IRS Says Discharged Student Loans Not Counted as Income

Taxpayers within the scope of this revenue procedure will not recognize gross income as a result of the discharge, and the taxpayer should not report the amount of the discharged loan in gross income on his or her federal income tax return.

Jan 15th, 2020

The Internal Revenue Service and Department of the Treasury have issued Revenue Procedure 2020-11 that establishes a safe harbor extending relief to additional taxpayers who took out federal or private student loans to finance attendance at a nonprofit or for-profit school.

Relief is also extended to any creditor that would otherwise be required to file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure.

The Treasury Department and the IRS have determined that it is appropriate to extend the relief provided in Rev. Proc. 2015-57Rev. Proc. 2017-24 and Rev. Proc. 2018-39 to taxpayers who took out federal and private student loans to finance attendance at nonprofit or other for-profit schools not owned by Corinthian College, Inc. or American Career Institutes, Inc.

The Revenue Procedure provides relief when the federal loans are discharged by the Department of Education under the Closed School or Defense to Repayment discharge process, or where the private loans are discharged based on settlements of certain types of legal causes of action against nonprofit or other for-profit schools and certain private lenders.

Taxpayers within the scope of this revenue procedure will not recognize gross income as a result of the discharge, and the taxpayer should not report the amount of the discharged loan in gross income on his or her federal income tax return.

Additionally, the IRS will not assert that a creditor must file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure. To avoid confusion, the IRS strongly recommends that these creditors not furnish students nor the IRS with a Form 1099-C.

Reprinted by permission

IRS and Treasury issue guidance for students with discharged student loans and their creditors

WASHINGTON — The Internal Revenue Service and Department of the Treasury issued Revenue Procedure 2020-11 that establishes a safe harbor extending relief to additional taxpayers who took out federal or private student loans to finance attendance at a nonprofit or for-profit school. 

Relief is also extended to any creditor that would otherwise be required to file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure.

The Treasury Department and the IRS have determined that it is appropriate to extend the relief provided in Rev. Proc. 2015-57, Rev. Proc. 2017-24 and Rev. Proc. 2018-39 to taxpayers who took out federal and private student loans to finance attendance at nonprofit or other for-profit schools not owned by Corinthian College, Inc. or American Career Institutes, Inc.

The Revenue Procedure provides relief when the federal loans are discharged by the Department of Education under the Closed School or Defense to Repayment discharge process, or where the private loans are discharged based on settlements of certain types of legal causes of action against nonprofit or other for-profit schools and certain private lenders.

Taxpayers within the scope of this revenue procedure will not recognize gross income as a result of the discharge, and the taxpayer should not report the amount of the discharged loan in gross income on his or her federal income tax return. 

Additionally, the IRS will not assert that a creditor must file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure. To avoid confusion, the IRS strongly recommends that these creditors not furnish students nor the IRS with a Form 1099-C.

Which Expenses are Deductible in 2020

In our very long and complex tax code, tax deductions come in all shapes and sizes, and have a lot of sticky rules attached to them. For example, business expenses must be ordinary (common and accepted in an industry) and necessary …

By: Mike D’Avolio, CPA, JD

Jan 15th, 2020

In our very long and complex tax code, tax deductions come in all shapes and sizes, and have a lot of sticky rules attached to them. For example, business expenses must be ordinary (common and accepted in an industry) and necessary (helpful and appropriate for the trade or business) to be deductible. If your clients itemize deductions, they can deduct medical expenses paid for themselves, spouses and dependents to the extent they exceed 7.5% of adjusted gross income. Under the Tax Cuts and Jobs Act, you can no longer deduct miscellaneous employee business expenses subject to the 2% adjusted gross income threshold.

Review the following list of expenses to help your clients stay compliant and minimize their tax liability. Excerpts were taken from Publication 502, Medical and Dental Expenses, and Publication 529, Miscellaneous Deductions. Please refer to these publications for a more complete list of tax deductions.

Medical Expenses

Deductible

  • Alcoholism Treatment: Amounts paid for inpatient treatment at a therapeutic center for alcohol addiction, including meals and lodging provided by the center during treatment.
  • Fertility Enhancement: The cost of the following procedures to overcome an inability to have children:
    • In vitro fertilization, including temporary storage of eggs or sperm.
    • Surgery, including an operation to reverse prior surgery that prevented you from having children.
  • Guide Dog and Service Animals: The cost of buying, training and maintaining a guide dog or other service animal to help a person who is visually impaired, hearing disabled or has another physical disability. Expenses include food, grooming and veterinary care to maintain the health of the animal so it can perform its duties.
  • Stop Smoking Programs: However, you cannot include amounts paid for drugs that don’t require a prescription, such as nicotine gum or patches.

Not Deductible

  • Weight Loss Programs: You’re not allowed to deduct the cost of a weight loss program if the purpose is the improvement of appearance, general health or sense of well-being. However, you can deduct the expenses if the weight loss treatment is for a specific disease diagnosed by a doctor (e.g. obesity, hypertension or heart disease).
  • Nonprescription Drugs and Medicine (except for insulin): A prescribed drug requires a prescription by a doctor to be deductible.
  • Health Club Dues: Includes amounts paid to improve your general health. or to relieve your physical or mental discomfort. and is not related to a medical condition.
  • Cosmetic Surgery: Includes procedures directed at improving one’s appearance but does not meaningfully promote the proper function of the body or prevent or treat an illness or disease. Examples include face lifts, hair transplants, hair removal or liposuction. You can deduct cosmetic surgery if it is necessary to improve a deformity arising from a congenital abnormality, personal injury or disfiguring disease.

Miscellaneous Deductions

Deductible

  • Gambling Losses to the Extent of Gambling Winnings: Gambling losses include wagers plus expenses incurred in connection with the conduct of a gambling activity, such as travel.
  • Casualty and Theft Losses on Income-Producing Property: Investment property includes stocks, notes, bonds, gold, silver, vacant lots and works of art.
  • Federal Estate Tax on Income in Respect of a Decedent: This is gross income the decedent would have received if the death didn’t happen and was not properly included on the decedent’s final tax return.
  • Fines and Penalties: In general, fines and penalties paid to a government or specified non-government entity for the violation of any law are disallowed, except for the following situations:
    • Amounts paid for restitution.
    • Amounts paid to come into compliance with the law.
    • Taxes due.
    • Certain court orders where no government agency is a party.
  • Home Office: You can take a home office deduction if you use part of your home regularly and exclusively for business purposes.
  • Club Dues: The following organizations are not treated as clubs organized for business, pleasure, recreation or social purpose (unless one of the main purposes is for entertainment):
    • Boards of trade
    • Business leagues
    • Chambers of commerce
    • Civic or public service organizations
    • Professional organizations
    • Real estate boards
    • Trade associations
  • Losses from Ponzi-Type Investment Schemes: Deductible as theft losses from income-producing property.

Not Deductible

  • Unreimbursed Employee Expenses are not Deductible, unless you fall into one of these categories:
    • Armed Forces reservist
    • Qualified performing artist
    • Fee-basis state or local government official
    • Employee with impairment-related work expenses
  • Campaign Expenses: This applies to a candidate for any office and includes qualification and registration fees and legal fees.
  • Commuting Expenses: The transportation cost going from your home to your main or regular place of work is not deductible. However, there is an exception is for Armed Forces reservists, qualified performing artists, fee-basis government officials and employees with impairment-related work expenses. They can deduct the additional cost of hauling tools, instruments, or other items in their car to and from work.
  • Fines and Penalties:
    • Amounts paid to settle your actual or potential liability for a fine or penalty (civil or criminal).
    • Parking tickets and tax penalties.
    • Restitution paid to come into compliance with the law (unless the amounts are specifically identified in the settlement agreement or court order).
    • Reimbursement to the government for the cost of an investigation or litigation.
  • Lobbying Expenses:
    • Influence legislation.
    • Participate or intervene in any political campaign for or against any candidate for public office.
    • Attempt to influence the general public about elections and legislative affairs.
    • Communicate directly with executive branch officials to try to influence official actions.
  • Club Dues: This includes the membership in any club organized for business, pleasure, recreation or social purpose. Examples include athletic, luncheon, sporting, airline, hotel and country club.
  • Political Contributions:
  • Political contributions made to a political candidate, campaign committee or newsletter fund.
  • Advertisements in convention bulletins and dinners and programs that benefit a political party or candidate.

Reprinted by permission

Why You Need to Consider Outsourcing in 2020

Outsourcing is a growing trend with seemingly countless benefits. Typically, responsibilities such as accounting and financial decision-making, marketing, and programming will be among the first that businesses make the decision to outsource. By delegating these tasks to experts, your business will be able to not only save money but also save time that can be used to advance other business objectives.Jan 16th 2020

stressed man being handed many things

With the beginning of a new year, countless businesses are reevaluating their strategies and their general operational approach. While some of these businesses will elect to make some minor tweaks and adjustments in-house, others will decide to outsource many of their operations and turn to specialized experts.

Outsourcing is a growing trend with seemingly countless benefits. Typically, responsibilities such as accounting and financial decision-making, marketing, and programming will be among the first that businesses make the decision to outsource. By delegating these tasks to experts, your business will be able to not only save money but also save time that can be used to advance other business objectives.

If your business has never outsourced work before, you likely have a lot of questions. How much does outsourcing typically cost? What are the primary benefits of outsourcing? How can my business find an outsourcing partner that can maximize our organization’s full potential?

In this article, we will discuss the most important things for you to know about outsourcing in 2020. By understanding why businesses, of all varieties, make this crucial decision each year, you’ll be able to generate a reliable plan for your business.

The Benefits of Outsourcing

Businesses outsource in order to save money. In fact, according to recent surveys, 59 percent of businesses choose to outsource in order to reduce their expenses. There are quite a few reasons why outsourcing certain business functions can be cost-effective. Not only will your outsourcing partner operate via an economy of scale (allowing you to purchase goods and services at a discount), but they will also have the infrastructure in place in order to help your business operate more efficiently. Furthermore, your business may find itself in a situation where it needs a “fraction” of a specific service without making a full commitment. In response, fractional CFOs and other services have become extremely popular in the digital era.

Businesses also choose to outsource in order to gain access to experts. Regardless of how smart or well-versed a business owner might be, it is incredibly unlikely that they know how to do everything as well as a certified expert. In fact, according to Deloitte, two of the most common reasons for outsourcing include improved performance (62 percent) and reduced errors (53 percent). Because only a fraction of business owners have accounting or financial experience, these functions are often among the first to be outsourced.

Furthermore, businesses look to outsource in order to access new systems, structures and technologies. The aforementioned survey revealed that 51 percent of businesses choose to outsource in order to access new technologies. In the world of digital accounting specifically, 93 percent of businesses hope to incorporate cloud technologies into their accounting practices. By working with the cloud and various other eCommerce tools, businesses can operate more effectively and access crucial decision-making information from anywhere in the world.

Commonly Outsourced Responsibilities

Accounting and finance are often among the first set of duties to be outsourced. These tasks, which require considerable attention to detail and expertise, can help businesses protect themselves from financial and legal hazards while also finding creative methods to improve their bottom line. An outsourced accountant can help your business organize (or reorganize) your books, prepare its taxes, generate long-term financial projections, establish an eCommerce platform and much more.

A 2018 Client Accounting Services (CAS) Survey revealed that about 80 percent of all businesses would refer their outsourced accountant to another business. However, accounting isn’t the only field where businesses are happy with their outsourcing partners. Legal, software development, marketing, and payment processing are all frequently outsourced as well. Even many of today’s Fortune 500 companies will make the decision to outsource.

Making the Decision to Outsource

Naturally, whether your business should make the decision to outsource will depend on many different factors. When deciding if outsourcing is appropriate for your business, you will need to do so using a comprehensive framework that accounts for opportunity costs.

Suppose that your business’ accounting responsibilities require 100 hours of work per month. If you consider each hour of work to be worth $40 (or whatever number you deem fit), this means your business’ total accounting costs will amount to $4,000 per month ($48,000 per year). However, if your business could generate $50 worth of revenue for every operational hour that it gains, this means you are missing out on $5,000 per month ($60,000 per year) in positive cash flows.

In this situation, when all else is equal, making the decision to outsource would initially have a $12,000 annual impact on your bottom line. When factors such as added tax deductions and better financial practices are accounted for, the amount your business can save with an outsourced accountant will be even greater.

While this hypothetical situation is obviously simplified, it demonstrates that the financial benefits of outsourcing may be even greater than you initially assumed. Your business, regardless of its size, only has a finite number of resources—it will be in your best interest to use these resources as efficiently as you possibly can.

Finding the Perfect Outsourcing Partner

With so many outsourcing options available to choose from, it can be difficult to know where to begin your search. Fortunately, the digital era makes it easy to find outsourced accountants, fractional CFOs and whatever outsourced help you might need.

When comparing potential partners, be sure to conduct a preliminary interview. Ask questions about the firm’s qualifications, experiences and other important details. Identify which services the firm offers and see if there are discounts available for bundling multiple services into a single (highly personalized) package. New technology makes it easy to access countless different outsourced firms, which may be located in different states or even in different countries.

2020 is the perfect year for your business to outsource its accounting needs or outsource various other responsibilities. Outsourcing can help your business gain access to expertise, use its resources more efficiently and, ultimately, improve its bottom line. Whether you are looking for a digital accountant or anyone else, you may want to consider outsourcing and gain access to these desirable benefits.

reprinted with permission from: https://www.accountingweb.com/practice/practice-excellence/why-you-need-to-consider-outsourcing-in-2020

IRS to restore sequestered funds (AMT only) this fiscal year to businesses affected by OMB determination

WASHINGTON – The Internal Revenue Service today announced it will return sequestered funds to businesses that were affected by a recent Office of Management and Budget (OMB) determination regarding the Balanced Budget and Emergency Deficit Control Act of 1985, as amended.

The IRS will restore any amounts sequestered since 2013 under section 168(k)(4). OMB determined that the refundable corporate minimum tax credit claimed under sections 53 and 168(k)(4) of title 26, U.S. Code as in effect for taxable years beginning before Jan. 1, 2018, is not subject to sequestration.

The IRS has a complete list of all taxpayers affected so taxpayers do not need to take any action. Funds and applicable interest will be sent out during fiscal year 2020. Less than 1,000 businesses were affected by the OMB determination. Funds due a company will be used to offset current tax liabilities first.

Formerly, refund payments issued to, and credit elect and refund offset transactions for, corporations claiming refundable minimum tax credits for prior year alternative minimum tax liability were subject to sequestration. The OMB determination corrects and reverses the previous determination.

Additional information will be shared regarding the timing and process for these reimbursements when it is available.

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