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Archive for the ‘Tax Tips’ Category

Are you an employee or an independent contractor?

Wednesday, September 22nd, 2021

We often get asked this question, whether a person is an employee and should be issued a W-2 or is the person an independent contractor and should be issued a Form 1099-NEC. The main difference is that if the person is an employee then payroll taxes have to be paid by the employer and on behalf of the employee. If the person is an independent contractor you pay them what they earn and then simply issue that person a Form 1099-NEC at the end of the year to show the yearly compensation. For this reason many employers would rather have the person classified as an independent contractor but the IRS says not so fast! The IRS has guidelines on whether or not a person should be classified as an employee or an independent contractor. Per the IRS, the main questions to ask are:

• Behavioral Control − does the company control or have the right to control what the worker does and how the worker does the job?
• Financial Control − does the business direct or control the financial and business aspects of the worker’s job. Are the business aspects of the worker’s job controlled by the payer? (Things like how the worker is paid, are expenses reimbursed, who provides tools/supplies, etc.)
• Relationship of the Parties − are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

If the employer has the above control over a worker then typically the worker will be an employee.

There are penalties for those employers that incorrectly classify a worker as an independent contractor instead of an employee so you want to go through the above questions to make sure you do it correctly.

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

Understanding how the IRS communicates with you

Wednesday, September 8th, 2021

Arming yourself with the knowledge of how the IRS communicates with taxpayers may help prevent you from becoming a victim to a scam. The IRS has issued some facts about how they typically communicate with taxpayer:

• The IRS does not typically communicate initially with a taxpayer via email. Do not reply to this unsolicited type of email.
• The IRS will not text you or contact you via social media. These two avenues are favorites of scammers.
• The first contact from the IRS is usually via a letter delivered by the U.S. Postal Service. Scammers will often tell you that a letter from the IRS was already sent to you because they know most people know that the IRS will first contact you with a letter. If you receive a letter and want to verify if its legit you can search on the IRS website:

https://www.irs.gov/individuals/understanding-your-irs-notice-or-letter

Not all notices/letters are searchable on the above site. If you would still like to verify a notice is legit you can call the IRS directly at 800-829-1040.

• IRS Revenue Agents or tax compliance officers may call a taxpayer after they send a notice. Below is a guide to assist taxpayers to know whether the call is legit or not:

https://www.irs.gov/newsroom/how-to-know-its-really-the-irs-calling-or-knocking-on-your-door-collection

• IRS Revenue Agents and tax compliance officers will routinely make unannounced visits. Please remember that they only form of pay legit IRS employees will ask for are payments made to the US Treasury. If you get visited make sure to ask for credentials, the IRS will have two forms of identification, a pocket commission and a Personal Identity Verification Credential:

https://www.fedidcard.gov/

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

Get an IP Pin to help prevent against identity theft

Tuesday, August 31st, 2021

The pin is a six digit number that eligible taxpayers receive from the IRS which is needed to file your tax return. This will help prevent against thieves trying to file a false tax return with your information in order to claim the fake refund they create. This pin numbers helps verify a taxpayers identity and accept their tax return. Taxpayers can apply for an IP Pin at the following address:

https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin

Tax pros cannot get a pin number on behalf of a client for security reasons.

The IRS outlines the following information regarding these pin numbers:
• It’s a six-digit number known only to the taxpayer and the IRS.
• The opt-in program is voluntary.
• The IP PIN should be entered onto the electronic tax return when prompted by the software product or onto a paper return next to the signature line.
• The IP PIN is valid for one calendar year.
• For security reasons, enrolled participants get a new IP PIN each year
• Spouses and dependents are eligible for an IP PIN if they can verify their identities
• IP PIN users should never share their number with anyone but the IRS and their trusted tax preparation provider. The IRS will never call, email or text a request for the IP PIN.

If you are having trouble validating your identity online when applying for a pin number you can file Form 15227 or make an appointment with the Taxpayer Assistance Center.

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

Managing your advanced child tax credit payments

Wednesday, August 25th, 2021

Eligible individuals recently started receiving advanced child tax credit payments. New in 2021, the IRS determined if you are eligible for the child tax credit based on your prior year tax return and instead of waiting to receive this credit as part of your refund when you file your tax returns the IRS is giving you the money ahead of time. If the IRS has deemed you eligible for the credit they just started sending out monthly payments automatically to you, usually the 15th of the month. The good news is that the IRS has created a portal where you can manage or stop these payments:

https://www.irs.gov/credits-deductions/child-tax-credit-update-portal

Some functions of the portal include:

• Switching from a paper check to direct deposit – If the IRS does not have your bank account information on file they will send you a paper check. You can use the portal to enter your bank account information to begin receiving the payments via direct deposit.
• Stopping the payments – If you do not want to receive these advance payments you can unenroll on the portal. If you qualify for the credit it will factor in as a lump sum when you file your tax return if you unenroll. For married couples, each spouse needs to unenroll in order to completely stop the payments. If only one spouse unenrolls then the IRS will send half the payment to the other spouse that did not unenroll.

One reason you would want to stop the payments is if you do not qualify for the child tax credit in the current year (you did qualify in the prior year which is what the IRS is basing the qualification on). Children no longer qualify for the credit once they turn 18. So if at the end of the year your child is 18 years old, that person no longer qualifies for the credit in the year the person turned 18.

It is also very important to keep track of all the payments you received during the year, you will need to give that amount to your accountant when you go to file your 2021 tax return.

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

Tips if you get an IRS letter in the mail

Wednesday, August 18th, 2021

The IRS offers the following tips if you receive a letter/notice from them:

• Do not ignore it. Some people feel if they do not address the letter it will go away but the IRS will follow up on the issue even if you do not respond.
• Keep a copy of the letter. Always make sure to save a copy of the letter, you may need to reference it later or need it for your tax return prep.
• Do not reply unless you are instructed to. Make sure to read exactly what the IRS is looking for, in many cases you will need to respond.
• Respond in a timely manner. The notice will give you a deadline to respond, make sure to address the notice before that deadline.
• Review the information closely. You should not just pay a notice without finding out if the changes made by the IRS are correct or not, in some cases the IRS is not correct. A perfect example is if you forgot to include stock sales of $10,000 on your return the IRS will send you a bill taxing you on the full $10,000, they fail to factor cost basis in. You may have paid $8,000 for those stocks so you should only be paying taxes on the $2,000 gain, not the full $10,000 sale. You would need to amend your tax return in this example to add the stock sale with the cost.
• Do not be afraid to dispute the notice, the IRS is not always correct with their changes.
• Avoid scams. There are plenty of IRS scams out there so do you research on any correspondence from the IRS to make sure it is legit. A good way to verify the notice is legit is by calling the IRS directly, 800-829-1040.

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

Information you will need when calling the IRS

Wednesday, August 11th, 2021

A situation may come up in the near future where you will need to call the IRS for some clarification or information, such as you may have just received a notice from the IRS and you want to call to find out what the notice is about. The IRS is doing their best to keep taxpayers personal information out of the hands of identity thieves so they normally require some information from you, up front, before they will discuss anything with you. So before you call the IRS, you should have the following items ready to give them when they ask for it:

• Birthdates and social security numbers for the people listed on the tax return.
• An Individual Taxpayer Identification Number letter if you have that instead of a SSN.
• Your filing status: single, head of household, married filing joint or married filing separate.
• Prior year tax return. You may have to verify some of the figures from the return with the IRS agent.
• A copy of your tax return that you are questioning.
• The IRS letter or notice that you received.

By law the IRS is only going to speak with the taxpayer of the taxpayer’s legally designated representative.

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

The IRS is continuing to issue unemployment compensation adjustment refunds

Tuesday, August 3rd, 2021

The IRS recently announced that another 1.5 million taxpayers will receive refunds as a result of the first $10,200 unemployment compensation not being taxable for certain qualified taxpayers. Many people who had unemployment compensation filed their tax returns before this was signed into law so they didn’t get the benefit. The IRS does not want people to amend their returns for this, they are making the adjustments and sending out any refunds due. Please keep in mind that not everyone qualifies for this benefit, it only applies to individuals and married couples whose modified adjusted gross income was less than $150,000 in 2020.

This round of refunds started on July 28 for direct deposit and paper checks began to be mailed out on July 30th. If you have an outstanding balance with the IRS, they may apply your refund to that instead of giving the money to you.

The IRS does give a few situations where you should amend your tax return instead of having the IRS correct it for you:

• did not submit a Schedule 8812 with the original return to claim the Additional Child Tax Credit and are now eligible for the credit after the unemployment compensation exclusion;
• did not submit a Schedule EIC with the original return to claim the Earned Income Tax Credit (with qualifying dependents) and are now eligible for the credit after the unemployment compensation exclusion;
• are now eligible for any other credits and/or deductions not mentioned below. Make sure to include any required forms or schedules.

The IRS will send a letter to the taxpayer within 30 days of the adjustment explaining what change was made.

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

How will getting married affect your tax return?

Wednesday, July 28th, 2021

If you got married during the year the first items you should look at are name and address changes. If you changed your name after getting married, you should report your name change as soon as possible to the social security administration. The name on your tax return needs to match the name on file with the social security administration. If they do not match your efile may get rejected or your refund could get held up if your return goes through. To update your information, you should file Form SS-5 which is available at SSA.gov. The next step is to report your change of address. You should file Form 8822 in order to change your address with the IRS.

You should also check your withholdings once you get married because your situation is most likely going to change. For example when you combine your income with your spouse, it may put you into a higher tax bracket. A great way to check your withholdings is to use the Tax Withholding Estimator:
https://www.irs.gov/individuals/tax-withholding-estimator

You should then check your filing status, married filing joint or married filing separate. In many situations filing joint is more beneficial but not all of them. You should check with your tax advisor to find out which one is better for you.

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

Identity Protection Pins are now Available to all Taxpayers

Wednesday, July 7th, 2021

To help people avoid identity theft, the IRS has made available to all taxpayers an Identity Protection Pin (IP PIN). In years prior, this pin has only available to victims of identity theft or people in certain states. This code is six digits and only the taxpayer and the IRS know will know what the code is. This helps prevent a scammer from filing a fraudulent tax return using another person’s information. The scammer will create a tax return using someone else’s social security number and the return will produce a refund, which the scammers will then collect. This six digit pin essentially locks your tax return so it cannot be filed with entering the pin. An efile will get rejected without the pin and a paper return will have to go through additional security measures in order to be processed.

You can opt in to get a pin online at the following address:

https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

Taxpayers May Receive a Refund for Taxes Paid on 2020 Unemployment Compensation

Wednesday, June 30th, 2021

The IRS is currently reviewing tax returns that were filed before the American Rescue Plan of 2021 became law back in March. This plan excludes up to $10,200 in unemployment compensation from taxable income if you qualify. You qualify for this exclusion if your modified adjusted gross income is less than $150,000 (this threshold amount applies to all filing statuses). So essentially what happened was that a person, who received unemployment in 2020, filed their taxes before the American Rescue Plan was signed into law, so the person didn’t get the $10,200 exclusion because it didn’t exist at the time of filing. The IRS is saying not to amend your return because they will review it and if you qualify for the exclusion, they will calculate and send out your refund.

The IRS is also working on making corrections for the earned income tax credit, premium tax credit, and recovery rebate credit.

If the IRS does adjust your tax return, you will receive a letter within 30 days with an explanation of the change(s) that was made.

If your return gets changed and you receive a letter, you should save it and make sure to give a copy of it to your accountant.

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

Protecting Yourself from Identity Theft

Thursday, June 24th, 2021

The IRS recently released a list of tips to help taxpayers protect themselves from becoming a victim of identity theft. A common crime that scammers will commit is filing a false tax return with other people’s information and receiving the refund from that fake return. The scammer will get your information, including your social security number, then create a tax return which produces a fictitious refund that they will then intercept when the IRS issues it.

The IRS has the following tips:

• Always use security software which includes antivirus protection and have a firewall.
• Use strong and unique passwords. You should also not duplicate passwords for your other accounts, each account should have its own password.
• Learn to recognize when an unsolicited communication is from a scammer whether it be from an email, text, or threatening phone call. You shouldn’t click on links or give out any personal information to any communication where you don’t know who it is from.
• Protect your personal information and that of your dependents. For example you shouldn’t carry around your social security card.
• Get an identity protection pin. This is a 6 digit code that only you and the IRS knows what it is which will help prevent a scammer from filing a return in your name/social security number:

https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin

Please consult your tax advisor on the above issues.

Advance Child Tax Credit Payments Start Soon

Wednesday, June 23rd, 2021

New for 2021, the IRS is going to start paying taxpayers who qualify for the child tax credit advance payments each month. Under the American Rescue plan, the maximum amount of the child tax credit is:

• $3,600 per child for children under 6 years old.
• $3,000 per child for children ages 6 to 17 years old.

The advance payments to eligible taxpayers will begin on July 15th and will continue on the 15th of each month. Eligible families will receive up to $300 per month for every child under 6 years old and $250 per month for each child between the ages of 6 and 17. Most families will automatically start to receive these payments without having to take any action. Some families may want to wait until they file their 2021 tax returns to receive these payments. The IRS created the Child Tax Credit Update Portal where these families can quickly and easily go in and unenroll from receiving these monthly payments. This tool is also helpful for families that may no longer qualify for the child tax credit in 2021. Some examples where this may be the case are:

• Their income in 2021 is too high and they no longer are eligible to receive the credit.
• Someone else is claiming your child in 2021. Some divorced parents will have one spouse claim the child in the odd years and the other spouse will claim the child in even years.
• Their main home was outside of the United States for more than half of 2021.

Per the IRS: In general, monthly payments will go to eligible families who:

• Filed either a 2019 or 2020 federal income tax return.
• Used the Non-Filers tool on IRS.gov in 2020 to register for an Economic Impact Payment.
• Registered for the advance Child Tax Credit this year using the new Non-Filer Sign-Up Tool on IRS.gov.

This IRS is going to use taxpayers 2020 tax return figures in order to calculate the advance child tax credit amount. If a 2020 return has not been filed or is still being processed, the IRS will use a taxpayers 2019 tax return to calculate the credit. The IRS is urging child tax credit eligible people who haven’t filed their 2020 tax return (or 2019) to file as soon as possible to start receiving the advanced credit payments. The IRS has to process your tax return by June 28th in order to qualify for the first round of checks on July 15th.

The portal to unenroll from the advanced child tax credit can be found here:

https://www.irs.gov/credits-deductions/child-tax-credit-update-portal

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

How to Check the Status of Your Federal Refund

Thursday, June 3rd, 2021

We often get asked by clients what the status of their refund is; the good news is the IRS offers a tool on their website where a taxpayer can check there without having to spend a long time on the phone with the IRS. Three pieces of information are needed in order to be able to use this tool:

• Social Security Number or ITIN
• Your filing status
• The exact amount of your refund

The tool will update in three phases once you enter your information:

• Return received
• Refund approved
• Refund sent

The tool can be found at the following link:

https://www.irs.gov/refunds

If you do not have access to a computer another option is that you can call the IRS at 800-829-1954.

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

Choosing a Trustworthy Payroll Service for your Business

Wednesday, June 2nd, 2021

As a business owner, one of the most important things you can do is choose a reliable and trustworthy payroll company. The obvious reason to choose a good payroll company is to keep your business up to date with all your tax payments and tax return filings as well. It is very easy to fall behind when it comes to your payroll filings/payments which is one of the main reasons that you need to find a reliable company that will keep you up to date each quarter.

Although most payroll companies provide great service and are reliable there are a few each year that will close down without warning and not submit the payroll tax payments they were suppose to. Along with these companies that close with no warnings there are also dishonest payroll persons out there that you need to watch out for. What a dishonest payroll person will do is essentially have you, as the client, give them the money for your payroll tax liability each quarter with the expectation that they will then submit it to the IRS and your local state tax department. The scammer will then end up keeping the money and never submitting each. The unfortunate part of this, beyond the fact that your money was stolen, is that you are still liable to pay the taxes. You are still legally required to pay these taxes.

You should do your research on payroll companies before committing to one to make sure they are trustworthy. You also want to familiarize yourself with what the company is responsible for paying and making sure they do it every quarter. The IRS encourages business owners to enroll in EFTPS (online IRS payment system) and make sure their payroll companies submit their payments using this method. This will allow you to login into the EFTPS website and make sure your payments are being made to the IRS.

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

IRS Begins Correcting Tax Returns for Unemployment Compensation Income Exclusion

Wednesday, May 26th, 2021

The IRS will begin issuing refunds to eligible taxpayers who paid taxes on 2020 unemployment compensation that the American Rescue Plan later excluded from taxable income. The refunds for the simpler returns will begin in May and the more complex returns could take up until the end of the summer before a refund is issued. The reason that the IRS needs to calculate and issue these refunds is because the exclusion of $10,200 of unemployment compensation got signed into law after more than 10 million taxpayers already filed their tax returns. The IRS will be reviewing these returns to determine who is due a refund.

These corrections will be made automatically by the IRS so they do not want anyone filing amended tax returns for this unemployment exclusion. The IRS will issue the refunds via direct deposit if that was your method of payment when you filed your 2020 tax return. If no direct deposit information was given to the IRS, they will mail a paper check.

Please keep in mind that refunds will only be issued to eligible taxpayers, not everyone who received unemployment qualifies for this $10,200 income exclusion. The exclusion applies to taxpayers, single or married filing joint, with modified adjusted gross income of less than $150,000.

The new legislation also suspended the requirement to repay excess advanced payments of the Premium Tax Credit (excess APTC). If you made this payment when you filed your 2020 tax return, before the legislation was final, then the IRS will be issuing these refunds automatically as well.

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

New Scam Targeting College Students

Wednesday, March 31st, 2021

The IRS is warning college students (as well as University staff) about a new scam that is attempting to steal their personal information. The scammers appear to be specifically targeting students and staff with an “.edu” email address. The scammers are targeting people from both public and private, profit and non-profit institutions.

The emails look like they are from the IRS, they even include the IRS logo. The subject line will say something like “Tax refund payment” or “Recalculation of your tax refund payment”. The email provides a link and asks the person to fill out a form which consists of the following information:

• Social Security Number
• First Name
• Last Name
• Date of Birth
• Prior Year Annual Gross Income (AGI)
• Driver’s License Number
• Current Address
• City
• State/U.S. Territory
• ZIP Code/Postal Code
• Electronic Filing PIN

You shouldn’t open this email if you get it and especially do not clink on any links if you accidentally do open it. If you receive this email you can report it to the IRS. Per the IRS, for security reasons, save the email using “save as” and then send that attachment to phishing@irs.gov or forward the email as an attachment to phishing@irs.gov.

As always, never give out any of your personal information to any type of unsolicited communication.

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

New Key Items on 2020 Tax Returns

Wednesday, February 10th, 2021

There are new key things to consider when filing your 2020 tax return. These items may affect the amount of your refunds or amounts you owe so you want to make sure to pay close attention to them:

• Recovery Rebate Credit – Taxpayers may be able to claim the recovery rebate credit if they met the eligibility requirements in 2020 and one of the following applies to them:
1) They didn’t receive an Economic Impact Payment in 2020.
2) They are single and their payment was less than $1,200.
3) They are married, filed jointly for 2018 or 2019 and their payment was less than $2,400.
4) They didn’t receive $500 for each qualifying child.

• Refund Interest Payment – Some people who received refunds for their 2019 tax returns may have been paid interest by the IRS. These interest payments would have been received separately from your refund, they were not paid together in one lump sum. These interest payments are taxable and must be reported on your 2020 tax return. In January 2021 the IRS will send out Form 1099-INT to anyone who received an interest payment of $10 or more.

• New Charity Deduction Allowance – New for 2020 is that most taxpayers who do not itemize can deduct up to $300 of cash charity contributions made to qualified organizations.

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

What Rights you have when Dealing with the IRS

Tuesday, February 2nd, 2021

Everyone dreads getting that “Audit” notice in the mail from the IRS but once you do, rest assured that you do not have to fight the IRS alone. You are entitled to representation when dealing with the IRS. You have a choice of which authorized representative you would like to represent you. Some examples of the people you could have work with you are an attorney, CPA, enrolled actuary or any other person that is permitted to represent a taxpayer before the IRS (the person you choose would need to submit a written power of attorney form to the IRS to be able to represent you).

If you retain representation you do not have to attend with your rep unless the IRS formally summons you to appear. Your rep can basically act as a middle person between yourself and the IRS. But if you do choose to meet with the IRS yourself, in most situations the IRS must suspend an interview if you request to consult with a representative.

If you cannot afford representation you have the right to seek assistance from a Low Income Taxpayer Clinic, which represents taxpayers whose income is below a certain level and who need to resolve tax problems with the IRS. You can visit the following page for more information or by calling 800-829-3676:

https://taxpayeradvocate.irs.gov/about/litc

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

How to check if your Charity Donation is Tax Deductible

Monday, January 25th, 2021

Before making a charity donation you want to first verify that the charity is legit. There are a number of scams out there where fraudsters are setting up fake charities in order to steal money from people who donate to them. The second thing you want to do is make sure the charity you are donating to qualifies as a tax deductible donation. The IRS has setup a tool where you can verify if your charity is tax deductible:

https://www.irs.gov/charities-non-profits/tax-exempt-organization-search

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

Who Qualifies for the Employee Business Deduction

Wednesday, January 13th, 2021

Unlike in years past, taxpayers can no longer claim unreimbursed employee expenses as a miscellaneous deduction on their Schedule A unless certain qualifications are met. If you are a qualified employee or an eligible educator expenses can be deducted as an adjustment to income on Form 2106. A qualified employee is one of the following:

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

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

Publication 529 gives a more in depth look at what is and isn’t deductible:
https://www.irs.gov/pub/irs-pdf/p529.pdf

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

2020 Standard Mileage Rates

Thursday, January 7th, 2021

As we get closer to the end of 2020 you may want to know how much you can deduct for your business mileage for this year. The 2020 standard mileage rates are the following:

• 57.5 cents per mile driven for business use, down one half of a cent from the rate for 2019,
• 17 cents per mile driven for medical or moving purposes, down three cents from the rate for 2019, and
• 14 cents per mile driven in service of charitable organizations.

It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station.

The information provided in this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available in this article are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information. Please consult your tax advisor on all the above issues.

2021 Standard Mileage Rates

Monday, December 28th, 2020

The IRS recently released the information on how much you can deduct for mileage for 2021. The mileage rates apply to operating an automobile for business, charity, medical or moving purposes.

Starting on Jan. 1, 2021, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 56 cents per mile driven for business use, down 1.5 cents from the rate for 2020,
• 16 cents per mile driven for medical or moving purposes for qualified active duty members of the Armed Forces, down 1 cent from the rate for 2020, and
• 14 cents per mile driven in service of charitable organizations, the rate is set by statute and remains unchanged from 2020.

Please consult your tax advisor on all the above information.

Recovery Rebate Credit

Wednesday, December 23rd, 2020

Taxpayers may be able to receive a Recovery Rebate Credit when they file their 2020 taxes if they were eligible for the Economic Impact Payment and didn’t receive it or didn’t receive the full amount they were entitled to. You may be eligible to receive the Recovery Rebate Credit if meet the eligibility requirements and one of following applies:

– You didn’t receive an Economic Impact Payment in 2020.
– You are single and your payment was less than $1,200.
– You are married, filed jointly for 2018 or 2019 and your payment was less than $2,400.
– You didn’t receive $500 for each qualifying child.

You want to make sure to save your Notice 1444 that you received in the mail because you will need this to determine if you are eligible for the Recovery Rebate Credit when you file your 2020 tax return. The IRS gives a further explanation on their website:

https://www.irs.gov/coronavirus/economic-impact-payments

please consult your tax advisor on all the above information.

New Notice for your 2020 Tax Return Regarding Economic Impact Payments

Monday, December 21st, 2020

If you received an Economic Impact Payment in 2020 you will receive a Notice 1444 which states the amount of the payment you received. You want to save this notice to refer to it once you go to file your 2020 tax return. This notice specifically provides information about the amount of the payment, how the payment was made, and how to report any payment that wasn’t received.

Saving this notice is also important because when you file your tax return you may be eligible for a Recovery Rebate Credit. People who didn’t receive an Economic Impact Payment in 2020 may qualify for the Recovery Rebate Credit.

This form should be kept with all your 2020 tax documents and submitted to your tax preparer when you go to file your 2020 tax return.

Please consult your tax advisor on all the above information.

Covid Text Message Scam

Wednesday, December 9th, 2020

The IRS has issued a warning for yet another new scam going around, this one involves text messages. The endgame for the scammers in this new scam is to ultimately get your bank account information and they are using the $1,200 Economic Impact Payment to facilitate this scam.

The scammers will send you a text message that says you “have received a direct deposit of $1,200 from COVID-19 TREAS FUND. Further action is required to accept this payment…Continue here to accept this payment”. The text will then provide a link that sends you to a phishing website where the scammer tries to get you to enter your personal and bank information so they can steal it. The fake website does look like a real IRS website. DO NOT CLICK ON THE LINK OR ENTER ANY OF YOUR PERSONAL INFORMATION.

The following instructions are directly from the IRS if you receive this text:

Anyone who receives this scam text should take a screenshot and include the screenshot in an email to phishing@irs.gov with the following information:

• Date/time/time zone that they received the text message
• The phone number that received the text message

The IRS doesn’t send unsolicited texts or emails. The agency will never demand immediate payment using a gift card, prepaid debit card or wire transfer or threaten to have a taxpayer arrested.

Please consult your tax advisor on all the above information.

2020 Standard Deduction Amounts

Monday, December 7th, 2020

Standard deductions usually increase every year due to inflation. Below are the updated tax year 2020 standard deduction amounts:

• Married filing jointly: $24,800 — up $400 from 2019 tax returns
• Married filing separately: $12,400 — up $200 from 2019 tax returns
• Head of household: $18,650 — up $300 from 2019 tax returns
• Single: $12,400 — up $200 from 2019 tax returns

Please consult your tax advisor on all the above issues.

IRS is Making it Easier for Installment Agreements

Wednesday, December 2nd, 2020

Due to Covid-19, the IRS has recently made changes to help ease the burden to taxpayers who owe money. The IRS is trying to give more options to people to make their payments. The IRS is expanding their payment plan options and added new tools to assist taxpayers:

• If you qualify for a short term payment plan you now have 180 days to resolve the tax liability instead of 120 days.

• The IRS is offering flexibility for taxpayers who are currently unable to meet their obligations with their Offer in Compromise.

• The IRS will automatically add certain new tax balances to existing Installment Agreements, for individual and out of business taxpayers. This taxpayer-friendly approach will occur instead of defaulting the agreement, which can complicate matters for those trying to pay their taxes.

• Certain qualified taxpayers who owe less than $250,000 may setup an installment agreement without providing proof, such as a financial statement, that their proposed monthly payments are sufficient enough.

• Some people who only owe a 2019 tax and its under $250,000 may qualify to setup an installment agreement without a notice of federal tax lien filed by the IRS.

• Qualified taxpayers with existing Direct Debit Installment Agreements may now be able to use the Online Payment Agreement system to propose lower monthly payment amounts and change their payment due dates.

Please consult your tax advisor on all the above issues.

A Key Form Change to be on the Lookout for

Wednesday, November 25th, 2020

We want everyone to be aware of a key change to one of the tax forms that you are accustomed to seeing in years past. The form you want to be on the lookout for is the Form 1099-Misc which is the form that you receive if you performed certain service and received payment from a business. So when you start receiving your tax forms for 2020 instead of a Form 1099-Misc you may now receive Form 1099-NEC, Non-Employee Compensation. This new form just isolates the money you received for certain services from businesses where as in years past the 1099 would include other items such as rents received, royalties, and fishing boat proceeds.

Below is a list of payments where you would still receive the Form 1099-Misc instead of the Form 1099-NEC:

• At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.

• At least $600 in the following:
 Rents.
 Prizes and awards.
 Other income payments.
 Generally, cash from a notional principal contract to an individual, a partnership or an estate.
 Any fishing boat proceeds.
 Medical and health care payments.
 Crop insurance proceeds.
 Payments to an attorney.
 Section 409A deferrals.
 Nonqualified deferred compensation.

Below is an example of the new 2020 Form 1099-NEC:

Please consult your tax advisor on all the above information.

Some College Students may qualify for an Economic Impact Payment

Wednesday, November 18th, 2020

If you are a self-supporting college student who doesn’t file a tax return you made be eligible to receive an economic impact payment. It is important to note that the deadline to file using the non-filers tool is 3:00 PM on Saturday November 21st. The tool to register online can be found at the following link:

https://www.irs.gov/coronavirus/non-filers-enter-payment-info-here

A self-supporting student who registers and qualifies will receive a $1,200 payment if they are single and $2,400 if married and file a joint return (as long as the student or their spouse cannot be claimed as a dependent). The student may also get an additional $500 for each qualifying child.

Only self-supporting students who are not required to file a tax return should register using the non-filers tool. If the student is a dependent on their parents tax return or a dependent on someone else’s tax return then they do not qualify for this payment.

The IRS also has a tool where you can track the status of your payment starting two weeks after they register:

https://www.irs.gov/coronavirus/get-my-payment

If you miss the November 21 deadline and qualified for a payment you will have to wait until next year to claim the Recovery Rebate Credit when you file your 2020 tax return.

Please consult your tax advisor on all the above information

Tax Year 2020 Charity Deduction Change

Thursday, November 12th, 2020

Typically taxpayers can only deduct charity donations if they itemize their deductions on a Schedule A. Due to the tax law changes from a few years ago, many people do not qualify to itemize their deductions and instead take the standard deduction. By taking the standard deduction, you do not get to deduct your charity donations. The IRS has changed that to encourage people to donate money to charity.

So on your 2020 tax return, you can now deduct up to $300 of charity donations if you do not itemize your deductions on a Schedule A. If you do itemize your deductions then you are not subject to the $300 limitation.

If you do not itemize, any donations above the $300 cannot be carried forward to future years.

Please consult your tax advisor on all the above issues.

How long does the IRS have to Collect Back Taxes from you?

Tuesday, November 10th, 2020

People often wonder a couple different questions when it comes to the IRS collecting back taxes from you. How long does the IRS have to assess additional taxes owed? And how long does the IRS have to collect that money from you?

The IRS generally has three years from the date you file a tax return to assess additional taxes for that particular tax year. There are some exceptions to this three year rule. If you fail to file a return or file a fraudulent return the IRS has an unlimited amount of time to assess additional taxes for that year.

After the IRS assesses you with additional tax, they have 10 years from the assessment date to collect it from you. The 10 year period can only be extended for people who have entered into installment agreements or the IRS obtains court judgements.

But the 10 year period can be suspended under a couple different circumstances. This happens when the IRS cannot collect money due to the taxpayer’s bankruptcy or there’s an ongoing collection due process proceeding involving the taxpayer.

Please consult your tax advisor on all the above information.

IRS Discovered a new Text Scam

Wednesday, November 4th, 2020

The IRS wants to remind people that scammers have been relentless when it comes to using the Economic Impact as a cover to steal your personal information including bank account numbers. The IRS will never text you to get your bank account information. The scam text reads as follows:

“You have received a direct deposit of $1,200 from COVID-19 TREAS FUND. Further action is required to accept this payment into your account. Continue here to accept this payment …”

The text then includes a link to click on that takes you to a fake IRS website where they direct you to enter your bank account information to receive the payment. Then once you enter your information the scammer now has all your bank information.

Per the IRS, People who receive this text scam should take a screen shot of the text message that they received and then include the screenshot in an email to phishing@irs.gov with the following information:

• Date/Time/Timezone that they received the text message
• The number that appeared on their Caller ID
• The number that received the text message

As a reminder for any type of potential scam, never give out your personal information to any form of unsolicited contact. If you need information regarding the IRS, you should go directly to their site IRS.gov and not click on any links from an unsolicited text or email.

Please consult your tax advisor on all the above information.

Watch out for Scams After Disasters

Wednesday, November 4th, 2020

The IRS is warning people to watch out for scams following any type of disaster, this is prime time for scammers to take advantage of individuals who want to help the victims of these disasters financially. The scam usually comes up after a hurricane, wildfire, or any other type of disaster. Scammers know that charity donations will often pickup after a disaster so that is what they try to take advantage of.

The scam will start some type of unsolicited communication such as email, text, a call, social media, etc. Then the scammers use the following tricks to try to get money or personal information out of you:

• Scammers will pretend to be from a legit charity in order to steal your money or information.
• Scammers will setup fake websites that look legit to get your money.
• Scammers will even pretend to be from the IRS and tell you they can help you get additional tax refunds if you work with them and make donations.
The IRS has a few tips with regards to disasters and fake charities:
• You can call the IRS directly at 866-562-5227 to speak with a specialist if you are a victim of a disaster.
• Taxpayers can visit the following IRS website to assist them in finding a real charity to donation to:

https://www.irs.gov/charities-non-profits/tax-exempt-organization-search

• Always contribute money that has a trail such as a check or a credit card.

Always remember that if you get an unsolicited request for your personal information it is most likely a scam so always be aware.

Please consult your tax advisor on all the above information.

Unemployment Compensation is Taxable

Wednesday, October 28th, 2020

With many Americans on unemployment as a result of Covid-19, the IRS wants to remind taxpayers that unemployment compensation is taxable so people should plan on that tax liability being on their 2020 tax returns. It is always a good idea to have taxes withheld from each payment so that you won’t get surprised with a big tax bill when you go to file your 2020 return. Taxable benefits include any of the special unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted this spring.

The withholding of taxes from your unemployment benefits is taxable and law allows a flat 10% to be withheld. You want to fill out the following form to have the taxes withheld:

https://www.irs.gov/pub/irs-pdf/fw4v.pdf

If you would like to get a ballpark snapshot if you are having enough taxes withheld the IRS recommends using their withholding calculator:

https://www.irs.gov/individuals/tax-withholding-estimator

So if you did receive unemployment benefits in 2020 be on the lookout for Form 1099-G in January 2020, this will show how much you received and what figures need to be reported on your tax return.

Please consult your tax advisor on all the above issues.

Tips for Amending a Tax Return

Monday, October 26th, 2020

The IRS will often correct certain types errors on tax returns but there are situations where you may need to file an amended return. The good news is that amended returns (starting with tax year 2019) can now be efiled whereas prior you had to mail in a paper copy. Below are a few tips to assist you with amended returns:

• The IRS says not to amend for math errors or missing forms. The IRS may correct math errors and accept the return even if forms are missing. If they need any further information they will contact you.
• If you are due a refund from your return that you originally filed, you should wait for that refund before you file Form 1040-X to amend your return.
• You must file Form 1040-X to amend your tax return. 2019 Amended tax returns can now be efiled, any years prior to 2019 still need to be a paper return and cannot be efiled. If you are filing an amended tax return due to a response from an IRS letter you received, you should mail your 1040-X to the address listed on the letter. If not you can use the general instructions to get the correct mailing address:

https://www.irs.gov/instructions/i1040x

• Some examples of why taxpayers need to amend their returns are to correct filing status, claim additional income, deductions amounts are different, or credits need to be adjusted. Also keep in mind that changes to your federal return may also change your state tax return, so the state return may need to be amended as well.
• If you owe additional taxes due to you amended return you should pay that as soon as possible.
• File within three-year time limit. Taxpayers generally have three years from the date they filed their original tax return to file Form 1040-X to claim a refund. They can file it within two years of the date they paid the tax, if that date is later.
• You can track your amended return status online:

https://www.irs.gov/filing/wheres-my-amended-return

Please consult your tax advisor on all the above information.

Tax Tips for Newly Married Couples

Wednesday, October 21st, 2020

First off we would like to say congrats on your new marriage!!! Along with your new marriage there could be potential changes to your tax situation. We would like to highlight a few changes once you get married:

• Name and Address Changes – If you change your name after you get married it is important to make sure you report your name change to the Social Security Administration. We have had situations where we efile a tax return but it gets rejected because the name on the tax return does not match the taxpayer’s legal name. This delays your refund because your return cannot be efiled again until you correct the name change. For your address change, you should fill out Form 8822 and send it to the IRS:

https://www.irs.gov/pub/irs-pdf/f8822.pdf

• Tax Withholdings – Couples should review their tax withholdings once they get married. As an example if both spouses work you may be moved into a higher tax bracket so you may need to increase your withholdings. You should complete a new Form W-4 and give it to your employer within 10 days of your marriage.

• Filing Status – You should review which filing status will be more beneficial for your situation, married filing joint or married filing separate. Usually married filing joint is the best option but not always. Our firm can always calculate a joint versus separate comparison if requested.

• Scams – Always be on the lookout for any potential scams and know that the IRS does not contact you by phone, text, email, or social media to start. The first contact is via the mail. But be careful, the scammers have caught onto this and have been sending out fake letters that appear to be from the IRS.

Please consult your tax advisor on all the above issues.

Options if you need Copies of Prior Year’s Tax Returns

Tuesday, October 20th, 2020

Taxpayers often need copies of their prior year returns for various reasons, one reason would be that you are applying for a loan. If you do not have a copy of your return there are a few different options that you have to get one:

• Ask your tax preparer – if you have your taxes professionally prepared the firm should have copies of your prior year’s returns.
• Ask your software provider for a copy.
• Get a transcript of your return from the IRS – you have a few different options to obtain this from the IRS:

1) Online: https://www.irs.gov/individuals/get-transcript
2) By phone: 800-908-9946
3) By mail, you can fill out Form 4506-T or Form 4506T-EZ:

https://www.irs.gov/pub/irs-pdf/f4506t.pdf
https://www.irs.gov/pub/irs-pdf/f4506tez.pdf

If you would like an actual copy of your tax return from the IRS, you can mail in Form 4506 but there is a $50 fee per copy. The IRS has available the current year and the six years prior.

Please consult your tax advisor on all the above information.

Economic Impact Payment Deadline has been Extended

Wednesday, October 7th, 2020

The IRS has extended the due date to file for an Economic Impact Payment to November 21, 2020, this gives people an additional five weeks beyond the original deadline.

The IRS is urging people who do not file a tax return to register as quickly as possible to see if they are eligible for a payment:

https://www.irs.gov/coronavirus/non-filers-enter-payment-info-here

The above tool will not be available after the deadline date of November 21st, 2020.

Please keep in mind that this extension is for the Economic Impact Payment only. People who filed for an extension to file their 2019 tax return still have an October 15th, 2020 deadline to get that filed.

Please consult your tax advisor on all the above information.

2019 Tax Returns on Extension are Due Soon.

Monday, October 5th, 2020

The deadline for 2019 tax returns that are on extension is fast approaching. The deadline date to file your 2019 tax return is October 15th, 2020. The IRS urges taxpayers to efile and enter direct deposit information in order to get their refunds faster.

Most tax returns are due on October 15th but some have more time to file. Those that have more time are:

• Members of the military and others serving in a combat zone. They typically have 180 days after they leave the combat zone to file returns and pay any taxes due.

• Taxpayers in federally declared disaster areas who already had valid extensions. For details, see the disaster relief page on IRS.gov.

Please consult your tax advisor on all the information above.

Status of your Economic Impact Payment & Payment Deadlines

Wednesday, September 30th, 2020

Per the IRS: “Federal benefit recipients who don’t normally have a filing requirement but do have qualifying children must register by Wednesday, Sept. 30 to receive a $500 catch-up payment per child. Other non-filers have until Thursday, Oct. 15 to register for their Economic Impact Payment.”

The last day to apply for an Economic Impact Payment this year is October 15th, 2020. If you do miss any of the above deadlines then you will need to wait until next year then claim the payment as a credit on your 2020 tax return.

Eligible Individuals can visit the following site to find out more information about the status of their Economic Impact Payment:

https://www.irs.gov/coronavirus/get-my-payment

The tool on this site will show if your payment has been issued and whether it was direct deposited or mailed. There are also certain situations where the site will allow you to give the IRS your bank account information in order to get your payment via direct deposit. The IRS also wants to remind people that the site is updated once per day so there is no need to check it multiple times each day.

The tool will ask you a series of questions to confirm your identity and if your answers do not match the IRS you will get locked out of the site for 24 hours.

Another common issue for this site is that some people will get the message “Payment status not available”, which means the IRS can’t determine your eligibility at the current time. This may occur because of a few different reasons:
• A 2018 or 2019 return may not be on file with the IRS.
• The individual could be claimed as a dependent on someone else’s return.
• If you filed your 2019 tax return the IRS just may not have processed it yet. (The IRS will issue the payment, if you are eligible, after your 2019 return gets processed).

Please consult your tax advisor on all the above information.

Being Prepared for a Natural Disaster

Wednesday, September 23rd, 2020

It is always good to be as prepared as possible if encounter a natural disaster. The IRS suggests that taxpayers should take the following precautions in case a natural disaster does occur:

• You should have an emergency plan in place and review it every year.
• Create electronic copies of your important documents such as tax returns, insurance policies, and bank statements. You can save them to a USB flash drive or in the cloud.
• You should document all your valuables by videotaping or taking photographs. This will help you with your insurance claims process if your valuables get ruined during a natural disaster. You should do a room by room documentation of all your valuables.
• You may be eligible for tax relief due to the disaster, please check with your tax advisor to see if you qualify.
• You can always contact the IRS if you have certain questions pertaining to a natural disaster at 866-562-5227. The IRS has specialists trained to handle disaster issues.

Please consult your tax advisor on all the above information.

Signs of Tax Related Identity Theft

Wednesday, September 2nd, 2020

A typical scam we see regarding tax returns are when a scammer has your personal information and uses it to file a fraudulent tax return where the refunds from the return are directed to the scammer. So then you go to file your actual return and you can’t because the IRS has it in their system that your return has already been filed. One way to stay on top of this is to recognize the signs of this tax scam in case you are a victim, you can take action on it as soon as possible. The IRS recently released their typical signs of a tax return scam:

• You get a letter from the IRS inquiring about a suspicious tax return that you did not file.
• You can’t e-file your tax return because of a duplicate Social Security number.
• You get a tax transcript in the mail that you did not request.
• You get an IRS notice that an online account has been created in your name.
• You get an IRS notice that your existing online account has been accessed or disabled when you took no action.
• You get an IRS notice that you owe additional tax or refund offset, or that you have had collection actions taken against you for a year you did not file a tax return.
• IRS records indicate you received wages or other income from an employer you didn’t work for.

You should contact the IRS immediately if you think you are the victim of identity theft at 1-800-829-1040.

Please consult your tax advisor on all the above information.

Some People may still be Eligible for Economic Impact Payment

Tuesday, September 1st, 2020

The IRS has stated that many people who don’t normally file tax returns remain eligible for an Economic Impact Payment of $1,200 or more. They are referencing people who do not file a tax return because they are not required to. Below is a link to a short video that the IRS put out to give directions to people who haven’t filed a tax return to claim their Economic Impact Payment:

https://www.youtube.com/watch?v=s0eKEWlcNp8&feature=youtu.be

Please consult your tax advisor on all the above issues.

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:

https://www.irs.gov/help/ita/is-my-tip-income-taxable

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.