Boulder CO, Accounting Firm

Understanding the Employee Retention Credit Withdrawal Program

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On October 19, 2023, the IRS unveiled procedures enabling taxpayers to withdraw previously filed claims for the Employee Retention Credit (ERC). This decision followed the suspension of processing new ERC filings on September 14, 2023, as a response to a surge in improper claims since the ERC’s inception in 2020 amid the COVID-19 response. 

The IRS had been consistently cautioning against fraudulent and improper ERC claims over the past year. The September announcement not only suspended ERC claim processing but also hinted at forthcoming settlement and withdrawal programs for those who had filed improper claims. Subsequently, on October 19, 2023, the IRS disclosed the details of the withdrawal program, outlining qualification criteria and procedures for taxpayers looking to retract their ERC claims. 

Qualifying for the ERC Claim Withdrawal Process 

To qualify for the ERC claim withdrawal process, taxpayers must fulfill specific requirements, including: 

  1. Making the claim on an adjusted employment return exclusively for the ERC. 
  1. Desiring to withdraw the entire claim. 
  1. The IRS not having paid the claim or, if paid, the taxpayer not having cashed or deposited the refund check. 

How the Withdrawal Process Works 

The withdrawal process aims to treat the claim as if it had never been filed, mitigating the risk of future repayment, interest, or penalties. Taxpayers can initiate withdrawal through various methods, depending on how they initially filed their ERC claim – either through their payroll provider or directly if they filed the claim themselves. Additionally, those under IRS audit can submit withdrawal requests directly to the IRS examiner. 

This development underscores the IRS’s commitment to address the challenges posed by improper ERC claims and emphasizes the importance of compliance and accuracy in claiming tax credits. As the ERC landscape continues to evolve, taxpayers are urged to stay informed and consider the withdrawal option if they deem their initial claim to be improper. If you suspect that your ERC claim was improperly filed, consult with your tax practitioner to determine the best course of action. 

Treu Accounting is a results-driven small business accounting expert, delivering services designed to build resilience and exceed goals. Treu Accounting tailors our services to fit your unique needs. We provide opportunities for an ongoing conversation from the initial consultation to understand you and your business to the customized proposal, to ensure you get what you need. 

Boulder CO, Accounting Firm

Year-End Financial Moves for Individuals: Boosting Your Tax Efficiency

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As the calendar inches closer to the year-end, it’s time to put on your financial planning hat and take strategic steps to optimize your tax situation. Making smart moves in the next few weeks can potentially reduce your tax liability and save you money. Let’s delve into some high-impact actions you can take before December 31 to enhance your tax efficiency.

Maximize Retirement Contributions

One of the most powerful tools in your tax-saving arsenal is maximizing contributions to retirement accounts. As we approach the year-end, consider contributing the maximum allowable amount to your 401(k), SEP IRA, and IRAs. Be vigilant to ensure you don’t surpass the contribution limits, as exceeding them may result in penalties and tax consequences.

401(k) Contributions

Verify your 401(k) contributions. The 2023 employee contribution limit is $22,500, with a $7,500 catch-up for those 50 and older.

SEP IRA Contributions

For self-employed or small business owners with SEP IRAs, confirm contributions are within the 2023 limit of 25% of net earnings, up to $66,000.

Traditional IRA Contributions

Check traditional IRA contributions—contribution limits are up to $6,500 for 2023, with a $1,000 catch-up for individuals 50 and older. Contributions may be tax-deductible. Ensure you adhere to these limits to avoid potential penalties and maintain the tax advantages of your contributions.

Roth IRA Contributions

Consider making contributions to a Roth IRA. While contributions are not tax-deductible, qualified withdrawals in retirement are tax-free. The 2023 contribution limit is $6,500, with a $1,000 catch-up for individuals 50 and older. Assess your eligibility and weigh the benefits of tax-free withdrawals in retirement.

Claim the Saver’s Credit

The Saver’s Credit is designed to encourage low- to moderate-income individuals to save for retirement. If you contribute to a qualified retirement account, such as a 401(k) or IRA, and meet the income requirements, you may be eligible for this credit. The credit amount can be up to $1,000 for individuals and $2,000 for married couples filing jointly. Check your eligibility and ensure you claim this valuable credit on your tax return.

Evaluate Investment Gains and Losses

As you review your overall financial picture, take a close look at your investment portfolio. Assess any capital gains and losses from your investment transactions throughout the year. Consider strategically selling assets to offset gains with losses.

This tactic, known as tax-loss harvesting, can be particularly beneficial. If you’ve realized capital gains earlier in the year, selling investments with losses can help minimize your tax liability. Keep in mind that you can use up to $3,000 in capital losses to offset ordinary income, and any additional losses can be carried forward to future years.

Utilize Tax Credits

Don’t overlook the power of tax credits when fine-tuning your year-end financial strategy. Identify and take advantage of any tax credits that apply to your situation. Education credits, for example, can provide substantial savings for eligible expenses paid for yourself, your spouse, or your dependents.

Let’s consider the American Opportunity Credit, which provides a credit of up to $2,500 per eligible student for qualified education expenses. By leveraging such credits, you not only reduce your tax liability but also invest in education, a valuable asset that pays dividends in the long run.

Confirm HSA Contributions

Health Savings Accounts (HSAs) offer a unique opportunity to save for medical expenses while enjoying tax advantages. If you’re enrolled in a high-deductible health plan, ensure that you’ve contributed the maximum allowable amount to your HSA by December 31.

For the tax year 2023, individuals can contribute up to $3,850, and families can contribute up to $7,750. Those over 55 can contribute an additional $1000 HSA contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free. By maximizing your HSA contributions, you not only reduce your taxable income but also create a financial safety net for future healthcare expenses.

Implementing these high-impact financial moves can significantly enhance your tax efficiency and pave the way for a more secure financial future. As we approach the year-end, take the time to review your financial situation, consult with a tax professional if needed, and make informed decisions to optimize your tax strategy. Leveraging these strategies allows you to navigate the year-end with confidence, knowing that you’ve taken proactive steps toward a more tax-efficient financial plan.

Treu Accounting is a results-driven small business accounting expert, delivering services designed to build resilience and exceed goals. Treu Accounting tailors our services to fit your unique needs. We provide opportunities for an ongoing conversation from the initial consultation to understand you and your business to the customized proposal, to ensure you get what you need.

Boulder CO, Accounting Firm

TikTok Tax Advice Hall of Shame: Beware of Misleading Tips

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In the age of social media, platforms like TikTok have become a hotbed for sharing advice on various topics, including taxes. However, not all TikTok tax advice is created equal. Some so-called “experts” have been dishing out questionable recommendations that could land you in hot water with the IRS. Here’s a glimpse into the TikTok Tax Advice Hall of Shame, highlighting some of the worst tax advice examples:

The “Write Everything Off” Guru

One popular TikTok influencer advised viewers to deduct virtually everything as a business expense, from Netflix subscriptions to daily Starbucks runs. While legitimate deductions exist, this advice can easily cross into tax fraud territory, attracting IRS scrutiny.

The “File as a Corporation” Misdirection

Another influencer suggested that everyone should establish themselves as a corporation to enjoy tax benefits. This advice fails to mention the complex legal and tax obligations associated with running a corporation, not to mention the significant costs involved.

The “Ignore Cryptocurrency Gains” Fallacy

With the rise of cryptocurrencies, some TikTok users have promoted the idea that crypto gains are tax-free. In reality, the IRS expects you to report and pay taxes on cryptocurrency gains, and failure to do so can lead to penalties.

The “Cash Income Is Invisible” Myth

This TikTok advice suggests that income received in cash doesn’t need to be reported. In truth, all income, whether in cash or not, is required to be reported, and attempts to hide income can lead to serious legal consequences. There are a few exceptions; consult with a qualified tax professional for guidance based on your personal situation.

The “Start a Fake Charity” Scheme

One of the more egregious examples involved someone suggesting that starting a fake charity could be a tax-saving strategy. Such unethical practices can lead to severe legal repercussions.

It’s crucial to remember that misinformation on TikTok can have real-world consequences. Always consult a qualified tax professional or refer to reputable sources like the IRS website for accurate and up-to-date tax advice. Don’t let a viral video lead you down a path that could result in financial and legal troubles.

Treu Accounting is a results-driven small business accounting expert, delivering services designed to build resilience and exceed goals. Treu Accounting tailors our services to fit your unique needs. We provide opportunities for an ongoing conversation from the initial consultation to understand you and your business to the customized proposal, to ensure you get what you need.

Boulder CO, Accounting Firm

Do You Look Good in Orange? Common Forms of Tax Fraud and Penalties

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Tax season can be a stressful time for many, but one thing that should never be on your to-do list is committing tax fraud. Engaging in tax fraud is not worth the risks as it can lead to severe financial and legal consequences.

Common Forms of Tax Fraud

Underreporting Income:

One of the most prevalent forms of tax fraud is underreporting income. This occurs when individuals or businesses intentionally conceal some or all of their earnings to pay less in taxes. It might involve inflating deductions, hiding cash transactions, or not reporting income from side jobs or freelance work.

Overreporting Income:

Although less prevalent, overreporting income constitutes a significant form of tax fraud. Some individuals artificially inflate their reported earnings to secure larger tax refunds or qualify for tax credits, loans, or mortgages they wouldn’t otherwise be eligible for.

Claiming False Deductions:

Claiming fake deductions is another form of tax fraud that can lead to trouble. Some taxpayers exaggerate or invent expenses to reduce their taxable income. While it’s essential to take legitimate deductions, making up expenses or inflating their amounts can have serious consequences.

Identity Theft for Tax Fraud:

Identity theft is not only a financial crime but can also be used to commit tax fraud. Criminals may steal personal information to file fraudulent tax returns and claim refunds on behalf of the victim.

Engaging in Tax Shelter Schemes:

Some individuals and businesses participate in tax shelter schemes that promise to reduce their tax liability. These often involve complex financial transactions and legal structures that exploit tax laws’ loopholes. Common schemes include real estate tax shelters, abusive trusts, employee benefit plans, and cryptocurrency tax evasion.

Penalties

Penalties for tax fraud can include substantial fines, interest on unpaid taxes, and in some cases, criminal charges. Depending on the severity of the fraud and the specific circumstances, individuals may face civil or criminal penalties, including fines, probation, or imprisonment.

Tax fraud is a serious offense with significant legal and financial consequences. If you have concerns or uncertainties about your tax situation, consult with a qualified tax professional who can provide guidance and ensure you comply with tax laws while minimizing your tax liability within legal boundaries.

Treu Accounting is a results-driven small business accounting expert, delivering services designed to build resilience and exceed goals. Treu Accounting tailors our services to fit your unique needs. We provide opportunities for an ongoing conversation from the initial consultation to understand you and your business to the customized proposal, to ensure you get what you need.

IRS Halts Processing of New ERC Claims: What You Need to Know

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The IRS recently made a surprising announcement that has left many individuals and businesses concerned. They have temporarily halted the processing of new Employee Retention Credit (ERC) claims. The ERC was introduced as part of the CARES Act in March 2020 to assist businesses in retaining employees during the pandemic. It provided eligible employers with a refundable tax credit based on qualified wages paid to employees, capped at $26,000 per employee.

Several factors led to the IRS’s decision to pause new ERC claim processing:
  1. Overwhelming Demand: The ERC program has attracted an enormous number of applicants due to its attractive incentive of up to $26,000 per employee. This surge in demand has overwhelmed the IRS, causing significant processing delays and backlogs.
  2. Resource Constraints: The IRS has been grappling with resource constraints, including staff shortages and technological limitations. While the recent allocation of nearly $80 billion in funding through the Inflation Reduction Act is a step in the right direction, it will take time to hire and train new personnel, update processes, and deploy new technology.
  3. High Occurrence of Fraud: A major factor contributing to the decision to halt processing new ERC claims is the prevalence of fraudulent applications. Unscrupulous individuals and businesses have exploited the program’s complexity and the IRS’s backlog to submit fraudulent claims, diverting funds intended for legitimate applicants.

For those who were relying on ERC, it’s important to note that the temporary halt in processing new claims does not affect previously approved claims or payments. If you’ve already received ERC benefits, those will continue as expected.

If you were planning to apply for ERC benefits or are waiting for your claims to be processed, it’s crucial to stay updated on IRS announcements and guidance. The IRS’s pause aims to allow them to catch up on the backlog, streamline processes, and address the issue of fraudulent claims.

This decision to pause new ERC claims underscores the necessity for a thorough review and adjustment of the program to ensure the equitable and efficient distribution of relief funds. As we await further updates from the IRS, it is vital for businesses and individuals to remain vigilant and consult with tax professionals for guidance in this evolving situation.

Treu Accounting is a results-driven small business accounting expert, delivering services designed to build resilience and exceed goals. Treu Accounting tailors our services to fit your unique needs. We provide opportunities for an ongoing conversation from the initial consultation to understand you and your business to the customized proposal, to ensure you get what you need.

ERC credit

The Risks of ERC Mills and Deceptive Marketing Tactics

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In response to the economic challenges posed by the COVID-19 pandemic, the U.S. government introduced several relief measures to support struggling businesses and individuals. One such lifeline was the Employee Retention Credit (ERC). However, this well-intentioned program unwittingly spawned a perilous phenomenon known as ERC mills.

ERC Mills: The Dark Side of Relief

ERC mills, be they individuals or businesses, exploit the ERC program by helping others in filing multiple, erroneous, or fraudulent claims. Frequently, they expedite the process, sidestepping verification and compliance checks. They charge hefty fees while making promises of substantial tax refunds.

ERC mills often take shortcuts, causing businesses to file claims they don’t actually qualify for. This not only puts the legitimacy of the claim at risk but can also lead to hefty penalties down the road.

The IRS is keeping a close eye on ERC claims due to the rise in fraudulent activity. In fact, their concern has risen to the point that last week they put a pause on accepting any new ERC applications. The pause will allow them to devote resources to closer examination of the approximately 600,000 claims that have been filed within the last few months but not yet processed.

Consequences of Filing a False ERC Claim

Filing a fraudulent ERC claim, whether intentional or not, has serious consequences. Ignorance offers no immunity from these repercussions. ERC mills typically shield themselves of responsibility, asserting in their contracts that they merely complete forms based on provided documentation, even if they never requested or required such documentation.

Legal Consequences: Filing a false claim is a federal offense, potentially leading to criminal charges, fines, and possibly jail time. The business is liable for every return and form filed with the IRS.

Paying it Back and Penalties: If the IRS detects an incorrect ERC claim, your business must repay the funds with interest. This includes the amounts the business paid to the ERC mill. Penalties may also be imposed.

Loss of Tax Benefits: In addition to repaying ERC funds, your business may lose eligibility for other tax credits and deductions, increasing your overall tax bill.

Audit Exposure: A phony claim can trigger an IRS audit, a stressful, expensive, and intrusive process. Even if your intentions were honest, you might face an audit due to ERC mill mistakes.

The Employee Retention Credit was meant to provide financial relief during tough times. However, the risks of ERC Mills and deceptive marketing tactics warrant businesses to exercise caution, meeting all eligibility criteria before pursuing ERC credits. The fallout from engaging with ERC mills or filing fake claims can be financially and legally devastating. To navigate these challenging times without falling into the fraud trap, partner with a reputable tax professional to evaluate whether you qualify for the credit and prepare and file your application.

Treu Accounting is a results-driven small business accounting expert, delivering services designed to build resilience and exceed goals. Treu Accounting tailors our services to fit your unique needs. We provide opportunities for an ongoing conversation from the initial consultation to understand you and your business to the customized proposal, to ensure you get what you need.