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Archive for October, 2020

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.