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Security Warning for COVID Related Scams

The Security Summit, a coalition of the IRS, state tax agencies, and the private sector tax industry, is warning taxpayers about a new text scam that tricks people into disclosing bank account information under the guise of receiving the $1,200 Economic Impact Payment (EIP). The text message states: “You have received a direct deposit of $1,200 from COVID-19 TREAS FUND. Further action is required to accept this payment into your account. Continue here to accept this payment” This is followed by a link to a fake phishing web address. The IRS reminds taxpayers that it will never send texts asking for bank account information. Those targeted by the scam should take a screen shot of the text message and email it to phishing@irs.gov with the (1) date, time, and time zone that they received the message; (2) the number that appeared on their caller ID; and (3) the number that received the text message. News Release IR 2020-249. If you receive any notice like this, please contact us to discuss if we can be of assistance.  

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Fantasy Sports Entry Fee Constitutes a Wagering Transaction

    In a recent Chief Counsel Advice (CCA), the IRS concluded that the entry fee to participate in a Daily Fantasy Sports (DFS) contest constitutes an amount paid for a wagering transaction under IRC Sec. 165(d). The IRS noted that DFS transactions meet the definition of wager , as interpreted by the Tax Court and state courts, because (1) there is an uncertain event (such as the live performance of individual players), (2) winnings if the event resolves in the participant’s favor, and (3) consideration is lost if the event does not resolve in the participant’s favor. According to the IRS, DFS transactions are similar to poker and other wagers in which a player’s skill is a component of the game, but does not dictate the outcome. CCA 202042015. Copyright © 2020 Thomson Reuters/PPC. All rights reserved.

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Tax Strategies to Repay Debt and/or Build Up Cash

Many businesses have struggled financially during the COVID-19 pandemic. Some businesses have benefited from the PPP and SBA EIDL programs. We expect most businesses to receive loan forgiveness for their PPP loan, but if you received an EIDL loan, you might be concerned on how you are going to pay it back. Generally, if a business had to receive a loan during 2020, it means they incurred more expenses than revenue, and thus needed a loan. This should mean the company or business will have a loss for the 2020 tax year. If you expect your business to have a loss, then there may be an opportunity to take that business loss and turn it into cash. The CARES Act changed the tax laws related to net operating loss (NOLs) options, in which the CARES Act allows NOLs to be carried back up to five (5) years if the loss was incurred in tax years 2018, 2019 and/or 2020. If you incurred a NOL then you might be able to carry it back up to 5 years and receive a cash refund based on taxes paid in those years. If you incurred a loss, and generated a NOL, speak with your tax advisor before the end of the year to determine if you can benefit from the NOL carry back. Contact Vertical Advisors, LLP if we can be of assistance.

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What does the executive action deferring payroll taxes mean for employers and employees?

On August 8, 2020, President Trump signed an executive memorandum that defers an employee’s portion of Social Security and Medicare taxes from September 1 through December 31, 2020. At this point, the taxes are just deferred, meaning they’ll still have to be paid at a later date. However, the action directs U.S. Treasury Secretary Steven Mnuchin to “explore avenues, including legislation, to eliminate the obligation to pay the taxes.” The exact impact on employers and employees isn’t yet known. There are many open questions, including President Trump’s legal ability to implement the deferral. Some experts believe there may be legal challenges to this executive action. Deferral details The payroll tax deferral will be available for “any employee the amount of whose wages or compensation, as applicable, payable during any bi-weekly pay period generally is less than $4,000.” The deferral will be calculated on a pretax basis or the equivalent amount with respect to other pay periods. Plus, the amounts will be deferred without any penalties, interest, additional amount or addition to the tax. Stay tuned for additional guidance No doubt there is much to flesh out about this payroll tax deferral. Secretary Mnuchin has been instructed to provide additional guidance and employers can’t act on the deferral until that happens. It’s also possible Congress could take action. We’ll be monitoring developments and their implications, so turn to us for the latest information. © 2020

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Potential California Tax Increases

Democrats are at it again in California.  I personally feel that the majority of bills created by California Democrats DO NOT support what the residents of California wants. So, let’s talk about a new one, AB 1253, which can be viewed at http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB1253   The California Democrats  have proposed a significant tax hike on taxable income of $1 million and higher. Legislators say the tax hike would raise more than $6 billion a year to help K-12 schools and government services hurt by the coronavirus pandemic.  I don’t know about your, but I have heard many times in the past that additional taxes and fees were going to the schools, for example the Lottery proceeds were supposed to go to the school, but what they didn’t’ communicate was they were taking away existing funding, and replacing it with Lottery.  In California we pay one of the highest state income taxes, sales tax, and gas tax.  I personally feel as a CPA and business owner, we the people need to tell our representatives, NO MORE TAXES and they need to become fiscally responsible.   Anyway, here are the tax rates that AB 1253 is proposing:   A 1% tax on income above $1 million, but not over $2 million A 3% tax on income over $2 million, but not over $5 million A 3.5% tax on income over $5 million   The bill would apply retroactively to tax years beginning on or after January 1, 2020, and would be permanent.   Under existing law, the highest tax rate for individuals is 12.3%, but when your income is over $1,000,000 there is  an additional 1% for income over $1 million often called a “mental health tax”.   With all the mental health tax collected, California shouldn’t have a mental health problem.  However, look at our homeless challenges.  Again, from a business perspective, the State seems to just be out of control in spending and just wants to tax the residents more and more and have no accountability.   If AB 1253 were enacted, the 13.3% rate would rise to 14.3% for incomes above $1 million and the state’s highest rate would be raised to 16.8% for incomes above $5 million. The proposal would result in a top tax rate of nearly 54% for federal and state taxes for the highest earners.   If Biden is elected, he has already stated he would roll back the Trump tax cuts, so the combined tax rate would increase even more.   California already has the highest state tax rate at 13.3%, Hawaii is the second highest at 11%.  Most other states have a state tax of about 6%, and  Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming do not have an income tax.   The continued tax increases are going to continue to move wealthy individuals out of the state.  However, a change of residency needs to be done right, so if you are considering to change your residency, please contact us.  Most of the clients […]

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IRS Scams – 2020 IRS Dirty Dozen

The IRS recently announced the top dozen IRS scams as noted in IR-2020-160, July 16, 2020. https://www.irs.gov/newsroom/dirty-dozen They are listed below: Phishing: Taxpayers should be alert to potential fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a tax bill, refund or Economic Impact Payments. Don’t click on links claiming to be from the IRS. Be wary of emails and websites − they may be nothing more than scams to steal personal information. VA Comment: We have been informed by a handful of our clients that they have received IRS emails.  Please note that this is one of the top IRS scams.  Make sure everyone in your accounting department knows this so you can reduce your risk of a financial crime. IRS Criminal Investigation has seen a tremendous increase in phishing schemes utilizing emails, letters, texts and links. These phishing schemes are using keywords such as “coronavirus,” “COVID-19” and “Stimulus” in various ways. These schemes are blasted to large numbers of people in an effort to get personal identifying information or financial account information, including account numbers and passwords. Most of these new schemes are actively playing on the fear and unknown of the virus and the stimulus payments. (For more see IR-2020-115, IRS warns against COVID-19 fraud; other financial schemes.) Fake Charities: Criminals frequently exploit natural disasters and other situations such as the current COVID-19 pandemic by setting up fake charities to steal from well-intentioned people trying to help in times of need. Fake charity scams generally rise during times like these. Fraudulent schemes normally start with unsolicited contact by telephone, text, social media, e-mail or in-person using a variety of tactics. Bogus websites use names similar to legitimate charities to trick people to send money or provide personal financial information. They may even claim to be working for or on behalf of the IRS to help victims file casualty loss claims and get tax refunds. Taxpayers should be particularly wary of charities with names like nationally known organizations. Legitimate charities will provide their Employer Identification Number (EIN), if requested, which can be used to verify their legitimacy. Taxpayers can find legitimate and qualified charities with the search tool on IRS.gov. Threatening Impersonator Phone Calls: IRS impersonation scams come in many forms. A common one remains bogus threatening phone calls from a criminal claiming to be with the IRS. The scammer attempts to instill fear and urgency in the potential victim. In fact, the IRS will never threaten a taxpayer or surprise him or her with a demand for immediate payment.  VA Comments: If you receive a call from the IRS or any government authority, and you are not sure, please get their contact information and contact Vertical Advisors so we can assist quickly.  Phone scams or “vishing” (voice phishing) pose a major threat. Scam phone calls, including those threatening arrest, deportation or license revocation if the victim doesn’t pay a bogus tax bill, are reported year-round. These […]

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Urgent Tax Update Regarding Possible NIIT Claim for Refund – 2016 Tax Year

To our clients and friends. There have been some last-minute discussions in the income tax community that the Supreme Court of the United Stated  (SCOTUS) may rule that the Net Investment Income Tax (NIIT) which was established as part of Obamacare is unconstitutional.  If the SCOTUS makes that ruling, then taxpayers that have paid NIIT have up to three years from the date their tax returns were filed, or 2 years from when the tax was paid, to file an amended tax return to request a refund of the NIIT. However, since the SCOTUS hasn’t made that ruling, and may not, taxpayers have the option to file a protective claim for refund for tax year 2016, to meet the filing timeline.  The 2016 tax returns may need to be filed as soon as July 15, 2020 or at a late date during 2020 depending on the date your 2016 return was filed. Currently Vertical Advisors is pulling data for the tax returns we prepared for 2016, and we will inform you if the data suggests you paid in NIIT for tax year 2016.  If you didn’t have our firm prepare your 2016 return, and you would like us to review your 2016 returns, please let us know immediately as there is a 3 year statute of limitation for the date you filed.  With the postponement of the April 15, 2020 deadline, tax returns with an April 15, 2017 signature date which would normally require an amended return to be filed by April 15, 2020 have been given extra time till July 15, 2020. For tax returns we have prepared, we will also review 2017 activity and future years also. If we did find that you paid NIIT during 2016 tax year we will be contacting you shortly to discuss your options.  To make a request for this protective claim, please contact us at advisors@verticaladvisors.com or at 949-756-8080. Warmest Regards, Peter DeGregori, CPA MST

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IRS Won’t Postpone July 15 Filing and Payment Deadline

IRS Won’t Postpone July 15 Filing and Payment Deadline: The IRS has announced that the tax filing and payment deadline of 7/15/20 won’t be postponed. Individual taxpayers unable to meet the deadline should file Form 4868 by 7/15/20 to obtain an automatic extension to 10/15/20. The IRS reminds taxpayers that an extension provides additional time to file a tax return, but not to pay any taxes due. Taxpayers facing hardships, including those affected by COVID-19, have several options available, including an online payment agreement, installment agreement, offer in compromise, and a temporary collection delay. The IRS recommends that taxpayers who are unable to pay their taxes in full should act as quickly as possible. News Release IR 2020-134. Copyright © 2020 Thomson Reuters/PPC. All rights reserved.

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Vertical Advisors LLP Receives 2020 Best of Newport Beach Award

Newport Beach Award Program Honors the Achievement NEWPORT BEACH June 17, 2020 — Vertical Advisors LLP has been selected for the 2020 Best of Newport Beach Award in the Accountant category by the Newport Beach Award Program. Each year, the Newport Beach Award Program identifies companies that we believe have achieved exceptional marketing success in their local community and business category. These are local companies that enhance the positive image of small business through service to their customers and our community. These exceptional companies help make the Newport Beach area a great place to live, work and play. Various sources of information were gathered and analyzed to choose the winners in each category. The 2020 Newport Beach Award Program focuses on quality, not quantity. Winners are determined based on the information gathered both internally by the Newport Beach Award Program and data provided by third parties. About Newport Beach Award Program The Newport Beach Award Program is an annual awards program honoring the achievements and accomplishments of local businesses throughout the Newport Beach area. Recognition is given to those companies that have shown the ability to use their best practices and implemented programs to generate competitive advantages and long-term value. The Newport Beach Award Program was established to recognize the best of local businesses in our community. Our organization works exclusively with local business owners, trade groups, professional associations and other business advertising and marketing groups. Our mission is to recognize the small business community’s contributions to the U.S. economy. SOURCE: Newport Beach Award Program CONTACT: Newport Beach Award Program Email: PublicRelations@2020-town-awardinfo.com URL: http://www.2020-town-awardinfo.com

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IRS CARES Act Update

Guidance Released for Plan Distributions and Loans for COVID-19 Victims: The IRS has provided guidance relating to section 2202 of the CARES Act, which allows qualified individuals to receive favorable tax treatment with respect to distributions from eligible retirement plans that are coronavirus-related distributions. A coronavirus-related distribution of up to $100,000 is not subject to the 10% additional tax under IRC Sec. 72(t) and generally is includible in income over a three-year period. However, qualified individuals have three years to repay a coronavirus-related distribution to a plan or IRA and undo the tax consequences of the distribution. The CARES Act also increases the allowable plan loan amount under IRC Sec. 72(p) and permits a suspension of loan repayments due from 3/27/20 through 12/31/20 that are made to qualified individuals. The guidance expands the definition of who is a qualified individual and is intended to assist employers, plan administrators, trustees, and custodians by providing guidance on how plans may report coronavirus-related distributions and how taxpayers may report these distributions on their individual federal income tax returns. Notice 2020-50 and News Release IR 2020-124. Please contact us at 949-756-8080 if we can be of assistance.

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