Author: Carrie Christensen

KT Insights
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Extension

Monday April 15, 2024, is the federal deadline for filing your 2023 individual income tax return. This is also the last day to request a six-month filing extension.

An important thing to note is that this is only an extension to file, not an extension to pay. Any tax due for 2023 is due by April 15th. If you expect to owe tax for 2023, you should send a payment to the IRS for the estimated amount due with your extension form.

Payments made after April 15th are subject to penalties and interest. Additionally, if you fail to file an extension, late filing penalties will apply if you owe tax.

April 9, 2024
| Carrie Christensen
KT Insights
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Understanding IRS Rules for Deductible Business Meals & Entertainment

The IRS allows self-employed taxpayers to deduct certain business meals and entertainment expenses. However, knowing what meals and entertainment expenses are deductible can be pretty confusing. Recent tax laws have changed what businesses are allowed to deduct. The Tax Cuts and Jobs Act of 2017 eliminated the deduction for most entertainment expenses and the Consolidated Appropriations Act of 2021 temporarily allowed business meals provided by a restaurant to be 100% deductible.

Even with these changes, business owners still have opportunities to benefit from deductible business meals and entertainment. The key to maximizing tax benefits is understanding what is deductible versus what is not and using that as a guide for business expenditures. Here are some examples of common business meal and entertainment expenses, and how they are taxed:

100% Deductible

  • Company holiday party or summer picnic
  • Business-promoting meals provided to the public such as an open house
  • Meals provided as taxable compensation to employees (included on W-2)
  • Business meals that are a critical part of your business function (food critic or food blogger)
  • Meals provided to an employee at work in order to work late
  • Entertainment for paying customers, such as hiring a band to play at your restaurant

50% Deductible

  • Business meals and/or drinks with clients or colleagues
  • Meals while traveling on business
  • Treating a few employees to a meal
  • Food for an in-office meeting
  • Meals at conferences
  • Office snacks

0% Deductible

  • Entertainment with a client or customer, whether or not business is discussed
  • Tickets to sporting events
  • Lavish or extravagant expenses
  • Country club dues

It is important to note that even though the entertainment portion of a business outing is nondeductible, meals consumed during the event would still be 50% deductible. For example, if you take a client to a hockey game and also purchase food and drinks, the game tickets are nondeductible, but the food and drinks are 50% deductible. Just be sure to get a breakout of the expenses on the receipt.

Be sure to keep proper records for deductible business meals. The IRS requires documentation of the amount (taxes and tips can be included), the date and location of the meal, who attended, and what was discussed.

February 27, 2024
| Carrie Christensen
News
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Tax Legislation Update

On Wednesday (January 31, 2024), the U.S. House of Representatives passed HR 7024 – The Tax Relief for American Families and Workers Act of 2024. This $78 billion tax package passed in the House with an 83% approval rate and now makes its way to the Senate.

Highlights of HR 7024

  • Child Tax Credit expansion – The bill will allow more lower-income families to receive the credit by increasing the refundable portion, revising the income limitations, and adjusting for inflation for tax years 2023-2025.
  • Reinstatement of 100% expensing of domestic research and development (R&D) expenses – Current law requires domestic R&D expenses be capitalized and expensed over 5 years. 100% expensing will be retroactive to tax year 2022 and extend through 2025. Foreign R&D expenses will still be capitalized and expensed over 15 years.
  • Extension of 100% bonus depreciation – Under current law, bonus depreciation for tax year 2022 is limited to 80% and is set to phase down by 20% in each subsequent year. The bill will reinstate 100% bonus depreciation effective January 1, 2023, through December 31, 2025.
  • Inflation adjustments to increase the Section 179 expensing limit – The bill will increase the expensing limits beginning in tax year 2024 and be adjusted for inflation thereafter.
  • Business interest expense limitation adjustment – The bill will revert the limitation back to 30% of EBITDA (earnings before interest, taxes, depreciation, and amortization) for tax years 2024 and 2025.
  • Employee Retention Tax Credit (ERTC) termination – The bill will not allow any ERTC claims to be accepted after January 31, 2024. Claims submitted prior to January 31, 2024, will still be processed. The bill also includes a clause to impose penalties up to $200K for promoters filing fraudulent claims.
February 1, 2024
| Carrie Christensen
KT Insights
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2024 Tax Season Officially Underway

  • The IRS began accepting and processing individual tax returns on January 29.
  • This year’s filing deadline for individual returns is April 15, 2024.
  • The IRS expects to receive more than 146 million individual tax returns for 2023 during the next two and a half months.

If you haven’t already, now is the time to get started gathering your tax documents!

Reports indicate that nearly a third of Americans wait until the last minute to file. In fact, traffic accidents increase significantly around April 15 as frantic drivers make a beeline for the post office. And, last minute filers are more likely to miss reporting items that should be included on their return which may lead to IRS notices and the need to file an amended return.

A good method to determine if you have all your tax documents is to compare forms received for 2023 versus 2022. And don’t forget to include any new items that you may have for 2023, like a W-2 from your new employer, a 1099-MISC for income earned from your new side hustle, or a 1099-R from a retirement distribution.

If you have a refund coming this year, you can check the status at https://www.irs.gov/wheres-my-refund. In an effort to provide improved service to taxpayers, the IRS has enhanced its “Where’s My Refund?” tool. Enhancements include more detailed status updates written in plain language and mobile device compatibility.

KT encourages our clients, and all taxpayers, to get their tax documents to their tax professional sooner than later!

January 30, 2024
| Carrie Christensen
KT Insights
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IRS Announces New Penalty Relief for Certain 2020 and 2021 Tax Returns

The IRS announced last month that it would be waiving late payment penalties for tax years 2020 and 2021 for certain taxpayers. The waivers apply to taxpayers with tax assessments of less than $100,000 for 2020 and/or 2021 and who were issued an initial balance due notice on or before December 7, 2023.

During COVID, the IRS suspended sending late payment reminders to taxpayers although penalties continued to accrue. As the IRS prepares to return to normal collection efforts, this relief will help ease the pain for many taxpayers. The agency estimates 4.7 million individuals, businesses, trusts, estates, and tax-exempt organizations are eligible for the penalty relief, representing $1 billion in savings to taxpayers.

The waivers are automatic – taxpayers do not need to take any action. The IRS plans to send out letters this month to alert taxpayers of their current balances due and the amount of penalty relief applied if applicable. Eligible taxpayers that have already paid the penalties and have no other tax liabilities will be receiving refunds.

January 23, 2024
| Carrie Christensen
KT Insights
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A Closer Look at Recent Bipartisan Tax Legislation

Below are the latest developments from the tax landscape, and this time, it’s a bipartisan effort led by the House Ways and Means Committee and Senate Finance Committee. Let’s dive into the key highlights:

Key Provisions:

  1. Full Expensing of Domestic Research Costs: Extended until 2026, including the current and upcoming tax years.
  2. 100% Bonus Depreciation: A boost for property placed in service from 2023 through 2025.
  3. Use of EBITDA: Now an option instead of EBIT in determining deductible business interest through 2025.

    Additional Highlights:

    • Increased eligibility for small business section 179 expensing.
    • Expanded refundability of the child tax credit for lower-income taxpayers.
    • Protection against double taxation of Taiwan-related income.
    • Additional disaster-related tax relief provisions.

    Cost Offsetting Measures: To balance the ledger, the legislation proposes:

    • A deadline for filing Employee Retention Credit (ERC) claims by January 31, 2024.
    • An extended period for IRS assessments related to erroneous ERC claims.
    • Increased due diligence requirements for ERC promoters, along with penalties for assisting in filing erroneous claims.

    Outlook for 2024: While the passage of tax legislation in 2024 is uncertain, the bipartisan agreement between committee chairmen is a promising step. The Smith-Wyden proposals strike a balance between business tax relief and the expansion of the child tax credit.

    The focus on refundability in these proposals suggests a growing consensus on this critical issue, potentially increasing the chances of legislation enactment in 2024. However, the Congressional calendar is currently centered on non-tax matters, and leadership support for advancing tax legislation remains unclear.

    Business Tax Provisions:

    • Required 5-year amortization of research costs gets a delay until 2026, with a retroactive effective date to the 2022 taxable year.
    • Preservation of 100% bonus depreciation for most property placed in service through 2025.
    • Extension of using EBITDA (earnings before interest, taxes, depreciation, and amortization) to determine ATI (adjusted taxable income) for tax years before 2026. Deductible business interest is generally limited to 30% of ATI.
    • Small Business Expensing (Section 179): An increase in the maximum amount a taxpayer may expense in 2024, promoting growth and business investment.

    Child Tax Credit Refundability: Significant enhancements to benefit low-income taxpayers, reflecting a per-child basis determination and an overall limitation increase.

    Other Favorable Provisions: Legislation to address potential double taxation of Taiwan-related income, expansion of the low-income housing tax credit, and additional relief for taxpayers in disaster-affected communities, including provisions allowing certain wildfire relief payments to be excluded from income.

    Stay tuned for more insights and updates as we navigate through these legislative changes together.
January 18, 2024
| Carrie Christensen
KT Insights
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Avoiding Charity Scams

It is human nature to want to help others in times of need, tragedy, or disaster. Unfortunately, scammers see this as an opportunity to prey on unsuspecting people and trick them into giving to fake charities. In 2022 alone, consumers reported losing almost $8.8 billion to scams and fraud, which is up 30% from 2021, according to the Federal Trade Commission.

2023 has been a record-breaking year for natural disasters across the U.S. We have endured 23 separate weather and climate disasters so far this year. Each event has caused at least $1 billion in damage for a total of nearly $60 billion, according to the National Oceanic and Atmospheric Administration.

Here are a few tips to ensure that your dollars go to legitimate charities:

  • Donate to established charities you know and trust. Scammers will use a copycat name similar to a reputable organization to fool you, so make sure the name is exact.
  • Don’t trust your caller ID. Scammers can use technology to make any name or number appear on your phone. They can make it look like they are calling from a local number even when they are not.
  • Be wary of solicitations via email. Legitimate charities won’t include attachments in emails. Manually type out links in your Internet browser rather than clicking on them in the email. Most legitimate charities have a .org website rather than .com.
  • If you are asked to give cash, gift cards, cryptocurrency, or a wire transfer, it’s a scam. Only give using a check or credit card.

Charity scams can occur at any time, but they are very prevalent after high-profile disasters. Scammers take advantage of our emotions so remember to pause and verify those to whom you are donating. The IRS has a charity lookup tool here:  https://www.irs.gov/charities-non-profits/tax-exempt-organization-search.

If you are a victim of charity fraud, contact your state’s consumer protection office at https://www.usa.gov/state-consumer, or report fraud to the FBI at https://tips.fbi.gov/home.

And finally, pass this information on to a friend. Undoubtedly many people you know receive charity solicitations. This information could help someone else spot a potential scam.

October 9, 2023
| Carrie Christensen
KT Insights
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IRS Penalties? KT Can Help.

If you receive a notice from the IRS, know that you are not alone. The IRS sends out millions of notices to taxpayers every year. Many of these notices contain failure to file and/or failure to pay penalties. Oftentimes, the notices are incorrect and require a response from the taxpayer. But even if the penalties are justly assessed, there are options available to request a reduced penalty or penalty removal.

One option for penalty removal that may be available to you is the First Time Penalty Abatement (FTA).  FTA applies to failure to file, failure to pay, and failure to deposit penalties. To be eligible for penalty relief under FTA, you (or your business) must meet the following requirements:

  • There were no penalties assessed for the three prior tax years.
  • All filings are up to date.
  • Any tax due has been paid.

FTA is available every three years provided the requirements above are met – it is not just a one-time benefit. FTA may be requested over the phone or in writing. If FTA is not available to you, you may consider requesting penalty relief based on reasonable cause.

IRS issues can be complex, and as noted before, millions of people receive IRS notices every year. The good news is, KT has a dedicated team of professionals available to help you in dealing with the IRS. Please contact us if you have received an IRS notice and would like our assistance.

August 10, 2023
| Carrie Christensen
KT Insights
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IRS Tax Notices – Updates & Tips

The IRS recently announced that it would resume sending tax notices that were previously halted due to COVID-related processing backlogs. In addition to resuming the halted notices, the IRS has begun to send out 2022 balance due notices.

Additionally, the IRS sends notices for the following reasons:

  • To notify you of a change in your refund amount
  • To ask a question about your tax return
  • To verify your identity
  • To request more information
  • To notify you of a change made to your return
  • To notify you of delays in processing your return

Here are eight tips to keep in mind if you happen to receive an IRS notice:

  1. Don’t panic. You are not alone. The IRS mails millions of notices to taxpayers each year. Oftentimes, there is a simple resolution.
  2. Don’t ignore the IRS. If the IRS says you didn’t pay enough tax, interest and penalties will be included in the balance due notice. Notices have a deadline for responding. If you ignore the notice, the penalties and interest will continue to grow.
  3. Read the notice thoroughly. Each notice has specific instructions telling you what you need to do to resolve the issue.
  4. Double check the numbers. When a notice includes changes by the IRS to your tax account, review the information and compare it with your original return. The IRS does make mistakes.
  5. If you disagree, speak up. If you don’t agree with the notice, it’s important to respond promptly. The notice will include instructions on how to respond if you disagree. Depending on the notice, response options may include mailing a written letter, calling the IRS, faxing the IRS, or uploading documents online at IRS.gov. The option to upload documents online is new this year.
  6. Keep good records. Keeping good records of your tax returns and supporting documents is highly recommended even if you never hear from the IRS. When it comes to IRS notices, you’ll also want to keep copies of any notices and all follow-up communications.
  7. Be alert for scams. Scammers use mail, telephone, and email to impersonate the IRS and steal people’s personal information and money. They have successfully stolen millions of dollars from unsuspecting taxpayers. The IRS initiates most contacts through the mail delivered by the USPS. The IRS will not contact you by email, text messages, or social media channels to request personal or financial information. For more information on how to figure out if you are being scammed, visit irs.gov/newsroom/tax-scams-consumer-alerts.

Know when to seek professional help. If you receive a notice and are unsure how to proceed, reach out to your tax advisor at Ketel Thorstenson. We have a team of IRS correspondence experts available to help you with your IRS notice.

July 20, 2023
| Carrie Christensen
KT Insights
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Extension

Tuesday, April 18, 2023, is the federal deadline for filing your 2022 individual income tax return. This is also the last day to request a six-month filing extension. An important thing to note is that this is only an extension to file, not an extension to pay. Any tax due for 2022 is due by April 18th. If you expect to owe for 2022, you should send a payment to the IRS for the estimated amount due with your extension form. Payments made after April 18th are subject to penalties and interest. Additionally, if you do not file an extension, late filing penalties will apply if you owe tax.

April 11, 2023
| Carrie Christensen