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H&R Block gears up for tax season on 70th anniversary

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H&R Block celebrated its 70th anniversary at an event Thursday in New York as the tax prep chain gets ready for the start of tax season on Monday.

“The tax event for most Americans is the single biggest financial transaction of the year, and it’s true, so we’re here to make sure it’s also the most rewarding,” said Heather Watts, senior vice president of global consumer tax. “We’re thrilled that you’re here to help us kick off the tax season, which also happens to be our 70th anniversary year. In 1955, when brothers Henry and Richard advertised tax preparation services as a courtesy to their business clients, they stumbled upon a need, and by offering tax prep services, they would launch one of the most recognized brands in the country and really birthed an industry. H&R Block has continued to spur innovation in tax, business and technology ever since.”

Over the years, an estimated 950 million tax returns were filed worldwide through Block. She pointed out that over 20 million tax returns were filed through Block last year. The company has 9,000 locations offices nationwide, with 60,000 tax professionals in the U.S. and 70,000 globally. Most locations are within five miles of clients. Approximately 55% of customers will qualify to file with Block’s free software, and the company is encouraging many of them to use its software. The company is hoping to entice away customers from its competitors, offering price matches and discounts to people who switch. It’s also jumping onboard the artificial intelligence trend with a feature called H&R Block AI Tax Assist, which it began offering last tax season.

“When people ask a question, we need to make sure we’ve got content to answer,” said Jody Vanarsdale, director of global consumer tax at H&R Block. “We needed to strengthen our [Chat] GPT. We upgraded from 3.5 to 4.0, and they get stronger and more relevant and understand languages, so really,our work this season was to get it tighter, if you will. It’s more stable and in a place to go live this season.”

Block is expecting to receive a flood of customers after they start receiving the Form 1099-K in the mail from third-party transactions with services such as Venmo, StubHub, eBay, PayPal and more due to the lowered threshold of $5,000 for information reporting to the Internal Revenue Service.

“The most common examples where people are going to get one is they sold something online, or they took payment through a third party app like a PayPal or a Venmo, and they exceeded the threshold for issuance,” said Andy Phillips, vice president of Block’s Tax Institute. “Going back to prior years, the threshold for issuing the 1099-K was you had to have over $20,000 in transactions in gross proceeds and over 200 transactions. That is a super high threshold. It is now $5,000 for 2024, meaning a lot of more people are going to get a 1099-K and not know what to do with it. We’re now in 2025. The threshold for this year is down to $2,500. Starting next year in 2026 and then every year after that, it’s going to be $600, meaning a lot more people are going to get a 1099-K.”

Many taxpayers who were affected by natural disasters such as the wildfires in California and hurricanes in North Carolina, Florida and other states. They too will need help with disaster relief and casualty losses. 

“Each one of those natural disasters, for the people impacted by it, it’s a life event,” said Phillips. “They have tax impacts. People in Southern California that are impacted by the current wildfires have gotten an extension until October 15 to file their taxes for this year. That is all of Los Angeles County. In another example, people in areas impacted by Hurricane Helene and Milton generally are going to have until May 1, 2025 to file their taxes. That’s within IRS discretion that when an area is a federally declared disaster, they can do certain things, including extending deadlines. Those are two examples that people may need to know about.”

For people who invest in cryptocurrency and other digital assets, they may want to talk with their tax professional about the upcoming Form 1099-DA that they can expect to receive next year or even this year.

“Starting in 2025, digital assets traded through a brokerage are going to get reported to investors on a Form 1099-DA,” said Phillips. “Some platforms are already issuing the 1099-DA. What we’re really talking about here is virtual currencies, digital assets. Starting in 2025, if you have a transaction in a digital asset on one of these platforms, you are going to get a 1099-DA. The IRS has put out estimates that they expect to receive up to 8 billion 1099-DA’s for 2025 alone coming from these platforms. As you can imagine, a lot of people are going to be getting these for the first time.”

The forms may not just be going out to people who have invested in cryptocurrencies like BItcoin and Ethereum. Even some gaming platforms like Roblox issue a kind of digital currency  known as Robux that may be taxable in some circumstances. 

“A lot of those just stay within the environment of the game,” said Phillips. “You just get points or coins or whatever. There’s no taxable transaction in those instances. But some games allow you to actually take what you’re winning in the game in those awards and turn them into actual currency. For example, the game Roblox, they have Robux. You can earn those for certain things you do within the game. And if certain requirements are met, you may be able to exchange those Robux for U.S. dollars. At that point, that is then a taxable transaction. That is going to rock some people’s world when they realize, ‘Oh my gosh, Roblox, I now have a taxable transaction from this.’ But that’s the reality.”

Phillips previewed an upcoming partnership for H&R Block with both Roblox and another popular game, Minecraft. “A quick peek ahead before I move on,” he said. “Stay tuned for an announcement that we will be making soon for a partnership with both Roblox and Minecraft in the coming weeks. You heard it here first.”

Accounting Today asked about how Block would be able to deal with some of the tax proposals made by President Trump during the campaign, such as exempting income from tips, overtime and Social Security from taxes.

“Look, in 70 years, we’ve seen all kinds of different legislative packages,” he responded. “We saw a huge tax change in 2017, in fact, in 2018. Going back to the huge Tax Code change of 1986, no matter what happens with the changes in the Tax Code, we will always be ready to serve taxpayers and help them. So depending on what happens, it may be a bigger lift than others. Either way, we’ll be ready, and it’s really going to vary based on the specific change.”

Accounting Today also asked about how Block might deal with changes if provisions in the Tax Cuts and Jobs Act don’t get extended this year, such as the 20% tax deduction for qualified business income under Section 199A.

“Looking a little bit more broadly, so many business owners say, ‘Hey, give me certainty. What’s it going to look like, not just for this year, but for years to come,'” said Kris Thiessen, a senior small business partner at Block Advisors who was recently named a member of the IRS Advisory Council. “I think it’s going to be a fascinating year to be able to spend more time in Washington, D.C. I would imagine that we’re going to see a lot, and there’s many folks who are starting to ask about these Tax Cuts and Jobs Act provisions expiring at the end of the year. What does that mean for me? What does that mean for my situation? The qualified business income deduction is super powerful in helping to even out the difference between the new corporate income tax rate as of a few years ago, 21%, and what can be 37% for individuals and small business owners to bridge that gap.”

“That’s why tax planning is so important, because we can do that forward looking for you,” said Latsaha Randle, a strategy and small business program manager at Block Advisors. “We can do some what-if calculations and say if this does not get extended, what does that look like for your specific business, your unique situation, so that you can better plan and be prepared.”

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Senate unveils plan to fast-track tax cuts, debt limit hike

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Senate Republicans unveiled a budget blueprint designed to fast-track a renewal of President Donald Trump’s tax cuts and an increase to the nation’s borrowing limit, ahead of a planned vote on the resolution later this week. 

The Senate plan will allow for a $4 trillion extension of Trump’s tax cuts and an additional $1.5 trillion in further levy reductions. The House plan called for $4.5 trillion in total cuts.

Republicans say they are assuming that the cost of extending the expiring 2017 Trump tax cuts will cost zero dollars.

The draft is a sign that divisions within the Senate GOP over the size and scope of spending cuts to offset tax reductions are closer to being resolved. 

Lawmakers, however, have yet to face some of the most difficult decisions, including which spending to cut and which tax reductions to prioritize. That will be negotiated in the coming weeks after both chambers approve identical budget resolutions unlocking the process.

The Senate budget plan would also increase the debt ceiling by up to $5 trillion, compared with the $4 trillion hike in the House plan. Senate Republicans say they want to ensure that Congress does not need to vote on the debt ceiling again before the 2026 midterm elections. 

“This budget resolution unlocks the process to permanently extend proven, pro-growth tax policy,” Senate Finance Chairman Mike Crapo, an Idaho Republican, said. 

The blueprint is the latest in a multi-step legislative process for Republicans to pass a renewal of Trump’s tax cuts through Congress. The bill will renew the president’s 2017 reductions set to expire at the end of this year, which include lower rates for households and deductions for privately held businesses. 

Republicans are also hoping to include additional tax measures to the bill, including raising the state and local tax deduction cap and some of Trump’s campaign pledges to eliminate taxes on certain categories of income, including tips and overtime pay.

The plan would allow for the debt ceiling hike to be vote on separately from the rest of the tax and spending package. That gives lawmakers flexibility to move more quickly on the debt ceiling piece if a federal default looms before lawmakers can agree on the tax package.

Political realities

Senate Majority Leader John Thune told reporters on Wednesday, after meeting with Trump at the White House to discuss the tax blueprint, that he’s not sure yet if he has the votes to pass the measure.

Thune in a statement said the budget has been blessed by the top Senate ruleskeeper but Democrats said that it is still vulnerable to being challenged later.

The biggest differences in the Senate budget from the competing House plan are in the directives for spending cuts, a reflection of divisions among lawmakers over reductions to benefit programs, including Medicaid and food stamps. 

The Senate plan pares back a House measure that calls for at least $2 trillion in spending reductions over a decade, a massive reduction that would likely mean curbing popular entitlement programs.

The Senate GOP budget grants significantly more flexibility. It instructs key committees that oversee entitlement programs to come up with at least $4 billion in cuts. Republicans say they expect the final tax package to contain much larger curbs on spending.

The Senate budget would also allow $150 billion in new spending for the military and $175 billion for border and immigration enforcement.

If the minimum spending cuts are achieved along with the maximum tax cuts, the plan would add $5.8 trillion in new deficits over 10 years, according to the Committee for a Responsible Federal Budget.

The Senate is planning a vote on the plan in the coming days. Then it goes to the House for a vote as soon as next week. There, it could face opposition from spending hawks like South Carolina’s Ralph Norman, who are signaling they want more aggressive cuts. 

House Speaker Mike Johnson can likely afford just two or three defections on the budget vote given his slim majority and unified Democratic opposition.

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How asset location decides bond ladder taxes

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Financial advisors and clients worried about stock volatility and inflation can climb bond ladders to safety — but they won’t find any, if those steps lead to a place with higher taxes.

The choice of asset location for bond ladders in a client portfolio can prove so important that some wealthy customers holding them in a taxable brokerage account may wind up losing money in an inflationary period due to the payments to Uncle Sam, according to a new academic study. And those taxes, due to what the author described as the “dead loss” from the so-called original issue discount compared to the value, come with an extra sting if advisors and clients thought the bond ladder had prepared for the rise in inflation.

Bond ladders — whether they are based on Treasury inflation-protected securities like the strategy described in the study or another fixed-income security — provide small but steady returns tied to the regular cadence of maturities in the debt-based products. However, advisors and their clients need to consider where any interest payments, coupon income or principal accretion from the bond ladders could wind up as ordinary income, said Cal Spranger, a fixed income and wealth manager with Seattle-based Badgley + Phelps Wealth Managers.

“Thats going to be the No. 1 concern about, where is the optimal place to hold them,” Spranger said in an interview. “One of our primary objectives for a bond portfolio is to smooth out that volatility. … We’re trying to reduce risk with the bond portfolio, not increase risks.”

READ MORE: Why laddered bond portfolios cover all the bases

The ‘peculiarly bad location’ for a bond ladder

Risk-averse planners, then, could likely predict the conclusion of the working academic paper, which was posted in late February by Edward McQuarrie, a professor emeritus in the Leavey School of Business at Santa Clara University: Tax-deferred retirement accounts such as a 401(k) or a traditional individual retirement account are usually the best location for a Treasury inflation-protected securities ladder. The appreciation attributes available through an after-tax Roth IRA work better for equities than a bond ladder designed for decumulation, and the potential payments to Uncle Sam in brokerage accounts make them an even worse asset location.

“Few planners will be surprised to learn that locating a TIPS ladder in a taxable account leads to phantom income and excess payment of tax, with a consequent reduction in after-tax real spending power,” McQuarrie writes. “Some may be surprised to learn just how baleful that mistake in account location can be, up to and including negative payouts in the early years for high tax brackets and very high rates of inflation. In the worst cases, more is due in tax than the ladder payout provides. And many will be surprised to learn how rapidly the penalty for choosing the wrong asset location increases at higher rates of inflation — precisely the motivation for setting up a TIPS ladder in the first place. Perhaps the most surprising result of all was the discovery that excess tax payments in the early years are never made up. [Original issue discount] causes a dead loss.”

The Roth account may look like a healthy alternative, since the clients wouldn’t owe any further taxes on distributions from them in retirement. But the bond ladder would defeat the whole purpose of that vehicle, McQuarrie writes.

“Planners should recognize that a Roth account is a peculiarly bad location for a bond ladder, whether real or nominal,” he writes. “Ladders are decumulation tools designed to provide a stream of distributions, which the Roth account does not otherwise require. Locating a bond ladder in the Roth thus forfeits what some consider to be one of the most valuable features of the Roth account. If the bond ladder is the only asset in the Roth, then the Roth itself will have been liquidated as the ladder reaches its end.”

READ MORE: How to hedge risk with annuity ladders

RMD advantages

That means that the Treasury inflation-protected securities ladder will add the most value to portfolios in a tax-deferred account (TDA), which McQuarrie acknowledges is not a shocking recommendation to anyone familiar with them. On the other hand, some planners with clients who need to begin required minimum distributions from their traditional IRA may reap further benefits than expected from that location.

“More interesting is the demonstration that the after-tax real income received from a TIPS ladder located in a TDA does not vary with the rate of inflation, in contrast to what happens in a taxable account,” McQuarrie writes. “Also of note was the ability of most TIPS ladders to handle the RMDs due, and, at higher rates of inflation, to shelter other assets from the need to take RMDs.”

The present time of high yields from Treasury inflation-protected securities could represent an ample opportunity to tap into that scenario.

“If TIPS yields are attractive when the ladder is set up, distributions from the ladder will typically satisfy RMDs on the ladder balance throughout the 30 years,” McQuarrie writes. “The higher the inflation experienced, the greater the surplus coverage, allowing other assets in the account to be sheltered in part from RMDs by means of the TIPS ladder payout. However, if TIPS yields are borderline unattractive at ladder set up, and if the ladder proved unnecessary because inflation fell to historically low levels, then there may be a shortfall in RMD coverage in the middle years, requiring either that TIPS bonds be sold prematurely, or that other assets in the TDA be tapped to cover the RMD.”

READ MORE: A primer on the IRA ‘bridge’ to bigger Social Security benefits

The key takeaways on bond ladders

Other caveats to the strategies revolve around any possible state taxes on withdrawals or any number of client circumstances ruling out a universal recommendation. The main message of McQuarrie’s study serves as a warning against putting the ladder in a taxable brokerage account.

“Unsurprisingly, the higher the client’s tax rate, the worse the outcomes from locating a TIPS ladder in taxable when inflation rages,” he writes. “High-bracket taxpayers who accurately foresee a surge in future inflation, and take steps to defend against it, but who make the mistake of locating their TIPS ladder in taxable, can end up paying more in tax to the government than is received from the TIPS ladder during the first year or two.”

For municipal or other types of tax-exempt bonds, though, a taxable account is “the optimal place,” Spranger said. Convertible Treasury or corporate bonds show more similarity with the Treasury inflation-protected securities in that their ideal location is in a tax-deferred account, he noted.

Regardless, bonds act as a crucial core to a client’s portfolio, tamping down on the risk of volatility and sensitivity to interest rates. And the right ladder strategies yield more reliable future rates of returns for clients than a bond ETF or mutual fund, Spranger said.

“We’re strong proponents of using individual bonds, No. 1 so that we can create bond ladders, but, most importantly, for the certainty that individual bonds provide,” he said.

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Why IRS cuts may spare a unit that facilitates mortgages

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Loan applicants and mortgage companies often rely on an Internal Revenue Service that’s dramatically downsizing to help facilitate the lending process, but they may be in luck.

That’s because the division responsible for the main form used to allow consumers to authorize the release of income-tax information to lenders is tied to essential IRS operations.

The Income Verification Express Service could be insulated from what NMN affiliate Accounting Today has described of a series of fluctuating IRS cuts because it’s part of the submission processing unit within wage and investment, a division central to the tax bureau’s purpose.

“It’s unlikely that IVES will be impacted due to association within submission processing,” said Curtis Knuth, president and CEO of NCS, a consumer reporting agency. “Processing tax returns and collecting revenue is the core function and purpose of the IRS.”

Knuth is a member of the IVES participant working group, which is comprised of representatives from companies that facilitate processing of 4506-C forms used to request tax transcripts for mortgages. Those involved represent a range of company sizes and business models.

The IRS has planned to slash thousands of jobs and make billions of dollars of cuts that are still in process, some of which have been successfully challenged in court.

While the current cuts might not be a concern for processing the main form of tax transcript requests this time around, there have been past issues with it in other situations like 2019’s lengthy government shutdown.

President Trump recently signed a continuing funding resolution to avert a shutdown. But it will run out later this year, so the issue could re-emerge if there’s an impasse in Congress at that time. Republicans largely dominate Congress but their lead is thinner in the Senate.

The mortgage industry will likely have an additional option it didn’t have in 2019 if another extended deadlock on the budget emerges and impedes processing of the central tax transcript form.

“It absolutely affected closings, because you couldn’t get the transcripts. You couldn’t get anybody on the phone,” said Phil Crescenzo Jr., vice president of National One Mortgage Corp.’s Southeast division.

There is an automated, free way for consumers to release their transcripts that may still operate when there are issues with the 4506-C process, which has a $4 surcharge. However, the alternative to the 4506-C form is less straightforward and objective as it’s done outside of the mortgage process, requiring a separate logon and actions.

Some of the most recent IRS cuts have targeted technology jobs and could have an impact on systems, so it’s also worth noting that another option lenders have sometimes elected to use is to allow loans temporarily move forward when transcript access is interrupted and verified later. 

There is a risk to waiting for verification or not getting it directly from the IRS, however, as government-related agencies hold mortgage lenders responsible for the accuracy of borrower income information. That risk could increase if loan performance issues become more prevalent.

Currently, tax transcripts primarily come into play for government-related loans made to contract workers, said Crescenzo.

“That’s the only receipt that you have for a self-employed client’s income to know it’s valid,” he said.

The home affordability crunch and rise of gig work like Uber driving has increased interest in these types of mortgages, he said. 

Contract workers can alternatively seek financing from the private non-qualified mortgage market where bank statements could be used to verify self-employment income, but Crescenzo said that has disadvantages related to government-related loans.

“Non QM requires higher downpayments and interest rates than traditional financing,” he said.

In the next couple years, regional demand for loans based on self-employment income could rise given the federal job cuts planned broadly at public agencies, depending on the extent to which court challenges to them go through.

Those potential borrowers will find it difficult to get new mortgages until they can establish more of a track record with their new sources of income, in most cases two years from a tax filing perspective. 

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