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Understanding the Implications of the Excise Tax on Corporate Stock Repurchase – IRS New Regulations for Tax Season 2024

In Tax Season 2024, the Treasury Department, and the Internal Revenue Service (IRS) have introduced new regulations regarding the corporate stock repurchase excise tax. The stock repurchase excise tax applies to repurchases after Dec. 31, 2022. This move comes amidst increasing scrutiny of stock buybacks and their impact on corporate behavior and economic inequality. Understanding these regulations is essential for both corporations and investors alike, as they could have significant implications for corporate finance strategies and shareholder value.

 

Negative Impact of Stock Buybacks

Stock buybacks, or share repurchases, occur when a company purchases its outstanding shares from the market, effectively reducing the number of shares available to the public. This practice has become increasingly common in recent years, with corporations often using excess cash or borrowing funds to repurchase shares. Proponents argue that buybacks can signal confidence in a company’s prospects and enhance shareholder value by boosting earnings per share (EPS) and stock prices.

 

However, critics contend that stock buybacks primarily benefit executives and large shareholders while potentially short-changing investment in research and development, employee compensation, and long-term growth initiatives. Additionally, concerns have been raised about the market manipulation potential of buybacks, as companies may repurchase shares to artificially inflate stock prices.

 

New Regulations from Tax Season 2024

The new regulations announced by the Treasury and IRS in Tax Season 2024 aim to address some of these concerns by imposing an excise tax on certain corporate stock repurchases. Under these regulations, corporations engaging in substantial stock buybacks could face additional tax liabilities, particularly if the repurchases are deemed excessive or disproportionate relative to other corporate expenditures.

  1. Excise Tax Rate

The Inflation Reduction Act has introduced a new excise tax on corporate stock repurchases, set at a rate of 1%. This tax applies to stock repurchases exceeding certain thresholds and is calculated based on the aggregate fair market value (FMV) of repurchased stock relative to the aggregate FMV of stock issued by the corporation during the tax year. While the excise tax rate remains fixed at 1%, it may vary depending on factors such as the size of the repurchase and the company’s financial performance. This measure aims to address concerns surrounding excessive stock buybacks by imposing a tax that corresponds to the extent of repurchase activities, promoting responsible corporate behavior and shareholder value.

 

  1. Exemptions and Thresholds

Certain exemptions and thresholds may apply to smaller stock repurchases or those undertaken for specific purposes, such as employee stock ownership plans (ESOPs) or capital restructuring initiatives. These exemptions aim to avoid penalizing companies for legitimate use of buybacks.

 

  1. Reporting and Compliance Requirements

Corporations will be required to accurately report their stock repurchase activities to the IRS and comply with any additional disclosure requirements. This transparency is crucial for ensuring the effectiveness and integrity of the regulations.

 

Implications for Corporations

The new regulations are likely to prompt corporations to reassess their stock buyback strategies and capital allocation decisions. Companies will need to weigh the potential tax implications of repurchasing shares against other uses of capital, such as investments in innovation, expansion, or dividends. Additionally, corporate boards and executives may face increased scrutiny from shareholders and regulators regarding the rationale behind stock buybacks and their alignment with long-term value creation. Transparent communication and accountability will be essential in navigating these expectations.

 

Implications for Investors

For investors, particularly institutional and activist shareholders, the new regulations offer greater transparency and oversight of corporate stock repurchase activities. Investors can use this information to evaluate management’s capital allocation decisions and assess the potential impact on shareholder value. Moreover, the excise tax on stock repurchases could influence investors’ perceptions of companies’ financial health and stewardship. Companies with excessive buyback activity may be viewed less favorably compared to those prioritizing investments in growth opportunities and sustainable value creation.

 

Compliance and Reporting

Corporations will be required to report their stock repurchase activities accurately to the IRS and comply with additional disclosure requirements. The stock repurchase excise tax must be reported on Form 720, Quarterly Federal Excise Tax Return, with Form 7208 attached. The final version of Form 7208 will be released before the first due date for reporting and payment of the tax.

 

The due date for Form 720, Quarterly Federal Excise Tax Return, depends on the specific quarter being reported. Generally, Form 720 is due by the last day of the month following the end of the calendar quarter. Here are the due dates for Tax Season 2024.

 

First Quarter (January – March): The due date is April 30th.

Second Quarter (April – June): The due date is July 31st.

Third Quarter (July – September): The due date is October 31st.

Fourth Quarter (October – December): The due date is January 31st of the following year.

 

The Treasury and IRS’s new regulations on corporate stock repurchase excise tax represent a significant development in the ongoing debate surrounding stock buybacks and their implications for corporate governance and shareholder value. To file proper excise tax and avoid IRS audits, it is recommended to engage any certified tax professionals that experience in tax implications.

 

IRS AUDIT GROUP

IRS Audit Group consists of tax professionals, CPAs, enrolled agents, and tax attorneys.  We are located in Los Angeles; California and our primary area of expertise is IRS Tax Audit Representation.  However, our certified professionals cooperate and work with all IRS offices across the country.  Please contact us for more information.  https://irsauditgroup.com/contact/

Toll Free: (888) 300-6670

Emergency Number: (310) 498-7508

[email protected]

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Guide for IRS Tax Audits process

Navigating IRS Tax Audits: Overview of IRS Audit Process and Tips on Navigating through IRS Audit

Facing an IRS tax audit can be daunting for any business owner. However, understanding the process and being prepared can alleviate much of the stress. In this guide, we’ll delve into the intricacies of IRS tax audits for businesses, including what triggers them, the procedures involved, and potential outcomes.

 

What Prompts IRS Audits for Businesses?

There are several reasons why IRS audits are initiated for businesses, which can range from random selection to specific indicators that draw the attention of IRS agents. These triggers are commonly observed.

  • Red Flags: The IRS uses computer algorithms to flag returns that deviate from statistical norms, such as unusually high deductions or inconsistencies in reported income.
  • Random Selection: Some tax audits are random, chosen by computer selection to ensure compliance across a broad spectrum of taxpayers.
  • Industry Standards: Certain industries may face higher scrutiny due to historically higher rates of non-compliance or specific tax issues prevalent in those sectors.
  • Large Variances: Significant changes in income or deductions compared to previous years may raise red flags.
  • Information Matching: Discrepancies between a business report and what third parties (like clients or financial institutions) report can trigger an audit.

 

Understanding the Audit Process

The IRS audit process can be complex and intimidating, but understanding the steps involved can help alleviate some of the stress. A simplified overview of the audit process includes the following.

  • Notification: The IRS will notify the business either by mail or in person of the audit, specifying the tax year(s) under examination and the documents required.
  • Preparation: Gathering relevant financial records, receipts, invoices, and other documentation is crucial. It’s advisable to seek tax professionals’ help from a tax audit representation firm experienced in handling IRS audits.
  • Examination: The audit may be conducted via mail correspondence, at the IRS office, or even at the business premises. The IRS examiner will review the records and may request additional documentation or explanations.
  • Resolution: After the examination, the IRS will propose adjustments if necessary. The business can agree to the changes, request an appeal, or challenge the findings in tax court.

 

Potential Outcomes of an IRS Tax Audit

  • No Change: In some cases, the IRS may conclude that the business’s return is accurate, resulting in no changes or adjustments.
  • Additional Taxes Owed: If discrepancies are found, the IRS may assess additional taxes, penalties, and interest. IRS provided alternatives for taxpayers through its Payment Plans. In case of financial burden, those taxpayers unable to immediately pay their tax debt in full can adopt such IRS Payment Plans.
  • Refund: Occasionally, an audit may result in the discovery of overpaid taxes, leading to a refund for the business.
  • Settlement: In some instances, the business and the IRS may negotiate a settlement to resolve the audit findings.
  • Criminal Investigation: In cases of suspected tax evasion or fraud, an audit may escalate into a criminal investigation, potentially leading to severe penalties or even imprisonment.

 

Tips for Businesses Facing an IRS Audit

  • Stay Organized: Maintain meticulous records of all financial transactions and keep them organized and easily accessible.
  • Seek Professional Guidance: Enlist the help of tax professionals who understand the complexities of IRS audits and can represent the business effectively.
  • Cooperate with the IRS: Be cooperative and responsive throughout the audit process, providing requested documentation promptly and accurately.
  • Know Your Rights: Familiarize yourself with your rights as a taxpayer, including the right to representation and appeal.
  • Learn from the Experience: Use the audit as an opportunity to review and improve your business’s tax compliance processes to avoid future issues.

 

IRS AUDIT GROUP

IRS Audit Group consists of tax professionals, CPAs, enrolled agents, and tax attorneys.  We are located in Los Angeles; California and our primary area of expertise is IRS Tax Audit Representation.  However, our certified professionals cooperate and work with all IRS offices across the country.  Please contact us for more information.  https://irsauditgroup.com/contact/

Toll Free: (888) 300-6670

Emergency Number: (310) 498-7508

[email protected]

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Blog on IRS Dirty Dozen Scam Alerts

Navigating Tax Season 2024 Safely: 12 Important Scam Alerts by IRS

As the Tax Season 2024 is here, so are potential scams and fraudulent activities, prompting the IRS to issue warnings about common schemes. Here’s a compilation of important facts about various scams and advice by the IRS for Tax Season 2024.

 

False Fuel Tax Credit Claims

Taxpayers should be highly cautious of false Fuel Tax Credit claims, as warned by the IRS in its Dirty Dozen list for Tax Season 2024. Scammers often target individuals with promises of significant refunds through illegitimate claims for this credit, exploiting unawareness of its eligibility criteria. Vigilance, verification of information, and reliance on official IRS resources are crucial to avoid falling prey to these scams, emphasizing the importance of a thorough review process to ensure accurate and lawful tax filings.

 

Untrustworthy Tax Preparers (Ghost Preparers)

Taxpayers must remain vigilant against untrustworthy tax preparers, a prominent warning from the IRS’s Dirty Dozen list for Tax Season 2024. The term “ghost preparers” refers to individuals who may not sign tax returns they prepare, leaving taxpayers vulnerable to potential fraud and identity theft. These preparers often promise inflated refunds or charge exorbitant fees, exploiting unsuspecting individuals. Taxpayers must verify the credentials of their tax preparers, ensuring they are qualified, registered, and reputable. Relying on certified tax professionals and maintaining awareness of red flags can help protect against financial losses and legal complications during tax filing.

 

Fake Charities Exploiting Taxpayer Generosity

The IRS’s inclusion of fake charities in its “Dirty Dozen” list underscores the risks taxpayers face during tax season. These scams prey on people’s goodwill, using deceptive tactics to extract money without benefiting genuine charitable causes. IRS advises to beware of scammers who might use email communications or manipulate caller IDs to deceive people into donating funds to charities. These fraudsters often target groups such as seniors and those with limited English proficiency. Taxpayers must remain vigilant, verifying the legitimacy of charities before donating.

 

Offer in Compromise Mills

Another scam for Tax Season 2024 is pricey offer-in-compromise (OIC) “mills” that falsely claim their services are necessary to resolve IRS debt. The OIC program offered by the IRS is a beneficial avenue for taxpayers struggling to settle their federal tax debts, and reputable companies are providing legitimate assistance. However, the IRS advises individuals to invest a few moments in reviewing the resources provided on IRS.gov to ascertain if they qualify for the OIC program. This step helps individuals avoid costly promoters and ensures they understand the eligibility criteria thoroughly before seeking assistance.

 

Helpful Scammers Offering to Set Up Online Accounts

The IRS warns against scammers offering to set up online accounts. The IRS Online Account serves as a convenient tool for individuals to access their tax information. However, it has also become a target for identity thieves who exploit it to file fraudulent tax returns and claim hefty refunds in the victim’s name. Taxpayers should avoid sharing sensitive personal data over the phone, email, or social media to protect themselves and avoid getting caught up in these scams.

 

Aggressive Promoters Making Questionable ERC Claims

The IRS’s “Dirty Dozen” for tax season 2024 list includes a warning about aggressive promoters who entice taxpayers into making questionable claims for the Employee Retention Credit (ERC). This scam targets small businesses, urging them to engage in activities that could lead to tax non-compliance and penalties. Taxpayers are advised to exercise caution and seek reliable tax professionals’ advice to avoid falling victim to these deceptive practices. As the IRS is continuing tax audits and investigations for false claims of ERC, it emphasizes the availability of a special withdrawal program for businesses to rectify erroneous claims and ensure compliance with tax regulations.

 

Phishing And Smishing Scams

The IRS has launched its annual “Dirty Dozen” campaign with a strong warning about phishing and smishing scams. These deceptive tactics involve fraudulent emails (phishing) and text messages (smishing) that appear to be from legitimate sources, such as the IRS or financial institutions, but are designed to steal sensitive information like Social Security numbers or financial details. The IRS doesn’t initiate contact with taxpayers by email, text messages, or social media channels to request personal or financial information.

 

High-Income Filers: Targeted by Illegal Tax Schemes

The improper art donation deductions, charitable remainder annuity trusts (CRATs), and monetized installment sales are all illegal tax schemes targeting high-income filers. These schemes exploit loopholes or misinterpretations of tax laws, posing significant risks of tax evasion and penalties for those involved.

 

Beware of Spear phishing and “New Client” Scams

In the ongoing spear phishing attacks targeting tax professionals and businesses, these attacks typically involve fraudulent emails or messages designed to deceive recipients into disclosing confidential information, such as login credentials or financial data, under the guise of legitimate communication. Moreover, the surge in “new client” scams adds another layer of vulnerability, as fraudsters exploit the trust between tax professionals and their clients to gain access to sensitive information or perpetrate financial fraud. Tax professionals and businesses must exercise caution, implement robust cybersecurity measures, and educate employees about the signs of phishing attempts to mitigate the risk of falling victim to these malicious schemes.

 

Social Media Tax Advice: Risks and Pitfalls for Taxpayers

Taxpayers should be wary of relying on social media platforms like TikTok for tax advice, as these channels can be rife with inaccurate or misleading information. Scammers frequently exploit these platforms to propagate fraudulent schemes, encompassing both common tax documents like Form W-2 and more obscure ones like Form 8944. One prevalent scam circulating on social media advises individuals to manipulate income details on Form W-2 and file electronically, falsely promising substantial refunds. Similarly, misinformation surrounding Form 8944 misleads taxpayers into believing they can use it to secure refunds from the IRS, irrespective of their actual tax liabilities. However, Form 8944 is exclusively designated for tax professionals seeking waivers to file paper returns and is inapplicable to individual taxpayers. Falling prey to such scams can lead to severe penalties and legal consequences for filing fraudulent tax returns. Therefore, taxpayers must exercise vigilance, seek guidance from reputable sources, and avoid succumbing to scams on social media platforms to safeguard their financial interests.

 

Bogus Tax Avoidance Strategies and International Schemes

As the annual taxpayer awareness campaign ends, it’s crucial to highlight the threat posed by bogus tax avoidance strategies and schemes with international elements. These schemes often promise unrealistic or exaggerated tax savings through intricate structures or offshore accounts, luring taxpayers into non-compliance with tax laws and risking severe penalties or legal consequences. With globalization and advancements in technology, scammers exploit cross-border transactions and offshore entities to conceal income, evade taxes, and exploit loopholes in tax regulations. Taxpayers must remain vigilant, seek advice from tax professionals, and ensure compliance with tax laws to avoid falling victim to these deceptive schemes and safeguard their financial well-being.

 

IRS is highlighting various scams through its “Dirty Dozen” campaign for Tax Season 2024. This list will be updated to include all dozen scams as and when the IRS publishes about these scams. By remaining vigilant, reporting suspicious activities, and engaging certified tax professionals, taxpayers can protect themselves from financial losses, identity theft, and legal complications during tax filing season.

 

IRS AUDIT GROUP

IRS Audit Group consists of tax professionals, CPAs, enrolled agents, and tax attorneys.  We are located in Los Angeles; California and our primary area of expertise is IRS Tax Audit Representation.  However, our certified professionals cooperate and work with all IRS offices across the country.  Please contact us for more information.  https://irsauditgroup.com/contact/

Toll Free: (888) 300-6670

Emergency Number: (310) 498-7508

[email protected]

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First Quarter Estimated Tax Payment

IRS Reminder for Tax Season 2024: First Quarter Estimated Tax Payment Deadline for Estimated Tax – April 15, 2024

In this tax season 2024, the IRS sets deadlines for taxpayers to pay their taxes, including estimated tax payments not subject to withholding. The first quarter estimated tax payment deadline for 2024 is April 15. This blog delves into the details of this deadline, its significance, who it affects, why it exists, penalties for non-compliance, exemptions, tools for estimation, required forms, and IRS support.

 

When is the Deadline?

April 15 is the deadline for tax season 2024 to submit first quarter estimated tax payments to the IRS. This deadline is crucial for individuals and businesses with income sources that do not have taxes withheld, such as self-employment income, interest, dividends, and rental income.

 

Who Needs to File?

This deadline primarily affects self-employed individuals, freelancers, independent contractors, sole proprietors, partners in partnerships, and shareholders in S corporations. It also includes individuals who receive income from sources where taxes are not automatically withheld.

 

Reason for Quarterly Payments

Taxpayers are required to make estimated tax payments quarterly because of the pay-as-you-go system in the U.S. tax system. This system ensures that taxes on income earned during the year are paid throughout the year, rather than waiting until the following year. This helps in avoiding large tax bills at the end of the year and ensures a steady flow of revenue for the government.

 

Types of Income

When estimating quarterly tax payments, taxpayers need to ensure they include all forms of earned income, encompassing regular employment income, part-time work or side jobs, earnings from selling goods or services (typically reported on Form 1099-K), and various other sources like interest, dividends, capital gains, alimony, and rental income. It’s crucial to incorporate all income, including those not subject to withholding, to accurately calculate and fulfill tax obligations, thereby avoiding penalties or underpayment issues.

 

Penalties for Late Filing

Failure to file estimated tax payments by April 15 can result in penalties. The penalty amount varies depending on factors like the amount of tax owed and the duration of the delay. Taxpayers can use IRS penalty calculators or consult IRS publications to understand the potential penalties they might face.

 

Estimation and Required Documentation

To report and pay estimated taxes, individuals and businesses to file Form 1040-ES. This form includes worksheets for calculating the estimated tax amount and payment vouchers for submitting payments to the IRS. Additionally, there are online calculators and tax preparation software that can assist in accurately estimating tax liabilities based on income and deductions. It is also advisable to engage certified tax professionals to avoid any tax disputes, penalties, or IRS audits in the future.

 

Exemptions and Due Date Extensions

Certain groups of taxpayers, including farmers and fishers, recent retirees, individuals with disabilities, those receiving irregular income and victims of disasters are eligible for exceptions to penalties and special regulations.

Following recent disasters, eligible taxpayers in TennesseeConnecticutWest VirginiaMichiganCalifornia, and Washington have an extended deadline for tax season 2024 for estimated tax payments until June 17, 2024. Similarly, eligible taxpayers in AlaskaMaine and Rhode Island have until July 15, 2024, and eligible taxpayers in Hawaii have until Aug. 7, 2024. For more information, visit Tax Relief in disaster situations.

In addition, taxpayers who live or have a business in Israel, Gaza, or the West Bank, and certain other taxpayers affected by the terrorist attacks in the State of Israel, have until Oct. 7, 2024, to make estimated tax payments.

 

IRS Support and Assistance

The IRS provides various resources and support for taxpayers regarding estimated tax payments. This includes to include the Interactive Tax Assistanttax topics and frequently asked questions, and assistance through phone or in-person support at IRS offices or tax assistance centers.

 

IRS AUDIT GROUP

IRS Audit Group consists of tax professionals, CPAs, enrolled agents, and tax attorneys.  We are located in Los Angeles; California and our primary area of expertise is IRS Tax Audit Representation.  However, our certified professionals cooperate and work with all IRS offices across the country.  Please contact us for more information.  https://irsauditgroup.com/contact/

Toll Free: (888) 300-6670

Emergency Number: (310) 498-7508

[email protected]

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Failing-IRS-Audit blog

Consequences of Failing an IRS Audit – Why It Is Crucial to Hire a Tax Professional for IRS Audit Representation

A solid grasp of tax laws and regulations is essential for businesses to effectively handle their financial matters. Nevertheless, even with meticulous attention, errors can occur, which may result in complications when it comes to complying with tax laws and regulations.  In a few circumstances, these errors might prompt a tax audit by the Internal Revenue Service (IRS). Failing an IRS audit can result in severe outcomes, such as monetary fines and harm to the organization’s image.  In this article, we’ll explore what could happen if a business fails an IRS audit, highlighting the importance of taking proactive steps to comply with tax rules and seeking help from knowledgeable tax professionals to protect businesses from these challenges.

 

Financial Consequences

  1. Penalties and Fines: Failing an IRS audit can result in hefty penalties and fines. These penalties can be imposed for underreporting income, overstating deductions, or other inaccuracies in tax filings. The financial impact of these penalties can be substantial and may strain the resources of the business.
  2. Additional Taxes: Besides penalties, businesses need to pay additional taxes if an audit reveals unreported income or disallowed deductions. These additional tax liabilities and accrued interest can further exacerbate the financial burden on the business.
  3. Legal Costs: In cases of serious non-compliance or suspected tax evasion, businesses incur legal costs defending themselves against IRS scrutiny. Legal representation can be expensive, adding to the overall financial strain caused by the audit process.

 

Reputational Consequences

  1. Loss of Trust: Failing an IRS audit can damage a business’s reputation and erode trust among stakeholders, including customers, suppliers, and investors. Public knowledge of non-compliance issues can tarnish the business’s image and undermine its credibility in the marketplace.
  2. Negative Publicity: News of an IRS audit or allegations of tax evasion can attract negative publicity, further harming the business’s reputation. Negative media coverage can have lasting effects on consumer perception and may drive away customers and business partners.
  3. Regulatory Scrutiny: Failing an IRS audit triggers increased scrutiny from other regulatory bodies, including state tax authorities and industry regulators. This additional scrutiny can disrupt business operations and add further strain to the business’s reputation and resources.

 

Importance of Proactive Compliance Measures and Professional Representation

  1. Maintaining Accurate Records: Businesses need to maintain accurate financial records and documentation to support their tax filings. Proactive record-keeping can help businesses identify and address potential compliance issues before they escalate into audit triggers.
  2. Seeking Professional Guidance: Engaging qualified tax professionals from a reputed tax audit representation firm can provide businesses with expert guidance on navigating complex tax laws and regulations. Professional representation during an IRS audit can help businesses present their case effectively and minimize the risk of adverse outcomes.
  3. Co-operating with Authorities: Businesses should cooperate fully with IRS auditors and provide requested information promptly. Transparency and cooperation demonstrate a commitment to compliance and may help mitigate penalties and fines.

 

If you have received notification from the IRS which is usually via. mail for IRS Audit, don’t panic but don’t delay. It is important to read the mail completely and understand the reason stated for the audit, the next step to be taken, or the documents requested by the IRS. To navigate these challenges, it is recommended to engage a tax audit representation firm like the IRS Audit Group.

 

IRS AUDIT GROUP

IRS Audit Group consists of tax professionals, CPAs, enrolled agents, and tax attorneys.  We are located in Los Angeles; California and our primary area of expertise is IRS Tax Audit Representation.  However, our certified professionals cooperate and work with all IRS offices across the country.  Please contact us for more information.  https://irsauditgroup.com/contact/

Toll Free: (888) 300-6670

Emergency Number: (310) 498-7508

[email protected]

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IRS Blog_14_Common Tax Filing Mistakes to Avoid for Tax Season 2024

Avoid Common Tax Filing Mistakes for Tax Season 2024 – IRS Guidance to Speed Up the Refund Process

The Internal Revenue Service (IRS) has instructed taxpayers to avoid errors on their federal tax returns and expedite their refunds for the Tax Season. These guidelines aim to assist in submitting returns that are thorough, precise, and free of mistakes.  To help you navigate through Tax Season 2024 smoothly, here are some tips to avoid tax return mistakes and optimize your refund.

 

GATHER ALL TAX DOCUMENTS

Start gathering all necessary documents well before the 2024 tax filing deadline. This includes W-2 forms, 1099s, receipts for deductions, investment statements, and any other relevant financial documents. Having everything organized will make the tax preparation process much smoother and reduce the chances of overlooking important information.

 

USE ELECTRONIC FILING

The IRS recommends that taxpayers and their tax professionals leverage electronic filing channels, including IRS Free File or other certified e-file service providers. Furthermore, certain taxpayers in 12 States have the option to participate in the Direct File pilot program. Electronic filing offers the advantage of reducing mathematical inaccuracies and pinpointing potential tax credits or deductions for which the taxpayer may be eligible. It is imperative for taxpayers to conduct a thorough review of their tax returns to guarantee precision and compliance. Electing electronic filing and opting for direct deposit represent the most expeditious and secure methods to receive refunds.

 

USE THE CORRECT FILING STATUS

Tax software platforms are designed to mitigate errors by guiding users through the selection process of their tax return filing status. For this tax season 2024, individuals who are uncertain about their appropriate filing status can utilize the Interactive Tax Assistant available on IRS.gov. This tool aids individuals in determining the correct filing status, especially in situations where multiple statuses may be applicable.

 

DOUBLE-CHECK PERSONAL DETAILS

Taxpayers are required to provide precise information including the name, date of birth, and Social Security number (SSN) for each dependent listed on their individual income tax return. It is imperative that the SSN and individual’s name are entered accurately, reflecting the information as it appears on the Social Security card. In instances where a dependent or spouse does not possess an SSN and is ineligible to acquire one, an assigned Individual Taxpayer Identification Number (ITIN) should be furnished in place of the SSN.

 

FILE YOUR DIGITAL ASSETS TRANSACTIONS

All filers of Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120, and 1120S must indicate their response to the digital asset question by selecting “Yes” or “No”. This question must be addressed by all taxpayers, irrespective of whether they participated in digital asset transactions during the tax year 2023. Furthermore, taxpayers are obligated to report all income derived from digital asset transactions.

For comprehensive guidelines regarding when to affirm “yes” and instructions on reporting digital asset-related income, individuals are advised to refer to the IRS.gov Digital Assets section.

 

REPORT ALL TAXABLE INCOME

Failure to report income may result in penalties and interest. Income tax information can help prevent errors that slow down the process and help find missed deductions or credits. Taxpayers should have all their income information ready before they begin filing their taxes. IRS can even conduct tax audits on such filings and may ask for further documents or even visit the premises for field audits.

 

DOUBLE CHECK ROUTING AND ACCOUNT NUMBERS

Taxpayers have the flexibility to choose to have their federal income taxes deposited into one, two, or three accounts of their choice. Bank documentation containing correct numbers and account numbers is important, especially when a refund is required, to reduce the risk of delays or the refund being sent to an undesirable location. Taxpayers also have the opportunity to use their refunds to purchase US Savings Bonds, thus making the most of their tax refunds.

 

SIGN AND DATE THE TAX FILINGS

If filing a joint tax return, both spouses must sign and date the document. For those independently preparing and electronically submitting their taxes, authentication involves entering the adjusted gross income (AGI) from the previous year. Taxpayers seeking guidance can consult resources like “Validating Your Electronically Filed Tax Return” for assistance with any questions they may have.

 

ACCURATE MAILING ADDRESS

Taxpayers and tax professionals are urged to opt for electronic filing whenever possible. However, if a paper tax return must be submitted, it’s vital to confirm the accurate mailing address. This verification can be carried out on the official IRS website, IRS.gov, or by referring to the instructions provided with Form 1040. This precautionary step is essential for minimizing processing delays caused by incorrect mailing addresses.

 

KEEP A COPY

After completing their tax filing, individuals should proactively produce duplicates of their signed returns and any accompanying schedules for their records. Maintaining these copies simplifies future tax preparations and assists in revising calculations, especially when filing amended returns. Moreover, it is recommended that taxpayers hold onto records supporting their reported income, deductions, or credits until the statutory period for that specific tax return expires. This proactive approach ensures adherence to regulatory standards and streamlines potential inquiries or audits by tax authorities.

 

IRS AUDIT GROUP

IRS Audit Group consists of tax professionals, CPAs, enrolled agents, and tax attorneys.  We are located in Los Angeles; California and our primary area of expertise is IRS Tax Audit Representation.  However, our certified professionals cooperate and work with all IRS offices across the country.  Please contact us for more information.  https://irsauditgroup.com/contact/

Toll Free: (888) 300-6670

Emergency Number: (310) 498-7508

[email protected]

Read more
Understanding AMIC Tax Season 2024 blog

Understanding the Advanced Manufacturing Investment Credit for Tax Season 2024 – Special Rules for Partnerships and S Corporations

The Internal Revenue Service (IRS) administers the Advanced Manufacturing Investment Credit (AMIC) in Tax Season 2024.  The objective is to motivate businesses to upgrade their manufacturing processes, and thereby boost competitiveness and stimulate economic growth.   In the fast-paced industrial environment, staying ahead often necessitates significant investments in advanced manufacturing technologies.

 

What is Advanced Manufacturing Investment Credit?

The AMIC (section 48D) is a targeted initiative under the Inflation Reduction Act (IRA) to boost the manufacturing sector, particularly in critical areas such as semiconductors and renewable energy. Offering a direct dollar-for-dollar tax reduction, it provides a significant financial incentive over deductions, spurring investments in advanced manufacturing technologies. This credit underlines the government’s focus on domestic manufacturing resurgence and supply chain security, with unique provisions for credit sale or transfer, enhancing its appeal and offering businesses strategic flexibility for growth and innovation in vital industries.

 

How much is the Credit for Tax Season 2024?

Eligible businesses may claim a tax credit equal to 25% of the qualified investment costs incurred for the purchase of advanced manufacturing equipment and related expenses. Qualified investments include expenditures on tangible property used in domestic manufacturing processes, such as machinery, equipment, and software specifically designed for advanced manufacturing activities.

 

Eligible Businesses for Tax Season 2024

To be eligible for the AMIC, a business must be engaged in manufacturing activities within the United States and must invest in qualified advanced manufacturing technology. Additionally, eligible taxpayers must obtain certification from the Department of Energy (DOE) or the National Institute of Standards and Technology (NIST) confirming that the equipment or process meets the criteria for advanced manufacturing.

 

For this overview, an advanced manufacturing facility is defined under proposed regulation section 1.48D-3(f) as a site primarily engaged in producing semiconductors or semiconductor manufacturing equipment. The facility’s assets must be central to semiconductor production or the creation of equipment to manufacture semiconductors.

 

Special Rules for Partnerships and S Corporations

Partnerships and S corporations may allocate the AMIC to their partners or shareholders according to their ownership interests in the business entity. This allows for greater flexibility in distributing tax benefits among multiple stakeholders and can enhance the attractiveness of the credit for businesses structured as pass-through entities.

 

How to Claim and What’s the Deadline?

To claim the AMIC, eligible businesses must file Form 8942, “Application for Certification of Qualified Investments Eligible for Credits and Grants Under the Qualifying Advanced Energy Project Credit,” with the IRS. Additionally, they must adhere to specific deadlines outlined by the IRS to ensure timely processing of their applications and claims.

 

The deadline for claiming the AMIC filing for tax year 2023 corresponds to the due date of Tax Season 2024 which is April 15, 2024. Taxpayers can include AMIC for the automatic extension that is due date on Oct. 15, 2024. It’s essential for businesses to adhere to filing deadlines to maximize their tax benefits and avoid potential penalties or interest charges.

 

In conclusion, the Advanced Manufacturing Investment Credit represents a valuable opportunity for businesses to invest in advanced manufacturing technologies while reducing their tax liabilities. By leveraging this incentive, companies can accelerate their growth, drive innovation, and strengthen their competitive position in the global marketplace. However, it’s crucial for businesses to carefully assess their eligibility, comply with applicable rules and deadlines, and seek guidance from tax professionals or the IRS when necessary.

 

IRS Audit Group

IRS Audit Group consists of tax professionals, CPAs, enrolled agents, and tax attorneys.  We are located in Los Angeles; California and our primary area of expertise is IRS Tax Audit Representation.  However, our certified professionals cooperate and work with all IRS offices across the country.  Please get in touch with us for more information.  https://irsauditgroup.com/contact/

Toll Free: (888) 300-6670

Emergency Number: (310) 498-7508

[email protected]

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IRS blog on tax relief and Filing Extension

How to Claim Tax Relief Measures in Tax Season 2024 for the Storm and Disaster Victims in Federally Declared Disaster Areas

Every year, based on the Federal Emergency Management Agency’s (FEMA) federally declared disaster areas, the IRS will implement administrative disaster tax relief measures. For the Tax Season 2024, the IRS made special tax law provisions to provide affected individuals and businesses with additional time to file returns, pay taxes, and complete other time-sensitive tasks. This assistance is specifically tailored for taxpayers who are affected by a disaster declared at the federal level, guaranteeing that they receive essential assistance during difficult circumstances. It is important to note that certain conditions may need to be met in order to qualify for the tax relief and provisions offered by the IRS. By following the established procedures and guidelines, disaster victims can benefit from the assistance provided by the government to alleviate the financial burden caused by the disaster.

 

The relief for the tax season 2024 extends the deadlines for filing and paying taxes that fell between Sept. 10, 2023, and June 17, 2024. This means that individuals and businesses affected in the disaster regions will now have until June 17, 2024, to submit their returns and settle any outstanding taxes from this period.

 

Who Qualifies for the Extension in Tax Season 2024?

In order to be eligible for an extension on filing your taxes, it is required that you are a resident or business situated in a region identified by the Federal Emergency Management Agency (FEMA) as a federally declared disaster area. This encompasses not only the main area impacted by the disaster but also the surrounding areas that have been affected.

 

Furthermore, the IRS is prepared to collaborate with any taxpayer residing outside the disaster zone but whose essential records are required to comply with a deadline falling within the extension period are situated in the impacted region. Taxpayers eligible for assistance and residing beyond the disaster zone must reach out to the IRS at 866-562-5227 for further guidance and support. This provision also encompasses individuals who participated in relief efforts and are associated with a reputable governmental or charitable institution.

 

What is included in the Extension?

Extension generally encompasses a range of tax deadlines, which can include filing income tax returns, making quarterly estimated income tax payments, and submitting different business tax returns. Additionally, extension can be utilized for other tax-related tasks, like requesting an extension for an individual tax return or making contributions to an IRA. The June 17, 2024, deadline will now apply to the following activities.

  • Individual income tax returns and payments normally due on April 15, 2024.
  • 2023 contributions to IRAs and health savings accounts for eligible taxpayers.
  • 2023 quarterly estimated income tax payments normally due on Sept. 15, 2023, and Jan. 16, 2024.
  • Quarterly payroll and excise tax returns normally due on Oct. 31, 2023, and Jan. 31 and April 30, 2024.
  • Calendar-year partnership and S corporation returns normally due on March 15, 2024.
  • Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2024.
  • Calendar-year tax-exempt organization returns normally due on May 15, 2024.

 

How to Claim the Extension?

Taxpayers residing in a federally declared disaster area who qualify for the extension do not have to take any action to receive it. The IRS will recognize individuals located in the designated disaster zone and grant them an extension on their tax deadlines without requiring any additional steps. In the event that you receive a penalty notification from the IRS due to late filing or payment of taxes, you have the option to contact the phone number provided on the notice to request a waiver of the penalty.

 

The tax relief measures have been implemented as a component of a well-coordinated federal initiative aimed at addressing the extensive harm inflicted by these calamities. These measures have been devised after careful evaluation of the local damage assessments conducted by FEMA, ensuring that the relief efforts are targeted toward the areas most affected by the disasters.

 

IRS Audit Group

IRS Audit Group consists of tax professionals, CPAs, enrolled agents, and tax attorneys.  We are located in Los Angeles; California and our primary area of expertise is IRS Tax Audit Representation.  However, our certified professionals cooperate and work with all IRS offices across the country.  Please contact us for more information.  https://irsauditgroup.com/contact/

Toll Free: (888) 300-6670

Emergency Number: (310) 498-7508

[email protected]

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IRS blog on Small Businesses tax in 2024

Small Businesses in Tax Season 2024 – Key Considerations for Your Tax Filings

Effective tax planning plays a crucial role in the smooth operations of any business.  With the ever-changing tax environment, it is imperative for small business owners to stay updated and adopt the right strategies to enhance their tax management and ultimately boost profitability.  As the tax season 2024 begins, small businesses need to have in place strategies to minimize their tax liability.

 

Stay Up to date with Tax Law Changes

It is crucial for small business owners to stay updated on the frequent changes in tax laws for effective tax planning.  In tax season 2024, it is particularly important for them to closely monitor any updates or amendments to tax laws that could have an impact on their businesses.  This encompasses changes in tax rates, deductions, credits, and compliance requirements.  To ensure awareness of any changes that may affect their business, consulting with a tax professional or regularly referring to reliable sources like the IRS official website is highly recommended.

 

Small Business Tax Law Changes for Tax Season 2024

The 2024 tax season has introduced many significant tax changes, whether you are filing a personal or business tax return.  For business, there are many tax deductions and credit changes that can significantly affect the tax liability.  For instance, business owners were deducting 100% of the cost of work-related meals and beverages at restaurants during the pandemic for the years 2021 and 2022.  For tax season 2024, it is reduced to 50% of the cost back to the 2020 level.

 

Entrepreneurs operating small businesses can avail increased standard mileage rates for business-related travel.  For those utilizing their cars for business purposes, a deduction of 65.5 cents per mile driven is allowable for the entirety of the 2023 tax year.  Notably, this reflects an increase of 3 cents from the midyear rate recorded in 2022.

 

Bonus depreciation, established under the Tax Cuts and Jobs Act (TCJA) of 2017, provides business owners with the opportunity to depreciate a significant portion of the expenses associated with a qualified asset.  Under TCJA provisions, business proprietors were permitted to depreciate 100% of the expenses related to qualified assets placed in service between September 27, 2017, and January 1, 2023.  However, for assets put into service in the year 2023, the bonus depreciation rate will gradually decrease by 20% each subsequent year.

 

Optimize Deductions and Credits

Utilizing deductions and credits can be advantageous in reducing taxable income and decreasing tax obligations.  Small business owners are encouraged to make use of all the deductions and credits available to them in order to minimize their tax burden.  Some common deductions for small businesses include expenses such as:

  • Deductible business expenses may cover rent, utilities, supplies, and employee salaries.
  • Small businesses can deduct equipment purchases, either fully or through depreciation.
  • Home-based businesses can deduct a portion of home-related expenses like mortgage interest, property taxes, and utilities.
  • Small businesses offering health insurance coverage may be eligible for a deduction on premium costs.

Small business owners should not only focus on deductions but also consider the various tax credits that are available to them.  These credits can provide significant financial benefits.  Some of the common tax credits that small businesses can explore include the Research and Development (R&D) Tax Credit, which encourages businesses to invest in innovation and development, the Work Opportunity Tax Credit (WOTC), which provides incentives for hiring individuals from certain target groups, and the Small Business Health Care Tax Credit, which helps small businesses provide health insurance to their employees.  By taking advantage of these tax credits, small business owners can reduce their tax liability and potentially save a substantial amount of money.

 

Take Advantage of Retirement Plans

Contributing to retirement plans like SEP-IRAs, SIMPLE IRAs, or solo 401(k) plans can offer tax benefits and financial security for small business owners.  These contributions are typically tax-deductible and can lower taxable income, while also allowing owners to save for retirement.

 

Maintain Meticulous Records

Keeping organized and detailed records of income, expenses, receipts, invoices, and other financial documents is essential for effective tax planning and compliance.  These records not only ensure adherence to tax laws but also provide valuable information for maximizing deductions and credits.

Small business owners should create a plan to pay estimated taxes every quarter to avoid penalties and meet tax obligations.  Seeking assistance from a tax professional can help accurately calculate these payments based on the business’s income and expenses.

 

IRS Audit Group

IRS Audit Group comprises tax professionals, CPAs, enrolled agents, and attorneys.  We are located in Los Angeles; California and our primary area of expertise is IRS Tax Audit Representation.  However, our certified professionals cooperate and work with all IRS offices across the country.  Please contact us for more information.  https://irsauditgroup.com/contact/

Toll Free: (888) 300-6670

Emergency Number: (310) 498-7508

[email protected]

Read more
Corporate Transparency ACT Requirements Blog

Corporate Transparency Act (CTA) – Key Reporting Requirements, Process, Deadlines and Penalties in Tax Season 2024

What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) was enacted by Congress as part of the National Defense Authorization Act (NDAA) for Fiscal Year 2021 to combat financial crimes, including money laundering, terrorist financing, and other illicit activities facilitated by anonymous shell companies. The CTA’s reporting requirements will come into effect on tax season 2024 starting from January 1, 2024.

 

One of the key provisions of the CTA is the requirement for certain types of businesses to disclose their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). Beneficial owners refer to individuals who have a significant portion of a company’s equity or voting rights. In the past, it was relatively easy for individuals to establish shell companies without revealing their true ownership, enabling illicit actors to engage in financial activities anonymously. The CTA addresses this issue by mandating businesses to provide comprehensive information about their beneficial owners, including their full legal names, dates of birth, current addresses, and unique identification numbers. This information is stored in a confidential FinCEN database accessible to authorized government agencies, law enforcement, and financial institutions conducting due diligence. BOI reporting is not an annual requirement unless a company needs to update or correct information, a report only needs to be submitted once.

 

Who has to file for BOI?

Entities obligated to disclose information are referred to as reporting companies, and they come in two distinct categories:

Domestic Reporting Companies: Domestic reporting companies encompass corporations, limited liability companies, and other entities established through the submission of documents to a secretary of state or a similar office within the United States. These entities are formed and operate within the legal framework of the United States.

 

Foreign Reporting Companies: Foreign reporting companies are entities, such as corporations and limited liability companies, constituted under the laws of a foreign country. However, they have elected to conduct business in the United States by formally registering through the submission of relevant documentation to a secretary of state or a comparable office. This registration signifies their commitment to complying with reporting requirements in the U.S., ensuring transparency and regulatory adherence in their operations.

 

There are exemptions to the reporting requirements of the BOI for certain entities which are categorized into 23 types. These exemptions include publicly traded companies, certain financial institutions regulated by federal or state agencies, and entities that demonstrate low risk for money laundering or terrorist financing based on specific criteria. It is important to find out whether your company is eligible for exemption through the small entity compliance guide provided by FinCEN.

 

Key Reporting Requirements for Tax Season 2024

A reporting company will have to report the following as stated by FinCEN:

  • Its legal name;
  • Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names;
  • The current street address of its principal place of business if that address is in the United States (for example, a U.S. reporting company’s headquarters), or, for reporting companies whose principal place of business is outside the United States, the current address from which the company conducts business in the United States (for example, a foreign reporting company’s U.S. headquarters);
  • Its jurisdiction of formation or registration; and
  • Its Taxpayer Identification Number (or, if a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of the jurisdiction).

A reporting company will also have to indicate whether it is filing an initial report, a correction, or an update of a prior report.

For each individual who is a beneficial owner, a reporting company will have to provide:

  • The individual’s name;
  • Date of birth;
  • Residential address; and
  • An identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of the identification document (for examples of acceptable identification, see Question F.5).

The reporting company will also have to report an image of the identification document used to obtain the identifying number in item 4.

 

Reporting Process

The reporting companies can file electronically through a secure filing system available via FinCEN’s BOI E-Filing website. The E-Filing portal permits a reporting company to choose one of the following filing methods to submit a BOI:

  • Upload the finalized PDF version of the BOI report and submit it online.
  • Fill out a Web-based version of the BOI report and submit it online.

A reporting company may submit its BOI report through either of these methods, both of which require the filing to be done online as BOIRs cannot be mailed or faxed to FinCEN. Step-by-Step process is defined in the below image.

Corporate Transparency Act (CTA) – Key Reporting Requirements, Process Blog

FinCEN expects that reporting companies can file by themselves through guidance given on the official website. However, reporting companies that need help meeting their reporting obligations can consult with tax professional service providers such as tax lawyers or accountants.

 

Deadlines for BOI Filing

  1. A reporting company established or registered for business activities before January 1, 2024, is granted until January 1, 2025, to submit its initial BOI report.
  2. In the case of a reporting company created or registered in 2024, the timeline for filing extends to 90 calendar days from the point of receiving actual or public notice confirming the effectiveness of its creation or registration.
  3. For reporting companies formed or registered on or after January 1, 2025, the window for filing the initial BOI report is condensed to 30 calendar days from the receipt of actual or public notice affirming the effectiveness of the company’s creation or registration.

 

Penalties for Non-compliance to CTA

Within 90 days of the original report deadline, the reporting companies must correct a mistake or inaccuracy or submit reports to avoid penalties. However, failure to comply with BOI reporting obligations may result in civil and criminal repercussions. Under the CTA, intentional violations of BOI reporting requirements can lead to civil penalties of up to $500 for each day of non-compliance. Additionally, individuals may face criminal penalties, including imprisonment for up to two years and a fine of up to $10,000.

Potential violations may include intentionally neglecting to submit a BOI report, knowingly submitting a false BOI, or purposefully neglecting to correct or update previously reported BOI. It is crucial to adhere to reporting obligations and promptly rectify any errors to avoid potential legal consequences outlined by the CTA.

 

IRS Audit Group

IRS Audit Group comprises tax professionals, CPAs, enrolled agents, and attorneys.  We are located in Los Angeles; California and our primary area of expertise is IRS Tax Audit Representation.  However, our certified professionals cooperate and work with all IRS offices across the country.  Please contact us for more information.  https://irsauditgroup.com/contact/

Toll Free: (888) 300-6670

Emergency Number: (310) 498-7508

[email protected]

Read more

IRS Audit Group

Tax attorney in Beverly Hills, California

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