IRS Staff Cuts: A Hidden Crisis for Taxpayers
Recent headlines about the IRS don’t make it clear that tax season is upon us. More than 12,000 IRS workers have been laid off this year or have resigned. Tens of thousands could be let go in the near future. What does this mean for you, as a taxpayer? Some social media influencers claim that the IRS downsizing is an excuse to avoid paying taxes. Do not take their word as gospel! The IRS may have been reduced in size, but that doesn’t change the rules for filing taxes. Recent Changes at the IRS In 2024, the IRS was on a positive trajectory. For the first time since 1997, the IRS had more than 100,000 employees. Agents were able to recover billions of dollars worth of taxes, thanks to the Inflation Reduction Act(IRA). The IRS website states that the new funding allowed the agency “to launch more digital tools than in the previous 20-year period.” Here are a few ways they were used: In 2025, things began to change dramatically. Donald Trump announced in January that he would terminate the entire IRS workforce, or have employees work at the border. What will he replace the IRS with? He proposes an External Revenue Service, which he claims will replace tax revenues with money raised by tariffs. Over 7,000 IRS employees have been laid-off, with the majority being auditors and collection staff. Another 5,000 employees have accepted a leave of absence through a plan called “deferred resigning” that keeps them on the payroll through September, but not reporting to work. Take a look at some of the important events that have taken place since the start of the year. What this Means to Taxpayers Longer Wait Times for Assistance: After receiving funding from the Inflation Act, the IRS significantly reduced call wait times. They went from an average of 28 minutes to only 3 minutes in 2022 filing season.Now the taxpayers should be prepared for the reverse of this progress with staffing reductions. Delays in audits: Taxpayers who are under audit may be subjected to longer review periods if an auditor is terminated, which can increase both uncertainty and costs. More Notices of Deficiency & Tax Court Cases: A shortage of staff could force the IRS to issue a greater number of Notices of Deficiency, rather than allowing disputes be resolved directly through the IRS Independent Office of Appeals. It would also force more taxpayers into challenging assessments at the U.S. Tax Court. This would add complexity, delay, and legal costs. Business Transactions Challenges: It can be difficult for businesses to get IRS documents such as those that verify S corporation elections. This can delay or even halt business sales that need to be able to prove their tax election in a timely manner. Need expert help navigating the IRS maze? Contact us today for reliable tax filing services that keep you compliant and stress-free. Our Recommendations How We Can Assist Parr & Ibarra specializes in helping business owners and individuals navigate the IRS’s tax complexities. We ensure you are prepared for any IRS updates. Our team can help with: Tax Planning and Preparation IRS Representation Tax Resolution Services Financial Planning If you need assistance filing your taxes or resolving an IRS issue, schedule a consultation today–do not wait until the backlogs grow worse.
Tax Implications of Hiring Employees vs 1099 Contractors
Employees and independent contractors have two distinct functions in today’s workforce. They are generally entrepreneurs who are able to fulfill tasks that are short- or medium-term with no commitment to a specific company, in contrast with employees who devote all of their energy to a particular organization. In light of the fact that the amount of freelancers working in the U.S. more than doubled between 2020 and 2023 It is evident that the current workforce is embracing the concept of freelance work more than ever before. For a deeper understanding of how taxes affect different worker types, see our guide on Tax Implications of Hiring Employees vs Independent Contractors. But which is the best option for your company – employee or independent contractor? How do you distinguish the difference between them and most importantly, how do you ensure that you don’t misclassify the status of a worker either way? Differences Between Independent Contractors and Employees There are a lot of differences between employees and independent contractors however, the differences aren’t always obvious. In general, a person is considered an employee when: However, people are categorized as independent contractors when: While this covers the fundamentals of the independent contractor vs. employee debate, particular situations are not always so cut-and -dry. Worker classification has major tax consequences. Explore our Business Taxes & Compliance: The Complete 2026 Guide for Texas Business Owners to get it right. Points To Consider When Hiring Independent Contractors Although the ideas that are discussed here may not be applicable to your business, it’s a good idea to examine these aspects to ensure everything runs efficiently. Documentation In addition to tax-related considerations that we will discuss in a bit, the most commonly used documents used by independent contractors are: The different types of documents mentioned above can help distinguish between independent contractors and employees and, if needed they may be used to prove a case in the tribunal of the law. Hiring employees and independent contractors comes with very different payroll tax obligations. Explore our Texas payroll guide for business owners to better understand worker classification, tax withholding, payroll compliance, and reporting requirements. Location You should consider the location of your contractors as well. Although some businesses prefer local employees, the rise of high-speed internet as well as the rise of employer of record services allow firms to take into consideration candidates from other states. There are a number of things to be considered when working with contractors that aren’t considered as local to your organization, for example: Tax Considerations While employers aren’t accountable to pay the tax on employment of independent contractors, they’re still responsible for filing necessary tax forms each year. If working with independent contractors within the U.S., this typically requires IRS forms 1099 as well as IRS Form W-9. Although these forms aren’t required for independent contractors working outside of within the U.S., individual contractors are required to complete IRS Form W-8BEN on their own behalf. Learn more about filing requirements for independent contractors to ensure compliance with IRS regulations. Organisations based in countries that are not part of that of the U.S. will likely have specific tax laws to be aware of, too. Employee Benefits Benefits for your part-time and full-time employees is a great strategy to increase morale and retention, but what about freelancers? Although many freelancers do not receive the same level of benefits, there’s many amazing benefits which can be beneficial for independent contractors. This includes: Although these benefits are available to those in the U.S. workforce, independent contractors in other countries could require certain benefits. For clarification, check any guidelines for employment or labor laws of the specific country. Avoid costly misclassification mistakes and stay compliant. Read our full Business Taxes & Compliance Guide for Texas Business Owners to make informed hiring decisions. Background Verification Many companies go to great measures to check the academic, professional and criminal records of their full-time and part-time employees, however they don’t always use the same process when hiring freelancers. However, a lot of the similar background checks are also conducted for freelancers. This not only helps you identify the top talent but it will aid in identifying possible red flags prior to signing an agreement. What happens if your employees are classified incorrectly? Based on the U.S. Department of Labor the full-time or part-time employees who are misclassified as independent contractors end up losing rights like basic wage or overtime compensation that are provided in the Fair Labor Standards Act (FLSA). Therefore, the DoL considers worker classification seriously. Up to 30 percent from U.S-based businesses have incorrectly classified one or more employees at one point or another. For guidance on avoiding penalties, see our tax compliance guide for hiring employees and contractors. Due to the ambiguity of the law on employment, however, it can be difficult to be sure that you are in full compliance, especially when working with contractors who are independent across different countries or states. Although there are still penalties for unintentional or erroneous incorrect classifications, those considered to be intentional will be punished more severely. Tax Fines Tax responsibilities and penalties for any misclassified employee, who were taxpayers in the present time, are: Wage Laws Business owners are not only being held accountable for their employees’ taxes, however in certain instances they could also be held accountable for not paying the minimum wage required and overtime charges as stipulated under the FLSA. Employees are granted an extension of two years for misclassifications that are not intentional, and three years for intentional acts. Federal Penalties Companies who incorrectly classify employees could be subject to penalties under federal law, as well. A lot of them are based upon the severity and scope of the offense as well as whether the misclassification was made intentionally. Potential federal penalties include: It is evident, allegations of misclassification of employees in relation to employee vs independent contractor are taken seriously by IRS and the DoL and various other regulatory agencies. No matter if you’re
Required Minimum Distributions (RMDs): Everything You Need to Know
Retirement planning goes beyond simply saving money. It’s about planning for withdrawal of funds in a way which maximizes your savings as well as reduces tax burdens. A major and important aspect of retirement withdrawals is understanding the concept of Required Minimum Distributions (RMDs). If you have a tax deferred retirement account, such as an IRA or a 401(k) and the IRS obliges you to take a minimum withdrawal each year when you reach a certain age. In the absence of RMD regulations could result in substantial penalties, while smart planning can reduce taxes and increase the wealth. In this complete guide, we’ll go over everything you must be aware of about RMDs, including the process they follow and when they begin the process, their tax implications, and strategies to reduce their impact. What Are Required Minimum Distributions (RMDs)? RMDs are the mandatory withdrawals of the tax-deferred retirement account that are required to be taken into account when you reach a particular age. The IRS requires these withdrawals in order to ensure that retirement savings are tax-free as the contributions into these accounts were made pre tax. RMDs are applicable to the retirement accounts that follow: Traditional IRAsSEP IRAsSIMPLE IRAs401(k), 403(b), and 457(b) plansOther retirement accounts that are sponsored by employers However, Roth IRAs are exempt from RMDs for the lifetime of the account’s owner, which makes them an excellent instrument for tax-efficient planning of retirement. When Do RMDs Start? From 2023, thanks to the SECURE 2.0 Act, RMDs will start at: The first RMD must be taken before April 1 of each year following the RMD age. After that, your RMDs need to be taken each year by the 31st of December. Example: If you turn 73 in 2025, your initial RMD is due on April 1, 2026. If you put off the first RMD until April 1st, you’ll be required to file two RMDs in 2026 – one for 2025, and another for 2026. This could potentially increase the tax burden. If you have a Roth 401(k), RMDs were previously required. However, starting in 2024, the SECURE 2.0 Act eliminates RMDs for Roth 401(k)s. Understanding RMDs is essential for managing retirement income and taxes effectively.Explore our Retirement & Wealth Planning Guide for strategies to optimize withdrawals, reduce tax burdens, and make your savings last longer. How Are RMDs Calculated? The IRS determines your RMD by analyzing two important elements: 1. Your account balance as of December 31 of the previous year2. The IRS Uniform Lifetime Table, that assigns a live expectation factor dependent on your age Formula for RMD Calculation: RMD = Account Balance / Life Expectancy Factor Example Calculation: If your IRA balance as on December 31 2024 is $500,000, and your expected life (from table in the IRS Table) is 25.6 Then your RMD to 2025 would be $500,000 / 25.6 = $19,531.25 RMD Rules for Multiple Accounts What Happens If You Miss an RMD? Failure to take your RMD promptly could cause severe penalties. The SECURE 2.0 Act reduced the penalty from 50% to 25%, and if corrected within a specified period of time, the penalty could reduce to 10%. Example For example: If you had an RMD was $10,000 and you didn’t take it out, the penalty could be: To avoid penalties, create reminders to avoid penalties. Set reminders RMD deadlines. Work with a financial advisor to ensure that you are in compliance. Tax Implications of RMDs Since RMDs are taxable income, they could raise your tax bracket and impact Social Security Taxation. RMDs are taxed like ordinary income, so they may result in more Medicare costs in the event that your total income is higher than certain thresholds. Example of Tax Impact To reduce tax burdens, think about strategies such as charity giving, as well as Roth conversions (covered in the next section). 5 Smart Strategies to Reduce RMD Taxes As RMDs are inevitable it is important to plan ahead in order to minimize their tax impact. Here are five ways to think about: 1. Convert to a Roth IRA Before RMD Age Since Roth IRAs don’t carry RMDs, converting a portion from your existing IRA as well as 401(k) to a Roth IRA before age 73 could reduce the risk of the chance of having to pay future RMDs. ⚠️ Roth conversions are taxable in the year of conversion—plan strategically with a tax professional. 2. Make Qualified Charitable Distributions (QCDs) If you’re 70 1/2 years old or older, you are able to make a donation of as much as $100,000 each year out of an IRA to a charity that’s qualified. It counts towards your RMD but it isn’t taxed as income. 3. Delay RMDs with Employer-sponsored Plans If you work beyond the age of 73, then you might be able to defer RMDs owed by the company’s 401(k) up to the time you are retired. This does not apply if you hold at least 5% or more of the company. 4. Take a withdrawal from tax-paying Accounts First If you have tax-deductible investment accounts, removing funds from them first could cut down on the future RMD amounts, thereby reducing your tax burden overall. 5. Get in touch with a CPA to develop a Customized RMD Strategy A Certified Public Accountant (CPA) can assist you in developing an effective withdrawal plan that is in line for your specific tax circumstances which allows you to retain the majority of your funds while still complying with IRS regulations. Need help with RMDs or planning for a financially secure retirement? Schedule your consultation with us today for expert Elder Planning services in Keller, Texas! What a CPA can help you with RMDs Knowing and managing RMDs correctly requires professional advice. A CPA who specializes in retirement and tax planning can assist you: Make sure you calculate RMDs correctly to avoid penalty.Plan a tax-efficient withdrawal to lower overall tax.Use charitable giving strategies to gain tax-savings.Coordinate the distributions among multiple accounts to ensure greater control.Be aware
How to Make Tax Payments to the IRS
You are able to pay the IRS through a variety of options when it’s time to prepare your tax return. You can do it in person at any of the payment centers, online or by sending a check or money order via the U.S. Postal Service. The IRS typically announces that it will begin accepting tax returns in the first week in January of every year. Understanding how to make your tax payments will help speed the process of filling out your tax return annually. To better understand payment methods, deadlines, and filing requirements, review this IRS payment and filing guide before choosing the best option for you. 1. Direct pay You can arrange an electronic transfer of funds from your savings or checking account via Direct Pay on the IRS website when you have funds available to pay what you owe. It is also possible to access Direct Pay on the IRS2Go mobile application. This is the official IRS application available on the Amazon Appstore, Apple App Store, and Google Play. The IRS does not charge processing fees for this choice. It is possible to schedule payments for up to 30 days in advance. You can modify or cancel them within two business days prior to when you’ve scheduled them. 2. Electronic Funds Withdrawal If you’re filing your tax returns electronically using the IRS Free File (the government’s tax preparation software) or another software for tax filing application, or with an expert tax advisor, you can choose to pay using Electronic Funds Withdrawal (EFW), a direct debit from your bank account and you can plan payments up to one calendar year ahead. The IRS does not charge any fees for using EFW However, financial institutions could. 3. Electronic Federal Tax Payment System Another option available to you from the Federal government to assist in paying taxes is one called the Electronic Federal Tax Payment System (EFTPS). As opposed to Direct Pay, unlike with the Direct Pay option, you’ll be required to sign up for EFTPS that requires the tax identification number—either your Social Security number or Employer Identification Number (EIN)—along with a password and PIN. It could take up to five days to complete registration, so make sure you plan ahead. You can make payments for up to a 12 months in advance. EFTPS is completely free. 4. Debit or Credit Card You may be able to pay the IRS via debit or credit card, but you have to choose one of the authorized processors for payments. Three payment processors are available. You can get access to one of them via the IRS website or via the IRS2Go mobile application: All charge an administrative fee that could vary, however, it could be tax deductible, based on your tax circumstances. The typical fee is a flat amount for debit card transactions or a tiny percentage of your transaction if you’re paying with a credit card. The credit card company may be able to charge you interest too. You cannot cancel payments made with a debit or credit card. 5. Pay by Check or Money Order It is possible to send a check to the United States Treasury if you prefer not to use the internet and prefer to pay in a traditional manner. Make sure you include the Social Security number, the tax form number, as well as the year for tax in the memo line of your check. 6. Pay in Person You can make payments at the nearest IRS office in case you’re concerned about scams, hacking, or fraud. Set up an appointment online prior to visiting the office to ensure you don’t need to wait around or return for a different day later. A similar alternative is to go to one of the IRS “retail partners,” one of the more than 7,000 participating retail establishments across the nation which will transfer your payment through the IRS on your behalf. Take a look at this list of participating stores and follow the instructions to pay in person. You can pay cash, by money order or check however, you shouldn’t pick this option if your bill is due on the next day. 7. Pay With a Bank Wire Transfer Banks can arrange the same day wire transfer that is payable to the IRS, however, they typically do not advertise the service. Costs for this service may differ from minimal to substantial which depends on the size of the transfer. 8. IRS installment plan or payment plan If you’re not able to pay the taxes you due, you may make an application for a payment plan through the IRS and sign an agreement that specifies the way you’ll pay taxes over an extended time frame. The short-term plans require that you pay the entire amount within the space of 180 days or less and are only available for those who owe less than $100,000. Long-term payment plans (also known as installment agreements), which offer you a greater timeframe than 180 days and are available when you owe $50,000 or less. You can explore eligibility and requirements in this IRS payment plan and compliance resource to choose the right option for your situation. 9. IRS2Go mobile app The IRS offers an app that lets you make payments through IRS Direct Pay the IRS2Go. Direct payments can be made through the bank account (for no cost) or use the debit or credit card transaction which is subject to certain fees. The application, which is accessible for iPhone and Android, is also a great tool to check your tax refund status. If You Need an Extension of Time to File Certain taxpayers may discover that they aren’t able to meet the tax deadline. It is possible to request the opportunity to extend your deadline by submitting the form 4868 with the IRS (instead of filing a tax return) prior to the tax deadline. However, any amount you owe is still due on the original tax due date of the year. You’re eligible
Beware! 5 Common IRS Scams You Need to Know About
As tax season approaches, it’s not just the looming deadlines that taxpayers need to worry about. Scammers are gearing up to exploit the confusion and stress that often accompanies filing taxes. The Internal Revenue Service (IRS) has been vigilant in warning taxpayers about various scams that can lead to financial loss and identity theft. Here are the top common IRS scams you should be aware of. 1. Employee Retention Credit Claims Employee retention credit is a tax credit introduced by the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help businesses retain employees during the COVID-19 pandemic. This credit is designed explicitly for eligible employers who have experienced significant revenue loss due to the pandemic. To claim this credit, employers must meet specific criteria, including being in business since January 1, 2020, experiencing at least a 50% decline in gross receipts compared to the same quarter in 2019, and not receiving a Paycheck Protection Program loan. Employers can claim up to $5,000 per employee for wages paid between March 13 and December 31, 2020. However, scammers are taking advantage of this situation and posing as IRS representatives, offering to expedite or increase the amount of these credits for a fee. These fraudulent claims can result in business fines and penalties and potential legal action. The IRS has issued warnings about these scams and advises employers to be cautious when providing personal information or paying any fees for claiming employee retention credits. The agency has also reminded taxpayers that they do not initiate contact via email or phone requesting personal or financial information. It is essential for businesses to carefully review all correspondence from the IRS before responding or taking any action. The official website of the IRS is irs.gov, where taxpayers can find legitimate resources and information related to tax credits and other programs available during these challenging times. In addition, employers must keep accurate records of all wages paid during the eligible period as proof when claiming employee retention credits. These records should include payment dates, amounts spent, the number of employees receiving wages during this time frame, and evidence of significant revenue loss. Employers should also be aware that there are no shortcuts or special services offered by third parties that can speed up or guarantee approval of their claims. Any offers promising such services should be viewed with suspicion and reported to the IRS immediately. Businesses should be vigilant when claiming employee retention credits and avoid falling victim to scammers. By following the guidelines set by the IRS and keeping proper documentation, employers can successfully claim this credit without any risk of fraud or penalties. 2. Phishing Tax Scams Phishing tax scams are becoming increasingly common and sophisticated, making it more critical than ever to stay vigilant against potential fraud. Whatis phishing? Phishing is an online scam where criminals attempt to gather sensitive information such as passwords, credit card numbers, and social security numbers by posing as a legitimate organization or business. In the case of IRS scams, criminals will impersonate the Internal Revenue Service (IRS) to steal personal and financial information from unsuspecting victims. They often use fear tactics and urgency to pressure individuals to provide sensitive information. One standard method used in phishing tax scams is through email communication. Scammers will send fraudulent emails that appear to be from the IRS, claiming that there is an issue with the recipient’s taxes or that they are eligible for a large tax refund. The email may contain official-looking logos and language designed to trick individuals into clicking on links or downloading attachments that can infect their computers with malware. Another tactic used by scammers is phone calls. These fake agents will call individuals, claiming to be from the IRS and demanding immediate payment for outstanding taxes. They may threaten legal action if payment is not made immediately or request personal information over the phone. It is important to note that the IRS will never contact taxpayers by email, text, or social media regarding personal tax matters. If you receive any communication claiming to be from the IRS through these channels, it is most likely a phishing scam. Protecting Yourself from Phishing Tax Scams To protect yourself against phishing tax scams, always be cautious when sharing personal information online. Never click on links or open attachments from unknown sources, and do not provide personal information over the phone unless you initiate contact with a reputable source. In addition, it’s essential to regularly monitor your financial accounts for any suspicious activity and report any unauthorized charges immediately. If you believe you have been a victim of a phishing tax scam or have received suspicious correspondence pretending to be from the IRS, you should report it to the IRS directly. You can also file a complaint with the Federal Trade Commission (FTC) and consider placing a fraud alert on your credit report. Phishing tax scams are a severe threat that can result in financial loss and identity theft. By staying informed and vigilant against these fraudulent activities, you can protect yourself and your finances from falling victim to these criminals. Remember always to verify the legitimacy of any communication claiming to be from the IRS before taking any action or providing personal information. 3. Online Account Help from Third-Party Scammers In recent years, there has been a rise in the number of third-party scammers targeting individuals with fake offers of online account help from the Internal Revenue Service (IRS). These scammers often pose as legitimate IRS representatives and use tactics to trick unsuspecting victims into giving away their personal and financial information. It is essential to be aware of these scams and know how to protect yourself from falling victim. One common scam involves receiving an unsolicited email or phone call claiming to be from the IRS. The scammer may assist with setting up an online account for tax purposes or declare a problem with your account that needs immediate attention. They may also ask for personal information
IRS Plans Take a Billion in Overdue and Unpaid Taxes
Heads up Taxpayers due to a new analysis that the IRS and the Treasury Department did, the IRS plans to take in hundreds of billions of dollars more in overdue and unpaid taxes than previously anticipated. Tax revenues are expected to rise by as much as $561 billion from 2024 to 2034, thanks to stepped-up enforcement made possible with money from the Democrats’ Inflation Reduction Act, which became law in August 2022. The Congressional Budget Office in 2022 estimated that the tens of billions of new IRS funding provided by the IRA would increase revenues by $180.4 billion from 2022 to 2031. The IRS now says that if IRA funding is restored, renewed, and diversified, estimated revenues could reach as much as $851 billion from 2024 to 2034. President Joe Biden’s Re-Election Campaign Administration officials are using the report to promote President Joe Biden’s economic agenda as he campaigns for reelection — and as the IRS continually faces threats to its funding. “This analysis demonstrates that President Biden’s investment in rebuilding the IRS will reduce the deficit by hundreds of billions of dollars by making the wealthy and big corporations pay the taxes they owe,” National Economic Adviser Lael Brainard said in a statement. “Congressional Republicans’ efforts to cut IRS funding show that they prioritize letting the wealthiest Americans and big corporations evade their taxes over cutting the deficit,” Brainard said. What is the Inflation Reduction Act? The Inflation Reduction Act gave the IRS an $80 billion infusion of funds. However, House Republicans built a $1.4 billion reduction to the IRS into the debt ceiling and budget cuts package passed by Congress last summer. A separate agreement took an additional $20 billion from the IRS over the next two years to divert to other non-defense programs. The IRS has tried to show how it is spending the money it has left, in hopes of stemming the cuts. New customer service improvements rolled out as the tax season began Jan. 29, and earlier this month the IRS announced that it had recouped half a billion dollars in back taxes from rich tax cheats. Rep. Jason Smith, the Republican chairman of the House Ways and Means Committee, said in a statement that the report “calls for even more IRS funding, uses pie-in-the-sky numbers, all without being straightforward about where the burdens of massive new enforcement efforts will fall.” He said increased funding will inevitably result in hundreds of thousands of additional audits for taxpayers making less than $75,000. Making sure citizens pay their taxes is one of the tax collection agency’s biggest hurdles. This is understandable because people are often afraid of taxes. Even the audit rate of millionaires fell by more than 70% from 2010 to 2019 and the audit rate on large corporations fell by more than 50%, Treasury’s Deputy Assistant Secretary for Tax Analysis Greg Leiserson told reporters. So it’s not just the average person avoiding paying taxes. So many citizens just lack knowledge and are outright afraid of the thought of taxes. The tax gap, which is the difference between taxes owed and taxes paid, has grown to more than $600 billion annually, according to the IRS. Stay Updated with Beck + Ibarra Beck + Ibarra is dedicated to keeping our clients informed and empowered in navigating the complexities of the IRS and the ever-evolving financial landscape. Through regular updates, newsletters, and tailored communication channels, we ensure that you stay abreast of crucial developments, regulatory changes, and strategic insights that impact your financial affairs. Our commitment to delivering timely, accurate, and relevant information underscores our mission to support your financial success and safeguard your interests. With Beck + Ibarra, you can trust that you’re equipped with the knowledge and resources needed to make informed decisions and stay ahead in today’s dynamic financial world. Schedule a meeting with us today.
BOI Report 2024
There is a crucial update that business owners need to be aware of. This update affects all business owners outside of sole proprietorship owners. So, if you are a freelancer, self-employed, or contractor, this doesn’t apply unless you have filed an LLC. If you have an established entity such as an LLC or S-corp, the FinCEN (Financial Crimes Enforcement Network) is requiring all entities to file a BOI report this year or the penalties will be gruesome. This became an official legal requirement as of January 1, 2024. This came forward due to the Corporate Transparent Act. This act was set in place to stop the ongoing money laundering and tax fraud crimes that are taking place in America. What is a BOI Report? A Beneficial Ownership Information (BOI report) is a report that has specific personal information about the entity’s owner. This information does not only include the direct owner but any partial owners as well. If they own 25% or more of the company, they have to be included in that report. The size of the business doesn’t matter, it could be a huge corporation or a small local business owner, and the responsibility remains the same. This report is supposed to help prevent financial crimes that not only put the average person at risk for their safety but expose vulnerabilities to small business owners who want to experience the American Dream. There are so many popular money laundering shows and even though some find it entertaining, it’s very dangerous in real life. There are people creating shell companies to look like official businesses but they hide the true intention of the entity. Who has to File a BOI Report? People who own a business reporting company. In the era of side hustles, also called the gig economy, it’s important to explain who exactly is the BOI for. The BOI is for those who have filled an entity that is under an LLC, Partnership, Cooperation, or S-Corp. Most gig workers and freelancers are self-employed i.e. sole proprietorship. During the pandemic a lot of citizens decided to go into business and start an LLC, this was primarily due to lack of work, being stuck in the house, or the pandemic benefits that were provided to business owners to compensate their employees and prevent laying them off. These incentives unfortunately have backfired on many business owners who did not properly use the funding or lied to receive the money. How to File a BOI 2024 Report? You can file a Business Ownership Information report by going to FinCEN’s site. The cost of filing the report is Free. Business owners could hire a CPA or for larger more complex companies, they could hire an attorney to fill the information out correctly preventing any possible mistakes. Business owners could also file this form on their own, however, because it’s such a crucial document it would be more effective to receive help. Choosing entrepreneurship is an amazing up-and-down journey that has set individuals free and has helped them create jobs for individuals to provide for their families and pay for their needs. It’s important to remember that this form is not to make legal business owners afraid but to protect their best interests. When is the BOI deadline? The BOI report has two different deadlines depending on when the business entity was filed. If the business was filed before 2023, businesses have until December 2024, to get their documents ready and file their BOI report. If the business owner files a business entity in 2024, the business owner has up to 90 days max to file. By 2025, entities will have only 30 days to file their BOI report before consequences start occurring. There are huge penalties if business owners do not file in time. The penalty from the deadline starts at a $500 fine which will be charged daily up to $10,000 and up to two years in jail. Since these are very big consequences it’s important to follow instructions and protect your business and yourself. Stay Updated with Beck + Ibarra If you need help filing your BOI 2024 report or have questions about the quick changes in the financial world, it’s crucial to stay up to date with all that’s going on. Here at Beck + Ibarra, we take financial knowledge seriously. We want to help our readers and clients with what they need to the best of our ability. Stay connected with us so you can learn more about your finances and protect your business entities.
A Comprehensive Guide to Understanding Tax Brackets
Tax season can be a daunting time for many individuals and businesses. The complex web of tax laws and regulations makes it easy to feel overwhelmed and confused. One area that often confuses is tax brackets. What exactly are they? How do they work? And, more importantly, how can you use them to your advantage? In this comprehensive guide, we will break down the concept of tax brackets in a step-by-step manner, ensuring that you clearly understand how they operate. We’ll also explore strategies for effective tax planning, debunk common misconceptions surrounding tax brackets, and highlight recent changes in tax legislation that may impact your financial decisions. Whether you’re an individual taxpayer or a business owner, this guide will provide valuable insights to help you confidently navigate the complexities of taxes. What are Tax Brackets? Tax brackets are an essential component of the U.S. tax system. Simply put, they represent different income ranges that determine how much tax you owe to the government. The tax code is structured so that individuals and businesses pay more of their income as they move up into higher income brackets. Here’s how it works: let’s say you fall into the 10% tax bracket for individuals earning up to $9,950. Your first $9,950 of taxable income will be taxed at 10%. However, if your earnings surpass this threshold and enter the next bracket. An example is the 12% bracket for incomes between $9,951 and $40,525, only the amount within that range will be subjected to a 12% tax rate. Not all of your income is taxed at one flat rate. Instead, it is divided into increments based on these brackets. Understanding which bracket(s) you fall into can help you estimate how much taxes you’ll owe and plan accordingly. Tax brackets also vary depending on filing status (single individual, married couple filing jointly or separately), further complicating matters. It’s crucial to accurately determine your filing status so that you can correctly identify which set of brackets applies to your situation. While navigating through multiple tiers may seem complex and overwhelming, understanding how these brackets function can empower taxpayers with valuable knowledge about their financial position. How Tax Brackets Work: A Step-by-Step Guide Understanding how tax brackets work is essential for navigating the complex world of taxation. Here’s a step-by-step guide to help demystify this often confusing concept. By following these steps and understanding how progressive taxation works, you can better comprehend how much you owe in taxes based on various income levels. Remember that this guide provides a general overview. This should not replace personalized advice from a qualified accountant or financial advisor who can consider additional factors, such as credits and deductions specific to your situation when determining accurate taxation figures. Understanding Changes in Tax Brackets Tax brackets are not set in stone. They can change over time due to various factors, such as changes in tax laws or adjustments for inflation. It is crucial to stay updated on these changes to ensure accurate tax planning. Plus, it will minimize any surprises when filing your taxes. One common reason for changes in tax brackets is legislation aimed at adjusting tax rates to reflect economic conditions or political priorities. For example, during times of economic downturn, governments may lower tax rates for certain income levels to stimulate consumer spending and encourage investment. Another factor that affects changes in tax brackets is inflation. As the cost of living increases, individuals’ purchasing power decreases. To account for this, tax brackets are often adjusted annually based on the Consumer Price Index (CPI) or another measure of inflation. It’s important to note that changes in tax brackets sometimes mean higher taxes for everyone. While some individuals may find themselves moving into a higher bracket due to increased income or changing deductions, others may benefit from lower rates if their income falls within a newly created lower bracket. To navigate these changes effectively, you must review your financial situation regularly and consult a knowledgeable accountant or financial advisor who can guide you through any potential impacts on your tax liability. By staying informed about updates related to taxation policies and being proactive with your financial planning, you can take advantage of available opportunities and potentially reduce your overall taxable income. Understanding how shifts in tax brackets can affect you personally will help ensure compliance while maximizing benefits within the parameters set by current legislation. Strategies for Tax Planning When it comes to tax planning, being proactive is vital. By developing a solid strategy, you can potentially minimize your tax liability and maximize your savings. Here are some strategies to consider: Remember that taxpayers’ circumstances are unique; what works for one person may not work for another. Evaluating each strategy carefully and consulting with professionals before implementing any plan is essential. Businesses and Tax Brackets When it comes to taxes, businesses often navigate a complex web of rules and regulations—understanding how tax brackets work is crucial for any business owner looking to optimize their financial strategy. One key thing to remember is that businesses are not subject to the same tax brackets as individuals. Instead, they have their own set of tax rates based on different factors such as entity type and taxable income. For example, corporations have a flat tax rate, regardless of income level. This means that whether a corporation earns $50,000 or $5 million in taxable income, it will be taxed at the same rate. On the other hand, pass-through entities like partnerships and S-corporations pass their profits through to individual owners, who then pay personal income taxes based on their tax bracket. Business owners need to understand the implications of these different tax structures to make informed decisions regarding cash flow management and investment opportunities. Strategic Tax Planning for Businesses Additionally, strategic planning can play a significant role in reducing overall tax liability for businesses. Businesses can effectively lower their taxable income and potentially move into lower tax brackets by taking advantage of deductions, credits, and exemptions
IRS Rejects 20,000 Employee Retention Credit (ERC) Requests
The IRS is cracking down on business entities. During the pandemic, the IRS created the Employee Retention Credit which was established to help business owners pay their employees despite the government shutdown. The IRS eventually became overwhelmed with other sectors due to paper and e-filings getting backed up. Since then, the IRS has been able to go through all of the files and it became very apparent that many entities were not compliant with the requirements to receive the ERC. This is primarily due to mass marketing scams about the benefits of the ERC which caused a lot of miscommunication. There have been over 20,000 disallowed letters sent to entities to choose to opt-out and of course correct this situation so that repercussions aren’t given to them. What caused this phenomenon was entities filed for an ERC without employees or simply the entity truly didn’t exist. IRS Withdraw Program for Entity Filers The IRS understands how this happened. There were a lot of misleading marketing campaigns that promoted the Employee Retention Credit. Since the IRS saw through the manipulation, they are giving filers a chance to make it right with the help of their special Withdraw Program. The Withdraw program is specifically for those with a pending claim who realize they filed an inaccurate claim. There will also be a separate voluntary disclosure program which will be unveiled allowing those who received questionable payments to come in and avoid future IRS action. The program is an olive branch for filers who either were manipulated or just didn’t realize the true requirements to receive the ERC. If you are an entity that also filed for this credit but wasn’t in compliance, follow the guidelines of the IRS and withdraw to prevent them from taking action. Starting this week, taxpayers who are ineligible for the credit will begin receiving copies of Letter 105 C, Claim Disallowed. This group of letters will cover taxpayers ineligible for the ERC either because their entity did not exist or did not have employees for the period when the credit was claimed. What is Letter 105 C The “Claim Disallowance” IRS Letter 105C or Letter 106C is your legal notice that the IRS is not allowing the credit or refund you claimed. This notice or letter may include additional topics that have not yet been covered here. The letter states the reason for the IRS’s decision, the date of the decision, and the tax year or period for which the claim is denied. In addition, the letter provides a timeframe in which you must file suit if you wish to challenge the denial in court. What is My Taxpayers Rights The IRS respects taxpayer rights, and the disallowance letter will explain that a taxpayer who disagrees with the disallowance can respond with documentation that supports their eligibility or claim amount, or they can file an administrative appeal. The disallowance letters that identify ineligible claims before they’re paid serve several purposes that help taxpayers and tax administration help ineligible taxpayers avoid audits, repayment, penalties, and interest. It protects taxpayers by preventing an incorrect refund from going to an ERC promoter, and saves IRS resources by disallowing incorrect credits before they enter the audit process. The IRS plans additional letters beyond the disallowance letters. Plans are also being finalized for a special voluntary disclosure program involving ERC claims that will be announced later this month. The IRS is also continuing to review ERC claims and may request more information from taxpayers to support their ERC claim. Trust Dallas’ IRS Experts – Beck + Ibarra for Employee Retention Credit (ERC) Help Trust in Beck + Ibarra as Dallas’ IRS experts, where our seasoned professionals bring unparalleled expertise and commitment to navigating the intricate landscape of IRS regulations. With a proven track record of delivering exceptional service, Beck + Ibarra is dedicated to providing comprehensive and accurate assistance to individuals and businesses alike. Whether it’s tax planning, preparation, or addressing complex IRS-related issues, clients can rely on Beck + Ibarra’s in-depth knowledge and attention to detail. Our team understands the importance of compliance and works tirelessly to ensure clients are well-informed and positioned for success in their dealings with the IRS. Choose Beck + Ibarra for a trustworthy partner in managing your IRS-related matters with confidence and precision.
Last-Minute Adjustment to 1099-K Form Reporting Threshold
The IRS announced that they are delaying the 1099-K form enforcement until tax year 2024. This is to create enough time to adjust to the new way of reporting earnings. This was meant to be reinforced for 2023 to include popular third-party payment apps such as Cash App, Venmo, and PayPal. The new amount that would cause someone to have to report their earnings was $600, it caused a lot of controversies especially since people used these apps for a variety of different nuances such as helping with a bill, birthday gifts, and donations i.e. personal transactions. They kept a listening ear and following feedback from taxpayers, tax professionals, and payment processors. To reduce taxpayer confusion, the Internal Revenue Service delayed the new $600 Form 1099-K reporting threshold requirement for third-party payment organizations for tax year 2023 and is planning a threshold of $5,000 for 2024 to phase in the new law. The IRS made 2023 a transition year to implement the new requirements under the American Rescue Plan that changed the Form 1099-K reporting threshold for payments taxpayers get selling goods or providing a service over $600. What is the American Rescue Plan? The American Rescue Plan Act is a legislative package that was signed into law by President Joe Biden on March 11, 2021. It aimed to provide economic relief and address the challenges caused by the COVID-19 pandemic. The plan included various measures to support individuals, businesses, and state and local governments. Key components of the American Rescue Plan included direct payments to individuals, extended unemployment benefits, funding for vaccine distribution and COVID-19 testing, aid to state and local governments, assistance for schools, and provisions to combat child poverty. The overall goal of the plan was to provide relief to Americans facing financial hardships and stimulate the broader economy during the unprecedented circumstances brought about by the pandemic. What is the $600 Tax Rule? The $600 tax rule is basically how much the threshold of earrings you are allowed to receive before you have to start reporting it to the IRS. It used to be a threshold of more than 200 transactions per year, exceeding an aggregate amount of $20,000. This is very important because we are in the age of the side hustle. A lot of people are selling products, services, or even their time such as Uber, and DoorDash to supplement their income as inflation arises. As people were collecting funds from their side hustles they would use third-party apps like Cash App and Venmo to exchange the money. The IRS to note this and to better support America as a whole financially, started cracking down on the lack of reporting by making it $600. What to do if You Receive a 1099-K Form? The IRS Understanding your Form 1099-K webpage provides resources for taxpayers who receive a 1099-K, including what to do with a Form 1099-K and what to do if you get a Form 1099-K in error. Taxpayers who receive a Form 1099-K should review the forms, determine if the amount is correct, and determine any deductible expenses associated with the payment they may be able to claim when they file their taxes. The payment on a Form 1099-K may be reported in different places on your tax return depending on what kind of payment it is. For example, someone who is getting paid as a ride-share driver could report it on Schedule C. Get Tax Help from Beck + Ibarra: Dallas’ Best Tax Experts Beck + Ibarra stands out as Dallas’ premier tax experts, offering unparalleled assistance to individuals and businesses navigating the complexities of taxation. With a proven track record of delivering exceptional service, their team of seasoned professionals is dedicated to providing comprehensive tax help tailored to meet the unique needs of each client. Beck + Ibarra’s expertise extends beyond mere compliance; we excel in maximizing tax efficiency, identifying opportunities for savings, and ensuring adherence to the latest tax regulations. Clients can trust in the proficiency of Beck + Ibarra to guide them through the intricacies of tax planning and preparation, making us the go-to choice for anyone seeking reliable and expert tax assistance in Dallas.
