Strube CPA PC

​​TAX & ACCOUNTING SERVICES FOR INDIVIDUALS & SMALL BUSINESSES​

IMPORTANT UPDATES ON TAX DEADLINES

The 2020 IRS individual tax filing and payment deadline has been postponed one month to Monday, May 17. So if you owe on your individual taxes for 2020 this year, you have an extra month to file and pay. This is automatic, you don’t have to apply or fill out a form for this. This is legitimate.
You can verify these types of deadline changes on https://www.irs.gov/payments. There’s a banner on the site (screenshot below).

The deadline *could* change again. this website is the place to check.
Some states have conformed to match this deadline, others have not. Check your state revenue website. Most of my clients are in California, and CA *has* conformed to the new IRS deadline. https://www.ftb.ca.gov/pay/

But it is important to note, that as of this posting, IRS and FTB have NOT extended the 4/15/21 due date for your first quarter estimated tax payments. So if you make quarterly estimates, those are *still* due 4/15. Yes, 2021 tax payments are due BEFORE 2020 tax payments. Because government.

Finally, if you use a tax professional, do NOT call or email them to confirm this. Our industry is swamped with changes, so checking this yourself is a way to show gracious courtesy to your weary tax pro.

TAX ADVICE VIA SOCIAL MEDIA — BE CAREFUL

There’s a great article on CNBC today quoting a few of my friends about the dangers of blanket applying tax advice that you can find on social media.

The underlying core of tax information may be legitimate, but it’s often misapplied or misinterpreted. PLEASE book a tax planning appointment with your tax pro before implementing these “too good to be true” strategies you find on TikTok.

Make sure the tax advice you found fits your tax situation, and don’t surprise your tax pro after year-end with “by the way, I did [this].”

CORPORATE TRANSPARENCY ACT — BENEFICIAL OWNERSHIP INFORMATION REPORTING

The Corporate Transparency Act (“CTA”) was enacted January 1, 2021, as part of the National Defense Authorization Act, representing the most significant reformation of the Bank Secrecy Act and related anti–money laundering rules since the U.S. Patriot Act. The CTA is intended to address and guard against money laundering, terrorism financing, and other forms of illegal financing by mandating certain entities (primarily small and medium size businesses) to report “beneficial owner” information to the Financial Crimes Enforcement Network (“FinCEN”).
The CTA authorizes FinCEN, a bureau of the U.S. Treasury Department, to collect, protect, and disclose this information to authorized governmental authorities and to financial institutions in certain circumstances.
This communication is to provide you with some general information regarding the new reporting rules as well as initial steps you should take to address the implications of the CTA to your organization.

What entities are subject to the new CTA reporting requirements?

Entities required to comply with the CTA (“Reporting Companies”) include corporations, limited liability companies (LLCs), and other types of companies that are created by a filing with a Secretary of State (“SOS”) or equivalent official. The CTA also applies to non-U.S. companies that register to do business in the U.S. through a filing with a SOS or equivalent official. Since the definition of a domestic entity under the CTA is extremely broad, additional entity types could be subject to CTA reporting requirements based on individual state law formation practices.
There are a number of exceptions to who is required to file under the CTA. Many of the exceptions are entities already regulated by federal or state governments and as such already disclose their beneficial ownership information to governmental authorities.
Another notable exception is for “large operating companies” defined as companies that meet all of the following requirements:

  • Employ at least 20 full-time employees in the U.S.
  • Gross revenue (or sales) over $5 million on the prior year’s tax return
  • An operating presence at a physical office in the U.S.

Who is considered a “beneficial owner” of a Reporting Company?

A beneficial owner is any individual who, directly or indirectly, exercises “substantial control” or owns or controls at least 25% of the company’s ownership interests.
An individual exercises “substantial control” if the individual (i) serves as a senior officer of the company; (ii) has authority over the appointment or removal of any senior officer or a majority of the board; or (iii) directs, determines, or has substantial influence over important decisions made by the Reporting Company. Thus, senior officers and other individuals with control over the company are beneficial owners under the CTA, even if they have no equity interest in the company.
In addition, individuals may exercise control directly or indirectly, through board representation, ownership, rights associated with financing arrangements, or control over intermediary entities that separately or collectively exercise substantial control.
CTA regulations provide a much more expansive definition of “substantial control” than in the traditional tax sense, so many companies may need to seek legal guidance to ultimately determine who are deemed beneficial owners within their organization.

Phase-in of reporting requirements

As currently promulgated, the CTA’s reporting requirements will be phased-in in two stages:

  • All NEW Reporting Companies — those formed (or, in the case of non-U.S. companies, registered) on or after January 1, 2024 — must report required information within 30 days after their formation or registration.
  • All EXISTING Reporting Companies — those formed or registered before January 1, 2024 — must report required information no later than January 1, 2025.

How to prepare for the CTA

With the CTA introducing a new and expansive reporting regime, now is the time to assess the new rules’ implications on your organization. Some questions and comments for your company to consider now, although not meant to be all inclusive, include:

  • Is your company subject to the CTA or do you qualify for any of the exemptions?
  • If your company is not exempt, how should you calculate percentages of “ownership interests” to determine whether any owners meet the 25%-ownership threshold? In many companies with simple capital structures, the answer will be obvious. It may be much less obvious, however, for companies with complicated capital structures (given the expansive definition of “ownership interest”), or companies in which some ownership interests are held indirectly — for example, through upper-tier investment entities, holding companies, or trusts.
  • How do you assess and determine each person who exercises “substantial control” over the company? There may well be multiple people who qualify, given the expansiveness (and vagueness) of the “substantial control” definition.
  • What new processes and procedures should the company put in place to monitor future changes in its beneficial owners and reportable changes on existing beneficial owners that will require timely updated reports to FinCEN?

Note that the types of information that must be provided to FinCEN (and kept current) for these beneficial owners include the owner’s legal name, residential address, date of birth, and unique identifier number from a non-expired passport, driver’s license, or state identification card (including an image of the unique-identifier documentation). A word of caution, this is going to be a trap for Reporting Companies, as you will need to rely on beneficial owners to timely update you on reportable changes to their information (e.g., ownership changes, moves, marriages, divorces, etc.). As a result, a company’s operative documents may need to be revised to include provisions related to the CTA such as representations, covenants, indemnifications, and consent clauses. For example, the operating agreement may require:

  • A representation by each shareholder, member or partner, as applicable, that it will be in compliance with or exempt from the CTA;
  • A covenant by each shareholder, member or partner, as applicable, requiring continued compliance with and disclosure under the CTA or to provide evidence of exemption from its requirements;
  • An indemnification by each shareholder, member or partner, as applicable, to the company and its other shareholders, members or partners, as applicable, for its failure to comply with the CTA or for providing false information; and
  • A consent by each disclosing party for the company to disclose identifying information to FinCEN, to the extent required by law.

Take immediate action now!

As the CTA is NOT a part of the tax code, the assessment and application of many of the requirements set forth in the regulations, including but not limited to the determination of beneficial ownership interest, necessitate the need for legal guidance and direction. As such, since we are not attorneys, our firm is NOT able to provide you with any legal determination as to whether an exemption applies to the nature of your entity or whether legal relationships constitute beneficial ownership.
We strongly encourage you to reach out as soon as possible to legal counsel with expertise in this area to assist your organization with the steps you need to take to ensure compliance with the CTA, if applicable. Note that penalties for willfully violating the CTA’s reporting requirements include (1) civil penalties of up to $500 per day that a violation is not remedied, (2) a criminal fine of up to $10,000, and/or (3) imprisonment of up to two years.
For additional information regarding the beneficial ownership reporting requirements under the CTA, refer to FinCEN’s Frequently Asked Questions document at https://www.fincen.gov/boi-faqs.
As always, please feel free to contact us if you have any questions, realizing that much of our response in this area is going to likely end up with “you need to discuss with an attorney.”
We are working to identify possible attorney referrals for these filings, but have none at this time.

CONSIDERING AN LLC OR S-CORP? HERE’S WHAT YOU NEED TO KNOW FIRST

So you started a business. Congratulations! Then you saw something on TikTok that promised to save you a ton on taxes: make your business an LLC (or S-Corp)!

First off, they aren’t the same thing. An LLC is a state entity and doesn’t have a clear tax classification. An LLC is not a tax structure by itself. It can be taxed as 1) a sole proprietorship, 2) a partnership, or 3) an S-Corp—depending on # of owners and the forms you fill out.

​That structure / tax classification MIGHT be a great idea for you. But before you do that, let’s talk about the extra costs you’ll incur in order to (try to) save on taxes:

  1. In our lovely state of California, each LLC / S Corp pays an annual $800 franchise tax to California in addition to income tax.
  2. ​S Corp owners are required to be on payroll, so you now will have monthly payroll processing fees, payroll & unemployment taxes, and worker’s comp insurance.
  3. You get a lower QBI (qualified business income) deduction on your personal returns as an S Corp

Contrary to TikTok, you cannot call your personal life your business and write those things off just because of an LLC or S-Corp. That’s tax fraud.
There are tax advantages to S-Corps (PTET – pass-through entity tax and FICA/self-employment tax savings), but those usually don’t outweigh losing that QBI deduction above, until your business is showing mid-five-figure profits. 
Also, if you are married, in community property states, the non-owner spouse must sign the 2553 S-election form as an X% owner. Even if it’s 0%, the spouse must sign.

Consult a CPA to further explore whether an LLC or S-Corp is right for your business. You can book a Tax Planning Session with me here.

UNDERSTANDING YOUR 2022 TAX FORMS 5498: IRA AND HSA CONTRIBUTIONS EXPLAINED

Tax season is behind us, and many of you with IRAs and HSAs are likely just now getting 2022 tax forms 5498.
What gives?
Rest assured, nothing should be wrong with the 2022 tax returns that you would have already filed.
​Because IRA and HSA contributions are pretty much the only two things you can do after the tax year ends to affect your tax return, forms are issued for disclosure purposes only to confirm the amount of contributions, if any, that you made for the whole tax year, as well as the December 31 balance of the account.
Feel free to provide that to your tax pro via their secure portal, but do not panic or presume that something is wrong.

IMPORTANT TAX EXTENSION INFORMATION FOR CALIFORNIA TAXPAYER

Attention California taxpayers, all but three counties (Lassen, Modoc, and Shasta) in the whole state have AUTOMATIC extensions to file AND pay 2022 taxes (and 2023 estimates if you pay quarterly estimates) to IRS and FTB until October 16, 2023.
Here is a link to an authoritative source for this.
There is a lot of misinformation circulating. Please STOP panicking about extensions. Let’s address some misconceptions around extensions:

  1. NORMALLY, an extension only gives you more time to FILE, but you still need to pay (a reasonable estimate of) the amount of tax you owe by the original deadline. That is NOT the case for taxpayers in affected California flooding counties.
  2. You do NOT personally have to experience flooding to qualify for this extension. It’s entirely about county residence to qualify.
  3. There is NO extra tax for filing an extension. Your tax pro may charge extra to calculate extension payments; everyone sets their pricing structure differently. It’s not criminal to charge for the work; the only thing is that pricing should be transparent.
  4. An extension does NOT increase your risk of audit. Urban legend. If you or someone you know was audited after extending their return, I can professionally guarantee there were other factors. The extension was NOT the cause of the audit. I extend my own personal returns most years. Would I do that if extensions increased my own risk of audit?
  5. It’s better to extend your return to make sure it’s filed accurately rather than rush and risk mistakes and have to amend your return later.
  6. In response to the “can we just file it now and amend later?” That is sloppy tax preparation. You and your tax pro sign the return under penalty of perjury that they are true, correct, and COMPLETE. Wait to file until they are done.
  7. There should be no point of pride in “never having needed an extension.” Just stop it with this.

😎 Tax laws have changed a lot in recent years, making tax return preparation more time-consuming. The same return 3 years ago now takes notably longer because of the complexity Congress has added to the tax code. It’s important to give your tax professional the time they need to do a thorough job. Legitimate tax professionals actually want a simpler tax code and are working to make that happen. Please don’t accuse them of trying to keep their jobs by making things complicated. They genuinely care about serving you with integrity and expertise.

UNDERSTANDING TAX FILING AND DEPENDENCY FOR TEENAGERS: YOUR QUESTIONS ANSWERED

“My teenager received a tax form. Does he or she need to file taxes? Can I still claim them as a dependent?” These questions come up periodically, and the answer is always “it depends.” Our tax system works like a decision tree, with qualitative and quantitative limits, requiring detailed information. Luckily, the IRS provides two interactive tools to assist with these situations.
To get accurate results, be patient with the tools, carefully read the provided links to understand definitions, and have the necessary tax forms available. It’s helpful to print or save the results as a PDF for your records.
One essential aspect to consider is the concept of “support.” Who primarily provides support for the teenager or individual in question? This includes unpaid or reimbursed housing and food, even if they are still living at home. Just because they may not pay rent doesn’t mean the parent(s) aren’t providing significant support.

https://www.irs.gov/help/ita/do-i-need-to-file-a-tax-return
https://www.irs.gov/help/ita/whom-may-i-claim-as-a-dependent

For further assistance after using the IRS tools, please book a consultation with me by clicking here. I’ll be delighted to help you navigate through any remaining questions or uncertainties.

IMPORTANT UPDATES ON THE SVB COLLAPSE: NEXT STEPS FOR TAXPAYERS AND SMALL BUSINESS OWNERS

Updates on the SVB collapse have been circulating, and while opinions vary, this post aims to provide valuable information and awareness for taxpayers and small business owners regarding their banking. 

The FDIC recently announced that it would insure deposits exceeding the previously established $250,000 limit. However, opinions on this matter differ widely, and further commentary will not be provided here. Instead, the focus will be on offering guidance and next steps for individuals and businesses.

Many affected payroll companies have assured that direct deposits not made last Friday should have been processed today or will be soon. If your situation hasn’t been resolved yet, calmly inquire with your employer or payroll provider for an update. Remember, they were not aware of this issue, so approach the matter with grace while seeking a resolution.

If you experienced an overdraft due to a delayed direct deposit, possibly because of auto-bill payments, you have two possible recourse options (not guaranteed). First, contact your bank to discuss the potential reversal of charges. Second, engage in a conversation with your employer or HR department. Although your employer is not obligated to cover these fees, they might choose to do so for employee goodwill. Ensure you bring or send a printout as proof of incurred bank fees.

For business owners, here are some next steps to consider, both in the short-term and long-term, based on insights from a recent webinar:

  • Diversify your banking relationships to avoid having all your funds in one bank.
  • Reconcile your accounts promptly up until March 10 to have a clear understanding of the money received or outstanding according to your accounting records.
  • Double-check payroll transfers and incoming funds to ensure smooth transactions.
  • Conduct phone confirmations for all wire transfers.
  • Stay vigilant against fraudsters and phishing attempts.
  • Approach situations with measured and tempered actions, following a ready, aim, fire approach rather than rushing into decisions.

Remember, staying informed and taking proactive steps can help mitigate potential risks and ensure the smooth operation of your financial affairs.

DOES MY TAX PROFESSIONAL NEED THIS?

Client: “I did [maybe-taxable/deductible thing] this year. Do you NEED [receipt/document/proof/information]?”

I am asked this question SO OFTEN as a tax professional. And 90% of the time, the answer is “yes.”
If you are wondering IF something is taxable or deductible, make your default to just provide the document to your tax pro (upload it to my portal). If the document isn’t self-explanatory (like a receipt), add a note to it to explain it.

If you only ask if I need it, but don’t provide the document, you’ve just slowed down the processing of your tax returns. Help me get your returns done faster.

Why only 90%? What’s the 10% exception, you ask? 401k statements. I have yet to see a need to see these. Yet, for some reason, I get them FREQUENTLY. Save yourself the scanning, I don’t need those.

CAN I WRITE OFF MY MEALS & TRAVEL FOR MY BUSINESS?

Many business owners assume that any meal they eat while working is tax deductible. Ignoring IRS rules about what is and isn’t allowed could get you into trouble, should you be audited.

When in doubt, remember: the IRS doesn’t pay you to eat.

One good guiding line is “where is it reasonable you could have eaten from home or packed a lunch?”  If you’re driving out for the day but will be back home that night, that’s generally considered just a workday (i.e., someone who works all day in an office at a W-2 job usually doesn’t get their meals covered nor can they deduct them).

When in doubt, remember: the IRS doesn’t pay you to eat.

Often, an overnight stay is what hits the threshold of when it wouldn’t be reasonable to bring/pack meals.
Another factor is “is this meal intended to get/retain business for you?” If you meet a prospective client for coffee to discuss your business offerings, that could likely be a deductible business expense. i.e., this is not always a bright line test, so other factors could come into play.

That said, don’t go high on the hog with travel meals.  They should be in the same ballpark of your personal budget.  If you regularly only budget for fast food personally, yet all your business travel meals are from steakhouses, that’s a no-go.  Going a little bit nicer is fine, just don’t get greedy.

Remember that even with a tax write-off, the tax savings is only a modest percentage of your actual money out for the meal, so it being a tax deduction does not make it free for you, you’re still net at least some money out.

The tax savings is only a modest percentage of your actual money out for the meal, so it being a tax deduction does not make it free for you.

For documentation, keep the receipt(s), note who was at the meal, and what was discussed (you can upload receipts and make these notes in Quickbooks or your other accounting/bookkeeping software). Your tax pro likely won’t want that detail level of information, but you are required to have it to back up the deduction if your tax pro or the IRS asks for further substantiation.

If you have more detailed questions or want to inquire about a specific meal scenario, please book a tax planning meeting with me here.