Federal Tax News for Businesses

Businesses Targeted for Identity Theft

The IRS is warning businesses that they may be prime targets for identity theft. How do you know if your company’s identity has been stolen? According to the IRS, you should investigate if you receive a:

  • rejection notice for an electronically, filed tax return because a return is already on file
  • notice about a return you didn’t file,   
  • notice about Forms W-2 filed with the Social Security Administration that you didn’t file, or
  • notice of a balance due that you don’t owe.

If you think your business is a victim of tax identity theft, contact us to file Form 14039-B. Chances are, however, the IRS is likely to spot a scam before you do and contact you by letter with instructions on how to proceed.

Deduct the Cost of Seeking New Business

Do you operate a small business? If so, you can deduct the costs involved in bringing in new customers and keeping existing ones, including advertising and marketing expenses. The expenses must be ordinary (common in your industry) and necessary (appropriate for your business). The IRS reminds business owners that among the expenses you generally can’t deduct are amounts spent to influence legislation, or gifts or contributions to political parties or candidates. This includes advertising in the convention program of a political party or any other publication if the proceeds are for the use of a political party or candidate. Click here to learn more about business expense deductions.

Business vs. Hobby: Protect Your Tax Deductions

Taxpayers who are in business to make a profit can generally deduct related expenses on their tax returns. But you should know that if the IRS doubts a genuine profit motive exists, the activity may be deemed a hobby, limiting the ability to deduct costs. In one case, partners operated a farm that bought, sold, bred and raced Standardbred horses. It didn’t qualify as an activity engaged in for profit, according to a U.S. Appeals Court.

Among the factors the court looked at were that the partnership had a substantial loss history and paid for personal expenses of the owners. Also, the taxpayers kept inaccurate records, had no business plan, had significant income from other sources and derived personal pleasure from the activity. (Skolnick, CA 3, 3/8/23)The burden of proof to show that your activity is a business with a profit motive is on you. Click here for some tips from the IRS on how to do this.

A Scam Involving Employee Retention Credits

The IRS has issued a warning to businesses to be alert for Employee Retention Credit (ERC) mills. These scammers dangle the prospect of a large tax refund by claiming the ERC. Often the scammers charge a large up-front fee based on the amount of the refund. They omit the fact that wage deductions claimed on a company’s federal income tax return must be reduced by the amount of the credit. Needless to say, the IRS advises taxpayers to avoid filing erroneous claims for the ERC. Further, businesses should submit amended returns if qualified wages were deducted on income tax returns prior to filing employment tax returns. For more information from the IRS, click here.

A Proposed New Way to Report Tips

The IRS has issued a proposed revenue procedure that would establish the Service Industry Tip Compliance Agreement (SITCA) program. The SITCA program would be a voluntary tip reporting program between the IRS and service industry employers (excluding gaming industry employers) with at least one business location operating a “covered establishment.” Generally, a covered establishment is an employer’s business location that has tipped employees using a technology-based time and attendance system to report tips.

If passed, the SITCA program would replace existing tip reporting compliance programs for employers in service industries. Click here for more information from the IRS.