Now that we are getting into the start of the thick of tax season, some of the nervousness around taxes starts to grow. People wonder if they are handling their taxes right, often submitting returns without fully appreciating what it says, hoping that their software led them to the correct answers.

And we are not going to feed some grand lines here about how that’s not possible – of course it is.  These companies don’t get to have the money to flood you with commercials this time of year by selling faulty products that never work.

But do they work as well as other options?

Such software can shine is in avoiding some types of mistakes. For example, if you enter all your information correctly, it is going to ensure that you don’t make any simple addition or subtraction errors. You can be confident the math is correct. Where this option does not shine, however, is getting beyond the calculations.

In many ways, tax software works better the more you know about taxes. Sure, you can go through their paths and answer the questions along the way, but do you understand exactly what is being asked or are you just waiting to find the next spot where you know you have information to enter off a tax form? In this way, you will probably capture all of your income, but you may not capture all the ways that you can lessen your tax burden.

And now we will give some grand lines about how a live tax preparer can serve you better.

There are numerous times when someone comes to us for their first professional tax return, and even if they understand the information that a tax return requires to be legal, they don’t know what else can be included. Whether it’s the fact that they aren’t utilizing something like a home office deduction or if they aren’t getting some reimbursements from stuff they paid for that’s necessary to complete their work, we are able to ask the questions that get behind the outer layer and lead them down paths that may not be immediately apparent.

And we can’t promise savings of thousands of dollars by doing this, but chances are we can offer some savings. What we can do even more, though, is alleviate that nervousness that can come with tax time. You will have someone on your side who knows taxes, who allows you to be confident in your return, and lets you know things have been done correctly and done in a way that ensures your best interests have been looked after.

Warmly,

Josh Bousquet
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Many times in this space I have mentioned how difficult it is to be able to accurately predict everything that could affect your life and your business. That is why staying on top of where you stand financially is so crucial to being able to move when surprising things do occur. When it comes to unpredictability, just think of sports betting as we look toward the Super Bowl later this month. When guessing what teams would be there in the conference championship games it was difficult to know just how much a preexisting injury would affect one quarterback (yet Patrick Mahomes still made it to the big game) and impossible to know just how much as-yet non-existing quarterback injuries would prevent the 49ers from being able to join him there.

More from the “you couldn’t really predict this” file surprisingly came up in this article about Super Bowl parties.  For example, after a year when we have all had to come to terms with new norms about what we have to pay for groceries (and have you bought eggs lately!?!?!), it turns out that the price of chicken wings are down over 20% from last year. Also on this list of cheaper buys are steak, bacon, shrimp, and avocadoes. And all of this is kind of due to that’s just where things went for the last year for whatever reasons.

And then there is the fact that beer prices are 11% higher this year than last, but wine and spirits have just gone up a more reasonable 4 and 2%, respectively. Now there is no telling where this article got these numbers from, but it is possible that this could reflect the ongoing entry of more (and more expensive) craft beers into the market. So does this really mean that a case of Bud Light costs over 10% more than it did last year? Well, that isn’t really clear there.

So here we are where not only are proper predictions difficult to make, but understanding exactly what is happening in any market takes a little more study than latching onto one simple number. If you want an answer to a specific question, then you need to be able to look at that precise situation. This then brings us back to how important it is to be able to know what is going on with your own personal numbers. It is one thing to know about trends, it is another to know about where you personally stand – and maybe sometimes some more light-hearted examples can help this look clearer.

Warmly,

Josh Bousquet
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​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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