Mid-Summer Tax Update

Mid-Summer Tax Update

It’s hot, it’s mid-summer, and Congress is in Recess. No better time than now to clean out the frequently-asked-question box and cover some miscellaneous topics.

Tax Extenders: We Should Have Known Better

Don’t know about you, but we always get our hopes up for an early resolution to tax extenders. There are most certainly things that need to be addressed, mainly in the renewal energy credit area, that have expired or are set to expire as well as important corrections to parts of the Tax Reform bill that went into effect in 2018. The big one for small business being the inadvertent omission of accelerated write-off of major renovations by restaurants and retail owners from the tax reform bill.

As is usually the case on any extender-related issue we  may not see action until year end, especially given  the contentious mood in Congress and upcoming election year.

Righting A Wrong: IRS Waives 2018 Penalty

When the tax tables changed in 2018 for tax reform it lowered, across-the-board, your payroll federal withholding and estimated payment, a good thing. However, this unintentionally caused many small business owners to be under-withheld on other sources of income or where itemized deductions were limited due to the new SALT ceiling. That was a bad thing.

The IRS initially waived the penalty for those who asked. That didn’t work so well. To correct the problem, the IRS recently announced it would automatically waive the penalty for those who had at least 80% of the total tax liability paid in from withholding or estimates. 

Many of those who incurred penalties were small-business owners. An estimated 400,000 taxpayers will be affected by this waiver. If you haven’t filed yet then simply claim the waiver with the return.

Beware: IRS Looking At Virtual Currency

You knew it was a matter of time. The IRS recently announced it is sending letters of inquiry to those who have suspected misreported income from virtual currency transactions. Virtual currency, think bitcoin, has been on the increase as the market for these type of transactions have developed. As with most new industries, the guidance lags behind the industry, but, once it’s in place, beware.

The “beware” has started because the Service is now sending out guidance on how to value bitcoin income as well as correspondence to persons it believes may have misreported income, albeit mainly due to lack of guidance in this new area.

What to do? The receipt of a notice from the IRS should not be ignored.  Be prepared to support your claim for reporting, or not reporting, your transactions as well as the underlying profit or loss from the transaction(s).

Go Fund Me Contributions: Deductible Or Not?

We have had numerous questions about claiming charitable donations for Go Fund Me contributions.

In short, don’t deduct it. Donations are deductible only when made to qualified charities designated as such by the IRS under IRS Section 501c(3). Which means that donations to personal friends and acquaintances, well intentioned though it may be, are not tax-deductible. Unless it has the 501c(3) designation, donations are not tax deductible as a charitable contribution.

Stronger Taxpayer Safeguards With IRS

In June, Congress passed the Taxpayer First Act of 2019  that provides stronger security of our personal information. A few of the safeguards are:

• IRS must first give you 45 days notice before it contacts others involving the determination or collection of a tax liability.
• IRS must give you notification of suspected identity theft of you or your dependents information, status of the investigation and action taken.
• IRS must notify you when someone has been charged with a crime for tax identity theft to allow you time for civil action against the perpetrators.
• IRS must develop and implement procedures that reduce the burdens for identity theft tax refund fraud  victims as they work with the IRS to sort out their tax affair, such as receiving refunds and streamlined communication.