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Archive for August, 2020

Did you Receive a Notice from the IRS stating you still owed Money for your 2019 Tax Return?

Wednesday, August 26th, 2020

We have heard from a number of clients recently who stated they received a notice from the IRS stating they still owed taxes pertaining to their 2019 tax returns even though they had already made the payments. The notice also adds on interest and penalties to the amount of tax they claim you still owe.

The IRS has an estimated 12 million items of mail that they haven’t opened yet due to delays from Covid-19. Many of these pieces of unopened mail may contain payments from taxpayers that were made months ago. But once you filed your tax return which showed you owing money the IRS computer shows it as never paid because your payment was never opened, even though you may have sent it on time.

So the IRS has suspended sending out these notices while they continue to process their unopened mail. The IRS has said that if your check has not been cashed yet to not cancel it and make sure you have the funds to cover it for once they do cash it. They also said they would waive bad-check penalties on dishonored checks that it had received between March 1 and July 15, 2020.

Please consult your tax advisor if you do receive a notice from the IRS, before you pay anything, to see if the above pertains to it and if you actually owe the amount or not.

What to do if you Receive a Notice From the IRS

Monday, August 24th, 2020

IRS notices are pretty common so there is no need to panic if you do receive one in the mail but they do need to be addressed. If you ignore the notice additional notices will follow and penalties/interest could be accruing as time passes.

The first thing you should do is send a copy of the notice over to your tax advisor to find out exactly why you received the notice, you should not just pay the notice right away without finding out the issue first. There are times when the IRS is not correct. A couple common situations that trigger a notice are if you forgot to report dividend income or stock sales on your tax return. The IRS will send you a notice stating that dividends from Company XYZ were not reported on your return and they will give you a figure of the additional tax you owe as a result of this dividend income being added to your return.

A common notice that we often see is a taxpayer forgot to report stock sales on their return. This is a situation where the amount the IRS states you owe is most likely not correct. If you sold $10,000 worth of stock and forgot to report it, the IRS will send you a notice stating you owe taxes on the full sale amount. What the IRS doesn’t do is factor in what you originally bought the stock for. So in this situation you will need to amend your tax return to show not only the sale of 10K but also what you bought it for. So if you bought the stock for $9,000, then you only on taxes on the gain, which in this case is only $1,000. So by amending your return you are not paying taxes on the full $10,000, you are only paying the taxes on the gain of $1,000. So in this situation it is very important to check with your tax advisor and to not just paying the notice without investigating first. Another reason to investigate the notice is to make sure it is real and not a scam.

Please consult your tax advisor on all the above information.

Popular Scams to Look Out For Part 2

Wednesday, August 19th, 2020

Below are additional scams that IRS has warned to look out for:

• Scammers target individuals with limited English proficiency – scammers will make threats such as deportation and jail as a scare tactic.

• Dishonest tax preparers – you should always do your due diligence when choosing your tax preparer to make sure the person has a good reputation.

• Offer in compromise companies – taxpayers need to be care of these types of companies. These companies promote settling your tax debt for pennies on the dollar and then end up charging the taxpayer high fees by applying for programs that the person will never qualify for.

• Fake payments and repayment demands – the scammer will get the taxpayers personal information and filing a fake tax return but will have the refund direct deposited into the taxpayers actual bank account. Then the scammer will call the taxpayer posing as an IRS agent and tell the person the refund was a mistake and they need the money back. Then the scammer will ask you to repay it back in gift cards (which is a huge red flag in itself, the IRS will never ask for gift cards as payment).

• Payroll scams – Scammers will try to obtain copies of W-2’s that your company filed, in the past they have targeted people working in the Human Resources department to try to trick them into sending out the W-2’s.

• Ransomware – This is malicious software the scammer tries to trick you into downloading. You should never click on links from any unsolicited emails.

Please consult your tax advisor on all the above issues.

Popular Scams to Look Out For Part 1

Wednesday, August 12th, 2020

The IRS released their list of Dirty Dozen tax scams that taxpayers should be aware of. They list some of the top scams as the following:

• Phishing – fake emails and websites designed to steal your personal information. The IRS will never initiate contact via email regarding a tax bill, refund, or Economic Impact Payment.
• Fake Charities – Be aware of these when a natural disaster hits or other situations such as COVID-19.
• Threatening Impersonator Phone Calls – The IRS will never threaten arrest, deportation, or license revocation if you don’t pay a fake tax bill.
• Social Media Scams – Scammers can get information about you via social media and use it against you such as impersonating your family member, friend, or co-worker.
• Economic Impact Payment or Refund Theft – Scammers try to steal your identity to have your Economic Impact Payment of your tax refund diverted into their bank account. This is a good reason to file your tax return as soon as you can so you the scammers do not have the opportunity to file a false tax return using your information.
• Senior Fraud – Seniors have often been a popular target for scammers in an attempt to take advantage of them.

Please consult your tax advisor on all the above information.

Tip Income Needs to be Reported on your Individual Tax Return

Monday, August 10th, 2020

If you work a job where you make tips as part of your income, these tips do need to be reported as part of your gross income on your tax return. Tips that are taxable can be:

• Tips added using credit cards
• Tips directly from customers
• Tips from a tip splitting arrangement with other employees

Tips that many people do not know count as taxable income are non-cash tips. For example if you are given tickets to an event by a customer as a tip, this amount needs to be included as taxable income.

Employees should keep a daily tip record to keep track of their tips during the year. The IRS also offers a tool to assist you in reporting your tip income:

Please consult your tax advisor on all the above information.

CARES Act is Providing Tax Relief for Some Retirement Distributions

Wednesday, August 5th, 2020

Under the CARES Act, eligible individuals may be able to withdraw up to $100,000 from IRA’s and workplace retirement plans before December 31st, 2020 if your plan allows this. You need to check with your plan administrator before taking any money out to make sure your distribution qualifies for the CARES Act tax relief.

Per the IRS, these coronavirus-related withdrawals:

• May be included in taxable income either over a three-year period (one-third each year) or in the year taken, at the individual’s option.
• Are not subject to the 10% additional tax on early distributions that would otherwise apply to most withdrawals before age 59½,
• Are not subject to mandatory tax withholding, and
• May be repaid to an IRA or workplace retirement plan within three years.

There is also a possibility that you could take out a loan from your retirement plan, per the IRS:

Individuals eligible to take coronavirus-related withdrawals may also, until Sept. 22, 2020, be able to borrow as much as $100,000 (up from $50,000) from a workplace retirement plan, if their plan allows. Loans are not available from an IRA.

For eligible individuals, plan administrators can suspend, for up to one year, plan loan repayments due on or after March 27, 2020, and before Jan. 1, 2021. A suspended loan is subject to interest during the suspension period, and the term of the loan may be extended to account for the suspension period.

Taxpayers should check with their plan administrator to see if their plan offers these expanded loan options and for more details about these options.

Not everyone can take advantage of these retirement distributions, you need to meet certain requirements to qualify. The requirements, per the IRS, are the following:

To be eligible for COVID-19 relief, coronavirus-related withdrawals or loans can only be made to an individual if:

• The individual is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (collectively, COVID-19) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetics Act);
• The individual’s spouse or dependent is diagnosed with COVID-19 by such a test; or
• The individual experiences adverse financial consequences as a result of:
o The individual being quarantined, being furloughed or laid off, having work hours reduced, being unable to work due to lack of childcare, having a reduction in pay (or self-employment income), or having a job offer rescinded or start date for a job delayed, due to COVID-19;
o The individual’s spouse or a member of the individual’s household (that is, someone who shares the individual’s principal residence) being quarantined, being furloughed or laid off, having work hours reduced, being unable to work due to lack of childcare, having a reduction in pay (or self-employment income), or having a job offer rescinded or start date for a job delayed, due to COVID-19; or
o Closing or reducing hours of a business owned or operated by the individual, the individual’s spouse, or a member of the individual’s household, due to COVID-19.

You should contact both your tax advisor and your plan administrator before you take any distributions to make sure you qualify for this tax relief.

Educators that Qualify for a $250 Tax Deduction

Tuesday, August 4th, 2020

If you are an eligible educator you can deduct up to $250 of unreimbursed trade or business expenses. The taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal or aide. They also must work at least 900 hours a school year.

Some examples of expenses that educators can deduct are:
• Books
• Professional development course fees
• Supplies
• Equipment/materials used in the classroom
• Computer equipment

If your spouse is an eligible educator and you file a joint tax return, each educator can deduct $250 each, for a total of $500. Also remember to keep all your receipts to you can support your deductions.

Please consult your tax advisor on all the above information.