Have You Forgotten? The IRS Has!

September 11, 2023 by admin

Monday, September 11, 2023 – I am a subscriber to Dan Kennedy’s email list, and he recently shared his perspective on the significance of September 11th. In his email, he noted that we, as a society, have become more apathetic since the tragic events of 9/11.

Kennedy argues that we’re gradually becoming more accepting of troubling shifts in our society. This includes rising crime rates in major cities, porous borders, soaring national debt, and a failing educational system. He also mentions what he views as the military becoming more concerned with political correctness than readiness. Kennedy sees these developments as symptomatic of a general sense of complacency among Americans, and I agree.

From my viewpoint, there’s a specific concern that should be alarming to American business owners: the expanding powers of the IRS. The agency is implementing new policies that, I believe, are intrusive and limit our financial freedoms—measures that would have been unthinkable before the events of 9/11.

Take, for instance, the American Rescue Plan of 2021. The legislation proposed a sweeping financial reporting system that would monitor deposits and withdrawals in almost all types of financial accounts—whether it’s a bank account, an investment account, or even mobile payment platforms like Venmo, Paypal, and CashApp—once the account crosses a $600 transaction threshold. Though bank accounts were initially excluded, there’s a general sense that this exemption won’t last.

Furthermore, new regulations surrounding Form 1099-K are scheduled to go into effect in the 2023 tax year. This updated form will monitor payments made through third-party networks like PayPal and Venmo. Under the old rules, transactions were only reported if there were over 200 of them, amounting to more than $20,000 in a year. The new regulation lowers the reporting threshold to just $600 a year, regardless of the number of transactions. This shifts the burden of proof to taxpayers, requiring them to justify why these amounts shouldn’t be considered taxable income.

As someone who works closely with business owners, I consistently urge them to stand up against what I view as IRS overreach. The IRS has recently doubled its workforce, and it’s essential that we remain vigilant. Let’s not be complacent; the consequences could be as unforeseen and significant as those that unfolded on that fateful day in September 2001.

Steven A. Leahy is a tax attorney in Illinois. He was the host of the long-running popular Radio Show “The IRS Radio Hour” heard every Sunday evening on AM 560 The Answer. Attorney Leahy is also the author of the book “Deal With Your IRS Problems Today!” You can get a FREE copy of this important book at FreeIRSBook.com. Or Call 24/7 (312)664-6649

The Game Has Changed

September 2, 2023 by admin

Saturday, September 2, 2023 – Listen up, my independent contractor friends. I’m here to give you a wake-up call. Gone are the days of blending into the crowd with your 1099-MISC forms. The IRS, ever the keen observer, switched up the game in 2020. They’ve introduced a new form called the 1099-NEC—NEC standing for “Non-Employee Compensation.” Why? To make it a cinch for Uncle Sam to find out if you’re paying your self-employment tax.

If you’re not hip to the jargon, a 1099-NEC is basically a neon sign flashing “SELF-EMPLOYMENT TAX” over your head. Unlike the good ol’ days of 1099-MISC where you might’ve flown under the radar, the 1099-NEC is going to match you up neatly with IRS databases. Get it wrong, and you’ll receive a charming little note called a CP2000, giving you a rundown of what you owe—typically, it’s “pay more tax.”

What’s the tax, you ask? A hefty 15.3%. And let’s break it down for the mathematically challenged—12.4% is for social security, and 2.9% is for Medicare. This isn’t pocket change, folks.

Now, why am I hammering this home? Because if you’re an independent contractor, you ARE a business. Period. Start thinking about tax planning and the structure of your business like your livelihood depends on it. Why? Because it does.

Undercharging: A Problem to Avoid

August 31, 2023 by admin

Thursday, August 31, 2023 – I recently met with a client who is a self-employed contractor, receiving income reported on Form 1099. Like many in his situation, he views himself as more of an employee than a business owner. This mindset leads him, and others like him, to commit a critical error: undercharging for their services.

Many 1099 workers forget to account for taxes when setting their prices, setting themselves up for financial pitfalls down the road. They are not just responsible for regular income tax but also a 15.3% self-employment tax. Plus, they bear business expenses that W-2 employees usually don’t have to worry about.

This issue isn’t exclusive to 1099 workers; traditional business owners are also guilty of the same mistake. The misconception that low pricing will attract more customers is a dangerous gamble. As the saying goes, “We lose money on every sale, but make it up in volume”—a flawed business strategy, to say the least.

Marketing strategist Dan Kennedy wisely pointed out, “There’s no strategic advantage to being the second-lowest priced leader in your market.” Competing on price alone is a surefire way to race your business into the ground, hitting that dreaded $0 mark before you know it.

Raising your prices doesn’t just improve your bottom line; it enables you to offer superior service, leading to higher customer satisfaction. Satisfied customers tend to stick around, become repeat buyers, and provide invaluable referrals. These are the cornerstones of a sustainable and profitable business model.

IRS Goes Digital

August 11, 2023 by admin

IRS Moves Forward On Their Plan to Monitor All Taxpayer Activity

Recently, I wrote about the danger of the IRS gathering our tax data electronically and using Artificial Intelligence and Machine Learning to monitor taxpayer activity – your activity.

Today the IRS announced plans to go paper-free by 2026 using the funding in the Inflation Reduction Act. I pointed out that the IRS will use that money more for improving their information infrastructure, than auditing individuals and businesses. It wasn’t too long ago the IRS announced the “Free” tax return filing system. And now with the push to paperless filing – all that data will be ripe for data mining.

The IRS says this new initiative will improve customer service and efficiency. But do we really want an efficient IRS? The new IRS Commissioner, Danny Werfel, recently boasted about the IRS introducing the scanning of paper 1040s. He thought that was “history in the making.” Hey Werfel, it’s 2023! Scanning paper has been around for decades.

We have two things to hope for. First, the IRS continues its history of incompetence when it comes to modernizing IRS technology. After all, they have promised improvements since the 1960s, and we are still told how antiqued the IRS computer system is.

Second, Congress cuts more of that $80 billion giveaway in the Inflation Reduction Act. Congress did manage to cut $21 Billion from the IRS budget last May in the debt ceiling negotiations. Let’s hope for more. The IRS budget is still close to $20 Billion a year!

IRS launches paperless processing initiative

https://www.irs.gov/newsroom/irs-launches-paperless-processing-initiative

Remarks by IRS Commissioner Danny Werfel on the paperless processing initiative

https://www.irs.gov/newsroom/remarks-by-irs-commissioner-danny-werfel-on-the-paperless-processing-initiative

Who Wants an Efficient IRS?

July 22, 2023 by admin

The Inflation Reduction Act bankrolled the IRS to double in size. There has been lots of speculation about drastically increasing the number of auditors and, therefore, audits. The IRS “Enforcement” budget increased by more than $45 billion. What has been missed is the increased budget, more than $30 billion, directed at the IRS for “Operations Support” and “Business Systems Modernization.” You can read that as “information technology.” And don’t overlook that part of the enforcement budget that will be used for information technology as well.

That’s a huge commitment.

There are two major initiatives underway right now at the IRS:

1. IRS Direct File. Building a “Free” tax preparation system. Gathering more taxpayer data.

2. Implementing Artificial Intelligence Algorithms and Models. Analyzing taxpayer data.

Taken together, these initiatives will give the IRS, and therefore the government, easy access to the most intimate pieces of taxpayer information. According to Kaschit Pandya, IRS deputy chief information officer, “The idea is to take all of our data from within the IRS, place it in an enterprise data warehouse, and then build the analytics layer on top of it so that everyone has access to the data that they need in order to carry out an action or research something,”

By focusing on the increased audits, we are missing the real danger here. You can protect yourself from audits in large part. How do you protect yourself from the government gathering all your most intimate information and using it against you?

We have already seen the push to mandate our banks to provide all our banking information to the IRS – don’t think that push is over. We also see the move to digitalize our currency, which would give the government enormous power over when, where, and how we spend our money. And the revelations contained in the “Twitter Files” about government restrictions on what it deems “Misinformation,” should give us all pause.

Information Technology can free us – or imprison us. Which will it be? Personally, I don’t like the direction the IRS is headed.