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Archives for July 2019

Credit Bureau… Credit Score… Data Breach… huh?

Data Breach

In just the past few months there have been reports of major data beaches to consumer data from a large credit card company and a credit reporting agency no less.  And each time we hear one of these reports we are cautioned to “check our credit report”.  While many of us, no doubt, have a firm handle on our credit report and credit score and what it all means, for some it may all be a little hazy.  So, let’s look at the basics.

https://eligibility.equifaxbreachsettlement.com/en/eligibility

A brief history in credit bureau time…

Keeping track of who is credit worthy and who is not is nothing new, even though credit card usage in the US didn’t start en masse until the 1970s.  In fact, one of the largest credit bureaus was started in the 1800s in a small grocery store in Tennessee, when the proprietor kept a list of creditworthy customers and sold the list to local businessmen.  Before mass use of credit cards and the rise in the power of the credit bureau, borrowers had the opportunity to borrow from, say, a local store, default, and then take themselves and their bad behavior to another store and pretend to not have defaulted before.  As you can imagine, that was a losing proposition for lenders and was very bad for business. 

Credit bureaus themselves were no angels.  Once upon a time, they used their lists to enrich themselves through the selling of consumers’ information, and condoned some collection tactics that were a bit shady.  But with the Fair Credit Reporting Act of 1968 limits were set on what credit bureaus could do with consumer data and what information could be placed on records.  The credit bureau sharing of consumer credit histories has allowed lenders to manage their losses.

In the 1970’s there was the convergence of increased credit usage with improvements in computer data collection technology.  And viola, from that auspicious circumstance sprung the modern credit reporting agency and the credit score.

Scores and scores…

Every time you apply for a credit card (you know, like when you are shopping and they say “If you apply for a store card you’ll get 20% off today”?) or apply for a car loan, home loan, home equity line of credit, business loan, student loan – you name it – if you are asking an institution for a loan the credit bureaus is contacted and all your history of borrowing, banking, even sometimes renting is then shared with the lender.  Now, after you have been given the loan, your lender is going to tell on you – every month, whether you were on time, late, missed a payment altogether, and that information is added to your credit report and affects your credit score.  Each month millions of bits of data are transferred from lenders to the credit bureaus about consumer borrowing and this is kept on each consumer’s (almost) permanent record. 

From the information gathered comes your credit score, or sometimes called your FICO score.  Unlike your golf score, the higher the better.  The higher your credit score the more credit worthy the credit bureaus consider you and the more favorable the loan terms you are likely to get.  And an increased rate of just a few percentage points more could cost you hundreds of dollars over time.

Who are these guys?

Currently, there are three major credit reporting bureaus, Equifax, Experian, and TransUnion.  Each work with a different group of lenders, although there is overlap as some lenders use more than one credit bureau.  But not only lenders are reporting to the credit bureaus.  Reporting your payment information can even extend to bills that go into collections, like doctors or hospital payments.  So, even though the credit bureau may not be keeping track of your other bills, like your cell phone bill, the cell phone company may use your credit score to determine whether to sell you service or not. 

Should I be monitoring?

There was a time not too long ago when it seemed everyone was jumping on the bandwagon of checking credit – even employers!  But since the recession and an update to the Fair Credit Reporting Act there are more restrictions on how and who can run your credit.  (Many states, including California, now have a ban on employers checking credit for all but a few circumstances, and they have to get your permission beforehand.)  The basic rule of thumb now is, if an entity runs your credit, first off they have to tell you, and second they have to allow you to see what they looked at.  Ever applied for a store credit card and then gotten that letter in the mail later letting you know who to contact to see your credit score? This is now mandatory for lenders who deny you credit.

Which brings us to the question, should you be monitoring?  In short yes, but unless you are looking to buy a car or home or apply for a small business loan soon you can cruise a little.  You do want to keep a general eye on your credit score to make sure it doesn’t dip.  There are ways to see your credit score for free through apps on your smartphone or device, Credit Karma and Credit Sesame, are two popular apps.  Each bureau has their own app you can download. 

Your score is only one part of what you watch.  You also want to look at your credit report (how to is, a whole other post!) and see if there are any discrepancies or errors.  Every year you can get a report from each of the three reporting agencies – for free!  But only through AnnualCreditReport.com.  And do check your credit report whenever you can for free or low cost.  For instance, when you get one of those letters in the mail telling you that you can obtain a copy of your credit report – do it.  Otherwise, there is a cost.  Although there are a good number of companies that offer credit monitoring, including the credit bureaus themselves, no one knows your information like you do.  You may find it worth it to subscribe to a service that alerts you to inquiries and changes to your credit, but there is no substitute for you looking out for your own interests.

280E: UNDERSTANDING AND OVERCOMING TAX IMPLICATIONS

Cannabis Accounting; the Legal Way

In simple terms, cannabis businesses are only allowed to deduct expenses that are part of the “costs of goods sold.” Though one could argue that cannabis deliveries have a cost to selling their goods (i.e. purchasing delivery vehicles or building an eCommerce shop), neither of those expenses are tax-deductible. It’s weird, we know. The following is a list of items that are considered costs of goods sold under IRS Regulation 1.47-11(c) IMPLICATIONS •Ongoing maintenance of machinery and equipment •Labor costs and employee benefits •Insurance costs •Supplies •Utility costs •Property and sales tax

It seems that most of the costs of goods sold are taken on by cultivators. So where exactly does that leave retailers? The following is a list of expenses that are not tax-deductible. •Marketing and sales expenses •Advertising •State income taxes •General administrative costs not directly tied to the production of goods •Transportation from the company

1. Isolate any cannabis activities to one company. Have the owners of the company set up an affiliate that does not touch any cannabis product. Most importanly, have that business provide property and services needed by your cannabis business at a reasonable markup. List of possible services: 1. Renting and repair of machinery/equipment 2. Renting facilities 3. Insurance 4. Utilities 5. Furnishing materials 2. Have a separate entity handle any non-cannabis related activities/sales as to not consider their activities as  “trafficking” of any schedule 1 substance. 3. Establish an LLC. Owners can deduct 20% of their income under section 199A.

OVERCOMING 280E These three options are merely band-aid solutions that aim to fix a larger problem: the tax code itself. Pushing for legislative change is the correct way to go about lowering tax rates. These options may temporarily allow you to cut your losses but always confirm with a CPA and legal counsel before taking any action.

Lowering AGI this year can help taxpayers when they file next year

Adjusted Gross Income

A taxpayer’s adjusted gross income is one factor that determines how much tax they owe. Taxpayers who plan today can  lower their AGI.

This tip is one in a series about tax planning. These tips focus on steps taxpayers can take now to help them down the road.

Here are a couple things taxpayers can do now to lower their AGI:

Know how adjusted gross income affects taxes

  • A taxpayer’s AGI and tax rate are important factors in figuring their taxes. AGI is their income from all sources minus any adjustments or deductions to their income. Generally, the higher the AGI, the higher their tax rate, and the more tax they pay.
  • Tax planning can include making changes during the year that  can lower a taxpayer’s AGI. The taxpayer could:
    • Contribute to a Health Savings Account
    • Claim educator expenses if they’re a qualifying educator
    • Pay student loan interest

A full list is on Schedule 1 of Form 1040.

Save for retirement

  • Retirement savings can also lower AGI.
    • Contributing money to a retirement plan at work like a 401(k) plan can reduce a taxpayer’s AGI.
    • Investing in a traditional IRA plan is another way to save for retirement and lower AGI.
    • Self-employed SEP, SIMPLE, and qualified plans are also retirement options that can lower AGI.

280E: UNDERSTANDING AND OVERCOMING TAX DEDUCTION’s

Understanding 280e

What is 280E and how Can affect Cannabis Businesses? Can cannabis retailers really not deduct expenses?

Disclaimer: The content in this “blog” is a compilation of information and strategies collected through various individuals in our industry. It is not meant to act as legal advice. Consult with your knowledgeable Accountant/Bookkeeper or CPA and legal counsel for more information.

§280E -IRS MEMORANDUM

“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is Conducted.”

For more information, reach out to a NestEggg Cannabis Compliant & Accounting & Tax Representative today https://nesteggg.com/contact-us

Tax planning includes determining filing status

Filing Status

Single or married? Kids or no kids? These are just a couple of questions that will help someone determine their tax filing status. Taxpayers usually only think about their filing status when filing their returns. However, this is something to think about all year, especially if it changes.

This tip is one in a series about tax planning. These tips focus on steps taxpayers can take now to help them down the road.

Here are some things about filing status that taxpayers should consider now:

A taxpayer’s filing status is used to determine their:

  • Filing requirements
  • Standard deduction
  • Eligibility for certain credits
  • Correct amount of tax

If more than one filing status applies to someone, they can use the Interactive Tax Assistant to help them choose the one that will result in the lowest amount of tax.

Changes to family life may affect someone’s tax situation. These changes include:

  • Marriage
  • Divorce
  • Birth of a new baby
  • Adoption of a child
  • Death

Typically, a taxpayer’s status on December 31 applies to the entire year for tax purposes. For example, if someone gets married late in the year, for tax purposes they’re considered married for the entire year.

The IRS has several tools taxpayers can use to stay updated on important tax information that may help with tax planning. In addition to visiting IRS.gov, they can download the IRS2Go app, watch IRS YouTube videos, and follow the IRS on Twitter and Instagram.

Year-round tax planning includes reviewing eligibility for credits and deductions

Tax Deductions

Tax credits and deductions can mean more money in a taxpayer’s pocket. Most people only think about this when they file their tax return. However, thinking about it now can help make filing easier next year.

This tip is one in a series about tax planning. These tips focus on steps taxpayers can take now to help them down the road.

Taxpayers should be prepared to claim tax credits and deductions. So, here are a few facts about credits and deductions that can help a taxpayer with their year-round tax planning:

  • Taxable income is what’s left over after someone subtracts any eligible deductions from their adjusted gross income. This includes the standard deduction. In fact, most individual taxpayers take the standard deduction. On the other hand, some taxpayers may choose to itemize their deductions because it could lower their AGI even more.
  • The Tax Cuts and Jobs Act made changes to itemized deductions. Many individuals who formerly itemized may find it more beneficial to take the standard deduction.
  • As a general rule, if a taxpayer’s itemized deductions are larger than their standard deduction, they should itemize. Also, in some cases, taxpayers may even be required to itemize.
  • Taxpayers can use the Interactive Tax Assistant to see what expenses they may be able to itemize.
  • Taxpayers can subtract tax credits from the total amount of tax they owe. To claim a credit, taxpayers should keep records that show their eligibility for it.
  • Here are a few examples of taxpayers who can benefit from certain credits:
    • Parents may qualify for credits like the child tax credit and child and dependent care credit.
    • Families with students may qualify for the American opportunity credit or lifetime learning credit.
    • Low to moderate income taxpayers may qualify for the earned income tax credit.
  • Properly claiming these tax credits can reduce taxes owed and boost refunds. Taxpayers can check now see if they qualify to claim it next year on their tax return. Some tax credits, like the EITC, are even refundable, which means a taxpayer can get money refunded to them even if they don’t owe any taxes.

Good tax planning includes good record keeping

Tax planning and your books and records

Tax planning should happen all year long, not just when someone is filing their tax return.  An important part of tax planning is recordkeeping. Well-organized records make it easier for a taxpayer to prepare their tax return. It can also help provide answers if a taxpayer’s return is selected for examination or if the taxpayer receives an IRS notice.

This tip is one in a series about tax planning. These tips focus on steps taxpayers can take now to help them down the road.

Here are some suggestions to help taxpayers keep good records:

  • Taxpayers should develop a system that keeps all their important info together. They can use a software program for electronic recordkeeping. They could also store paper documents in labeled folders.
  • Throughout the year, they should add tax records to their files as they receive them. Having records readily at hand makes preparing a tax return easier.
  • It may also help them discover potentially overlooked deductions or credits. Taxpayers should notify the IRS if their address changes. They should also notify the Social Security Administration of a legal name change to avoid a delay in processing their tax return.
  • Records that taxpayers should keep include receipts, canceled checks, and other documents that support income, a deduction, or a credit on a tax return.
  • Taxpayers should also keep records relating to property they dispose of or sell. They must keep these records to figure their basis for computing gain or loss.
  • In general, the IRS suggests that taxpayers keep records for three years from the date they filed the return.
  • For business taxpayers, there’s no particular method of bookkeeping they must use. However, taxpayers should find a method that clearly and accurately reflects their gross income and expenses. The records should confirm income and expenses. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.

You’re going to start a non-profit and save the world!

Starting a Non Profit

You have the best idea. You know just what will help. You’ve talked to friends and they are onboard or supportive.  You’re going to start a non-profit and save the world!

First things first

Just like a for-profit business you need to organize.  You’ll want to visit IRS.gov Charities and Nonprofits section and figure out what sort of organization you will become.  Are you a church or spiritual organization?  Are you a school?  Are you filling a need in your community?  Write out your mission statement (you will use this later) and dive in.

You, of course, will have to take many of the same steps any business will take such as forming your organization, enlisting a Board of Directors, writing ByLaws, applying for an EIN, applying to your state for an employer identification number, opening a bank account…

What about those donations?

You can operate as a non-profit organization and collect donations and hit the ground running.  What you can’t do is offer your donors any tax benefits, or have your organization be tax exempt unless and until you have applied for and received a 501(c)3 determination from the IRS.  Keep in mind too that you will likely also have to apply for your state’s tax exempt status as a separate application if you want your organization to be relieved of paying state tax on the organization’s income. 

Tax filing

You still do have to report to the IRS and your state what your organization has brought in each year on what programs.  If you are a small organization your filing can be as simple as an electronic postcard.  But do keep in mind your organization has been given an “exempt purpose” by the IRS, so if your purpose is to provide meals for homeless pets, then the funds you raise to provide that service will be tax exempt.  If, however, you start selling T-shirts in a local shop with cute puppies – even if your proceeds will go towards those same puppies breakfast – you are not in the T-shirt selling business and are therefore subject to paying tax on that income. 

Be good at doing good

Even though your purpose may be altruistic you still need to think like a business.  And all businesses need to keep good books in order to continue.  You will already be in the habit of asking for help, so don’t forget to get help with your books and accounting!

Taxpayers who need to get a tax transcript should first visit IRS.gov

Tax Transcript

Taxpayers might need a tax transcript for many reasons, like applying for a mortgage or a student loan. The Let Us Help You page on IRS.gov will help taxpayers understand tax transcripts. This page has links to information that will help taxpayers learn about the different types of transcripts and the process of how to get one.

Order a tax transcript
From here, taxpayers can visit the pages where they can request a transcript, either online or by mail. Taxpayers can get different Form 1040-series transcript types from this page. 

Transcript types
Depending on why a taxpayer needs a transcript will determine which type they need. This page lists detailed information about what is included in the five different types of transcripts.

Frequently Asked Questions
Taxpayers can visit the Q&A page for specific questions about the Get Transcript Online service. They’ll find FAQs about getting a transcript both online and by mail.

However, taxpayers might not need a full transcript. If they only need to find out how much they owe or verify payments they made within the last 18 months, they can visit the view your tax account page.

Extension filers: Don’t panic, just go to IRS.gov for help

IRS.gov

The deadline for taxpayers who requested an extension to file is going to be here before they know it. The deadline for these filers to submit their 2018 tax returns is Tuesday, October 15, 2019. Taxpayers who have not yet filed can find many helpful resources on IRS.gov Here are a few of them:

IRS Free File
Taxpayers with yearly income of $66,000 or less can file using free brand-name tax software. Those who earned more can use Free File Fillable Forms, the electronic version of IRS paper forms. Either way, everyone has a free e-file option. Filing electronically is the easiest, safest and most accurate way to file taxes.

Interactive Tax Assistant and IRS Tax Map
These tools can answer many common tax questions.

Directory of Tax Return Preparers
For taxpayers who don’t want to do their own taxes, this tool can help find a tax professional in their area.

Where’s My Refund?
Taxpayers can check the status of their refund within 24 hours after the IRS has received their e-filed return. Those who file a paper return can check the refund status four weeks after mailing it. Once the IRS approves a refund, this tool will give the taxpayer a date by which to expect it. The IRS updates refund statuses once a day.

Taxpayers can also find helpful information on their smart phones through the IRS2Go app.

Taxpayers can file earlier but should file by October 15 to avoid a potential late filing penalty. Penalties and Interest might apply if taxpayers owe taxes and do not pay in a timely manner. The IRS offers a variety of ways for taxpayers to pay their taxes, including IRS Direct Pay.

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