The IRS has just published brand new guidance on the exclusion of $10,200 of Unemployment Compensation.
If your modified adjusted gross income (AGI) is less than $150,000, the American Rescue Plan enacted on March 11, 2021, excludes from income up to $10,200 of unemployment compensation paid in 2020, which means you don’t have to pay tax on unemployment compensation of up to $10,200. If you are married, each spouse receiving unemployment compensation doesn’t have to pay tax on unemployment compensation of up to $10,200. Amounts over $10,200 for each individual are still taxable. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation.
The IRS now allows taxpayers to view their Economic Impact Payment amounts online, if any, by using their online account. Online account is an online system that allows taxpayers to securely access their individual account information. Taxpayers can view:
The amount they owe, updated for the current calendar day
Their balance details by year
Their payment history and any scheduled or pending payments
Key information from their most recent tax return
Payment plan details, if they have one
Digital copies of select notices from the IRS, and
Their Economic Impact Payments (EIP 1 and EIP 2), if any
See payment plan options and request a plan via Online Payment Agreement, &
Access their tax records via Get Transcript. The amount of the Economic Impact Payment is needed when calculating the amount of the taxpayer’s Recovery Rebate Credit for 2020.
Warning. Taxpayers must first create an account with the IRS before accessing any information. Tax professionals are not allowed to access or create an account for their tax clients. The taxpayer must create his or her own account and is the only person allowed to access the information, even if the client provided their information to the tax professional to create or access an account, or consented to use their information to create or access the account. Unauthorized use of the online account system is prohibited and subject to criminal and civil penalties.
Foreign Bank and Financial Accounts (FBAR) Filing Requirement for Virtual Currency: Virtual currency is a digital representation of value that functions as a unit of account, a store of value, or a medium of exchange. Some virtual currencies have an equivalent value in real currency or act as a substitute for real currency. Generally, a U.S. person who has a financial interest in, or signature or other authority over, any foreign financial accounts, including bank, securities, or other types of financial accounts located in a foreign country, must file an FBAR with the FinCEN if the aggregate value of those foreign financial accounts exceeds $10,000 at any time during the calendar year. Currently, the FBAR regulations do not define a foreign account holding virtual currency as a type of reportable account . However, FinCEN intends to propose to amend the regulations regarding FBARs to include virtual currency as a type of reportable account under 31 CFR 1010.350. FinCEN Notice 2020-2.
Thank you to NCCPAP and Bruce Oberfest, member of the Westchester/Rockland Chapter, for bringing this to our attention.
Recently, Durlene Reed, CPA & TACPA Executive Committee Member was able to attend the virtual meeting of the Texas State Board of Public Accountancy, (TSBPA). She filed the following notes for your information.
Texas State Board of Public Accountancy Committee & Board Meeting Notes for September 16 and 17, 2020
Peer Review Committee – TSCPA was approved to continue to sponsor peer reviews. – There is an exodus of reviewers and participating practices. – The cost to do a review is escalating. – There is a COVID‐19 related backlog. – Team captains are underperforming. – The PROB does not review each PR at the work paper level, but it does read 100% of the reports. – Rule 527 will be discussed at the next meeting. – Because of COVID‐19 the PROB’s contract was extended 120 days instead of 90 days. – Many firms have dropped out of PR by going to preparation of financial statements. The number of such firms will be discussed at the next meeting.
Rules Committee – Rule 507.4 needs clarification. – Limitations on operations after 2 review failures. – There needs to be an arm’s length between the PROB and the PR. – The wording in Rule 505‐20 should be changed from “referral” to “shall oversee”. To discuss this at the next meeting. – Free CPE
Executive Committee – Fee increase will be implemented as adopted last year. – Office relocation should be complete by next month. – In-person swearing in ceremony was cancelled in favor of a virtual one. – TSPBA audit. – Board succession plan to be presented at the November meeting. – Finger print status was updated. The deadline of 08/31/21 may be extended due to the pandemic.
The Tax Cuts and Jobs Act, P.L. 115-97 keeps on giving! Relief for small business! Proposed Regulation 132766-18 was issued in July. It addresses the TCJA changes dealing with who can use the cash basis of accounting for tax purposes.
TCJA simplifies recordkeeping for “small business”. If a business has average annual gross receipts of $25 million or less the cash method of accounting may be used for tax purposes (adjusted for inflation to $26 million for 2019 and 2020) (Sec. 448(c)). Also, uniform capitalization to inventory is not required (Sec. 263A), immaterial inventory can be treated as supplies and materials (Sec. 471 (c)), and the percentage of completion method of accounting for long term construction contracts is not required (Sec. 460(e)).
Average annual gross receipts amount is computed using the gross receipts for the three years preceding the tax year in question. Caution, aggregation rules apply at 50% or more common control. Filing a change in accounting method is required.
Not So Fast!
These benefits are not allowed for “tax shelters”. The definition of tax shelters is broad. It includes any non-C corp entity where more than 35% of losses in any tax year are allocated to owners who do not actively participate in management. This includes syndicates. Care is advised because a change in accounting method may generate a loss causing the entity to be classified as a tax shelter. Once this happens the taxpayer will be locked into the accrual method for five years.
Some things don’t change!
Sec 448(c) provides that qualified personal service corporations, farming businesses, partnerships with no C corp partners, and S corps generally can continue to use the cash method regardless of the gross receipts test as long as they are not “tax shelters”.
Conflicts between code sections have arisen and will require additional clarification.
Most of us do not have either the time or resources to stay abreast of potential actions being taken by the people who regulate/control our industry and our practices. Actions taken by the Texas State Board of Public Accountancy, (TSBPA), can have a significant impact on licensed practitioners. We should all have the opportunity to help create or refine the rules that affect us and our practice.
BoardWatch is a service of the Texas Association of Certified Public Accountants (TACPA), where members volunteer to attend the public meetings of the Texas State Board of Accountancy (TSBPA). The goal of BoardWatch is to provide our membership with timely information about actions proposed and/or taken at the Board. Using that information, we all can decide if we want to opine in a comment letter to the Board, perhaps contact our state legislator for help, or do nothing at all.
The BOTTOM LINE…? We want to make you aware of potential changes and give you the opportunity to evaluate them in relation to your practice. We want you to have the opportunity to provide input to the Board and suggest changes before anything is finalized and/or implemented.
The Internal Revenue Service and its Security Summit partners late last week warned taxpayers and tax professionals about a new IRS impersonation scam campaign spreading nationally on email. Remember: the IRS does not send unsolicited emails and never emails taxpayers about the status of refunds.
The IRS this week detected this new scam as taxpayers began notifying email@example.com about unsolicited emails from IRS imposters. The email subject line may vary, but recent examples use the phrase “Automatic Income Tax Reminder” or “Electronic Tax Return Reminder.”
“The IRS does not send emails about your tax refund or sensitive financial information,” said IRS Commissioner Chuck Rettig. “This latest scheme is yet another reminder that tax scams are a year-round business for thieves. We urge you to be on-guard at all times.”
Tax pros should review new checklist with steps to protect data
Despite major progress against identity and data theft, these threats
still happen. They continue to put tax professionals and their clients
at risk. To help combat this, the IRS and its Security Summit partners
created a new Taxes-Security-Together Checklist. The checklist includes
things tax pros can do now to prevent and recognize data theft. It also
gives steps tax preparers can follow if they do experience a data
Following this checklist is a great starting point for tax
professionals who want to protect their offices, computers and data.
This tax tip is the first in a series highlighting the items in this
Here’s a rundown of the Taxes-Security-Together checklist:
Follow these steps, known as the “Security Six” measures
Activate anti-virus software.
Use a firewall.
Use two-factor authentication.
Use backup software or services.
Use drive encryption.
Create and secure virtual private networks.
Create a data security plan
Federal law requires all professional tax preparers to create and maintain an information security plan for client data.
The security plan requirement is flexible enough to fit any size of tax preparation firm.
Tax professionals should focus on risk areas. These include employee management and training, information systems, and detection and management of system failures.
Deductions for business meals are back on the table.
Allaying initial fears, the IRS recently provided clarification concerning food and beverage deductions under the Tax Cuts and Jobs Act (TCJA) in Notice 2018-76. Based on this guidance, many of your business clients may still qualify for some write-offs.
Significantly, the TCJA eliminated the traditional 50% deduction for business entertainment and meals, effective in 2018. Therefore, clients can no longer write off expenses relating to entertainment, recreation or amusement like the cost of a play or concert tickets following a substantial business discussion. However, the TCJA generally preserved the other rules for food and beverage expenses under Section 274, including the strict substantiation requirements.
This led to arguments in the tax community as to whether certain business meal expenses would remain deductible. (Clearly, deductions for meals are still available for taxpayers traveling away from home on business.) Under the interim guidance provided in Notice 2018-76, the IRS says that a 50% deduction is allowed for food and beverage expenses if the following conditions are met:
Under the interim guidance provided in Notice 2018-76, the IRS says that a 50% deduction is allowed for food and beverage expenses if the following conditions are met: • The expense is an ordinary and necessary business expense under Section 162(a) paid or incurred during the tax year when carrying on any trade or business; • The expense isn’t lavish or extravagant under the circumstances; • The taxpayer, or an employee of the taxpayer, is present when the food or beverages are furnished; • The food and beverages are provided to a current or potential business customer, client, consultant or similar business contact; and • For food and beverages provided during or at an entertainment activity, they are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices or receipts.
Furthermore, the IRS indicated it won’t allow the crackdown on entertainment and meal deductions to be circumvented by inflating the amount charged for food and beverages.
Notice 2018-76 contains three examples illustrating how the IRS intends to interpret these rules. All three examples involve attending a sporting event with a business client and having food and drink while attending the game.
Taxpayer A takes a customer to a baseball game and buy the hot dogs and drinks. The tickets are nondeductible entertainment, but Taxpayer A can deduct 50% of the cost of the hot dogs and drinks purchased separately.
Taxpayer B takes a customer to a basketball game in a luxury suite. During the game, they have access to food and beverages, which are included in the cost of the tickets. Both the cost of the tickets and the food and beverages are nondeductible entertainment.
The facts involving Taxpayer C are the same as they are for Taxpayer B, except that the invoice for the basketball game tickets separately states the cost of the food and beverages. As a result, Taxpayer C can deduct 50% of the cost of the food and beverages.
The IRS has announced it plans to issue proposed regulations on this issue. It is requesting comments by December 2, 2019.