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The Internal Revenue Service has released a draft version of the Form 1040 for tax year 2020 with several significant changes probably in store for next tax season.
They include moving the question about virtual currency from the attached Schedule 1 to near the top of the main form, right under the name and address, asking, “At any time during 2020, did you receive, sell, exchange, or otherwise acquire any financial interest in any virtual currency?” The question comes at a time when the IRS has made it more of a priority to crack down on cryptocurrency investors who haven’t been reporting their gains on their tax filings, including by issuing summonses to major cryptocurrency exchanges like Coinbase and Bitstamp in recent years seeking information on their customers who trade in digital currency such as Bitcoin and Ethereum.
Another big change, as Kelly Phillips Erb of Forbes noted, is the inclusion of a question about charitable contributions on the main tax form for taxpayers who claim the standard deduction. Normally, taxpayers who claim the charitable deduction have to itemize it on Schedule A, but the CARES Act this year includes a provision for taxpayers to deduct up to $300 in charitable contributions even if they’re only claiming the standard deduction. That’s why there is now a line 10b for “charitable contributions if you take the standard deduction” on the draft Form 1040. Instructions will be provided for taxpayers and tax preparers, according to the form.
The flip side of the form includes a number of changes, including splitting the federal income tax withheld line into separate entries from W-2, 1099 and other forms, as opposed to a single line for federal income tax withholding. This suggests that the IRS may be planning to do extra scrutiny of gig workers and the self-employed.
A new line has been added to page 2 for the “recovery rebate credit,” which will be reporting the economic impact payments or stimulus checks that went out from the IRS this year as a result of the CARES Act. That too will be explained in the instructions for Form 1040, and Erb says there will be a separate reconciliation schedule that will carry over to that line on the form.
The “Amount You Owe” section of the form includes a new cautionary note, saying, “Schedule H and Schedule SE filers, line 37 may not represent all of the taxes you owe for 2020. See Schedule 3, line 12e, and its instructions for details.” Schedule3, line 12e is new and corresponds to another provision of the CARES Act allowing employers to defer their portion of the payroll tax for Social Security.
The form so far does not seem to include a line for the new payroll tax deferral for the employee’s share of Social Security taxes under President Trump’s recent executive order or memorandum. The draft form is likely to change before it’s finalized, though, as the IRS receives comments from the tax practitioner and accountant communities, as well as others.
For more information please visit www.BOSSEDtaxprep.com.
There is one tax type in particular that has a direct and constant effect on many of the roughly 31 million small businesses (over 90 percent of all businesses) in this country. This is the Sales and Use Tax (SUT) that is imposed by 45 of our states (and an estimated 13,000 local jurisdictions) on sales of goods and some services.
In March, consumer behavior and the way many businesses operate changed dramatically as the pandemic spread across the U.S.; individuals were told to stay home, and brick-and-mortar stores were forced to close. Many small businesses established or greatly expanded their online selling presence and capabilities. That has resulted in an explosion in e-commerce and remote selling, and a significant increase in online sales tax revenues in most states. State officials have reported that sales tax collections from online sellers are up 30 percent and more in many states. The increases in online sales tax collections has been the one bright spot for state tax revenue collections during the pandemic.
As more and more online and other businesses sell into new states and municipalities, they risk becoming subject to registration, and sales tax collection and remittance rules there. The impact will be felt primarily by smaller unsuspecting businesses that make sales in states where they are not physically present or collect sales tax, including many of Amazon’s third-party sellers and sellers based outside the U.S. In fact, many small businesses have already received sales tax audit notices and need guidance and representation.
Given the huge increase in potential and unexpected sales tax liabilities, even the potential for state auditors looking to prior years where the business had nexus but didn’t file a return, the potential risk could destroy a small business.
The three biggest risks with state sales tax compliance that you face are:
Tax collected and not remitted.
Therefore, these Sales and Use Tax services can provide your business several advantages:
Reduce headcount, provide hard-to-find expertise and produce other cost savings for a client’s business;
Reduce the impact on other departments in the organization who have roles in the compliance process such as accounts payables, treasury, etc.;
Improve compliance accuracy, which will reduce audit exposure and financial risk to you and your business;
Improve efficiency and accuracy and reduce risk while freeing up key resources to focus on higher-value tasks — business and tax strategy and planning in an ever-increasing competitive and regulatory landscape;
Introduce and implement new technologies — such as artificial intelligence, IoT (internet of things), data analytics and big data — for a client’s business, reducing costs and improving productivity;
Look objectively and with “fresh eyes” across the client’s industry and competitors;
Work directly with tax and revenue authorities in all jurisdictions where you do business;
Bring rates and rules tracking, sales and use tax compliance, audit preparation and defense together under a single, expert source.
As states and cities respond to the loss in revenue from the economic fallout of the COVID-19 pandemic, accountants will need to help their clients stay informed about any sales and use tax increases imposed on their businesses.
See www.BOSSEDfinancial.com for more information or call today, 813-252-0352.
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After recovering in July from May and June’s record lows, the Accountants Confidence Index dropped back slightly as more and more coronavirus hotspots appeared across the country.
Many of the respondents noted that they were working remotely and avoiding interacting with clients and staff in person, while others had aggressive cleaning and social distancing efforts in place.
The ACI, published in partnership with ADP, is a monthly economic indicator that leverages the insights of accountants into the strength and prospects of businesses in the U.S. The 3-Month ACI hit 44.34, down slightly from the previous month’s 45.35 (though still far below the 50 mark that separates expectations of growth from expectations of contraction). The 6-Month ACI, meanwhile, came in at 50.6, down from last month’s 52.07, and edging back toward contractionary territory.