Mary Jane Business Issues

 

  Someone once said that what this country needs is a good five cent cigar. Maybe things would feel better if that cigar was filled with marijuana. But no matter, the marijuana industry is still at odds with the tax system. Even in those states who have seen the “light” and made recreational use of marijuana a viable alternative to watching the nightly news, federal laws still make such activity subject to special tax rules. For those businesses, like dispensaries, they are only permitted to deduct from their revenue the cost of goods sold. All of the other delicious deductions available to businesses are denied. This would seem like some type of unconstitutional discrimination, but with the recent appointment of Justice Barrett, who it appears neither smokes, drinks or has any bad habits and is in line for sainthood one day, any change seems to have gone up in smoke.

IRS Security Ideas

 

The IRS is trying to stay on top of security issues especially as more people holiday shop online as well as work from home. It says that this is the start of the “hunting season” for online thieves. According to the agency these are the steps that everyone should be taking to protect themselves:

• Don't forget to use security software for computers and mobile phones – and keep it updated.
• Make sure purchased anti-virus software has a feature to stop malware, and there is a firewall that can prevent intrusions.
• Phishing scams – like imposter emails, calls and texts -- are the No. 1 way thieves steal personal data. Don't open links or attachments on suspicious emails. This year, fraud scams related to COVID-19 and the Economic Impact Payment are common.
• Use strong and unique passwords for online accounts. Use a phrase or series of words that can be easily remembered or use a password manager.
• Use multi-factor authentication whenever possible. Many email providers and social media sites offer this feature. It helps prevents thieves from easily hacking accounts.
• Shop at sites where the web address begins with "https" – the "s" is for secure communications over the computer network. Also, look for the “padlock” icon in the browser window.
• Don't shop on unsecured public Wi-Fi in places like a mall. Remember, thieves can eavesdrop.
• At home, secure home Wi-Fis with a password. With more homes connected to the web, secured systems become more important, from wireless printers, wireless door locks to wireless thermometers. These can be access points for identity thieves.
• Back up files on computers and mobile phones. A cloud service or an external hard drive can be used to copy information from computers or phones – providing an important place to recover financial or tax data.

The IRS Pot Page

 

In my last bulletin I mentioned the plight of marijuana business owners unable to deduct their ordinary and necessary business expenses with the exception of cost of goods sold. A bill in the House has been delayed which would have decriminalized marijuana. So even in states where it is legal to buy and Puff the Magic Dragon these deductions are not allowed. And it gets worse. IRS agents are focusing on weed dispensaries for examination looking to disallow write-offs that are claimed. So far, courts have sided with the IRS until congressional action is taken. But who would’ve ever thought that the IRS would have a “pot page” on its website which includes a short list of FAQs! I can just imagine a bunch of 60s hippies sitting around sharing their iPads while puffing and perusing the pot page. Man, it is a brave new world.

Lightning and the IRS

 

You may have noticed that it hasn’t rained in weeks. The reservoirs are getting dangerously low. But just as I started this bulletin a thunderstorm went over and dropped a good amount of rain. Now I hope you were safe at home sheltering from both the virus and lightning. If you were squeezing in a round of golf perhaps you were not using metal clubs or one of those big golf umbrellas supporting some candidate you got for free. The reason I ask is that your odds of being hit by lightning in any year is about 1 in 500,000. Now it does depend on where you live in this vast country of ours, but in our dear New Jersey there are more lightning deaths and injuries than almost 40 of the other states. Florida of course is considered the lightning capital of the country. Think about that should you be making retirement plans to the Sunshine State. By the way males are five times more likely than females to be struck by lightning. So says the CDC. The odds of being hit by lightning twice are 1 in 9 million. That is significantly better than the odds of winning the Powerball which I believe are about 1 in 19 million. About now you’re asking where is he going with this. So what about IRS audits? The overall audit rate has been heading downward for years and now the overall exam rate is about 0.4%. That translates into about 1 in 250 returns. Most all of those audits are conducted by mail and are not in depth or “line by line” but rather focus on one or two “sore thumb” issues. To be honest, sole proprietors and high earning taxpayers do have somewhat of a higher audit incident but not significantly so. But for the most part the 249 returns that are never selected by IRS win the IRS audit lottery. That is to say that these folks may be claiming their pet cockatoo as an exemption, reporting a tenth of their income and getting away with all of it. It can explain why some taxpayers have paid no taxes at all for the last 10 or 15 years. No one in Congress seems anxious to step up IRS funding and audit activity. That is easy to understand when some of the biggest offenders are actually running the government. But then again they still have to worry about that damn lightning.

Tax Dates Extended

). The Treasury Department and Internal Revenue Service announced today that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020.

Taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax.

Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief.  Individual taxpayers who need additional time to file beyond the July 15 deadline, can request a filing extension by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Businesses who need additional time must file Form 7004.

The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds are still being issued within 21 days. 

“Even with the filing deadline extended, we urge taxpayers who are owed refunds to file as soon as possible and file electronically,” said IRS Commissioner Chuck Rettig. “Filing electronically with direct deposit is the quickest way to get refunds. Although we are curtailing some operations during this period, the IRS is continuing with mission-critical operations to support the nation, and that includes accepting tax returns and sending refunds. As a federal agency vital to the overall operations of our country, we ask for your personal support, your understanding – and your patience. I’m incredibly proud of our employees as we navigate through numerous different challenges in this very rapidly changing environment.”

The IRS has established a special web page to help taxpayers, businesses and others affected by the coronavirus. The web page will be updated as new information becomes available

BTW IRA contributions are also extended to July 15.....

Where's my Refund?

People love getting tax refunds even though many don’t realize that they have in fact made the IRS and interest free loan. I heard a car dealership announce a program to give taxpayers double their refund against a new car. With that kind of logic perhaps taxpayers are right in making even larger loans to their favorite government agency. But let’s be clear. The most advantageous position to be in at tax filing time is receiving no refund at all. Keep in mind that there is a penalty for underestimating tax liability and that penalty will get automatically calculated by your tax preparation software. However, the money the taxpayer would have sent to IRS should be invested somewhere else. As a matter of fact IRS tries to process tax refunds within 21 days of the filing of a tax return. IRS will tell you that the best way to get that refund fast is to file electronically and choose direct deposit. For those anxious to find out the status of their refund the IRS has a tool @IRS.gov called “Where’s My Refund.” Taxpayers can use this tool if it’s been more than 21 days since the taxpayer filed electronically or six weeks since they mailed a paper return. Taxpayers can also use an automated telephone line at 800-829-1954 for the same information. Ordering an IRS tax transcript is not necessary and will not speed up the receipt of a refund.

IRA Changes

While you were focused on the impeachment proceedings Congress was busy passing the retirement SECURE act. Its way too long name is the Setting Every Community Up for Retirement Enhancement Act of 2019 which was signed into law on December 2019 and became effective January 1, 2020. This law makes it easier and less expensive for employers to administer pension plans. For employees it makes changes to how beneficiaries of an IRA will be treated. I am sure there will be a number of continuing education programs on the subject. One of the earliest is provided by the state bar association on January 24, 2020. But among the many changes perhaps the most substantial is requiring beneficiaries of IRAs to elect to receive payments from the inherited IRA over a period of 10 years. Previously a beneficiary was allowed to take distribution over their life expectancy which could be, of course, substantially longer. What this meant was IRS was denied the taxation of those proceeds inherited until beneficiaries received the funds. Those beneficiaries had a tax exempt vehicle in which to invest during their lifetimes. I believe for spouses a special rule continues to allow them to pour over any distribution from an inherited IRA into their own IRA for subsequent distribution not subject to the new 10 year rule. Attorneys who have been involved in estate planning where IRA and other pensions are substantial assets should consider a review of wills and trusts as they apply to this new law. Now practically speaking there may be a better plan. Here it is: Having reached a certain age myself I would like to suggest not being terribly worried about beneficiaries getting distributions from your IRA or other pension. It may be time for you to realize that unless you spend it yourself your beneficiaries will live much better than you do on those deliciously inherited funds even if they are taxable since they did not work a single day to obtain them as you did. So it may be time for you to meet with a therapist rather than a lawyer with regard to your own retirement planning. If you plan properly perhaps the best result is that your retirement plan will be bordering on empty when you go to the great beyond. That in essence solves the tax situation for your beneficiaries and may make your own time here a lot more enjoyable.