Below are the valid ranges for a Social Security Number (SSN), Individual Taxpayer Identification Number (ITIN), or Adoption Taxpayer Identification Number (ATIN):

Social Security/Taxpayer Identification Numbers are broken down as follows:

1 2 3 – 4 5 – 6 7 8 9

Area – Group – Serial
 
Valid Ranges for Social Security Number (SSN):
001-01-0001 through 665-99-9999
667-01-0001 through 899-99-9999
750-01-0001 through 763-99-9999
764-01-0001 through 899-99-9999

When the SSN “Group” contains zeros, the SSN is a test SSN and the return will be rejected. When the SSN “Serial” contains all zeros, the return will be rejected.

Valid Range for Individual Taxpayer Identification Number (ITIN):
900-70-0000 through 999-88-9999
900-90-0000 through 999-92-9999
900-94-0000 through 999-99-9999

An ITIN is a nine-digit number assigned by the Internal Revenue Service to taxpayers who are not eligible to obtain an SSN. It is used for tax purposes only.  See the IRS website General ITIN Information for additional details. 

2017 Note: ITINs that have not been used on a tax return for Tax Year 2014, Tax Year 2015 or Tax Year 2016 will expire December 31, 2017.  All ITINs issued before 2013 with middle digits of 70, 71, 72 or 80 (Example: (9XX-70-XXXX) will also expire on December 31, 2017.

Valid Range for Adoption Taxpayer Identification Number (ATIN):
900-93-0000 through 999-93-9999
 
An ATIN is issued by the Internal Revenue Service as a temporary taxpayer identification number for the child in a domestic adoption where the adopting taxpayers do not have and/or are unable to obtain the child’s Social Security Number(SSN). It is to be used by the adopting taxpayers on their Federal Income Tax return to identify the child while final domestic adoption is pending.

For Tax Season 2021:  Here is what you need to know

 

If you’re like us, you probably never want to think about 2020 again. But there is one lingering ghost from last year that you need to get rid of before you can truly move on for good—and that’s your 2020 taxes.

Thanks to the coronavirus (among other things), a lot has changed for the 2021 tax season. That’s why you need to start thinking about your tax situation now while you still have time on your side. We want you to be prepared to tackle your taxes before they tackle you. And to do that, we’re going to dig into what’s new for this tax season and what’s staying the same.

First, here are the main things you need to know right off the bat for the 2021 tax season:

  • Tax Day is Thursday, April 15, 2021. You must file your 2020 tax returns by this date! 
  • The standard deduction for 2020 increased to $12,400 for single filers and $24,800 for married couples filing jointly.  
  • Income tax brackets increased in 2020 to account for inflation. 

But that’s just scratching the surface! Let’s break down the details so you can file your taxes with confidence this year.

Income Brackets and Rates for 2021 Tax Season

Here’s a refresher on how income brackets and tax rates work: Your tax rate (the percentages of your income that you pay in taxes) is based on what tax bracket (income range) you’re in.

For example, if you’re single and your income is $75,000, then you’re in the 22% tax bracket. But that doesn’t mean your tax rate is a flat 22%. Instead, part of your income is taxed at 10%, another part at 12%, and the last part at 22%. (You can check out the chart below to see all the tax brackets with their corresponding tax rate.)

For the 2020 tax year, the tax rates are the same—but there are some slight changes to the brackets. Basically, the brackets have been adjusted by a few hundred dollars from 2019 to account for inflation.

 

 

2020 Marginal Income Tax Rates and Brackets

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Higher Standard Deductions in 2020

When you pay taxes, you have the option of taking the standard deduction or itemizing your deductions. If you itemize, you calculate your deductions one by one. Itemizing is more of a hassle, but it’s worth it if your itemized deductions exceed the amount of the standard deduction.

For tax year 2020, the standard deduction went up slightly to adjust for inflation.

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Keep in mind that every situation is different as far as whether you should take the standard deduction or whether you should itemize. Talk to a tax pro to figure out what’s best for you.

 

Tax Deductions and Credits to Consider for Tax Season 2021

The closest things to “magic words” when it comes to taxes are deductions and credits. Both help you keep more money in your pocket instead of Uncle Sam’s, but they do so in slightly different ways!

Tax deductions help lower how much of your income is subject to federal income taxes. Some deductions are only available if you choose to itemize your deductions, while others are still available even if you decide to take the standard deduction. 

Meanwhile, tax credits lower your actual tax bill dollar for dollar, and there are two types of credits: refundable and nonrefundable. If a credit is greater than the amount you owe and it’s a refundable credit, the difference is paid to you as a refund. Score! But if it’s a nonrefundable credit, your tax bill will be reduced to zero, but you won’t get a refund. That’s still great!

Here are some deductions and credits you might be able to claim on your 2020 tax return:

1. Charitable Deductions

If you like to give like no one else, we have some great news! In an effort to encourage more charitable giving, the CARES Act allows you to deduct up to 100% of their adjusted gross income (AGI), which is your total income minus other deductions you have already taken, in qualified charitable donations if you plan to itemize their deductions.

What if you’re taking the standard deduction? Well, the CARES Act added a new “above-the-line” deduction that will help you write off up to $300 of charitable contributions you made in cash.  

2. Medical Deductions 

If you spent a lot of time in the hospital or found yourself with some hefty medical bills last year, you might be able to find at least some tax relief.

You can deduct any medical expenses above 7.5% of your adjusted gross income (AGI), which is your total income minus other deductions you have already taken. For example, if your AGI was $100,000, you can deduct out-of-pocket medical expenses above $7,500 in 2020. But you have to itemize your deductions in order to write off those expenses on your tax return. 

3. Business Deductions

If you’re self-employed, there are a bunch of deductions you can claim on your tax return—including travel expenses and the home office deduction if you use a part of your home to conduct business.

But if you’re one of the millions of workers who were sent home to work remotely, you won’t be able to claim the home office deduction since it’s reserved for self-employed individuals only. Sorry!

4. Earned Income Tax Credit

The EITC is a refundable credit designed to help out low- and middle-income workers (workers earning up to $56,844 during the 2020 tax year might be eligible).7 Depending on your income, your filing status and how many children you have, the credit could save you anywhere from a few hundred to a few thousand dollars on your taxes. But here’s a crazy stat: About one out of five taxpayers who are eligible either don’t claim the benefit on their taxes or don’t file a tax return at all. Don’t let that be you!

5. Child Tax Credit

Got kids? Families can claim up to $2,000 per qualified child with this tax credit (the income limits for this credit are $200,000 for single parents and $400,000 for married couples). And since this is a refundable credit, your family can receive up to $1,400 per child as a refund.

And there are plenty of other deductions and credits that might be up for grabs depending on your situation! If you don’t want to miss out on any tax savings, you’ll want to work with a tax advisor who can make sure you’re not leaving any deductions or credits on the table.

The Coronavirus and Your Taxes

Oh, so you thought you were done with the coronavirus now that it’s 2021? Unfortunately, the coronavirus (and the government’s response to it) has created a ripple effect that will be felt when you sit down to file your taxes for last year. Here are some things to keep in mind:

Stimulus Checks

As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s $2 trillion relief package, the government sent up to $1,200 in the form of a stimulus check to millions of Americans shortly after the pandemic shut most of the country down.

The good news is your stimulus check will not count as taxable income. Instead, it’s being treated like a refundable tax credit for 2020. Translation: Your stimulus check is sort of like an advance on money you would have received anyway as part of your tax refund in 2021.

Paycheck Protection Program (PPP) Loans

The CARES Act also tried to help struggling small business owners stay afloat by offering them Paycheck Protection Program (PPP) loans. As long as these loans were used on certain business expenses—payroll, rent or interest on mortgage payments, and utilities, to name a few—these loans were designed to be “forgiven.”

But heads up, small business owners: The IRS says that any expenses you paid with money from those PPP loans cannot be deducted from your taxable income. Plus, you’ll have to get your loan forgiveness application approved by the Small Business Administration before you’re off the hook for the amount you borrowed. But since the SBA is processing the applications for $525 billion in loans given to 5.2 million borrowers at the speed of a sloth wearing ankle weights, we don’t recommend holding your breath.

Unemployment Benefits

Many Americans found themselves out of work (at least temporarily) after the pandemic shut down a large part of the economy and turned to unemployment insurance for help. Those who received unemployment benefits will need to pay income taxes on that money.

If you chose not to have taxes withheld from your benefits when you signed up, then you’ll either have to pay quarterly estimated taxes or set aside enough money from your unemployment benefits to pay your taxes come Tax Day.

Educational Expenses: 529 Plans and ESAs 

Any money you take out of a 529 plan or Educational Savings Account (ESA) must be used for qualified educational expenses in order to be tax-free. Makes sense. But a lot of schools went remote or cancelled classes this year—which means your college might have refunded some or all of your 529 or ESA money. If that’s the case, you have 60 days to put the money back in the account or use it to cover other educational expenses. If you didn’t, you might have to pay income taxes and a withdrawal penalty.

There are also a couple of new ways you can use 529 plans in 2020 without having to pay any taxes. First, you can now use 529 plans to pay for the costs of certain apprenticeship programs—including fees, books and supplies. And second, you can also use money from a 529 plan to pay off up to $10,000 in student loan debt (that’s $10,000 total—not annually) without having to pay any penalties or taxes.

Retirement Plans: 401(k)s, IRAs and More

There were a lot of changes to retirement plans in 2020—and some of those changes could impact your tax bill this year. Let’s tackle each of those major changes:

  • The CARES Act allows folks under age 59 1/2 to take up to $100,000 out of their 401(k)s and IRAs up until the end of 2020 without having to pay an early withdrawal penalty. But first, taking money out of your retirement accounts before retirement is a terrible idea—penalty or not. Second, the money you take out of tax-deferred retirement accounts like a traditional 401(k) or IRA will be taxed as ordinary income, so get ready to pay taxes on any withdrawals you make. 
  • If you own a traditional IRA, you have to take money out of your account once you reach a certain age. Those withdrawals are called required minimum distributions (RMDs). The good news is the SECURE Act pushed back the age for RMDs from traditional IRAs from 70 1/2 to 72 (if your 70th birthday was July 1, 2019 or later). On top of that, the CARES Act allows seniors to skip RMDs altogether in 2020 without penalty. That’s huge, because it could lead to significant tax savings for retirees with those accounts since the money that’s taken out of a traditional IRA counts as taxable income.
  • The SECURE Act also allows owners of traditional IRAs to keep putting money in their accounts past age 70 1/2 starting in 2020. Since the money you put into a traditional IRA is tax deductible, you could lower how much of your income is taxed this year. Just remember: You will have to pay taxes on that money whenever you take it out.

One last thing: If you did take some money out of a 401(k) or traditional IRA and you’re facing a huge tax bill, don’t panic! You have three years to put those funds back and get a refund on any taxes you paid on that money. And more importantly, it’ll help you get your retirement savings back on track. It’s probably a good idea to reach out to an investment professional who can walk you through the process.

Get Your Taxes Done Right in 2021

 

 

Coronavirus and your taxes:  Here are what you need to know

With hundreds of billions of dollars in stimulus money, business loans, and unemployment benefits floating around, everyone is trying to keep up with what all this means for you when you sit down to file your taxes this year.

First, don’t panic! Here are some answers to some of the biggest questions about how the coronavirus (and everything that followed because of it) might affect your 2020 tax returns, plus some action steps you can take to prepare yourself and avoid any nasty “Tax Day” surprises.

1. Will the stimulus check money I received be taxed?

Nope, the stimulus money that you received from Uncle Sam will not count as taxable income. So that’s one less thing you have to worry about when Tax Day rolls around!

Let’s back up a little bit. In March, the U.S. government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in an effort to try and provide help to everyday Americans during the height of the coronavirus pandemic.

Individuals who filed taxes in 2018 or 2019 received $1,200 for each adult and $500 for each child. So, a household with two adults and two children, for example, most likely received $3,400 in stimulus money.

So, why isn’t that money being counted as taxable income? Because it’s being treated like a refundable tax credit for 2020. Translation: Your stimulus check is sort of like an advance on money you would have received anyway as part of your tax refund in 2021.

 

What is a Tax Credit?

 

In the tax world, finding out if you qualify for a tax credit can feel a lot like finding that unexpected $20 bill—only much more valuable! Tax credits can magically shave hundreds, or even thousands, of dollars off your tax bill. Now that is worth busting a move or two!

Let’s take a closer look at what a tax credit is, how they work, and which ones you might be able to claim on your tax return this spring.

What Is a Tax Credit?

tax credit reduces how much you pay in taxes by letting you subtract a certain amount of money directly from your tax bill. A $500 tax credit, for example, will save you $500 in taxes owed. The more tax credits you claim, the more money you get to keep in your pocket!

What’s the point of having tax credits? The government sometimes uses taxes to try to discourage folks from certain behaviors or activities (think taxes on cigarettes). But Uncle Sam will also dangle a tax credit like a carrot on a string to encourage certain behaviors and activities that might be beneficial for the economy, the environment or some other cause.

Tax credits are also a way to provide a tax break for low- and middle-income taxpayers who need it most.

What’s the Difference Between a Tax Deduction and a Tax Credit?

While tax deductions and tax credits both lower how much you’ll pay in taxes, they do so in different ways. Deductions lower your taxable income while tax credits lower how much you actually owe in taxes dollar for dollar.

How does all that work? Well, if you’re in the 22% tax bracket, a $1,000 tax deduction will cut $220 off your tax bill. That’s pretty good! But a $1,000 tax credit will actually save you $1,000 in taxes for the year. So, between deductions and credits, it’s pretty clear to see that tax credits are the more valuable of the two!  

What Is a Tax Deduction?

There are two words every taxpayer needs to get familiar with as Tax Day draws near. These two words will help you shave hundreds, maybe even thousands, of dollars off your tax bill.

Are you ready? Here they are: tax deductions.

You’ve probably heard phrases like “you can write that off your taxes” or “those are deductible expenses” and wondered if you really understand how this whole tax deduction thing works. You’re not the only one!

A lot of folks don’t know which tax deductions are available or how to claim them on their tax returns. But you don’t want to be that guy or gal, because it could mean you’re leaving a good chunk of money in the hands of the IRS without even knowing it!

What Is a Tax Deduction?

Simply put, tax deductions reduce how much you pay in taxes by lowering your taxable income. When you hear the word deduction, just think subtraction. You’re simply subtracting how much of your income is taxed and reducing how much you owe to Uncle Sam in the process. Cha-ching!

For example, charitable donations are one of the most common tax deductions available. That means you could “write off” the money you gave to charity last year and reduce your taxable income by the amount you gave. 

So, if your income is $50,000 and you gave a $1,000 gift to your favorite charity last year, you could claim that gift as a tax deduction and you’ll only be taxed on $49,000 instead of $50,000. 

But that’s only scratching the surface! From retirement plan contributions to home mortgage interest, there are dozens of tax deductions out there you might be able to take advantage of. 

What’s the Difference Between a Tax Deduction and a Tax Credit?

While tax deductions lower your taxable income, tax credits cut your taxes dollar for dollar. So, a $1,000 tax credit cuts your final tax bill by exactly $1,000. A tax deduction isn’t as simple. If you get a $1,000 tax deduction and you’re in the 22% tax bracket, that deduction reduces your taxable income and saves you $220 when it’s all said and done.  

Tax credits fall into two main categories: refundable and nonrefundable. If you have a refundable tax credit of $500 but only owe $200 in taxes, the IRS will send you a check for $300. On the other hand, if you have a nonrefundable tax credit worth $750 but you only owe $250 in taxes, you unfortunately won’t get a check for $500 (the balance of the credit you didn’t use).

How Do Tax Deductions Work?

When you’re filling out your tax return, there are two ways to claim tax deductions: Take the standard deduction or itemize your deductions. You have to pick one! 

The standard deduction is the easy option—it’s like an automatic tax freebie. If you choose to take the standard deduction, your taxable income is automatically reduced by a set amount based on how you file (like single, married, or married filing jointly). That lowers the amount of taxes you have to pay. No need to dig through receipts or bank statements! 

Itemizing your deductions takes more work—you’ll need to list all the deductions you want to claim one by one. And you’ll have to fill out a Schedule A form with your tax return and go through your records to back up your claims. 

Yes, itemizing is a bit of a hassle, but it’s worth the effort if you can claim enough deductions to lower your taxable income more than the standard deduction.

How do you know which option is best for you? There are a few things you need to know before you make your decision this year.  

 

What Is the Standard Deduction for the 2019 Tax Year?    

Thanks to the 2018 tax reform law, the standard deduction almost doubled from what it used to be. That’s great news for many taxpayers! For the 2020 tax year, the standard deduction was adjusted slightly for inflation. So, if you’re single, the standard deduction is now $12,400. Married and filing together? Your standard deduction is $24,800. 

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Important to note: If you or your spouse are over 65 or legally blind, you might be able to get a larger standard deduction. But if you’re married filing separately, you’re a nonresident alien or a dual-status alien, or someone else claims you as a dependent on their return, your standard deduction may be lower. Be sure and check with a tax pro if you have any questions.

What Expenses are Tax Deductible?

First, let’s take a look at what you can write off from your taxes. Here are some of the most common deductions that many taxpayers can take advantage of:

Charitable Donations

The more you give, the more you can deduct from your taxes! Any amount you gave to your church, your alma mater, or your favorite charities can all be written off your taxes. Most years, you can deduct any amount of charitable giving up to 60% of your taxable income. But thanks to the CARES Act, you can deduct all of your charitable contributions in 2020. Nice!

But even if you don’t itemize your deductions, the CARES Act also allows you to take an “above-the-line” deduction (which lowers how much of your income is taxable) of up to $300 for charitable giving.

Medical Expenses

Do you have health insurance but still find yourself paying out of pocket for medical or dental expenses? The IRS lets you deduct medical expenses that are more than 7.5% of your taxable income for things like appointments with medical professionals or dentists, prescription drugs, contacts or eyeglasses, and health insurance premiums (paid for with after-tax dollars and not reimbursed by your employer), just to name a few!

To break it down: If your adjusted gross income is $50,000, then 7.5% of that is $3,750. So, if you have $5,000 of medical expenses that weren’t covered by your health insurance, subtract the $3,750 from that and you get $1,250 as a tax deduction.

State and Local Taxes

A lot of folks forget this one! The IRS lets you choose to deduct either your state and local sales tax or income tax, along with some foreign taxes. If you live in a state with no income tax or you made some big purchases like a new car or a furniture set for the living room, the sales tax deduction is the way to go. And if you’re a homeowner, you can also deduct property taxes from your tax bill. 

The new tax law caps the total amount you can deduct in income, sales and property taxes to $10,000.

Student Loan Interest

If you’ve been paying so much in student loans that Sallie Mae seems like that smelly college roommate who just wouldn’t go away, take some comfort in the fact that you can claim a student loan interest deduction of up to $2,500.

Mortgage Interest

Ah, the joys of homeownership! There’s the big backyard, the white picket fence, your mortgage payments . . . okay, maybe not that last part. But at least you can deduct that interest you paid on up to $750,000 of mortgage debt.

Retirement and Investing

If you happen to have a traditional IRA, those contributions are most likely tax-deductible. But your deduction might be limited based on your income and whether or not you (or your spouse if you’re married) have a retirement plan through your workplace.

But here’s the catch: You’ll have to pay taxes on the money you take out of your traditional IRA in retirement. Yuck. That’s why we recommend investing with a Roth IRA instead. Of course, you won’t be able to deduct Roth contributions off your taxes now. But who cares? You’ll be too busy enjoying tax-free growth and withdrawals in retirement later. Future you will thank you!

Contributions to your traditional pre-tax 401(k) also lower the amount of your taxable income, potentially moving you into a lower tax bracket and saving you money on taxes this year. But you’ll also have to pay taxes when you take that money out during retirement. So, keep that in mind

Home Office Deduction

If you’ve turned part of your home into your own workspace used only for business, you can write off work-related expenses like rent, utilities and maintenance costs.

 

 

Itemizing vs. The Standard Deduction: Which Should I Choose?

Here’s the deal: With the increase in the standard deduction, taking that automatic deduction will make sense for more taxpayers than before. But it’s still important to add up your itemized deductions before you make that decision.

Take Linda and Eric, for example. They’re married and filing jointly, so they automatically qualify for that $24,800 standard deduction—and they’re excited about that huge amount! 

But just to be sure, they go through their records to find all the tax deductions they can claim if they choose to itemize. Would they save money that way? 

After adding up their itemized deductions, they see they can knock more than $28,000 off their taxable income, potentially saving them hundreds of dollars on their taxes. 

Do you think Linda and Eric regret going back through all their receipts, files and bank statements? Not a chance!  

Still, for many other taxpayers, the new standard deduction is far and away the better option. 

Meet Shawn. He’s a single guy just starting out in his career. He’s putting in crazy hours at his accounting job and renting a small apartment while he tries to work through his debt snowball. Since he doesn’t have that many expenses to deduct, the standard deduction offers a much larger tax break than itemizing would. That’s a no-brainer!

Itemize or Take Standard Deduction? 

Ckick the picture below

 

 

When it comes to taxes, everyone’s situation is different. There is no one-size-fits-all solution! If you’re a homeowner or business owner, you made a lot of charitable contributions, or you paid out of pocket for hefty medical expenses, then itemizing might be the best move for you.

Maximize Your Refund with an Expert Tax Consultant

The bottom line? You want to be sure you’re getting the most out of all these tax deductions. Just one missed deduction could cost you far more than the fee of a professional.

That’s why when you’re in doubt, you should turn to a tax advisor. With years of experience behind them, their wealth of knowledge can take the guesswork out of taxes—protecting you and your wallet.

The sooner you connect with a pro, the sooner you can check taxes off your to-do list.

2. I took money out of my 401(k). What’s going to happen with the money I took out?

Another thing the CARES Act did is allow people to take a type of “hardship withdrawal” of up to $100,000 out of their retirement accounts until the end of 2020 without having to pay the usual 10% early withdrawal penalty.

But even without the early withdrawal penalty, you’ll still have to pay income taxes on any money you take out of your traditional 401(k)s and IRAs. If you’re not careful, you could bump yourself into a higher tax bracket and owe Uncle Sam even more in taxes for this year.

Look, if you’re currently staring at your 401(k) balance with hungry eyes, let us dump a bucket of ice-cold water on that idea: Don’t do it. We don’t want you to even think about taking money out of your retirement accounts. The only time it ever makes sense to tap into those accounts is to avoid bankruptcy and foreclosure. That’s it.

Even without the early withdrawal penalty, raiding your 401(k)s and IRAs is a bad idea for two reasons. First, you’re sabotaging your money’s ability to grow over the long term and basically stealing money from your future self. Not cool. And second, like we just talked about, you’ll have to pay taxes on the money you take out.

But to the point, what if you already took some money out of your 401(k)s and traditional IRAs? The good news is you can undo that mistake! The CARES Act allows you to return any funds within the next three years and file an amended return. That way, you can get a refund on the taxes you paid on that money and get your retirement savings back on track.

 

3. I lost my job and received unemployment benefits. Are those benefits taxable?

Yes, any unemployment benefits you received in 2020 will count as taxable income.

Millions of Americans lost their jobs or were furloughed in the midst of the lockdowns and economic shutdowns, leading to record numbers of people signing up for unemployment benefits.4 The CARES Act also allowed the freelancers, independent contractors and the self-employed to file for Pandemic Unemployment Assistance, a program designed to help folks not usually eligible for unemployment benefits.

There are two ways you can pay your taxes on those unemployment benefits, depending on what you chose when you filed. The first is to have 10% of each payment withheld to cover all or some of what you owe in federal income taxes (you can’t withhold more or less from unemployment benefits). That’s probably the easiest option! If you chose not to have taxes withheld from your benefits, then you’ll have to pay quarterly estimated taxes on that money.

4. I took on some side jobs to make up for some lost income. What should I expect?

Whether you were delivering groceries all over town or selling everything in your house that wasn’t nailed down to the floor, you might have taken on a side gig (or three) to replace lost income or pile up cash to ride out the pandemic. Hey, you got to do what you gotta do!  

But guess what? That money you made freelancing or doing odd jobs here and there will be taxed, so here’s a rundown of what you need to know:

·         First, you’ll owe regular income taxes on that money at your ordinary tax rate.

·         On top of that, you’ll also have to pay the self-employment tax—that’s a 15.3% tax which covers your share of Social Security and Medicare taxes—if you made more than $400 in self-employment income for the year. Don’t worry, you can probably write off half of that 15.3% on your tax return.

·         If you expect to owe more than $1,000 in taxes for the year, the IRS wants you to pay quarterly estimated taxes, so it doesn’t all pile up toward the end of the year.

·         You’ll probably receive 1099 forms from those you did work for, so keep an eye out for those. And you’ll need to fill out a Schedule SE form to report any other self-employment income you might have made during 2020.

Here’s a good rule of thumb for the future: Since the taxes from your side hustle income usually won’t be withheld like they would be in a “normal” job, you should set aside 25–30% of every paycheck you get for taxes. That way, you’re not scrambling around to pay your taxes when the deadlines roll around.

5. I’m working remotely for my company from a different state. How will that impact my taxes?

This one’s a little tricky. According to the Pew Research Center, about 1 out of 5 Americans relocated because of the pandemic or know someone who did. If you’re one of those remote workers who crossed state lines, you might be in for a tax surprise—and not the good kind.

You see, each state has its own tax system with its own set of rules—and most states that have their own income tax will impose them on anyone doing work in their state, even if they are just passing through.

Now, a few states already have “reciprocity agreements” in place that prevent income from being taxed twice, and a few others have offered tax relief for remote workers because of the pandemic. But some states are not budging on their state tax laws. That means a lot of folks who work in one state but live in another could end up owing taxes in two states this year. 

Check your state’s tax laws and get in touch with a tax professional who will be able to help you figure out which state governments you might be getting a tax bill from.

6. Since I was working from home, I can claim the home office deduction on my tax return, right?

Not so fast! Remember the Tax Cuts and Jobs Act that was passed a few years back? That law did away with a bunch of “miscellaneous itemized deductions” in exchange for a higher standard deduction. That means writing off the cost of setting up and maintaining a home office is off the table for most taxpayers.

Generally, the home office tax deduction is only available for self-employed individuals, freelancers or independent contractors who have a home office that is used exclusively for business purposes on a regular basis. That means office workers sent home by their employers during the pandemic don’t count, since they don’t work exclusively out of their home.

But that doesn’t mean you’re out of options! If you’ve had to spend some money on supplies that you needed to do your job from home, ask your employer if they’d be willing to reimburse you for those expenses.

7. I’m a college student and took out some funds from a 529 plan to pay for college. Then we were sent home and the university refunded some of it. What happens to that money?

Many colleges and universities across the country decided to shift all their classes online and send students home for the year. As a result, many students (or their parents) got a refund for what they paid for tuition and student housing. But if you used a 529 plan or Educational Savings Account (ESA) to pay for those educational costs, you might find yourself in some tax trouble.

Here’s why: Any money you take out of a 529 plan or ESA must be used for qualified educational expenses in order to be tax-free. Makes sense. But since that money isn’t being used to cover education expenses anymore, now you’ll have to pay income taxes on it and the IRS might smack you with a 10% penalty. Uh-oh.

To avoid paying those taxes and penalties, you need to put that money back into your 529 or ESA account. But don’t wait too long, because you only have 60 days from the date the refund was issued to do that. Clock’s ticking!  

 

What is a 529 Plan?

A 529 plan (named after its section of the IRS code) is an investment account offering tax breaks that allows you to set aside money for qualified educational expenses—think things like tuition, fees, books, and room and board. Let’s dive into the details!

How Does a 529 Plan Work?

Most 529 plans are run by states, and there is one prepaid plan (more on that in a minute) run by a bunch of private colleges. Each 529 plan account has an account owner (often, though not always, a parent) and the beneficiary (the student). The owner controls the investments and chooses the beneficiary, which could be themselves. Anyone can contribute to a 529, and there are no income or age limits on contributions. And while most people associate these plans with saving money for their kids’ college education, as of 2020, you can now use the money in some 529 plans for K-12 public, private, religious school tuition, and apprenticeship programs.

While you have to pay a “gift tax” if you contribute more than $15,000 ($30,000 for a couple giving together) in one year, you can get around that by doing what’s called five-year gift tax averaging. What this means is that over a five-year period, you can give in unequal amounts up to $75,000 ($150,000 for a couple). Let’s say you give Junior $20,000 in years 1–3 for a total of $60,000. In years four and five, if you only contribute $7,500 per year, you’ll be at that $75,000 limit over the five years and qualify for the gift tax averaging, and the IRS doesn’t get a cut!

Like some retirement accounts, you make contributions to a 529 with after-tax dollars, and the earnings are tax-deferred. That means qualified distributions (aka the money a beneficiary takes out) for a 529 are completely tax-free.

Types of 529 Plans

Now there are two basic types of 529 plans you’ll want to know about: prepaid plans and savings plans. There are some pretty important differences between these two, so be sure to focus here.

Prepaid Plans                                                                     

A 529 prepaid plan locks in tuition at current rates, so you can prepay future college costs. Today, there are 19 prepaid plans, but only 10 are accepting applicants. With the way tuition is rising this seems like a pretty good deal. Before you’re shouting, “Sign me up!” you might want to ask yourself why don’t all states offer them? Well, that’s what they call a red flag, people! You need to understand the increases in college costs can outpace the return on the prepaid plan. So, you may have to shell out more cash to cover the tuition costs. Some prepaid plans offer guarantees, but some states don’t honor the guarantee. Listen up, this could mean the money may not be there when your child is ready to use it!

Experts say to plan for an annual 8% average tuition hike, which means tuition costs would double every nine years, or double twice from birth to college age!3 That means if the tuition today is $50,000, it would be about $200,000 18 years from now.

Benefits of a Prepaid 529 Plan

·         You can buy units, or credits, at participating schools (usually public and in-state).

·         There are no annual contribution limits, but you could have to pay a federal “gift tax” if you contribute more than $15,000 in a year.

·         There are no age limits for contributions or using the money in the prepaid plan (in most states).

Drawbacks of a Prepaid 529 Plan

·         Tuition rate may not be guaranteed.

·         Can’t be used to pay for future room and board.

·         Doesn’t let you prepay for K-12 tuition.

·         Has residency requirements for the owner and/or beneficiary.

·         You can’t transfer the money to a child of the beneficiary (your grandchild) if your kid doesn’t end up going to college.

·         May charge an enrollment/application fee and ongoing administrative fees.

Bottom line: Steer clear of prepaid plan options.

Savings Plans

A 529 savings plan allows you to choose a predetermined investing portfolio that you can use to grow money for your child’s future educational expenses. You can reallocate the money within the portfolio you choose, but only twice a year.

The SECURE Act, passed in December 2019, created new qualified expenses for 529 savings plans. That means money in your plan can now be used for apprenticeships, homeschooling expenses, and repayment of up to $10,000 of student loans for the beneficiary and their siblings.4

With a 529 savings plan, you can shop around and see if 529s from other states have better investment options and lower fees. My best piece of shopping advice is to work with an investment pro who knows these plans better than anyone.

Benefits of a 529 Savings Plan

·         Each savings plan varies from state to state, and you don’t have to use your state’s plan.5 You can go with the most affordable plan!

·         There are no annual contribution limits, but you may have to pay a federal “gift tax” if you contribute more than $15,000 in a year.  

·         There’s no age limit for contributions or distributions. If your 30-something decides to go back to school, they can still use the money.

·         There are no income restrictions for contributions or distributions.

·         Growth and withdrawals are not subject to federal income tax if used for qualified educational expenses, including tuition and books.  

·         If you don’t use the money for one child, you can transfer the funds to another child or grandchild.

·         If you want to use money in a savings plan for noneducational expenses, you can. It’s your money! But nonqualified withdrawals are taxed and hit with a 10% penalty. Oh, and the person who receives the distribution pays the tax.6

Drawbacks of a 529 Savings Plan

·         You cannot lock in tuition costs.

·         May charge an enrollment/application fee, annual account maintenance fees, ongoing program management fees, and ongoing asset management fees. 

Is a 529 Worth It?

The tax-deferred growth and tax-free withdrawals for qualified expenses are attractive reasons to have a 529 plan. Another is the higher contribution rates that can reach up to $500,000, depending on the state.7 But obviously the two types of plans are not created equal here.

Investing in 529 savings plans with good growth mutual funds is the best way to go with a 529. Savings plans provide a better return by investing your money instead of locking in a tuition rate with the prepaid plan. Plus, with most prepaid tuition plans, the state will only refund the principal (not any interest you’ve earned) if your child decides not to go to college.

Now, in addition to 529s, when looking at college planning for Junior, you’ll also want to check out an Education Savings Account (ESA). When it comes to a 529 and an ESA, the strongest argument for an ESA is the virtually unlimited investment options.

Investing in 529 savings plans with good growth mutual funds is the best way to go with a 529. Savings plans provide a better return by investing your money instead of locking in a tuition rate with the prepaid plan.

What is an Educational Savings Account (ESA)?

How much student loan debt do you think the average college student racks up by the time they cross the graduation stage? $5,000–10,000? Think again. According to the Wall Street Journal, the average college graduate’s student loan debt is at a whopping $37,172. And that’s just the average!

The most recent data from the Federal Reserve Bank of New York shows the overall student loan debt in America hovering just over $1.3 trillion. Trillion!

At this rate, college graduates will be lucky to have their student loans paid off before their kids start college! As a parent, you’re probably thinking there has to be another way. Well, there is! You can start saving for college by opening a college fund. It’s not easy, but with focused dedication, hard work, and careful planning, it’s possible to save enough so your child can go through college debt-free!

When Should You Start Saving for College?

Saving for college is Baby Step 5, and we generally advise parents to start saving for college as soon as they can. But a lot of times it’s a bit more complicated than that.

Starting a college fund is a great goal, but it’s not the only goal. You likely have other financial priorities like paying off your mortgage, your credit card bill, or your own student loan debt.

You don’t want to neglect your own money goals, especially when it comes to retirement savings. There are other ways to pay for college, like through grants or scholarships. Bottom line, you need to take care of your future first.

Before you can start saving for your children’s college fund, it’s important you’ve already done the following:

  • Paid off any debt (this includes things like your credit card debt, your own student loan debt, etc.)
  • Set up an emergency fund of 3 to 6 months of expenses to cover any unexpected costs
  • Put 15% of your income toward retirement savings through your employer-sponsored retirement plan, like a 401(k) and/or a Roth IRA

The Best Ways to Start a College Fund

First, you need to figure out how much you need to save for college. We recommend saving for your children’s college using the following three tax-favored plans:

Education Savings Account (ESA) or Education IRA

An ESA allows you to save $2,000 (after tax) per year, per child. Plus, it grows tax-free! If you start when your child is born and save $2,000 a year for 18 years, you would only invest $36,000. While the rate of growth will vary based on the investments in the account, you’ll likely earn a much higher rate of return with an ESA than you would in a regular savings account—and you won’t have to pay taxes when you withdraw the money to pay for education expenses.

Why We Like It:

  • Variety of investment options
  • Grows tax-free

Why We Don’t:

  • You must be within the income limit to qualify
  • Contributions are limited to $2,000 per year
  • The amount must be used by the beneficiary by age 30

529 Plan

If you want to save more for your children’s college education, or if you don’t meet the income limits for an ESA, then a 529 Plan could be a better option. Look for a 529 Plan that allows you to choose the funds you invest in through the account. Some Financial Advisors warn against using a 529 Plan that would freeze your options or automatically change your investments based on the age of your child.

The right 529 Plan will also give you the option to change the beneficiary to another family member. So, if your firstborn decides not to go the college route, you can still use the funds you saved for the next kid in line.

Why We Like It:

  • Higher contribution rates (varies by state, but generally you can contribute up to $300,000)
  • Most of the time, there aren’t any income limits or restrictions based on age
  • Grows tax-free

Why We Don’t:

  • Restrictions may apply if you choose to transfer your 529 Plan funds to another child.

UTMA or UGMA (Uniform Transfer/Gift to Minors Act)

An UTMA/UGMA differs from ESAs and 529 Plans in how they aren’t designed just for education savings. The account is in the child’s name but is controlled by a custodian (usually a parent or grandparent). This person manages the account until the child reaches age 21. At age 21 (age 18 for the UGMA), control of the account transfers to the child to use any way they choose.

Why We Like It:

  • Funds can be used for more than just college expenses
  • Tax advantages for the contributor

Why We Don’t:

  • Beneficiary can use money however they choose once of legal age (pay for college or a sports car)
  • Beneficiary can’t be changed after selected

College Savings Tips for Students

You as the parents don’t have to be the only source for college savings. Get your kids involved in the effort. Even though your child is a full-time student, there’s no reason they can’t start building up their own savings fund. At the very least, doing this will help establish healthy money habits they’ll carry into the future.

Here are some great college saving tips to help them get started:

1. Apply for scholarships

It’s free money for college that you don’t have to worry about paying back. If your child excels in athletics, academics or extracurricular activities, they should try to get rewarded for it. Encourage your child to apply for any scholarship they’re eligible for—even the small ones add up fast! 

2. Take AP classes

Advanced Placement (AP) classes give high school students the opportunity to earn college credits while they’re still in high school. Every AP class taken in high school is one less class you’ll need to pay for in college. Advise your child to talk to their academic counselor for more information.

3. Get a job

Whether they take on a full-time gig during the summer or a part-time job during the school year, your child will be able to save money for college and gain work experience to put on their resume.

4. Open a savings account

If your student is serious about building up their college savings, they’ll need a safe place to keep all that money. Most banks offer accounts specifically for students, which usually means waived monthly maintenance fees and no minimum balance requirements. If your child is under 18, you’ll need to be the joint account holder.

5. Save money instead of spending it

If your child gets birthday money or an allowance, suggest they put it right into their savings account so they aren’t tempted to spend it.

It’s Time to Get Serious About Saving for College

It’s never too early to start thinking about a college savings plan. Whether your child is a teenager or toddler, the best time to start a college fund is now.

 

8. My company decided to defer my payroll taxes for the remainder of 2020. What does that mean?

Some workers might have noticed that their paychecks got slightly bigger during the last few months of 2020. That’s because the Trump administration signed an executive order that allows companies to defer payroll taxes (Social Security payroll taxes, to be specific) from Sept. 1, 2020 to Dec. 31, 2020.

So, if you’re a federal government employee or work at a company that decided to defer your Social Security payroll taxes for the rest of 2020, you saw a temporary 6.2% bump in your paychecks. Don’t jump for joy just yet, because there’s a catch.    

The key word here is deferred. This is not a tax break—those taxes still need to be paid. That means companies will have to make up that money between January and April 2021, so you’ll be seeing less money in your paycheck during that time. So, brace yourself for that!

9. I tested positive for COVID-19 and piled up a bunch of medical expenses as a result. Can I deduct those costs from my taxes?

It depends. The IRS lets you deduct medical, dental and other health expenses that fall above 7.5% of your adjusted gross income (that’s the part of your income that is taxable) for the year.

For example, if your adjusted gross income is $50,000, first you would multiply that by 7.5% to find out that you can only deduct expenses that exceed $3,750. If you spent $5,000 in medical expenses in 2020, that means you can only deduct $1,250 in medical expenses.

But here’s the kicker: You can only deduct medical expenses if you choose to pass on the standard deduction and itemize your deductions instead. 

Does it make sense to itemize your deductions? For 2020, the standard deduction is $12,400 for single filers and $24,800 for married couples. It really only makes sense to itemize if your itemized deductions (including medical expenses) are greater than the standard deduction, so choose wisely!

10. I’m a small business owner who took out a PPP loan. How will that impact my taxes?

The CARES Act didn’t just set out to help individuals and families—it also tried to provide some financial assistance for struggling small business owners by offering them Paycheck Protection Program (PPP) loans. These loans were designed to be “forgiven” as long as they were used for certain business expenses—particularly payroll, rent or interest on mortgage payments, and utilities.

And while income from debt forgiveness usually counts as taxable income, the CARES Act makes an exception for PPP loan forgiveness. That means that as long as you used those PPP funds for eligible expenses, that money will not be taxed . . . as long as your loan forgiveness application is approved (more on that in a minute).  

But there are a few problems (aren’t there always?): The IRS says that any expenses you paid with money from those PPP loans cannot be deducted from your taxable income. So, if you applied for a PPP loan, borrowed $100,000, and spent all of that money on payroll, rent and utilities, you won’t be able to deduct a dime of those business expenses from your taxes like you normally would.

Many members of Congress are saying, “Wait a minute, we didn’t mean for that to happen!” But unless they pass legislation to make those expenses deductible, you won’t be able to take those deductions like previous years.

Oh, and all that “forgiveness” business? As of October 2020, the Paycheck Protection Program dished out $525 billion in loans to 5.2 million borrowers . . . and not a single loan has been forgiven. Borrowers and banks are frustrated with the Small Business Administration’s handling of loan forgiveness applications and confused about next steps. Surprise, surprise.   

Do not take out a PPP loan! We hate to tell you “we told you so,” but . . . we told you so. President Ronald Reagan once said that the nine most terrifying words in the English language are “I’m from the government, and I’m here to help.” He might have been onto something!

Got Questions? Work with a Tax Pro!

Without a doubt, this tax season is going to be a hot mess for millions of Americans who have seen their lives turned upside down by this pandemic. If you’re one of them, it might be a good idea to reach out to a tax advisor who is up-to-date on the latest news and changes for this tax season.

If you want to make sure you get your taxes done right and avoid making huge tax mistakes that could cost you hundreds or thousands of dollars, go to a Professional Tax Preparer.

 

 

 

IRS to increase focus on tax return preparers who haven’t filed their own tax returns

The IRS will step up revenue officer contacts focused on tax return preparers who in prior years have failed to timely file one or more of their own tax returns. The purpose of these contacts is to remind tax return preparers of their own tax filing and paying obligations and bring them into compliance. As noted in a recent report by the Treasury Inspector General for Tax Administration:

When preparers cannot manage their own tax affairs, or worse, if they intentionally claim credits and deductions to which they are not entitled, they could undermine the tax administration system.*

These contacts will generally be conducted by telephone because the safety of IRS employees and the public remains a top priority for the IRS. Unlike face-to-face contacts, which are generally unannounced, these tax preparers will receive a letter from the revenue officer scheduling the contact.  

IRS revenue officers will share information with tax return preparers about their tax filing and paying obligations and the consequences of failing to meet those obligations. For those tax return preparers who owe, revenue officers will identify appropriate ways to resolve their tax compliance issues.

These visits are part of an ongoing broader effort by the IRS to ensure compliance and fairness.

How the CARES Act changes deducting charitable contributions

Whether taxpayers are supporting natural disaster recovery, COVID-19 pandemic aid or another cause that’s personally meaningful to them, their charitable donations may be tax deductible. These deductions basically reduce the amount of their taxable income.

Here’s how the CARES Act changes deducting charitable contributions made in 2020:

Previously, charitable contributions could only be deducted if taxpayers itemized their deductions.

However, taxpayers who don’t itemize deductions may take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations. For the purposes of this deduction, qualifying organizations are those that are religious, charitable, educational, scientific or literary in purpose. The law changed in this area due to the Coronavirus Aid, Relief, and Economic Security Act. 

The CARES Act also suspends limits on charitable contributions and temporarily increases limits on contributions of food inventory. More information about these changes is available on IRS.gov.

Here’s who qualifies for the employee business expense deduction


Employee business expenses can be deducted as an adjustment to income only for specific employment categories and eligible educators.

Taxpayers can no longer claim unreimbursed employee expenses as miscellaneous itemized deductions, unless they are a qualified employee or an eligible educator. They must complete Form 2106, Employee Business Expenses to take the deduction.

If someone falls into one of these employment categories, they are considered a qualified employee:

  • Armed Forces reservists
  • Qualified performing artists
  • Fee-basis state or local government officials
  • Employees with impairment-related work expenses

No other type of employee is eligible to claim a deduction for unreimbursed employee expenses.

Here’s what makes something a qualified expense:

  • Paid or billed during the tax year
  • For carrying on a trade or business of being an employee, and
  • Ordinary and necessary

IRS Releases 2021 Tax Rates, Standard Deduction Amounts And More

The Internal Revenue Service (IRS) has announced the annual inflation adjustments for the tax year 2021, including tax rate schedules, tax tables and cost-of-living adjustments.

These are the numbers for the tax year 2021 beginning January 1, 2021. They are not the numbers and tables that you’ll use to prepare your 2020 tax returns in 2021. These are the numbers that you’ll use to prepare your 2021 tax returns in 2022.

If you aren’t expecting any significant changes in 2021, you can use the updated numbers to estimate your liability. If you plan to make more money or change your circumstances (for example, you’re getting married or starting a business), consider adjusting your withholding or tweaking your estimated tax payments. 

Tax Brackets and Tax Rates

There are still seven (7) tax rates in 2021. They are: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Here’s how those break out by filing status:

Single Tax Rates 2021

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Married Filing Joint Tax Rates 2021

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Head of Household Tax Rates 2021

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Trust and Estates 2021

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Note: These rates remain in place no matter what happens in Presidential Election. For these rates to change, Congress would have to vote to change the tax rates.

Standard Deduction Amounts 

The standard deduction amounts will increase to $12,550 for individuals and married couples filing separately, $18,800 for heads of household, and $25,100 for married couples filing jointly and surviving spouses.

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  • For 2021, the additional standard deductionamount for the aged or the blind is $1,350. The additional standard deduction amount increases to $1,700 for unmarried taxpayers.
  • For 2021, the standard deduction amount for an individual who may be claimed as a dependentby another taxpayer remains the same. It is cannot exceed the greater of $1,100 or the sum of $350 and the individual’s earned income (not to exceed the regular standard deduction amount).

Personal Exemption Amount

There will be no personal exemption amount for 2021. The personal exemption amount remains zero under the Tax Cuts and Jobs Act (TCJA). 

Alternative Minimum Tax (AMT) Exemption Amounts

The alternative minimum tax (AMT) exemption amounts are adjusted for inflation. Here’s what those numbers look like for 2021:

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Kiddie Tax 

The kiddie tax applies to unearned income for children under the age of 19 and college students under the age of 24. Unearned income is income from sources other than wages and salary, like dividends and interest.

For 2021, the standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of (1) $1,100 or (2) the sum of $350 and the individual’s earned income (not to exceed the regular standard deduction amount). 

Under the TCJA, your child must pay taxes on their unearned income, but if that amount is more than $1,100, but less than $11,000, you may be able to elect to include that income on your return rather than file a separate return for your child.

Capital Gains Tax

Capital Gains rates will not change for 2021, but the brackets for the rates will change. Most taxpayers pay a maximum 15% rate, but a 20% tax rate applies if your taxable income exceeds the thresholds set for the 37% ordinary tax rate. Exceptions also apply for art, collectibles and section 1250 gain (related to depreciation). The maximum zero rate amounts and maximum 15% rate amounts break down as follows: 

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Schedule A (Itemized Deductions)

There are changes to itemized deductions found on Schedule A, including:

Medical and Dental Expenses. The “floor” for medical and dental expenses is 10% in 2021, which means you can only deduct those expenses which exceed 10% of your AGI.

State and Local Taxes. Deductions for state and local sales, income, and property taxes remain in place and are limited to a combined total of $10,000, or $5,000 for married taxpayers filing separately.

Home Mortgage Interest. You may only deduct interest on acquisition indebtedness—your mortgage used to buy, build or improve your home—up to $750,000, or $375,000 for married taxpayers filing separately.

Charitable Donations. The percentage limit for charitable cash donations to public charities remains at 60% for 2o21.

Casualty and Theft Losses. The deduction for personal casualty and theft losses has been repealed except for losses attributable to a federal disaster area.

Job Expenses and Miscellaneous Deductions subject to 2% floor. Miscellaneous deductions, including unreimbursed employee expenses and tax preparation expenses, which exceed 2% of your AGI have been eliminated. That includes the home office deduction.

There are no Pease limitations in 2021.

Above-The-Line Deductions

An above-the-line deduction is one that you can claim even if you don’t itemize your deductions. Here’s a look at two of the most popular:

Student Loan Interest Deduction. For 2021, the $2,500 deduction for interest paid on student loans begins to phase out when modified adjusted gross income (MAGI) hits $70,000 ($140,000 for taxpayers filing a joint return) and is completely phased out when MAGI hit $85,000 ($170,000 for taxpayers filing a joint return).

Elementary and Secondary School Teachers Expenses. For 2021, qualifying teachers can claim $250 for expenses paid or incurred for books, supplies (other than nonathletic supplies for courses of instruction in health or physical education), computer equipment (including related software and services) and other equipment, and supplementary materials used in the classroom.

Charitable Contributions. For 2020, if you don’t itemize your deductions, you can claim a charitable deduction of up to $300 for cash contributions. The maximum deduction per return is $300 (it’s not per person). Unless Congress extends the provision, that is not the case for 2021.

Tax Credits & Tax Deductions

Some additional tax credits and deductions have been adjusted for 2021. Here’s a look at a few of the most popular:

Child Tax Credit. The child tax credit is $2,000 per qualifying child; up to $1,400 is refundable, subject to phaseouts. AGI phaseouts are not indexed for inflation and remain at $400,000 for married taxpayers filing jointly and more than $200,000 for all other taxpayers.

Earned Income Tax Credit (EITC). For 2021, the maximum EITC amount available is $6,728 for married taxpayers filing jointly who have three or more qualifying children (it’s $543 for married taxpayer with no children). Phaseouts apply.

Adoption Credit. For 2021, the credit for an adoption of a child with special needs is $14,440, and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $14,440. The available adoption credit begins to phase out for taxpayers with MAGI in excess of $216,660; it’s completely phased out at $256,660 or more.

Lifetime Learning Credit. For the 2021 tax year, the credit begins to phaseout once MAGI is $59,000 ($119,000 for taxpayers filing a joint return). The credit is completely phased out for taxpayers with MAGI in excess of $69,000 ($139,000 for taxpayers filing a joint return).

Medical Savings Accounts (MSA). For 2021, a high-deductible health plan (HDHP) is one that, for participants who have self-only coverage in an MSA, has an annual deductible that is not less than $2,400 but not more than $3,600; for self-only coverage, the maximum out-of-pocket expense amount is $4,800. For 2021, HDHP means, for participants with family coverage, an annual deductible that is not less than $4,800 but not more than $7,100; for family coverage, the maximum out-of-pocket expense limit is $8,750.

Health Flexible Spending Arrangements. For 2021, the dollar limitation for contributions to health flexible spending arrangements is $2,750. If the plan permits the carryover of unused amounts, the maximum carryover amount is $550.

There is no shared individual responsibility payment for the tax year 2021.

Foreign Earned Income Exclusion. 

For 2021, the foreign earned income exclusion amount is $108,700.                        

Section 199A deduction (also called the pass-through deduction)

As part of the TCJA, sole proprietors and owners of pass-through businesses are eligible for a deduction of up to 20% to bring the tax rate lower for qualified business income. The deduction is subject to threshold and phase-in amounts. For 2021, those amounts will look like this: 

Section 199A phaseout amounts

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Revocation or Denial of Passport

For 2021, the threshold amount for seriously delinquent tax debt before your passport is certified to the State Department to be revoked is $54,000.

Federal Estate Tax Exemption

The federal estate tax exemption for decedents dying will increase to $11.7 million per person or $23.4 million per married couple in 2021. 

Gift Tax Exclusion (& Foreign Gifts)

The annual exclusion for federal gift tax purposes will remain at $15,000 in 2021. That means that you can gift $15,000 per person to as many people as you want with no federal gift tax consequences in 2021; if you split gifts with your spouse, that total is $30,000. The exclusion amount for gifts to a spouse who is not a citizen of the United States (other than gifts of future interests in property) is $159,000.

The threshold to report gifts from certain foreign persons in 2021 is $16,815.

Comparisons & More

You can read all of the numbers in Revenue Procedure 2020-45 (downloads as a PDF).

To all the Prodessional Tax Software Professionals

IRS Announces Interest Payments to 13.9 Million Refund Recipients

Receiving a tax refund might be the only thing people like about filing their return, and it looks like some taxpayers are about to get just a little more money from the Department of Treasury.

The Internal Revenue Service today announced that it “will send interest payments to about 13.9 million individual taxpayers who timely filed their 2019 federal income tax returns and are receiving refunds.” As with seemingly everything else in 2020, this is a direct result of the coronavirus pandemic.

Why are 13.9 million taxpayers receiving a tax refund interest payment?

Federal law requires the IRS issue interest payments to taxpayers who file on time after a disaster postpones the filing deadline. In this case, the obvious culprit is COVID-19 pushing Tax Day back to July 15, 2020. But before people start exchanging socially distanced air high fives, there are a few things they’ll need to know:

  • Interest payments will not be issued to businesses nor taxpayers who received their refund before April 15
  • The interest payment will in most cases not arrive at the same time as the refund payment
  • The average interest payment is $18
  • The interest payment is taxable if it’s $10 or more

The longer it takes for a timely filed tax refund to arrive after the original deadline (April 15, 2020), the more interest the IRS will owe. And since the interest is calculated using the adjusted quarterly rate (compounded daily), that can sometimes result in using a blended rate for refunds that “span quarters.”

Here are the rates specifically cited by the IRS:

  • 5% for the second quarter
  • 3% for the third quarter

Interest payments affected by the blended rate will be calculated using “the number of days falling in each calendar quarter.” Perhaps making it a little easier to report a taxable interest payment, the IRS will send letters containing Form 1099-INT at the beginning of next year.

How are these tax refund interest payments being issued?

Taxpayers should generally expect to receive their tax refund interest payment the same way they received their tax refund: “In most cases, taxpayers who received their refund by direct deposit will have their interest payment direct deposited in the same account …. [and] everyone else will receive a check.”

As you well know, many people plan their finances based on the assumption that they will receive a tax refund every year. When everything feels like it’s up in the air, a little good news is welcome—even if it requires some paperwork.

Treasury, IRS provide tax relief to investors and businesses affected by COVID-19 in new markets tax credit transactions

IR-2020-120, June 12, 2020

WASHINGTON — The Treasury Department and the Internal Revenue Service today provided tax relief for certain taxpayers affected by the COVID-19 pandemic involved in new markets tax credit transactions.

The taxpayers receiving relief through today’s guidance are community development entities (CDEs) and qualified active low-income community businesses (QALICBs) investing and conducting businesses in low-income communities.

Notice 2020-49 (PDF) provides a CDE or QALICB with relief for certain specified time-sensitive acts that are due to be performed between April 1, 2020, and Dec. 31, 2020, in order to meet requirements under section 45D of the Internal Revenue Code and its regulations. A CDE or QALICB may perform these acts by Dec. 31, 2020. The additional time is provided for the following time-sensitive acts:

Making investments

If a CDE is due to invest cash received in a qualified low-income community investment (QLICI) on or after April 1, 2020, and before Dec. 31, 2020, that cash investment is treated as invested in a QLICI to the extent it is invested by Dec. 31, 2020.

Reinvestments

If a CDE is due to reinvest certain amounts of cash or payment in a QLICI on or after April 1, 2020, and before Dec. 31, 2020, the amounts are treated as continuously invested in a QLICI to the extent the amounts are so reinvested by Dec. 31, 2020.

Expending amounts for construction of real property

If a QALICB is due to expend the proceeds of a capital or equity investment or loan by a CDE for construction of real property on or after April 1, 2020, and before Dec. 31, 2020, such proceeds are treated as a reasonable amount of working capital of the QALICB if so expended by Dec. 31, 2020.

Additional information about tax relief for businesses affected by the COVID-19 pandemic can be found on IRS.gov.

IRS provides guidance on employer leave-based donation programs that aid victims of the COVID-19 pandemic

IR-2020-119, June 11, 2020

WASHINGTON — The Internal Revenue Service today provided guidance for employers whose employees forgo sick, vacation or personal leave because of the COVID-19 pandemic.

Notice 2020-46 (PDF) provides that cash payments employers make to charitable organizations that provide relief to victims of the COVID-19 pandemic in exchange for sick, vacation or personal leave which their employees forgo will not be treated as compensation. Similarly, the employees will not be treated as receiving the value of the leave as income and cannot claim a deduction for the leave that they donated to their employer.

Employers, however, may deduct these cash payments as a business expense or as a charitable contribution deduction if the employer otherwise meets the respective requirements of either section.

Notice 2020-46 provides further details for employers with leave donation programs.

Additional information about tax relief for those affected by the COVID-19 pandemic can be found on IRS.gov.

Recent tax law changes have extended or changed many expiring tax law provisions, including: 

  • Treatment of mortgage insurance premiums as qualified residence interest
  • Reduction in medical expense deduction floor
  • Deduction of qualified tuition and related expenses
  • Energy efficient homes credit
  • Employer credit for paid family and medical leave
  • Work opportunity credit
  • Special rule for determining earned income  
  • Repeal of maximum age for traditional IRA contributions
  • Increase in age for required beginning date for mandatory distributions
  • Expansion of section 529 plans
For a complete list of affected tax law provisions see the: 
Joint Committee on Taxation List of Expiring Tax Provisions 2020.

Where is your Stimulus Check

The IRS unveiled a new online tool to help non-filers register to receive an Economic Impact Payment (EIP): the “Non-Filers: Enter Payment Info Here” feature on IRS.gov. This new resource was quickly developed to help more qualifying Americans receive their payment, since the Treasury will begin sending EIPs next week.

While the IRS has repeatedly explained that the vast majority of taxpayers won’t have to do anything to receive an EIP, eligible non-filers who aren’t recipients of Social Security, Railroad Retirement, or Social Security Disability Insurance still need to provide some basic information to get the payment. In general, this includes:

  • Individual non-filers with an AGI less than $12,200
  • Married non-filers with a combined AGI of less than $24,400

The reason is that the IRS is currently required to use filing information from tax-year 2018 and 2019 returns and Forms SSA-1099 and RRB-1099 to determine whether filers qualify for an EIP and where it will be sent. The IRS simply doesn’t have up-to-date information for those who haven’t filed for more than a couple of years and aren’t receiving the government benefits mentioned above.

Luckily, the IRS says that using the “Non-Filers: Enter Payment Info Here” tool should be a straightforward affair: “First, visit IRS.gov, and look for ‘Non-Filers: Enter Payment Info Here.’ Then provide basic information including Social Security number, name, address, and dependents. The IRS will use this information to confirm eligibility and calculate and send an Economic Impact Payment.”  Filers who want to receive their payment via direct deposit will be able to choose that option while filling out their information.

The IRS is also launching the “Get My Payment” tool on April 17, which the agency says will “help everyone check on the status of their payments … including the date their payment is scheduled to be deposited into their bank account or mailed to them.” Those who had not previously supplied direct-deposit banking information will be able to use Get My Payment to do just that.

Additional EIP- and COVID-19-related updates will be available on the “Coronavirus Tax Relief and Economic Impact Payments” page on IRS.gov.

Economic Impact Payment Information Center

 
 

CARES Act – Payroll Protection Program Loan Amount and Estimated Forgiveness Calculator


Overview of Program: The CARES Act provides businesses with fewer than 500 employees, including sole proprietorships and non-profits, access to up to a $10 million loan through the ”Covered Period”, which runs from February 15, 2020 through June 30, 2020. The program includes a provision that allows these loans to be forgiven by the Small Business Administration (”SBA”). It is possible for the entire principal of the loan to be forgiven. Borrowers of this loan program will receive the loan without the need to pledge collateral or provide a personal guarantee.

  • Non-Filers: Enter Payment Info Here

 

Who should use Non-Filers: Enter Payment Info to provide additional information to receive the

Economic Impact Payment?

Eligible U.S. citizens or permanent residents who:

  • Had gross income that did not exceed $12,200 ($24,400 for married couples) for 2019
  • Were not otherwise required to file a federal income tax return for 2019, and didn’t plan to

You can provide the necessary information to the IRS easily and quickly for no fee through Non-Filers:

Enter Payment Info.   IRS will use this information to determine your eligibility and payment amount and send
you an Economic Impact Payment.  After providing this information you won’t need to take any additional action.

 

 

Who is eligible for the Economic Impact Payment?

U.S. citizens or resident aliens who:

  • Have a valid Social Security number,
  • Could not be claimed as a dependent of another taxpayer, and
  • Had adjusted gross income under certain limits.

Who will receive the Economic Impact Payment automatically without taking additional steps?

Most eligible U.S. taxpayers will automatically receive

their Economic Impact Payments including:

  • Individuals who filed a federal income tax for 2018 or 2019
  • Individuals who receive Social Security retirement, disability (SSDI), or survivor benefits
  • Individuals who receive Railroad Retirement benefits

Who should use Non-Filers: Enter Payment Info to provide additional information to receive the Economic Impact Payment?

Eligible U.S. citizens or permanent residents who:

  • Had gross income that did not exceed $12,200 ($24,400 for married couples) for 2019
  • Were not otherwise required to file a federal income tax return for 2019, and didn’t plan to

You can provide the necessary information to the IRS easily and quickly for no fee through Non-Filers: Enter Payment Info. We will use this information to determine your eligibility and payment amount and send you an Economic Impact Payment. After providing this information you won’t need to take any additional action.

Information You will Need to Provide

  • Full name, current mailing address and an email address
  • Date of birth and valid Social Security number
  • Bank account number, type and routing number, if you have one
  • Identity Protection Personal Identification Number (IP PIN) you received from the IRS earlier this year, if you have one
  • Driver’s license or state-issued ID, if you have one
  • For each qualifying child: name, Social Security number or Adoption Taxpayer Identification Number and their relationship to you or your spouse

 

What to Expect

Clicking “Non-Filers: Enter Payment Info Here” above will take you from the IRS site to Free File Fillable Forms, a certified IRS partner. This site is safe and secure.

Follow these steps in order to provide your information:

  • Create an account by providing your email address and phone number; and establishing a user ID and password.
  • You will be directed to a screen where you will input your filing status (Single or Married filing jointly) and personal information.
  • Note: Make sure you have a valid Social Security number for you (and your spouse if you were married at the end of 2019) unless you are filing “Married Filing Jointly” with a 2019 member of the military. Make sure you have a valid Social Security number or Adoption Taxpayer Identification Number for each dependent you want to claim for the Economic Impact Payment.
  • Check the “box” if someone can claim you as a dependent or your spouse as a dependent.
  • Complete your bank information (otherwise we will send you a check).
  • You will be directed to another screen where you will enter personal information to verify yourself. Simply follow the instructions. You will need your driver’s license (or state-issued ID) information. If you don’t have one, leave it blank.

You will receive an e-mail from Customer Service at Free File Fillable Forms that either acknowledges you have successfully submitted your information, or that tells you there is a problem and how to correct it. Free File Fillable forms will use the information to automatically complete a Form 1040 and transmit it to the IRS to compute and send you a payment.

February 14th

IRS urges tax professionals, taxpayers to protect tax software accounts with multi-factor authentication

The IRS and its Security Summit partners today called on tax professionals and taxpayers to use the free, multi-factor authentication feature being offered on tax preparation software products. Already, nearly two dozen tax practitioner firms have reported data thefts to the IRS this year. Use of the multi-factor authentication feature is a free and easy way to protect clients and practitioners’ offices from data thefts. Tax software providers also offer free multi-factor authentication protections on their Do-It-Yourself products for taxpayers. “The IRS, state tax agencies and the private-sector tax industry have worked together as the Security Summit to make sure the multi-factor authentication feature is available to practitioners and taxpayers alike,” said Kenneth Corbin, Commissioner of the IRS Wage and Investment division. “The multi-factor authentication feature is simple to set up and easy to use. Using it may just save you from the financial pain and frustration of identity theft.” Multi-factor authentication means returning users must enter their username/password credentials plus another data point that only they know, such as a security code sent to their mobile phone. For example, thieves may steal passwords but will be unable to access the software accounts without the mobile phones to receive the security codes. Multi-factor authentication protections are now commonly offered by financial institutions, email providers and social media platforms to protect online accounts. Users should always opt for multi-factor authentication when it is offered but especially with tax software products because of the sensitive data held in the software or online accounts. The IRS reminded tax professionals to beware of phishing scams that are commonly used by thieves to gain control of their computers. Thieves may claim to be a potential client, a cloud storage provider, a tax software provider or even the IRS in their effort to trick tax professionals to download attachments or open links. These scams often have an urgent message, implying there are issues with the tax professionals’ accounts that need immediate attention. The IRS also reminds tax professionals that they can track the number of returns filed with their Electronic Filing Identification Number (EFIN) on a weekly basis. This helps ensure EFINS are not being misused. Simply go to e-Services, access the EFIN application and select EFIN status to see a weekly total of returns filed using the EFIN. If there are excessive returns, contact the IRS immediately.

IRS: WARNS Avoid the rush after Presidents Day holiday; Use IRS’ online tools to get help

With a surge of tax returns expected the two weeks following the Feb. 17 Presidents Day holiday, the Internal Revenue Service is offering taxpayers several tips and various time-saving resources to get them the help they need quickly and easily. To help avoid this period of high telephone demand, the IRS encourages taxpayers and tax preparers to use online resources available at IRS.gov. And when it comes time to file, taxpayers are encouraged to file electronically and choose direct deposit for faster refunds. Filing electronically reduces tax return errors as the tax software does the calculations, flags common errors and prompts taxpayers for missing information. Here are a few featured tips to avoid the rush.
  • Use IRS.gov to track refunds. The IRS issues more than nine out of 10 refunds in less than 21 days. IRS customer service representatives cannot answer refund questions until it has been 21 days or more since the taxpayer filed electronically, or six weeks since they mailed a paper return. But taxpayers can track their refund anytime by using the Where’s My Refund? tool on IRS.gov and the IRS2Go app. Taxpayers can also call the IRS refund hotline at 800-829-1954.  
  • Taxpayers claiming the Earned Income Tax Credit or the Additional Child Tax Credit can use the “Where’s My Refund?” tool to track refunds too. By law, the IRS cannot release refunds that include EITC or the ACTC before February 15. “Where’s My Refund?” on IRS.gov and the IRS2Go app will be updated with projected deposit dates for most early EITC/ACTC refund filers by February 22. IRS expects most EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards by the first week of March, if they chose direct deposit and there are no other issues with their tax return.  
  • Use IRS.gov to find answers to tax questions. IRS offers a variety of online tools to help taxpayers answer common tax questions. For example, taxpayers can search the Interactive Tax AssistantTax TopicsFrequently Asked Questions, and Tax Trails to get faster answers.  
  • Turn to a trusted tax professional. To find more information about choosing a tax return preparer, including understanding the differences in credentials and qualifications, visit www.irs.gov/chooseataxpro.  
  • Use digital payment options if additional tax is owed. Some taxpayers may receive a smaller refund or even owe an unexpected tax bill when they file their 2019 tax return particularly if they didn’t do a Paycheck Checkup in 2019. Taxpayers should use the IRS Tax Withholding Estimator to make sure they are withholding enough tax in 2020.  
  • Make an appointment before visiting an IRS Taxpayer Assistance Centers. Anyone who needs face-to-face service should make an appointment before showing up. Most TAC visits can be avoided by using online tools available on IRS.gov.  
  • Call the employer first for that missing Form W-2. Those who have not received a Form W-2, Wage and Tax Statement, from one or more employers should first contact the issuer to inform them of the missing form. Those who do not get a response must still file on time and may need to use Form 4852, Substitute for Form W-2 , Wage and Tax Statement (PDF), or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans and IRA’s Insurance Contracts (PDF).

Feb. 20 IRS webinar focuses on gig economy

The Internal Revenue Service is holding a free webinar designed to help gig workers, employers, contractors and other businesses understand their tax reporting responsibilities. This free 60-minute webinar will take place on Thursday, February 20 at 2 p.m. Eastern Time. It is open to gig workers, businesses, tax professionals and anyone else interested in the tax rules that affect the gig economy. Tax pros can earn one continuing education credit. Topics to be covered include:
  • What is the gig economy?
  • How does a gig worker know whether they are an employee or self-employed?
  • Business expenses and recordkeeping.
  • Rules for home rentals.
  • Tax payment options.
The webinar will feature a live question and answer session and will be closed captioned for viewers who are deaf or hearing impaired. Anyone interested in attending can register online. For more information on the gig economy, visit Understanding the Gig Economy and the Gig Economy Tax Center on IRS.gov.

What is the Gig Economy? How It Works, Benefits, and More

Freelancing has been a thing for decades, but in recent years, the number of independent contractors has skyrocketed. Whether you attribute the shift to a tumultuous economic climate or generational trends (milennials place a higher value on flexbile work and a meaningful work purpose than they do salary, for instance), it’s clear that the gig economy is here to stay.

Definition of the Gig Economy

The term “gig economy” refers to a general workforce environment in which short-term engagements, temporary contracts, and independent contracting is commonplace. It’s also referred to as the “freelancer economy,” “agile workforce,” “sharing economy,” or “independent workforce. ” You might think it’s a buzzword, and you’d be right, but the widespread growth of startups supporting the gig economy (and the number of workers leveraging them) are a sure indication that the nature of work as we know it is changing. The freelancer economy (or freelance economy) differs from traditional employment in that jobs are not permanent, but more specifically, the term relates to many one-off tasks or individual shift assignments. However, the term may also be used to reference longer-term freelance arrangements and independent contracting assignments.

How the Gig Economy Works

Individually, a gig (an individual task, assignment, or job) represents a small portion of a worker’s income. When workers aggregate a variety of tasks or shifts for different clients or companies, their cumulative earnings can be similar to that of full-time employment. Others leverage short-term gigs as a way to earn a part-time income or supplemental income on the side. It works both ways, with workers seeking flexible, short-term working arrangements and companies seeking to hire temporary contract workers in lieu of full-time employees.  Increasingly, the gig economy operates on technology platforms that aim to connect workers looking for flexible work arrangements with the companies who need them in a centralized location, such as an app or website. Some platforms are focused on certain niches, such as hospitality and warehouse workers, dog-walking services, or other specific services, while others are broader, connecting gig workers with companies and clients for tasks ranging from housekeeping services to writing. In the freelance economy, workers operate as independent contractors, meaning their clients pay them an agreed-upon rate for services rendered. In an independent contracting arrangement, workers are responsible for saving and paying their own taxes and aren’t eligible for the typical benefits of full-time employment such as access to group health insurance or retirement investments and savings accounts. But thanks to the rise of the independent workforce, benefits such as health insurance coverage, independent retirement accounts (IRAs), and liability and accident insurance are more accessible than ever before. Plus, workers operating as independent contractors get to take advantage of the tax benefits of operating their own business, including tax deductions for non-reimbursed operating expenses such as travel, supplies, and the like.

Recent tax law changes have extended or changed many expiring tax law provisions, including:

  • Treatment of mortgage insurance premiums as qualified residence interest
  • Reduction in medical expense deduction floor
  • Deduction of qualified tuition and related expenses
  • Energy efficient homes credit
  • Employer credit for paid family and medical leave
  • Work opportunity credit
  • Special rule for determining earned income  
  • Repeal of maximum age for traditional IRA contributions
  • Increase in age for required beginning date for mandatory distributions
  • Expansion of section 529 plans
For a complete list of affected tax law provisions see the Joint Committee on Taxation List of Expiring Tax Provisions 2020.  

Global tax chiefs undertake unprecedented multi-country day of action to tackle international tax evasion

A globally coordinated day of action to put a stop to the suspected facilitation of offshore tax evasion has been undertaken this week across the United Kingdom (UK), United States (US), Canada, Australia and the Netherlands.

The action occurred as part of a series of investigations in multiple countries into an international financial institution located in Central America, whose products and services are believed to be facilitating money laundering and tax evasion for customers across the globe.

It is believed that through this institution a number of clients may be using a sophisticated system to conceal and transfer wealth anonymously to evade their tax obligations and launder the proceeds of crime.

The coordinated day of action involved evidence, intelligence and information collection activities such as search warrants, interviews and subpoenas. Significant information was obtained as a result and investigations are ongoing. It is expected that further criminal, civil and regulatory action will arise from these actions in each country.

This is the first major operational activity for the Joint Chiefs of Global Tax Enforcement, known as the J5, formed in mid-2018 to lead the fight against international tax crime and money laundering. This group brings together leaders of tax enforcement authorities from Australia, Canada, the UK, US and the Netherlands.

“This is the first coordinated set of enforcement actions undertaken on a global scale by the J5 – the first of many,” said Don Fort, US Chief, Internal Revenue Service Criminal Investigation.

“Working with the J5 countries who all have the same goal, we are able to broaden our reach, speed up our investigations and have an exponentially larger impact on global tax administration. Tax cheats in the US and abroad should be on notice that their days of non-compliance are over,” Fort said.

Australian Tax Office (ATO) Deputy Commissioner and Australia’s J5 Chief, Will Day, said that this operation shows that the collaboration between the J5 countries is working. “Today’s action shows the power of our combined efforts in tackling global tax crime, fraud and evasion.”

“This multi-agency, multi-country activity should degrade the confidence of anyone who was considering an offshore location as a way to evade tax or launder the proceeds of crime.”

The ATO has commenced investigations into Australian based clients of this institution who are suspected to have undeclared income. The Australian Criminal Intelligence Commission (ACIC) is playing a supportive intelligence role, and investigations into more clients may follow.

“Never before have criminals been at such risk of being detected as they are now. Our increased collaboration, data analytics and intelligence sharing mean there is no place worldwide you can hide your money to avoid contributing your obligations,” Day said.

Hans van der Vlist, Chief and General Director Fiscal Information and Investigation Service (FIOD), the Netherlands, said, “This is the first outcome of an operational collaboration between five countries on tackling professional enablers that facilitate offshore tax crime.

The international investigation started on information obtained by the Netherlands. By sharing this information and working together an international impact is created. Together as the J5 we will try to close the net on tax criminals.”

Canada Revenue Agency (CRA) Chief Eric Ferron said, “I am very pleased with the role the CRA is playing in what will be the first of many major operational activities for the J5. This coordinated operation shows that the collaboration between J5 countries is working. Tax evaders beware; today’s action shows that through our combined efforts we are making it increasingly difficult for taxpayers to hide their money and avoid paying their fair share.”

Simon York, Chief and Director of Her Majesty’s Revenue and Customs (HMRC)’s Fraud Investigation Service said, “Tax evasion is a global problem that needs a global response and that is what the J5 provides. This kind of international action shows that we can, and we will take on the most collaboration underlines our commitment to tackling these harmful, sophisticated and complex crimes and that we are committed to levelling the playing field for honest businesses and taxpayers.

“International tax evasion robs our public services of vital funds, undermines economies and, left unchecked, can enrich the dishonest at the expense of the honest majority.

Working together, HMRC and our J5 partners are closing the net on tax criminals, wherever they are, to ensure nobody is beyond our reach. The message to them is clear – the J5 are closing in.”

For more information about J5, please visit www.irs.gov/J5.


IRS: Don’t be victim to “ghost” tax return preparers

 

With the start of the 2020 tax filing season near, the Internal Revenue Service is reminding taxpayers to avoid unethical “ghost” tax return preparers. According to the IRS, a ghost preparer does not sign a tax return they prepare. Unscrupulous ghost preparers will print the return and tell the taxpayer to sign and mail it to the IRS. For e-filed returns, the ghost will prepare but refuse to digitally sign as the paid preparer. By law, anyone who is paid to prepare or assists in preparing federal tax returns must have a valid Preparer Tax Identification Number, or PTIN. Paid preparers must sign and include their PTIN on the return. Not signing a return is a red flag that the paid preparer may be looking to make a fast buck by promising a big refund or charging fees based on the size of the refund. Ghost tax return preparers may also:
  • Require payment in cash only and not provide a receipt.
  • Invent income to qualify their clients for tax credits.
  • Claim fake deductions to boost the size of the refund.
  • Direct refunds into their bank account, not the taxpayer’s account.
The IRS urges taxpayers to choose a tax return preparer wisely. The Choosing a Tax Professional page on IRS.gov has information about tax preparer credentials and qualifications. The IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications can help identify many preparers by type of credential or qualification. Free basic income tax return preparation with e-file is available to qualified individuals from IRS-certified volunteers at Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites across the country. For more information and to find the closest visit Free Tax Return Preparation for Qualifying Taxpayers on IRS.gov No matter who prepares the return, the IRS urges taxpayers to review it carefully and ask questions about anything not clear before signing. Taxpayers should verify both their routing and bank account number on the completed tax return for any direct deposit refund. And taxpayers should watch out for ghost preparers inserting their bank account information onto the returns. Taxpayers can report preparer misconduct to the IRS using IRS Form 14157, Complaint: Tax Return Preparer (PDF). If a taxpayer suspects a tax preparer filed or changed their tax return without their consent, they should file Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit (PDF).  

Direct deposit fastest way to receive federal tax refund

With tax season beginning soon, the Internal Revenue Service reminds taxpayers that choosing to have their tax refund directly deposited into their checking or savings account is the fastest way to get their money. It’s simple, safe and secure. Taxpayers can also get their refund deposited into one, two or three different accounts, if desired. Eight out of 10 taxpayers get their refunds by using direct deposit. The IRS uses the same electronic transfer system to deposit tax refunds that is used by other federal agencies to deposit nearly 98% of all Social Security and Veterans Affairs benefits into millions of accounts. Direct deposit also avoids the possibility that a refund check could be lost or stolen or returned to the IRS as undeliverable. And it saves taxpayer money. It costs more than $1 for every paper refund issued, but only a dime for each direct deposit.

Easy to use

A taxpayer simply selects direct deposit as the refund method when using tax software or working with a tax preparer, and then types in their account and routing number. It’s important to double check entries to avoid errors. The IRS reminds taxpayers they should only deposit refunds directly into accounts that are in their name, their spouse’s name or both if it’s a joint account.

Split refunds

By using direct deposit, a taxpayer can split their refund into up to three financial accounts, including a bank or Individual Retirement Account. Part of the refund can even be used to purchase up to $5,000 in U.S. Series I Savings Bonds. A taxpayer can split their refund by using tax software or by using IRS Form 8888, Allocation of Refund (including Savings Bond Purchases), if they file a paper return. Some people use split refunds as a convenient option for managing their money, sending some of their refund to an account for immediate use and some for future savings. No more than three electronic tax refunds can be deposited into a single financial account or prepaid debit card. Taxpayers who exceed the limit will receive an IRS notice and a paper refund will be issued for the refunds exceeding that limit.

E-file plus direct deposit yields fastest refunds

The IRS also encourages taxpayers to file electronically. While a person can choose direct deposit whether they file their taxes on paper or electronically, a taxpayer who e-files will typically see their refund in less than 21 days. Taxpayers can track their refund using “Where’s My Refund?” on IRS.gov or by downloading the IRS2Go mobile app. “Where’s My Refund?” is updated once daily, usually overnight, so there’s no reason to check more than once per day or call the IRS to get information about a refund. Taxpayers can check “Where’s My Refund?” within 24 hours after the IRS has received their e-filed return or four weeks after receipt of a mailed paper return. “Where’s My Refund?” has a tracker that displays progress through three stages: (1) Return Received, (2) Refund Approved, and (3) Refund Sent.


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

The Internal Revenue Service today announced it will return sequestered funds to businesses that were affected by a recent Office of Management and Budget (OMB) determination regarding the Balanced Budget and Emergency Deficit Control Act of 1985, as amended. The IRS will restore any amounts sequestered since 2013 under section 168(k)(4). OMB determined that the refundable corporate minimum tax credit claimed under sections 53 and 168(k)(4) of title 26, U.S. Code as in effect for taxable years beginning before Jan. 1, 2018, is not subject to sequestration. The IRS has a complete list of all taxpayers affected so taxpayers do not need to take any action. Funds and applicable interest will be sent out during fiscal year 2020. Less than 1,000 businesses were affected by the OMB determination. Funds due a company will be used to offset current tax liabilities first. Formerly, refund payments issued to, and credit elect and refund offset transactions for, corporations claiming refundable minimum tax credits for prior year alternative minimum tax liability were subject to sequestration. The OMB determination corrects and reverses the previous determination. Additional information will be shared regarding the timing and process for these reimbursements when it is available.  

IRS willing to consider requests for relief from double taxation related to repatriation

The IRS announced today that the agency has become aware of limited circumstances in which it may be appropriate to provide relief from double taxation resulting from application of the repatriation tax under section 965, as amended by the Tax Cuts and Jobs Act (TCJA). The IRS has determined that in unique circumstances, such as where a corporation paid an unusual dividend for business reasons, not because of the enactment of TCJA, it may be appropriate to provide relief from double taxation. When the same earnings and profits of foreign corporations are taxed both as dividends and under section 965, double taxation could result.   The IRS is open to considering relief from such double taxation where there is no significant reduction in the resulting tax by application of foreign tax credits, such that the taxpayer would be required to pay more tax than it would have if the dividend had not been paid.


Get up-to-date information this tax filing season with redesigned IRS e-News Subscriptions

As the 2020 tax season approaches, the Internal Revenue Service today encouraged taxpayers, businesses, tax professionals and others to take advantage of a variety of improved e-mail subscription services. The e-News Subscription Service has been redesigned and updated in recent months to make it easier to subscribe to specific areas that people and organizations are interested in. Among others, the IRS offers subscription services tailored to tax exempt and government entities, small and large businesses and individuals. The IRS currently has 20 registration-based e-News options, including:
  • IRS Tax Tips – These brief, concise tips in plain language that cover a wide-range of topics of general interest to taxpayers. They include the latest on tax scams and schemes, tax reform, tax deductions, filing extensions and amending a return. IRS Tax Tips are distributed daily during tax season and periodically throughout the year.
  • IRS Newswire − Subscribers to IRS Newswire receive news releases the day they are issued. These cover a wide range of tax administration issues ranging from breaking news to details related to legal guidance.
  • IRS News in Spanish (Noticias del IRS en Español) − Readers get IRS news releases, tax tips and updates in Spanish as they are released. Subscribe at Noticias del IRS en Español.
  • e-News for Tax Professionals − Includes a weekly roundup of news releases and legal guidance specifically designed for the tax professional community. Subscribing to e-News for Tax Professionals gets tax pros a weekly summary, typically delivered on Friday afternoons.
  • IRS Outreach Connection − This newest IRS subscription offering delivers up-to-date materials for tax professionals and partner groups inside and outside the tax community. The material for Outreach Connection is specifically designed so subscribers can share the material with their clients or members through email, social media, internal newsletters, e-mails or external websites. Subscribe by visiting IRS.gov/outreachconnect.

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

  The Internal Revenue Service and Department of the Treasury issued Revenue Procedure 2020-11 (PDF) that establishes a safe harbor extending relief to additional taxpayers who took out federal or private student loans to finance attendance at a nonprofit or for-profit school. Relief is also extended to any creditor that would otherwise be required to file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure. The Treasury Department and the IRS have determined that it is appropriate to extend the relief provided in Rev. Proc. 2015-57Rev. Proc. 2017-24 and Rev. Proc. 2018-39 to taxpayers who took out federal and private student loans to finance attendance at nonprofit or other for-profit schools not owned by Corinthian College, Inc. or American Career Institutes, Inc. The Revenue Procedure provides relief when the federal loans are discharged by the Department of Education under the Closed School or Defense to Repayment discharge process, or where the private loans are discharged based on settlements of certain types of legal causes of action against nonprofit or other for-profit schools and certain private lenders. Taxpayers within the scope of this revenue procedure will not recognize gross income as a result of the discharge, and the taxpayer should not report the amount of the discharged loan in gross income on his or her federal income tax return. Additionally, the IRS will not assert that a creditor must file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure. To avoid confusion, the IRS strongly recommends that these creditors not furnish students nor the IRS with a Form 1099-C.

Jan. 31 filing deadline remains for employer wage statements, independent contractor forms

WASHINGTON — The Internal Revenue Service today reminded employers and other businesses that wage statements and independent contractor forms still have a January 31 filing deadline. Before the Protecting Americans from Tax Hikes (PATH) Act, employers generally had a longer period of time to file these forms. But the 2015 law made a permanent requirement for employers to file their copies of Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration by January 31. Certain Forms 1099-MISC, Miscellaneous Income, filed with the IRS to report non-employee compensation to independent contractors are also due at this time. Such payments are reported in box 7 of this form. The early filing date means that the IRS can more easily detect refund fraud by verifying income that individuals report on their tax returns. Employers can avoid penalties by filing the forms on time and without errors. The IRS recommends e-file as the quickest, most accurate and convenient way to file these forms.

Get a jump on the due date

Employers should verify employees’ information. This includes names, addresses, and Social Security or individual taxpayer identification numbers. They should also ensure their company’s account information is current and active with the Social Security Administration before January. If paper Forms W-2 are needed, they should be ordered early. Automatic extensions of time to file Forms W-2 are not available. The IRS will only grant extensions for very specific reasons. Details can be found on the instructions for Form 8809, Application for Time to File Information Returns. For more information, read the instructions for Forms W-2 & W-3 and the Information Return Penalties page at IRS.gov.


Get your 2020 PTIN before Dec. 31

All PTINs expire on Dec. 31 and must be renewed annually. You must have a valid PTIN if you plan to prepare any federal tax returns for compensation or you are an enrolled agent. Get started at www.irs.gov/ptin. If you can’t remember your User ID or password, use the “Forgot user ID” or “Forgot password” links on the PTIN system login page. You will be asked to enter the email address associated with your account and the answer to your secret question.


Set yourself APART! Participate in the Annual Filing Season Program

  Set yourself APART!  Participate in the Annual Filing Season Program.  This voluntary program is for non-credentialed return preparers who aspire to a higher level of professionalism. The Annual Filing Season Program promotes the importance of education and filing season preparation for return preparers without professional credentials. We encourage you to take time to review the requirements and consider participating for the upcoming 2020 filing season. Why should you participate? Many of you already take continuing education (CE) courses, so participating in the Annual Filing Season Program won’t require a major adjustment for you. You need either 15 or 18 hours of continuing education in specific categories and you must complete them by December 31, 2019. Also, you must take the courses from IRS-approved CE providers. By participating in the program and receiving an Annual Filing Season Program Record of Completion, you will be included in the IRS’s public directory of tax return preparers. The “Directory of Federal Tax Preparers with Credentials and Select Qualifications” is a searchable database that includes the names, city, state, zip code, and credentials of all current year Annual Filing Season Program participants, enrolled agents, attorneys, CPAs, enrolled retirement plan agents and enrolled actuaries with a valid PTIN. Additionally, as a program participant you have limited representation rights, meaning you can represent your clients whose returns you have prepared and signed before examination, customer service representatives, and the Taxpayer Advocate Service. Tax return preparers without a professional credential who don’t participate in the Annual Filing Season Program have no representation rights before the IRS for returns prepared after December 31, 2015. For more information, including program requirements, how to locate IRS-approved CE providers, and course and test descriptions, visit www.irs.gov/tax-professionals/annual-filing-season-program. Go further – Become an enrolled agent Get the credential that says you are a tax professional.  The Annual Filing Season Program is a filing season qualification – an enrolled agent license provides professional status.  The enrolled agent credential is an elite credential issued by the IRS to tax professionals who demonstrate special competence in federal tax planning, individual and business tax return preparation and representation matters.  Enrolled agents have unlimited representation rights; allowing you to represent your clients before the IRS on all tax matters.  As you consider the next steps for your professional career, consider becoming an enrolled agent.  

Final regulations confirm: Making large gifts now won’t harm estates after 2025

IR-2019-189, November 22, 2019 WASHINGTON — The Treasury Department and the Internal Revenue Service today issued final regulations confirming that individuals taking advantage of the increased gift and estate tax exclusion amounts in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels. Treasury Decision 9884, available today in the Federal Register, implements changes made by the Tax Cuts and Jobs Act (TCJA), the tax reform legislation enacted in December 2017. Though the final regulations largely adopt the proposed regulations published last November, they also include clarifying technical language addressing concerns raised in several public comments as well as four examples which, among other things, illustrate the impact of inflation adjustments. As a result, individuals planning to make large gifts between 2018 and 2025 can do so without concern that they will lose the tax benefit of the higher exclusion level once it decreases after 2025. In general, gift and estate taxes are calculated, using a unified rate schedule, on taxable transfers of money, property and other assets. Any tax due is determined after applying a credit – formerly known as the unified credit – based on an applicable exclusion amount. The applicable exclusion amount is the sum of the basic exclusion amount (BEA) established in the statute, and other elements, if applicable, described in the final regulations. The credit is first used during life to offset gift tax and any remaining credit is available to reduce or eliminate estate tax. The TCJA temporarily increased the BEA from $5 million to $10 million for tax years 2018 through 2025, with both dollar amounts adjusted for inflation. For 2019, the inflation-adjusted BEA is $11.4 million. In 2026, the BEA will revert to the 2017 level of $5 million as adjusted for inflation. To address concerns that an estate tax could apply to gifts exempt from gift tax by the increased BEA, the final regulations provide a special rule that allows the estate to compute its estate tax credit using the higher of the BEA applicable to gifts made during life or the BEA applicable on the date of death.  

IRS announces 2020 Tax Counseling for the Elderly Grants

IR-2019-188, November 22, 2019 WASHINGTON — The Internal Revenue Service recently awarded more than $9.8 million in Tax Counseling for the Elderly (TCE) grants to organizations that provide free federal tax return preparation. This year, the IRS awarded grants to 27 TCE applicants from across the nation (PDF). The TCE grants cover one year. The IRS received 37 applications requesting $11.7 million. The TCE program, established in 1978, provides tax counseling and return preparation nationwide to people who are 60 or older. Volunteers receive training and technical assistance. The IRS forms partnerships with a wide variety of organizations across the country to develop TCE programs. Community partners include non-profit agencies, faith-based organizations and community centers. The IRS provides tax law training, certification and oversight to equip these organizations to prepare accurate returns. For information on applying for the TCE program, visit the TCE webpage. For details on becoming a TCE volunteer, visit IRS Tax Volunteers.  
 

IRS reminds tax professionals of tasks to get ready for 2020

IR-2019-186, November 19, 2019 WASHINGTON — The IRS today reminded tax professionals to review their e-Services account to ensure all contact information is accurate and to add or remove users. Reviewing e-Services information is just one of the tasks tax pros should complete now to get ready for 2020.

Here’s a to-do list for the rest of 2019:

Update e-Services information

E-Services offers a suite of tools to assist tax pros. These tools include the e-file application, the Transcript Delivery System (TDS) and a secure mailbox. New e-Services users must first register and verify their identities using Secure Access authentication. Principals, principal consents or authorized responsible officials/delegated users must update the e-file application to ensure that all contact information is accurate. Individuals no longer associated with the firm must be removed from the application. New delegated users must be added to the e-file application. Firms that will need to use the e-Services TDS should ensure the appropriate people are approved on the application to avoid any delays in accessing client transcripts. Firms opening new offices where electronic transmissions will occur also must submit new e-file applications. E-file providers should review Publication 3112, IRS e-file Application and Participation (PDF), to determine additional actions they should take. The IRS reminds tax pros that the Electronic Filing Identification Number (EFIN) is not transferrable and cannot be sold, rented, leased, or provided with software purchased. It can only be obtained from the IRS. Providers who sell, transfer or close their business operations must notify the IRS within 30 days.

Renew PTINs

Anyone who prepares or helps prepare tax returns for compensation must have a Preparer Tax Identification Number (PTIN) and renew it each year. Tax preparers have until Dec. 31, 2019, to renew or register for PTINs for the 2020 filing season. Anyone who is an enrolled agent must also have a PTIN and renew it annually.

Update power of attorney/third-party authorization records

Tax pros who have existing power of attorney or third-party authorization (Forms 2848 and 8821) for clients should review those records. If the taxpayer is no longer a client, tax professionals should submit revocations to end the authorization. They can follow the revocation instructions outlined in Publication 947, Practice Before the IRS and Power of Attorney (PDF). This will help safeguard taxpayer records.

Review security safeguards

All paid tax preparers, regardless of firm size, must have written information security plans as required by the Federal Trade Commission. IRS Publication 4557, Safeguarding Taxpayer Data (PDF), offers an overview of basic security measures and information about the FTC’s Safeguards Rule. Now also is a good time for tax professionals to hire a cybersecurity expert to review office digital safeguards. At a minimum, tax pros should perform a “deep scan” for viruses on all digital devices. Other security tips are available at Taxes-Security-Together Checklist. Tax pros should protect both their PTIN and EFIN from theft.

Review Practitioner Priority Service options

The Practitioner Priority Service (PPS) is any tax pro’s first point of contact for account-related issues. Before calling, they should be sure to review the PPS page. Faster solutions are often available on IRS.gov. The quickest way to obtain a client’s transcripts is by using IRS e-Services and the Transcript Delivery System. After registering for e-Services, tax pros can receive account transcripts, wage and income documents, tax return transcripts, and verification of non-filing letters online. Tax pros must verify their identity before PPS representatives can provide help. This process includes providing their Social Security number and date of birth. If a tax pro has a client in the room, they should consider having them step out or, alternatively, ask the client to make an oral disclosure authorization or oral tax information authorization to the IRS representative.

Identify the local Stakeholder Liaison

The IRS has specialists nationwide who can help tax pros who suffer a security breach that effects their clients. When a data theft occurs, contact the local IRS Stakeholder Liaison immediately.    

IRS: Eligible employees can use tax-free dollars for medical expenses

WASHINGTON — With health care open season now under way at many workplaces, the Internal Revenue Service today reminded workers they may be eligible to use tax-free dollars to pay medical expenses not covered by other health plans. Eligible employees of companies that offer a health flexible spending arrangement (FSA) need to act before their medical plan year begins to take advantage of an FSA during 2020. Self-employed individuals are not eligible. An employee who chooses to participate can contribute up to $2,750 through payroll deductions during the 2020 plan year. Amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax. If the plan allows, the employer may also contribute to an employee’s FSA. Throughout the year, employees can use FSA funds for qualified medical expenses not covered by their health plan. These can include co-pays, deductibles and a variety of medical products. Also covered are services ranging from dental and vision care to eyeglasses and hearing aids. Interested employees should check with their employer for details on eligible expenses and claim procedures. Under the FSA use-or-lose provision, participating employees normally must incur eligible expenses by the end of the plan year or forfeit any unspent amounts. However, employers can, if they choose to, offer an option for participating employees to have more time to use FSA money.
  • Under the carryover option, an employee can carry over up to $500 of unused funds to the following plan year. For example, an employee with unspent funds at the end of 2019 would still have those funds available to use in 2020.
  • Under the grace period option, an employee has until two and a half months after the end of the plan year to incur eligible expenses. For example, March 15, 2020, for a plan year ending on Dec. 31, 2019.
  • Employers can offer either option (not both) or no option.
Employers are not required to offer FSAs. Interested employees should check with their employer to see if they offer an FSA. More information about FSAs can be found at IRS.gov in Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.  

IRS updates guidance for deductible business, charitable, medical and moving expenses

WASHINGTON — The Internal Revenue Service today issued guidance for taxpayers with certain deductible expenses to reflect changes resulting from the Tax Cuts and Jobs Act (TCJA). Revenue Procedure 2019-46 (PDF), posted today on IRS.gov, updates the rules for using the optional standard mileage rates in computing the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes. The guidance also provides rules to substantiate the amount of an employee’s ordinary and necessary travel expenses reimbursed by an employer using the optional standard mileage rates. Taxpayers are not required to use a method described in this revenue procedure and may instead substantiate actual allowable expenses provided they maintain adequate records. The TCJA suspended the miscellaneous itemized deduction for most employees with unreimbursed business expenses, including the costs of operating an automobile for business purposes. However, self-employed individuals and certain employees, such as Armed Forces reservists, qualifying state or local government officials, educators and performing artists, may continue to deduct unreimbursed business expenses during the suspension. The TCJA also suspended the deduction for moving expenses. However, this suspension does not apply to a member of the Armed Forces on active duty who moves pursuant to a military order and incident to a permanent change of station.  
 

Get Ready for Taxes: Important things to know about tax credits

WASHINGTON – With the tax filing season quickly approaching, the Internal Revenue Service recommends taxpayers take time now to determine if they are eligible for important tax credits. This is the second in a series of reminders to help taxpayers Get Ready for the upcoming tax filing season. The IRS recently updated its Get Ready page with steps to take now for the 2020 filing season.

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a refundable federal income tax credit for working people with low to moderate incomes who meet certain eligibility requirements. Because it’s a refundable credit, those who qualify and claim EITC pay less federal tax, pay no tax or may even get a tax refund. EITC can mean a credit of up to $6,557 for working families with three or more qualifying children. Workers without a qualifying child may be eligible for a credit up to $529. To get the credit, people must have earned income and file a federal tax return — even if they don’t owe any tax or aren’t otherwise required to file. Taxpayers can use the EITC Assistant to find out if they are eligible for EITC, determine if their child or children meet the tests for a qualifying child and estimate the amount of their credit.

Child Tax Credit

Taxpayers can claim the Child Tax Credit if they have a qualifying child under the age of 17 and meet other qualifications. The maximum amount per qualifying child is $2,000. Up to $1,400 of that amount can be refundable for each qualifying child. So, like the EITC, the Child Tax Credit can give a taxpayer a refund even if they owe no tax. The qualifying child must have a valid Social Security number issued before the due date of the tax return, including extensions. For tax year 2019, this means April 15, 2020, or if a taxpayer gets a tax-filing extension, Oct. 15, 2020. The amount of the Child Tax Credit begins to reduce or phase out at $200,000 of modified adjusted gross income, or $400,000 for married couples filing jointly.

Credit for Other Dependents

This credit is available to taxpayers with dependents for whom they cannot claim the Child Tax Credit. These include dependent children who are age 17 or older at the end of 2019 or parents or other qualifying individuals supported by the taxpayer. Publication 972, Child Tax Credit, available now on IRS.gov, has further details and will soon be updated for tax year 2019.

Education Credits

Two credits can help taxpayers paying higher education costs for themselves, a spouse or dependent. The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) are claimed on Form 8863, Education Credits. The AOTC is partly refundable. To get either credit, the taxpayer or student usually must receive Form 1098-T, Tuition Statement, from the school attended. Some exceptions apply. See the instructions to Form 8863 for details.

Interactive Tax Assistant

The IRS urges taxpayers to use the agency’s Interactive Tax Assistant (ITA) to help determine if they can claim any of these credits. The ITA also provides answers to general questions on filing status, claiming dependents, filing requirements and other topics. Start with IRS.gov for help that includes tools, filing options and other services and resources. Taxpayers increasingly use IRS.gov as their first resource for tax matters. Information in languages other than English is available under the language tab on IRS.gov. Filing electronically is easy, safe and the most accurate way to file your tax return. There are a variety of free electronic filing options for most taxpayers including using IRS Free File for taxpayers with income below $66,000, or Fillable Forms for taxpayers who earn more. Taxpayers who generally earn $56,000 or less can have their return prepared at a Volunteer Income Tax Assistance siteTax Counseling for the Elderly sites offer free tax help for all taxpayers, particularly those who are 60 years of age and older.


401(k) contribution limit increases to $19,500 for 2020; catch-up limit rises to $6,500

WASHINGTON — The Internal Revenue Service today announced that employees in 401(k) plans will be able to contribute up to $19,500 next year. The IRS announced this and other changes in Notice 2019-59 (PDF), posted today on IRS.gov. This guidance provides cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2020.

Highlights of changes for 2020

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $19,000 to $19,500. The catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $6,000 to $6,500. The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500, up from $13,000 for 2019. The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2020. Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2020:  
  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000, up from $64,000 to $74,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000, up from $103,000 to $123,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $196,000 and $206,000, up from $193,000 and $203,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household, up from $122,000 to $137,000. For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000.

Key limit remains unchanged

The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.  
 

Get Ready for Taxes: Important things to know about tax credits

WASHINGTON – With the tax filing season quickly approaching, the Internal Revenue Service recommends taxpayers take time now to determine if they are eligible for important tax credits. This is the second in a series of reminders to help taxpayers Get Ready for the upcoming tax filing season. The IRS recently updated its Get Ready page with steps to take now for the 2020 filing season.

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a refundable federal income tax credit for working people with low to moderate incomes who meet certain eligibility requirements. Because it’s a refundable credit, those who qualify and claim EITC pay less federal tax, pay no tax or may even get a tax refund. EITC can mean a credit of up to $6,557 for working families with three or more qualifying children. Workers without a qualifying child may be eligible for a credit up to $529. To get the credit, people must have earned income and file a federal tax return — even if they don’t owe any tax or aren’t otherwise required to file. Taxpayers can use the EITC Assistant to find out if they are eligible for EITC, determine if their child or children meet the tests for a qualifying child and estimate the amount of their credit.

Child Tax Credit

Taxpayers can claim the Child Tax Credit if they have a qualifying child under the age of 17 and meet other qualifications. The maximum amount per qualifying child is $2,000. Up to $1,400 of that amount can be refundable for each qualifying child. So, like the EITC, the Child Tax Credit can give a taxpayer a refund even if they owe no tax. The qualifying child must have a valid Social Security number issued before the due date of the tax return, including extensions. For tax year 2019, this means April 15, 2020, or if a taxpayer gets a tax-filing extension, Oct. 15, 2020. The amount of the Child Tax Credit begins to reduce or phase out at $200,000 of modified adjusted gross income, or $400,000 for married couples filing jointly.

Credit for Other Dependents

This credit is available to taxpayers with dependents for whom they cannot claim the Child Tax Credit. These include dependent children who are age 17 or older at the end of 2019 or parents or other qualifying individuals supported by the taxpayer. Publication 972, Child Tax Credit, available now on IRS.gov, has further details and will soon be updated for tax year 2019.

Education Credits

Two credits can help taxpayers paying higher education costs for themselves, a spouse or dependent. The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) are claimed on Form 8863, Education Credits. The AOTC is partly refundable. To get either credit, the taxpayer or student usually must receive Form 1098-T, Tuition Statement, from the school attended. Some exceptions apply. See the instructions to Form 8863 for details.

Interactive Tax Assistant

The IRS urges taxpayers to use the agency’s Interactive Tax Assistant (ITA) to help determine if they can claim any of these credits. The ITA also provides answers to general questions on filing status, claiming dependents, filing requirements and other topics. Start with IRS.gov for help that includes tools, filing options and other services and resources. Taxpayers increasingly use IRS.gov as their first resource for tax matters. Information in languages other than English is available under the language tab on IRS.gov. Filing electronically is easy, safe and the most accurate way to file your tax return. There are a variety of free electronic filing options for most taxpayers including using IRS Free File for taxpayers with income below $66,000, or Fillable Forms for taxpayers who earn more. Taxpayers who generally earn $56,000 or less can have their return prepared at a Volunteer Income Tax Assistance siteTax Counseling for the Elderly sites offer free tax help for all taxpayers, particularly those who are 60 years of age and older.  

IRS grants relief for U.S. persons who own stock in certain foreign corporations

WASHINGTON — The Department of the Treasury and the Internal Revenue Service today issued Revenue Procedure 2019-40 and proposed regulations that provides relief to certain U.S. persons that own stock in certain foreign corporations. The Revenue Procedure limits the inquiries required by U.S. persons to determine whether certain foreign corporations are controlled foreign corporations (“CFCs”). The Revenue Procedure also allows certain unrelated minority U.S. shareholders to rely on specified financial statement information to calculate their subpart F and GILTI inclusions and satisfy reporting requirements with respect to certain CFCs if more detailed tax information is not available. It also provides penalty relief to taxpayers in the specified circumstances. Finally, the Revenue Procedure announces that the IRS intends to amend the instructions for Form 5471 to reduce the amount of information that certain unrelated minority U.S. shareholders of the CFC are required to provide. It will also limit the filing requirements of U.S. shareholders who only constructively own stock of the CFC solely due to downward attribution from another person. The proposed regulations provide additional relief to taxpayers affected by the repeal of section 958(b)(4). These regulations also propose modifications to existing regulations that are intended to ensure, in certain appropriate circumstances, that the operation of certain rules is consistent with their application before the repeal of section 958(b)(4). The repeal of section 958(b)(4) was part of the Tax Cuts and Jobs Act. For more information about this and other TCJA provisions, visit IRS.gov/taxreform.


IRS relief provides drought-stricken farmers, ranchers more time to replace livestock

WASHINGTON — Farmers and ranchers who were forced to sell livestock due to drought may have an additional year to replace the livestock and defer tax on any gains from the forced sales, according to the Internal Revenue Service. The farmer or rancher must be in an applicable region. This is a county designated as eligible for federal assistance plus counties contiguous to that county. The relief generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, or poultry, are not eligible. To qualify, the sales must be solely due to drought, flooding or other severe weather causing the region to be designated as eligible for federal assistance. Livestock generally must be replaced within a four-year period, instead of the usual two-year period. The IRS is also authorized to further extend this replacement period if the drought continues. The one-year extension, announced today, gives eligible farmers and ranchers until the end of the tax year after the first drought-free year to replace the sold livestock. Details, including an example of how this provision works, can be found in Notice 2006-82 (PDF), available on IRS.gov. The IRS provides this extension to farmers and ranchers located in the applicable region who qualified for the four-year replacement period if any county that is included in the applicable region is listed as suffering exceptional, extreme or severe drought conditions during any week between Sept. 1, 2018, and Aug. 31, 2019. This determination is made by the National Drought Mitigation Center. All or part of 32 states, plus Guam, the U.S. Virgin Islands and the Commonwealths of Puerto Rico and the Northern Mariana Islands, are listed in Notice 2019-54 (PDF). As a result, qualified farmers and ranchers whose drought-sale replacement period was scheduled to expire at the end of this tax year, Dec. 31, 2019, in most cases, now have until the end of their next tax year. Because the normal drought-sale replacement period is four years, this extension immediately impacts drought sales that occurred during 2015. The replacement periods for some drought sales before 2015 are also affected due to previous drought-related extensions affecting some of these localities. More information on reporting drought sales and other farm-related tax issues can be found in Publication 225, Farmer’s Tax Guide, available on IRS.gov.


IRS releases new Tax Gap estimates; compliance rates remain substantially unchanged from prior study

IR-2019-159, September 26, 2019 — IRS releases new Tax Gap estimates; compliance rates remain substantially unchanged from prior study. IR-2019-159, September 26, 2019 WASHINGTON — The Internal Revenue Service today released a new set of tax gap estimates on tax years 2011, 2012 and 2013. The results show the nation’s tax compliance rate is substantially unchanged from prior years. The gross tax gap is the difference between true tax liability for a given period and the amount of tax that is paid on time. “Voluntary compliance is the bedrock of our tax system, and it’s important it is holding steady,” said IRS Commissioner Chuck Rettig. “Tax gap estimates help policy makers and the IRS in identifying where noncompliance is most prevalent. The results also underscore that both solid taxpayer service and effective enforcement are needed for the best possible tax administration.” The average gross tax gap was estimated at $441 billion per year based on data from tax years 2011, 2012 and 2013. After late payments and enforcement efforts were factored in, the net tax gap was estimated at $381 billion. The tax gap estimates translate to about 83.6%, of taxes paid voluntarily and on time, which is in line with recent levels. The new estimate is essentially unchanged from a revised Tax Year 2008-2010 estimate of 83.8%. After enforcement efforts are taken into account, the estimated share of taxes eventually paid is 85.8% for both periods. And it is line with the TY 2001 estimate of 83.7% and the TY 2006 estimate of 82.3%. The IRS will continue to vigorously pursue those that are not compliant. The IRS currently collects more than $3 trillion annually in taxes, penalties, interest and user fees. The voluntary compliance rate of the U.S. tax system is vitally important for our nation. A one-percentage-point increase in voluntary compliance would bring in about $30 billion in additional tax receipts. Tax Gap studies through the years have consistently demonstrated that third-party reporting significantly raises voluntary compliance. And compliance rises even higher when income payments are also subject to withholding. The IRS also has an array of other programs aimed at supporting accurate tax filing and helping address the tax gap. These range from working with businesses and partner groups to a variety of education and outreach efforts. The tax gap estimates are a helpful guide to the historical scale of tax compliance and to the persisting sources of low compliance. “Maintaining the highest possible voluntary compliance rate also helps ensure that taxpayers believe our system is fair,” Rettig said. “The vast majority of taxpayers strive to pay what they owe on time. Those who do not pay their fair share ultimately shift the tax burden to those people who properly meet their tax obligations. The IRS will continue to direct our resources to help educate taxpayers about the tax requirements under the law while also focusing on pursuing those who skirt their responsibilities.”

Additional Resources:

 

IRS finalizes safe harbor to allow rental real estate to qualify as a business for qualified business income deduction

IR-2019-158, September 24, 2019 — The Internal Revenue Service today issued Revenue Procedure 2019-38 that has a safe harbor allowing certain interests in rental real estate, including interests in mixed-use property, to be treated as a trade or business for purposes of the qualified business income deduction under section 199A of the Internal Revenue Code (section 199A deduction). WASHINGTON — The Internal Revenue Service today issued Revenue Procedure 2019-38 that has a safe harbor allowing certain interests in rental real estate, including interests in mixed-use property, to be treated as a trade or business for purposes of the qualified business income deduction under section 199A of the Internal Revenue Code (section 199A deduction). If all the safe harbor requirements are met, an interest in rental real estate will be treated as a single trade or business for purposes of the section 199A deduction. If an interest in real estate fails to satisfy all the requirements of the safe harbor, it may still be treated as a trade or business for purposes of the section 199A deduction if it otherwise meets the definition of a trade or business in the section 199A regulations. This safe harbor is available for taxpayers who seek to claim the section 199A deduction with respect to a “rental real estate enterprise.” Solely for purposes of this safe harbor, a rental real estate enterprise is defined as an interest in real property held to generate rental or lease income. It may consist of an interest in a single property or interests in multiple properties. The taxpayer or a relevant passthrough entity (RPE) relying on this revenue procedure must hold each interest directly or through an entity disregarded as an entity separate from its owner, such as a limited liability company with a single member. The following requirements must be met by taxpayers or RPEs to qualify for this safe harbor:
  • Separate books and records are maintained to reflect income and expenses for each rental real estate enterprise.
  • For rental real estate enterprises that have been in existence less than four years, 250 or more hours of rental services are performed per year. For other rental real estate enterprises, 250 or more hours of rental services are performed in at least three of the past five years.
  • The taxpayer maintains contemporaneous records, including time reports, logs, or similar documents, regarding the following: hours of all services performed; description of all services performed; dates on which such services were performed; and who performed the services.
  • The taxpayer or RPE attaches a statement to the return filed for the tax year(s) the safe harbor is relied upon.
For more information about this and other TCJA provisions, visit IRS.gov/taxreform.


Californians who fail to have qualifying health coverage will owe a state penalty for each month they lack coverage.

  The State of California is working to reduce the number of uninsured families with the adoption of a new state individual health care mandate. Here are three things California residents need to know:

1. Make sure you have health coverage

The mandate, which takes effect on Jan. 1, 2020, requires Californians to have qualifying health insurance coverage throughout the year. Many people already have qualifying health insurance coverage, including employer-sponsored plans, coverage purchased through Covered California or directly from insurers, Medicare and most Medicaid plans. Under the new mandate, those who fail to maintain qualifying health insurance coverage could face a financial penalty unless they qualify for an exemption. Generally speaking, a taxpayer who fails to secure coverage will be subject to a penalty of $695 or more when they file their 2020 state income tax return in 2021. The penalty for a dependent child is half of what it would be for an adult. To avoid a penalty, California residents need to have qualifying health insurance for themselves, their spouse or domestic partner, and their dependents for each month beginning on Jan. 1, 2020. The open enrollment period to sign up for health care coverage with Covered California is scheduled for Oct. 15, 2019 through Jan. 15, 2020.

2. Exemptions available

Most exemptions from the mandate will be claimed when filing 2020 state income tax returns in early 2021. Additional exemptions from the mandate will be granted through Covered California beginning in January 2020.

3. Financial assistance available

To help Californians meet the requirement to have insurance coverage, the state will provide financial assistance to qualifying individuals and families, dependent on their household size and income, through Covered California. This new state financial assistance will be in addition to federal financial assistance some already receive through Covered California. Options for no- and low-cost coverage are also available through the Medi-Cal program. To find out more about health insurance options and financial assistance, visit CoveredCA.com.  


 

IRS offers settlement for micro-captive insurance schemes; letters being mailed to groups under audit

IR-2019-157, September 16, 2019 WASHINGTON — The Internal Revenue Service announced today the mailing of a time-limited settlement offer for certain taxpayers under audit who participated in abusive micro-captive insurance transactions. Taxpayers eligible for this offer will be notified by letter with the applicable terms. Taxpayers who do not receive such a letter are not eligible for this resolution. Abusive micro-captives have been a concern to the IRS for several years. The transactions have appeared on the IRS Dirty Dozen list of tax scams since 2014. In 2016, the Department of Treasury and IRS issued Notice 2016-66 (PDF), which identified certain micro-captive transactions as having the potential for tax avoidance and evasion. Following wins in three recent U.S. Tax Court cases, the IRS has decided to offer settlements to taxpayers currently under exam. In recent days, the IRS started sending notices to up to 200 taxpayers. Tax law generally allows businesses to create “captive” insurance companies to protect against certain risks. Under section 831(b) of the Internal Revenue Code, certain small insurance companies can choose to pay tax only on their investment income. In abusive “micro-captive” structures, promoters, accountants or wealth planners persuade owners of closely held entities to participate in schemes that lack many of the attributes of genuine insurance. The IRS has consistently disallowed the tax benefits claimed by taxpayers in abusive micro-captive structures. Although some taxpayers have challenged the IRS position in court, none have been successful.  To the contrary, the Tax Court has now sustained the IRS’ disallowance of the claimed tax benefits in three different cases. The IRS will continue to disallow the tax benefits claimed in these abusive transactions and will continue to defend its position in court. The IRS has decided, however, to offer to resolve certain of these cases on the terms outlined below. “The IRS is taking this step in the interests of sound tax administration,” IRS Commissioner Chuck Rettig said. “We encourage taxpayers under exam and their advisors to take a realistic look at their matter and carefully review the settlement offer, which we believe is the best option for them given recent court cases.  We will continue to vigorously pursue these and other similar abusive transactions going forward.” The settlement brings finality to taxpayers with respect to the micro-captive insurance issues. The settlement requires substantial concession of the income tax benefits claimed by the taxpayer together with appropriate penalties (unless the taxpayer can demonstrate good faith, reasonable reliance). Taxpayers eligible for the settlement will be notified of the terms by letter from IRS. The initiative is currently limited to taxpayers with at least one open year under exam. Taxpayers who also have unresolved years under the jurisdiction of the IRS Appeals may also be eligible, but those with pending docketed years under Counsel’s jurisdiction are not eligible. The IRS is continuing to assess whether the settlement offer should be expanded to others. Taxpayers who receive letters under this settlement offer, but who opt not to participate, will continue to be audited by the IRS under its normal procedures. Potential outcomes may include full disallowance of captive insurance deductions, inclusion of income by the captive, and imposition of all applicable penalties. Although taxpayers who decline to participate will have full Appeals rights, the IRS Independent Office of Appeals is aware of this resolution initiative. Given the current state of the law, it is the view of the IRS Independent Office of Appeals that these terms generally reflect the hazards of litigation faced by taxpayers, and taxpayers should not expect to receive better terms in Appeals than those offered under this initiative. Taxpayers who are offered this private resolution and decline to participate will not be eligible for any potential future settlement initiatives. The IRS also plans to continue to open additional exams in this area as part of ongoing work to combat these abusive transactions.  

Treasury, IRS release final and proposed regulations on new 100% depreciation

  IR-2019-156, September 13, 2019 WASHINGTON — The Treasury Department and the Internal Revenue Service today released final regulations (PDF) and additional proposed regulations (PDF) under section 168(k) of the Internal Revenue Code on the new 100% additional first year depreciation deduction that allows businesses to write off most depreciable business assets in the year they are placed in service by the business. The regulations released today on IRS.gov have been submitted to the Federal Register and may vary slightly from the published documents due to minor editorial changes. The documents published in the Federal Register will be the official documents. The final regulations finalize the proposed regulations issued in August 2018 which implement several provisions included in the Tax Cuts and Jobs Act (TCJA). The proposed regulations contain new provisions not addressed previously. The 100% additional first year depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify. The deduction applies to qualifying property acquired and placed in service after September 27, 2017. The final regulations provide clarifying guidance on the requirements that must be met for property to qualify for the deduction, including used property. The final regulations also provide rules for qualified film, television and live theatrical productions. Additionally, in the proposed regulations, the Treasury Department and IRS propose rules regarding (i) certain property not eligible for the additional first year depreciation deduction, (ii) a de minimis use rule for determining whether a taxpayer previously used property; (iii) components acquired after Sept. 27, 2017, of larger property for which construction began before Sept. 28, 2017; and (iv) other aspects not dealt with in the previous August 2018 proposed regulations. The proposed regulations also withdraw and repropose rules regarding application of the used property acquisition requirements (i) to consolidated groups, and (ii) to a series of related transactions. For details on claiming the deduction or electing out of claiming it, see the final regulations or the instructions to Form 4562, Depreciation and Amortization (Including Information on Listed Property). For tax years that include September 28, 2017, see Rev. Proc. 2019-33 (PDF) for further information about making a late election or revoking an election. Taxpayers who elect out of the 100% depreciation deduction must do so on a timely-filed return. Those who have already timely filed their 2018 return and did not elect out but still wish to do so have six months from the original deadline, without an extension, to file an amended return. For more information about this and other TCJA provisions, visit IRS.gov/taxreform.  

July 1st, 2019 the Tax Payers First Act was signed into Law by President Trump

The President signed the Taxpayer First Act into law. Modernizing and streamlining the Internal Revenue Service has been a major focus in recent years. When the Taxpayer First Act was signed into law on July 1, 2019, it rolled out a number of improvements to customer service, enforcement procedures, and data security measures for the IRS. This bill revises provisions relating to the Internal Revenue Service (IRS), its customer service, enforcement procedures, cyber security and identity protection, management of information technology, and use of electronic systems. This Act establishes the Internal Revenue Service Independent Office of Appeals headed by a Chief of Appeals. The purpose of this office is to resolve federal tax controversies without litigation on a basis that is fair and impartial, promote consistent application of federal tax laws, and enhance public confidence in the IRS. The new law includes several important provisions to help improve taxpayer service, ensure we are continuing to enforce the tax laws in a fair, impartial manner and ultimately support the continued success of our nation. The Act included law changes pertaining to the notification process to whistle blowers and made available protection for whistle blowers against retaliation.

Notification of a claim referred for examination

The IRS Whistle blower Office will notify the whistle blower when a case for which the whistle blower has provided information has been referred for audit or examination. Notification does not necessarily indicate that an audit or examination has been or will be opened. Additionally, notification does not indicate the claim will receive an award.  

2019 Changes that affect your Clients when you file Their Taxes in April 2020

Here are some things you should be aware of: 
  • Income tax brackets will increase in 2019 to account for inflation. 
  • The standard deduction will increase to $12,200 for single filers and $24,400 for married couples filing jointly. 
  • There will no longer be a penalty for not having health insurance coverage 
Tax law changes in the Tax Cuts and Jobs Act affect almost everyone who itemized deductions on tax returns they filed in previous years..  One of these changes is that TCJA nearly doubled the standard deduction for most taxpayers. This means that many individuals may find it more beneficial to take the standard deduction. However, taxpayers may still consider itemizing if their total deductions exceed the standard deduction amounts. Here are some highlights taxpayers need to know if they plan to itemize deductions:

Medical and dental expenses

Taxpayers can deduct the part of their medical and dental expenses that’s more than 7.5 percent of their adjusted gross income.

State and local taxes

The law limits the deduction of state and local income, sales, and property taxes to a combined, total deduction of $10,000. The amount is $5,000 for married taxpayers filing separate returns. Taxpayers cannot deduct any state and local taxes paid above this amount. 

Miscellaneous deductions

The new law suspends the deduction for job-related expenses or other miscellaneous itemized deductions that exceed 2 percent of adjusted gross income. This includes unreimbursed employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel. 

Home equity loan interest

Taxpayers can no longer deduct interest paid on most home equity loans unless they used the loan proceeds to buy, build or substantially improve their main home or second home.  

Update on the Tax Penalty Relief below

 
Earlier this year during tax season, the IRS announced additional expanded penalty relief to taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year.  The IRS lowered the threshold to 80%. Under the relief originally announced Jan. 16, the threshold was 85%.  The usual percentage threshold is 90% of your current tax liability to avoid a penalty.  
This week, the IRS announced that taxpayers who filed their returns applying the 85% waiver and subsequently qualified for the 80% waiver don’t have to do anything if they haven’t yet.  IRS will automatically refund the extra penalty they paid.  If for some reason they filed Form 843 requesting a refund, the IRS will also refund the money.
IRS automatically waives estimated tax penalty for eligible 2018 tax filers Earlier this year, the IRS provided additional expanded penalty relief (PDF) to individual taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year. The IRS is now automatically waiving the estimated tax penalty for eligible taxpayers who already have filed their 2018 federal income tax returns but who did not claim the waiver. Filing Form 843 for Expanded Underpayment of Estimated Income Tax Penalty Relief, posted March 27, 2019, is superseded to the extent it directs individual taxpayers who already have paid the penalty to file Form 843 to claim a refund. Over the next few months, IRS is mailing notices (CP21) to affected taxpayers notifying them the penalty was waived. The automatic waiver has been granted to any eligible taxpayer whether or not they already have requested penalty relief on Form 843. After receiving their notice in the mail, taxpayers who already have paid the penalty should receive their refunds within three weeks, if they don’t owe any other taxes or debt the IRS is required to collect. Eligible taxpayers who already have filed a 2018 return do not need to request penalty relief, contact the IRS, or take any other action to get this relief. The automatic waiver applies to any individual taxpayer who paid at least 80 percent of their total tax liability through federal income tax withholding or quarterly estimated tax payments but did not claim the special waiver available to them when they filed their 2018 return earlier this year. This waiver is designed to provide relief to any taxpayer who filed too early to take advantage of the waiver or was unaware of it when they filed. For those yet to file, the IRS urges every eligible taxpayer to claim the waiver on their return. This includes those with tax-filing extensions due to run out on October 15, 2019. The fastest and easiest way to do that is to file electronically and take advantage of the waiver computation built into their tax software package. Those who choose to file on paper can fill out Form 2210 (PDF)and attach it to their 2018 return. See the Instructions for Form 2210 for details. If you have questions about the notice or it’s been longer than three weeks, you may call the toll-free number listed on the top right corner of the letter.


WHAT’S NEW About the Tax Transcript & Customer File Number?

There is a new transcript format that better protects your data. This new format partially masks your personally identifiable information. Financial data will remain fully visible to allow for tax preparation, tax representation or income verification. Learn more at About the New Tax Transcript and the Customer File Number.   You can get various Form 1040-series transcript types online or by mail. If you need your prior year Adjusted Gross Income (AGI) to e-file, choose the tax return transcript type when making your request. If you only need to find out how much you owe or verify payments you made within the last 18 months, you can view your tax account. The method you used to file your tax return, e-file or paper, and whether you had a balance due, affects your current year transcript availabilityNote: If you need a photocopy of your return, you must use Form 4506.

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To register and use this service, you need:
  • your SSN, date of birth, filing status and mailing address from latest tax return,
  • access to your email account,
  • your personal account number from a credit card, mortgage, home equity loan, home equity line of credit or car loan, and
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  • All transcript types are available online
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The 1040 may change again this year or at least the 6 schedules may be reduced to 3.

It’s not like the nation’s tax collection agency was expecting pictures of scenic views of mountains and oceans or tourist attractions. But plans to provide taxpayers with a postcard-sized Form 1040 have been officially scrapped. The IRS is now working on a version that‘s shorter than the traditional 1040, but looks more like the typical tax return you’re used to. Proponents of tax simplification have bandied about the idea for a postcard-type 1040 for years. It came closer to fruition when the massive Tax Cuts and Jobs Act (TCJA) was enacted at the end of 2017. Supporters of the legislation, including the Trump administration, bragged that taxpayers would be able to file a return on a single small sheet of paper. Despite the TCJA changes, however, the IRS still requires more information than what can be entered on just a few lines. After the 2018 tax filing season—the first year most of the TCJA provisions affecting individuals went into effect—the IRS rolled out a prototype replacing old forms 1040, 1040A and 1040EZ. It wasn’t quite the size of a postcard but it was definitely shorter than those other forms. Yet it didn’t really cut down on the paperwork. In fact, the new version required taxpayers to complete six additional forms and schedules that would have to be inserted into an envelope. This could lead to additional complexity and confusion and, ultimately, more errors. What’s more, the vast majority of taxpayers now file returns electronically, reducing the need for a postcard-sized 1040. Taking its cue from the tax community, which generally objected to the prototype as being wasteful and inefficient, the IRS has announced that is abandoning its earlier effort and working on a new version that more closely resembles the traditional 1040. Some members of Congress doubted the viability of a postcard in the first place. “Form changes are, for the most part, transparent to the vast majority of taxpayers because they file electronically. So far this year over 131 million taxpayers chose e-file,” said Bruce I. Friedland, IRS spokesman. “The IRS makes changes to tax forms every year. The IRS has proposed minor changes to the draft 2019 Form 1040, U.S. Individual Income Tax Return, and will continue to work with the tax community to finalize the form over the summer, so it can be used for 2019 tax returns filed in 2020. Based on feedback from both taxpayers and the tax community, some minor changes were made to the form, which continues to be less than 2 pages, and the supplemental schedules were reduced from six to three. The changes make it even easier for taxpayers to file their returns. The tax form continues to be shorter than the 2017 Form 1040.”

New Tax Withholding Estimator for 2019

The Internal Revenue Service has launched a New Tax Withholding Estimator, an expanded, mobile-friendly online tool designed to make it easier for everyone to have the right amount of tax withheld during the year. The Tax Withholding Estimator replaces the Withholding Calculator, which offered workers a convenient online method for checking their withholding. The new Tax Withholding Estimator offers workers, as well as retirees, self-employed individuals and other taxpayers, a more user-friendly step-by-step tool for effectively tailoring the amount of income tax they have withheld from wages and pension payments. “The new estimator takes a new approach and makes it easier for taxpayers to review their withholding,” said IRS Commissioner Chuck Rettig. “This is part of an ongoing effort by the IRS to improve quality services as we continue to pursue modernization and enhancements of our taxpayer relationships.” The IRS took the feedback and concerns of taxpayers and tax professionals to develop the Tax Withholding Estimator, which offers a variety of new user-friendly features including:
  • Plain language throughout the tool to improve comprehension.
  • The ability to more effectively target at the time of filing either a tax due amount close to zero or a refund amount.
  • A new progress tracker to help users see how much more information they need to input.
  • The ability to move back and forth through the steps, correct previous entries and skip questions that don’t apply.
  • Enhanced tips and links to help the user quickly determine if they qualify for various tax credits and deductions.
  • Self-employment tax for a user who has self-employment income in addition to wages or pensions.
  • Automatic calculation of the taxable portion of any Social Security benefits.
  • A mobile-friendly design.
In addition, the new Tax Withholding Estimator makes it easier to enter wages and withholding for each job held by the taxpayer and their spouse, as well as separately entering pensions and other sources of income. At the end of the process, the tool makes specific withholding recommendations for each job and each spouse and clearly explains what the taxpayer should do next. The new Tax Withholding Estimator will help anyone doing tax planning for the last few months of 2019. Like last year, the IRS urges everyone to do a Paycheck Checkup and review their withholding for 2019. This is especially important for anyone who faced an unexpected tax bill or a penalty when they filed this year. It’s also an important step for those who made withholding adjustments in 2018 or had a major life change. Those most at risk of having too little tax withheld include those who itemized in the past but now take the increased standard deduction, as well as two-wage-earner households, employees with non-wage sources of income and those with complex tax situations. https://apps.irs.gov/app/tax-withholding-estimator/about-you