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Showing posts from 2021

Child Custody and Advance Tax Credits

             A known part of the American Rescue Plan ( ARP ) Act, which was enacted in March 2021, is that there would be an Advance Child Tax Credit. These are advance payments of what would be expected to be claimed on the 2021 tax return. However, things can become complicated when there is shared custody of the children.           How does the Internal Revenue Service ( IRS ) decide who gets these advance payments? The information is based off of the 2020 or 2019 tax returns. So the parent that claimed them in the most recent year will be the one who gets the tax credit. If they alternate years claiming the tax and the one who will claim it is not getting the payments, they should remove themselves from this program. This will allow the other parent to claim the credit in their 2021 tax return. The other parent may need to repay the IRS if they received advance payments. If changes need to be made, they should be done before the end of the year.

October Tax Deadline Fast Approaches

             The last day to file a California state personal income tax return on an extension is Friday, October 15. Anything after that will be considered late by the Franchise Tax Board ( FTB ). Filing on time will avoid penalties, and potentially allow you to qualify for Golden State Stimulus ( GSS ) payments. If you do not file income taxes for 2020, you cannot qualify.           If you have income of less than $75,000 for 2020, you can qualify for a GSS payment. In addition, the taxpayer cannot be claimed as a dependent and must be a resident of California when the payment is issued. They also must have spent at least half of 2020 in the state of California. If you have provided bank account information to the FTB , you can expect an electronic deposit. Otherwise, the payment will be sent by mail. It is estimated that half a million tax returns still need to be filed. If you have not done so already, speak with your Qualified Tax Professional .

More Benefits to Help You Give

          The Internal Revenue Service ( IRS ) knows that people are looking to make contributions and charitable donations this time of year. In fact, they want to support this effort, as many individuals and businesses are still trying to recover. Certain temporary tax changes have been extended to the end of the year.           Deductions. Normally if a taxpayer were to use the Standard Deduction, they would not be able to deduct a charitable contribution. The law now allows for a deduction of up to $300 for a single individual. For a business, the limits of what can be claimed as a charitable donation in cash or food have changed as well. It varies depending on the type of business you have, and the increase in limits is not automatic. To find out what you can do before the end of the year, make an appointment with your Qualified Tax Professional .

Always Choose a Tax Preparer Wisely

             For those who have filed a tax extension, the time to file will arrive soon. At this point, you may be considering hiring a Tax Preparer. The Internal Revenue Service ( IRS ) wants to make sure that you hire the most qualified individual to care for your needs in this area. This is especially important considering that the taxpayer is always responsible for what is in the tax return, no matter who files it.           Not all tax preparers are the same, pick one that fits your needs. There are a few things you can look for. Make sure your preparer offers the ability to e-file . This is the preferred method of the IRS and it makes filing so much simpler. Make sure the preparer includes their Preparer Tax Identification Number . All paid tax preparers must sign and put their PTIN on every tax return they work on. Ask about fees . Make sure they are clear about their fees. Stay away from those who want to base their fees on a percentage of your tax refund. That gives ince

How to Rebuild After Disaster

           It seems that everywhere you look, disasters are taking place. Whether it’s earthquakes, fires, or floods, there are any number of circumstances that can completely change your life. However, to receive any federal assistance, make insurance claims, or write off tax losses, records will need to be provided. It might not be the first thing on your mind, but there are some simple steps that can be taken to help reach that goal.           Financial statements can be gathered from your credit card company or bank, in digital or paper form when requested. Property records can also be requested from the bank, escrow, or title company. If the property is inherited, court records can be used to estimate the value. If there is nothing else, the county assessor’s office will have records that address property value. If home improvements have been made, reach out to the contractors and get statements from them to verify the work and its cost. Written descriptions from others who saw

Taxpayer Bill of Rights #10: The Right to a Fair and Just Tax System

                 In our last few posts, we have taken the time to highlight all of the details found in the Taxpayer Bill of Rights . This is the guide for how the Internal Revenue Service ( IRS ) operates. The last point is The Right to a Fair and Just Tax System .           This certainly sounds like a very difficult thing to expect, especially with how things have been going the past few years. But the basic idea is that we can expect the tax system to consider facts and circumstances that affect the ability to pay, or provide information in a timely manner. We have seen this applied the past 2 years when the individual tax filing deadline was pushed back because of COVID-19 . It was not practical to expect people to provide their tax returns at the same time as normal.           If you meet certain conditions and cannot pay your tax debt, you can try to get a monthly payment plan with the IRS . If you cannot pay the amount in the time allowed by law to collect it, an Offer in C

Taxpayer Bill of Rights #9: The Right to Retain Representation

               The Taxpayer Bill of Rights is a fundamental document that guides how the Internal Revenue Service ( IRS ) will act in all situations. All of their employees know it, so all Taxpayers should be familiar with it as well. One of them is The Right to Retain Representation .           Every Taxpayer has the right to choose an authorized person ( not all tax preparers are the same ) represent them before the IRS . If you are having the interview with them directly, tell them you want to consult your representative and they will stop questioning you. This person must be in good professional standing and not under a suspension or disbarred. They must submit a written Power of Attorney document to be able to represent you before the IRS . If your income is below a certain level, the Low Income Taxpayer Clinic can represent you for free. They are independent from the IRS even though some of their funding comes from them.

Taxpayer Bill of Rights #8: The Right to Confidentiality

            The Taxpayer Bill of Rights describes how the Internal Revenue Service ( IRS ) interacts with all Taxpayers. We should be aware of the rights that we have. Among them is The Right to Confidentiality .           You should have the expectation that what you provide to the IRS will never be shared, unless authorized by you, or by law. Appropriate action will be taken against employees, return preparers, or others who wrongfully use this information. The IRS will only contact your bank or employer to try and get more information to adjust the tax you owe if it is necessary and they give advance notice. The tax communication you have with your Qualified Tax Professional is generally given the same protection as communication with an attorney. This protection is voided if the conversation is about criminal matters.

Taxpayer Bill of Rights #7: The Right to Privacy

                 The Taxpayer Bill of Rights is a detailed document that outlines the rights that all taxpayers have before the Internal Revenue Service ( IRS ). We all need to be aware of them because taxes are a very personal matter. This post will discuss The Right to Privacy . This involves the expectation that all IRS inquiries, examinations, and enforcements will comply with all laws (including due process rights), be no more intrusive than necessary.           If collection measures get to the point where the IRS is seizing wages, there is a portion that will be protected from a levy. The IRS cannot seize necessary personal items. A home can only be taken by court order and they must show there is no other reasonable way to collect the tax debt. The IRS should not seek any information about your lifestyle during an audit if there is no sign you have unreported income. The taxpayer has the right to have a Collection Due Process hearing before the Office of Appeals. This indep

Taxpayer Bill of Rights #6: The Right to Finality

            The Taxpayer Bill of Rights is a document that highlights the rights that all have when dealing with the Internal Revenue Service ( IRS ). Each taxpayer needs to know them. In our continuing discussion of them, we arrive at Number 6, The Right to Finality . This involves knowing the time available to challenge an IRS position and how long they have to start an audit or collect a debt.           The IRS usually has 3 years from the date a tax return is filed to assess additional taxes. However, that time frame becomes unlimited if the tax return is determined to be fraudulent. There is a 10 year limit to collect taxes, and that can only be extended as part of a payment agreement or a court order. If the IRS sends a notice that additional taxes must be paid, it will tell you the deadline for when you can file a petition in Tax Court to challenge. This is another way you can determine if a criminal is trying to scam you. Any surprise tax debt that demands immediate payme

The Right to Appeal in an Independent Setting

             The Taxpayer Bill of Rights is a fundamental document that details how the Internal Revenue Service ( IRS ) will interact with all Taxpayers. Our last post dealt with the right to challenge. In some situations, the challenge continues past the first or second level. In those cases, the right to appeal an IRS decision in an independent forum must be preserved.           There is a fair and impartial appeals process for IRS decisions. To provide for this, there is an IRS Office of Appeals . Not every appeal will qualify to go through this office. Those that do, will not be discussed with the IRS to prevent any compromise of the independent appeal process. Even with this provision, Taxpayers can usually take their cases to court if they choose.

The Right to Challenge and Be Heard

            The Taxpayer Bill of Rights is a document that the Internal Revenue Service ( IRS ) operates by, and should be understood by all Taxpayer’s. At some point in time, many will have an issue with an IRS notification or decision about your Tax Return. This will be provided in writing. After that, there will be a period of 60 days when you have the right to challenge and be heard .           This is the time when the Taxpayer may introduce new documentation to support their position. If the objection is raised within this period of time, it will be considered. If the IRS agrees, they will make the adjustment and a notice will be sent. If they do not agree, a different notice will be sent allowing for an appeal in Tax Court. Clear documentation will be sent explaining the situation. There will never be a surprise phone call demanding immediate payment. Knowing these rights is a protection for every Taxpayer.

A Great Step Forward in Digital Services

             It’s no secret that the Internal Revenue Service ( IRS ) has been very slow to adapt to what modern technology makes available. That history makes this week’s announcement all the more impressive. The IRS has now created a feature which allows Taxpayer’s digital control over who has Power of Attorney ( POA ) to represent them and who can view their tax accounts with a Tax Information Authorization ( TIA ). This may seem like a simple idea, but it’s also a breakthrough.           Tax Professionals can also go online and initiate a POA and TIA . These requests are simpler than the forms that needed to be filled out in the past. When they go to the online account of the Taxpayer, all they need to do is apply their digital signature and submit it. This process is sped up dramatically and no longer requires manual filing. It is currently only available for individual Taxpayers, but there will be some additional functionality added in the near future. This is proof that the

The Right to Pay No More Than The Correct Amount

             The Taxpayer Bill of Rights are 10 fundamental rights that Taxpayers have when dealing with the Internal Revenue Service ( IRS ). Knowing these rights will improve interaction when dealing with tax matters. The third on this list is: The Right to Pay No More Than the Correct Amount of Tax .           All Taxpayers have the right to pay only what is legally due, including penalties and interest. If you receive a tax notice and believe that it is in error, you should write back to the office that sent the notice within the appropriate time frame. Providing photocopies of detailed records that support your claim would be helpful. However, keep in mind there is currently a month’s long backlog of processing mail correspondence at IRS offices. These delays can add to penalties and interest being added if there truly is a tax debt. Since these unreasonable delays are caused by the IRS that is a valid reason to request they be removed. The Taxpayers right to pay no more than

How Well Did the Internal Revenue Service Do?

                 The National Taxpayer Advocate is required to issue a report to Congress on how the Internal Revenue Service ( IRS ) is functioning. This would include positive points and where they need to improve. How do you think the IRS did in the tax filing season of 2021?           The IRS completed 136 million income tax returns and issued 96 million refunds. This is very similar to what was done in 2019. (The year 2019 is used as a comparison because nothing can ever compare to 2020.) These efforts are made more impressive by the fact that the IRS also issued 3 rounds of Economic Impact Payments within 15 months. With this encouraging news, there are some areas that are in need of improvement.           There is currently a backlog of 35 million individual and business tax returns that need to be processed. Almost half of them are on paper. Pandemic related rules that restricted employee access to IRS facilities kept employees from working on them. This is another rea

The Right to Quality Service

          The Taxpayer Bill of Rights is a fundamental document that details should expect to interact with the Internal Revenue Service ( IRS ). We should all be aware of these rights and the IRS reminds their employees of them as well. The second of these is called The Right to Quality of Service . This refers to prompt, courteous, and professional assistance. All communication with the IRS should be clear and easily understood.           In practical terms, this means that every IRS representative should care about the quality of service that they provide. This applies to the way they listen, how they consider information, and the answer they provide. A supervisor can be requested if you have a problem. The IRS should treat you with courtesy when collecting taxes. This is one reason why aggressive phone calls threatening arrest for not paying taxes are always a scam. In general, the IRS will only contact you during business hours and not at your place of employment.

American Rescue Plan 2021: Expanding the Earned Income Tax Credit

             The American Rescue Plan ( ARP ) Act of 2021 is expansive and has the potential to touch every aspect of the lives of Taxpayers, as we have mentioned in previous posts. This is something to keep in mind for those who have not filed, have filed an extension, or who may see the need to file an amended Tax Return. For example, the Earned Income Tax Credit ( EITC ) has changed, not just for this year, but for years to come.           As a reflection of the times, there is an increase in the amount of investment income allowed while still qualifying for the EITC . The new amount is $10,000 starting this year. Married, but separated spouses who do not file jointly may attempt to qualify for this credit. They need to be legally separated and not live in the same home. However some changes only apply to this year, like being able to receive half of this credit in advance . For those who have their main home in the United States or Puerto Rico more than half the year, this credi

American Rescue Plan 2021: Child and Dependent Care Credit

          The tax deadline has passed, but we are still learning more about how the American Rescue Plan ( APR ) is impacting a variety of tax situations. This is something to keep in mind for those who have not filed, have filed an extension, or may see the need to file an amended Tax Return.           For example, the Child and Dependent Care credit has increased greatly for 2021. This credit would apply to children 13 and younger, or a child of any age or spouse that is unable to care for themselves and lives with the Taxpayer for over half the year. The allowable amount of related expenses that can be claimed has more than doubled. However, these increases are only available for 2021. They are also fully refundable, which means that an eligible person can receive this credit even if they do not owe any federal income tax. Check with your Qualified Tax Professional to see if this may apply to you.

The Right to be Informed

             Taxpayers and Tax Professionals alike have searched for the latest information related to tax compliance this year. That is true of every Tax Season since the law changes each year, sometimes even during the year. However, the need to be informed does not stop after April or May. It is in fact, a right that all Taxpayers have.           At times there are issues with a Taxpayer’s account with the Internal Revenue Service ( IRS ) and adjustments must be made. This cannot be done in secret. The Taxpayer has the right to know what has happened and how they can comply with tax laws. They must be given clear explanations of IRS procedures and decisions. Written notices of why taxes are owed or why certain refund claims are denied will be sent.           Understanding these facts will help to protect all of us from scams and frauds claiming to be from the IRS . Communication is supposed to be clear and detailed, not indistinct and sketchy. These are some of the tenets of “T

Social Security Can Be Taxed!

          Some are surprised to find out that their Social Security benefits can be taxed. This would apply to survivor, disability benefits, or monthly retirement income. Supplemental Security Income ( SSI ) cannot be taxed. The final outcome depends on the individual’s total income and filing status.           For example, someone who files as “Single” would have a lower threshold to meet for tax responsibility, than those who are “Married, Filing Jointly”. The greater the combined amount of Social Security and other income, the more their benefits will be taxed. It is easier than ever to create different streams of income, and this can change your tax situation. If you have a pension, a job in the gig economy (rideshare driver, food on demand delivery), or are active with cryptocurrency, to the Internal Revenue Service ( IRS ) this is all income. If you are not sure if you need to pay taxes on your benefits, talk to your Qualified Tax Professional before May 17.

Tax Tips for the Gig Economy

          It is easier to create different streams of income than ever before. With that ability comes certain obligations. Primarily, you must understand your tax responsibilities. All income is subject to tax. That includes part time, temporary, and side jobs. The payment may be in cash, property, goods, or even virtual currency. All of it must be reported, this means that a good record keeping system must be used during the year.           In addition, every employee must be classified correctly. This does not mean that the employer decides who is an employee and who is an independent contractor. An accurate classification is based on an examination of how the employer influences the work being done and how it is accomplished. When this is done correctly, all parties understand what is required from a tax standpoint. An employee will have income taxes withheld according to what is stated on the Form W-4 . A gig worker who is an independent contractor may be able to write off some

What if You Get A Letter From the IRS?

The Internal Revenue Service ( IRS ) will still initiate communication by written letter. Never using Social Media or a text message. There is always a specific reason for the letter, like informing the Taxpayer of a large Tax amount that is due, there is a question about the Tax Return, or that the Tax Return has been changed by the IRS . What should you do if you receive a letter like this?       Never ignore communication from the IRS . The letter will clearly state what needs to be done. There is no need to panic, reading the letter closely usually helps you to get a clear understanding about what has happened and if anything has changed. Always keep a copy of any letters or notices, and put them with your important tax documents. They may be needed later. If the letter informs you of a tax amount that must be paid, there are a variety of payment options . Pay as much as you can, even if it is not the full amount. However, if you are asked to pay in a specific way, like with a

American Rescue Plan 2021: Paid Time Off For COVID-19 Vaccination

     We have stated before that the American Rescue Plan of 2021 ( ARP ) is expansive and it will take time to understand all the areas that it touches. It was recently announced that there are tax credits to help businesses provide paid time off for employees receiving COVID-19 vaccinations. This would be available to eligible employers with less than 500 employees.      That means if the employer offers a paid day off to get a vaccine, this tax credit will equal the amount of wages paid. There are also tax credits that reimburse the cost of providing sick and family leave related to COVID-19 . These credits are available for use from April 1 to September 30, 2021. There are similar credits available for those who are self-employed.

Always File on Time

     The May 17 tax deadline is almost here. If you know that you are going to owe the Internal Revenue Service ( IRS ), but are not able to pay the full amount, make sure that you file your complete Tax Return anyway. Why is that so important?      Those who owe taxes and do not file on time may be given a Failure-to-File penalty. This would be in addition to the interest and other penalties added to the amount that needs to be paid. Filing an extension is not an extension on paying taxes due, they must still be paid by May 17. If that is not possible, pay as much as you can by May 17. You can also work with your Qualified Tax Professional to set up a payment plan with the IRS right now. There is no need to wait for that.

A Trillion Dollars in Tax Evasion

            The Internal Revenue Service ( IRS ) recently estimated that there is a $1 trillion “tax gap”. That would be the difference between what it collects, and what people and businesses owe. They feel a big reason for this discrepancy is the explosion of cryptocurrency. Cryptocurrencies by their very nature are designed to be elusive and invisible to the outside world. IRS Criminal Investigations has made great strides into exposing how crime organizations use digital currencies on the dark web and significant arrests have been made. However, more Taxpayers are using these currencies and not accurately reporting them. The IRS taxes Cryptocurrencies as property. So anyone who uses them must pay taxes if they are sold for profit or used to purchase anything. One recent example would be a nonfungible token ( NFT ). A NFT is a collectible that is bought or sold in the cryptocurrency world and it has quickly become a billion dollar market. Some examples might be a digital card

The New Child Tax Credit Will Start in July

     As we have stated before, the American Rescue Plan ( ARP ) Act is expansive and touches many areas. One aspect is a temporary enhancement to the Child Tax Credit. Under ARP this credit would be increased to $3,000 per child from the ages of 6 – 17 and $3,600 for every child under the age of 6. After some initial hesitation about being able to implement this because of all the other new tax laws being enacted, the Internal Revenue Service ( IRS ) has confirmed that it will be able to provide this tax credit. It will start as payments from $250 - $300 per child starting in July and ending in December. The rest can be claimed on their Tax Return in 2022. How will they know who qualifies, and for how much?      The only way for a family to qualify for this credit is to file a 2020 Tax Return. If this is not done, the IRS will not have the needed information to deliver the credit. This is another reason to not wait unnecessarily to file a Tax Return this year. At this point, the exp

How You Can Pay Your Taxes

     The deadline to file your Federal income Tax Return has been pushed back to May 17, but that time will pass very quickly. There is also no extension on paying taxes that are due. Individuals can pay by May 17, but those who own businesses, or are independent contractors need to pay by April 15 . Paying taxes is mandatory, but you have a few options regarding how you pay them.      When E-Filing your Tax Return, you have the option to add your bank account information to allow for an electronic funds withdrawal ( EFT ). This is done without charge and is the easiest way to make payments to the Internal Revenue Service ( IRS ). IRS Direct Pay is a service that allows Taxpayers to use their Savings or Checking account for electronic payments. This is a service that the IRS does not invite people to join, it must be requested. If you receive an email about it asking for information, it is a scam. Payments can also be made using credit or debit cards online and through the officia

Over $1 Billion in Tax Refunds are Waiting to be Claimed!

          There is a 3 year window to claim a Tax Refund. For those who did not file a 2017 Tax Return, that window will soon be closing. The Internal Revenue Service ( IRS ) says that the last day to claim any of the $1.3 billion is May 17. After this, it will belong to the Treasury Department. It’s estimated that the median amount of the refunds is $865. For a state like California, there is the potential for over $120 million in refunds for that Tax Season. All that is needed is to file that 2017 Tax Return. There is no penalty for filing late, if you are receiving a refund. This can be the key to getting an Economic Impact Payment ( EIP ) if you did not get one last year and you qualify. However, that refund might be held back if you have not filed for 2018 or 2019. The refund may also be applied to any outstanding federal or state tax debts, unpaid child support, or student loans.           Those who have not filed their 2017 Tax Return may be missing out on claiming the Earne

How Will the IRS Process Unemployment Refunds?

When the American Rescue Plan ( ARP ) Act was enacted last month, it allowed for up to $10,200 of Unemployment income to be untaxed. However, for weeks prior, Taxpayer’s had been filing their Tax Returns and paying the full tax on all of their income, including Unemployment benefits. The Internal Revenue Service ( IRS ) stated that amended returns did not need to be filed at that time. Now they have presented the solution to this paradox. Starting this month, the IRS will automatically reexamine Tax Returns that were filed before the new rules went in place. They will determine the correct taxable amount and if there is an overpayment it will be refunded, or it will go toward any taxes owed. For most, there will be no need to file an amended return. The exception would be if the new taxable amount allowed you to qualify for a new tax credit or deduction. At that point an amended Tax Return must be filed. The new refunds are scheduled to be sent out in May. Make sure to speak with yo

The IRS and its Massive Backlog

          A report that was released this month confirmed what many had long suspected, the Internal Revenue Service ( IRS ) is very, very behind in processing Tax Returns. This is a situation that will not quickly resolve itself. The Treasury Inspector General said that the backlog was at about 12 million paper returns in December 2020. Even though this report focuses on paper Tax Returns, it’s reasonable to apply this to any paper correspondence as well. How did this happen? The IRS was put into an unknown situation in 2020 just like every other organization. They moved to remote work as much as possible and closed many distribution centers. However, what is sent to them on paper requires a physical presence. While the mail continued to be delivered, few would enter the offices and do the manual data entry. This is why many are waiting for acknowledgment of payments, or Tax Refunds. The different rounds of Economic Impact Payments ( EIP ) have also caused them to change focus at

Personal Protective Equipment is Tax Deductible

     The Internal Revenue Service ( IRS ) has announced that any Personal Protective Equipment ( PPE ) that was bought to stop the spread of COVID-19 is tax deductible. This means that masks, hand sanitizer, sanitizing wipes, gloves, and other tools used to fight the spread of Coronavirus and keep safe can be deducted from your Tax Return.      These items must have been purchased in 2020. You do not qualify for the deduction if you were reimbursed by insurance or other health savings account. If you have not yet filed your Tax Return, this is another reason to keep good records. You never know when you might need them and a new deduction might become possible. Take action to have all your information ready for your Qualified Tax Professional before the May 17 deadline.

Automatic Unemployment Refunds Will Be Processed

          One feature of the recently passed 2021 American Rescue Plan ( ARP ) is the ability to have up to $10,200 of Unemployment Income from 2020 be exempted from tax. This is certainly something that many Taxpayer’s would want to make use of. However, this was enacted after Tax Season had begun. Tax returns were already being filed and tax refunds issued without this credit being applied. The Internal Revenue Service ( IRS ) was very clear in saying that they did not want amended returns to be filed.           It has now become clear why they did not want this to happen. The IRS will automatically issue refunds for the tax paid on the Unemployment Income, if you qualify. They are also updating their software and sending out new worksheets for those who have not filed. This is might be one of the reasons why the tax filing deadline for individuals has moved to May 17 . As we have stated in a previous post , there are many productive things you can do with this extra time before fi

Progress Being Made With Economic Impact Payments

          The 2021 American Rescue Plan ( ARP ) Act created a third round of Economic Impact Payments ( EIP ). An earlier post had discussed the changed eligibility requirements. Within the first 5 days of enactment, the Internal Revenue Service ( IRS ) has made 90 million payments. This was made possible by the use of Direct Deposit, and this will be the primary method of payment. In time, more checks and debit cards will be mailed.           These payments are made automatically, and since we are in the third round, no action is required by most Taxpayers. Please remember that this payment is coming from the Treasury Department and the IRS . There is a new scam that has come to light where someone contacts a Taxpayer claiming to be from the Federal Trade Commission ( FTC ). That person will claim that a fee or tax needs to be collected to receive the EIP , or they may want some personal information from you. This is a complete lie. You do not need to pay to qualify for this. The IR

The 2021 Tax Deadline Will Be Delayed

          Just like last year, the Tax Deadline for 2021 will be pushed back. This year it will now fall on Monday, May 17 . There have been calls for this action for some time. The reasons the Internal Revenue Service ( IRS ) took this action are many, but here are a few.           The Tax Season this year started two weeks later than normal. This was to accommodate law changes that were passed in December 2020 and make sure that IRS computers were updated. The newly enacted 2021 American Rescue Plan Act also makes some significant changes to existing tax law, including allowing a certain amount of unemployment benefits from 2020 to be untaxed. With this recent news, some may take additional time to file, but the IRS does not want anyone to file an amended Tax Return at this time. If you look at this time last year, there have been about 18% fewer Tax Returns filed . It’s clear that people needed more time. What can you do with this extra time?           This time can certainly

The American Rescue Plan and Unemployment Income

          Many parts of the 2021 American Rescue Plan ( ARP ) Act touch almost every aspect of our lives. A previous post discussed the third round of Economic Impact Payments. This is something that many have talked about and are looking forward to. One aspect that many are not talking about is a new tax exclusion for unemployment benefits.           With the enactment of ARP , it may be possible to exclude $10,200 of unemployment income. This means that Federal income tax would not have to be paid on that amount. State taxes would still apply. There are also overall income requirements that determine eligibility. To find out if you qualify, please talk to your Qualified Tax Professional .

The American Rescue Plan and the Third Economic Impact Payment

         The 2021 American Rescue Plan ( ARP ) Act and its $1.9 trillion budget has been discussed since it was passed and enacted last week. One of the most talked about parts has been the third round of Economic Impact Payments ( EIP ) that it allows for many who received the previous two. The Internal Revenue Service ( IRS ) immediately went to work on sending out the payments, which for many would amount to $1,400. However, the criteria for who qualifies is now different.           Individuals making over $75,000 will receive smaller payments, and those who make over $80,000 will have no payment at all. This is based off of their 2019 or 2020 Tax Return. This means that some who were a part of the last two payments may not qualify for this one. Unlike the last two payments, dependents under 17 will be included. Those with Direct Deposit may already have the payment. If you got a debit card before, a new one will be sent. If you are unsure if you qualify for this or the past two

What the American Rescue Plan Act Means for You!

          The $1.9 trillion American Rescue Plan ( ARP ) has many parts to it. The ARP was enacted on March 11, 2021 and some aspects have already gone into action. With something this large, it is difficult to truly understand what it will do unless you look at its different components.           That is what we will do. Over the next few posts, we will discuss how the ARP changes things. It was designed to essentially touch some aspect of our lives, from COVID vaccines to unemployment payments, and increases to different tax credits. Some have been talked about at length, others are less well known and the effects may only be seen in the near future. Our next post will discuss how the Internal Revenue Service ( IRS ) will be impacted by the ARP .

Check Your Unemployment Withholding

            Many filed for Unemployment Benefits for the first time last year and received those payments during a very difficult time. Now as we file our taxes, it is thought that less than half of those who had Unemployment income had their taxes withheld. This can lead to a great shock when those Federal Tax Returns are filed. All of that income is taxable, including the enhanced federal payments that were available most of the year. This can lead to tens of thousands of dollars in taxes owed this year.           If you are still collecting Unemployment Benefits, check your withholding. There should be a simple option that allows you to voluntarily withhold the necessary amount to avoid any unwanted surprises next year. If you are unsure of what your status is, you can always check with your Qualified Tax Professional .

The IRS Sheds New Light on the Use of COVID-19 Relief Programs

          One of the lifelines for Small Businesses last year was the Paycheck Protection Program ( PPP ). There was also the Employee Retention Credit ( ERC ). Both were a part of the CARES Act in March 2020. Until the Taxpayer Certainty and Disaster Tax Relief Act of December 2020, they were essentially treated as separate. A business would have had to choose between one or the other. Now they can participate in both and the Internal Revenue Service ( IRS ) has released guidance on this subject.           Getting involved in both forms of relief is certainly an attractive option to most businesses. However, there is no “one size fits all” path to COVID-19 relief. PPP funds are still very difficult to acquire and this guidance allowing for ERC use is still new. Keeping good records and talking to your Qualified Tax Professional is essential at this point. This is a situation that is constantly changing, with more IRS guidance likely to come soon.

Worried About an Audit?

          This year looks like it will be a more difficult Tax Season than last year. For one reason, determining COIVD-19 relief has made things a bit more complicated for some Taxpayers. Chances are there will probably be more mistakes made because of that. Will that lead to more audits?           That is very unlikely. The percentage of audits has actually gone down in recent years, but the Internal Revenue Service ( IRS ) has the right to audit up to 3 years after a Tax Return in question has been filed. If a mistake is made, an income discrepancy notice will probably be sent. This might be because the income reported in a Tax Return and documents the IRS has on file do not match. For those with a Small Business, they may want a closer look at your business deductions. You may be claiming a tax credit that you now qualify for, such as the Earned Income Tax Credit ( EITC ). Due to past abuse by many Taxpayers, those who claim this credit are always scrutinized closely and their

Deductions: Standard vs. Itemized

                 This is a decision that some struggle with each year. Is it better to itemize or use the Standard Deduction? There is no one answer that fits everyone in every situation. Deductions can lower the amount of taxable income in a given year. Does that mean that itemized is best? Not always.           Itemized deductions. This is often used when the amount of deductions claimed will be greater than the Standard Deduction or if Itemization is the only option. For example, if a Taxpayer had large uninsured medical expenses, uninsured theft or losses, or large contributions to qualified charities, they may choose to itemize.           Standard deduction . This is considered to be the quick and easy option. However, this amount will change every year and is determined by the Taxpayer’s age, filing status and other factors. Something else to consider is that this year, up to $300 could be claimed as a contribution while still using the Standard Deduction. Usually the best wa

New Paycheck Protection Program Opportunity?

                 For those who felt left out of the last 2 Paycheck Protection Program ( PPP ) openings, there is another chance. Starting on February 24, and continuing for 2 weeks, there is an exclusive window for Small Businesses with 20 employees or less to apply for a PPP loan. This is a particular group that has felt shut out of the program to this point.           This means that sole proprietors and independent contractors will have an even greater opportunity to receive this funding. However, the calculations that would increase the amounts of the loans for these Small Businesses will not be updated by the Small Business Administration ( SBA ) until March 1 . Specific written guidance will also be issued at that time. So it might be best for business owners to wait until that time so their applications will be subject to the most updated rules.

More Tips on Choosing A Tax Preparer

           Now that we are 2 weeks into the 2021 Tax Season, it is clear that finding an honest and ethical Tax Professional is essential. You will be trusting this person with your most sensitive personal information. Here is some more guidance on finding the best Tax Preparer for you.           Beware of what are called “Ghost Preparers”. They are called this because they have a tendency to disappear after the work is done. Beyond that, some red flags to look out for are if they require payment in cash and do not give a receipt, are willing to claim fake deductions to increase the refund, direct the refund into their own bank account, or refuse to sign the Tax Return after they prepare it. These are individuals you want to avoid.           As a Taxpayer, you have the right to ask questions. Everyone hopes for a simple and easy filing, but sometimes complications come up. Will the preparer you are considering be around to help? How can they represent you before the Internal Revenu

Tips on Choosing A Tax Preparer

              With the 2021 Tax Season starting this week, and being 2 weeks shorter than normal, it is essential that you find a Tax Professional who knows what they are doing. Tax law continues to change, so you’ll want to find someone who is up to date on what is current. There are also signs that will give you an idea on who to avoid.           You have the right to know what you will be paying for tax services in the beginning. If they say it will be based on your refund, that gives and incentive for the Tax Preparer to lie and make fraudulent claims to increase the refund. Remember that the Taxpayer is always responsible for what the Tax Return says. A previous post discusses why this is so important. Take the time to find someone who is honest. An honest preparer will always ask for past records so they can meet the standards set by the Internal Revenue Service ( IRS ). Anything less will only lead to problems. Please take a look at our detailed post and YouTube video on th

New Tax Deduction!

            On the eve of the official start of Tax Season, the Internal Revenue Service ( IRS ) has just announced a new deduction that is appropriate to the times we are living in. Teachers and other qualified educators can deduct expenses related to COVID-19 personal protective equipment bought last year. This change took effect with the passage of the Omnibus Appropriations Act in December 2020.         No more than $250 can be deducted, and this only applies to expenses that were not reimbursed. This would include things like face masks, hand sanitizer, physical barriers, or tape and chalk to mark physical distancing guidelines. This deduction may apply to anyone who works at a K-12 school at least 900 hours during the school year. If you have not done so already, gather your records and make an appointment with your Qualified Tax Professional . Having all your documents prepared beforehand will make the tax filing process much smoother.

Evidence of Scams Comes to Light

Criminals continue adapting their scams to take advantage on any given situation. We see many examples all around us. Please continue to stay vigilant and watch for signs that you may have become a victim. This evidence can come to light now as different tax forms are being mailed. For example, there were record numbers of Taxpayers who claimed Unemployment this past year. They would be sent a tax form for that income. If you did not file for Unemployment and received that form, you may have been the victim of fraud. This has been a new area of crime growth across the country. Different states will have their own ways to report these incidents. There are some basic ways to protect yourself.           Never give away your personal information through electronic messaging. Real companies and government agencies will not communicate with you in these ways. If you did not apply for Unemployment benefits, and someone claiming to work for the state agency calls you asking for them, do

Always Check Your Withholding

       How has 2021 been for you so far? After going through 2020, you can probably handle anything. We all learned a lot, and the best thing to do is to put that knowledge into practice. Making sure that your Tax Withholding is correct will give you one less thing to worry about this year.      If your family situation has changed, it would be good to fill out a new Form W-4 and give it to your employer. This will help to make sure that the proper amount of taxes are withheld from your wages and avoid a tax surprise next year. While receiving Unemployment Benefits, you can choose to have taxes withheld from that income source as well. As your tax documents arrive this month, you will see where adjustments need to be made for this year. If you need guidance on the path to take for this year, reach out to your Qualified Tax Professional .