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The age to determine when required minimum distributions begin has changed effective 2023. There is an issue in the original wording of the document that will need to be corrected for those born in 1959. Here are the dates as currently presented.
Born 1950 or earlier: April 1 of the year following the year in which the taxpayer turned age 72
Born 1951 – 1959: April 1 of the year following the year in which the taxpayer turned age 73
Born 1959 or later: April 1 of the year following the year in which the taxpayer turned age 75
We will monitor for updates for those born in 1959; however, they still have several years before this takes affect for them.

Also, for individuals, there are new increased amounts for catch up contributions for those who turn 60, 61, 62 or 63 during a year. This will allow for catch-up contributions to be increased to the greater of $10,000 or 50% more than the regular catch-up contribution amount. This provision takes effect in 2025. While employers will need to be able to monitor and process these contributions this mainly effects the employee rather than the employer. The IRA catch-up contributions will now be indexed for inflation in $100 increments beginning in 2024. These were previously held at $1,000 with no change for inflation.

There are some changes to how SIMPLE plans can be treated and ROTH components of those plans. For example, SIMPLE IRAs and SEP plans may now allow employees to treat contributions as Roth contributions (other Roth limitations still apply). Defined contribution plans can now provide participants the option of treating matching contributions as Roth contributions. As we discussed in another blog there is also an allowance for tax and penalty free rollovers from 529 accounts (also with limitations). There is a significant increase in the age limit for ABLE accounts that takes effect in 2026.

A big change for employers is that they will now be permitted, starting in 2024, to make qualified retirement plan matching contributions to employees who are not contributing to the plan if that employee is making qualified student loan payments. This is a big win for getting student loan debt paid off and still allowing employees to save for retirement. More details will be available as implementation nears and your third-party administration or plan adviser will be able to assist in this process. There will likely be some amount of certification or record keeping required. There will also likely be a provision for fairness or equitable treatment.

The biggest change for employers is that when employees become eligible for participate in a 401(k) or 403(b) plan, they will be automatically enrolled. There is an exception for businesses with 10 or fewer employees and this provision begins in 2025. With this provision there are also tax credits for new smaller plans, so it is critical you discuss your plan set up with your CPA. Many of these credits are set up to prevent what is called double-dipping so make sure you review them carefully.

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The challenge with the legislations was that many transfers on these sites are exempt transfers or reimbursements between friends or family for routine items such as dinner or a gift. Some crafters are barely making any profit and when allowable deductions are considered, they are realizing losses. Those losses are called hobby losses and are not reportable or deductible on taxes. The intent wasn’t to capture reporting on these items but on the many business transactions conducted on these sites that weren’t being properly reported as business income. The tax law wasn’t written with these other transactions in mind and therefore the IRS needs to issue guidance on how to capture only taxable business transactions. Because the IRS remains millions of tax returns and pieces of mail behind, this guidance hasn’t happened.

The IRS has just announced that Form 1099-K will NOT be required for these transactions for 2022 and that the pre-2022 threshold of more than 200 transactions worth a combined amount over $20,000 will remain in effect for another year. That does not change the reporting requirement for any other type of 1099 form. Other forms are still required by their individual due dates.
Acting IRS Commissioner, Doug O’Donnell says this is to relieve confusion around the process and what will be considered income; however, there was a significant amount of pressure from the American Institutes of Certified Public Accountants (AICPA) and the National Taxpayers Union Foundation to raise the threshold to prevent reporting on exempt transactions or low-level online activity. The AICPA suggested $5,000 as an appropriate threshold. This is welcome news for taxpayers and tax professionals alike as the IRS had yet to issue any guidance on reporting or tracking forms received for exempt transactions like paying a friend for dinner or sending money to a grandchild for their birthday.

Some taxpayers may have already received forms and the IRS has promised updated guidance on what to do with those forms if they have already been received. If you have received a form 1099-K we recommend waiting to file your tax return until the IRS issues this guidance. The guidance will likely be issued in January or February but make sure to have your CPA extend your return to be safe. We will continue to watch for the guidance and will be ready to assist you when it is issued.

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As recently as 2020 as many as 21% of employers suspended their contributions to 401(k) plans. Often they do get reinstated but generally a while after the recession is over and the company has had time to recover. Currently, reports from Fidelity and Vanguard say that few plans have started this suspension process. That is good news but we want you to be prepared.

If your company stops matching, should you still contribute? The answer is a resounding “yes”. Contribute as much as you personally can. You are getting more value for your contributions now and as the market recovers you will share in those gains. Keep in mind that stopping your contributions would also have a tax effect on your paycheck that might cause you to pay more in tax rather than paying your future self. The Internal Revenue Service (IRS) recently announced that the contribution limit for 401(k) plans for 2023 will increase by $2,000. It is important to update your contribution percentage or dollar amount annually.

Investment advisors also caution stopping contributions could cause you to miss out on the match when it is turned back on. Additionally, if your match is suspended, you should try to contribute more (unless you are at the maximum) because your retirement account will be missing out on some of those company contribution funds.

That said, if a company does suspend it’s match it could indicate layoffs are around the corner. To prepare for potential layoffs advisors recommend having enough money to get my on a strictly bare-bones budet for three months. If you don’t have that cushion, it might be one of the rare times to reduce or pause your retirement savings. Once you have that emergency coverage – get right back in to retirement saving!

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Sadly, identity theft and cyber security losses are still on the rise. The IRS tried to implement face recognition software but many  complaints from individuals and the media changed those plans. While I don’t know if the IRS is the right organization to implement and control this type of software, we do need to do more to protect our information.  This can affect you both as an individual and as a business. Here are some tips gathered from experts on how to protect your information.

A first step is to ensure that your computer and phone are up to date. The security updates, patches and fixes are critical to staying safe. Never send information of a sensitive nature in an unsecured e-mail. Even if the e-mail gets to the correct recipient, it can be hacked or intercepted. While it can be inconvenient, it is better to send tax documents, pay stubs and identifying information via a secure system.  For a business entity, make sure you are protecting your employee’s social security numbers when sending payroll report and your banking information when sending statements and other information. Remember, two critical pieces of information are already printed on every check you cut. If you are at substantial risk, we recommend having limited funds in your account and funding it as checks are cut.  Most businesses bank accounts offer positive-pay and other security measures.

Use multifactor authentication, which requires two or more pieces of evidence (factors) to access a system, wherever possible, especially when the data being accessed is extremely sensitive. Also known as 2FA this process ensures that a simple hack of say your phone number or your email will not be sufficient to gain access to your information. We use 2FA when accessing data in tax software and audit software to help reduce the likelihood of a breach.

Ransomware is less likely to affect an individual; however small businesses are generally easier targets.   Consult with an IT professional. Some steps you can take initially are to make sure you have an automatic, daily backup. You should have an offline backup that allows you to restore data and systems in the event of an attack.  Evaluate your backup restoration to ensure it will work, if needed.

Encrypt mobile devices, such as laptops, tablets, and cellphones, as they are easy targets for theft or loss. Enable remote disabling and wiping to remove sensitive data if the device is lost or stolen. The thought of wiping my phone is terrifying however it would be better than having all my information accessible to a thief. Face and fingerprint recognition are also helpful. While Hollywood has dramatized gruesome methods of accessing the data it isn’t very likely to happen.

Apply the principle of least privilege and limit access to sensitive data on a need-to-know basis. Limit administrator privileges to trusted IT staff and key personnel. Perform routine access reviews to ensure that access remains appropriate.   If you store your passwords somewhere, make sure to keep it secure. It is recommended to avoid using the autofill email addresses function and/or implement a “delayed send/confirm” function to potentially catch a misdirected email before it is sent. This can be so difficult in a daily practical application but there are significant benefits to slowing the email process down.

Phishing is one of the most common entry points for cybercriminals. If you don’t recognize it or if you weren’t expecting it, don’t click it!  If you get an email from a contact that seems unusual, call them to verify before opening it or any attachments. This is especially true with money, bill pay and fund transfer requests.  Never assume that an email request is legitimate, regardless of the sender, amount, or tone. There are generally clues within the email or email address; however, it is better to call and verify than risk a loss.

Training is one of the keys to successfully managing data security risk. Set the tone from the top and remind all company personnel of the significant impact that a cyber incident can have on the company and, so, the need for sustained vigilance by all. Have a clear “think before you react” policy and train personnel on how to respond to potential threats.

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While remote working might be a simple task if all your employees are in the same state as your business there are implications you should consider as you develop your remote working policies. Unfortunately, it’s not as simple as sending folks home with a laptop and a VPN connection. There are state tax issues, sales tax issues, insurance issues and potentially federal income tax issues related to having employees in more than one location.

Before you approve your first remote worker, you need to review technology, space available, and productivity; however, you also need to consider your workers comp insurance. Having an employee in their own home but on your clock could cost you extra premium. While they are in their own home, not all policies will cover them if they have a work-related injury. We haven’t yet seen many injury lawsuits surrounding work from home situations yet, it is only a matter of time.

One of the most common issues of having a remote workforce is dealing with state withholding tax issues. This is nothing new for large corporations who have employees in many states, but the pandemic has brought this issue to small businesses across the country in a rapid fashion. Much of the population of the United States lives in regions that cross state lines easily. People who are working in one state and living in another state must still have the appropriate withholding for their own home state taxes. An example would be someone living in Georgia working for a Florida company. The Florida company is not used to dealing with state withholding however it is required for the Georgia employee. This gets more complex if there are multiple states or locations with local tax as well. Make sure you discuss in detail what travel to the office will look like, if required and who will pay for the cost of the travel.

Another issue adding complexity is sales tax. If you are a retail establishment or a taxed service provider, sales tax Nexus may be an issue. Items that an employee sells or facilitates may create a requirement for you to collect and remit sales tax in other states. Many counties and cities also have sales taxes for their municipalities as well. There are services that will manage this requirement for you, but they may be beyond your budget. State sales tax audits are on the rise and notices or questionnaires from a state should be managed carefully and with professional assistance.

Additionally, if your employees are generating revenue in other states, you may have to file a state income tax return for the income generated in that state. The part of the income would be taxable in that state and must be tracked very carefully. When it’s difficult to determine whether an employee is generating revenue or not, careful consideration and documentation must be made to ensure you can support your position in a state income tax audit. Many state income tax audits have become extremely aggressive states fight for funds and struggle to meet budgets.

Before allowing employees to work remotely make sure that you’ve considered all of these issues and have a plan in place for each of them. You should consult your team of professionals, your CPA, your contract or labor law employee, and your insurance professional. In this process it’s also critical to consult your IT professional to make sure you have sufficient policies and procedures in place to protect you from cyber security risks caused by your employees having family members or guests in their home as well as communicating to your server from potentially unsecure locations. If you would like to book an appointment to talk to us about the tax consequences of your situation, please call our office manager at 904-725-5832 or reach out to us at office at fordefirm.com

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The inflation reduction act recently added around $80 billion to the IRS budget through year 2031. What does this mean to you as a taxpayer?

There are many recaps claiming that this will pay for 87,000 new IRS employees, however; that was merely a suggestion in a 2021 report. They may hire all these new employees, but many will be assigned computer programming, customer support, and other duties with the majority being hired for enforcement. It is believed that an increase in enforcement of taxes already owed to the US Treasury will result in more revenue than the cost of the other programs in the Inflation Reduction Act. Janet Yellen, Treasury Secretary, has said that there is no intent to have added audits on households earning income is less than $400,000 a year. That is not to say there will be no audits on household with incomes less than $400,000 a year, but they are saying that there is no intent to target those households. The IRS has proven repeatedly to have an agenda all their own so only time will tell.

Additionally, the IRS still has more than 7 million individual tax returns that remain unprocessed from 2021 and prior years due to the backlog of mail during COVID-19. While they have claimed they will be caught up by the fall that has not happened. Some of the 87,000 employees are needed to ensure that they can get caught up and provide a better customer service experience. By the IRS’ own estimate only about 24% of the calls received have been answered because of their lack of employees. This is astounding considering they have received 100.5 million calls. Hopefully with added staffing they will be able to increase their customer service quality and answer more phone calls in a timely manner. It is important to remember that these employees would be hired over a period of 9 years ending in 2031. 

IRS computer systems are grossly outdated and ineffective. Hopefully some of the funding to the IRS will allow for updates and upgrades in their system. The suggested amount of funding from the $87 billion to be used for business system modernization is $4.8 billion. Many groups are calling for a better free file service through the IRS. 

With nearly 11% of Americans who are considered no longer in the labor force and only about 3% unemployment, staffing to this level will be a multi-year campaign and isn’t likely to happen quickly.  Our recommendation for our clients is to remain calm and to not be overly concerned about the additional increase in spending or employees at the IRS. The average taxpayer will not be the target of increased enforcement efforts. Many will benefit from better customer service and computer systems.  There is much to read on the internet and social media about the Inflation Reduction Act and unfortunately much of it is false. Please be careful about your sources and the information you receive to make sure you are getting accurate, and clear information. We have reviewed multiple recaps from different reliable sources, and we continue to gather details from the AICPA and FICPA to provide you updates.

If you receive an IRS notice, you should seek professional help no matter how trivial the matter may seem. An outstanding issue with the IRS can cause you other challenges so it is best to deal with it directly and on time to prevent further issues. We standby ready to help and we are ready to help you plan for this year’s taxes as well as for the future. If you have concerns about specific parts of the Inflation Reduction Act or would like to schedule an appointment to talk to one of us about how the markets are affecting your tax situation, please reach out to our office manager at 904-735-5832 or office@fordefirm.com 

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Take a hard look

First, decide which segments of the HR function you would farm out.

Take a look at:

• Payroll,
• Benefits planning and administration,
• Compliance monitoring,
• Leave management,
• Recruiting,
• Training, and
• Performance reviews.

These are all labor-intensive responsibilities where expertise counts. Transferring all or some of them to the right outside party can vault your organization to a higher level of professionalism and efficiency.

Next, perform a cost-benefit analysis. Even if the cost is more to outsource, you may decide that the extra dollars are worth freeing up staff hours for other initiatives. Factor in the drawbacks to outsourcing. Certain tasks may require an understanding of your organization’s culture and history to be effective. Also think about the impact of letting go HR people currently on staff.

Gather information

Get buy-in from your staff and board of directors before you decide to vet vendors. When you start screening providers, ask questions about the scope of their service, how long they’ve been in business and how many nonprofit clients they have in your area and sector.

Before deciding on one, make sure you understand what and how it charges — for example, by the hour or on retainer. And be clear about whether services will be provided on-site, off-site or in a combination of the two. It’s also important to set mutual expectations, including what the provider will depend on your staff and board to do. Once you’ve selected a vendor, ask your attorney to review the contract.

Don’t neglect controls

As you should do with all of your nonprofit’s operations, establish new internal controls. For example, designate an internal manager to closely monitor the outsourced work and arrange for that person and another manager (such as your executive director) to review the service’s invoices.

Contact us for HR outsourcing recommendations. We can also help you implement new internal controls that reduce fraud and financial risk.

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If your not-for-profit periodically prepares internal financial statements for your board, you may have noticed that your auditors propose adjustments to these interim statements at year end. Why do auditors do this? Generally, it reflects differences due to cash basis vs. accrual basis financial statements. But you can help minimize the need for such adjustments. Here’s how.

Cash basis accounting

Under cash basis accounting, income is recognized when you receive payments and expenses are recognized when you pay them. The cash “ins” and “outs” are totaled (generally by accounting software) to produce the internal financial statements and trial balance you use to prepare periodic statements. Cash basis financial statements are useful because they’re quick and easy to prepare and they can alert you to any immediate cash flow problems.

The simplicity of this accounting method comes at a price, however: Accounts receivable (income you’re owed but haven’t yet received, such as pledges) and accounts payable and accrued expenses (expenses you’ve incurred but haven’t yet paid) don’t exist.

Accrual basis accounting

With accrual accounting, accounts receivable, accounts payable and other accrued expenses are recognized when they occur, allowing your financial statements to be a truer picture of your organization at any point in time. If a donor pledges money to you, you recognize it now when it’s pledged rather than waiting until you receive the money — which could be next month or next year.

Generally Accepted Accounting Principles (GAAP) require the use of accrual accounting and recognition of contributions as income when promised. Often, year-end audited financial statements are prepared on a GAAP basis.

Reasonable estimates

Internal and year end statements also may differ because your auditors proposed adjusting certain entries for reasonable estimates. This could include a reserve for accounts receivable that may be ultimately uncollectible. Another common estimate is for litigation settlement. Your organization may be the party or counterparty to a lawsuit for which there’s a reasonable estimate of the amount to be received or paid.

We can help you reduce disparities between monthly or quarterly statements and those prepared at year end by maximizing your accounting software’s capabilities. Also, we can work with you to improve the accuracy of estimates. Contact us.

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