This is a published version of our weekly Forbes Tax Breaks newsletter. You can sign-up to get Tax Breaks in your inbox here.
The madness of March can mean different things to different people.
My son and I have been feverishly comparing brackets. (Scroll down to see how many brackets remained perfect as of Friday evening.)
My daughters? They were counting the days until Taylor Swift released her ERAS Tour movie last week.
And tax professionals? Many of them are working long hours to get returns pushed out by Tax Day—there are just 24 days remaining.
If you’re working on your return, you’re not alone: most—about 52%—of e-filed returns have been self-prepared. That number is dropping as the season progresses, which isn’t unusual. Professionally prepared returns accounted for 29,644,000 of e-filed returns received so far in 2024. That’s according to recent tax filing season data, which also indicates that, as of March 8, 2024, the IRS had received 62,761,000 tax returns, about 49% of the expected total for the year. (☆)
If you are tackling your return, you may be ready to pull your hair out over the complexity of the rules—including those that seemingly change every other year, like the entertainment and meal tax deduction, the mileage tax deduction, and deductions targeted to small businesses.
You may also be worried about those receipts (don’t panic—as a last resort, the Cohan rule allows taxpayers to prove by “other credible evidence” that they actually incurred deductible expenses).
And if you’re looking at your tax bill and wondering how you might be able to avoid a similar result next year, maybe it’s time to reconsider asset location. That doesn’t mean literally moving the physical location of your investments to say, Cleveland—it means thinking about how your funds are invested. You might be able to save yourself tens of thousands of dollars by reshuffling positions between taxable and tax-sheltered accounts, like IRAs.
There’s no doubt that it can be a fairly stressful time of year (even without those basketball brackets in the back of your mind).
I spent some time this week talking with tax professionals about how taxpayers can ease some of the associated stress. It likely won’t surprise you that they suggested you ask for help. One place to start? Hire a bookkeeper. There are obvious reasons to seek out help, like tax savings, but don’t discount longer-term benefits, like reducing your audit risk. Nicole Davis, the founder and CEO of Butler-Davis Tax & Accounting, explains that the IRS and other tax authorities rely on data metrics. That means the IRS is comparing you to other businesses in your category. You can raise red flags by mischaracterizing one expense—say, advertising—as another expense—like travel—because it might not make sense for your business category. And beyond taxes, Jenny Groberg, CEO of BookSmarts Accounting and Bookkeeping, says business owners should consider it an investment. There will be a cost, but it’s worth asking yourself, “How much more money can I make?” (☆)
You may also want to consider hiring an accountant or other tax preparer. When is the right time for the do-it-yourselfer to pay someone else to take the reins on their yearly tax filing? There is no specific trigger for when you should turn over your taxes to an accountant, but some signs, like repeated mistakes, may be telling you it’s time. One of the terms that popped up over and over in many of these conversations was fractional CFO. Healy Jones, VP of Financial Strategy at Kruze Consulting—a New York CPA firm specializing in startup accounting and finance—explained that a Chief Financial Officer (CFO) can bring a lot to the table, like experience and industry expertise, but the price tag can be financially difficult for some businesses. He says a fractional CFO may be the solution. (☆)
Looking for more tax and accounting resources? Join Forbes editor Janet Novack, Forbes contributor Amber Gray-Fenner, and me as we navigate some of the tricky waters surrounding the tax treatment of investments. The free webinar is slated for March 26, 2024, at 2:00 p.m. ET. We hope you’ll join us! Register here.
And don’t forget about our free Forbes tax guide—it’s a slam dunk (like you didn’t see that coming). Thanks for reading! And enjoy the tournaments this weekend!
—Kelly Phillips Erb (Senior Writer, Tax)
Articles marked with (☆) are premium content and require you to log-in with your Forbes membership credentials. Not a subscriber yet? Click here to sign up.
Questions
It’s refund season, which means a lot of taxpayers are checking with the IRS to see when a check might hit their account. Unfortunately, if you owe a tax debt, your refund is typically withheld and applied to the tax due. But the IRS can’t do that indefinitely—there are limits on how long they may collect.
That’s exactly the question that a reader asked this week. The reader wrote, in part:
I had a tax debt and was not getting my refunds due to it, which I understand. This year is the first time in over 10 years that we received our refund. Is the 10-year cutoff valid? I read that after 10 years the IRS writes off the debt if not paid. Online it also shows that I have 0 balance.
It’s a great question. Collections statutes can be tricky because they have a lot of moving parts.
To understand collections status, you have to understand a few additional terms. One of those is an assessment. An assessment occurs when the IRS officially records your tax liability. The IRS has three years from the date that the IRS received your original tax return or three years from the due date of the original return, whichever is later, to assess individual taxes (some exceptions apply). For most taxpayers, the assessment date is date the return is accepted—unless you’re audited, which rarely happens. (☆)
(If you have an online account with the IRS, you can see when your return has been recorded as filed, as well as any additional assessment dates. Note that transcripts for all years are not available online.)
You’ll have a new assessment date if you file an amended return. Ditto in the case of an exam or audit where additional tax may be assessed. Some penalties, like failure to pay, as well as interest, may also have separate assessment dates. That means you could have multiple assessment dates for the same return since a new assessment date would apply to the increased amount of tax.
The assessment date is important because the clock doesn’t start running on collections until then. The IRS generally has 10 years to collect taxes after the assessment date. Once that window has closed, the agency may not continue to collect.
(That information should appear on your transcript—you’ll see an example from the IRS above.)
One important note: the IRS does have some wiggle room in that 10-year window. The time to collect can be extended if you take certain steps—some common moves that can push the date out include requesting an installment agreement (typically, the window stretches while you’re waiting to have it reviewed), filing for bankruptcy (while the bankruptcy is pending), or submitting an Offer in Compromise (while the offer is reviewed). You can find some more detailed examples from the IRS here.
And one last note: You stated that you had checked your balance online. That’s a smart move. I highly recommend checking your online account for notices, balances, and tax information.
—
Do you have a tax question or matter that you think we should cover in the next newsletter? We’d love to help if we can. Check out our guidelines and submit a question here.
TAX RETURNS BY LIABILITY
U.S. income tax is your total federal income tax liability, which includes the alternative minimum tax (AMT), less all credits against income tax, and does not include payroll or self-employment taxes.
According to IRS data, just over one-third (37.4%) of the 164.4 million tax returns filed for 2020 had zero or negative U.S. income tax liability, and 94.2% had adjusted gross income (AGI) of $50,000 or less. These numbers are a bit skewed compared to other years because they include temporary provisions that offset the economic impact of the Covid-19 pandemic.
To be considered taxable, a return had to have a positive income tax liability after accounting for all credits. A nontaxable return, on the other hand, could have either a zero or negative income tax liability after accounting for all credits, including refundable credits.
According to the IRS, the charitable contributions deduction was the most important item in eliminating the tax on returns without any worldwide income tax and with an AGI of $200,000 or more in 2020. Total miscellaneous deductions, medical and dental expense deductions, and all other taxes, were next.
A DEEPER DIVE
We’re always talking about privacy in my house (full disclosure: my husband is a privacy lawyer, also, we’re nerdy that way). That’s why I was super interested to read that the IRS may be walking some fine lines with its Direct File website. The pilot program contains Google Analytics JavaScript code and a more covert tracking mechanism called canvas fingerprinting. Those tools, which you may be familiar with, offer valuable insights into user behavior—businesses may use them to enhance functionality, improve user support, and figure out what outreach campaigns are most effective. But there may be a difference between what you expect from a private business website and the government, raising questions about the ethical use of tracking technologies and the balance being struck by the IRS between user experience and privacy.
Also raising interest in the tech and business worlds? Whether the Senate will ever vote on the Tax Relief for American Families and Workers Act of 2024. While discussions about the bipartisan bill—which overwhelmingly passed the House—typically involve the expanded child tax credit, there are also several corporate-friendly provisions. Those include the reinstitution of immediate expensing for domestic research expenditures, increasing bonus depreciation for qualified property to 100%, and allowing for the interest expense limitation to be based on 30% of adjusted taxable income before depreciation and amortization. While all three of these provisions are familiar to the business community, they have been limited over the past couple of years. Businesses want to know: will the Senate bring them back? Stay tuned.
IMPORTANT DATES
📅 March 26, 2024. Keep More of What You Earn: Savvy Tax Tips To Maximize Your Investment Income. Forbes webinar featuring Kelly Phillips Erb and Amber Gray-Fenner, 2 p.m. ET. Free registration here.
📅 April 15, 2024. Individual federal income tax returns are due (or file for an extension) for most taxpayers.*
📅 April 17, 2024. Individual federal income tax returns are due (or file for an extension) for taxpayers in Maine and Massachusetts.
* The IRS has announced tax relief for individuals and businesses in parts of California affected by severe storms and flooding that began on January 21. They now have until June 17 to file various federal individual and business tax returns and make tax payments.
POSITIONS AND GUIDANCE
The American Bar Association Section of Taxation has submitted comments to the IRS in response to the proposed regulations under section 4966 of the tax code, which, among other things, define several key terms and impose an excise tax on taxable distributions.
DAFs are giving accounts established at public charities. When you donate to a DAF, you are generally eligible for an immediate tax deduction even if the funds aren’t immediately turned over to charity. The funds are typically invested, and you can make grant recommendations to any qualified public charity.
The comments focus on ensuring that the Final Regs are consistent with the treatment of similarly-situated accounts, do not duplicate existing penalty tax regimes, and do not unintentionally complicate the ongoing operation and administration of DAFs and similar arrangements.
NOTEWORTHY
Grant Thornton LLP, which offers audit and assurance, tax, and advisory services, has announced “a significant growth investment” with New Mountain Capital, LLC. It is the second private equity investment announcement from a top 10 firm this year—earlier in 2024, I noted that Baker Tilly had announced a significant investment from private equity firms Hellman & Friedman and Valeas Capital Partners. Following the closing of the transaction, which is expected in the second calendar quarter of 2024, the firm’s structure will reflect that Grant Thornton LLP, a licensed CPA firm, will provide attest services, and Grant Thornton Advisors LLC will provide business advisory and non-attest services.
Earlier this year, the IRS announced that Chief Jim Lee would retire from federal service. He took a few minutes to talk to Forbes about some of his proudest achievements and the future of the agency before saying his goodbyes. (☆)
If you have career or industry news, submit it for consideration here.
TRIVIA
The National Collegiate Athletic Association—or NCAA—is a tax-exempt organization headquartered in which state?
A. California
B. Florida
C. Indiana
D. New York
Find the answer at the bottom of this newsletter.
OUR TEAM
I hope you’ll get to know some of our staff and contributors. In honor of March Madness, I asked: Who do you have winning the men’s tourney in March Madness?
Kelly Phillips Erb (Senior Writer, Tax): ACC all the way! I picked Duke, but woudn’t be sad to see NCSU or UNC make a run at it.
Hank Tucker (Writer, Money Team): Duke… And if not them I’d love to see the Wolfpack win a miraculous five more in a row.
Rina Torchinsky (Data writer/Graphics Guru, Money Team): UConn
Andrew Leahy (Contributor, Tax): UConn
Maria Gracia Santillana Linares (Writer, Careers Team): UConn
Matt Schifrin (Executive Editor, Money): I did an auto bracket via ESPN analysts. They picked Creighton but I changed it to Huskies versus Houston, with Huskies winning. I picked them mostly because I am a dog lover.
KEY FIGURES
That’s how many perfect brackets remained in ESPN’s Men’s Tournament Challenge as of Friday evening. That compares to 22,114,064 brackets which have fallen, nearly 100%. If your bracket does well enough to win your office pool—or beat the odds in Vegas—your winnings will be taxable. Gambling winnings are taxable for federal income tax purposes, whether between friends, online, or in a casino. They’re even taxable if betting isn’t legal in your jurisdiction (just ask Al Capone).
TRIVIA ANSWER
The answer is (C) Indiana.
The NCAA was established in 1906 in New York City and moved around a bit, including stops in Chicago and Kansas City. It moved to its current headquarters in Indianapolis, Indiana, in 1999.
FEEDBACK
How did we do? We’d love your feedback. If you have a suggestion for making the newsletter better, let us know.
Read the full article here
