Archives for September 2023

Important Change Adopted by the IRS

If you are a business owner who receives cash payments of more than $10,000 from a single transaction or related transactions, you need to be aware of an important change in the reporting requirements. Starting with Jan. 1, 2024, you will have to file Form 8300, Report of Cash Payments Over $10,000, electronically through the FinCEN BSA E-Filing System. This is a mandatory requirement that applies to all businesses, regardless of their size or industry.

Beginning with 2024, businesses that receive cryptocurrency worth more than $10,000 in a single transaction will also have to report the transaction on Form 8300.

About Form 8300

Form 8300 is used to report certain cash transactions to the IRS and the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the U.S. Department of the Treasury. The purpose of this form is to help combat money laundering, tax evasion, terrorism financing and other criminal activities.

To file Form 8300 electronically, you will need to register with the FinCEN BSA E-Filing System, which is a free and secure government online service. You can find more information about the registration and filing procedures on the FinCEN website.

Exceptions to Electronically Filing Requirement

Your business can file a request for a waiver (Form 8508) from electronically filing information returns due to undue hardship. You must include on each Form 8300 the word “Waiver” on the center top when submitting a paper filed return.

If your business is required to file fewer than 10 information returns, other than Forms 8300, during the calendar year, your business may file Forms 8300 in paper form without requesting a waiver or you can choose to e-file them.

Another automatic exemption to electronically filing requirement is for religious beliefs, in which case you will have to write the words “RELIGIOUS EXEMPTION” on the center top when submitting the paper form.

E-filing, Late filing & Keeping Records

The deadline for Form 8300 is 15 days after a transaction of more than $10,000 takes place.

If you miss the deadline, you need to self-identify your late returns and file them as soon as possible. In case your business files electronically a late Form 8300 you must include the word “LATE” in the comments section of the form. If you file the form on paper, you must write “LATE” on the center top of each form (page 1).

You should keep records of each Form 8300 you file and the supporting documentation for it. You will receive a free email confirmation upon submission of the form through e-filing. But e-file confirmation e-mails alone don’t meet the record keeping requirement. In addition to saving the e-file confirmation, you must also save a copy of the form prior to finalizing the form submission.

Written Statement Requirement

Besides filing Form 8300, you also need to provide a written statement to each party whose name you included on the Form 8300 by January 31 of the year following the reportable transaction. You should include in your statement the following information about your business:

• name,
• address,
• contact person,
• telephone number,
• the aggregate amount of the reportable cash.

You must also indicate in the statement that you provided this information to the IRS.

In the meantime, if you need tax and accounting services, we are here to help. We serve small businesses and real estate investors. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

IRS Warns Taxpayers About A New Scam

The Internal Revenue Service (IRS) and its Security Summit partners have issued a warning to taxpayers about a new scam attempt. This scam involves a fraudulent letter with IRS heading sent by mail using a delivery service. The letter asks the recipients to send photos of their driver’s license, Social Security card, and bank account information to verify their identity in order to receive a refund. The identity thieves can try to obtain a tax refund and other sensitive financial information by using these photos.

What the Scammers Attempt To Do?

This scam is an attempt to steal personal and financial information from taxpayers. Meanwhile, the IRS and its partners remind taxpayers that they will never contact them by mail, phone, email, or text message to ask for personal or financial information. Consequently, taxpayers should never provide such information to anyone who contacts them unsolicited. In addition, they should report any suspicious communications to the IRS or the Treasury Inspector General for Tax Administration (TIGTA).

What Should You Do if You Receive Scam Mailing?

If you receive this scam mailing, you should not respond to it. In addition, you should also check your credit reports and bank accounts for any unauthorized activity, and report any identity theft or fraud to the Federal Trade Commission (FTC) and your local police department.

For more information on how to protect yourself from tax-related scams, click here.

Conclusions

In conclusion, you, as a taxpayer should be careful and watch out for red flags that can make you suspicious about the mail received. There are a few details that you should pay attention to, like:

• you are asked to send sensitive information,
• the letter includes contact information and a phone number that do not belong to the IRS,
• wrong punctuation,
• unprofessional wording and incorrect spelling,
• mixture of fonts, which is something that IRS does not use, as you can see in this example of scam wording: “A Clear Phone of Your Driver’s License That Clearly Displays All Four (4) Angles, Taken in a Place with Good Lighting”.

In any case, you should be aware that the IRS never initiates contact with taxpayers by email, text or social media regarding a bill or a tax refund.

Furthermore, if you receive a suspicious email, text or letter, you should contact the IRS directly. You should use the contact information found on the official IRS website at https://www.irs.gov/help/telephone-assistance and check the status of your account or your refund.

The IRS also warns us to be careful of unsolicited texts or emails that appear to be from friends or family, using possibly stolen or compromised accounts. In this situation, you should report these scam attempts to the IRS at phishing@irs.gov. Include:

• the email address or
• the caller ID of the unsolicited communication source,
• your email or phone number on which you received the suspicious messages,
• the date and time you received the communication

In the meantime, if you need tax and accounting services, we are here to help. We serve small businesses and real estate investors. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

New Initiative Launched by IRS

The Internal Revenue Service has announced a new initiative called “Paperless Processing”. This initiative’s objective is that by 2025 to allow all tax returns to be filed electronically. Another objective is that by 2024 to allow taxpayers to go paperless for the IRS correspondence. As a result, it will not be necessary to print and mail your paper forms to the IRS. Currently you are able to e-file some tax returns and forms, but with this initiative you will be able to e-file 20 additional tax forms.

Why IRS Wants to Adopt This Initiative?

The IRS wants to make an easy process for the taxpayers who will now be able to digitally submit forms. The IRS also want to make things easier for its IRS agents who will now be able to digitally process the forms received. In addition, this process will reduce paper waste and will streamline the tax processing.

This initiative is part of the IRS’ efforts to modernize its system and to improve customer service for the taxpayers. This will bring a couple of benefits for taxpayers, including:

• Fewer errors: electronic filing reduces the chances of errors or omissions related to your tax return(s), which can delay refunds or result in penalties
• More security: electronic filing protects your personal information from identity theft or fraud, as paper forms can be lost or stolen in the mail
• More convenience: you, as a taxpayer can file your return(s) anytime, anywhere, using your computer, smartphone, or tablet; you can also use IRS Free File, a free service that offers online tax preparation and filing options for eligible taxpayers
• Access to your data: IRS will digitize up to 1 million historical documents
• Better customer service: customer service will have easier access to IRS database and past paper returns, thus being able to answer more questions and resolve more issues; with this initiative the IRS will be able to process the refunds several weeks faster than it does now
• Better IRS enforcement: having a robust digital database, the IRS can extract data for advanced analytics and pattern recognition methods to go after wealthy taxpayers and big corporations that are trying to evade paying taxes by using complicated tax schemes

Conclusions

The IRS encourages all taxpayers to take advantage of Paperless Processing and file their returns electronically. However, taxpayers who prefer to file on paper can still do so. The IRS will continue to accept and process paper returns. But they warn that the taxpayers may experience longer processing times and delays in receiving their refunds.

In the meantime, if you have any questions, we are here to help. We serve small businesses and real estate investors. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

Mortgage Interest as An Itemized Deduction

You can deduct on your schedule A as an itemized deduction the mortgage interest related to the mortgage for your primary and secondary residence.

The amount that you can deduct depends on the date you took out the mortgage, the amount of your mortgage balance, and how you used the mortgage proceeds. In addition, you must secure your loan by your primary or secondary residence.

Acquisition Debt

You can only use as an itemized deduction the interest on acquisition debt. Acquisition debt refers to funds that you used to:

• purchase,
• construct,
• or make significant improvements to your primary or secondary residence.

If you took out the mortgage between October 13, 1987 and December 15, 2017:

• the IRS caps the total acquisition debt for a primary residence and a second home at $1 million,
• $500,000 if you are married filing separately.

If you took out the mortgage between December 16, 2017 and December 31, 2025:

• the IRS caps the acquisition debt at $750,000,
• $375,000 if you are married filing separately.

The IRS does not allow you to deduct the mortgage interest that is allocated to acquisition debt exceeding these limits.

Average Balance

To calculate your total acquisition debt for the year, there are a couple of methods. The most you might benefit from is the one using the average balances during the year. You can calculate the average balances using 3 methods:

• average of first and last balance method,
• interest paid divided by interest rate method,
• and the method using the statements provided by your lender.

Each method has its specific requirements that you can see in Publication 936.

If you have a combined average balance of all your mortgages below the limits mentioned above, you can deduct in full your mortgage interest. Otherwise, you should use table 1 from IRS Publication 936, Home Mortgage Interest Deduction.

Court Case

It is important to make sure that you choose the correct method in calculating your acquisition debt for the year. As an example, you can see in the “McNamara v. Commissioner of Internal Revenue” court case how the IRS disallowed a portion of the mortgage interest deduction on the taxpayers’ 2019 joint personal return due to incorrect calculation of the average mortgage balance.

The taxpayers had the house only for 5 months in 2019, but they calculated the average mortgage balance using a 12 months period. The mortgage interest is deductible only if the home secures the outstanding balance of the loan. Since the taxpayers’ loan secured the home only for 5 months, from January 1^st up to May 2019, when the taxpayers sold their home, the taxpayers should have used a 5 months period in determining their average mortgage balance.

To avoid any IRS issues, you should always check what your tax preparation software does.

In the meantime, if you have any questions, we are here to help you with your business accounting, QuickBooks and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.