Archives for November 2019

Taxpayers should watch out for gift card scam

Taxpayers should always be on the lookout for scams. Thieves want to trick people in order to steal their personal information, scam them out of money, or talk them into engaging in questionable behavior with their taxes. Scam attempts can peak during tax season, but taxpayers need to remain vigilant all year.

Gift card scams are on the rise. In fact, there are many reports of taxpayers being asked to pay a fake tax bill through the purchase of gift cards.

Here’s how one scenario usually happens:

Someone posing as an IRS agent calls the taxpayer and informs them their identity has been stolen.
The fake agent says the taxpayer’s identify was used to open fake bank accounts.
The caller tells the taxpayer to buy gift cards from various stores and await further instructions.
The scammer then contacts the taxpayer again telling them to provide the gift cards’ access numbers.

Here’s how people can know if it is really the IRS calling. The IRS does not:

Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer.
Generally, the IRS will first mail a bill to any taxpayer who owes taxes.
Demand that taxpayers pay taxes without the opportunity to question or appeal the amount they owe. All taxpayers should be aware of their rights.
Threaten to bring in local police, immigration officers or other law-enforcement to have the taxpayer arrested for not paying.
Revoke the taxpayer’s driver’s license, business licenses, or immigration status.

People who believe they’ve been targeted by a scammer should:

Contact the Treasury Inspector General for Tax Administration to report a phone scam. Use their IRS Impersonation Scam Reporting web page. They can also call 800-366-4484.
Report phone scams to the Federal Trade Commission. Use the FTC Complaint Assistant on FTC.gov. They should add “IRS Telephone Scam” in the notes.
Report an unsolicited email claiming to be from the IRS, or an IRS-related component like the Electronic Federal Tax Payment System, to the IRS at phishing@irs.gov. The sender can add “IRS Phone Scam” to the subject line.

IRS: Eligible employees can use tax-free dollars for medical expense

With health care open season now
under way at many workplaces, the Internal
Revenue Service today reminded workers they may
be eligible to use tax-free dollars to pay medical
expenses not covered by other health plans.

Eligible employees of companies that offer a health
flexible spending arrangement (FSA) need to act
before their medical plan year begins to take
advantage of an FSA during 2020. Self-employed
individuals are not eligible.

An employee who chooses to participate can
contribute up to $2,750 through payroll deductions
during the 2020 plan year. Amounts contributed
are not subject to federal income tax,
Social Security tax or Medicare tax.
If the plan allows, the employer may also
contribute to an employee’s FSA.

Throughout the year, employees can use FSA
funds for qualified medical expenses not
covered by their health plan. These can include
co-pays, deductibles and a variety of medical
products. Also covered are services ranging
from dental and vision care to eyeglasses
and hearing aids. Interested employees
should check with their employer for details
on eligible expenses and claim procedures.

Under the FSA use-or-lose provision, participating
employees normally must incur eligible expenses
by the end of the plan year or forfeit any unspent
amounts. However, employers can, if they choose
to, offer an option for participating employees to
have more time to use FSA money.

Under the carryover option, an employee
can carry over up to $500 of unused funds
to the following plan year. For example, an
employee with unspent funds at the end of
2019 would still have those funds available
to use in 2020.
Under the grace period option, an employee
has until two and a half months after the end
of the plan year to incur eligible expenses.
For example, March 15, 2020, for a plan year
ending on Dec. 31, 2019.
Employers can offer either option (not both)
or no option.

Employers are not required to offer FSAs.
Interested employees should check with their
employer to see if they offer an FSA.
More information about FSAs can be found at
IRS.gov in
Publication 969, Health Savings Accounts and
Other Tax-Favored Health Plans.

Four common tax errors that can be costly for small businesses

A small business owner often wears many different hats. They might have to wear their boss hat one day, and the employee hat the next. When tax season comes around, it might be their tax hat.

They may think of doing their taxes as just another item to quickly cross off their to-do list. However, this approach could leave taxpayers open to mistakes when filing and paying taxes.

Accidentally failing to comply with tax laws, violating tax codes, or filling out forms incorrectly can leave taxpayers and their businesses open to possible penalties. The IRS encourages small businesses to explore using a reputable tax preparer – including certified public accountants, Enrolled Agents or other knowledgeable tax professionals – to help with their tax situation. Filing electronically can also help avoid common errors.

Being aware of common mistakes can also help tame the stress of tax time. Here are a few mistakes small business owners should avoid:

Underpaying estimated taxes
Business owners should generally make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. If they don’t pay enough tax through withholding and estimated tax payments, they may be charged a penalty.

Depositing employment taxes
Business owners with employees are expected to deposit taxes they withhold, plus the employer’s share of those taxes, through electronic fund transfers. If those taxes are not deposited correctly and on time, the business owner may be charged a penalty.

Filing late
Just like individual returns, business tax returns must be filed in a timely manner. To avoid late filing penalties, taxpayers should be aware of all tax requirements for their type of business the filing deadlines.

Not separating business and personal expenses
It can be tempting to use one credit card for all expenses especially if the business is a sole proprietorship. Doing so can make it very hard to tell legitimate business expenses from personal ones. This could cause errors when claiming deductions and become a problem if the taxpayer or their business is ever audited.

Turkey News

Ya’ know, sometimes the week is to short and the mood is to light for “real” information, so what about some fun facts about turkey day!

Who said America is a young country? Our first Thanksgiving was in 1621! Except that feast lasted three days. I don’t know about you, but I have a hard enough time with one… plus the Pilgrims didn’t have any football to watch.

And even though it may seem as if we’ve been doing it since 1621, the first turkey to be officially pardoned by a President was in 1989. And that was George H. W. Bush… who said he didn’t have a sense of humor?

And why pumpkin pie again? Love it or hate it, pumpkin pie truly is an American culinary invention. At the first Thanksgiving, however, it was probably more akin to a pumpkin pudding, the pumpkin itself having been hollowed out, filled with milk and honey and spices and “baked” over ashes. It wasn’t until about 50 years later that we start seeing the pie as we now know it, crust and all. Don’t forget the whipped cream!

Love a parade? Then you most certainly are a fan of the Macy’s Thanksgiving Day Parade which has been going on since 1924! But if you thought Mickey Mouse was the first balloon character to fly above the parade you’d be wrong (I know me too). Felix the Cat? Nope, that was the second balloon to grace the parade, the first one was just The Cat.

Canned? Fresh? Either way you can feel lucky that it is not the 17^th century – before sugar was being imported because cranberry sauce without sugar is… so, so sour… but sweetened cranberry sauce has been a Thanksgiving staple since at least the last 1700’s.

The turkey did it! Or did it? Maybe stop blaming the tryptophan in turkey and blame your food coma on… volume. It may be how much we eat not what we eat. And don’t discount the heat wafting from the kitchen, food + warmth = relaxation.

In any case, we hope you get a lot of that relaxation this Thanksgiving holiday!

Cannabis Rate Changes Effective January 1, 2020

Cannabis Mark-up Rate
The California Department of Tax and Fee Administration (CDTFA) is responsible for determining the cannabis mark-up rate every six months. An analysis of statewide market data was used to determine the average mark-up rate between the wholesale cost and the retail selling price of cannabis and cannabis products. Based on this analysis, effective January 1, 2020, the mark-up rate will be set at 80 percent.

The 15 percent cannabis excise tax is based on the average market price of the cannabis or cannabis products sold in a retail sale. The mark-up rate is used when calculating the average market price to determine the cannabis excise tax due in an arm’s length transaction. In an arm’s length transaction, the average market price is the retailer’s wholesale cost of the cannabis or cannabis products plus, the mark-up rate determined by the CDTFA. In a nonarm’s length transaction, the average market price is the cannabis retailer’s gross receipts from the retail sale of the cannabis or cannabis products.

Cultivation Tax Rates
As required by the Cannabis Tax Law, effective January 1, 2020, the cultivation tax rates reflect an adjustment for inflation. The adjusted rates for each category shown below will be reflected on the monthly and quarterly cannabis tax returns beginning January 1, 2020.

CANNABIS CATEGORY	CURRENT RATE	RATE EFFECTIVE 1/1/2020
Flower per dry-weight ounce	$9.25	$9.65
Leaves per dry-weight ounce	$2.75	$2.87
Fresh cannabis plant per ounce	$1.29	$1.35

On or after January 1, 2020, the rates apply to cannabis that a cultivator sells or transfers to a manufacturer or distributor.
Cultivator cannabis sales or transfers made prior to January 1, 2020, will use the current rate listed above.

For current cannabis mark-up and tax rates, see our Special Taxes and Fees rate page at www.cdtfa.ca.gov/taxes-and-fees/tax-rates-stfd.htm, under Cannabis Taxes.

Taxpayers can find answers to questions about private collection agencies on IRS.gov

Taxpayers who are contacted by a private collection agency on behalf of the IRS might have questions about the program. These taxpayers can visit IRS.gov to find answers to questions they might have.

In fact, to better help these taxpayers, the IRS recently updated the private debt collection pages on IRS.gov. These updates added more information for taxpayers whose case is being handled by a collection agency.

The web pages include info such as:

The names and addresses of the collection agencies.
How the process works.
What a taxpayer should do after being contacted.

Here are some things taxpayers should know about the private debt collection program:

The law requires the IRS to use these agencies to collect certain inactive tax debts.
Before being contacted by a private collection agency, the taxpayer will receive two letters.
- Notice CP40 comes from the IRS to individual taxpayers. Business taxpayers receive a Notice CP140 from the IRS. These letters tell the taxpayer their overdue account was assigned to a private collection agency.
- An initial contact letter comes from the private collection agency. This letter has info on how the taxpayer can resolve their overdue taxes.
Both letters contain a taxpayer authentication number. It’s used by the collection agency to confirm the taxpayer’s identity. It’s also used by the taxpayer to verify the caller is from a legitimate collection agency.
Taxpayers whose debt was transferred to a private collection agency will be contacted by one of four agencies. When contacted, the taxpayer should make sure the caller is from one of the private collection agencies listed on IRS.gov.
The private collection agency will ask the taxpayer a series of questions to make sure they’re talking to the correct person.
The taxpayer will be asked to exchange portions of the taxpayer authentication number with the private collection agency. This allows the caller and the taxpayer to validate each other’s identity.

More Information:
Questions and answers
Get Transcript
Payment options
Tax scams
Reporting scams
Report fraud, waste, & abuse
Taxpayer Bill of Rights

Taxpayers can start to Get Ready now for filing their taxes next year

Most people don’t usually start thinking about their taxes until January. However, it’s not too early to start now. In fact, taxpayers can get ready for the upcoming tax filing season by doing a few simple things.

First things first…they can visit the newly updated Get Ready page on IRS.gov. It highlights the steps taxpayers can take before they file their 2019 tax return in 2020.

These steps include:

Organizing tax records
Checking withholding and making adjustments or tax payments
Renewing an expired individual taxpayer identification number

IRS.gov tools and resources help taxpayers understand their tax obligations and filing options. Aside from English, taxpayers will find info in several other languages on IRS.gov. They will find it under the language drop-down menu at the top of each page.

Here are some of the pages taxpayers can visit now to help them get ready for filing:

Electronic filing options for individuals: Filing electronically is easy, safe and the most accurate way to file taxes. There are several free electronic filing options for most taxpayers. Taxpayers can electronically file using IRS Free File or Fillable Forms.
Let Us Help You: This page features links to information and resources on a wide range of tax topics.
Free tax return preparation for qualifying taxpayers: Taxpayers can also consider having their tax returns prepared at a Volunteer Income Tax Assistance or Tax Counseling for the Elderly site. The IRS and its community partners are looking for people around the country to become IRS-certified volunteers. Many IRS partners are still accepting new volunteers to join one of these programs for the 2020 filing season.

Changes to Cannabis Excise and Cultivation Taxes Regulation

The California Department of Tax and Fee Administration (CDTFA) recently adopted Regulation 3700, Cannabis Excise and Cultivation Taxes, which addresses and clarifies the Cannabis Tax Law regarding the administration of the cannabis excise and cultivation taxes. The effective date of the regulation is September 4, 2019, unless otherwise specified in the regulation.

New wholesale cost definition

Effective January 1, 2020, the wholesale cost definition will mean the amount paid by the cannabis retailer for cannabis or cannabis products, including transportation charges. The wholesale cost plus a mark-up rate determined by the CDTFA is used to determine the average market price of the cannabis or cannabis products sold in an arm’s length transaction. The 15 percent cannabis excise tax applies to the average market price of cannabis or cannabis products sold in a retail sale. Prior to January 1, 2020, the wholesale cost is the amount paid by the retailer, including transportation charges and adding back any discounts or trade allowances.

Cannabis or cannabis products sold with cannabis accessories

Generally, the 15 percent cannabis excise tax does not apply to accessories. However, when a distributor does not separately state the sales price of the cannabis or cannabis products sold or transferred with cannabis accessories (for example, vape cartridges) to a cannabis retailer, the cost of the accessory is included in the calculation of the average market price when determining the cannabis excise tax due.

Other miscellaneous changes

• Adds the definition of the California Cannabis Track-and-Trace system.

• Clarifies the definition of cannabis accessories, cannabis flowers, and fresh cannabis plant.

• Adds the cultivation tax invoicing requirements and clarifies the invoicing requirements when there are multiple licensees in a transaction.

o The distributor that conducts the final quality assurance review on the cannabis or cannabis products is responsible for reporting and paying the cultivation tax to the CDTFA.

• Clarifies information cannabis retailers must include on their receipts to purchasers.

• Clarifies how a cannabis retailer or a distributor shall handle any excess cannabis excise tax collected from a purchaser.

• Clarifies when the cannabis excise tax shall be collected when there are multiple distributors involved in a transaction.

The distributor that supplies a retailer with cannabis or cannabis products is responsible for reporting and paying the cannabis excise tax to the CDTFA.

Please see the current text of Regulation 3700, Cannabis Excise and Cultivation Taxes.

For More Information

This special notice is intended to give you an overview of some of the requirements for the cannabis industry. We encourage you to read our online Tax Guide for Cannabis Businesses. You may also call our Customer Service Center at 1 800 400 7115 (CRS:711). Customer service representatives are available Monday through Friday from 8:00 a.m. to 5:00 p.m. (Pacific time), except state holidays. When calling, select the option for Special Taxes and Fees.

It’s time again for folks to renew their ITINs…here are some things to remember

Taxpayers with individual taxpayer identification numbers should find out if their number expires this year. If it does, they should renew it now to avoid delays with their refund when they file their taxes next year.

An ITIN is a tax ID number used by taxpayers who don’t qualify for a Social Security number. Here’s what these taxpayers need to know about which numbers are expiring and how to renew them.

Which numbers are expiring at the end of this year?

Any ITIN with middle digits 83, 84, 85, 86 or 87.
Any ITIN not used on a tax return in the past three years.

What about numbers that expired in the last few years?
ITINs with middle digits 70 through 82 that expired in 2016, 2017 or 2018 can also be renewed.

How does someone renew their number?

Taxpayers with expiring ITINs need to complete renewal application, Form W-7, Application for IRS Individual Taxpayer Identification Number. They should include all required ID and residency documents. Failure to do so will delay processing. until the IRS receives these documents.

When should someone submit their renewal applications?

As soon as possible. With nearly 2 million taxpayer households affected, applying now will help avoid the rush.

What are some tips to avoid common mistakes that are made when submitting their renewal?

Indicate the reason for the ITIN on the Form W-7.
Mail the proper identification documents. Taxpayers mailing their ITIN renewal applications must include original identification documents or copies certified by the issuing agency and any other required attachments.
Include all supporting documentation, such as U.S. residency or official documentation to support name changes.
Complete the new W-7 application.

Cover Up!

It’s that time of year again when you can change or add to your health plan, what has become known as Open Enrollment. If you have never had to think about health insurance before, because you were on your parents’ plan, you got your policy through your job, or you have not yet had to think about seeking a health insurance plan and it can be confusing. And Open Enrollment is only about your health insurance by the way, all other types of insurance, while they may have their own restrictions and rules do not pertain.

What is Open Enrollment anyway?

The Affordable Care Act or ACA made provisions for people to be able to change or add to their health insurance freely during one period of time in the year. You may have seen billboards and heard ads saying Open Enrollment is now. At other times of year if you experience a life changing event such as having a baby, getting married, moving to another state or changing jobs where you lose health coverage you had with your previous job, you can make changes to your health plan. This year’s Open Enrollment period is November 1, 2019 through December 15, 2019 (if you are in California, if not check your state’s time period, it might be different.) As long as you sign up by December 15 this year your coverage can start on January 1, 2020.

What if I Don’t?

Back in 2017 you may remember Congress decided to get rid of the penalty for the individual mandate (the requirement that all Americans have a basic level of health insurance or be penalized through a fee on your tax return) but be careful. States have the right to penalize individuals through State tax returns. Check to make sure your state will no penalize you, but if you are in California, they have implemented a hefty fine for not having coverage in 2020.

What’s Covered?

All plans must give you a basic level of coverage. It is up to you to decide if you want and can afford more coverage. No matter what plan you choose it must cover these ten basic things:

Outpatient care including chronic disease management
Emergency care
Hospitalization
Pregnancy and newborn care
Mental health and substance abuse services
Prescription drugs
Rehabilitation services and devices
Lab tests
Preventive and wellness services
Dental and vision care for children

Even if you choose the most basic plan you may have choices; to pay a higher premium – this is the amount you pay each month for coverage; to pay a higher deductible – this is the threshold of costs you must cover before your insurance will begin picking up the cost; or pay higher co-pays – this is what you must pay out of your own pocket either before or alongside the insurer. These costs are most likely fixed and depend on the type of service, so if you know you need a lot of lab tests for instance, you can choose a plan with a lower co-pays for those services.

Read the Fine Print

Although it may be tedious, read everything you can about your potential plan. You don’t want a shock to come at an inopportune moment when you need care and it isn’t covered, or not at the level you thought. Or you have higher out of pocket expenses than you can afford all at once. So, don’t just stop at finding out what the monthly premium is. Look for the deductible – and make sure you know what the individual and family deductible amounts are. Look at the co-pay or percentage of what you are expected to pay for your care.

Look at the list of providers. If you have been going to the same doctor for years you may not want to change, so find out if that provider accepts the insurance you are considering. Another consideration is what facilities accept the insurance. You should be able to obtain a list of hospitals and clinics that accept the insurance and if there are none close by, you may want to chose a different plan.

Make a Decision

Even if you are having difficulty deciding you have only a limited amount of time to choose. And you certainly don’t want to pay a hefty penalty or be left without coverage altogether. There are resources out there too. Many non-profits offer guidance and advice about how to select the right level of coverage for your family. Start with Covered California or your state’s marketplace.