Category Archives: IRS

IRS, Tips

Tax Season 2020 Opens January 27th

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The Internal Revenue Service announced this week that the official opening day of the 2020 tax season for individuals will be Jan. 27, which is when the IRS starts to accept and process 2019 federal tax returns. You have until April 15 to file your return and pay your tax bill.

This year, taxpayers with adjusted gross incomes of $69,000 or less can use free commercial software by going to IRS.gov/freefile. Free File will open by the afternoon of Jan. 10, although taxpayers won’t actually be able to file their returns until the start of the tax season, Smith said.

Source: Tax season 2020: The IRS made it easier to file tax forms for free – The Washington Post

IRS, Tips

2020 W-4 Guide: How to Fill Out the New W-4 This Year

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The new federal tax law, which went into effect for 2018 tax returns filed in 2019, is so ridiculously difficult and complex, that our old friend the W-4 form — which is used to help W-2 employees calculate the amount of taxes that should be withheld from each paycheck — is now a giant monster that overwhelms even those of us with countless hours of continuing education on the tax code.

Luckily, my favorite payroll company, Gusto, has put together the best step-by-step guide I’ve seen on accurately filling out the new form, so you can hopefully get the correct amount withheld from each paycheck and not owe a ton of money come tax-time.

That said, even in their blog they recommend using the IRS Tax Withholding Estimator instead, because the W-4 is so arduous at this point. We’ve gone from a half-page easy-peasy form that anyone can follow, to a monster — but if you want your taxes withheld properly, you’ve simply got to do one or the other (the new W-4 or the online withholding estimator).

In any case, thanks for making this a little easier on folks, Gusto! You explained it better than I’ve been doing, anyway.

Source: 2020 W-4 Guide: How to Fill Out a W-4 This Year | Gusto

Education, IRS, QuickBooks Software, Tips

CPA Practice Advisor to Host Free Online CPE Conference for CPAs & Tax Pros: Dec. 12, 2019

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For CPAs and other Tax Professionals: please join CPA Practice Advisor on Thursday December 12, from 9 am to 7 pm EST, at www.ensuringsuccess.com —  its annual free live-streaming conference — to earn up to 10 hours of continuing professional education at no cost.

This free online conference is recognized by the AICPA, and NASBA for CPE credit, and certain sessions also qualify for IRS CE credit. The first session starts at 9 am EST, with sessions starting each hour, on the hour, until 7 pm.

Check out the full session list here — https://www.ensuringsuccess.com/2019-sessions — there are courses on marketing, payroll, sales taxes, tax planning, HR, tech advisory, auditing, accounting trends, financial planning and more.

Source: CPA Practice Advisor to Host Free Online CPE Conference for CPAs & Tax Pros: Dec. 12, 2019

IRS, Tips

When to Expect Your 2020 Tax Refund

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CPA Practice Advisor has released their annual estimated timeline for when a taxpayer is likely to receive their refund based on when they file, based on what we currently know about the upcoming tax season and projections based on prior years. They point out that the TCJA tax reform is still affecting many Americans’ ability to file timely, that Congress often delays tax season by issuing last-minute tax laws in December, and the IRS is also delaying refunds on tax returns that include the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). Barring any of these issues, here’s what they’re predicting.

IRS Accepts Between These Dates ===> Direct Deposit Sent (Or Check Mailed)

1/20/19 – 1/24/19 — >   Friday 1/31/20 *  

1/27/19 – 1/31/19   — > Friday 2/7/20

2/3/19 – 2/7/19   — > Friday 2/14/20 **  

2/10/19 – 2/14/19 — >   Friday 2/21/20 **  

2/17/19 – 2/21/19   — > Friday 2/28/20

2/24/19 – 2/28/19 — >   Friday 3/6/20

3/2/19 – 3/6/19   — > Friday 3/20/20 ***  

3/9/19 – 3/13/19 — >   Friday 3/27/20

3/16/19 – 3/20/19 — >   Friday 4/3/20

3/23/19 – 3/27/19   — > Friday 4/10/20

* = IRS may delay tax filing season by one week or more due to changes in tax law.

** = Returns with EITC or CTC may have refunds delayed until late February to verify credits.

*** = Filing during peak season can result in slightly longer waits.

3/29/19 – 4/3/19 — > Friday 4/17/20

4/6/19 – 4/10/19 — >   Friday 4/24/20

4/13/19 – 4/12/19 — >   Friday 5/1/20

4/20/19 – 4/24/19 — >   Friday 5/8/20

4/27/19 – 5/1/19 — >   Friday 5/15/20

5/4/19 – 5/8/19 — >   Friday 5/22/20

5/11/19 – 5/15/19 — >   Friday 5/29/20

5/18/19 – 5/22/19   — > Friday 6/5/20

5/25/19 – 5/29/19   — > Friday 6/12/20

6/1/19 – 6/5/19   Friday 6/19/20

IMPORTANT: If you file electronically (using an online tax program or preparer), the IRS will notify you of the actual date they “accepted” your return. This is often 1-3 days from the time you actually hit the “file” button, and it is this date that you need to use for the above chart.

Taxpayers who mail a paper version their income tax return can expect at least a 3-4 week delay at the front-end of the process, as the return has to be digitized before it can be processed.

Source: 2020 IRS Refund Chart: When to Expect a Tax Refund

Education, IRS, Tips

When An S-Corp Can’t Afford to Pay Reasonable Compensation

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Reasonable Compensation is defined by the IRS as: “The value that would ordinarily be paid for like services by like enterprises under like circumstances.” or the hypothetical “Replacement Cost” of the shareholder-employee.

Reasonable Compensation is derived from the value of the services provided, not the profit or loss of the business. While Reasonable Compensation has nothing to do with Profit and Loss, it does relate to Distributions. Why? Because the IRS guidelines for Reasonable Compensation state: The amount of reasonable compensation will never exceed the amounts received by the shareholder either directly or indirectly. It does not mention profit or loss at all but instead talks about ‘amounts received’ by the shareholder. It does not matter if the company is making or losing money; what matters is whether or not the S Corp owner is taking money (e.g. a distribution or other items of value) out of the S Corp.

Depending on the company’s financial condition and business strategy, a shareholder-employee may be able to take Reasonable Compensation plus a distribution, just Reasonable Compensation, or neither. What the shareholder-employee can’t do take a distribution instead of Reasonable Compensation.

This excerpts above create by far the most succinct explanation I’ve seen so far of how reasonable compensation is supposed to work. The original blog post goes on to offer a bunch of excellent example scenarios to help illustrate the concept.

I subscribe to RCReports.com (the author of the blog and these excerpts) and advise my S-Corp clients to do a reasonable compensation interview with me (using the RC Reports tools) at least every three years; though preferably every-other year. And if their circumstances change significantly — hiring staff or investing in equipment, especially if it allows them to cut back on their own hours — then we do a re-evaluation mid-year. As the blog also points out:

Anything that compensates the S Corp owner can be re-characterized as wages, including personal expenses paid by the S Corp or loans to the S Corp owner. At the end of the day a distribution of any kind triggers the requirement to pay Reasonable Compensation for services provided. Best practice is to know what the value of those services are and pay that amount in Reasonable Compensation before taking a post-wages distribution of any kind.

With the new Sec 199A Qualified Business Income Deduction, the issue of reasonable compensation is bigger and more important than it’s ever been before — make sure you (or your clients) have a credible basis for this amount, and for goodness sake, please don’t take distributions until you’re sure you can pay out the full annual amount of salary or wages due to you.

RC Reports is offering an upcoming free continuing education class on Reasonable Compensation for S-Corp Shareholder-Employees that I encourage all tax professionals and S-Corp owners to attend.

For the record — I receive no discounts or commissions for their service; I’m simply promoting it because I love their continuing education, blog posts and products.

Source: What if an S Corp Owner can’t afford to pay Reasonable Compensation? – RCReports

Education, IRS

IRS Finalizes Safe Harbor to Allow Rental Real Estate to Qualify as a Business for QBI

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From the IRS e-News for Tax Professionals Issue 2019-35, dated September 27, 2019:

The IRS this week issued Revenue Procedure 2019-38, which establishes a safe harbor allowing certain interests in rental real estate, including interests in mixed-use property, to be treated as a trade or business for purposes of the qualified business income deduction under section 199A of the Internal Revenue Code.

The safe harbor is available for individuals who claim the section 199A deduction with respect to a “rental real estate enterprise.” To review the qualification requirements, visit IRS.gov/taxreform.

Note: there is still much argument out there over whether the safe harbor is intended to be seen as a definition of a rental real estate trade or business, or simply a minimum requirement in order to avoid having to prove whether or not an activity qualifies under section 162. Safe harbors sometimes get used in the code more like a definition — and sometimes they are seen as… well, as more of a safe harbor.

Some educators are taking the stance that even if a real estate rental regularly has losses, if they otherwise qualify under section 162 as a trade or business, they must include these losses as 199A regardless of meeting the safe harbor. Of course, this could negatively affect their clients. Other educators are taking the stance that these small rental real estate clients who regularly have losses and have no incentive to qualify under 199A can avoid it precisely because they do not meet the safe harbor (as if the safe harbor were a definition of a trade or business). Only time and the courts will tell whose interpretation will prevail.

IRS, Tips

IRS Issuing Employer Mandate Penalty Letters for 2017

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Many of the news items I share on my blog come from the National Association of Tax Professionals’ regular e-newsletters or monthly magazine. They’re an amazing group of tax experts and I have found their education — especially at the annual National Conference — to be of excellent quality.

And now they are compiling their notices and articles into a blog, to make it easier to share with clients and colleagues. One gem I just came across was a short notice that the IRS has started reaching out to employers who may be responsible for a shared responsibility payment for their employees’ health insurance.

I recently had a client who was doing everything they could to not cross the 50-employee (or rather, full-time-employee-equivalent — FTE) mark, so as not to trigger the requirements of being an Applicable Large Employer (ALE). And it turns out that their benefit policy is such that they already contribute more than necessary to employee health insurance, and their benefits company has already made sure they were complying with the safe harbor rules.

So remember that being classified as an ALE is only an issue if you’re not pulling your weight as an employer, which many of our small business clients already are. If this is the case, don’t short-change your staffing policies out of fear that you might become an Applicable Large Employer… you have nothing to fear.

However — if you’re not sharing the financial burden of health insurance with your employees sufficiently, or are not meeting safe harbors and reporting requirements (which most benefits companies will handle for you), and you do have more than 50 FTEs… you may be getting a notice that needs a quick and thoughtful response.

Source: National Association of Tax Professionals Blog

Education, IRS, Tips

Reasonable Compensation for Shareholder-Employees of S-Corps Webinar, Aug 29

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At the most recent National Association of Tax Professionals annual conference, I noticed that although I was in seminars with seasoned professionals — many of whom know a lot more than I do in certain areas of tax law — there was an overall lack of understanding of the topic of Reasonable Compensation for S-Corp shareholders. Misinformation abounded, with “tips and tricks” rather than legal precedent guiding the way.

Some years ago, I took a series of classes presented by Paul Hamann, President of RCReports Inc., and learned all about the court cases that have defined the issue of Reasonable Compensation over the years. I chose to subscribe to their annual service (no, I do not get any special favors or payment for promoting their product — I’m just a fan)… but even if I hadn’t, the education I received on the topic helped inform my client advisory practice and it made me a better tax preparer and CPA.

Turns out that he’s got another class coming up with CPA Academy in a couple of days, and I wanted to encourage you to take it, and to spread the word (this advice holds whether you’re an S-Corp owner or a CPA/ EA/ Accountant/ Tax Preparer/ Bookkeeper).

Thursday, August 29, 2019
12:00 PM ET – 11:00 AM CT – 10:00 AM MT – 9:00 AM PT
FREE – 2.0 hours CPE / 2 CE

Between 2010 and 2013 a flurry of court cases and IRS enforcement brought the issue of ‘What is Reasonable Compensation for a Shareholder-Employee of an S Corp’ out of the shadows and placed it forefront as a priority issue for CPA’s, Tax and Financial advisors to cover with their clients. There are tools today that take the guesswork out of determining Reasonable Compensation, and help build rapport and trust with your clients.

– Review why Reasonable Compensation has become a priority for the SB/SE division of the IRS
– Demonstrate the basic advantages of Distributions vs. Salary/Wages
– Identify options for determining Reasonable Compensation