the next couple of months. But I did want to just send those send those few things to you. Um, you know, as always.
Roger Harris: We can determine a trend yet because it is early. Yeah, but who knows? I mean, so far everything I've read, you know, tax season I guess is, is normal [00:33:00] if that's the right term and, you know, if there is.
Annie Schwab: A normal.
Roger Harris: Whatever. Yeah. Whatever that means. I mean, we don't have last minute legislation that we're waiting on critical forms. I mean, we still have massive form delays and things like that, but but it's not because Congress threw some bill up on December the 15th, you know, that required a new form.
Annie Schwab: No. All I mean, every tax, every software's processing the state forms and, and, you know, approving the forms. So there's, you know, as a reminder, [00:33:30] check, check whatever software you're using, check to see when the forms are going to be ready to e-file. Make sure that you're checking your e-file rejections and correcting them timely check. Oh, this is a good one. Check your effin and your P10 accounts. It's not going to be perfect if you think you filed 100 returns and you go in to your account and it says 5000. That's a red flag. There's we've seen before where the effin and the P10 number count of returns filed is a really good [00:34:00] indicator if perhaps something identity theft or there's been some sort of fraud associated with the filing. So, you know, put that on your radar, too. It's really.
Roger Harris: And watch for scam scammers this time of year, particularly as you get busier and get tired and, you know, maybe don't pay as much attention to stuff as you should, they're going to kind of try to scam you. It's going to be an interesting year to watch. Irs customer service because with everything [00:34:30] that's going on, um, cutting employees, firing employees, redirecting employees to the service lines, how, you know, it's going to be interesting to see what the at the end of this tax season, what the perception is of how good a job did the IRS do and how does that impact their future.
Annie Schwab: I totally agree with you. And they've made some improvements. Like we we are encouraging all of our offices to encourage their clients [00:35:00] to set up the IP pins for security reasons, and set up the online IRS accounts, both for individuals and now the business side is open. But at some point, I mean, you've got to have people answering the phone that can help you. You have to have timely processed returns. You have to have notices going out that are being addressed timely. And I'm curious to see how it goes this year.
Roger Harris: Because, you know, historically, the IRS has taken resources away from other things and shifted it over [00:35:30] to answering the phone or doing filing season activities so that because that's what got measured. And the old saying is you get what you measure. So if you're going to measure answering the phone, if you're smart, you'll answer the phone. Now something else may not get done right. You'll answer the phone. So how are the I'll use Doge, I'll use Congress, I'll use the administration. What are they going to use as the measuring stick for whether the IRS did a good job, [00:36:00] Did a poor job. Needs more money. Needs less money. Needs more people. Needs less people. Um.
Annie Schwab: And I don't know.
Roger Harris: We're going to have to see the filing season because they've already said we're going to keep people around until May 15th. Well, what are they going to make the judgment on on May 15th as to.
Annie Schwab: As to why they need to be gone? Why can they be gone? Do we need to hire?
Roger Harris: Do we need to hire? I mean, it's easy. You know, the IRS is such an easy punching bag. It's just really easy to [00:36:30] blame them. Now, they've already transferred some of their agents to the border. Uh, some of the criminal people. So, you know, so, you know, at some point you got to let them do their job or just go ahead and admit we're going to keep you as our punching bag and.
Annie Schwab: You know, status quo. Hopefully we don't just keep the status quo.
Roger Harris: So but I'm hoping the IRS is going to go to work as hard as they can this year, because I think they know they're being watched.
Annie Schwab: Mhm. You're right, you're right. [00:37:00] Yeah I see that.
Roger Harris: One of the fun things that happens during tax season is we always get asked crazy questions about, do I have to pay tax on that or can I deduct that. So we kind of thought it'd be interesting to go through some of the common things that are legitimate questions. And then, you know, maybe viewers or listeners, if you have any of the craziest ones you've heard, send them to us and let us know, because I'm amazed at some of the things we get asked. But, Annie, let's go through a few of the common things that clients [00:37:30] will ask us. Let's start by is it taxable? You know, is this income I have to report? Let's go through a couple of them. You probably know all the answers to this, but this is kind of be a little lighthearted and, uh, a little fun. See if any of these things are new to you. Hope they're not.
Annie Schwab: Sure, sure. Uh, so, like gifts? Um, when someone gives you gifts, whether they're big gifts or little gifts, um, generally those gifts are not taxable to the recipient, the person receiving them. But those larger [00:38:00] dollar gifts could exceed what's called the gift tax threshold. And the person giving the gift could see a gift tax consequence. So as far as your 1040 reporting, the you know, the receipt of a gift does not get reported as taxable income on your tax return.
Roger Harris: But we always get the question, hey, my uncle died and I got $25,000 in cash. How much tax do I owe?
Annie Schwab: And that is true.
Roger Harris: And it's one of the answers that you love to give because it's like [00:38:30] you don't have to pay any. It's the one time people smile when they come to see us that we tell them, you don't have to pay any of that. That's that's just free money.
Annie Schwab: Yeah. Now I will tell you that I do get, you know, the, the lot like, well, if I was going to win the lottery or a raffle or even like a contest, um, the lottery I think people understand is taxable because when you're hearing it on the news, you know, the after tax benefit of this, you know, $5 million pot of money, that kind of thing. But even those, you know, raffles [00:39:00] or contests or little things like that, those are technically taxable. So yeah, that's another one.
Roger Harris: Well, and the other one that I love, when people say, well, I didn't get any money, I swapped something for it. So, you know, if they barter you know, does that make it tax free.
Annie Schwab: It does. No, not tax free. It makes it taxable taxable taxable at the value of those goods. So it's like well I mean I didn't get any money. Why am I paying tax on you know X and it's. Well the fair market value of those goods or [00:39:30] that service may be taxable if you're doing it in an exchange for something else. Right.
Roger Harris: You know, now the answer to this one might change. But what if what about tips.
Annie Schwab: Currently tips are gratuities tips those kinds of things. Hospitality delivery personal services a lot of that, you know, your hair lady your your housekeeper, your the pizza delivery guy. Technically, those are supposed to be reported as taxable. Um, we have heard that [00:40:00] tips may be removed from being taxable. That was part of the Trump campaign, but for this year, those are included in income.
Roger Harris: Yep. Yep. Somebody just slips you a 20. You put it on your tax return.
Annie Schwab: Okay. Well how about this one though. What if you're walking down the street and you find $100 bill laying there?
Roger Harris: Yeah. Yeah, just. Yeah. Just all of a sudden, you look down, there's $100 bill.
Annie Schwab: It's your lucky day.
Roger Harris: Your lucky day. Now, first of all, you're not going to get a 1099. [00:40:30]
Annie Schwab: No, no, nobody's.
Roger Harris: Going to know about it.
Annie Schwab: No.
Roger Harris: Does that make it tax free?
Annie Schwab: No, it does not. It is taxable. Yeah. So that one that one I'm going to give a 50 over 50 chance that someone even mentions that.
Roger Harris: Well if it's $100 I would give it a zero chance. If it was a 100,000, they might say, look.
Annie Schwab: I gotta tell.
Roger Harris: You something here.
Annie Schwab: Yeah? What do you.
Roger Harris: Think I should do? Um, the interesting thing is when people say. But I didn't get a form. Do I have to [00:41:00] report it? Uh, yeah. Well, you know, taxable and nontaxable ain't got nothing to do with forms. No, it's got something to do with who knows about it, but that's different than whether it's taxable or nontaxable. Uh, what if I go on a game show and I'm on, uh, what's the show?
Annie Schwab: Wheel of Fortune or Wheel of Fortune.
Roger Harris: You know, and I win a a trip. I win a trip around the world worth $200,000. [00:41:30]
Annie Schwab: Right, right. I mean, the short answer is yes, those prizes are taxable. But the more important part is that it's the fair market value of those prizes that must be reported. So if the game show people are saying you've won a trip around the world worth, you know, $250,000 and then you as the taxpayer or whatever, you're like, this thing is not worth $250,000. That was the game show people trying to promote this fancy trip. And [00:42:00] really, if I were to go do this on my own, the fair market value of what they're giving me is $100,000. So that is it is common for those types of, you know, you win a cruise valued at blah, blah, blah. A lot of time that promoted value is not actually the fair market value. Yeah.
Roger Harris: And there is a process by which you because you'll get a 1099 for that.
Annie Schwab: For that. Yes.
Roger Harris: So you walk in and you go I got this 1099 for $250,000. But I went online and I could have taken the same trip for 100,000. [00:42:30] Yeah. There is a process by which you can reduce the 1099 value. So if you have somebody who got lucky enough to go on, you know, Wheel of Fortune or Price Is Right or whatever.
Annie Schwab: Any of those.
Roger Harris: Yeah, one of those shows and, you know, don't you don't have to take the 1099 at face value.
Annie Schwab: Face value.
Roger Harris: There can be some, uh, some offsets there. All right, let's move to the to the other side.
Annie Schwab: This side? Yeah.
Roger Harris: What can I deduct? So, um, some it's [00:43:00] obvious, some are statutory. I mean, child support payments and alimony are different than they used to be.
Annie Schwab: Right? Right. Um, you know, your tickets fines, like a parking ticket. I was, I parked, you know, and got a ticket, and that's not going to be deductible. It's not even deductible if it was for penalties. And tickets are not deductible, even for business, uh, personal loans. A lot of times I'll. I have had this. I loaned my brother or I loaned my son, you know, this particular [00:43:30] thing. And even if it's part of a, like, a fundraiser, um, then. Yeah, those types of things are not are not. Yeah. And contributions.
Roger Harris: You know, I got a family next door that, you know, times are tough. So I gave him $1,000. Is that a charitable donation.
Annie Schwab: Mhm.
Roger Harris: Uh, you know, there's a lot of things in the charity area. There's, there's uh, the one I like is, you know, from the business clients, we get a lot of discussion about what is [00:44:00] a bad debt.
Annie Schwab: Oh yes. That is actually and personal bad debt versus business bad debt right is treated different method of.
Roger Harris: Accounting cash versus accrual.
Annie Schwab: That is true. That is true. Um so personal bad debt is is not going to be a deductible expense business. Bad debt could qualify as a deductible expense. Um, yeah. We get and we get a lot of the, you know, is this considered medical, like gym memberships, health clubs, fancy [00:44:30] clothes, new hairdos, those kinds, those kinds of things. And in general, I mean, I'm not going to say you couldn't find one in there, but in general, most of that stuff is is not deductible. Health clubs, gym membership, um, those types of things.
Roger Harris: Yeah. When you get into medical, you really got to look and see what's what. You know, did a doctor prescribe it for some reason? You know, something other than, you know, but just know just joining a health club, even though it's for your own health doesn't make it deductible. Deductible.
Annie Schwab: And [00:45:00] I see all the time. Teeth whitening, you know, um, facials, massages, nails, all of those types of cosmetic things are not, um, medical marijuana is not regardless of whether it is legal in that state, weight loss programs. That's another one that we see, you know, um, very popular. Uh, what else what else do we have? I mean.
Roger Harris: We get asked a lot about, you know, funeral expenses when someone dies.
Annie Schwab: Um.
Roger Harris: Just [00:45:30] because you have to pay them doesn't mean they're deductible.
Annie Schwab: Yeah. Divorce expenses, legal fees for child custody, divorce, all that stuff. Not pleasant, but it is also not deductible.
Roger Harris: Doesn't make it deductible.
Annie Schwab: Or is your dog. Let's, let's let's cover that one. Your dog is not a dependent.
Roger Harris: No, they may be. You know, I did have. You know, I guess you get into some some gray areas with, uh, what are they called? Service animals. Service animals? Yes. One interesting one [00:46:00] that I saw once in a business is, you know, I looked at it and we had dog food and dogs, and I'm going. What the what? It was a junkyard. I said, what is this? But they actually had dogs that roamed the junkyard at night to keep people. It was their security system.
Annie Schwab: Right, right.
Roger Harris: This was a while back before you could actually have a security system. But, you know, it was a couple of mean dogs, and, you know, it was part of their security system, and they never were pets. They never went home. They I think the owners were scared of the dogs [00:46:30] as the burglars. So yeah, they came to work. They just put them in a kennel until they left. So, uh, you know, anything you can always make in business? Ordinary, necessary argument. Now, is it ordinary and necessary to have a dog, you know, guarding your thing? Maybe in a junkyard it is. Maybe in a junkyard? Yeah. Probably not. Going to work in a nail salon. Yeah.
Annie Schwab: Yeah, I.
Roger Harris: Don't think so either. But, you know, so there's. It's ordinary necessary, and you get some. But, you know, it's always amazing of what you hear every [00:47:00] year. I'm trying to think if there's anything else, but, you know, if you've got some interesting stuff that you came up with, and particularly if you claim something crazy and got away with it in an audit.
Annie Schwab: Let us know. I want to hear.
Roger Harris: That story because, I mean, some of the stuff you you here you go. I never thought that would happen, but. Yeah, yeah, there you go.
Annie Schwab: It's kind of fun, you know? And you never know. Most of the the nondeductible and the nontaxable things stay the same from year to year. But like, tips, tips. That's something on the table. Social security benefits, something on the table.
Roger Harris: On [00:47:30] the table.
Annie Schwab: Yeah. So you never know. We might see some casualty losses. Um, those seem to to fluctuate depending on whether it was a declared disaster area versus not. So there's there's always something.
Roger Harris: And to the extent that we just talked about what could happen. Um, I just love Congress and how they.
Annie Schwab: What do you have in your back pocket?
Roger Harris: I mean, they just, you know, they feel like they have to do something because they got elected. So there was an article that [00:48:00] came out today. Now, again, these are all bills. We may never see the end of it all proposed.
Annie Schwab: Right.
Roger Harris: Yeah. But and I love the way they name bills. So I found one today that is called the tax relief unleashed for seniors by Trump Act.
Annie Schwab: Mhm.
Roger Harris: Now it's named that because if you take the first letter of all of that it spells trust. Trust.
Annie Schwab: Very cool.
Roger Harris: Tax relief unleashed for seniors by Trump. I [00:48:30] don't know where that comes from. But now this is the beginning. What this does is the starting of the tax free Social Security. They're trying to bump up the amount that you know currently you get over a certain threshold and then 80 up to 85% taxable. So they're trying to raise that threshold and index it for inflation. So they came up with a cute little name for for that. We've already mentioned that the the statute of limitations extension for CARES act is one. Um I [00:49:00] didn't know this was a big problem, but it's the recovery of stolen checks act.
Annie Schwab: Who's writing checks.
Roger Harris: I don't know. Well, no, this is an IRS check. Gets mailed to somebody and it gets stolen. Evidently, if they steal the first check, the proper way for that to be resolved is them to send you a second check, which evidently is also getting stolen. So they're creating the ability for that duplicate or replacement check to be [00:49:30] deposited directly. I don't maybe I don't know why he didn't do that with the first check, but there you go. But we now have the Recovery of Stolen Checks Act that has been proposed. Um, what else do we have here? Like I said, I'm just we go to Washington for, you know, we fight all this time to get elected to do this stuff. Another one. This has been out there for years. It's just that this is a definitely a depending on what side of the aisle you're on. Uh, there's 46 [00:50:00] Senate Republicans who have reintroduced the Death Tax Repeal Repeal Act, which would just eliminate the estate tax, the estate. You know, we've heard that one before.
Annie Schwab: Uh, there was a there was a time when it was. Yeah, we had.
Roger Harris: We had one year that. Yeah.
Annie Schwab: Remember telling people die, die.
Roger Harris: Die. Now there's no estate tax. You know, grandpa's sick. Don't let them hang on to half past December 31st. Um, no, because you might owe something. There's a couple of them that [00:50:30] are actually probably good. Uh, there's one bill. You know, we all get math error notices from tax returns. Uh, there's a bill now that would require the IRS to do a better job explaining the bill.
Annie Schwab: I like that one.
Roger Harris: And would give you more time to respond to it, so I like that. That probably makes some sense. This one. You know, uh, I again, I don't maybe I just never had the problem, but it's what's it called? Oh, they want to apply [00:51:00] the mailbox rule to electronic payments. You know, that's the mailbox rule. Yeah. You know, if you mail something and it gets postmarked, it doesn't matter when the IRS receives it. Evidently, there's an issue where electronic payments and communications aren't being tracked.
Annie Schwab: But instantly.
Roger Harris: Sent versus when they're received. So this would would make it apply the same way to an electronic payment than it does to something mailed. I guess I've just never experienced a gap in, uh, [00:51:30] sending an electronic payment and it not being credited immediately. Uh, and it gets drug out in real time. Well, so those are all some bills that are floating around in Congress right now. That's what you voted for, for people to go up there and do stuff like that. You know, instead of trying to actually balance a budget and have functioning agencies. So we'll see how all that goes. And like I said, I guess, um, it's going to be an interesting tax season. Yep. [00:52:00]
Annie Schwab: I think I think we'll have some good interesting reporting stories, whether it's boy or what's what, what's happening with the budget, this one big bill, this multiple bills. Uh, so we'll of course, we'll bring it to you. We'll, we'll be back with another one.
Roger Harris: So I'm convinced, as I said earlier, we're going to be talking about BOE and ERC as long as we're doing these podcasts, because there's there's always a twist and a turn. Throw in tax reform. That's got [00:52:30] to happen. Throw When a new administration. Elon Musk. Doge. Uh, I didn't know. I didn't realize, you know, Doge was actually started by Obama. I didn't realize that. I just I.
Annie Schwab: Don't think I knew.
Roger Harris: That. Yeah, I heard that yesterday or today. No, it wasn't for necessarily the same thing, but it's not a new thing. I don't think it stood for the same thing that it does now. But there was a Doge before Elon Musk. So like I said, it's going to be an interesting tax year. Uh, [00:53:00] new legislation, new president, new secretary of treasury, new commissioner. We're having this discussion, and it's not even a month that we've got a new administration yet. So it's we're going to have a lot of interesting things to talk about.
Annie Schwab: Yeah, we'll be back with it though for sure.
Roger Harris: Yeah. Any anything else before we wrap up today?
Annie Schwab: No, no, just keep working. Keep listening, keep watching. Uh, we'll we'll be back with more updates, breaking news, all the things you need to know. So. [00:53:30]
Roger Harris: Yeah, send us your stories. Send us any topics you would like us to address. Um. Thank you. For those that are listening, we're hearing more and more about people who are listening, and we really appreciate that. And, uh, we're trying to make this informative and interesting and not too boring at the same time. So hopefully we're accomplishing at least one of those.
Annie Schwab: That's that's true. That's true. But that's all I've got for today, Roger.
Roger Harris: All right. Well, Annie, thank you as always. Thank you for all you do to put this together. [00:54:00]
Annie Schwab: My pleasure.
Roger Harris: Thanks to all of you for listening. And if you enjoyed today's podcast, tell your friends about it. Tell them to join us and we'll be back in a few weeks with another federal tax update podcast. Good luck during tax season and we'll talk to you again soon.
Annie Schwab: Thank you.
Roger Harris: Bye, everybody.
