No matter how optimistic we try to be at times, some things happen that definitely drag us down. This is the case with a report released last week by the Treasury Inspector General for Tax Administration concerning the ongoing IRS backlog.

The disheartening part is that so much of what is included in the report is largely pointed in the direction of ‘things didn’t have to be this bad.’ This includes the line that “management has not taken steps to either reallocate staff or realign work to address the backlog of tax transcript requests.” Now, all this began in when COVID hit right in the middle of tax filing season in 2020, so it is understandable that some scrambling would have taken place within the IRS to find new ways to work – you know, like essentially everyone else in the country did at the time. To think that about two and a half years later they are still stuck there, though, just makes one confusedly shrug.

Then there is the increased hiring that the agency announced earlier this year and its ‘surge teams’ that it moved from other departments to help, but the fact that millions of returns are still stuck in the backlog speaks to the level of success those moves have had.

And then there is mail handling equipment that is 20 years old, has been talked about being replaced, but there is no news that indicates this is imminent.

Of course, this then makes one think of the increased funding that the IRS to slated to receive over the next 10 years from the Inflation Reduction Act. And these thoughts clearly pull in two directions – one says that the agency clearly needs it and the other wonders if it will even matter.

The end note here is that this is frustrating. Behind all the agency’s rhetoric and reported actions on this subject, it is clearly still a problem and the dent it has put in the problem is not big enough. It is difficult to come up with any sort of story that justifies still being in this position at this time.

But I felt that it still was worth mentioning (yet again), though, for we do still hear from people who are looking for updates on their tax returns or IRS requests that we simply cannot give because things are just still in this position. So even if optimism is difficult to come by, you can at least know it’s nothing personal.

Warmly,

Josh Bousquet
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Forecasting can often be a guessing game and you have heard enough bad jokes about meteorologists to understand this is true. This is not only true with regards to weather, though, and this showed itself last week when reports about inflation for the month of August showed higher numbers than expected.

Since making predictions is so difficult, you will not find me doing it here. The current situation with inflation has many causes, many effects, and navigating it has been difficult enough for so many people that platitudes may even be harmful.  I do think there is a lesson in there, though, for business owners and this is to realize the power available in being on top of your bookkeeping.

The inflation effects have been felt by all of us just when we check out at a store, make a purchase online, and at the gas pump. And when you can feel it in individual transactions, then those all add up. To take it beyond a feeling, though, you need to know actual numbers.

I think it is safe to say that there is not a business that has not felt the state of inflation in some way. Even if one just works alone at home and doesn’t provide any actual physical goods, just the cost of heating/cooling that home or driving your car to an appointment has increased.

And this is a time when those numbers could be very important. You want to make sure that your business can absorb the increased amount of expenses.  And for some, you may be able to do that without worrying about your income level.  For many, though, you may need to increase your own prices, as well, to keep your level of profit in a comfortable area.

Without real expense numbers, though, how would you know where you had to price yourself?

You cannot wait until your bank balance gets to a worryingly low point to realize how much things got ahead of you. By that point, it may be too late to take meaningful action.

Of course, it’s also possible that as those balances dwindle, as expense increases are viscerally felt, one can just be reactive to try to counteract them. But you want to be meaningfully reactive, you want to know just how things have changed so that your actions come with confidence, so you aren’t just making guesses – you know, like some weatherman.

Warmly,

Josh Bousquet
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I think everyone has heard that it is important to save receipts for tax deductions – and this is something that has even come up many times here in our blogs. Often, though, a second part of this is left out, and that is that you must also be able to connect those receipts to your trade or business. Think of it as it’s one thing to have a have the receipts from when you took your family to Disneyworld, it’s another thing to be able to convince someone that it was a legitimate business expense.

Now of course, there are plenty of situations where serious explanations aren’t necessary.  If you have a receipt from Staples that says you bought a pack of pens and a ream of paper, the business use for these is easily seen.  You don’t need to keep track of each date that a pen ran out of ink and got tossed in the trash.  As long as you aren’t going through hundreds and hundreds of them, this is reasonable.

There are plenty of transactions, however, whose immediate business application is not obvious. For instance, many of us use a computer in our day-to-day work, and this is also reasonable. You will want to be able to connect a receipt for a computer, though, to the exact computer it is (just keep track of a serial number, don’t keep the receipt taped to the tower or anything). This way you can show how the device is used for business and that the receipt isn’t for a laptop you bought your kid for school – a much less reasonable business use.

This idea of proving what receipts are for may most come into play with dining. For again, of course, there are legitimate meals where business is discussed with coworkers, clients, vendors, etc. These happen for many reasons that are reasonable and qualify as deductions.  But most of the meals we eat in life – even those in restaurants – happen outside any sort of business environment and those ones clearly aren’t legitimate deductions, even if you are eating during the workday.  To ensure you can count those that are, though, see that the receipts for them include notes as to who attended the meal and what was discussed.

An important thing to note here is that we are talking about legitimate deductions. If we are thinking about an audit situation, yes, the auditors will question some deductions. Keeping that line of information through the receipts and EXACTLY what they are for, protects these real potential deductions from being tossed. This is not skirting the system, this is helping you use the system to your best advantage.
Warmly,

Josh Bousquet
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When I wrote in this space last week, I did not plan to have this article serve as a follow-up. But then stories came up that not only expanded but also drove home some of the points I was making – resulting in this sequel.

In that piece last week, I wrote about how it is easy to take headlines (such as emerged after the recent passage of the Inflation Reduction Act) and think tax implications are understood, even though big measures may still see tweaks for months after passage when it comes to implementation. Now this week, I want to point out how those headlines often may not give you the whole story, as well, for they tend to focus on the federal implications, when you also must file a state tax return.

This came into focus in a couple articles I saw concerning the recent announcement of President Biden’s student loan relief plan. For many taxpayers this could include a clean $10,000 reduction in their student loan debt balance. But then there was word that that money, although not taxable on the federal level, could be subject to state tax in as many as 13 states (see here complete with scare-tactic headline warning of an $1,100 bill), but then that was cut down to four (see here), and that of course could still change if those states choose to place this relief outside the normal rules.

And sure this news is progressing in a direction where fewer people have to worry about an increased tax bill, so I am not saying this is some huge story that should be being trumpeted more, but it does display both the levels that one story can have and how they can change.

Then last week I also saw this story that spoke of the Child Tax Credit, something that got a lot of attention last year when people were receiving some of the money for the expanded credit directly for six months. The minutiae of what is in this story isn’t worth going into here, but it does list some states that have implemented some child tax credit relief on their end. So even though the expanded credit has not been extended on the federal level, it’s easily possible that you could live in one of these states and be unaware of the overall situation.

As I close this, I have no grand question or advice to leave. But I do hope these pieces can help to highlight how complicated tax measures can be and how one can’t expect to have all definite answers all at once.

Warmly,

Josh Bousquet
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Over the last two weeks in this space, I have written about some pieces of the recently passed Inflation Reduction Act.  I am not going to do much of that this time, but the rollout of the bill’s provisions (and some guidance that has already been put out there) shows that this goes beyond headlines and bullet points.

This is not a statement intended to place fault on anyone. Congress can pass legislation with a very clear desired outcome, but how that outcome is going to be achieved is a more boots-on-the-ground operation than any wording of legislation.

So now, there will be some choices made as to how the IRS institutes some of these new tax credits included in the bill.  So now, the IRS will have to choose exactly how it spends the new money that it will receive because of some of what is in the bill. And also, it is naïve to think that the first answer given to these concerns is going to be the final answer.

Because again, once you start putting things into actual practice, new wrinkles are found …

So what does this really mean?

The biggest thing that I want to point out here is that when things this big (and frankly, important) happen, you cannot just take an initial headline and think you have all the answers. Especially when it comes to large pieces of legislation like this, you may be able to summarize what is included in one page, but the actual bill is many, many pages and those pages of details do matter when it comes to implementation.

This is not to then say that if you want to take advantage of some of these new tax credits that you must be diligently scouring the news so that you can do it correctly. Rather, this is a call to understand that there are people who are doing that work, there are people who will be keeping up with what has to happen to make it work for everyone. This is a bit of a trite comparison, but if you’re having heart surgery, you want it to be done by somebody who has a lot of expertise in heart surgery. It does, however, show that there is value to trusting in the knowledge of others.

So this will all shake out in time, there will be people who can help you navigate when you need to, and as always, do not be afraid to reach out when you need help with that navigation.

Warmly,

Josh Bousquet
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