IRS Regulation

The Hidden Costs of Tax Residency Changes: What Entrepreneurs Need to Know

Are you considering moving your tax residency to Puerto Rico or Texas to take advantage of their tax-friendly policies? While the potential savings may seem appealing, the process is more complex than it appears. Hidden costs—such as IRS compliance challenges, operational adjustments, and unexpected tax liabilities—can outweigh the benefits without proper planning.

At Insogna CPA, one of the best CPA firms in Austin, Texas, we specialize in helping entrepreneurs navigate the complexities of tax residency changes. Our expert accounting services in Austin ensure that your move is strategic, compliant, and financially beneficial.

The Problem: Overlooked Costs and Compliance Complexities

Changing your tax residency involves more than relocating your home or business. IRS rules and operational considerations create challenges that many entrepreneurs overlook, including:

1️⃣ IRS Scrutiny and Dual Taxation Risks

The IRS uses stringent residency requirements like the Physical Presence Test (spending 183+ days in your new location) and the Closer Connection Test (proving primary ties to your new jurisdiction). Failure to meet these criteria may result in double taxation.

2️⃣ Operational Disruptions

Relocating a business often involves legal restructuring, transferring payroll, and adapting to state-specific tax laws. For example, businesses moving to Texas may avoid state income tax but face higher property or franchise taxes.

3️⃣ Unexpected Financial Burdens

Jurisdictions like Puerto Rico require qualifying residents to donate a portion of their income to local charities under Act 60. Without thorough analysis, these obligations could outweigh the expected savings.

Why It Happens

Tax residency changes require navigating both federal and local regulations, which can be more challenging than anticipated. The IRS demands robust documentation, such as travel logs, housing agreements, and operational evidence, to substantiate your move. Additionally, states like California or New York may challenge your departure and assess taxes for partial residency.

Without expert guidance from an Austin accounting firm like Insogna CPA, many entrepreneurs fall short of meeting these strict requirements.

The Solution: Strategic Planning with Expert Guidance

Avoiding the hidden costs of tax residency changes requires a clear, proactive plan. Follow these steps to minimize risks and maximize benefits:

1️⃣ Conduct a Cost-Benefit Analysis

Why: Calculate the total financial impact of the move, including compliance costs and new tax obligations.
How: Compare projected tax savings with relocation expenses and operational costs, such as franchise taxes in Texas. Insogna CPA, a trusted Austin TX accountant, can assist with these calculations.

2️⃣ Understand IRS and State Regulations

Why: Non-compliance can lead to penalties, dual taxation, and IRS audits.
How:
- For Puerto Rico: Meet the 183-day rule and align personal and financial ties.
- For Texas: Ensure no lingering connections to your former state.

3️⃣ Restructure Your Business Where Necessary

Why: Some jurisdictions require new business entities to qualify for tax incentives.
How: Partner with Insogna CPA, one of the top accounting firms in Texas, to determine the most efficient structure for your business.

4️⃣ Maintain Detailed Records

Why: Robust documentation is critical to proving your new residency.
How: Track travel dates, save utility bills, and document business activities in your new location.

5️⃣ Consult a Tax Advisor in Austin

Why: Experienced CPAs can help you navigate IRS requirements, optimize your tax strategy, and ensure compliance.
How: Work with a CPA firm in Austin, Texas, like Insogna CPA, to gain tailored advice for your unique circumstances.

The Insogna CPA Advantage

As one of the most trusted accounting firms in Austin, Texas, Insogna CPA provides personalized guidance for entrepreneurs facing tax residency changes. Our expert accounting services in Austin simplify the process, helping you minimize costs and avoid IRS scrutiny.

Here’s how we help:

✅ Comprehensive Financial Analysis: Evaluate all potential savings and hidden costs.
✅ IRS Compliance Support: Ensure residency rules are met and properly documented.
✅ Business Restructuring: Facilitate seamless transitions for your operations.
✅ Ongoing Advisory Services: Adapt your strategy to changing tax laws and financial needs.

Need help?

Whether you’re considering Texas or Puerto Rico, our team delivers the clarity and confidence you need to succeed.

Don’t let the hidden costs of tax residency changes derail your plans. Contact us today for expert guidance from one of the best CPA firms in Austin, Texas. Our experienced Austin TX accountants will ensure your transition is smooth, compliant, and financially advantageous.

Beware of Fraudulent Charitable Contribution Schemes: Protect Your Finances

Charitable giving is a meaningful way to support causes you care about while benefiting from legitimate tax deductions. However, fraudulent schemes such as “Charitable LLCs” have emerged, targeting high-income taxpayers and misusing tax laws under the guise of philanthropy. These scams can put your finances and reputation at risk.

This blog explains how these schemes work, highlights potential red flags, and outlines steps to ensure your charitable contributions comply with IRS regulations. With our expertise, you can confidently protect your assets and maximize the benefits of your giving.

(This information is adapted from an official IRS publication. Access the full alert at IRS.gov.)

What Is a “Charitable LLC” Scheme?

A “Charitable LLC” scheme is an abusive tax strategy designed to exploit charitable giving rules. Here’s how it typically works:

1️⃣ Setting Up an LLC: Promoters assist taxpayers in creating a limited liability company (LLC) and transferring assets like cash or property into it.
2️⃣ Donation of Nonvoting Units: Taxpayers “donate” a majority of the LLC’s nonvoting, non-managing membership units to a charity while retaining control through voting units.
3️⃣ Reclaiming Assets: Promoters guide taxpayers on how to access or reclaim the donated assets for personal use through an “exit strategy.”

This setup often violates IRS rules by failing to relinquish full control of the donated assets, rendering the contribution ineligible for tax deductions.

Why You Should Be Concerned

Engaging in these schemes can lead to:

💡 IRS Audits and Penalties: Significant financial penalties, interest, and back taxes.
💡Fines and Imprisonment: Criminal convictions for participants and promoters.
💡Reputational Harm: Being implicated in fraud can damage personal and professional credibility.

We provide the guidance you need to navigate complex tax rules and protect your financial integrity.

Key IRS Rules for Charitable Contributions

To claim legitimate charitable deductions, you must follow these rules:

📌 Relinquish Control: You cannot retain rights or access to donated property.
📌 Donate to Recognized Charities: Contributions must be made to IRS-approved 501(c)(3) organizations.
📌 Keep Detailed Records: Ensure documentation includes the charity’s name, address, and the contribution date.

We are here to help you understand and comply with these requirements to maximize your tax benefits.

Spotting Red Flags in Fraudulent Charitable Schemes

Be cautious of transactions that:

💡 Encourage creating entities solely to facilitate donations.
💡 Promise personal benefits, like “tax-free wealth growth.”
💡 Offer appraisals from promoters that fail to evaluate the transaction comprehensively.
💡 Suggest reclaiming donated assets or retaining control after the donation.

If you notice these red flags, call us immediately. We can assess your charitable giving strategies to ensure they’re both effective and compliant.

Steps for Properly Claiming Charitable Deductions

To claim a valid deduction:

1️⃣ Obtain Documentation: Ensure you have written acknowledgment for contributions of $250 or more.
2️⃣ Submit the Correct Forms:
- 💡 For contributions over $500, attach IRS Form 8283 to your tax return.
- 💡Donations exceeding $5,000 require a qualified appraisal.
- 💡For contributions above $500,000, include the complete appraisal with your tax return.
3️⃣ Comply with Valuation Standards: Accurately assess fair market value per IRS guidelines.

We simplify this process for you, ensuring your contributions meet all IRS requirements.

Safeguard Your Tax Strategy

Charitable giving is a powerful tool to make an impact and reduce your tax liability. However, navigating IRS regulations requires expert guidance to avoid potential risks.

Our team specializes in working with high-income taxpayers and business owners to develop compliant, personalized strategies that maximize tax savings while protecting your assets. Let us help you stay ahead of potential pitfalls and ensure your financial security.

Your 2024 Guide to IRS Form 8300: Cash Reporting Made Easy

Hey there, business owners! It’s your team at Insogna CPA, and we’ve got some must-know updates about IRS Form 8300 that might just save you a headache or two.

💵 Collecting Over $10,000 in Cash? Here’s What the IRS Wants from You

If your business receives $10,000 or more in cash, the IRS requires you to do some extra reporting. This isn’t new, but with 2024 here, staying on top of these rules is more crucial than ever.

💡 Breaking Down IRS Form 8300: Why It Matters

IRS/FinCEN Form 8300 is the form you need to fill out when your business gets a cash payment over $10,000. This form helps the IRS keep an eye out for tax evasion, illegal activities, and other not-so-legal stuff.

When to Report: What Payments Require Form 8300?

You’re required to file Form 8300 if:

✅ You receive over $10,000 in cash in a single transaction.
✅ Multiple cash payments total over $10,000 within a year.
✅ Unreported payments sneak past $10,000 within a 12-month period.

These payments should be part of your regular business operations—not just an odd one-off from someone mysterious.

❓What Qualifies as ‘Cash’?

Cash isn’t just pocket change; it includes good ol’ U.S. Dollar bills, foreign currency, and even stuff like cashier’s checks, traveler’s checks, and money orders under $10,000 – but only if you’re smelling something fishy going on.

❓What Doesn't Count as Cash?

Not all money is created equal. Personal checks, large cashier’s checks, drafts, and traveler’s checks over $10,000 don’t require reporting. But if someone tries to sidestep the rules by breaking a large payment into smaller ones, you still need to report it.

💡 Related Transactions: Handling Multiple Payments

If a customer or their agent gives you more than $10,000 in related transactions within 24 hours, it’s considered one big transaction. File that Form 8300.

📌 Reporting Deadlines: Don’t Miss Them

So, when’s the deadline to file that form? You’ve got 15 days from when you get your hands on the cash. If the 15th day falls on a weekend or a holiday, just give it to Uncle Sam on the next business day.

📌 Handling Multiple Payments: A Step-by-Step

When the cash comes in chunks, it’s like a puzzle. If the first piece is over $10,000, file Form 8300 within 15 days. But if it’s under $10,000, hang on to it. If more payments from the same buyer push the total over $10,000 within a tax year, pull up that form again and file within 15 days.

Going Digital: Filing Form 8300 Online

You can file Form 8300 online through the BSA Electronic Filing (E-Filing) System. It’s quick, easy, and free. Plus, starting January 1, 2024, if you’re already e-filing other forms, you can include Form 8300 in the mix.

Keeping Your Records: A 5-Year Rule

Keep copies of Form 8300, any supporting documents, and the statements you send to customers for at least five years. And no, just saving an email confirmation won’t cut it.

Watch Out for Penalties!

Not following these rules can lead to civil and criminal penalties. But don’t worry—there’s a safe harbor for small errors under $100.

So, there you have it—the scoop on IRS Form 8300 for 2024. Keep your business in check and avoid unnecessary fines.

Have questions about IRS Form 8300?

Need help with reporting? Don’t wait—reach out to us today. Our team is here to help you navigate the IRS requirements, so you can focus on running your business without the stress of penalties. Let’s chat!

What to Do If You Haven’t Filed Your Tax Return Yet

There are plenty of understandable reasons why you might not have filed your income tax return in 2024. Perhaps you’re new to the job market, and the requirement to file just slipped under your radar. Maybe life got overwhelming, and taxes took a backseat. Whatever your reason—whether you’ve missed just one year or several—there comes a point when either you remember on your own, or you receive a little nudge in the form of a request for a copy.

So, what now? How much trouble are you really in?

✅ The Good News

First, if you realized you haven’t filed before receiving a notice from the IRS or your state tax authority, you’re likely not in too much hot water. Even if you’ve received a notice, there’s a clear legal process that the IRS follows when a taxpayer hasn’t filed a return. It’s a manageable procedure—nothing to lose sleep over. Nobody’s breaking down your door. Filing taxes is about paperwork and payments. If you’ve fallen behind, it’s just a matter of amending the situation, paying any penalties, and possibly some interest.

💡A Matter of Fact…

You might not have needed to file a return at all.

Certain taxpayers aren’t required to file a tax return. When that’s the case, your state often follows the IRS’ lead, which can be a good thing because state penalties for failing to file can sometimes be higher than federal penalties.

To find out if you needed to file, visit the IRS website and use their “DO I NEED TO FILE A TAX RETURN?” tool. Plug in details about the tax year in question, your income, household composition, and filing status, and you’ll get a quick answer.

Tax Filing Categories

You might be pleasantly surprised unless you fall into one (or more) of the following categories:

📌 You earned at least $400 in profit from self-employment, including freelance work or gig jobs like driving for Lyft or Uber.
📌 You sold your home, even if it was a break-even or a loss, and had no other income that year.
📌 You received unemployment benefits.
📌 You’re a tipped worker who didn’t report all tips to your employer, or your employer didn’t submit payroll taxes for those tips.

In any of these cases, you are required to file a tax return, regardless of how much you earned or whether you paid taxes on those earnings.

Fortunately, filing a tax return is always an option, even if you’re late. On the bright side, you might be due a refund.

❓ Did the Government Do It for You?

The IRS doesn’t always catch it when someone fails to file a tax return. But when they do, they’ll send you a notice. If your Social Security Number was linked to any document they received—whether it’s a W-2, 1099, or another form—they might have filed a substitute tax return for you. These substitute returns are bare-bones, using only the standard deduction and personal exemption, and they don’t account for any information you could provide to reduce your tax liability. They also use this data to calculate any penalties, interest, or fines owed.

One of the best reasons to file your own tax return instead of relying on the government’s substitute is that if you need a previous year’s return for something like a loan application, the substitute likely won’t cut it.

Better Late Than Never, But It Has to Be Right

When filing a past-due tax return, precision is key. This is not the time for mistakes or omissions. Even if your return is typically straightforward, it’s wise to work with an experienced tax professional. They can ensure that your paperwork is filed correctly, help you avoid potential pitfalls, and act on your behalf if any complex questions arise. In some cases, they may even be able to reduce or eliminate your penalties.

If you’ve missed a tax filing deadline, don’t wait for things to snowball. Contact us today to help you navigate the process and potentially save you from unnecessary penalties. Filing late doesn’t have to be a stressful experience—we’re here to make it as smooth as possible, with a side of wit and wisdom. Let’s get your 2024 tax return filed the right way!

How Long Should You Hold On To Old Tax Records?

Generally, taxpayers should hold on to their tax records for at least three years after the due date of the return to which those records apply.

However, if the original return was filed later than the due date, including if the taxpayer received an extension, the actual filing date is substituted for the due date. There are a few other circumstances that might require you to keep these records longer than three years.

The statute of limitations in many states is one year longer than the federal statute. This is because the IRS provides state tax authorities with federal audit results. The extra year gives the states adequate time to assess taxes based on any federal tax adjustments.

Federal Document Retention Guidelines Differ

In addition to the potential confusion caused by the state statutes, the federal three-year rule has several exceptions that complicate the recordkeeping issue:

💡 The assessment period is extended to six years if a taxpayer omits more than 25% of their gross income on a tax return.
💡 The IRS can assess additional taxes without time limits if a taxpayer doesn’t file a return, files a false or fraudulent return, or deliberately tries to evade tax.
💡 The IRS has unlimited time to assess additional tax when a taxpayer files an unsigned return.

If none of these exceptions apply to you, then for federal purposes, you can probably discard most of your tax records that are more than three years old. However, you may need to add a year or more if you live in a state with a longer statute of limitations.

🚩 Important note

Although you can discard backup records, do not throw away the filed copies of any tax returns or W-2s. Often, these returns provide data that can be used in future tax-return calculations or to prove the amounts of property transactions, social security benefits, and so on. You should also keep certain records for longer than three years:

✅ Stock acquisition data: If you own stock in a corporation, keep the purchase records for at least four years after selling the stock. The purchase data is needed to prove the amount of profit (or loss) you had on the sale.
✅ Statements for stocks and mutual funds with reinvested dividends: Many taxpayers use the dividends they receive from a stock or mutual fund to buy more shares of the same stock or fund. These reinvested amounts add to the basis of the property and reduce the gain when it is eventually sold. Keep these statements for at least four years after the final sale.
✅ Tangible property purchase and improvement records: Keep records of home, investment, rental property, or business property acquisitions, as well as all related capital improvements, for at least four years after the underlying property is sold.

Tax return copies from prior years are also helpful for the following:

Verifying Income: Lenders require copies of past tax returns on loan applications.
Validate Identity: Taxpayers who use tax-filing software products for the first time may need to provide their adjusted gross incomes from prior years’ tax returns to verify their identities.

The IRS Can Provide Copies Of Prior-Year Returns

Taxpayers who have misplaced a copy of a prior year’s return can order a tax transcript from the IRS. This transcript summarizes the return information and includes AGI. This service is free and is available for the most current tax year once the IRS has processed the return. These transcripts are also available for the past six years’ returns. When ordering a transcript, always plan ahead, as online and phone orders typically take 5 to 10 days to fulfill. Mail orders of transcripts can take 30 days (75 days for full tax returns). There are three ways to order a transcript:

1️⃣ Online Using Get Transcript: Use Get Transcript Online on IRS.gov to view, print, or download a copy for any of the transcript types. Users must authenticate their identities using the Secure Access process. Taxpayers who are unable to register or who prefer not to use Get Transcript Online may use Get Transcript by Mail to order a tax return or account transcript.
2️⃣ By phone: The number is 800-908-9946.
3️⃣ By mail: Taxpayers can complete and send either Form 4506-T or Form 4506T-EZ to the IRS to receive a transcript by mail.

Those who need an actual copy of a tax return can get one for the current tax year and for as far back as six years. The fee is $50 per copy. Complete Form 4506 to request a copy of a tax return and mail that form to the appropriate IRS office (which is listed on the form).

Need More Help?

If you have questions about which records you should retain and which ones you can dispose of, please give our office a call. We’re here to make sure your tax records are in perfect order, so you can focus on more important things.

Whether you need guidance on tax document retention or help navigating IRS guidelines, we’re just a phone call away.

2024 Corporate Transparency Act Reporting Requirements

Hey Business Owners!

Your friendly Insogna CPA team here with an important update on the financial front that you need to know about. The Financial Crimes Enforcement Network (FinCEN) has recently issued a rule under the Corporate Transparency Act that’s going to change how you report beneficial ownership information.

Let’s dive into what this means for you as a business owner.

Understanding the New Rule 🚩

This rule is designed to enhance transparency in the U.S. financial system. It targets illicit activities by making it harder for individuals to use corporate structures, like shell companies, to conceal their identities and launder money.

Key Aspects of the Rule 🗝️

✅ Who Needs to Report

If you have a domestic or foreign company, particularly corporations, and LLCs, you might need to report under this rule. There are exemptions, so not all entities will be affected.

✅ Reporting Beneficial Owners: A beneficial owner is anyone who directly or indirectly exercises substantial control over a company or owns at least 25% of it. The rule requires you to disclose their identities.

✅ Company Applicants: This refers to individuals who filed the documents to create your company or directed the filing.

What to Report: You’ll need to provide the names, birthdates, addresses, and identification details of the owners and applicants.

✅ Cost and Compliance

FinCEN has initially said their cost for submitting an initial report is around $85.

✅ Timeline

The rule takes effect from January 1, 2024. Existing companies have until January 1, 2025, to comply, while new companies must report within 30 days of their formation.

✅ Next Steps

FinCEN is working on more resources and guidelines to help companies comply with this new rule. They’re also developing a secure system to store this beneficial ownership information, ensuring confidentiality and security.

What You Need to Know Now

We’ll keep an eye out for you on further updates as FinCEN issues more guidance related to the reporting and filing requirements for all registered entities.

If you have questions about how this might impact your reporting requirements, please reach out to us. We’re here to help you navigate the Corporate Transparency Act reporting requirements with ease.

Ready to simplify your reporting process? Contact our team at Insogna CPA today, and let’s ensure you’re fully compliant with the new FinCEN regulations. We’re just a call or click away!