Written by: Theodore M. David,
Chair, Tax Law Committee
Current Items:
1) The Lemonade Stand Saga
2) Filing Checklist Cocktail
1). On one balmy day, two enterprising kids in my neighborhood set up a lemonade stand. The hand-painted sign said a glass of lemonade cost $.50. I went over for a glass. Their parents had obviously gotten the stuff from a local Costco as the jug was right at their feet. That does reduce manufacturing costs, but nonetheless, I told the kids I thought they were selling their lemonade too cheaply. I also recommended that they move over to the corner on the sunny side of the street, where they would be more visible. They were unimpressed with my business acumen. I reached into my pocket and gave the kids a dollar. One of them began to root around a plastic bowl looking for change. I told him to keep it as a tip. One kid immediately stuffed the dollar bill into his pants pocket. This kid obviously had experience running a cash business before. I was about to lecture him about IRS Notice 2023-13, but I decided just to sip the lemonade and walk back home. Clearly, my young friend had no intention of reporting that tip income to the Internal Revenue Service. Like many people in service industries, tip income has been a tax-free emolument of doing all kinds of jobs. Now IRS is well aware that vast amounts of tip income goes untaxed. So it does not come as news that with the advent of credit card charges which in some places automatically include an 18 to 20% tip that the service would be able to attack the tip income problem. So Notice 2023-13 provides and advises of a proposed revenue procedure that would establish the Service Industry Tip Compliance Agreement Program (SITCA.) This is a voluntary tip reporting program between the IRS and employers in various service industries. SITCA is “designed to take advantage of advancements in point of sale, time and attendance systems, and electronic payment settlement methods to improve tip reporting compliance.” Yipes! According to the notice, the proposed program would also decrease taxpayer and IRS administrative burdens and provide more transparency and certainty to taxpayers. Is it any wonder restaurants have trouble finding servers? I wouldn’t be surprised that lemonade stands across the country will be folding in the near future when kids get word of this new reporting arrangement.
2). It’s tax filing season once again, and IRS puts out its annual “reminder” checklist. You can go to IRS.gov for more on this subject, but the checklist seems pretty simple. The IRS suggests: gathering tax paperwork and records for accuracy; reporting all types of income on the tax return; filing electronically with direct deposit to avoid refund delays and using online resources. To this well-crafted checklist, I would add at least two tumblers full of Tito’s vodka on the rocks.
3) The amended tax return form 1040 X is a powerful tool to correct tax returns you’ve already filed and screwed up. Tax professionals use them all the time. Actually, about 3 million amended returns are filed every year. There are statutes of limitations that limit when these forms can be filed and the amount that you can actually have refunded, but assuming you have already consulted those, you should be aware that if you file your form 1040 X electronically, IRS has now agreed to directly deposit any refund into your bank account. Up to now, refunds issued because of the filing of an amended tax return were required to be sent via an old-fashioned check. As you know, that process could take forever. So if you are trying to amend a tax return, do it electronically and get your dough back sooner rather than later.
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