Archives for February 2020

Stock Market Affects

We all heard the news about the spread of the coronal virus… and then came the news of the affect on the stock market. But why?

The first thing to remember is that the stock market is built not of stocks but people – lots of people. Not only is the stock market built of people but the businesses that it invests in are also built of people. And people can be, well, unpredictable.

If you remember the definition of a “run on a bank” – where several people decide to go take it out their deposits from a bank because they believe (whether true or not) that the bank is in trouble. All at the same time. This kind of behavior can make an individual bank fail. This happened quite a bit in the early 20^th Century until regulations required that banks hold more of their deposits in Federal Banks.

So, then the stock market ups and downs can be seen in much the same way. Lots of people get wind of a particular stock for a particular company being a good deal and purchase its stock driving the price up. That can be for a number of reasons, way too many to discuss here but can include things like a positive financial projection, the hiring of a CEO or leader that has a proven track record, the introduction of a new product that lots of people believe will sell well, etc.

A stock market crash is a big sell off of stocks in one day. A correction is a sell off of stock that can happen in one day or over a period of time, possibly after an overly enthusiastic period of buying.

So, what has happened to the market with the surfacing of the effects of the Coronavirus on China and its economy is, not exactly either. It is not quite a crash, but a correction of sorts but one in which stockholders are both reacting to what has happened – we have seen a slow down in Chinese productivity because of workers in China unable to work – and to what may happen – more people in China may get infected and all over the world.

While it is painful to see the value of your holdings go down, despite what it might feel like at the moment, it is not the end of the world. Markets generally correct themselves after a downturn in a few months. So, if you don’t absolutely need to sell your stock right now, don’t. Hold on and slowly we will see the market return to normal.

Tax Benefits Renewed for 2019

Certain individual tax provisions extended

Deduction for above-the-line qualified tuition and related expenses claimed on Form 8917, Tuition and Fees Deduction
Deduction for mortgage insurance premiums treated as qualified residence interest, claimed on Schedule A, Itemized Deductions
Deduction for unreimbursed medical and dental expenses as the floor was lowered to 7.5% of adjusted gross income and claimed on Schedule A, Itemized Deductions
Credit for nonbusiness energy property claimed on Form 5695, Residential Energy Credits
Income exclusion for canceled debt for qualified principal residence indebtedness where the taxpayer defaulted on a mortgage that they took out to buy, build or substantially improve their main home claimed on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness

Taxpayers can get the most out of various tax benefits and get useful tips on preparing their 2019 federal income tax returns by consulting a free, comprehensive tax guide available on IRS.gov. Publication 17, Your Federal Income Tax, features an in-depth look at on tax changes for 2019 including recent legislative changes and covers the general rules for filing a federal income tax return. It supplements the information contained in the tax form instruction booklet. This 277-page guide – available online as a PDF, HTML or eBook − also provides thousands of interactive links to help taxpayers quickly get answers to their questions.

Kiddie Tax modification

Recent legislation also modified the rules related to what’s commonly called the “Kiddie Tax” for certain children who may be able to calculate their tax based on the tax rate of the child’s parent. For tax year 2019, taxpayers can elect this alternative application for the tax on their unearned income by completing Form 8615, Tax for Certain Children Who Have Unearned Income, differently depending on their election. See the Form 8615 instructions for Part II Tax for more information. Taxpayers who make this election for 2019 must include a statement with their return specifying “election to modify tax of unearned income.” The statement can be made on the return (for example, on line 7 or at the top of Form 8615) or on an attachment filed with the return.

Disaster tax relief

Disaster tax relief was also enacted for those affected by certain Federally declared disasters. This includes an increased standard deduction based on qualified disaster losses and an election to use 2018 earned income to figure the 2019 earned income credit and additional child tax credit.

Certain taxpayers affected by federally declared disasters may be eligible for an automatic 60-Day extension for filing, paying their taxes, and other administrative deadlines.

Special rules may apply for taxpayers who received a distribution from an individual retirement arrangement, profit-sharing plan or retirement plan and their main home was in one of the federally declared disaster areas eligible for these special rules.

Amended returns

Three tax laws were enacted on Dec. 20, 2019. The Taxpayer Certainty and Disaster Tax Relief Act of 2019 extended certain previously expired tax benefits to 2018 and 2019 and provided tax relief for certain incidents federally declared as disasters in 2018 and 2019. The extended benefits and the disaster relief may now be claimed on 2018 and 2019 tax returns, by those who qualify.

The Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act) made other changes, such as increasing the penalty for failing to file a tax return and modifying the rules related to the taxation of unearned income of certain minor children. The SECURE Act relaxed certain retirement plan contribution and distribution requirements beginning Jan. 1, 2020.

While the IRS has released the vast majority of tax year 2019 products, the IRS must also update 2018 tax products affected by these legislative changes. Taxpayers may have to file an amended return to claim these benefits on their 2018 return. See Form 1040-X, Amended U.S. Individual Income Tax Return, and its instructions at IRS.gov/Form1040X. Impacted 2018 forms, instructions and schedules are being revised to reflect the legislation enacted Dec. 20, 2019. The updated 2018 revisions will be posted to IRS.gov for taxpayers to file amended returns accurately.

The IRS works closely with tax professionals and partners in the tax return preparation and tax software industries to prepare for and address issues that may occur during the filing season. This ongoing collaboration ensures that taxpayers can continue to rely on the IRS, tax professionals and tax software programs when it’s time to file their returns. As always, filing electronically and choosing direct deposit is the fastest, most accurate and most convenient way to receive a tax refund.

Illinois’ First Month of Tax Revenue to Fund Programs

The Illinois’ cannabis industry saw massive sales during its first month in action — $39,247,840.83 worth of product sold, to be exact. But now the state’s Department of Revenue has released its figures on taxes, and it’s official that Illinois is also experiencing a windfall; $7.3 million in tax revenue from January cannabis sales alone.

Illinois announced first month of tax revenues from legal cannabis sales

With tax rates for the sale of many marijuana-infused products set at 20 percent, Illinois has one of the highest cannabis tax rates in the country.

That money is earmarked for important destinations, though the way that the revenue will be spent varies from jurisdiction to jurisdiction when it comes to local taxes.

Recipients of the funds include local municipalities, the State’s general fund, a restorative justice initiative to assist those harmed by the “war on drugs”, law enforcement training and substance abuse programs.

How to Check Yourself

Of course we hear about the Presidential candidates and their platforms. And of course we should all vote in the national election. The California Presidential Primary is coming up on March 3, 2020. But there is not only the choice of which party candidate for President, but included also on those ballots are choices for local representation, judges, ballot measures – all of which could have very real fiscal impact on our community and our lives. While we may not quite be at the place where you can vote online we certainly have more resources than ever.

Are you registered? Do you know where you vote? It is not too late to find out and participate. The Secretary of State’s office has online resources to find those answers and more.

Visit VoterStatus.sos.ca.gov to check your voter status. Visit HowToVoteForPresident.sos.ca.gov to check your options for voting for U.S. President in the March 3, 2020 Presidential Primary.

If you still need to register to vote or update your voter registration, you will need to complete the Same Day Voter Registration process at your county elections office, vote center, or polling place.

Go to vote.ca.gov, for all the above resources plus find out more information on how to vote, locate your polling place and get more information about what is on the ballot.

Know Your Industry Deadlines

Many farmers, fishermen face March 2 tax deadline; IRS encourages convenience of IRS Direct Pay

The Internal Revenue Service reminds farmers and fishermen who chose to forgo making quarterly estimated tax payments that they must file their 2019 Form 1040 along with a payment for all taxes owed by Monday, March 2, 2020. But it should be a reminder to all of use to be aware of your industry’s special deadlines and requirements.

This special rule normally applies to taxpayers whose farming or fishing income was at least two-thirds of their total gross income in either the current or the preceding tax year. Farmers and fishermen can avoid the estimated tax penalty by both filing and paying all taxes due by March 2. Those who chose to make an estimated tax payment, on or before Jan. 15, 2020, can instead wait and file by the regular April 15 deadline.

Farmers and fishermen can take advantage of Direct Pay to pay their taxes. Anyone can use this free online service to quickly make federal individual income tax payments or quarterly estimated tax payments directly from their checking or savings account. There are no IRS fees and no pre-registration.

IRS Direct Pay is available seven days a week and payments can be scheduled up to 30 days in advance. Users receive instant confirmation after they submit a payment or they can opt in to receive email notifications.

IRS Direct Pay cannot be used to pay the federal highway use tax, payroll taxes or other business taxes. Anyone wishing to pay these business taxes electronically can enroll in the Electronic Federal Tax Payment System (EFTPS). Like IRS Direct Pay, EFTPS is also a free service.

For more information about these and other payment options, visit IRS.gov/payments.

IRS To Increase Visits to High Income Earners

As part of a larger effort to ensure compliance and fairness, the Internal Revenue Service announced that it will step up efforts to visit high-income taxpayers who in prior years have failed to timely file one or more of their tax returns.

Following the recent and ongoing hiring of additional enforcement personnel, IRS revenue officers across the country will increase face-to-face visits with high-income taxpayers who haven’t filed tax returns in 2018 or previous years. These visits are primarily aimed at informing these taxpayers of their tax filing and paying obligations and bringing these taxpayers into compliance.

“The IRS is committed to fairness in the tax system, and we want to remind people across all income categories that they need to file their taxes,” said Paul Mamo, Director of Collection Operations, Small Business/Self Employed Division. “These visits focusing on high-income taxpayers will be taking place across the country. We want to ensure taxpayers know their options to get right with their taxes and avoid bigger issues later.”

For the current tax season, the IRS reminds taxpayers that everyone should file their 2019 tax return by the April 15 filing deadline regardless of whether they can pay in full. Six-month filing extensions are also available, although that does not extend the April deadline for paying any taxes owed.

“Taxpayers having delinquent filing or payment obligations should consult a competent tax advisor before waiting to be contacted by an IRS revenue officer, Mamo said. “It is always worthwhile to take advantage of various methods of getting back into filing or payment compliance before being personally contacted by the IRS.”

For the new visits taking place, high-income non-filers taxpayers are those who generally received income in excess of $100,000 during a tax year and did not file a tax return with the IRS. Taxpayers who exercise their best efforts in filing their tax returns and paying or entering into agreements to pay their taxes deserve to know that the IRS is aggressively pursuing others who have failed to satisfy their filing and payment obligations.

During the visits, IRS revenue officers will share information and work with the taxpayer to hopefully resolve the tax issue.

Understanding the New W-4

If you have employees in your business you may know the Internal Revenue Service has revised Form W-4 and is offering answers and guidance online.

New W-4 Form and explanations offered online

If you do your own payroll inhouse the Income Tax Withholding Assistant for Employers can help guide you around the new changes. The redesigned withholding system (no longer based on withholding allowances) went into effect on Jan. 1.
There is even a webinar, Understanding the 2020 Form W-4 and How to Use it to Calculate Withholding posted on the site.
And a new and improved Tax Withholding Estimator that incorporates the changes from the redesigned Form W-4, Employee’s Withholding Certificate, that you can direct your employees to for guidance on how to fill out the new form.

While the IRS does not require a new W-4 Form for all current employees, (employers can continue to use the latest W-4 on file for their workers) it may help employees to understand their withholdings better.

2019 A Banner Year for Colorado

Colorado’s Colorado Department of Revenue data reported that cannabis shops notched sales of nearly $1.75 billion during 2019, setting a new annual sales record for the state home to the nation’s longest-established recreational cannabis industry.

Colorado legal cannabis is a multi-billion dollar industry in the state

The 2019 figures showcase a surprising surge in growth from a market that a year ago appeared to be flattening out. The profusion of edibles, beverages, vapes and concentrates resulted in a smaller market share for the familiar flower. Separately, people are growing comfortable with buying cannabis products and integrating those purchases into their shopping patterns, he said, noting recent BDS studies that showed increases in the number of adults who reported consuming cannabis in the prior six month period.

Colorado has the longest standing legal cannabis for recreational use record. Even with a relatively high tax rate (15% sales, 15% excise) recreational use is the bulk of consumption in Colorado.

Premium Tax Credits

If you purchase health insurance on the Health Insurance Marketplace, you must file Form 8962

If you got help paying for your health insurance premiums you may need to file this form

If you have purchased your health insurance on the Health Insurance Marketplace and got a reduction in payments then you got a Premium Tax Payment. And that must be accounted for on your tax return. Failing to file Form 8962, Premium Tax Credit, to reconcile 2019 advance payments of the premium tax credit may affect return processing, and delay the taxpayer’s refund. You may also not be eligible for advance payments of the premium tax credit in the future if you fail to file the form with your return.

What is the premium tax credit?

The premium tax credit helps pay for health insurance coverage bought from the Health Insurance Marketplace. When the taxpayer or their family member applies for coverage, the marketplace estimates the amount of the premium tax credit they may be able to claim. This estimate is based on information the taxpayer provides about family size and projected household income. The taxpayer can then decide if they want to have all, some, or none of the credit paid directly to their insurance company. This option will lower their monthly payments.

Who is required to file Form 8962 to reconcile advance payments?

Taxpayers who have advance credit payments made on their behalf, are required to file Form 8962 with their income tax return. This will reconcile the amount of advance payments with the premium tax credit they may claim based on their actual household income and family size.

How do taxpayers know they received advance credit payments?

Taxpayers or members of their family who enrolled in health insurance coverage for 2019 through the marketplace should receive Form 1095-A, Health Insurance Marketplace Statement. This form shows the months of coverage and any APTC paid to the taxpayer’s insurance company.

This form also provides information to complete Form 8962. Taxpayers who have questions about the information on Form 1095-A, or about receiving it, should contact their marketplace directly. The IRS can’t answer questions about information on Form 1095-A or about missing or lost forms.

How does a taxpayer reconcile advance credit payments?

Filing electronically is the easiest way to file a complete and accurate tax return. Taxpayers who received advance credit payments must file a tax return to reconcile even if they otherwise don’t have to file.

American Bar Association endorses SAFE Act

The American Bar Association (ABA) recently released resolutions showing support for the SAFE Banking Act now hovering in limbo in the Senate.

ABA advocates protection for attorneys working with cannabis clients

The SAFE Banking Act passed in the House last year and progressed to the Senate, awaiting the scheduling of a vote. But it has stalled, even as Banking Committee chair Sen. Mike Crapo (R-ID) is receiving pressure from stakeholders to advance the legislation, and pressure from some fellow lawmakers opposed to anything that smacks of Federal legalization of marijuana.

The ABA advocates for their own constituency’s protection against prosecution or negative effects, such as the shutting down of attorney bank accounts, for working with clients who are part of legal cannabis companies and related companies.