Technology, Interstate Migration, and Taxes


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.

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.

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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: Idaho, Texas, and Florida

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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?

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?

Is it legal?
The Supreme Court said so.

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.

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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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?

* 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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It’s that time of the year — tax planning time

Hard to believe but Halloween is hereEmoji
Time flies, doesn’t it?
Year-End Tax Planning

For business owners this is also the time for year-end tax planning

Start by reviewing your 2022 paperwork (Jan to Oct).
Income and expenses.
Then estimate revenue and deductions for Nov and Dec.

Look at your 2021 tax return
Next try to anticipate 2023 projected revenue and expenses
Armed with this information, you can develop a strategy on how
to save on your 2022 taxes.

Example: if you expect an increase in your 2023 income then
you need to postpone some of deductible expenses until next year.
This way the deductions claimed in 2023 will provide you with
with greater tax savings

*  *  *  *  *
You can now pay your taxes with cryptocurrency!?
Yes, you can

Venture to guess what state is the front runner?

You’re right if you guessed Colorado
If you live in Colorado, you can pay your taxes using cryptocurrency.

Bitcoin, bitcoin cash, ethereum, and others, will be accepted as tax payments
You submit your payments through PayPal’s Cryptocurrencies Hub.
Three to five days later the cryptocurrency will be converted to U.S. dollars
It’s that easy

*  *  *  *  *
Well, that’s it for today
Enjoy all the cute little trick-or-treaters 🙂
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Tax News

You’ll be happy to know:
The IRS waives $1.2 Billion in Late-Filing Penalties

Big relief for struggling people and business who filed late their tax returns
(For tax years 2019 and 2020)

Those of you who already paid the penalties will get refunded.
Or get credits.

The IRS Commissioner, says the penalty relief is automatic if you qualify.
No need to call.
Eligible tax returns need to be filed on/before September 30, 2022.

The IRS made a promise to increase the pace on its processing of paper tax returns.
Mid August backlog of unprocessed tax returns: close to 9 million.
But the agency’s pace is steadily increasing.
The goal is to get to a manageable level by the end of this year.

Let’s hope so.

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Remote work and its tax implications

Remote work opened up a whole world of possibilities.
Especially for the people living in states with a higher cost of living.
They can now move to much more affordable areas.
And keep their well-paying jobs.

Good for the employees.
And good for the companies.

All these advantages come with a few challenges as well.
One of the major one being taxes.

As a company, when one of your employee is working remotely from another state, then the tax authority of that state can impose taxes on your business.
Because your remote employee can establish nexus (connection) between your business and your employee’s home state.
And this triggers tax obligations for your business.

The solution?
Keep informed — know the tax requirements.
In situations like these the rules require that the connection must be “substantial” before nexus applies.

Yes, remote work can create some tax complexity.
But, overall, it’s a win/win — for the company and its employees.

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Gig Workers and Taxes

Tax Day is fast approaching

If 2021 was your first year in the gig economy then tax time will be full of surprises for you.
Most likely not very pleasant surprises either
Higher than expected tax liabilities
Even some penalties

Not much fun dealing with all of that.

What to do now?
Get some strong coffee (or your favorite give-me-energy drink)
And start on your paperwork.

Process your paperwork (get help, if necessary).
And file your taxes.

Tax time it’s a stressful time for many.

Now it’s the best time to start thinking, and planning, for next year
Think about how to make it easier on yourself when next tax filing comes around

Here are three things to get you started on the right track:

  1. Income
    Keep track of your income.
    Make sure to keep good records.
    The companies you work with will issue you 1099-NEC and other 1099s
    Do remember:
    The companies will also send copies of these forms to IRS
  2. Expenses
    Keep track of work-related expenses: car maintenance and repairs, work supplies, etc.
    These expenses will help lower your tax bill
  3. Taxes
    Put aside ~20% of your income. Save that money for taxes.
    (If necessary, and to avoid penalties, you may want to make estimated payments.)

That’s it!
Develop a system when you se aside time (weekly or monthly ) and do these.
And I promise you:
Consistently doing these 3 things will make tax time much less stressful.

Wishing you success in all you do

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