Category: Clients

Corporate Transparency Act

Are you ready for the Corporate Transparency Act (CTA)?

What is it?

The Corporate Transparency Act (CTA) is intended to provide law enforcement with beneficial ownership information for the purpose of detecting, preventing, and punishing terrorism, money laundering and other misconduct through business entities. This report will require information about the Business Entity, information for each of the Beneficial Owners of the company (any individual who has substantial direct or indirect control of the reporting company or who owns at least 25% of the ownership interests) as well as Company Applicants (the person or people filing on behalf of the entity).

What we know:

Effective January 1st, 2024, every existing, amended, or new corporation, LLC or other entity registered through any state’s Secretary of State, including foreign entities doing business in a state MUST FILE specific reports with the Financial Crimes Enforcement Network (FinCEN).

Timeline:  We are on top of this, and we are studying the code each week for updates to the timeline.  There are no action items needed at this time, watch for more information from K&R next month!

Your success is our priority:

We are committed to going above and beyond to ensure your entities are compliant with the CTA. We value your time, and we believe the peace of mind we can offer through our continued education and diligence for compliance is invaluable.

For K&R to assist you with this federally mandated filing, we will need a commitment for the following:
  1. All information must be provided promptly.
    • There is very specific information that will be collected in order to successfully complete the reporting. Very shortly we will be sending in greater detail the exact documentation required for the entities, beneficial owners, and substantial control members. As a firm we have set a hard deadline of September 30th, 2024, for all submittal information. Our services may not be available after this date.
  1. All Business Entities disclosed.
    • We require that all entities are disclosed whether K&R has knowledge or record of them or not. Even if you are unsure of the filing requirements, we require all entities of record.

To see a PDF version of this blog post, follow the link below:

CORPORATE TRANSPARENCY ACT OF 2019

Client Gifts

Many business owners like to express their appreciation to clients and referral sources with gifts, especially around the holidays. Understanding IRS rules around gifts can help you show your generosity without creating any surprises at tax time.

$25 Limit

Businesses may not deduct more than $25 for business gifts made to the same person. For example, if you purchased a $75 gift basket for a major referral source, only $25 would be deductible on the tax return. The $25 limit does not include shipping costs, sales tax, gift wrapping, or engravings that do not add substantial value.

Of course, this dollar limit is to prevent unreasonable business expenses, but it is interesting to note that the amount has not been updated since 1962.

 

 

Bright Idea

Since the $25 limit is per person, you may deduct a larger gift if the recipient is a business with multiple employees. For example, if one of your clients has five employees, you could give a fruit and cheese basket costing up to $125 and deduct the full expense. Similarly, you could give individual gifts to key contacts within one company.

 

Be Wary of Entertainment

When selecting gift, be careful of gifts that could be considered entertainment. The Tax Cuts and Jobs Act eliminated the deduction for entertainment expenses as of January 1, 2018. Examples of entertainment include tickets to a sporting events and concerts.

 

 

Bright Idea

Instead of providing gifts that could be considered entertainment, consider taking the client to a meal. Business meals at restaurants remain 100% deductible in 2022 (rather than the normal rate of 50%). A meal can provide the same opportunity to connect with a contact as entertainment without the sticky tax rules. Furthermore, meals are not subject to the same low dollar limitation as gifts.

 

Small, Branded Gifts

Branded items that cost less than $4—think pens, chap sticks, or calendars—are considered advertising rather than gifts. Generally, you don’t need to record who you gave them to because they will not count against the $25 per person annual limit.

 

The holidays provide a great opportunity to tangibly express your appreciation for clients and contacts. Who doesn’t love to receive a thoughtful box of chocolates or bottle of wine? If you have any questions about the IRS rules surrounding client gifts or any other deductions, reach out to our office at 480-392-6801.

IRS Destroys 30 million Information Returns

In March of 2021, the IRS shocked taxpayers and tax preparers alike when an audit uncovered that the IRS office in Ogden, UT, had destroyed an estimated 30 million paper-filed information documents.

Yes, 30 MILLION.

 

What are the possible consequences of this mass destruction?

The IRS asserts that the data that was destroyed included only informational pages, like 1099s and W-2s. Officials insist that no actual tax return filings were destroyed. While neither K&R nor any other firm can verify that claim, we suspect that missing data will worsen the already overwhelming delays in processing returns.

For example, when a taxpayer’s return includes wages paid by an employer, the IRS has a system in place to compare the wages the taxpayer reports with the wages reported by the employer on the W-2. The missing data causes a mismatch that could trigger more notices sent by the IRS and longer delays in issuing refunds.

The IRS isn’t worried about the consequences: officials stated that the onus for providing proof of correct amounts rests on the taxpayer.

In the event of an IRS audit, how many average Americans could produce a 1099 from 3 years ago without major headaches?

 

Why did this happen?

The constraints of outdated technology. The IRS uses an imaging processing system to convert paper informational returns into a usable data format. However, the documents must be processed prior to the end of the year they were received in. Once the 2021 filing season began, documents received in 2020 could no longer be processed. Thus, the unprocessed documents were destroyed.

In an official statement, the IRS asserted that it intends to process all paper information returns received in 2021 and 2022. Only time will prove or disprove that promise. We do know that despite encouraging taxpayers to file electronically, the IRS continues to require paper filing of many documents including some amended tax returns.

 

What can your accounting firm do to protect you?

In times when taxpayers can’t rely on our government agencies, your accounting firm should protect you as a client by maintaining historical records with an emphasis on security.

Jessica, one of our staff members, recalls a very different experience as a customer at a big-name tax preparation service:

“When my first daughter was a toddler and my second was on the way, my spare moments were spent getting as much rest as possible. I didn’t have the energy the calculate the tax implications of selling my house in Texas! So, I made an appointment with another preparer for the first and only time.

I remember at the end of my appointment, the employee handed me a nice-looking folder with my documents and a printout of my tax return. . . that is the last time I remember seeing that folder. I’m sure that it’s in my house, tucked away somewhere.”

At K&R, we made the commitment several years ago to transition to a paperless office. We don’t handle original hard copies which could be damaged, lost, or stolen. Our clients have access to both their submissions and completed tax returns 24 hours a day through our online client portal.

As K&R clients face relocations, natural disasters, life changes, and even governmental misconduct, their tax information remains stored in one safe location.

Implications of Holding Cryptocurrency in Foreign Wallets

Implications of Holding Cryptocurrency in Foreign Wallets

Online marketplaces present cryptocurrency as a medium of exchange free of interference by powers like national governments and banks. Like many other nations, however, the United States is strengthening its stance that cryptocurrency is subject to laws and regulations like every other form of property. One of the most effective resources for the US government to assert oversight over cryptocurrency is the IRS.

While Bitcoin was launched in 2009 as the first decentralized cryptocurrency, the IRS uses much older laws to require reporting of digital currencies. The Bank Secrecy Act of 1970 requires businesses to keep records and file reports that are determined to have a high degree of usefulness in criminal, tax, and regulatory matters. A major part of this act is the requirement to report foreign bank and financial accounts. US taxpayers are required to file a FinCEN Form 114 to report:

  1. a financial interest in or signature or other authority over at least one financial account located outside the United States if
  2. the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

But if cryptocurrency exchanges promise to avoid governmental regulations, do cryptocurrency wallets based in other countries meet the definition of a foreign account?

As far as the IRS is concerned, the answer is a resounding, “YES.”

The seriousness of these requirements is backed up by a range of civil and criminal penalties. At the upper end, a willful violation can incur a $250,000 penalty and 5 years in prison (IRS Pub. 5569).

More commonly, taxpayers may simply not realize that their holdings require additional filings. One common misconception is that if cryptocurrency is merely held but isn’t traded for a gain or loss and doesn’t produce interest income, then it is not reportable. In fact, the value of the account itself determines whether the taxpayer must file a FinCen Form 114. The $10,000 threshold becomes even more significant as more taxpayers consider cryptocurrency as a possible vehicle for retirement savings. Furthermore, investors with higher levels of holdings have additional reporting requirements. Taxpayers must file Form 8938 annually with their personal income tax return if the total value of their foreign assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the tax year.

The account holder is required to disclose:

  • Name on the account,
  • Account number,
  • Name and address of the foreign bank,
  • Type of account, and
  • Maximum value during the year.

The most important step you can take as a taxpayer to protect yourself against potential pitfalls like failure to report foreign accounts is to build a relationship with an accounting firm that you trust. Communication about your financial strategies during the year not only prevents surprises at tax time but can help you avoid landmines in the ever-changing landscape of digital investments.

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