​Scams will never completely go away, but just whose responsibility is it to fight them? Obviously, taking a bit of personal responsibility is the first line of defense, but scammers can’t be allowed to just run rampant otherwise with a ‘it’s your problem’ attitude. And it’s not as if anyone is immune to this either, as news came out over the last week that multi-time Olympic gold medalist Usain Bolt lost more than $12 million in a case of investment fraud.

Now the IRS has been called out by the Government Accountability Office, which says the tax agency could do more to help stop these situations. Every year, the IRS puts out its list of the Dirty Dozen tax scams, which gets a decent deal of attention (a good thing), but does not include instructions on how the public can report any of these abuses to the agency.

But it’s not as if the IRS does nothing, and it might be too much to expect an entity that is having issues living up to some of its most basic responsibilities to take on more. But the idea that more should be done also feels reasonable and right. If people are taking advantage of abusive tax schemes, should not the tax agency have some, well, agency in this situation?

Then again, however, the IRS is currently aware of more than 40 types of such schemes, so at some point it feels like they can only do so much. And as is always the case with such defrauding actions, they will only continue to grow and evolve to try to stay ahead of the knowledge and awareness of others – no matter who it is combatting such schemes.

So now it feels like we come back to the idea of personal responsibility. Maybe there’s something empowering in there about having a great deal of individual autonomy, but that falls flat when you get caught up in something that could lose you a good deal of money.

Even if there is no surefire way to avoid these potential situations then, we can all retain a healthy skepticism. There’s the adage that if something sounds too good to be true, it probably is. And in this realm, anything that sounds that good will remain that good if you take the time to ensure it is real before jumping in. We can also extend it, though, into saying if something sounds too bad to be true, it probably is. So also don’t react quickly if anyone says you must act quick because of how much you owe. 

​Warmly,

Josh Bousquet
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​This time of year there are a lot of questions about 1099 forms. Some people don’t know if they will be getting one (and often hope they don’t) while others don’t know if they should be sending them. So I wanted to give some of the basics here this week.

To start, a 1099 form is essentially a report of money you received that are not wages, salaries, and tips. This can cover a variety of things from interest, dividends, money received from the government to pension or retirement plan payouts. Think of it as the way the IRS gets to know about this money you received that was not payroll. Things like those listed above, though, are usually not surprises.

Things get a little more muddled, however, when it comes to the 1099-NEC form, which is for non-employee compensation. These should be received by anyone who performed freelance work or had a side gig where they earned more than $600. Here is also where we have to say, that you are supposed to still report all income received, even if it’s less than $600 and therefore you did not receive a 1099 form. People are not always aware they will still be taxed on this money, so receiving one can be an unpleasant surprise.

Now, to look at it from the flip side, if you paid people more than $600 during the year, you may be required to send them these 1099 forms. Note this does not apply to payroll. For those payments, taxes were already being computed, so the person will receive a W2 form instead to report that income. This does not need to be reported in another way.

Note that this also does not apply to payments that were made with a debit or credit card. Use the rule that you only should be sending 1099s for payments you made by cash or check. Other forms of payment will be covered by a separate tax form and issuing a 1099 would result in a double reporting of those payments.

Finally, you are also not required to send 1099 forms to government agencies, tax-exempt organizations or corporations (unless the corporation provides legal, medical or health care services).

But then to flip it again, if you are a tax-exempt organization and pay a freelancer more than $600 for some work, then you should be sending them a 1099 form.

So yes, this can feel confusing and the answers can seem different depending on what side you are looking from. This must be done by the end of this month, though, so if you have any questions about it, please get them answered now while there is still time to handle it.

Warmly,

Josh Bousquet
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Every time when we start to get into tax season, the idea of being audited begins to circulate a little more. It is a concept that strikes immediate fear into many – and understandably so. It is something that feels like you can’t do anything about, you just must take it, and there is no way to see a good result.

Now this is true to some degree. There isn’t some magic door you can access that results in an audit ending before it begins. But first, as always, the best way to not worry about an audit is to submit a legitimate tax return.  This doesn’t then allow you to say, “Oh no, Mr. IRS, I assure you my return is all on the up-and-up,” and have it go away, but you can go into the process with fewer worries about ending up with a giant new bill at the end of it.

Beyond that, though, the chances of actually being audited remain very low.

Last year, billions of dollars were budgeted to be allocated to the IRS for audit enforcement. Last week, though, we received word of the actual current state of audits and the chances of being audited in fiscal year 2022 decreased from the year before. The odds of an audit came out to 3.8 out of every 1,000 returns filed. This clearly isn’t an insignificant number, but if you were told something had a .38% chance of happening, how much mental space would you give it?

There are some situations that increase one’s tax return from being looked at a little deeper. Millionaires, for example, had a 2.8% chance of receiving some attention from the IRS (not necessarily a full audit). This makes sense, though, as those who make the most money are also potentially the ones who could be found to owe the most money.
The group with the highest audit rate, though, is actually low-income wage earners claiming an Earned Income Tax Credit. This isn’t because they traditionally underreport income, but they are a group where it is easy for the underfunded IRS to carry out a correspondence audit only (requiring no actual face-to-face time with the taxpayer). There are certainly arguments to be made here on both sides about where it’s best for the agency to place its efforts

This promises to be an evolving issue over the coming years as the IRS receives more of that increased funding and we find out just what they do with it. But for now at least, that’s a quick look at some of its recent moves.

Warmly,

Josh Bousquet
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​You have officially made it to 2023, give yourselves a pat on the back.

Okay, that’s enough. Now it is time to get deep into the tax weeds for the new four months or so.

I understand that it feels early to do this – and it is. You don’t really need to hunker down now and turn great deals of your attention to your tax return to have it done in time. There are simple, non-time-consuming things that you can do, however, which will make these coming months easier.

For instance, it is very possible that you have already received some documentation you will need for your return. Handle these now however you planned to handle them when it is time to move forward. Do you have a folder you put them all in? Do you upload them to a computer folder? Do you scan ones received in the mail? Whatever the answer, doing that now is better than keeping them in a giant pile of mail or letting a notice fall ever deeper into your email inbox. For do you know which pieces are going to be the toughest to track down if you wait a few months? Yes, the earliest ones received.

Businesses can probably do even more to get themselves ready for taxes early in the season. For just where does your bookkeeping stand? If that is something you don’t do on the regular, then now it is time to start catching up. Even if it is not the hugest task, December has passed, you can get your bank statements, you can make sure it is complete and not worry about it anymore. And again, where do you keep all your paperwork? Are those statements and all your receipts in their final spot so that you’re ready to move forward?

A lot of these things feel small, and that is a big part of the reason why they are very easy to put off. Even if your preparation for a tax return involves only getting together a dozen pieces of paper, it can become very aggravating to try to find them all on April 1. Simple steps will lead to less frustration.

​And beyond that, those simple steps will alert you to potential issues when there is still time to do something about it and fix it without significant added stress. So even if we are all still a bit in holiday mode, let’s wake up enough to do these small bits now before we get into the big ones later.

Warmly,

Josh Bousquet
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