Anthony Sykes & Company

            Over the past year, the Internal Revenue Service ( IRS ) has used funding from the Inflation Reduction Act on audit activities for those who earn more than $1 million and have more than $250,000 in tax debt. In that time, the IRS collected $1 billion from the group that met these criteria. The increase in funding will allow for other goals to be reached as well.           More staff has been added and technology is being updated to provide better service to all taxpayers in the coming years. The IRS will now expand its enforcement activity to include complex partnerships, large corporations, and high-income high wealth individuals who do not file tax returns. In recent years the IRS was not consistent with enforcing tax rules in this area and had fallen behind in the ways some had gotten around their tax responsibilities. These new initiatives look to bridge that gap. If you are in need of t...

         Ever since Federal Tax Law was changed by the Tax Cuts and Jobs Act ( TCJA ) the states have been struggling to catch up. This is true in many ways, but one way is in how they tax global income. The TCJA created the title Global Intangible Low-Taxed Income ( GILTI ). This is applied to the act of taking income from things like patents or trademarks and sending it to a foreign corporation controlled by the original US based business. This foreign corporation would be in a low tax country and allow for more profits to be shielded from taxation. How have states adjusted to this form of tax avoidance?           While this strategy has been around for a long time, the GILTI category under Section 951A has been the best effort so far at discouraging that kind of behavior from businesses. With that said, most states have done very little to follow up with their own guidance. That might be because they have ...

        One of the big surprises created by the Tax Cuts and Jobs Act ( TCJA ) was the disappointment many Taxpayer’s received when it came to their refund, or lack thereof. As many now understand, the tax savings that were promoted can be found in each paycheck. As a result, their tax refund was smaller, or it even an unexpected tax bill. This led to strong reactions and encouragement to do a Paycheck Checkup to make sure the next year would not turn out the same.           Next year has arrived. Did you make the necessary changes to your withholdings? If not, the problem could be magnified. In 2018, the new withholdings table was only in effect from about February or March. This means it did not cover the entire year. All of 2019 was covered, so if the withholding was too little, the amount owed will be greater . Nothing can change that now. But making changes now will keep you from dealing with the same problem n...

       The focus of the Internal Revenue Service ( IRS ) going into 2020 is to apply the changes stated in the Taxpayer First Act . This law was signed in July 2019 and is supposed to have a detailed written plan , that brings it from the page to real life by September 2020 . The goal behind it is to change how the IRS interacts with taxpayers, handles appeals, and upgrade the technology it uses.           This will create an independent Office of Appeals to handle taxpayer challenges. Until then, there is a Taxpayer First Act Office which oversees guiding these changes into reality. Before anything happens, the IRS wants to hear feedback and gather information from the private sector, lawmakers, and even IRS employees. This gathering period could last until February. The idea is to be able to present IRS leadership with different options to choose from that can be used to implement the new law. This could mean r...

       When a person has an income, they typically pay taxes on it. The more they make, the higher rate of tax they pay. This has been the accepted pattern of life. When it comes to a business, people generally expect that pattern to continue. However, this is not always the case. For example, the Tax Cuts and Jobs Act ( TCJA ) changed the corporate tax code so that all businesses will be taxed at the flat rate of 21% . Another reason is that it has been proven that some companies have made billions but paid little or no taxes on that income.           This is because the companies and their subsidiaries were placed all around the world. As a result of this, they were taxed based on where they were located. This is scheme is not new but is now being implemented in a very sophisticated way. Reporting income in low tax countries has become an even more tempting option with the growing digital economy. Governments arou...

       When starting a new job, every employee gets a Form W-4 . This will tell the employer how much money to withhold from the paycheck. These withholding amounts can lead to owing taxes after filing or getting a refund. As a result of the Tax Cuts and Jobs Act ( TCJA ) from 2017, this form has been changed.           Instead of checking off “allowances” to be used, it will ask for actual dollar amounts. This means that new employees will need to consider outside sources of income to make sure that the right amount is withheld in the eyes of the Internal Revenue Service ( IRS ). This is a controversial point for some because it may allow an employer to see if their employees have a second job. It will also require coordination with married couples to make sure that neither spouse under-withholds, which will lead to a tax bill the next year. The instructions must be read very carefully. Taking your time and filing the...

        One of the well-received parts of the Tax Cuts and Jobs Act ( TCJA ) of 2017, was that it encouraged corporations to bring their overseas profits back to the US. Often, companies will keep their foreign profits in other countries, or try to minimize them, to reduce their tax responsibilities. The new rules set in place by the TCJA lowered the tax rate on cash to 15.5%. Before this change, the tax rate was 35%.           After a full year of the TCJA in effect, the Internal Revenue Service ( IRS ) is taking an active interest in companies that owe taxes on offshore profits. Auditors know that this is an area of tax law that can be easily abused. Currently, many companies who had taken advantage of the cut in the offshore tax rate are being audited to make sure they are following this aspect of the TCJA . If irregularities are found, the audits could expand to look to see what overall changes companies made to...

         When it comes to filing a Tax Return in the state of California, there will be a major change in how Taxpayers will interact with the Franchise Tax Board ( FTB ). In the past, if the FTB wanted to disqualify a Taxpayer from claiming Head of Household status, they would send a “ Notice of Proposed Assessment ”. This would allow the Taxpayer 60 days to respond. If they object, and the FTB did not change the proposition, there would be an appeals process that would move to the Office of Tax Appeals ( OTA ). What starts in January 2020 will be very different.           The process described above normally takes months to initiate and try to resolve. In January, the FTB will send out “ Tax Return Change ” notices instead. This adjustment will speed up the time when the FTB contacts Taxpayers. However, if they dispute the change, and the FTB upholds its decision, they will be forced to pay the tax and fi...

         The limit that was put on the amount of State and Local Taxes ( SALT ) that could be deducted from Federal Taxes as a part of the Tax Cuts and Jobs Act ( TCJA ), was quite a controversial topic. Some felt that they were being targeted and this led to various schemes and lawsuits being filed. Those feelings have not changed, and as a result of different tax changes being considered, the SALT deductions are being reconsidered in Congress.           While the SALT deductions will expire in 2025, it is unlikely that a repeal will happen before then. However, there are different alternatives that might come into play. For example, a limit on all deductions, which would include mortgage interest and charitable contributions. There are certain tax deductions which have not been limited. To find out more about them and if they apply to your situation, talk to your Qualified Tax Professional .

          At the end of August, the Internal Revenue Service ( IRS ) released some new guidance on changes related to Qualified Business Income ( QBI ) as covered in Section 199A . When the Tax Cuts and Jobs Act ( TCJA ) took effect, QBI was a topic of interest for many businesses. If the amount was determined correctly, it would directly lead to tax savings for the business. The calculations for this deduction have now changed.           All items related to a trade or business must be considered, including charitable contributions and unreimbursed partnership expenses. The new guidance indicates that QBI will be reduced by the amount of charitable donations made by the business. As a result of this and other changes, the Qualified Tax Professional handling the taxes for the affected businesses will need to make several manual adjustments to the Tax Return. Tax software has not been able to keep up with thes...

          After over a year and a half since the passage of the Tax Cuts and Jobs Act ( TCJA ), the regulations that apply to many international transactions are still not finalized. There are issues that still need to be addressed as companies are unsure how to proceed. They are making some conservative guesses but are really looking for clarity from the Internal Revenue Service ( IRS ).           For example, there is the Foreign Derived Intangible Income ( FDII ) provision. This is a potential deduction for businesses, but it can only be claimed if the business can prove that what it sells is for foreign use . In this way, a company’s decision on where to locate its headquarters will not be based on how it can avoid paying taxes where most of its goods are sold. Companies are unwilling to alter their normal business operations to prove that they qualify for FDII. The IRS has indicated that there will be more...

         One of the most talked about issues surrounding the Tax Cuts and Jobs Act ( TCJA ) was the deduction limitation of $10,000 when applying State and Local Taxes ( SALT ) to Federal taxes. One immediate idea that certain high tax states proposed, was to create charitable accounts where Taxpayers could give money to states to pay taxes, and yet have them considered as charitable contributions. In this way people could make up for the Tax deductions they lost. Some states loved the idea and started to put it into action, while the Internal Revenue Service ( IRS ) said it would not work. The rules have now been established.           One of the rules being applied should be somewhat familiar. The whole idea behind a truly charitable donation is that a person is giving money or other goods in exchange for nothing . If there is an expectation of something in return, then it is really a payment and no charity i...

        One of the goals of the 2017 Tax Cuts and Jobs Act ( TCJA ) was to keep multinational corporations from hiding profits offshore to avoid paying US taxes. While this Tax Reform has taken great steps toward reaching this goal, unanticipated results have come to be seen. In applying this law, any foreigner who becomes a US citizen must report the global income of any family businesses in the US and pay the tax on the income of those businesses.           The changing of tax rules in this area do not only impact business interests, these can be applied to domestic trusts, partnerships , and estates . This is a sharp increase in tax responsibility that many are unprepared for. This is a real situation that many are dealing with and have very limited options moving forward. With guidance, some can navigate this tricky situation, without having to renounce their claims or move out of the country.

         After a time of adjustment, the Form W-4 has been redesigned and is available for comment from the public. It is expected to be used in 2020. This is the form used to determine how much tax is to be withheld from an employee’s paycheck. This version will reflect the changes brought on by the Tax Cuts and Jobs Act ( TCJA ). A portion of the draft has been provided below.           It will require the Taxpayer to list every position they have. Essentially, they must tell their employer if they are holding another job, which is becoming increasingly common in the age of the side hustle. This might make some uncomfortable, but it is important to get the right balance on your Paycheck Withholding. This year, many were shocked to see their refunds shrink, or turn into a surprise debt. This is because the TCJA changed the withholding tables, and often this meant more take home pay during the year.  In ...

         With the activity surrounding this year’s Tax Season now at a reduced level, some might look back and realize they made a mistake on their Tax Return. This is more common than many people might think. However, there are only certain situations that would require an amended Tax Return.           If a Taxpayer noticed that they made a mathematical mistake on their Tax Return, it is not necessary to file a Form 1040X to amend it. In most cases the Internal Revenue Service ( IRS ) will automatically correct them. This is also usually true when it comes to missing forms. If the IRS does want a missing form, they will make a request in writing through the mail. Amended Tax Returns can take up to 4 months to process, so those who feel they will be due an additional refund, need to show patience. On the other hand, if the amendment will result in tax due, it must be paid immediately to penalties and intere...

         Federal income tax that is withheld from paychecks is generally paid over the year. The amounts withheld are shown on the Form W-2 . That has not changed. However, this has been a big issue when filing 2018 Tax Returns because of how the Tax Cuts and Jobs Act ( TCJA ) changed Withholding Tables. That directly impacted the Tax Refund or debt responsibility given to Taxpayers.           To avoid another surprise next year, the Internal Revenue Service ( IRS ) recommends a Paycheck Checkup as soon as possible. This should be done even if there are no significant changes from last year. This way, you can plan to get the refund you want next year. Withholding can be changed by filling out a Form W-4 . The amount withheld depends on the amount of income earn, along with filing status (married or single), the number of allowances (the more claimed, the less withheld), and any other additional amount request...

         Hearing of high-profile lawsuits in the news, and the large judgements that come with them, is not unusual. In these situations, we know that the lawyers get to keep a good amount of the money as a part of their fees. How much do those involved in the legal action get to keep? When we hear of large settlements or decisions in a case, how will taxes impact the amount of money that will be received?           From the point of view of the IRS , there is a difference between money received because of physical symptoms related to emotional distress, and money received because of physical injuries or sickness. Physical injury cases have been, and still are , tax free. However, there is a new potential concern, especially for those who have sexual harassment cases.           Changes in the tax law, brought on by the Tax Cuts and Jobs Act ( TCJA ), will now den...

         The “Offer-In-Compromise” ( OIC ) program is available to help people to settle their tax debts. This is a fact that is often advertised by different companies claiming to help people reach success in this way. The truth is that very few people are accepted into this program.           The basic viewpoint of the IRS is that most taxpayers can afford to pay their taxes, either with what they have, or on a payment plan. The OIC is only for those who will never pay off the debt within 10 years . That is considered the time limit for the IRS to collect. This is important to consider because with the changes to withholding limits brought on by the Tax Cuts and Jobs Act , many people may unexpectedly owe the IRS when they file. In this situation, an OIC will not work. Our next post will start to explain the requirements for this program.

        Many people anticipate getting a large Tax Refund after filing their Tax Return. However, the IRS has run a very detailed campaign on Social Media trying to get the attention of Taxpayers and Tax Professionals over the past year. The goal was to create awareness of how certain features of the Tax Cuts and Jobs Act ( TCJA ), would impact the income of employees. The IRS wanted everyone to check their withholding amounts to make sure they were correct. We are now starting to see why.           When the TCJA was applied last year, it adjusted the withholding tables for paychecks. The encouragement was to check and see how your paycheck was affected. Many saw an immediate increase in their take home pay and may not have seen the need to investigate further. As a result of that and the reduction of Federal income tax rates, some are finding out that they were underpaying on their taxes for a portion of 2018. Th...

        Many business owners now have more information to make informed decisions for their Tax Returns. Even during the partial Federal Government shutdown, the IRS had been issuing some guidance and rules regarding this Tax filing Season and how the Tax Cuts and Jobs Act ( TCJA ) will be applied. Part of that guidance involved a clarified understanding of the 20% pass-through deduction for businesses.           Shedding light on Section 199A had been a concern for the past few months. There had been theories, but no clear understanding about how it would really work in application. For example, the rules state that income from originating and selling mortgages is eligible for the deduction. However, the purpose of this provision was to give a break to businesses whose owners pay taxes on their personal returns.           If a taxpayer earns more than the set amount, an...