BOI/FinCEN reporting: facts and fiction

We talked before about CTA/BOI/FinCEN.
Today we’ll talk about facts and fiction circulating around this topic


FACTS
The new tax law makes reporting mandatory for many business owners.
Now we have some new developments

On March 1, 2024, a federal district court in Alabama declared that the new law is exceeding the Constitution’s limits on Congress’s power.

We will see how this develops.
And if it’s “catching on” nationwide.

FICTION — in this case SCAMS
Scammers are busy again — targeting individuals and entities
This time they are using this new law (BOI reporting to FinCEN).

Even though 2024 is the first year of required reporting scammers are on top of it.
They’re sending letters out requiring payment.
Letters appear to be sent by FinCEN or other government agency.

IMPORTANT
There is NO fee required for filing BOI with FinCEN.

If you get these letters DO NOT give them any money.

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Dangerous and Illegal

What is dangerous and illegal?

TikTok posts giving illegal tax advice.

Posts are going viral.

Millennials, GenZ, and Gen Alpha
All major demographics on TikTok
They are told to select “exempt.”
(On form W-4)

Why?
They’ll pay zero-dollars in tax witholdings.

What do the TikTok posters imply?
No tax withheld = not having to pay taxes

That is FALSE

Be careful!

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Simpler IRS forms

IRS launched “Simple Notice Initiative”.
The program is aimed to help taxpayers by simplifying forms.
And clarifying instructions.

Good example of this was the redesign of Identity Theft form 5071C.
Originally the form was 7 pages long. The new version will be only 2 pages.

Very good, right?

Danny Werfel, the IRS Commissioner, further promises to:
“…work on getting our language plainer, shortening the length of these letters,
and making clear the actual intent of these letters.”

That’s good for everyone involved.
Great job, Mr Werfel

P.S.
Speaking of simple:

.    Flat tax.
.    And get rid of IRS.

Would you vote for the man who’s promising to do that?
Florida Governor certainly hopes you will.

That would make for a much simpler world, wouldn’t it?

In theory, anyway 😁

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Budget Deficit and Holidays Challenges

When you have a budget deficit you raise taxes.
Good idea?
California seems to think so.

Interstate migration — we talked about it before.
Many of you know California is in the top three
Its people are leaving the state for a different
“climate.”

Now, as a direct result of this migration,
California is facing a $68 billion budget deficit

And how is the state responding to this?
Raising taxes

Does that sound like a good strategy?
Or will it backfire?
And cause another wave of migration

Time will tell.

/ / / / / / / /

Holidays
Special time of the year for family and friends.
It’s also time of the year when hackers are more
active than usual.

Why?

On line holiday shopping makes it easier for them to
steel your personal and financial information.

There are many ways these identity thieves are using
your information.
Including filing fake income tax returns.

IRS Commissioner said:
“Identity thieves are looking for ways to steal taxpayer
information that can help them steal identities and file
fraudulent tax returns.”

Be careful
Protect your financial and personal information

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Technology, Interstate Migration, and Taxes

USING AI AT WORK

We talked before about how employees love to use AI at work.
The reason is simple:
It makes their job much easier

BUT (you knew there was a “but” coming, right? 🙂 AI can also get them in trouble

Washington Post wrote about a lawyer who used AI to file documents with a court in Colorado.
The trouble?
Some of the case citations were fake.
Yes.
FAKE

The lawyer apologized but that didn’t save him.
He was fired from the law firm.

Now the legal community is struggling with IF and WHEN to use AI

Keep that in mind if you need to hire an attorney.

* * * * *

MIGRATION

Millions of Americans move from one state to another — every year.
Available data (including IRS tax records) gives us insights on what states are best for work.
And for raising up a family

States that lost the most to interstate migration are California and New York
Winners include Idaho, Texas, and Florida

* * * * *

TAXES

IRS has hired extra manpower.
So make sure you keep your receipts organized
This way you’ll be able to document your expenses
And protect yourself if the IRS comes over for an audit.

Important: take all the deductions available to you

Some studies found that business owners overpaid more than $3,000 in taxes
Be informed
Don’t miss out on any money-savings deductions and credits.

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ERC Scams

This month IRS announced a moratorium on ERC
(Employee Retention Credit)

This is expected to last through the end of the year.

Why did this happen?

Because IRS received a “flood of improper” ERC claims.

“The IRS is seeing a wave of these scams relentlessly pounding
taxpayers,” said IRS Commissioner Danny Werfel.

“People are being flooded with these email and text messages, but we want them to avoid getting swept up in these terrible scams. Taxpayers should be wary; remember, don’t click on links from questionable sources.”

Red flags, identified by IRS for ERC scams, include:

* Fees based on percentage of refund or

* Large upfront fees when claiming the ERC

These unscrupulous scammers use email, regular mail, phone, etc.

They’ll do anything they can to get your valuable personal and
financial information.

Be careful

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DO WE WANT IRS TO BE MORE POWERFUL?

Do we want IRS to be more powerful?

The Supreme Court thinks so.

(Polselli v. Internal Revenue Service
That’s the Tax Court Case that gave the IRS more power.)

What does that mean for you, the business owner?

Let’s say you operate a restaurant.
And one of your suppliers/vendors gets audited by IRS.
The IRS officer can go to the bank and ask for YOUR documents or financial records associated with the audited vendor.

Will you be notified that IRS is looking at your financial records?
NO.

Is it legal?
YES
The Supreme Court said so.

Note:
There are ongoing efforts to overturn that decision.

* * *

Moving on to some good news in State Tax Reform.

This is the third year of significant tax reform. 24 states have reduced individual income tax rates.
13 states have lowered taxes for corporations.
Plus some states have done tax reductions and/or other tax improvements in: sales tax rates, capital stock taxes, and more.

For business owners with interstate businesses:
You need to keep informed.
And take advantage of these opportunities.

You work hard.
And you deserve to keep more (as it’s legally allowed) of your hard-earned money.

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Can your pet get you out of tax troubles?

Gregory Blatt lives in New York.
Has an apartment in the city.
His #work takes him occasionally to Texas.
Eventually he leased an apartment in Dallas.
But he still keeps his apartment in New York
At #tax time he claims residence in Texas

And how do you think New York took this
new “arrangement”?
Not very well 🙂

Their reaction could be summed up in a
few words:
“Get real!
You still got an apartment in here.
That’s proof of your residence in this state.
Pay up, Gregory Blatt!”

New York state wanted Gregory Blatt to pay to
the state coffers $430,065 in income #taxes
(2009 & 2010 tax years)

Blatt didn’t agree with NY state’s position.
So off to the court they went.

Tax court documents show how intrusive some
of state’s investigative tactics were
(Not surprising: New York and California are the
two most aggressive — chasing their #taxpayers
who moved out of state)

The facts were carefully weighed
And it was about 50-50
The verdict could’ve gone either way.

It came down to one question:
Where is the taxpayer’s home?

Blatt won the case.

What was the deciding factor?
His dog.

Why?
Because it answered the question:
Where is home?

Gregory Blatt, a single guy, his home was
where his dog was.
Moving his rescue (senior) dog wasn’t easy.
But that’s what you do when pets are family.
You bring them home.

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BUSINESS, TAXES, RED FLAGS

Tax season is here.
And some of you, business owners, worry about raising red flags with IRS.

What can increase your chances of getting audited?

Having business losses — for three straight years — can put you on IRS’ radar.
And you run the risk of having your business reclassified as a hobby.

IRS says “someone operates the business to make a profit.”
According to them businesses should be making profit three out of five years.
(Or two out of seven if your business is training, showing, breeding horses.)

When you keep having losses, it will attract IRS’ attention.
(Those red flags we mentioned earlier.)

Does this mean the IRS will automatically reclassify your business as a hobby?
NO

* Keep good records.

* Prove to the IRS that you run the operations in a business-like manner.

* Have a business plan — showing you fully expect to make a profit (soon).

Wishing you success in all you do.

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When I grow up

Clients arrive
We greet them (my feathered-kids and I 🙂

Then we sit down and start talking about their latest project — their small business.
All is going well, and I’m happy for them.

We move on to tax talk.
And discover there’s some missing documentation.
“We can bring the info next week” they say.
So we set a date/time.

That’s when the wife said, “and we’ll bring pizza for lunch.”
Husband turns to me and asks “Do you like pizza?”
Before I could talk the wife answers for me:
“She LOVES pizza.”

I have the best clients!

Next week arrives.
I knew they came before I saw them.
Flipper lets me know when someone pulls in the driveway.
She’s my feathered “watchdog” 🙂

Husband and wife take their seats.
And I get some plates and glasses with water
While I’m doing that, the wife takes a slice of pizza and breaks it in small pieces.
Then goes around to each of my feathered kids — gives them a small pizza bite
Love her!

I’m looking at the two of them:
Integrity, strong work ethics.
And respect for others.

Financially comfortable yet they started a business.
Still wanting to contribute, to do their part.

When I grow up I want to be just like them.

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