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Key Takeaways
- IRS reminds farmers of March 1 filing advantages.
- It's getting harder to file by March 1.
- Filing and paying by March 1 avoids estimated tax requirements for those who qualify as farmers or fishers.
- Farmers making a single estimated payment in January can avoid the March crunch.
- K-1 gross income counts in determining farmer status.
- IRS sends questions to some ERC claimants.
- A dilemma: Sticky Bun Day or Grain Free Day?
Many farmers and fishers face March 1 tax deadline - IRS:
The Internal Revenue Service today reminded farmers and fishers who chose to forgo making estimated tax payments by January that they must generally file their 2023 federal income tax return and pay all taxes due by Friday, March 1, 2024.
The special March 1, 2024, deadline allows farmers and fishers to avoid any estimated tax penalties. Though several tax-payment options are available, a taxpayer can use a quick, easy and free option to pay from their bank account by using their Online Account or schedule payments in advance using IRS Direct Pay.
The special March 1, 2024, deadline applies to anyone who qualifies as a farmer or fisher and did not make an estimated tax payment by Jan. 16, 2024. Those who made a qualifying payment by Jan. 16, 2024, can wait until the regular April 15, 2024, deadline to file and still avoid estimated tax penalties. See Publication 505, Tax Withholding and Estimated Tax, for details. The deadline is April 17, 2024, in Maine and Massachusetts.
For this If you put together enough substantiation to claim the ERC, or any tax benefit, it's a good idea to put it somewhere safe in case the IRS has questions.purpose, a farmer or fisher is anyone who received at least two-thirds of their gross income from farming or fishing during either 2022 or 2023.
The March 1 rule is becoming less useful each year. With the proliferation of partnerships and S corporations, many farmers are still awaiting K-1s. For their part, many pass-through entities are waiting on the Senate to act, or not, on the tax bill recently passed by the House before filing, as it may change their 2023 taxable income. Without K-1s, farmers relying on the March 1 rule would have to either pay estimated tax penalties for 2023 or file a return without the K-1, knowing it is wrong and will need to be amended - at a cost that may exceed the estimated tax penalty.
Many farmers who aggressively minimize their taxable income, using rules unavailable to non-farmers, get little value from foregoing estimated tax payments anyway. As the IRS notice points out, farmers have the option of making a single estimated tax payment in January, rather than the four required of other taxpayers, without the increasingly difficult rush to file a 1040 by March 1. The January farmer payment is the lesser of 100% of prior-year tax or 2/3 of current year tax; other individuals are supposed to pay in the prior year tax or 90% of current year tax by then.
It's worth noting that a farmer return filed after March 1 doesn't incur late filing penalties if it is filed or extended by the usual April 15 deadline.
Taxpayers claiming farmer status also need to make sure at least 2/3 of their income is from farming. Farmers receiving K-1s from non-farm businesses need to take into account their share of gross income from the K-1s - not their share of taxable income - in computing this test.
IRS News
IRS Seeks Evidence From Businesses That Claimed Covid Tax Break - Erin Slowey, Bloomberg:
Businesses in January received what’s called Letter 6612 alerting them that their pandemic-era claim is under audit and on hold. The letters are accompanied by Form 4564 requiring the taxpayer to provide detailed documentation for 13 multi-part questions within about a month of receiving the letter, according to one of the letters obtained by Bloomberg Tax
“Three weeks is not a lot of time to get that information together for a small business,” said Daniel Strickland, partner at Holland and Knight LLP. “Often, small businesses are short-staffed in the administration function. They don’t just have a folder of ERC substantiation sitting around.”
If you put together enough substantiation to claim the ERC, or any tax benefit, it's a good idea to put it somewhere safe in case the IRS has questions.
Related: IRS Releases New ERC Voluntary Disclosure Program Details
Tax Filing Season Picking Up, But Statistics Still Suggest A Slow Start - Kelly Phillips Erb, Forbes. "I noted last week that many taxpayers might be waiting to file until the Senate votes on The Tax Relief for American Families and Workers Act. The legislation, which would, among other things, expand the child tax credit retroactively to the 2023 tax year, was announced in mid-January and passed the House at the end of the month. The bill has not yet been slated for a vote in the Senate—and the earliest that might happen is likely to be on February 26, 2024—but IRS Commissioner Danny Werner has encouraged taxpayers to file anyway, saying that the IRS will make any necessary changes."
News from Congress and the Tax Court
Lobbyists Step Up Tax Bill Pressure on Senators Over Break - Chris Cioffi, Bloomberg:
Bill supporters hoped the strong showing in the House would convince the Senate to follow suit quickly before the break, but the chamber’s attention has been split as senators fought to advance a foreign aid bill.
Senators are now slated to return Feb. 26, when they will have to deal with a March 1 deadline before some government funding lapses. An omnibus spending package needed to avert a government shutdown is seen as a potential legislative vehicle for the tax bill.
Senate Chair Vows Wealthy Tax-Free Insurance Scheme Crackdown - Chris Cioffi, Bloomberg. "The report from the Senate Finance Committee alleged that firms like Prudential Insurance Co., Lombard International, and Zurich Insurance Group marketed private placement life insurance as a way for the wealthy to invest their money with generally no tax bill. Finance Committee Chair Ron Wyden D-Ore. is planning to soon release legislation aimed at cracking down on PPLI abuse by wealthy investors, which the IRS is currently limited in curbing because of weak reporting rules, the report said."
Related: Eide Bailly Wealth Transition Services.
Low-Income Housing Tax Credit Basis Includes Financing Costs - Chandra Wallace, Tax Notes ($):
Bond fees incurred to finance construction of residential real property during the first year of the credit period are includable in eligible basis for computing the low-income housing tax credit, the Tax Court ruled.
In a February 20 division opinion in 23rd Chelsea Associates LLC v. Commissioner, the Tax Court sided with a partnership claiming $1.2 million in financing costs in its “eligible basis” to compute low-income housing tax credits for the 2009 tax year.
Blogs and bits
6 tax credits for lower-to-middle income taxpayers - Kay Bell, Don't Mess With Taxes. "Tax credits provide the most benefits. Whereas tax deductions reduce the amount of income that's taxable, a tax credit is a dollar-for-dollar offset of any tax you owe. And when a tax credit is refundable, in full or part, once it zeroes out what you owe the U.S. Treasury, you get the excess amount back as a refund."
What’s New in Digital Asset Reporting - Kelly Golish and Ashley Akin, Tax School Blog. "The IRS expanded digital asset questions to the 2023 versions of many tax forms to reflect the service’s increased focus on reminding all taxpayers that income from digital assets is taxable."
I Had to Return $60,000 of My Signing Bonus. Can I Get the Taxes Back? - Ashlea Ebeling, Wall Street Journal. "If you pay back a signing bonus in the same calendar year you got it, the paperwork is easier than if you pay it back in a later year."
This Guide Can Help You Save Money and Fight Climate Change - Nadja Popovich and Elena Shao, New York Times. "Looking to make your home more energy-efficient, install solar panels or buy an electric car? You may be able to save thousands of dollars on climate-friendly purchases through federal tax credits and rebates."
Why Trump’s $355 Million Civil Fraud Penalty Won't Be A Simple Tax Write-Off - Robert Wood, Forbes. "In 2017, the tax rules were tightened, but even under the new ones, it is permissible to write off certain payments of restitution or amounts paid to come into compliance with law."
Tax Policy Corner
New CBO Report Shows Pandemic Response Sharply Reduced Inequality, Increased Progressivity in 2020 - Alex Durante, Tax Policy Blog. "Average federal tax rates (inclusive of all individual income, corporate, payroll, and excises taxes) barely changed for the top quintile but declined notably for everyone else, mostly due to the recovery credit rebates, which reduce tax liabilities. The bottom quintile saw its average tax rate fall by 17 percentage points and become negative, meaning households received more in tax credits than they paid in taxes. Even without the rebate recovery credits, the bottom quintile would have faced close to zero in federal tax liabilities due to other credits and lower pre-tax incomes more generally."
States need to find the income-tax sweet spot - Megan McArdle, Washington Post. "Two things do seem clear, however: Tax rates matter, even if exactly how much they matter depends on circumstances — and also, our circumstances are changing. Whatever the revenue maximizing rate was five years ago, it’s probably lower now, thanks to remote work."
Tax in the Dock
Encino tax prep company owner pleads guilty to helping client file a false tax return and admits causing tax loss of more than $400,000 - IRS (Defendant name omitted, emphasis added):
According to his plea agreement, beginning in mid-2015 and lasting until May 2017, Defendant helped and counseled a client to reduce the client’s taxable income. He did so illegally by falsely increasing the client’s business expenses reported on the client’s federal tax returns.
On the client’s corporate tax return for the year 2015, the client’s company claimed $150,000 in advertising expenses, a claim that Defendant knew was false. This false expense claim reduced the company’s ordinary business income from more than $326,000 to over $176,000, and fraudulently reduced the income the client would then report on his individual tax return.
In September 2016, Defendant also knowingly and willfully helped and advised the same client to file a false individual income tax return for the year 2015. On this return, the client failed to report the approximately $150,000 in concealed income that the client had received through his company. As a result, the client’s personal tax return falsely reported a taxable income of $127,878, when the actual amount exceeded $278,000.
Some taxpayers think that being "aggressive" means making up deductions. That has serious drawbacks. We can safely assume the IRS is getting back the money the client "saved," with penalties and interest.
What Day is It?
The choice is yours. It's both National Sticky Bun Day and National Grain Free Day.