Federal Tax Updates

Tax professionals must steer through a complex maelstrom during the 2024 filing season. Roger and Annie serve as experienced guides, helping listeners chart a course around hazards like the Employee Retention Credit squalls, the revised "economic realities" path for worker classification under new Department of Labor rules, and proposed tax law changes including an enhanced Child Tax Credit and R&D deduction restart. With their steady hands on the bridge, preparers can safely navigate these choppy waters.

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  • (00:00) - Welcome to Federal Tax Updates
  • (01:27) - Diving Into the Filing Season & Tax Updates
  • (12:42) - The IRS Perspective on Employee Classification
  • (17:20) - Navigating Section 530 Relief for Misclassification
  • (24:17) - The ERC Voluntary Program: A Lifeline for Businesses
  • (27:20) - The Future of ERC and Legislative Impacts
  • (31:01) - Navigating Tax Repayment and IRS Policies
  • (32:36) - Legislative Updates and Tax Season Insights
  • (36:32) - The Future of Tax Laws and Political Implications
  • (40:15) - Understanding Beneficial Ownership Reporting
  • (47:31) - Dealing with 1099K Forms and Client Advisories
  • (52:08) - Embracing Digital Shifts in Tax Documentation
  • (53:30) - Thanks for Listening and Parting Thoughts

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The full transcript for this episode is available by clicking on the Transcript tab at the top of this page

All content from this podcast by SmallBizPros, Inc. DBA PADGETT BUSINESS SERVICES is intended for informational purposes only.

Creators & Guests

Annie Schwab, CPA
Franchisee Operations Manager at Padgett Business Services
Roger Harris, EA
President at Padgett Business Services

What is Federal Tax Updates?

CPAs, Enrolled Agents, and Tax Preparers can keep up-to-date with the latest federal tax information while earning NASBA approved CPE credits and IRS approved CE credits by listening to the bi-weekly Federal Tax Updates podcast. The hosts Roger Harris and Annie Schwab have over 75 years of tax experience between them, which has been featured in various media outlets including Wall Street Journal, USA Today, The Morning Business Report, Bloomberg Business News, and Accounting Today.

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

Roger Harris: Hello again, everybody. This is Roger Harris along with Annie Schwab, and we are back for another federal tax update podcast. Annie, how are you today?

Annie Schwab: I'm doing pretty good. I'm, uh, knee deep in taxes, but other than that, I'm doing good.

Roger Harris: So, yeah, it's it's the start of another filing season. It's cold [00:00:30] outside in most places, so at least it's not sunny and warm during tax season. So you want to be outside and at least we're inside. Um, we're going to jump kind of all over the board today and talk about things that aren't necessarily taxes, but they influence some of you more than others in terms of what you should talk to your clients about. And, um. Some new, some new twist, some reminders. Uh, [00:01:00] if you're coming into this podcast looking for us to talk about code sections and revenue procedures and things like that, you're probably at the wrong podcast. But these are things that are important and things that you may see and you wonder, well, what does that mean? You know, what does that mean to me? And and we're going to start by one that has been a problem. I don't know if it's not a tax problem in the sense that we deal with it on a tax [00:01:30] return. But if you do anything with businesses, it's a huge issue and has been one for as long as I've been in it. That's the whole idea of who's an employee and who's an independent contractor. And Annie, something came out, I guess it was this week. Yeah. And it wasn't from the IRS?

Annie Schwab: No, no. Very beginning of February, um, the Department of Labor actually came out, um, with, [00:02:00] with an update, I guess you could say it's called the they're going back to what's called the new economic reality test. And so they've put out their factors, let's say categories, um, that help someone determine whether or not a specific worker should be considered an employee or should be considered a independent contractor. And it matters, right? It matters because if you are an employee, then you are, you know, you have overtime and there [00:02:30] are certain wage minimums that have to be handled and.

Roger Harris: Benefits that may have to be paid.

Annie Schwab: Tax withholding rules associated with it. And unfortunately, we've got workers that are remote. We've got workers that, you know, drive all over the place. Multiple offices live in other states. I mean, Covid really affected sort of the dynamic of what maybe a typical office would look like. Um, however, the the rules associated from the Department [00:03:00] of Labor, um, do require you to take consideration. And so they've updated I think there were, there were four tests before and now there are six. So, you know, it's an opportunity for a profit or loss worker. You know, if a worker has a vested interest, you know, what's what's the right way to classify them for payroll purposes, which then affects how they pay tax. Right. Independent contractors are subject to self-employment [00:03:30] tax. Uh, you know, a W-2 employee is not. So that down the road, if you kick the can down the road, what's happening up here at the Department of Labor does trickle down into what we see. Tax, you know, tax wise. And of course the Department of Labor has their category, so to say, which is similar but not exact to the way that the IRS tells you to categorize an employee versus an independent contractor, which.

Roger Harris: Probably makes everybody wonder, well, [00:04:00] wait a minute, why do I care what the Department of Labor says? I'm more worried about the IRS and what they say over here, and yet they're not saying the same things necessarily. So who do I follow and why am I getting this conflicting information? So I'll let Annie go into some more details. But but let me try to answer that question. Department of labor sets rules. Um, well, first of all, let's understand the Department of Labor and the people who run it change potentially each election, each presidential [00:04:30] election, we get Republicans running the Department of Labor one time, and then we get Democrats. The Dol is looking at this problem as an employee issue in terms of what benefits should they be getting? You mentioned, should they be being paid minimum wage? Should there be wage, you know, all those other things. So they're looking at this problem from the employee. Are they eligible for unions. Is it a way to keep under certain, uh, thresholds where you don't have to offer health care or union or whatever the case may be? [00:05:00] So they're looking at it from the employee standpoint.

Roger Harris: So historically, when you have a Republican administration, the Dol is more looking at the employee side, but also the business side as well, whereas the Democratic administrations typically look at it more strictly from the employee. So what you tend to see is the rules get easier when the Republicans are inside, and then they get tougher when the Democrats come in. And that's where [00:05:30] we are. The IRS still has their rules that we all have to deal with, because they're looking at it more from a payroll tax or a tax standpoint. Are these people being taxed like they should? Are they having withholdings or 1099 being issued? We'll talk a little bit about section 530. Now, that's not to say that the IRS can't look at what Dol does and say, okay, we'll take one of those new factors and we'll apply. In our case, but they are looking at it from two distinctly different positions. Their [00:06:00] motivations are different. So you may have to talk to the same client about the same issue in two different ways. Now it tends both are important. Both are important.

Annie Schwab: Both have stipulated stipulated stipulations. Both have penalties associated. There's you know, they're both important. You can't ignore one.

Roger Harris: No. And you can be in violation of one and be okay in the other. Now it tends to Dol tends to focus on the larger side of the business market, because [00:06:30] they're not going to really care for the three person business where the IRS might. So again, it tends to be a little skewed towards the larger entity. But you need to be aware of it because it did change. These are the new rules. And so any talk a little bit about what these new rules are. And then let's remind people what the IRS rules are. And certainly where 530 section 530.

Annie Schwab: Comes into play if. Okay. Yeah, sure.

Roger Harris: And 530 well, let me say it now before I forget it, 530 has nothing to do with Department [00:07:00] of Labor. That's that's right. Once we get through talking about the Department of Labor, it's over. We're back to the IRS. And everything has to do with their rules.

Annie Schwab: Right. All right. So I did jot them down because I didn't memorize them. So like I said, this is what they're calling the new economic reality test. And there was four factors in the previous version of this. And we are now at six factors. And it's six factors that employers need to consider when determining how to treat [00:07:30] their employee. Factor number one the financial stake and nature of any resources a worker has invested in the work. Okay, the degree of performance of the work relationship, as well as the degree of control an employer has over that person's work. We've had those. Those three have been around for a while. Yeah. Um, whether the work the person does is essential to the employer's [00:08:00] business and any factors regarding the worker's skill or initiative, and, and I'll remind you that the Dol does impact your Futa so that, you know, federal unemployment tax Act. So there's some, some issues to consider here. Um. On the surface, they all seem reasonable to me.

Roger Harris: Yeah, I mean, they always do. It's how you interpret them. I think what you're trying to say here is if you are truly independent. You [00:08:30] have your own skills. You're not the only skill. You're not the core skill of the company. If you think about, I'm sure, how they look at it, you need a plumber to come fix your plumbing, but you're not a plumbing company. Because if you're a plumbing company and you go hire somebody that's a plumber, those skills are pretty consistent with what you're doing. And, you know, do you what's your investment in your you know, the IRS actually uses this one. Can you lose money? Yeah.

Annie Schwab: Can you lose money? [00:09:00] And are you are you at risk?

Roger Harris: Theoretically. I mean, I guess there's some way somebody's going to say I lost money as an employee, but typically you can't lose money as an employee, but a real independent contractor or business could lose money. So yeah, I mean, they all seem fair. It's how they're I know it's how they're, uh, you know, applied. And are you getting a fair shake or do they just come to the table saying everybody's an employee unless you can find one of these to convince me otherwise.

Annie Schwab: So [00:09:30] you will see, the one that's always present in both the Dol and the IRS is the determination of control. Like who has the right to control what I do and when I do it right, um, at work, you know, are you setting your own hours or are you setting what materials you use, so to say, versus the employer having the right to control, you know, during the hours of the day that you're working your work hours? Does the does [00:10:00] your boss have control or not, or are you in control versus the boss in control. And that's sometimes kind of hard to determine. Um, yeah.

Roger Harris: And, you know, I think in many instances, if, you know, if you open at nine and close at five and you tell somebody they need to be there at nine and stay till five, that's probably an employee. I mean, yeah, go try to call an independent contractor and tell them when they have to be there and how long they have to stay there, going to laugh at you if they're truly [00:10:30] independent.

Annie Schwab: Well, I think of, like, um, like a hair salon or something. Are they coming in with their own products or are they running their own hours, or are they, you know, setting their own prices, or are they part of a larger group where, you know, someone's handling, you know, inventory and, you know, everyone in this room has the same or is using the same products, same hours, same prices, that kind of thing. So. Yeah.

Roger Harris: So the doll came out with some new rules. Probably [00:11:00] not going to hugely impact you except at the larger end of your business. Uh, clientele. But it it creates the thought process of, well, let's go back and revisit the IRS rules that we are going to have to deal with, because there's a huge I'll call it a problem, but it's not a new problem. It's been here forever of people trying to push the envelope and wanting to say, well, I'd rather not be an employee, I'd rather than be an independent contractor and [00:11:30] that sort of thing. So let's remind people what the IRS tests look like, and then what can happen if we run afoul of those, and then what we can do to protect ourselves.

Annie Schwab: So for years, the IRS really hasn't changed. I will say that they did initiate a program several years back that sort of let employers voluntarily say, I messed up and I treated this person incorrectly. And I do think that that had a lot of following. I think [00:12:00] those who knew they were doing it wrong took advantage of the voluntary disclosure program so that they didn't have those penalties associated. But the IRS has and continues to to stick to these three categories of evidence. And the IRS categorizes them by behavioral, financial and then the type of the relationship. So again, the behavioral side is sort of like who's in control of what. Who gets to make the decisions, how the job is done when the job is done, where the job is done kind of thing financial. [00:12:30] Again, it's the risk associated. Does the worker, for example, this includes things like how the worker's paid, whether expenses are reimbursed, who provides the supplies or the tools or the materials necessary to perform that job. And then the third one is the type of relationship. And this one, this one to me is the most clear cut. So, you know, are there written contracts or there's certain employee type benefits. So if you offer, say, a pension plan or insurance [00:13:00] or paid vacation, those things are distinctive of an employee versus an independent contractor. Um, you know, will the relationship continue once this work is performed? So if you have a job to build a website, but when the website's done, you're done, you're no longer employed. It's not that you just go to a new project in the company. Um, you know, it's a limited time that you're doing something. And when that task or that job [00:13:30] is complete, um, then you're the relationship is terminated. So I don't know, what do you think? Which one is easier?

Roger Harris: Well, I mean, I think they're. I think they're equally. Confusing, but not confusing in some instances. I think you have to understand the motivation of why these rules are in place. Again, the IRS ones are more of what we deal with each day, every day. So I think what we have to understand [00:14:00] is, number one, this is a big deal to them. Remember a few years ago now every entity return, they asked the questions about should you have done 1099, which are reflective of independent contractors and if you should have, did you that sort of thing. So they're looking for that. There could potentially a lot of money, a lot of risk to misclassifying. So I'm going to go quickly over the risk. If you call somebody everybody wants to call him an independent contractor because it's easier and it's cheaper. But if [00:14:30] you classify someone as an independent contractor and they're not, then you are potentially liable for all the back withholdings that they didn't have withheld. Uh, potentially penalties for failing to post, failure to deposit those taxes that you didn't withhold. Um, you put yourself at risk in most instances for if someone were to get hurt on the job and they would have been covered under your workman's comp policy, and you didn't cover them as an independent contractor, [00:15:00] because you probably didn't do that either under your workman's comp, then you're liable for all that, uh, you're probably going to get caught because you're going to let them go and they're going to go straight to the unemployment office, and unemployment is going to say, well, you're not listed, and that's how you get caught. So, uh, it can get very, very expensive and not just in penalties and interest, but in lawsuits or whatever the case may be, even reputation.

Annie Schwab: Yeah.

Roger Harris: To misclassify a worker. [00:15:30] Uh, but we all understand that the temptation is and there's this belief. Well, I'm going to treat him as an independent contractor for 90 days until they work out. There's no provision that allows for that.

Annie Schwab: So, yeah, fortunately, there's no there's no grace period. There's no I've heard that I don't.

Roger Harris: Know how many times. And so. Well that's great. But that ain't allowed by law. So you know, you can I guess you can do whatever you want to. But that's not how the laws work. So it's extremely costly [00:16:00] and serious. If the IRS comes in and realizes that all these people you've called an independent contractor should have been an employee.

Annie Schwab: And then you can go back years.

Roger Harris: They can go back years and they can they can literally break you if they want to. But Annie, there is something called section 530 relief that might bail that business owner out. And [00:16:30] certainly you got a pretty good chance of getting bailed out if you do it prospectively, as opposed to waiting till you get caught.

Annie Schwab: Right, right.

Roger Harris: So talk a little bit about what section 530 relief.

Annie Schwab: So it's broken into like anything else it's broken into sort of categories. You know how was the reporting done. Were the reports that you filed, you know, consistent. Did you have the information returns that were done? Um, what sort of um, I guess, you know, if a taxpayer [00:17:00] claims that a worker was a volunteer versus, you know, which means no information return was filed, or were they actually treated as an independent contractor? 1099 were filed, the the amount earned was reported properly, and it's been consistent from year to year. So there's, you know, you can see a pattern of the treatment of this particular worker, which is again considered like consistency right. Reporting consistency and then subsequent, um, consistency. [00:17:30] So if a taxpayer or, you know, treated a worker as, as holding a position very similar to this other worker. So now you're comparing, oh, well, his job and his job looked very, very similar. Um, and they're both treated the same. Then you could see where, you know, the comparison of the job functions or the day to day services or something that might have some facts and circumstances associated with it. So that's what they're looking for there. Um, and then they basically had to have said, okay, well, I read [00:18:00] I read these safe harbors. I read, you know, the three categories of evidence. And I applied that. And this is what I came up with. You know, I made a reasonable decision. Um, and it wasn't just, you know, pure, blatant disrespect for the law.

Annie Schwab: Right?

Roger Harris: A big one that a lot of people and is available. But, you know, you don't need 530, but it's a helpful as industry standard, you know, like there are certain real estate agents are. I [00:18:30] think for as long as I've been alive and dealt with them, they've always been independent contractors. So it's a reasonable basis to say that's the industry standard. You mentioned hairdressers. That's so so, you know, industry standards that what you're doing is the same thing as everybody else in the industry is. I assume that's true in the gig economy. I don't, you know. You know, you could argue.

Annie Schwab: That is a that is a that has and continues to be a very large focus from [00:19:00] the IRS. There was, you know, Airbnb's and Uber drivers and those kinds of things really have escalated in the last couple of years. And the IRS, you know, the gig economy is is a focus, right?

Roger Harris: Um, so if you have a client that's, you know, in area, do a little research on 530, you know, you have to immediately convert them into employees and do things. And so it can really minimize the damage, if you will. Uh, you can't just apply it to everybody. I mean, there's, [00:19:30] there's rules, but it does give you the opportunity. If you have clients who are, say, stretching the rules, if you will, in terms of calling people, uh, independent contractors, that could be employees. See if your client is eligible for 530 relief and go ahead and advise them of that. Uh, because, again, it can be terribly expensive if you get caught.

Annie Schwab: And I have seen a scenario quite a bit where you, you know, you bring somebody on as [00:20:00] an independent contractor to do a specific job and then they get hired. And where is that time where that specific job was complete. And now they're, they're onboarding as, as an employee. And so we do get questions about that. You know, we had them come in and do this job. And they did such a great job. We're just going to put them on full time. Like you know yeah we want to we want them part of the company. So that keep that in mind too. Yeah. And I think.

Roger Harris: That's fine as long as when you brought them on as [00:20:30] an independent contractor, they they fit all the rules at that point as being an independent contractor. Right. And then then they did.

Annie Schwab: Right.

Annie Schwab: And make that, you know, it can't don't let it be wishy washy or it's like, oh, we'll just make them an employee come January next year. You know, it is there is a line. Um, and so perhaps even chatting with your clients who do have a lot of independent contractors, you know, consider if that, you know, if that person's been around as independent contractor, [00:21:00] showing up every day at work, then probably needs to reconsider.

Roger Harris: And don't try to split hairs and say, well, I'm going to pay them this much an hour and then this much commission. And they're, you know, doing the same job. But so and we may do another podcast, you know, what do you do when you catch somebody at the end of the year? And, you know, they should have been employees and they treated them all as independent contractors. What are your options to fix it and what's practical and what's law? And we could do a whole podcast. Yeah, we could do a whole podcast on that. But [00:21:30] we felt like we should address it a little bit just because of the Department of Labor coming out. And, uh, I can tell you if whatever these rules are, they're good, at least for another year. And then if we get a change in administrations, they'll change them again. So it's there you go.

Annie Schwab: It happens. Yep.

Roger Harris: All right. There's been some things regarding employee retention credit that you should probably know [00:22:00] again, may not be something you deal with at all. It may be something you have to deal with more than you want to, and in a shorter time. Where are we today on the IRC as we we're recording this in February. I don't know when you're listening to it, so we're assuming you're in the middle of a tax filing season. That's right. What do you need to know about the IRC in particularly? We'll I'll let Annie go through that. And then we'll talk a little bit about some legislation that's out there that could turn it [00:22:30] all upside down.

Annie Schwab: That's true. It wouldn't be a podcast if we weren't chatting about the IRC. That's right. And as we as we sit today, the moratorium is still in place, meaning the they're not processing any more claims. Um, they have, uh, announced that their withdrawal program. So there was a program that and is still out there where you can withdraw claims that haven't been either either looked at or are under audit [00:23:00] or they were processed, but you haven't cashed the check, so you could just withdraw it altogether. And then at the end of December, I mean, just days before Christmas, it was December 21st. Um, the IRS came out with sort of a program. It's called an IRC voluntary program. But basically if you did cash the check, cashed it, spent it, cashed it, it sitting in the bank, whatever. And you're like, uh, now that we're looking a little bit closer at this, I'm not sure I qualify. There's a program that you can basically raise your hand and say, I'm sorry, I shouldn't [00:23:30] have gotten this. And the IRS is only having you pay back 80%, so you pay back 80% of the amount of the IRC claim. They're not going to charge penalties and interest. They're not going to tell you to go amend those related income tax returns. Um, the 20% you don't have to pay back is not income. There's a single form that's broken into the payroll quarters associated with the IRC. So you fill out a single form, you send it in, there's a certain fax number or processing number. [00:24:00]

Annie Schwab: Um, and basically if you don't have the 80% to pay back, you can apply for an installment agreement. Um, and it's kind of like, yeah, this is great. But the kicker, there's a kicker. Yep. This program, the ability to do this ends March 22nd. So they gave you three months. They gave you from December 20th 1st to March 22nd to raise your hand, pay back 80% and just move on. After that date, all bets are off. All concessions are [00:24:30] off. You know, it's 100%. It's penalties and interest. It's amending. It's all this stuff. Right. So. What we are now faced with as tax practitioners is a deadline in the middle of tax season that we need to be aware of, and there could be clients that come to you either. Who are eligible and still want to file the ERC. But we don't, you know, is it too late? Are they going to lift the moratorium? Are they going to eventually process these? Or you might have a client who comes to you [00:25:00] and is like, I got the ERC and maybe they didn't qualify. And so do they want to raise their hand for the voluntary program? Can they get to you? And, you know, you get to them before March 22nd and the deadline ends? Um, and, and so it's just it really is a headache. We're going on what third year of dealing with this during tax season, not knowing what we're supposed to be doing or how to do it. Um, so that's where we are.

Annie Schwab: Yeah.

Roger Harris: And the March 22nd date. Don't, don't [00:25:30] there's no extension. You can't file an extension form. There's no indication it's going to be extended. Um, to get into a little politics and then we'll talk and I'm going to touch on some legislation that affects it. Anytime there's a bill to give you something that costs money, you have to find a way to pay for it. And, and this, this bill that is out there today, one piece of it would end the IRC effective January 31st.

Annie Schwab: So retroactively.

Roger Harris: Retroactively. [00:26:00] Now how far retroactive that is or if that date changes because it's not legislation yet. Well, it's not law yet. It's just a pending. It's passed the House. It's still got to go to the Senate and got to go to the president. But theoretically it could end as of January 31st, because that provides all this paper money that in Washington they can spend on something else. And we'll talk about the something else later. So you're sitting there right now kind of between a rock and a hard place. If a client comes [00:26:30] in that is eligible for the IRC, has not applied for it yet, and they want to apply for it. Technically, the law still allows them to do it, but there's a law floating around out here that could make it retroactive. So should I do it? Because are they going to pay me to do it if it gets retroactive? So, uh, I don't have a good answer to that because we're guessing on whether the legislation would pass. And if it does pass, would the January 31st date [00:27:00] hold, or would they move it to more closely to the date of I think if the bill passes, IRC will end. The question is what date? Uh, if they don't get around to passing it till March, are they going to live with the January 31st date or move it up to March 1st? If they do that, then it doesn't raise as much money and then they got to cut something else. So you get caught into politics. The other thing you need to be aware of that is in the, uh, the IRS is all for the repeal. They're ready for IRC [00:27:30] to go away.

Annie Schwab: There's so much fraud associated. It's been I mean, they're just bleeding money at this point, right. Um.

Roger Harris: So and there's another part in there that and again, who knows what'll pass. But the penalties for doing a fraudulent IRC claim are dramatically higher, and there's a much longer time frame for them to charge and collect those penalties. And there's even penalties on people like us if [00:28:00] if we participate on that and charge a contingency fee. So they are serious about ending the mills and the fraudulent IRC claims, will they end the entire program at the same time, or would we get okay, we'll let IRC continue, but we'll raise the penalties so that hopefully run the mills out. But the only thing that is certain as to sit here today recording this podcast is the March 22nd date for paying [00:28:30] back and getting in the 80% break that is in effect, and I don't expect it to be extended one second past midnight on March 22nd. So if you have clients who got IRC money and it was not legitimate, you need to prioritize getting these claims in before the deadline, because all we've been told is it will not be extended, and once it goes away, it's just like it was never there. [00:29:00] You're going to owe 100%. You're going to owe penalties, interest, everything.

Annie Schwab: So and if you're thinking I could file an IRC claim that's not real and keep the 20% and pay back the 80 that has passed as well. No, you cannot do that. No, the you cannot do that.

Roger Harris: No. You had to get your money by whenever they announced. What was it the 21st of December.

Annie Schwab: 21st of.

Roger Harris: December. Yeah. So it's only you can only pay back the money that you had as of that date. Now somebody's [00:29:30] going to ask I applied before that date. You know. But I got it after that date. Sorry. You know. Yeah. This was a one size fits all approach. To try to be fair, that's where they took 20% off the top, plus penalties plus interest. Some people are going to win off of that because they didn't pay a promoter. Some paid a promoter 40%. They're going to lose. The IRS is getting sorry they tried to find a one size fits all.

Annie Schwab: I'm not going to say, actually. [00:30:00]

Roger Harris: Oh, I do too. I think you can't you can't solve every problem out there. And some people are going to miss it because of no fault of their own. And I'm not going to say they can't go to court and get something. You know, they can contest the fact that it's unfair they had their application in. It was the IRS's fault. They didn't get the money. It wasn't their fault, you know. But the law is pretty clear. And or not the law, the guidance is pretty clear. You had to have your money before we announced this. And then if you did, [00:30:30] we'll let you pay back 80% after that date. This deal don't apply to you.

Annie Schwab: And if you're sitting there thinking, well, my clients have spent this money months, years ago, there are, you know, opportunities for installment agreements. It's not, you know, it's not not automatic. Check the box. Right. But it is out there. So, um, that's always an option.

Roger Harris: Uh, I guess I'll go ahead. Since I touched on the legislation with regard to the repeal, I'll go. There's a couple of other things in this legislation that, you know, [00:31:00] could impact us this filing season. Uh, again, let me keep stressing. It's not a law. It has passed the House. It's got bipartisan support. But that doesn't mean anything. You can watch.

Annie Schwab: Some of it just in case you're hearing names. It's called the Tax Relief for American Families and Workers Act.

Annie Schwab: Yeah. There you.

Roger Harris: Go. That's a nice catchy name. There a lot better at naming things than actually getting things.

Annie Schwab: Done explaining it right. Of course.

Roger Harris: So in addition to the IRC, the [00:31:30] other things that are going to be most applicable applicable to our clients. One is businesses pushed for years, not for years or for a few years since the law changed on research and development credits to where you used to be able to write them off, then you had to amortize them that that was really hurting them and really restricting their ability to do R&D. This bill would go back to the immediate expensing. So that's the business side. That's where business wins. Uh, in exchange for that. That was the Republicans pushing for that. The Democrats [00:32:00] said, well, I'm going to give business that we want an expanded child tax credit. So enhanced enhanced in child credit. So so there is an enhanced child tax credit in the bill. Now again we're recording this in early February. Don't know when you're listening to it, but you're probably doing returns that have the child tax credit already on it. The IRS has indicated that their systems will recalculate it. So you should first of all, you should not be waiting on filing returns because of a bill that has not become law yet. [00:32:30]

Annie Schwab: Right?

Roger Harris: But even if it does and it eventually becomes law and you've already filed a return, if your client is going to benefit from this enhanced credit, the IRS has indicated they will do that automatically, and it's not going to require you to amend your return. So don't wait. But again, at this point, uh, it's got to go to the Senate. There's just to give you some inside politics. Um, one of the big sticking points is the Salt deduction. Democrats and [00:33:00] big high income states want to change that $10,000 limit. Some want to get rid of it completely. Some want to raise it. Uh, the Democrats say a chance to make that happen in the negotiation over this bill. The House all, by the way, has introduced another bill that would raise the Salt deduction from 10 to 20 for married couples. They that one by itself probably won't go anywhere. So it could change. It could pass as is. It could not pass at all. But [00:33:30] it got a lot of publicity. A lot of people may come into your office thinking the child tax credit has gone up. They may think the research and development, uh, right off has been brought back. And as we sit here today, which is February the 8th, recording this, none of that's true. And the Senate is hung up right now on Israel and Ukraine and border. And then they're going out of town for there must be some holiday. They're going out of town for two weeks or something. [00:34:00]

Annie Schwab: So Presidents Day.

Roger Harris: Presidents Day, there you go. So president is day and they take ten days.

Annie Schwab: Ten days. We get.

Annie Schwab: A day.

Annie Schwab: They get they get ten.

Roger Harris: They get ten. So nothing's likely to happen. If anything is going to happen much before March and you get into March.

Annie Schwab: You wonder about.

Annie Schwab: Against.

Roger Harris: The deadlines and how many returns have already been filed. And what do you do about the date for IRC? And then you know, who knows. But it's out there. It's got a lot of publicity, a lot of talk, but [00:34:30] nothing has happened yet. And we'll see. That's all I can tell you. And it's again, three main things you should be worried about in that bill IRC, child tax credit and research and development.

Annie Schwab: Okay.

Annie Schwab: And then just sort of set the stage for for what's to come. Don't forget that the Tax Cuts and Jobs Act remember back in 2017, a lot of those. If not, well, [00:35:00] I can't say 100%. Most of those are set to expire at the end of 2025. So as we're coming through this tax season, we're already thinking to ourselves, what what are policy makers going to do? Are they going to extend some all none. Are they going to, you know, where are the trade offs going to be? Um, some really difficult decisions and we're going to have to wait and see sort of who takes control of the House and the Senate. And you know, what happens politically because, you know, we'll be skewed both [00:35:30] ways. But it's I feel like it's this never ending conflict of negotiations that take so long. And then all of a sudden it's rush, rush, rush, retroactive, you know, pass it by this date or the government's going to shut down and and it's it's constant. And do you feel the same way.

Annie Schwab: Oh yeah. I mean the, the law.

Roger Harris: As written, expires December 31st. Now that research and development part was part of that law, [00:36:00] it's been changed once and now it's potentially going to be changed again.

Annie Schwab: Yeah.

Roger Harris: Uh, the enhanced child tax credit was some of that. You know, the big one was section 199 the, you know, qualified and some lower tax rates. Yeah. So um, it would, it would if it here's what you need to know if nothing gets done, which seems to be more likely in Washington than anything, that law goes away. And we go back to what the law was prior to that law being passed, except for [00:36:30] changes that have already been made to.

Annie Schwab: Been made throughout, throughout.

Roger Harris: That time. So we just automatically revert back. Well, I don't think anybody on either side of the aisle wants that to happen, but one of the things that I was at a hearing in the summer and businesses were really clamoring for R&D and the 199 deduction, and Democrats were saying, okay, we'll give you that. If we can get some child tax credits. Well, if this bill passes, you've already [00:37:00] given up R&D in exchange for child tax credit. So now what do you what is the Democrats want in exchange for 199. Because. So politics are going to have as much to do with this than policy or economics or so I I'm going to make a prediction that absolutely nothing other than hot air will be done until we see the results of the election, because then the politicians will know who controls the two [00:37:30] houses in the white House, and then they'll decide who's got the upper hand, and the bill will tilt in whatever party has control after that, in terms of whether we just let it expire and go back, whether we keep it or modify it. So it's it's set to expire. Let me see if I can remember my American history. It's set to expire in December and the election is early November. So election day is like the first Tuesday in November. I don't know what date [00:38:00] that is, but so I don't you know, you may hear people talk about it, but I don't expect anything to happen until after that election. And, and we'll get a sense of who's calling the shots, but it's going to be a major change. And, uh, you our clients need to be aware of it, because, again, it could substantially impact their taxes if it just goes away and nothing replaces it. Yeah, but they'll do. They had to do something, but who knows.

Annie Schwab: That's what we say. And then I.

Annie Schwab: Know, I know, it's kind.

Annie Schwab: Of kind of crazy. [00:38:30]

Annie Schwab: Um, all right, we've.

Roger Harris: Touched on this before, but it's, you know, beneficial ownership. What do we need to know about that right now? Uh, where is it?

Annie Schwab: Well, nothing much has changed, honestly, since our previous webinars or podcasts. Um, you know, it's still out there. I still, although it is getting a little bit more talked about, more chatter. It's I still feel there's a I mean, a lot of our office owners and their clients are just, they're, they're feeling the pressure because there's such a lack [00:39:00] of knowledge with small business owners. And this is focused on on small business owners, LLCs. Um, and because it's with FinCEN, um, the penalties and interest associated, I mean, it's like $500 a day, you could end up in jail. Um, it's not something that's on an annual basis, like a tax return. It's not on a filing season. It's something that requires you to monitor and and check and update almost in real time. We're talking if you're a client, if you have [00:39:30] a client that was in business prior to the first of the year, they have to file their first beneficial owner information report by the end of this 2024. So that to me, okay, that's fair. You have a whole year to get the word out, get what you need, prepare the form, determine if you should be doing it, if attorneys should be doing it, should, you know, does your info cover it? What is the relationship? You know you follow the first one, but then what is the relationship? Once you file the return, you are subject to the rules, [00:40:00] right? Not the return the form. You are subject to the rules. And if something changes regarding the beneficial owner information you from that date of change, you have to update the report within 30 days. That's that can be intense. You know you're not talking to your clients. You know that often to be aware of a change. And there's such a lack of understanding about this, the client probably doesn't even know what changes they're supposed to be telling you about. So [00:40:30] it you know, it's becoming very difficult now, given that if you have a client that was, um, created prior to the first of the year, just sit tight, talk to them, you know, let them know.

Annie Schwab: What's out there.

Annie Schwab: Yeah, but but don't do anything until the end of the year because you're just starting your clock. Um, and you have until the end of the year. It's the new ones. It's the new, um, entities that were created after the first of the year. They only have 90 days to get that report in. So [00:41:00] and there's a lot of talk AICPA, FinCEN, different organizations are talking about who should be doing this or interpreting law. Should it be done by an attorney. You know, well who wants to be liable for this, given the penalties associated are so high. So we're kind of in everything I'm saying. There's nothing new in it. It's just now we're in the middle of February and it's in place and the website is open and you can file the forms. And [00:41:30] we're kind of waiting for AICPA, and we're hoping FinCEN comes out with something else. So it's an uncomfortable place to be, in all honesty.

Roger Harris: Yeah. I think the only thing that changed is this had been delayed once and yeah, kind of hoped it would get delayed. It didn't. So it's in effect. It's in it's so there. And there's really nothing wrong with the law. It's the administration of the law that needs some tweaking. And you mentioned AICPA we've been to Washington and talked about it. We we've [00:42:00] I've got a phone call sometime this week with somebody up there. We're trying to get some real world changes made to it to make it administratively. Better not. We're not asking for the law to go away. We're not saying we shouldn't.

Annie Schwab: No, there's a.

Annie Schwab: Good part of the law.

Annie Schwab: There's a good purpose.

Roger Harris: Behind it, but we need it. This impacts the smallest of small businesses, fewer than 20 employees, the people with the least amount of resources, the least amount of information we need to make sure that they're not just hung out to dry. We [00:42:30] need more than a promise. We're going to be lenient the first year. Well that's that. Well, okay. Great. What about year two? I mean, we need we need a little bit more than that. So what we're what we're doing. And I suggest you do it if you haven't already. Tell your clients about it. Let them know what's out there. Tell them you got all year again. We're assuming they were in business before the end before the end of the year. And let's take advantage of the time and see if we can get some some changes made to it again. Nothing new other than it did go into effect. It is the law. It [00:43:00] is in effect, new businesses that get formed have to have to deal with it within 90 days of formation. Our clients have all year, so let's take advantage of it. So just be aware of it. Make sure your clients are aware of it. If somebody says something about it, at least you can say, oh yeah, I know what it is. And we're taking advantage of the clock.

Annie Schwab: And and it happens during every tax season. Somebody comes to you and says, you know, can you help me create this LLC for a new business that I want to start? Just [00:43:30] just take pause on that. Because if you assist a client in doing that, technically you're supposed to be listed on that form as someone having substantial control. Yeah.

Annie Schwab: You're a reporting agent. You're on for that form.

Roger Harris: You are you are the reporting agent. Best I can tell you, never get off. You're always the reporting agent.

Annie Schwab: I don't yeah, I don't.

Annie Schwab: Know how you get off. So we are suggesting that our office owners, um, ask them to go see an attorney for any sort of entity formation.

Annie Schwab: Because depending.

Roger Harris: On what is really interesting, and this is where it just doesn't [00:44:00] work in the real world, if you have somebody help you set up the formation, both of you may have to be like, if you go to a person in your firm and say, would you go do this? Call the Secretary of State, reserve it, whatever, and two of you work on it, then you both may have to be listed. So, so I mean, it's just just don't get in. Just it's not enough money in it for right now. Send them to attorney and we'll talk later about getting back into it.

Annie Schwab: And you know what.

Annie Schwab: For for small business owners that maybe don't have, you know, [00:44:30] someone to go talk to about this, I just feel horrible for them because I don't even think they're going to know to do it. There's going to be such noncompliance that some something has to change. There has to be an easier way for, like you said, the smallest of small business owners to to comply because I don't think that they're like trying to negate this or.

Annie Schwab: Avoid.

Annie Schwab: This. It's just they don't even know where to go.

Annie Schwab: And remember.

Roger Harris: It only applies to businesses that are registered with the state. [00:45:00] So if a single person comes to you and says, I'm a sole proprietor, some lawyer told me to be an LLC. Well, you can remind them if you form the LLC, you got to go do this thing. If you stay a sole proprietor, you don't. If you're two people, if you're a partnership, you don't. If you form an LLC, you do. So go back to your attorney and balance those, because the attorney is probably the one that told you that. Anyhow.

Annie Schwab: Yeah, yeah.

Roger Harris: Go back and balance that and let them do it. So it's a perfect, easy way to do it.

Annie Schwab: And all honesty, we don't even know what we should be charging for this. And you know your [00:45:30] info. And what is an engagement letter look like for this. So I mean there are some some.

Annie Schwab: We'll figure it out.

Roger Harris: But it may take most of the year. So we're going to take advantage of that. Yeah. Um, we got a reprieve. I found this interesting and I'll let you talk about it. We got a reprieve from 1099 case stuff. You know, we were all afraid this was going to be the hell of this tax season, is all. Are people going to be walking in with 1099 CS? And IRS took the universal [00:46:00] action of delaying the 1099 K for this year. Uh, and then phased it in after that for a couple of years. But despite doing that, they're still issuing FAQs on 1099 case.

Annie Schwab: So just got 47 FAQ updates just the beginning of February. Um, some I mean, some are just like minor updates, but.

Annie Schwab: So if we don't have to do.

Roger Harris: It, why am I getting all these FAQs?

Annie Schwab: Well, and that's the thing is because they they had implemented that this was going to take effect. [00:46:30] So the Venmo's and the zell's and all of these plays, these cash apps, all of these organizations already started implementing it. And so the 1099 K's are going to be going out. Yeah, they're going out. It could be a 1099 K. And it could also be on a miscellaneous. And it could be right or wrong, or it could be because you sent your kid in college $500, you know, a week for school supplies. I mean, who knows? But there's they're you're they're going to come across your desk. [00:47:00] People are going to be like, I don't know what this is for. I, you know, I sold a couple of things at my garage sale, and I did Venmo or Cash App, and now I've got, you know, 1099 K and what do I do with it? I will say just tell encourage your clients not to throw away the mail.

Annie Schwab: Yeah, yeah. Make sure.

Annie Schwab: But still I mean a lot of these you can log in online and get. But the FAQs are lengthy.

Annie Schwab: But they're good.

Annie Schwab: They they are good and they are very specific. So it's like if you have a scenario [00:47:30] where I got this and it was an error, you know, other than going back to to get it corrected, which is just not going to happen, you know, where do you put it on, on what form, on what line of the tax return. And then where do you back it off. And, and they go through several examples.

Annie Schwab: Examples of that.

Annie Schwab: Of how to do so. It's out there. It's just unfortunate we didn't think we were going to have to deal with it this year. We thought we got, you know, sort of kick the can one more year. Um, but I do think that there are going to be [00:48:00] several situations where going back to the FAQs, finding your scenario and then following the instructions. So if if you take anything back, just know if you get this and your clients like I don't know what it's for, I got it for this and or the wrong number or you know, this, this really wasn't income. This was just, you know, a gift or something. Um, the FAQs are good. And I would go there first for direction because they do give you specific lines on the tax return where the numbers should go.

Roger Harris: The biggest mistake you [00:48:30] can make is think because it was delayed. Somebody comes in with a ten nine K and you say, well I can just ignore it because it wasn't supposed to be sent.

Annie Schwab: No, you're going to get a matching notice. You're going to get you need.

Annie Schwab: To deal.

Roger Harris: With it. And the FAQs are really good about the recent ones and some that were issued before. Somewhere in those FAQs, you're going to find your situation based on whether they really did sell something. And you have to know basis, or whether it shouldn't have been reported at all. It was a gift to your children. But [00:49:00] the FAQs are good. But don't ignore it. Don't think because we got a delay that we can just toss that 1099 K in the trash and we'll never hear about it again.

Annie Schwab: And it's pretty good of like saying, you know, this needs to be on schedule D as a sale of an asset versus this. This is, you know, income earned. This is a schedule C item, you know. So there there's those distinctions as well. Yeah.

Roger Harris: They did a really good job on the FAQs I thought so too. And you know who knows what we'll do a year from now. So you shouldn't [00:49:30] see the volume that we were worried about. You know, when when the law was going to go into effect. But some of the companies have been tracking it all year. And damn it, if I had to do all the tracking, I'm sending out the form, you'll still have to deal with it again. Just don't ignore it. But, uh, and honestly, the taxable events were always taxable. There just wasn't a form to report it. This is not making something taxable that wasn't already taxable. This is just giving the IRS information. So [00:50:00] they can catch all those people who weren't reporting it.

Annie Schwab: So and use.

Annie Schwab: It this year as a talking point because it is set to to drop next year. So you know, use it as a talking point when you're with your clients that, you know, we're going to be getting a lot more of these. 1099 the thresholds are are greatly being reduced, you know, come, come next year.

Annie Schwab: So yeah. And I'm in the loop.

Roger Harris: I'm going to refer to something Annie said. And then I'll let her kind of wrap it up, because you made a good point earlier. Uh, [00:50:30] a lot of the forms that we're used to getting in the mail aren't being mailed anymore. They're being posted on a website somewhere, and it's up to the. And, you know, they got notified of this, but they didn't read it. Pay attention to it that so when clients are sitting around waiting for forms, they're not going to get them. If they don't go to a website, people are going to think. They didn't get a form when they actually did, particularly people with my [00:51:00] color gray hair that are older and used to getting things in the mail. So make sure you if you're missing something that you've seen before, uh, don't assume it's not there anymore. Make your clients go back and look for websites or places, because companies just aren't going to mail things like they used to. They're going to be posted on a website somewhere, and you're going to have to go download it. And, uh, I'm afraid that's going to take a little transition for people to get used to that.

Annie Schwab: And on the flip [00:51:30] side, too, you know, a client, you look at something and you're like, well, hey, you had this fidelity statement last year and the client goes, well, I didn't get anything in the mail. I guess I don't have it anymore.

Annie Schwab: Yeah, you know what? You think they would know.

Roger Harris: That they still.

Annie Schwab: Have a fidelity.

Annie Schwab: Account? Oh, I.

Annie Schwab: Know, but they don't. Yeah. So any.

Roger Harris: Parting words? Any any last words for today? No.

Annie Schwab: Just keep your head up. Um. Stay positive. You know, it's only a short period of time, but keep listening, because if something happens with that bill or, you know, [00:52:00] we'll be doing podcasts all through tax season. So you know. Yeah, listen in. We'll tell you what you need to know, hopefully in real time and get you through it. So yeah, that's it.

Roger Harris: Take some time for yourself. Uh, don't you know, don't let your health or your family suffer through tax season. So take a break every now and then and listen to another federal tax update podcast while you're taking a break and tell others to do the same thing. But but spend some time with your family. Spend some time taking [00:52:30] care of yourself during tax season. You know we will. We'll survive. So Annie, thank you as always, thanks for all your work putting this together and joining me today. My pleasure and thanks to everyone who listened to today's podcast, and we hope you'll be back for our next one. We hope you'll bring a friend along with you. So good luck! We'll be back soon.

Annie Schwab: Thank you.