Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

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IRS Releases 2021 Inflation Adjustments

Posted by taxguru on October 26, 2020

The Tax Game never ends.  As 2020 nears its end, people are starting to look ahead to what we can expect for 2021.  Every year, many items in the Tax Code are adjusted to reflect the official increase in the Cost of Living since the prior year. 

There are also a lot of things in the Tax Code that have been set in concrete by our Rulers in DC and have not been increased for decades, such as the measly $3,000 of net capital loss that can be used to offset other kinds of income.  I long ago gave up any hope for such concepts as Fairness or Consistency in the Tax Code in order to hold onto my sanity in this profession.

While some tax publishers had already released what they calculated as the inflation adjustments a few weeks ago, it’s not really official until IRS makes its calculations known, which has happened today.

They have a good summary of the changes in their news release:

IRS provides tax inflation adjustments for tax year 2021

 

All of the nitty-gritty specifics are spelled out in much more detail in the official 28 page Revenue Procedure 2020-45

Besides adjustments that affect Income taxes, there are some that affect Estate and Gift taxes.  One item that is closely watched is the change in the annual amount that can be gifted without the need to file a Gift Tax return (Form 709).  Many people have gifting plans that utilize this allowance in the amounts that are gifted each year.  Unlike the other inflation adjusted items, which normally increase every year and result in “odd-looking” numbers, the Gift tax allowance can only be increased when the cumulative inflation since the previous adjustment is close to an even $1,000.  That’s not happening in 2021.  The annual exemption will remain at $15,000 per donor (giver) per donee (recipient).

[Update 10-28-2020] – As they have done each year, the folks at TheTaxBook have posted this very handy one-page summary of the 2021 figures side by side with what they were for 2019 and 2020.

Posted in inflation, IRS | Comments Off on IRS Releases 2021 Inflation Adjustments

Escape From New York

Posted by taxguru on August 7, 2020

 

CloseOffNYC(8-17-20)

Everyone has their own personal breaking point; how much fiscal and other kinds of torture they are willing to tolerate before packing up and leaving.  High taxes and extreme regulations weren’t enough for many New Yorkers; but the insane and deadly way they have been treated during this pandemic seems to have been the final straw for many.

LeftCity-HighTaxes

New York exodus accelerates amid pandemic as some residents head south

 

MillionairedFleeingNY(10-2-20)

 

Florida sees nearly 1,000 people move there daily as high-tax residents seek shelter

MovingOutOfNY

New York’s wealthy taxpayers may not return, Cuomo fears

 

SalesPlummetingInNY(8-29-20)

NYC relocations accelerating at ‘substantial’ pace, local movers say

A mad rush for the exits as New York City goes down the tubes

cuomobegs3webcr-8-7-20_orig

Just as with the states where tax refugees from California have relocated, there are some pitfalls to this migration.  Besides driving up real estate prices, the newcomers to low tax states often bring their big government ideology with them and end up destroying the environment that attracted them in the first place.  With so many New Yorkers moving down south here to Florida, that is a very valid concern.

KissNYCReturnees(8-17-20)

Posted in New York | Comments Off on Escape From New York

Can A.I. Handle Accounting?

Posted by taxguru on July 29, 2020

Over the past few years, as robots and artificial intelligence (AI) have made huge inroads into several industries, I have seen many CPAs and bookkeepers fret over the possibility of having no work to do.  DIY tax return programs and AI were supposedly going to make them obsolete and they sincerely worried about their futures.

Whenever possible, I have assured these doomsayers that as long as they are not just “form-fillers” they will never run out of work.  Tax and accounting rules and regulations will continue to grow more and more complicated until the end of time.  There will thus always be a need for people to apply their knowledge and experience to solving and complying with those rules and regs. 

Having been in this business for almost 45 years, I have seen and been a part of the evolution from doing books manually in big heavy ledgers, to in-house computers,  to working in the cloud.  These have all been means of recording transactions for businesses, much like going from a pencil to a typewriter.  There has always been a need for humans with proper accounting expertise to determine where and when transactions should be recorded in a company’s books.  While it may be possible for a computer to be programmed to play games such as Chess, being able to analyze and properly book accounting entries is too much science fiction for me to accept.

However, that doesn’t mean that other people who are less grounded in the realities of making accounting decisions don’t think it’s possible.  This article in Forbes about a company called ScaleFactor, that was able to con investors out of $100 million dollars for its promised AI accounting system, is very interesting.  I have to admit that I had never heard of this company before seeing this Forbes article.  Surprisingly, their website is still active; so the Forbes expose hasn’t shut them down yet.

Reading the Forbes article, describing how the company used actual human accountants in the Philippines to perform the shoddy accounting tasks while claiming that their magical AI software was actually doing it, reminded me of the extremely interesting documentary I saw not too long ago about Theranos, called The Inventor: Out for Blood in Silicon Valley.  That company claimed to have invented a one drop blood testing machine that could quickly test for a huge number of things, including cancer.  It turned out that the machine didn’t work, but they pretended it did and had human lab workers run tests, often erroneously, in their “fake it ‘til you make it” scheme to con over $700 million from gullible investors.  Paying powerful celebrities for their endorsements also helped convince people that it was worth sinking their money into.  They literally bought credibility because they couldn’t earn it properly.

As always, we should try to learn from these kinds of mistakes that other people make so that we don’t need to suffer the same kinds of losses that they had.  The “fake it ‘til you make it” approach to start-up companies isn’t new by any means.  Sometimes they actually work.  I remember attending meetings in Silicon Valley where some successful entrepreneurs actually bragged about using that tactic.  I have no statistics on how many of the fakers actually made it to their goals and produced real products and services.  I would hazard a guess that for every one that did make it, there are dozens of fakers who didn’t make it, often crashing in flames.  Investors, which include employees of companies promising “magical” things, should be extra cautious.

Posted in Accounting, scams | Comments Off on Can A.I. Handle Accounting?

Tax Day Remains July 15–File Extensions For More Time

Posted by taxguru on June 30, 2020

After a lot of speculation that the official Tax Day for 2019 income tax returns would be moved out to September 15 or October 15, IRS ended the confusion with a news release.

Taxpayers should file by July 15 tax deadline; automatic extension to Oct. 15 available

The big difference between having IRS just push the Tax Day to October 15 versus us filing the 4868, is when any expected tax balances need to be submitted to IRS and the States.  IRS pushing Tax Day to 10/15 would have meant that no form would need to be filed by July 15 and no money would have to be sent in until Oct 15.

I had actually been expecting the additional delay, not just for the hassles of getting everything together to prepare 2019 tax returns by July 15, but also for the fact that allowing people to hold onto their 2019 and 2020 tax payments until October 15 would have been a much more efficient method of providing economic stimulus money to people than the previous method was.  Of course, this is SOP for government operations, to choose the least efficient method of doing things

Most State tax agencies have been piggy-backing on the IRS deadline, so extensions should be filed with them as well. Check your states’ websites to be better informed.  As of today, I notice that the AICPA’s chart of State tax filing dates hasn’t been updated since 6/18/20.  Hopefully, that will be amended soon to take into account the various States’ conformity or not with IRS’s declaration.

I am a little disappointed that Tax Day wasn’t moved until later, but I am grateful that at least IRS didn’t wait until July 14 to spring this announcement on us.  That gives us two weeks to do rough calculations of 2019 taxes and prepare the extension forms.

Posted in extensions, TaxDay | Comments Off on Tax Day Remains July 15–File Extensions For More Time

Reduced Stimulus Payments

Posted by taxguru on June 4, 2020

From a Client:

Good Morning Kerry I’ve a question ~ I received my “Economic Impact Payment “ due to COVID-19 I understood the checks to be $1,200.00 …mine was only $875.60 Were taxes to be taken out of these?

 

My Reply:

What you received is actually the correct amount per the current payment schedule. The amount can be as high as $1,200 per person, but is phased down for people whose most recently reported AGI was more than $75,000. I just used a handy phase-out calculator that I found on the web and entered your 2018 AGI of $81,488. Attached you can see the result of $876.

IRS-StimulusCheckAmount

It is still possible that you can get the additional $324, but that won’t be for more than a year. When we prepare your 2020 Federal income tax return, there will be a schedule to recalculate the proper amount using your 2020 AGI. If you qualify for more than the $876, you will get a credit for the extra amount. As it is currently being discussed, if you actually end up qualifying for less than what you received, you will not be forced to pay back the over-payment. That could change by next year. All of these special Covid related programs are still very fluid and being tinkered with constantly. There is even talk right now of a second round of stimulus payments in the next few months; so there will be no end to the confusion.

So, there is no need to contact IRS about your payment. They did send you the correct amount for this first round of payments.

I hope I have explained this adequately. Let me know if you have any other questions.

Kerry

Posted in COVID-19, IRS | Comments Off on Reduced Stimulus Payments

Deducting Expenses Paid With PPP Funds

Posted by taxguru on May 28, 2020

From a Client:

Kerry, Our corp received a PPP loan for $71,200 for payroll – so I take it, if forgiven, this rule applies?

 

My Reply:

As you know, the rules for all of these new pandemic spurred programs are being developed on the fly, so there are constant changes and tweaks to the details.  It’s not as bad as the constant back and forth details of what does or doesn’t spread the virus that we are hit with every day, but it’s close.

What is a bit confusing in the discussions of having a "tax free" debt forgiveness is this twist.  If you are not allowed to deduct the expenses paid from the tax free PPP money, those loan proceeds are in effect being taxed by reducing your deductions and increasing your taxable income.

The tax effects of expenses paid by forgiven loan funds from the PPP program have been and are still being discussed a lot, including on tax message boards and webinars that I take part in.  The current thinking, as explained in that article you sent, is that the ages old concept of not allowing deductions for expenses which have been reimbursed will apply in order to avoid a type of double dipping.

There is some talk about Congress adding a special provision into a future stimulus bill to allow deductions for PPP paid expenses, while maintaining the tax free status of the debt forgiveness.  However, if that were to survive all the way to Trump, it would almost certainly only apply to very small businesses, after the PR fiasco of big corporations scooping up a huge portion of the PPP funds.  Depending on where they set the threshold for qualifying small businesses, there is still a good chance that yours would fall under that limit and be eligible.  With the current lack of cooperation between the political parties, I wouldn’t hold my breath for this to ever materialize.

Since the dis-allowance of deductions only applies if the loan is forgiven, that is still the best way to go if you meet the qualifications for the debt to be wiped out.  Claiming the deductions still only returns a portion of the out of pocket costs to you, while the forgiveness offsets it all.

I hope this helps.  If anything changes in this regard, I will keep you posted.  Hopefully, there will be more concrete guidance on this matter before the 9/30/20 tax filing deadline for your corp’s current tax year.

Let me know if you have any other questions or would like to discuss any of this in more depth on the phone or Zoom.

Kerry

 

ExpertsGoofyPath

Posted in Debt Relief, Deductions | Comments Off on Deducting Expenses Paid With PPP Funds

All Ponzi Schemes Eventually Collapse

Posted by taxguru on May 22, 2020

Even the ones that all Americans are forced at the point of a gun to participate in, such as Social Security and MediCare cannot go on forever.  As I mentioned in my earlier post on why grabbing SS benefits ASAP is the only way to avoid being frozen out, the mythical SS Trust Fund is running out of the money necessary to honor the current payment plans. 

The current virus crisis has exacerbated that problem, with millions of fewer people able to contribute to the “Trust Fund” and holidays from this forced participation being proposed as a means of kick-starting the economy that has been devastated by the shut-downs.

From ForbesNew Analysis Confirms: The Social Security Trust Fund Is In Trouble 

From Bipartisan Policy Center: COVID-19 May Deplete Social Security Trust Funds This Decade 

From SSA: The 2020 OASDI Trustees Report

Posted in ponzi, social security | Comments Off on All Ponzi Schemes Eventually Collapse

Schedule For IRS Paper Stimulus Checks

Posted by taxguru on May 13, 2020

For those individuals who haven’t provided IRS with their personal bank account info to allow direct deposits of the up to $1,200 per person stimulus checks, IRS has to send out paper checks via the USPS.

With millions of such checks required, this will be taking a number of months.  Rather than mailing them in random order, IRS is doing so based on the amount of AGI (Adjusted Gross Income) that was reported on 2018 or 2019 1040s.  This begins with the lowest income individuals, which does make a lot of sense in this time of financial crisis, and increases by $10,000 each week

Here is the current IRS mailing schedule, courtesy of Forbes:

Here is the planned weekly schedule for the IRS to mail stimulus checks based on annual adjusted gross income, as first reported by The Washington Post. All dates represent the “week ending” (for example, the week ending April 24) and the IRS could change this schedule at any time.

Less than $10,000: April 24

$10,001 – $20,000: May 1

$20,001 – $30,000: May 8

$30,001 – $40,000: May 15

$40,001 – $50,000: May 22

$50,001 – $60,000: May 29

$60,001 – $70,000: June 5

$70,001 – $80,000: June 12

$80,001 – $90,000: June 19

$90,001 – $100,000: June 26

$100,001 – $110,000: July 3

$110,001 – $120,000: July 10

$120,001 – $130,000: July 17

$130,001 – $140,000: July 24

$140,001 – $150,000: July 31

$150,001 – $160,000: August 7

$160,001 – $170,000: August 14

$170,001 – $180,000: August 21

$180,001 – $190,000: August 28

$190,001 – $198,000: September 4

Remaining checks: September 11

Posted in IRS, stimulus | Comments Off on Schedule For IRS Paper Stimulus Checks

Banks Encouraging Loan Fraud

Posted by taxguru on May 11, 2020

Whenever trillions of dollars are being tossed around, you can be sure that the scammers and fraudsters will all be out in full force to glom onto as much of that loot as they can.  That should have been obvious to everyone when the special loan programs for the current virus crisis were rushed through Congress. 

Banks have been busy enticing everybody, whether they are eligible or not, to take out these loans and are even calling it “Free Money” because of the promise of tax free loan forgiveness. Banks have seen this as easy money for themselves, and it’s not just openly corrupt banks, such as Wells Fargo, that are doing this.  They have already received billions of dollars for processing these risk-free loans and are still trolling for more borrowers with bogus promises.

Here’s what I wrote as a reply to a client’s email, stating that his banker was encouraging him “to try and get some of the free money everybody else seems to be getting.”

I would be very very careful about taking part in these special loan programs that have been set up to combat the economic slowdown.  Bankers are making billions of dollars in fees for setting up these risk-free loans and are lying to borrowers as to the benefits, such as tax-free forgiveness. 

With all of this new money, people who are being egged on by fee-seeking bankers, are swarming to it like flies to a pile of poop.  This has not been missed by those in power and it is guaranteed that these loan applications and future requests to forgive the loans will be scrutinized even more closely than IRS does with tax returns.  If you were to apply for your loan to be forgiven, they will demand tight documentation of how the loan money was used

I just did a quick internet search and found some Forbes articles that I put into your Qbox folder on this issue.  There will be many more all over the media, as the government increases their examinations and prosecutions and publicizes those who are caught as a scare tactic. 

One big question: after a borrower is busted for illegally participating in one of these special loan programs, will the bankers who processed those loans also be charged with fraud?  My money is on a big fat “No.”  Too many congress-critters are on the banks’ payroll to allow such a thing to happen.  They will pass laws indemnifying all banks from any legal liability from these loans, if they haven’t already done so.  Just like everyone in Congress, I don’t have the time to read all of the legislation that they pass.

Posted in banks, COVID-19, Fraud | Comments Off on Banks Encouraging Loan Fraud

A Tax Season Unlike Any Other…

Posted by taxguru on April 23, 2020

WeirdTaxSeason2020 

TrumpStimulusCheck

CuomoTaxingVirus 

people-jokes-stimulus-check

Posted in comix, TaxSeason | Comments Off on A Tax Season Unlike Any Other…