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Running Out Of Time? Extension Available For January 31st Filing Deadline For Businesses To File All W-2’s And 1099’s

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To expedite IRS’ ability to match up W-2’s and 1099’s reported by businesses to the income reported on taxpayers’ tax returns, all these forms must be submitted to IRS and given to taxpayers no later than January 31st. This filing deadline was made uniform under The Protecting Americans from Tax Hikes (PATH) Act. Prior law required that only W-2’s had to be provided to employees no later than January 31st with all other reporting forms (including the copies to IRS) due by the end of February. Failure to file these forms correctly and timely may result in penalties to the employer or payor.

30-Day Extension To File Is Available

An automatic extension is 30 days from the original filing due date of January 31, 2018 by submitting Form 8809, Application for Extension of Time To File Information Returns.  If you receive an automatic extension, you may request one additional extension of not more than 30 days by submitting a second Form 8809 before the end of the first extension period but only one extension of time to file Form W-2 is available. Requests for additional extensions of time to file information returns, and requests for extensions of time to file Form W-2, are not automatically granted. Such requests are granted only if you meet one of the following criteria:  (1) The business suffered a catastrophic event in a Presidentially Declared Disaster Area that made the business unable to resume operations or made necessary records unavailable; (2) Fire, casualty, or natural disaster affected the operation of the business; (3) Death, serious illness, or unavoidable absence of the individual responsible for filing the information returns affected the operation of the business; or (4) The business was in its first year of establishment.  Failing to file timely will result in the IRS assessing hefty penalties against the employer/payor.

Extension Does Not Effect Deadline For Distributing Statements To Employees/Recipients

The extension of time to file and any approved requests for additional time will only extend the due date for filing the information returns with the IRS. They do not extend the January 31, 2018 due date for furnishing statements to recipients.

Earlier Date Means More IRS Audit Notices Issued Sooner

According to IRS estimates, in a calendar year employers, businesses, financial institutions, credit card companies and other third party payers will file 2.3 billion information statements. These information statements report income and financial transactions, and can help individuals and businesses prepare accurate tax returns. Using information-matching programs, the IRS compares third-party information statements with taxpayer data, and sends a notice to taxpayers when IRS systems detect inconsistencies.

Individual Automated Underreporter (AUR) Program

This matching program is better known by its primary notice: CP2000, Notice of Proposed Adjustment for Underpayment/Overpayment. IRS systems automatically send this notice when items reported on Form 1040, U.S. Individual Income Tax Return, don’t match information reported to the IRS by employers and other payers. The first round of these notices arrives just after Thanksgiving, and the second round arrives toward the end of the next year’s filing season.

The CP2000 notice has been a mainstay of IRS information reporting for decades. In 2012, the IRS issued more than 4.5 million CP2000 notices, with an average of $1,572 in additional taxes owed.

Form 1099-K merchant card transaction matching program

In 2012, the IRS started receiving from credit card companies, Forms 1099-K, Payment Card and Third Party Network Transactions. With merchant card transactions now being reported to IRS, the IRS quickly began using this information to match against business returns. However, because businesses do not specifically report merchant card transactions as separate line items on business tax returns, the IRS can only infer potential underreporting. For example, if a business has a disproportionate amount of cash to credit/debit card sales, based on its line of business, the IRS may look closer. These kinds of mismatches have led the IRS to develop compliance initiatives, including “soft” notices requesting explanation and mail audits requesting documentation.

The IRS has established a Form 1099-K matching initiative that makes the IRS more efficient in identifying problem tax returns especially where merchant card payments appear to make up the majority or even exceed the total business receipts reported on the return. In these cases, the IRS perceives that the business is underreporting cash sales due to the disproportionate share of merchant card payments. Accrual-basis taxpayers and e-commerce businesses whose receipts do not neatly match merchant card transactions are likely early targets in this program and we have had our share of these cases where that is what happened.

Automated Substitute For Return Program

When a taxpayer does not file and the IRS has information statements indicating a filing requirement, the IRS uses the data to file a return on behalf of the taxpayer if there is a projected balance owed. In 2012, the IRS used information statements to file 803,000 returns for taxpayers, totaling $6.7 billion in additional taxes owed. And the sad thing about this is in just about every case, the amount actually owed when a tax return is filed by the taxpayer is much lower than what the IRS says a non-filer taxpayer owes. We even had cases where the IRS ended up owing our clients money.

The Stakes Are High!

A recent U.S. Government Accountability Office study showed that the IRS spends $267 million on underreporter matching programs, compared with the $4.2 billion it spends on audits. But automated information-matching programs return almost six times more revenue than audits. You can see why with fewer IRS agents and reduced budgets, the IRS will increasingly rely on technology-driven matching programs to bring in more tax dollars.

What Should You Do?

So if you receive one of these audit notices it is important that you don’t ignore it. Protect yourself from excessive fines and possible jail time. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Diego County (Carlsbad) and elsewhere in California defend you from the IRS.

 

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New Mileage Rates Announced By IRS for 2018

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Before the 2017 Tax Cuts And Jobs Act was enacted into law, the IRS published the mileage rates to be used for travel in 2018. For many taxpayers this was a significant tax deduction but the 2017 Tax Cuts And Jobs Act changes that.

Why fewer taxpayers will be itemizing:

Increase Of Standard Deduction – A substantial increase to $12,000 for single filers (was $6,500), $18,000 for heads of household (was $9,550), and $24,000 for joint filers (was $13,000).

Limit On Deduction For State And Local Taxes – A taxpayer may claim an itemized deduction of only up to $10,000 ($5,000 for a married taxpayer filing a separate return) in (i) personal state and local property taxes, and (ii) state and local income taxes (or sales taxes in lieu of income taxes).  Taxes paid or accrued in carrying on a trade or business are not subject to this limitation.

Limit On Deduction Of Mortgage Interest – For mortgages incurred after December 31, 2017, taxpayers may deduct interest on up to $750,000 of principal (mortgages existing before January 1, 2018 are still subject to the pre-existing law’s $1 million limit). But for all taxpayers there is no longer a deduction for interest paid on home equity loans.

Elimination Of Miscellaneous Itemized Deductions And Deduction For Moving Expenses – A taxpayer can no longer deduct miscellaneous itemized deductions which include unreimbursed employee expenses and tax preparation costs.  Also the deduction for moving expenses is gone.

But for those who can benefit from itemizing, here are the rates for 2018:

Standard Business Mileage – The standard business mileage rate increased by 1 cent to 54.5 cents per mile.

Medical And Moving Mileage – The medical and moving mileage rates also increased by 1 cent to 18 cents per mile.

Charitable Mileage – Charitable mileage rates remained unchanged at 14 cents per mile.

Time Limits For Keeping Your Tax Records

Even though your 2017 income tax return is processed by the IRS and a refund is issued, that does not mean the IRS can later question or audit the tax return,  In fact the Statute Of Limitations allows the IRS three years to go back and audit your tax return.  That is why it’s a good idea to keep copies of your prior-year tax returns and supporting backup documentation for at least three years. In the case of backing of any deductible mileage, you will need to retain your travel log showing the distance traveled, who you visited and the purpose of the visit.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Inland Empire (Ontario) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.

 

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Big Win For The Marijuana Industry – Colorado District Attorney’s Office Rebuffs Attorney General Sessions’ Revocation Of The Cole Memo

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On January 4, 2018, U.S. Attorney General Jeff Sessions announced the revocation of what is known in the cannabis industry as the “Cole Memo”.

It is surprising that the Trump Administration known for its pro-business stance, allowed for such an anti-business decision to be made by Attorney General Sessions.  Just in California alone with the change in law allowing both medical and recreational marijuana, the marijuana industry in California is expected to be a $3.7 billion market in 2018 and could rise to $5.1 billion in 2019 according to the cannabis industry research firm BDS Analytics.

Medical marijuana is now legal in 29 states plus the District Of Columbia and recreational marijuana is legal in 8 states plus the District Of Columbia.  However, under Federal law marijuana is designated as a Schedule I controlled substance and therefore is illegal under Federal law.

Colorado DA’s Office First To Officially Announce Continued Support Of The Cole Memo

The State Of Colorado legalized recreational marijuana in 2012.  It is big business in Colorado so it is not a surprise that the Federal District Attorney’s Office in that state was quick with its announcement stating “The Attorney General rescinded the Cole Memo on marijuana prosecutions, and directed that federal marijuana prosecution decisions be governed by the same principles that have long governed all of our prosecution decisions.  The United States Attorney’s Office in Colorado has already been guided by these principles in marijuana prosecutions — focusing in particular on identifying and prosecuting those who create the greatest safety threats to our communities around the state.  We will, consistent with the Attorney General’s latest guidance, continue to take this approach in all of our work with our law enforcement partners throughout Colorado.”

What Is The Cole Memo?

The Cole Memo which came out of the Department Of Justice (“DOJ”) under the Obama administration in 2013, directed U.S. Attorneys to use discretion to prioritize certain types of violations in prosecuting cannabis operators, but, strictly speaking, it did not make operations in cannabis legal. The DOJ told its prosecutors that prosecuting medical marijuana cases in states where is has been legalized would no longer be a priority.

The Cole Memo included eight factors for prosecutors to look at in deciding whether to charge a medical marijuana business with violating the Federal law:

  • Does the business allow minors to gain access to marijuana?
  • Is revenue from the business funding criminal activities or gangs?
  • Is the marijuana being diverted to other states?
  • Is the legitimate medical marijuana business being used as a cover or pretext for the traffic of other drugs or other criminal enterprises?
  • Are violence or firearms being used in the cultivation and distribution of marijuana?
  • Does the business contribute to drugged driving or other adverse public health issues?
  • Is marijuana being grown on public lands or in a way that jeopardizes the environment or public safety?
  • Is marijuana being used on federal property?

What This Means For Marijuana Businesses

Hopefully other U.S. district attorney office’s will follow the same stance as the U.S. Attorney for Colorado in reaffirming a commitment to prioritizing violent and other serious federal crimes. As of this writing none of the four Federal district attorney offices in California have yet made any statement on whether they will still apply the Cole Memo.  Look to us for future updates on this.

What Should You Do?

Given the greater disparity in treatment between the Federal and California governments you need to protect yourself and your marijuana business from all challenges created by the Federal government.  Be proactive and engage an experienced attorney-CPA in your area.  Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Long Beach and other California locations protect you and maximize your net profits.

 

Attorney General Jeff Sessions Takes On The Marijuana Industry

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Attorney General Jeff Sessions Takes On The Marijuana Industry

On January 4, 2018, U.S. Attorney General Jeff Sessions announced the revocation of what is known in the cannabis industry as the “Cole Memo”.

It is surprising that the Trump Administration known for its pro-business stance, allowed for such an anti-business decision to be made by Attorney General Jeff Sessions.  Just in California alone with the change in law allowing both medical and recreational marijuana, the marijuana industry in California is expected to be a $3.7 billion market in 2018 and could rise to $5.1 billion in 2019 according to the cannabis industry research firm BDS Analytics.

Medical marijuana is now legal in 29 states plus the District Of Columbia and recreational marijuana is legal in 8 states plus the District Of Columbia.  However, under Federal law marijuana is designated as a Schedule I controlled substance and therefore is illegal under Federal law.

The Cole Memo which came out of the Department Of Justice (“DOJ”) under the Obama administration in 2013, directed U.S. Attorneys to use discretion to prioritize certain types of violations in prosecuting cannabis operators, but, strictly speaking, it did not make operations in cannabis legal. The DOJ told its prosecutors that prosecuting medical marijuana cases in states where is has been legalized would no longer be a priority.

The Cole Memo included eight factors for prosecutors to look at in deciding whether to charge a medical marijuana business with violating the Federal law:

  • Does the business allow minors to gain access to marijuana?
  • Is revenue from the business funding criminal activities or gangs?
  • Is the marijuana being diverted to other states?
  • Is the legitimate medical marijuana business being used as a cover or pretext for the traffic of other drugs or other criminal enterprises?
  • Are violence or firearms being used in the cultivation and distribution of marijuana?
  • Does the business contribute to drugged driving or other adverse public health issues?
  • Is marijuana being grown on public lands or in a way that jeopardizes the environment or public safety?
  • Is marijuana being used on federal property?

Under Sessions’ new guidance, the Cole Memo is overridden and U.S. Attorneys now retain broad prosecutorial discretion as to whether to prosecute cannabis businesses under federal law even though the state that these businesses operate in have legalized some form of marijuana.  Although the safe harbor guidelines are no longer in place at a national level, that does not mean that your local federal prosecutor will disregard their continued application in determining whether federal prosecution against a local marijuana business should be implemented.  But this is no guarantee so it is essential that you have legal counsel to back you up.

What Should You Do?

Given the greater disparity in treatment between the Federal and California governments you need to protect yourself and your marijuana business from all challenges created by the Federal government.  Be proactive and engage an experienced attorney-CPA in your area.  Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, Long Beach and other California locations protect you and maximize your net profits.

 

Beware Of New Invoicing Rules And Taxes Starting In 2018 For California Cannabis Businesses

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The California Department of Tax and Fee Administration (CDTFA) which oversees the reporting and collection of taxes for the California cannabis industry under Emergency Regulation 3700 is proposing a new category and tax rate for the cannabis cultivation tax which will take effect January 1, 2018, along with the other existing cultivation tax rates.

Cannabis Cultivation Tax

The new category and tax rate for the cannabis cultivation tax as approved by California voters on November 8, 2016 (Proposition 64), established a cultivation tax based on the dry-weight ounce of cannabis flowers and leaves. The CDTFA has proposed a new cannabis cultivation tax category for fresh cannabis plants at a rate of $1.29 per ounce.

The cultivation tax rates are:

•$9.25 per dry-weight ounce of cannabis flowers,

•$2.75 per dry-weight ounce of cannabis leaves, and

•$1.29 per ounce of fresh cannabis plant.

All fresh cannabis plants must be weighed within two hours of harvesting.

The excise tax applies to all retail sales of cannabis and cannabis products starting January 1, 2018 including sales of cannabis and cannabis products retailers may have purchased prior to January 1, 2018.

If you are a cannabis retailer, you are required to collect the cannabis excise tax from your customers on each retail sale of cannabis or cannabis products starting January 1, 2018, and pay the excise tax to a distributor. Distributors are liable for paying the cannabis taxes to the CDTFA.

Invoice Requirements

Retailers are required to provide purchasers with a receipt or other similar document that includes the following statement – “The cannabis excise taxes are included in the total amount of this invoice.”

Recordkeeping

Every sale or transport of cannabis or cannabis products must be recorded on an invoice or receipt. Cannabis licensees are required to keep invoices for a minimum of seven years.

Distributors (or in some cases manufacturers) are responsible for collecting the cannabis cultivation and excise taxes, and the invoices they provide must include, among other specified requirements, the amount of tax collected.

Retailers, cultivators, and manufacturers must keep these invoices as verification that the appropriate tax was paid.

What Should You Do?

Start your marijuana business on the right track.  Be proactive and implement the proper cash management and accounting systems now.  Marijuana businesses who hire an experienced attorney-CPA should benefit in paying the least amount of tax under the tax code and if audited, the least audit adjustments and avoiding costly litigation. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Walnut Creek and other California locations maximize your net profits and get you the best possible result.

Tax Planning For Marijuana Businesses

California Cannabis Businesses Must Follow New Invoicing And Tax Rules

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California temporary marijuana licenses beginning January 1, 2018

California Opens Its Marketplace To Marijuana Businesses In 2018

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7 Moves To Make Before Year End That Can Save You A Lot of Money on Your 2017 Taxes

7 Moves To Make Before Year End That Can Save You A Lot of Money on Your 2017 Taxes

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On December 22, 2017, President Trump signed into law the 2017 Tax Cuts And Jobs Act. It’s been a good 30 years since the last time the Internal Revenue Code received such a major update.

Major Changes From The New Law Include:

Compressed And Lower Income Tax Rates For Individuals.

Increased Standard Deduction For Individuals

Elimination Of Personal Exemptions

Limitations of Deductibility Of Itemized Deductions including Mortgage Interest and State & Local Taxes.

Lower Corporation Tax Rates.

The Big Picture:

The tax rates are going down next year, so a deduction now is worth a lot more than it will be in 2018. On top of that, several popular deductions are disappearing next year or getting substantially limited and in combination with a nearly doubled standard deduction, less taxpayers will be itemizing deductions in 2018. The key here is to accelerate deductions into 2017 and defer income into 2018.

Following are seven year-end tax moves to make before this New Year’s Day:

1.Give more to charity in 2017.

In addition to the usual dollar donations to charities, religious institutions and educational institutions, consider clearing your home of those unwanted household goods and clothing to give to charities. Many groups will accept these items even vehicles, with some even making arrangements to pick up them up from your home. You may also consider to donate stock or mutual funds that you’ve held for more than a year but that no longer fit your investment goals. The charity gets the asset to hold or sell, and your portfolio re-balancing nets you a deduction for the asset’s value at the time of gifting. Even better, you do not have to worry about capital gains taxes on the appreciation of your gift. Remember that if you take the standard deduction in 2018, you won’t get any tax savings from your charitable contributions made in 2018.

2. Make the most of your home – mortgage interest.

Home-ownership provides a variety of tax breaks, some of which you can use by year-end to reduce your current year’s tax bill. Make your January mortgage payment by December 31st and deduct the mortgage interest on your coming tax return. In 2018, the amount of mortgage interest you can deduct will be reduced (from $1,000,000 of principal indebtedness to $750,000 of principal indebtedness) so you will want to maximize the amount of mortgage interest paid in 2017. Another tactic is to try to prepay your home-equity loan interest. That deduction goes away next year, so it’s worth calling your bank and seeing if you can prepay at least some of the interest so you can get the tax savings in 2017.

3.Make the most of your home – property taxes.

Like prepaying mortgage interest, the same tactic will apply for property taxes which along with other state and local taxes will be deductible only up to $10,000 starting in 2018.

4.Pay State And Local Income Taxes in 2017.

Starting in 2018 property taxes and other state and local taxes will be deductible only up to $10,000. People who typically pay their state income taxes quarterly can easily pay the January installment before the end of 2017. Likewise if you have an outstanding income tax bill with your state or local tax agency or expect to amend a prior year’s state income tax return that will result in you owing money, consider paying or prepaying these liabilities in 2017.

5.Pay your self-employed business expenses now.

If you are self-employed, you should accelerate payment of your business expenses in 2017. Recognizing these expenses in 2017 when tax rates are higher will provide you with a greater tax savings.

6.Catch up and prepay your “miscellaneous itemized deductions”.

If you pay union dues or a professional society membership fee (e.g. a chamber of commerce or bar association) or buy a lot of supplies for your job (e.g., professional musicians buying new instruments) that you normally deduct as miscellaneous itemized deductions on your taxes, you’ll want to buy everything you can by January 1st. All of these expenses constitute Miscellaneous Itemized Deductions which are deductible to the extent the total is more than 2% of your adjusted income. But that deduction is going away entirely in 2018. Another deduction that’s going away in 2018 is for tax preparation services. Ask your accountant now for the invoice they would normally give you in April after they file your tax return. If you can pay it now, you can still deduct it.

7.Defer your income into 2018.

Consider delaying income until January 2018 when the tax rates are lower, especially if you are a small-business owner. So if you are chasing up some customers or clients to pay the bill you sent them a while ago, you might want to wait until January to get aggressive on collecting. Consider delaying the delivery of invoices for year-end jobs until January 2018. In addition to lower tax rates, small business owners get a generous benefit starting next year of being able to deduct 20% of their business income tax-free. If you are an employee, ask your boss to hold your bonus until January. Individuals should also consider putting more money into a tax-deferred workplace retirement plan in 2017 and hold off on selling assets that will produce a capital gain until 2018.

But Beware Of The Bite Of The Alternative Minimum Tax!

If you will be subject to the Alternative Minimum Tax (“AMT”) in 2017, paying those state and local taxes, your property taxes, and your miscellaneous itemized deductions before this January 1st probably won’t help you because the AMT requires you to add back all of these payments and recalculate your tax bill, so the benefit of paying them in 2017 goes away.

What Should You Do?

With not much time left in 2017 you will need to act quickly on those tax moves that are easy to accomplish to reduce your tax bill.

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, San Francisco and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.