RTS #066 These laws, they are a changing

You may have heard me say it before but the tax code is written in pencil. Which of course means it can (and will) change. While always a possibility the topic gets a lot more attention and scrutiny in election years as it’s a favorite political game piece of candidates across the party spectrum.

Some people will use the potential of change as an excuse not to act…which is a poor excuse. For most taxpayers, great tax planning is about consistent, intentional effort over time. Short of a tax code overhaul that completely shifts the core principles that have been in place for decades, an intentional long-term approach is going to weather every storm, even if some of the details have to change. We need to make the best decisions we can with the information we currently have and based on the laws that are currently in place. If anything, tax law changes reinforce the core principles we should be following all along.

One example that keeps popping up to remind us of this is the Employee Retention Credit (ERC). This was a credit available to business owners who had payroll and were economically impacted by COVID-related shutdowns. It was unique and new and it took time for the IRS to actually write all the rules about how it would work (which is the thing we are seeing with the rules around inherited IRAs from SECURE 2.0). Unfortunately, people took advantage of the ambiguity to do all sorts of shady things, and a lot of business owners were pressured into claiming credits they weren’t eligible for. The IRS is slow at times, but they like their money, and now, years later, this is coming back to haunt people as the IRS ramps up their enforcement efforts.

Here’s who is getting in trouble with this credit:

• People who blatantly flaunted the rules (tax fraud is always a bad idea)
• People who didn’t understand what they were getting into and didn’t have anyone on their team who could take responsibility (many “ERC Mills” were transaction driver, weren’t signing the tax return and didn’t have an ongoing relationship with the taxpayer, all red flags). Related to this is people who got their advice from the internet without working with an expert or taking the time to become an expert themselves
• People who rushed the process and didn’t document their evidence for why they were eligible for the credit (just assume that anything you do could be selected for scrutiny by the IRS and you want to have the documentation to support whatever action you took)
  

You could take these bullet points and apply them to most any tax planning. No matter what tax law changes the next administration dreams up after the election, these same principles are what will help taxpayers minimize their tax bill over their lifetime and avoid pitfalls. These are the same principles we apply at RTS as we work with taxpayers, whether its on existing tax planning or new or proposed tax law changes. Or put another way, “play stupid games, win stupid prizes”. 🙂

Happy Tax Planning!