TaxMamas TaxQuips: Tax Quips

  It’s TaxQuips time from TaxMama.com® . Today TaxMama® wants to alert you to some major tax news taking place before the year ends.         Dear Family, As we come to the end of an incredibly busy year, there is still so much going on. Congress worked through the night to pass a 4,155 page Omnibus Act to get the budget passed. It’s on its way to the President for signature. They are also on their way to pass a SECURE Act 2.0 – that provides all kinds of tax and retirement-related benefits. For now, you can find a really good summary on the Kiplinger website. In addition, the Joint Committee on Taxation just released a summary of President Trump’s tax returns for 2015 – 2020 to the House Ways and Means Committee. These are not the actual returns, just summaries of his personal tax returns and details of some of his businesses. CNBC has some comments about this – and the audit that was started while Trump was a sitting president. Whew…your tax pros and writers and instructors are going to have a lot of material to dig through. I am hearing of people cutting vacations short to get you the details.   You will find several benefits in the areas of retirement contributions and distributions, and tax credits. The really bad news for 2023-2024 EA candidates? These new laws will be on your exams! So if you can, try to finish passing all parts by February 28, 2023 to avoid all these changes. We’ll deal with all of this next year. In the meantime, sit back, relax and enjoy your holidays!   And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion To make comments, please drop into the TaxQuips Forum.

It’s TaxQuips time from TaxMama.com® . Today TaxMama® wants to talk to you about the very last filing deadline for calendar year taxpayers filing 2021 tax returns.   Dear Family, The time has come, the Walrus said, to speak of many things. Of needless delays, sad tales and ignoring all the nagging pings. (apologies to Charles Lutwidge Dodgson) The good news is, you have a couple of extra days to finish filing all your 2021 final returns  - until Monday, October 17, 2022, instead of October 15th. That includes personal tax returns and calendar-year C corporations returns (among certain others). The better news (depending on your perspective) for filing deadlines – is the additional time, until February 15, 2023, available to people who were affected by the various, hurricanes, storms and disasters including Alaska, the entire East Cost, and even Puerto Rico. (Yup they file US returns, too.) https://www.irs.gov/newsroom/tax-relief-in-disaster-situations#collapseCollapsible1665513380562 more-> The bad news And this is really, really bad. Tax professionals are reporting actual threats and hostile actions from their last minute procrastinating clients. This isn’t just something to brush aside. Tax professionals have actually been shot by angry clients – and the industry is responding. Many tax professionals have now come to the conclusion that they will be firing uncooperative clients. Some will be fired now – even with just a few days left to go. Others will be given solid deadlines to meet next year – and if not met, those clients will be shown the door. Still other clients who have been bullying and rude will be rejected forevermore. In fact, to avoid problems, I have always had a policy in place – if you’re rude to my staff, you are never welcome to return. Period. Other firms are now adopting this policy, as well. The biggest issue – taxpayer procrastination. Before April 15th, tax pros review all the information and look at the data from last year to determine if you will need to make a 2021 payment when they file the extension for you. Around that time, or soon afterwards, they give you a list of “To-Dos” – documents to get in order to complete your tax return. Then what happens? The cooperative clients get the materials and give everything to the tax pros – and their tax returns get done quickly. The procrastinators? The firm has to waste time calling, emailing or mailing requests to them repeatedly. And finally, the (often) very charming client shows up about a week before the final filing deadline all proud, with most, but not all, of the requested documents, expecting you to finish their returns immediately. And when rebuffed in favor of clients who got their materials in before they did – they are suddenly not so charming anymore. So, for now?  What should you do if your tax return is not done yet? If you’re working with a tax professional, get them EVERYTHING they will need in order to complete your tax return by Friday. Leave nothing out. If you are still missing some information – either get off your keister and get the records or WRITE the estimated amounts to be used for this year’s tax return. Don’t expect your tax pro to do the digging this weekend. There just isn’t time. If you have been turned away by your tax pro at this late date, don’t fight them. They will return any ORIGINAL documents you gave them. If you gave them only copies or scans of documents, then you should have them. It’s not their responsibility to dig up those records for you. Log into your favorite online tax prep software and start entering all the data TODAY. You can finish it up over the weekend – after you have done your own work to dig up the missing information. Honestly, these days, practically everything is online. You can log into your various accounts and download year-end statements for mortgages and other loans, credit cards, investment accounts – perhaps even medical expenses. You don’t have time and just have to estimate amounts? Fine. Do that. But explain how you arrived at those estimates by including a statement with your tax return. And explain that you will file an amended return once you get the actual amounts. Yes, even if you’re wrong (try not to be too wrong, to avoid penalties), you have 3 years to file an amended return. But, whatever you do – FILE T TAX RETURN. Not filing, you’re immediately subject to a  late filing penalty of 5% per month. Does that start in April when the tax return was originally due? Or does it start in October if you filed an extension? I don’t actually know for sure; but think it will start in April – so you’ve instantly incurred a 25% penalty. OUCH! Sorry to make this such a negative post. But the IRS now requires tax professionals to apply a much higher level of due diligence and verification than ever before. In addition, we have several new tax law changes that took effect this year. And so many of the advance funds or corrected refunds that the IRS issued – that it’s taking longer than ever to prepare tax returns – even for the ideal clients. The IRS has issued so many erroneous collections notices (because payments were not posted) – that we have a lot of other time demands to prevent these collections actions. People are working longer hours, often through the night. Tempers are flaring – both among clients and tax pros. Expect the industry to change next year. If you want to work with your tax professional next year – treat them with respect and respond timely to all information requests. For now – don’t call your tax pro about “where is my return?” When it’s ready, THEY will reach out to you. And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion To make comments, please drop into the TaxQuips Forum.

It’s TaxQuips time from TaxMama.com® . Today TaxMama® wants to talk to you about some imminent deadlines – and about the IRS dropping by your place of business.       Dear Family, This year has flown by so quickly. I blinked and now it’s almost autumn. First, the upcoming deadline – September 15th is the final filing deadline for calendar year (December 31st) partnerships and S corporations. Let me be clear. There are no  more extensions. So if you haven’t gotten all your information together yet – do it NOW. Even if something is missing or incomplete – work out reasonable estimates for the missing information. Include a disclosure statement with your tax return to explain which amounts are estimated, why, and how you arrived at your estimate. BUT FILE THAT RETURN ON TIME – REGARDLESS!!!! Not filing generates instant late filing penalties – several actually – because there are penalties for not filing the forms 1065 and 1120S, and separate penalties for not filing the Schedules K-1. This can run into the thousands of dollars.   Great news: One interesting last-minute tip. Since your 2021 business and personal returns are on extension, you still have time to reduce your 2021 taxes if you open and fund a retirement plan by September 15th (for partnerships and S corporation) and October 15th (for Schedule Cs and C corporations). Join me for a free webinar on Monday September 12th at 3:00 pm Pacific to learn how to open and use a Solo401k before your filing deadlines. https://iTaxMama.com/Special-Webinar-Solo-401k Sad news: Incidentally, if you are  working with a tax professional and haven’t given them your information yet – but they have been requesting documents for months…don’t expect them to finish your tax return by the deadline. And, potentially, expect to be fired. There’s a lot of talk in the industry among tax practitioners who are exhausted and resent having to baby-sit procrastinating clients. Moving on to more cheerful matters – the IRS is coming. The IRS is coming! Yup. Even before Congress passed the Inflation Bill providing additional funding to the IRS for new hires and operations – the IRS has upped their field operations. https://www.irs.gov/newsroom/understanding-how-the-irs-contacts-taxpayers-avoiding-scams-and-how-to-know-its-really-the-irs-reaching-out Revenue Officers (collections) have started to go out into the field. They have three purposes: Naturally, to collect past due taxes – especially where the taxpayer has been unresponsive. In which case, the visit might be unannounced. A regular, scheduled visit to structure a payment plan to settle their business or payroll tax debt. To educate employers who are starting to fall behind on their payroll tax deposits – before they get too far behind. Revenue Agents (auditors) are also heading out into the field – to conduct audits. In most cases, there will be mailed correspondence before they show up. If you didn’t get any correspondence, it could be one of these reasons: You moved and didn’t file a change of address with the IRS. You haven’t had the courage to open your IRS mail and you’re waiting to show it to your tax professional. It could be someone from the IRS Criminal Investigation division But if you’ve never done anything shady, I wouldn’t worry about that. The visitor is not really from the IRS.   It’s the unannounced (or unexpected) visits that I want to talk to you about – to help you verify if they are really from the IRS. There are a lot of scam artists out there – and they are worse than the IRS. So let’s start with what a real IRS agent will have: They have “pocket commission” – their official card and badge. Problem: Do you know what a REAL “pocket commission” looks like? I don’t. And neither did most of the tax professionals in our Stakeholder Liaison discussion group dealing with IRS Systemic Issues. They have an HSPD12 card – that describes the agent’s height, appearance, etc. Problem: Again, easy to create a phony document with the scammer’s description, since most people don’t really know what that card looks like. Yes – it has an IRS contact number you can call to verify them. But if they are con artists, the phone number on their card will go to a friend or colleague. With the potential to create fake ID’s how can you be SURE the person at your door really is from the IRS? A real IRS agent will generally have information taken directly from your personal, business and or payroll tax return that you have recently filed. No one else should have that. There are some more specifics here https://www.irs.gov/newsroom/how-to-know-if-its-really-the-irs-calling-or-knocking-on-your-door If you are still uncomfortable (or start out that way), here are your options when the IRS shows up unannounced – we were assured by the IRS managers at the Stakeholder Liaison meeting that this is acceptable: For taxpayers – Ask them for their business card. Then, politely refuse to let them in until they first contact your tax professional – and provide your tax pro’s contact information. Call your tax pro immediately and sign a power of attorney so they can handle the contacts. Or if you want to handle it yourself, arrange to schedule a meeting at an IRS office facility. You can verify all IRS campus addresses online. For tax professionals – Ask them for their business card. Reschedule the appointment either at an IRS campus – or later, after you have had time to verify their identity objectively. Verify their identity. Verify that such a person really works for the IRS and ask for a description. Do this by contacting one of these IRS groups: The Practitioner Priority Service – if you can get through on their phone lines these days Your local stakeholder liaison office (you can call or fax to them). We have been assured that, when handled politely, the IRS agent will be gracious about this delay on their visit. But remember, if you did get advance notice and you don’t want to be facing that person alone – contact your tax practitioner immediately. That would be an Enrolled Agent, a CPA or an attorney. The IRS does have a verification phone number – on the real HSPD12 cards. But they don’t want to make it public, for security reasons. And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion To make comments, please drop into the TaxQuips Forum.  

  It’s TaxQuips time from TaxMama.com® . Today TaxMama® wants talk to give you some basics about the new Inflation Reduction Act. And some observations.   Dear Family, By now, you are aware that President Biden has signed the Inflation Reduction Act into law. Although there are 273 pages to this Bill, only a few issues may affect you directly. I will give you more details about this Bill in the next couple of weeks. Meanwhile, here are the highlights: Extending the Premium Tax Credits (buying insurance through the Marketplace and having the government pay part of your premiums) for another 3 years Increased tax credits for alternative fuel vehicles Increased tax credits for more energy efficient homes and commercial properties For those small businesses involved in qualified research activities, the research credit has doubled, and can be used to reduce payroll taxes. The Bill also adds a corporate Alternative Minimum Tax of 15%. But that only applies to corporations with a BILLION DOLLARS of book income, or more. more-> Please excuse this editorial comment about all the screaming I have heard about how this tax will be passed on to consumers in higher prices: A corporation with a BILLION DOLLARS of profits, that has to pay out $150 million dollars, still gets to keep $850 MILLION dollars of profits. Isn’t that enough? Why do they need to pass on the cost of the additional taxes to consumers? Are you worried about the $80 billion going to the IRS and the 87,000 new IRS agents being hired? Please don’t. Let’s face it, right now, it’s practically impossible to reach someone at the IRS on the phone. The fact is, the IRS provided only a 19.5% level of service, according to TIGTA (the agency that audits the IRS). Paper mail and tax filings of any kind are delayed for months because the IRS doesn’t have the staff to process all that input. And did you see this Washington Post article (with pictures) about just how handicapped the IRS paper processing is? So, a lot of the new hires will be for areas like this – they won’t be field operatives. Many will be providing customer service and answering phones calls. This is for our benefit. Sure, there will be more audits coming up. But the IRS cannot afford to initiate audits that don’t generate revenue. They just don’t have the staff. So expect the audits to focus on taxpayers that are likely to have under-reported their income, or inflated expenses or the basis for their sales. They simply don’t have the staff. Unfortunately, the IRS must still some statistical audits as part of their National Research Program. I say unfortunately because those are line-by-line audits of people who were randomly selected. There is no way out of this one. (Although the Taxpayer Advocate did once suggest that some of these people get paid for this hardship.) And the fact is, even if they agree to hire 1,000 people each day – it will take about 6 months for the federal background check by the Office of Personnel Management (OPM); then several more months for training. New hires are not likely to be effective this year. But even before those hires, using current staff, the IRS is going back out into the field to collect unpaid taxes from business that are behind on payroll and business taxes. And Revenue Agents (field auditors) are heading out to hold examinations at the taxpayers’ places of business. Ideally, they will have notified the taxpayer or the representative of the impending visit. If they have not, and you are not absolutely certain that the person at your door IS from the IRS, you have the right to ask that the meeting be moved to an IRS office, so you can make sure they are not scammers. (More about this in next week’s post) Incidentally, there are no new taxes on taxpayers – not even those earning $400,000 or more. Even so, with the marriage penalties in the current law, some couples might want to think about getting a divorce for tax reasons. Read this article in Think Outside the Tax Box. (Only partially tongue-in-cheek.) And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion To make comments, please drop into the TaxQuips Forum.  

  It’s TaxQuips time from TaxMama.com® . Today TaxMama® wants talk to you about a big flaw in the current tax laws.       Dear Family, It’s summer! Can you believe the year is going by so quickly? The past month has been a whirlwind with teaching, taking classes and even going to a live, in-person CSTC Tax Symposium in Reno. It’s the first time since early 2000 that I have had the opportunity to meet friends, peers, students and TaxMama® fans. We met, learned, hugged, ate a LOT – and didn’t get the least bit sick. (Well, OK…a little sunburnt…but that passes.) I also got started on a new crusade – to fix the tax law neglect when it comes to the Romance Scams – and the 14 other scams listed on the FBI’s site. The problem? The Tax Cuts and Jobs Act (Trump Tax Act) completely eliminated taxpayers’ rights to deduct casualty and theft losses – unless they were in Presidentially-declared disaster areas. As soon as I saw that in the law, it was clear this was going to be a problem for all the people who face routine disasters – like a fire burning down their home because of a smoldering cigarette; burst plumbing flooding the house (especially folks who are gone from home in the winter); people getting their assets stolen in scams that do not meet the limited definition of a Ponzi scheme; vandalism or theft from local thugs (or tenants)…and the list goes on. Well, now it hits home. A client got scammed for over $400,000. There may actually be a round-about way to claim the deduction – but it’s almost guaranteed to be audited. So I would much rather find a way to change the law itself. I am totally open to your help if you have contacts to bring this about. It will affect the millions of people who have been victimized in the 15 scams on the FBI list – and possibly others, depending on how broadly we can change (or re-interpret)  the Tax Code or Regulations.  Perhaps you, or your family or friends – or clients have been affected, already. (Romance Scam victims have lost over $1 BILLION dollars in in 2021.) Here’s what I was thinking – it’s really hard to get Congress to act jointly on practically anything these days. So I wanted to find a work-around. But here is a possibility – the Seniors Fraud Prevention Act is a bi-partisan bill from Senators Susan Collins® and Amy Klobuchar (D) that recently passed by both houses! However, it’s limited to education and monitoring – and doesn’t go far enough to get those seniors the casualty loss deduction. If you have a way to reach either of these legislators, please help me ask them to add this to their bill – or add it to an upcoming bill. Knowing this can take years, I have started the process to reach out to the IRS and the Taxpayers Advocate Service (TAS) to start exploring solutions – and to see if anyone can take this issue to the Secretary of Treasury, or someone close to President Biden or Vice President, Kamala Harris. Why, an easy solution would be to have the President declare these scams as Presidentially-Declared casualties. Then we don’t have to change the law itself. (There is precedent for a non-geographic declaration – COVID19.) If I can get something started and know that there is movement, either with respect to legislation, or a potential  Presidential declaration, then everyone who has been affected could file a “Protective Claim” to request a refund once the law or procedure change has been confirmed. What does that mean? It means that you won’t lose the right to deduct the losses and get a tax refund three years after the tax return was filed. When a “Protective Claim”  is filed within those three years, it makes it possible to get that refund, even if it takes 10 years or more for the legislation to change. But to file that “Protective Claim,” we need to be able to point to some tangible activity that will ultimately make these deductions kosher. This is probably a crazy idea. But the people I have spoken to at the IRS, TAS and even Kelly Phillips Erb at Bloomberg, think there may be something to this. So if you can help – please do. If you, or someone you know, has been affected, I would love to hear from you. Especially if they are willing to be profiled in the press. Use this email address so we can track your responses – romancescamtax@gmail.com That’s it for now. And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion To make comments please drop into the TaxQuips Forum.

It’s TaxQuips time from TaxMama.com® . Today TaxMama® wants talk to you about an eclectic set of tidbits about IRS changes and news.         Dear Family, Recently, the IRS started releasing updated Frequently Asked Questions (FAQs) about different topics. They didn’t actually add new information or change any procedures. But did add more clarifications (look for the updated date next to the FAQ): The most important information for people still waiting for their 2020 and 2021 tax returns to be processed can be found in this FAQ. It tells you that your delay could be even longer than you could ever have imagined; to do nothing – just wait…and several other helpful tips. more-> Are you missing stimulus/recovery payments? Are you convinced you never received them, even though the IRS transcripts say you did? Use Form 3911 to track the payment. Save time and fax this request to the IRS to 855-332-3068 Call 800-919-9835 to follow up But first! Look through all your bank accounts to be sure the payments are not there. And here’s a delightful twist to make you crazy. Did you pay for your tax software or tax preparation fee by having it deducted from your refund? Your stimulus payments may have gone to bank that handled the fee payment to TurboTax, H&RBlock, etc., or to your tax pro. Oh no! That’s another place to inquire before filing your Form 3911. Here are some other useful FAQs IRS revises FAQs for Tax Year 2021 Earned Income Tax Credit IRS revises 2021 Child Tax Credit and Advance Child Tax Credit frequently asked questions What’s frustrating is that they don’t put the newest answers on top; or, on a page with 20 or more FAQs, it would be helpful to get a summary of which FAQs had changed. With links to those changed FAQs. (Remind me to suggest that to the IMRS team. They are the ones who convinced the IRS to show the dates of the changes.) The IRS is raising interest rates on balances due. They have been pretty stable, at 3% until earlier in April of this year. With this 3rd quarter increase, the IRS will have raised the interest rate by 2% for the second 2 quarters. This is good news for people with refunds that are delayed. But not for people owe money to the IRS.   The IRS released their audit statistics for tax year 2019. As you can see, these audits are still in process. Look for your income bracket to see how likely you are to be selected. Audit rates have doubled for those in the $75,000 – $5 million range. Yet, they still remain well under 1% of the population. Audits of those folks with incomes over $10 million have increased fourfold.(Believe it or not, the IRS has another set of statistics that shows the results of all these audits.)     Natural disasters are increasing. As we get ever more storms, floods, fires, hurricanes, tornadoes and other plagues, the IRS provides some tips to help you protect your financial data. These are things you can do now – before the next disaster hits your home. Something no one seems to remind you about – your irreplaceable family documents, photographs, films – the memories and love that cannot be recreated if lost, stolen or damaged. Protect those! Load them someplace safe in the Cloud – perhaps copied into one or more different systems in case one of them gets hit with their own disaster. It’s inexpensive to be redundant about your most precious family treasures. That’s it for now.  There are many, many  more questions in the TaxMama® Forum. Drop by and read – or ask your own.   http://iTaxMama.com/AskQuestion And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion To make comments please drop into the TaxQuips Forum.  

  It’s TaxQuips time from TaxMama.com® . Today TaxMama® wants talk to you about an issue raised by Jean Mammen, EA. She says that right around now, there is so much going on, helping refugees, the homeless, and others who have experienced adversity. So, let me give you some quick tips about the tax laws related to gifts.         Dear Family, These are the questions raised by Jean Mammen, EA. Here are some basic responses, with links to more details: Is a gift taxable? Generally when you receive a gift, it is not taxable to you. The person giving the gift should file a gift tax return, Form 709, if all the gifts they give you during the year are more than $15,000   GoFundMe – again, the person setting it up, and also the recipient of the funds This is a little more complicated.  Set up the GoFundMe-type of account in the name of the recipient  so all the funds go to an account for that recipient (their Social Security Number and signature authority). Do not give or promise anything to the donors (no e-books, cards, anything tangible) except, perhaps news of the progress of the person you are helping. Then the funds are tax-free to the recipient.  There is no charity deduction to the donor (generous giver) – UNLESS the organization that set up the account is an exempt organization in good standing with the IRS. The recipient is able to get a tax deduction (or credit) if the funds are used to cover medical expenses or educational expenses. Full-ride scholarships, fellowships, etc. – tuition vs food and lodging amounts The funds covering tuition, books, and class supplies are tax-free. The funds to cover food and lodging are taxable income.  For  a student under age 24, you will need to file your own tax return, check the box if you are still your parents’ dependent. And this income is subject to the “kiddie tax” rules. You will pay taxes on these amounts at your parents’ highest marginal tax rate.   Direct-payment of school fees to schools, or medical fees to hospitals or doctors Anyone may make a gift to anyone else – even if they are not related – see the GoFundMe notes above – they apply here, too. When those funds are paid directly to a school (of any kind), or directly to medical providers there is no need to file a gift tax return, regardless of how much is donated on that person’s behalf. Beware if the beneficiary gets any of those funds refunded! The interesting twist in this is – the beneficiary of these funds is considered to have received a gift – so they can claim the medical expense deduction, or the education credits.  Would direct pay to an electricity company or utility be a good idea? Interesting question. Yes, if you know someone who needs that kind of help. You can pay their bills directly. But paying their utilities is not an exclusion from gift tax filing. So once you have spent over $15,000 in total gifts to or on behalf of that person (aside from just the utility bills), you must file a gift tax return. The money paid is tax-free to recipient.   There are now articles in my local paper about refugees and asylees who need help with everyday bills It’s a great kindness to help refugees and those seeking asylum. There will be a place in Heaven for you. (whichever Heaven you believe in). What are the tax consequences? If you help them directly – the gift tax rules apply, and you don’t get any kind of charitable contribution deduction – just gratitude Note: This may change – Congress may pass some legislation to provide benefits to you. If you work through a recognized charity and run the funds for housing arrangements through them – then you can get a charitable contribution deduction.  Make sure you submit your expenses to them and get a receipt for your “donations” – either monthly or annually. There are many, many  more questions in the TaxMama® Forum. Drop by and read – or ask your own.   http://iTaxMama.com/AskQuestion And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion To make comments please drop into the TaxQuips Forum.  

Honoring Ramadan, Easter, Passover It’s TaxQuips time from TaxMama.com® Today TaxMama® wants talk to you about changes to this year’s filing season that you may have missed – or forgotten about.   Honoring Ramadan, Easter, Passover It’s TaxQuips time from TaxMama.com® Today TaxMama® wants talk to you about changes to this year’s filing season that you may have missed – or forgotten about.         Dear Family, We are getting close to another year’s initial filing deadline. This year, our April 15th deadline has moved to April 18th, giving us a few extra days to file. I am not going to repeat all the usual tips and deadline information – you can find last  year’s links here. (Just disregard last year’s May due date.) But if you haven’t filed your 2018 tax return yet and you want your refund – please file by the April 15th date, just to be safe. Trust me on this – it will save arguments with the IRS later.  (Note: Some people say you can file until April 18th; others, that if your 2018 tax return was on extension, that you can file until October 15th. Why risk losing the refund? File now!) About $1.5 BILLION in refunds have been unclaimed and are about to expire. Working on some tax returns last week, Lulu pointed out that some new forms that are now mandatory. Answering some TaxMama® Forum questions, I learned new information while researching answers – and was reminded about other information. So, I decided to find as many of those forms for you, so you don’t overlook them as I almost did. (I love her backing me up!) In addition, there may be tax provisions that have expired since last year. This may not be a complete list – and it may be random, as I find them or remember them: Form 8915F – Qualified Disaster Retirement Plan Distributions and Repayments. This is where 1/3rd of last year’s retirement plan deferred distributions gets reported this year. (Or repayments of those funds.) The form was issued late. So if you have already filed your tax return and forgot to include this income – amend NOW before April 18th and consider submitting the payment via IRS Online Payments . For S Corporations – Form 7203 – S Corporation Shareholder Stock and Debt Basis Limitations. You now have to reconcile the taxpayer’s basis in their S corporation stock. For taxpayers who never really kept formal books, or a Balance Sheet, this is going to be a challenge. Net Operating Loss Carryback (NOL) – The special provisions allowing us to carry NOLs back for 5 years only applied to 2018, 2019, 2020. NOLs originating in 2021 can only be carried forward. Exception – Certain Farming NOLs can still be carried back to 2 years ago. Tuition and fees deduction (Schedule 1) – This ended last year. It might be renewed by Congress retroactively. But don’t hold your breath. Educator Expense – You have heard that this deduction rises to $300 (from $250). Forget it. That takes effect for the 2022 tax return. Virtual Currency – The checkbox on page 1 of the Form 1040/1040SR applies if you had any transactions with your virtual currency account whatsoever. Required Minimum Distributions (RMDs) – Seniors who turned age 72 in 2021 must have taken their RMDs for 2021 by April 1, 2022. If you missed that deadline, do it now and try to convince your financial institution to code it as a 2021 distribution. Otherwise, you will have to ask the IRS to waive the 50% penalty. And remember, you also need to take the RMD for 2022 before year-end. Partnership Schedule K-2 and K-3 – We have a reprieve from mandatory inclusion in 2021’s partnership and S corporation tax returns. This relates to information on any kind of foreign transactions whatsoever – by the entity, or by the taxpayers on their personal tax return. This will be such fun next year! Form 8962 Premium Tax Credit – For tax years 2021 and 2022, Congress eliminated the limitation that a taxpayer’s household income may not exceed 400% of the federal poverty line, generally increases the credit amounts, and makes it available to people on unemployment. If you don’t know what this is – this is the healthcare premiums the government pays on your behalf via the MarketPlace or your state equivalent. There are probably many things I am overlooking. A good place to see more changes is the “What’s New” section of all IRS publications and forms instructions. For individual taxes, Publication 17 is a good place to look. For businesses, there is a little information in Publication 334.  For businesses, though, please be aware that there are a great many complexities because of the PPP loans and a variety of employee-related tax credits. You may need a tax pro, who is totally in tune with these changes, to help you. Not all of us are – which is why many tax pros are retiring this year. Sigh.   And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion To make comments please drop into the TaxQuips Forum.  

    It’s TaxQuips time from TaxMama.com®  Today TaxMama® wants to talk to you about filing your tax return before you have all the information and to address all the money you’re going to need by April 18th .               Dear Family, STOP! PLEASE, PLEASE STOP! TaxMama® is getting more questions than ever before from people who have already filed their tax returns – then learned about missing W-2s, 1099s, investment income and whatever. Really? You didn’t know about that extra $10,000 income you earned? Or the extra $30,000 of gambling winnings you didn’t report on the original return? Or that Schedule K-1 you were expecting, or the $50,000 IRA or 401(k) distribution you took, or…? Who else can know about all these things, but you? It’s your life. Remember it. Sure, you can amend your tax return after you file it. But before you can amend, you have to wait for the tax return to be fully processed and for your refund to be issued – or your balance to posted and/or paid. When there are discrepancies, it can take the IRS months to process the original return. Then, when you do file the amended return (even electronically), expect to wait more than 20 weeks, because as of March 12, 2022, the IRS had 2.2 million unprocessed Forms 1040-X. On the other hand, if you wait an extra 2-3 weeks to file your tax return, it  will be processed more quickly, because the IRS won’t find discrepancies – and your full refund will be issued to you sooner. Now, what’s if you figured out that you owe more money? Do you really want to wait weeks or months to amend, piling up underpayment penalties? You have no choice about the filing. BUT… you can avoid penalties by paying the balance you owe. Pay online only – remember how far behind the IRS is on processing paper. https://www.irs.gov/payments Be careful to specify tax year 2021 and tax form 1040 for last year’s balance due. Now, we are rapidly coming up on April 18th. So you may also have a first quarter estimated tax payment due. Use the online payment system. This time be careful to specify tax year 2022 and tax form 1040ES for this year’s estimated tax payments. Along with last year’s balance due, and this year’s estimated tax payment being due, any contributions you want to make to your IRA (Roth or Traditional) must also be funded by April 18th this year. That may turn out to be a lot of money. Do you have that much set aside? If not, you have about 3 weeks to pull it together. (Don’t feel too bad, one of my clients had to come up with nearly $90,000 – but that also included some smart planning to fund his retirement account.) We are in a different world this decade. With all the logistical changes due to COVID19 staffing and operations, the IRS is trying to create more electronic self-service tools and phone bots to help taxpayers avoid sitting on the phone lines for hours – only to get a hang up in the end. I encourage you to take advantage of the electronic tools as much as possible.   And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion To make comments please drop into the TaxQuips Forum.  

It’s TaxQuips time from TaxMama.com® TodayTaxMama® wants to talk to you about all those pesky 1099Ks that you’re receiving this year.                 Dear Family, We’re getting questions from people who have suddenly started getting 1099Ks from their various casual sales – like Etsy, eBay, PayPal, Zelle, and other bank-like sources where they send or receive money. Why are they getting these 1099Ks this year? The IRS dropped the reporting threshold to payments of $600 or more, instead of 200 transactions and $20,000. Every one of those 1099Ks is reported to the IRS. The IRS computer is looking for those numbers in specific places on the tax return. Generally, the IRS computer wants to see that income amount on Schedule C. Let’s outline the different ways people use these accounts and how to report these 1099Ks on their tax returns. Remember, please, this is a brief outline. It may be a bit technical (and therefore, boring), so feel free to skip the rest of this if it doesn’t apply to you or your family, friends, or clients. If there is a lot of money involved, please work with a tax professional. (YOU decide how much is a LOT.) Before I go forward, I will tell you that some people recommend that you report all this income on Schedule 1, when you are not in  business. Don’t do that, except for hobbies. You’ll see why as we go along. 1) What are you supposed to do if you just use these payment systems to send or receive  money to/from friends and family? Keep things simple. Report the income on Schedule C as Other income. https://www.irs.gov/pub/irs-pdf/f1040sc.pdf Then, on page 2 in Part V, deduct out that full amount. The description on the line is “Personal Transactions Only”. You end up paying taxes on nothing. 2) What’s if you are using these payment systems purely to sell things in your home or garage? You’re just cleaning things out, without having an in-person garage sale. Keep things simple. Report the income on Schedule C as Other income. https://www.irs.gov/pub/irs-pdf/f1040sc.pdf Then, on page 2 in Part V, deduct out that full amount. The description on the line is “Garage Sales – No Profits.” Of course, if you want to be meticulous, you can then, also report this on Schedule D. https://www.irs.gov/pub/irs-pdf/f1040sd.pdf In that case, change the description in Schedule C Part V to “Garage Sales – See Schedule D.” On Schedule D, enter the amount from the 1099K in column (d) as the Proceeds. And the same amount in column (e) as the cost. Why – you cannot report a loss when you are selling personal property, so you want to zero out the loss. Once again, you end up paying taxes on nothing. 3) You make things using your skills and talents and sell them to people who like them, just for fun. You’re not out to make a profit – and, in fact, you don’t generate more income than your costs. In this case, you have a hobby. Report your income on Schedule 1, as Other Income. https://www.irs.gov/pub/irs-pdf/f1040s1.pdf Take no deductions at all. Hobbyists are no longer permitted to deduct expenses. Perhaps that right will be restored after 2025, when the Trump Tax Cut expires. In this case, you end up paying taxes on all your income. But at least it’s not subject to self-employment taxes. 4) You’re actually selling things that you make or buy, or provide services in order to sell them for a profit. In that case, you’re in business – and should have been reporting this income all along. This is the population the IRS is trying to catch – folks who have taxable income and haven’t been reporting it. So, what do you do this year? A) Report the income on Schedule C in box 1 as Gross Income. B) Keep good records about your costs to make or buy the merchandise that you sold, and direct costs related to the services that you provide, and report those costs on Schedule C, Part III, Cost of Goods Sold. If you have costs for merchandise you didn’t sell, then they are not the cost of anything that was sold, right? So save those costs for next year. (Or learn how to report beginning and ending inventory.) C) With good records, you will also have the data for all the other business expenses – enter those in Part II of Schedule C. D) If you have mileage and office in home expenses – you need to learn how to compute and enter those on your Schedule C. In other words, you need to do full-blown business reporting in order to reduce your net profits. This will reduce two things for you – self-employment taxes (Schedule SE) and income tax (Form 1040). My goal today is to help you avoid those under-reporting notices from the IRS and to help you reduce your tax burden. (Too many people are telling me that they are reporting their garage sale-type income and paying Self-Employment taxes – when they should not even have taxable income!)  As long as the IRS computer finds the numbers where it expects to see them, you can wipe out the income when the activity is not taxable. And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion To make comments please drop into the TaxQuips Forum.

Courtesy of VectorStock.com It’s TaxQuips time from TaxMama.com® Today TaxMama® wants to address some of your concerns.       Dear Family, First of all, let’s start with the news you’ve been waiting to hear. The IRS efiling system is officially open today. more-> So anything you submitted to the tax software companies earlier – or from now on, can get transmitted immediately.  No doubt, there will be glitches for a while – but not as many as last year, when Congress changed the rules in the middle of the filing season. In case you want to look up various filing deadlines, the TaxMama’s 2022-2023 Tax Calendar is up, ready for you to use. The IRS has expanded some of their do-it-yourself resources this year for both taxpayers and tax professionals. Since the IRS is nearly impossible to reach by phone or in person (fewer offices – all require appointments), being able to do things electronically will reduce problems and save headaches. Here are some key things you should get set up to use ASAP: Special Tip for folks who are STILL waiting for your 2020 tax return to be processed! (when H freezes over???). The IRS says to enter ZERO (0) on the line asking for your 2020 adjusted gross income (AGI). More details here. To use the new online tools, you may be required to set up an me account for security purposes. Taxpayer’s IRS Account – It will let you look up payments, refunds, transcripts and perhaps notices. It will also let you approve your tax professional’s power of attorney or information authorization rights, in minutes. Look up your advance payments: Advance Child Tax Credits – you should have gotten a 6419 Letter with the details The 3rd Economic Payment – you should have gotten a 6475 Letter this month. The IRS Free File system is now open. Millions of taxpayers can use this system to prepare simple tax returns themselves at no charge – and without being hassled to pay for anything. Many states are also participating in the program. Be SURE to print out or save the returns before transmitting. Tax Professionals also have a Tax Pro account. This will make it possible for Enrolled Agents, CPAs, attorneys and certain others with existing Central Authorization File (CAF) numbers to gain access to clients’ accounts – with the client’s immediate permission. (Instead of waiting for many weeks for the CAF unit to activate their authorization.) You can get your PTIN (if you don’t already have one (if you have to ask what it is – you don’t have one). Get access to all the e-services for tax professionals General online tools include: Get Transcript Where’s my refund? Direct pay – and this year, DO only pay electronically – not via paper checks Set up an Online Installment Agreement Get your employer ID number Locate an IRS office Look up a charity to see if it’s in good standing with the IRS And more You can now file tax returns electronically: For the current year and the last two years. And amended returns for the same time frame And for those of you wanting to become Enrolled Agents, this year, please stay tuned. I will be opening the Early-Bird Registrations with special rates, during the first week of February. To get details, please sign up for the IRSExams newsletter. Sheesh! Were there enough links in today’s newsletter? Lots to do and know. And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion

  It’s TaxQuips time from TaxMama.com® – Today TaxMama® wants talk to you about some year-end tips and ideas to get ready for next year.                     Dear Family, This year is coming to a close remarkably fast. It seems it was just January one blink ago – and now, it’s nearly over. This year has been filled with lots of small and major successes for my students, family and friends. Tinged with a great deal of sadness, illness, and death. The Yin/Yang of life. We still have a few days to take some steps to minimize taxes this year. So let’s look at some of those ideas first. Then I will give you some ways to make next tax season easier. Year-end Tips Taxpayers who do not itemize can deduct up to $300 worth of cash donations per person ($600 on a married filing jointly return). If you are using itemized deductions be sure to get receipts dated in 2021. Make your charitable contributions before year-end. Go through the house and closets to clear out anything you haven’t used for a year or more. If the clothing, appliances, furniture, pictures, etc., are in good condition – take pictures or video to prove it. Then donate them to your favorite charity. If you want to make a really big donation, but don’t have time to make the arrangements, consider having your brokerage or financial institution open a donor-advised fund.  You can fund it before year-end and distribute the donations to your charities in 2022. Pre-pay your 2022 installment of property taxes (unless you have already reached the $10,000 State and Local Tax (SALT) deduction limit. Will the Build Back Better Act ever pass, raising the limit? Not in time. But when it does, those who pay much more than $10,000 in the first place will get the benefit of the higher deduction. Everyone aged 72 and over must take their Required Minimum Distributions (RMDs) from their IRAs and retirement accounts. (In 2020, we didn’t have to do it – we do now.) There is a 50% penalty (excise tax) for failing to draw the funds. If you don’t really need to use that money, and don’t want to add it to your adjusted gross income for the year, consider sending the amount of your RMD directly to your favorite charity. Divorced parents dealing with an aggressive ex who doesn’t support your children, but claims them anyway. Get an IP PIN for each child, so that only you can claim the child on an electronically-filed tax return. Do it as soon as the portal opens in January – gather all the information now – http://iTaxMama.com/IRS_IP_PIN Business assets – buy things you are going to need for next year. But start to put them to use this year, or you won’t be able to get the deduction until next year. Tips for the next filing season The IRS finally published the mileage rates for 2022  https://www.irs.gov/newsroom/irs-issues-standard-mileage-rates-for-2022 When they update their website, you will find 2022 – 2011 here: https://www.irs.gov/tax-professionals/standard-mileage-rates To survive all the information, transcript and taxpayer account-related needs during 2022, do this: First create an account with ID.me – have your photo identification ready https://sa.www4.irs.gov/secureaccess/ui/resources/img/idme/create-acct.svg Then, Tax Professionals, set up your Tax Pro accounts https://www.irs.gov/tax-professionals/use-tax-pro-account Next, help your clients set up their Taxpayer Accounts (or Taxpayer – do this for yourself!) https://www.irs.gov/payments/your-online-account For Tax Pros – What’s in it for you? This will make it possible to quickly activate a Power of Attorney (Form 2848) or Information Authorization Request (Form 8821), instead of waiting weeks for the Central Authorization Filed (CAF) unit to record your authority. For Taxpayers – This will give you access to your transcripts, payments and so much more without having to sit on hold with the IRS for hours. Expect Letters from the IRS in January: IRS 6419 letter – Advance Child Tax Credits http://iTaxMama.com/IRS_6419_Letter IRS Letter 6475 – for stimulus payments http://iTaxMama.com/IRS_6475_Letter Tell your clients to save these letters – very important. It’s going to be bumpy this coming tax season as we try to reconcile all the payments received – and that were not received. And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion To make comments please drop into the TaxQuips Forum.

Subtitle: Playing 10 Questions with California’s Employment Development Department about How to Onboard Former Freelancers   Since the California Legislature passed Assembly Bill 5 (AB5) in September of 2019, the rules regard who is and who is not an employee in this state have gotten ever more stringent – and confusing. Why confusing? Because there was a very loud roar from several industries whose workers’ statuses were so severely compromised by this Bill. I remember being at the 2019 CSEA State Tax Agency Liaison Meeting (STALM) in Sacramento after the bill was signed and one of the big concerns was truckers. Many of them work for the same company all year round (one “employer”) but own their own rigs and have always filed their tax returns using a Schedule C. Suddenly, if they had to be employees, there goes their federal deduction for the depreciation on the very expensive rig (costs approach $100,000 for some), the interest or lease fees, the fuel costs and all the other, legitimate out-of-pocket expenses they have in order to do their “jobs.” They were not the only industry with legitimate issues. Nearly a year after AB5 was passed, Governor Newsome signed AB2257 on September 4, 2020. This gave us  an entire list of industries and employees that are now exempt from the rules of AB5. But we weren’t done yet. The entire industry of gig transportation workers (the original target for AB5) did more than just protest. They floated a 2020 ballot proposition to exempt gig workers from AB5. Proposition 22 passed in the November election. So now, the main workers for whom AB5 was written are exempt from AB5 by law. Granted, Prop 22 came with some conditions requiring Lyft, Uber, etc. to provide employee-style benefits and certain work-hour restrictions. Still confused? That brings to mind the exit line from the parody television series, Soap. “”These questions—and many others—will be answered in the next episode of…Soap.” more-> Well, I have some bad news for you. I will not be clearing up the entire situation. But…I did have some important questions that really needed to be clarified by our California Employment Development Department (EDD). They were kind enough to bring an entire team of their key staff to this year’s CSEA STALM virtual meeting.  Some of my questions were covered during the meeting. Others were answered afterwards by one the EDD’s team of Taxpayer Advocates. OK, let’s play 10 Questions with the dedicated team at California’s Employment Development Department:   Q1.  All businesses that pay workers must use the ABC test that will probably define their long-term freelancers as employees. Does California have any law or amnesty provision similar to the IRS’ Voluntary Classification Settlement Program (VCSP)? (Note: In very simple terms, the IRS program works with companies that had consistently been issuing a Form 1099 to all affected freelancers. They can pay 10% of one year’s payroll taxes and avoid being audited for all the earlier open years.) California does not have a program like this. It would require the state legislature to pass laws to make this possible. Perhaps CSEA should lobby our legislature for an amnesty program for AB5.   Q2. Since there is no VCSP-like program, what are the consequences (or protections) for those employers who sign up with the EDD for the first time to comply with the new laws? A. There are no specific protections. But newly registered employers are not apt to face automatic audits for all the earlier years when they are not in compliance. In other words, the EDD will not get a specific alert that this new employer has been in business for 20 years and has just now registered as an employer. When filling in the DE1 registration form, the employer should simply enter the current year in box D as the first payroll date. Q3. But wait! The statute of limitations to assess payroll taxes is open for all years in which the employer had employees but didn’t file payroll tax returns. Doesn’t that still leave the employers vulnerable for all the years when they did not treat their workers as employees? A. Yes, it does. But EDD doesn’t have the time or staff to simply audit everyone. So they will only audit a business if there is a valid reason. Some valid reasons include: Workers filing unemployment or disability claims without ever having been on payroll Someone submits an Audit Lead Referral (same form as worker classification request – Form DE230) Public informants in general On Site inspections Forms 1099 NEC or MISC Random industry surveys There are multi-agency strike force teams that go out and do inspections  of certain kinds of businesses. For instance, restaurants are notorious for not reporting employees and/or paying in cash. If EDD does perform an audit and the business has not put the proper workers on payroll, then that may result in the audit going back for several years. Q4. In the event of an EDD audit, how many years is EDD most likely going to examine? A. Typically EDD starts with the assumption of 3 years. If payroll tax returns have not been filed, and this was due to negligence or intentional disregard, they may go back further than that. On the other hand, if a company has been filing payroll tax returns all along but excluded some of their workers (by issuing 1099s to them), the EDD may only look back for 3 years – unless there is evidence of fraud or intent to evade taxes. Q5. Naturally, if the audit determines that they should have been paying their workers as employees, there are likely to be penalties. What can employers expect? There are a variety of different options open to the EDD. But, in some cases, penalties are mandatory. For instance, if the employer never registered with EDD and didn’t file payroll tax returns, there is a mandatory penalty of 15% of the assessed taxes (Unemployment Code Section 1126). If an employer was registered, but misclassified some of their employees, the 15% penalty is not mandatory and is applied if the examiner determines that the failure was due to negligence or intentional disregard. The worst penalties tend to be generated for willful non-compliance involving  fraud and intent to evade. Those could amount to 50%. If they failed to provide information returns in the past, then there is the potential for another 50% penalty. In other words, penalties can end up being 100% of the taxes owed.  A common example is the restaurant industry, mentioned above. They may be hiding workers and demonstrate a clear intent to evade taxes. These are the kinds of cases where fraud penalties can be applied. For a list of all the penalty codes – here’s a chart – https://www.edd.ca.gov/pdf_pub_ctr/de231ep.pdf Q6. Speaking of audits of newly registered employers, are there extra records or precautions they must take to avoid problems going forward (beyond normal recordkeeping and defining employee functions)? A. These employers should make sure they have the 1099 records for the past years. They should be prepared to provide them in the event of an audit. If these employers are audited, encourage them to cooperate with the examiners. Penalties start to build when they try to hide the truths.   Q7. This discussion about hiding employees, paying them under the table and so on, brought up a common problem in our state. Illegal aliens as employees. Setting aside all the other legal problems with this kind of hire, let’s look at what employers can do if they do want to put illegal aliens on their payroll. The EDD has a way to handle this, right? What can an employer do to ensure the withholding is credited to the correct worker? According to the EDD’s Tax Processing and Accounting Division regarding the proper completion of the Quarterly Contribution Return and Report of Wages(Continuation) (DE 9C) – when an employee does not have an SSN or ITIN. Employers enter the employee’s name and put all zero’s in the SSN field on the DE 9C.  Do this for each quarter, showing the name the same way, and the EDD will have a record of the data on each employee, by name. If the employee later provides either the SSN or ITIN at a future date, the employer should submit a Form DE 9ADJ correcting the previously reported information. Q8. That brings up the question of illegal aliens applying for EDD benefits. Is that even possible? Yes, it is. If the employer has been filing payroll tax returns that include these workers, they are eligible for disability benefits if they become ill or unable to work. However, they are not eligible to collect unemployment benefits.   Q9. What should employers do when a worker (often a friend or family member) begs to be treated as an independent contractor instead of as an employee? Is the employer still liable for penalties when they were not the ones to initiate this employment status. Absolutely! Advise your clients to protect themselves first – to not succumb to these requests. The employer will be totally exposed for the payroll taxes, penalties and workers compensation – and any potential lawsuits when the employee reports the employer for not being in compliance with the law. Q10. There is so much to know. Where can employers get all the information they need to know about how to start doing payroll for the first time – or how to do a better job? EDD agrees that employers need to be educated. They offer employment status tax seminars online. They are taught regularly – and people can ask questions. This page gives employers choices of several topics. https://seminars.edd.ca.gov/payroll_tax_seminars   Frankly, I was pleasantly surprised about the information regarding illegal aliens. Perhaps the IRS has a similar program? Who knows? The question has been posed to them. When they come back with an answer, I will update this report. In the meantime, if you are and employer, and are still confused – work with an experienced Enrolled Agent or CPA to make sure you get it right.       Resources Unemployment Code Section 1126  https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=GOV&sectionNum=1126 EDD AB 5 – Employment Status https://edd.ca.gov/Payroll_Taxes/ab-5.htm CA Labor and Workforce Development Agency https://www.labor.ca.gov/employmentstatus/  EDD -  DE 40 tax audit guidelines https://www.edd.ca.gov/pdf_pub_ctr/de40.pdf

It’s TaxQuips time from TaxMama.com. Today TaxMama® wants talk to you about the final income filing deadline for this year’s tax returns.                 Dear Family, Every year we get to this point in time. Getting down to the wire. In private social media forums, tax professionals are posting notes and screams of frustration, dealing with clients showing up at the last minute with surprise income, off-handedly mentioning – Oh, I sold that property last year, or mention of an LLC they opened that they forgot to bring up earlier. Or still not providing the missing documents or expense summaries the tax pros have been requesting for months. And then there are those charming folks who think it’s fun to walk into their tax pro’s office two days before the final filing deadline, all ready to sit down and get the tax return prepared on the spot.  (I have a friend who thinks that’s cute – he’s not a client, though.) Let’s face a few realities, my friends. This has been a tremendously stressful year – on so many levels. Aside from the COVID dangers, Congress has been passing laws in 2020 and 2021 that they expect taxpayers, tax professionals and the IRS to understand and implement – some of the laws being retroactive for the last year or two. In addition to tax compliance and enforcement, Congress has tasked the IRS with issuing several series of payments to taxpayers – and the IRS is trying so hard to make the information easier for taxpayers to find that they simply don’t have time to answer all the questions people have. And with everyone working from home, the IRS is totally behind on opening paper mail, including payments people have made – so the IRS computers are spewing out past due notices to people who have already paid their taxes. This year is a total mess.  But that doesn’t mean you’re off the hook about meeting this October 15th filing deadline. (Unless you live in a disaster area. Then you still have more time.) My message to you? If you haven’t already filed your tax return, finish up and do it IMMEDIATELY! Today. File it electronically and keep an eye out for rejections, so you or your tax pro can fix the problem quickly. But, you don’t have all the information? Too darn bad! You have had over 9 months to gather the data. If you don’t already have it all – make your best estimate of the missing income or expenses. Include a disclosure statement, Form 8275, to explain why you have estimated amounts – and that you will amend your tax return as soon as you get the correct data. Why should you file a tax return with estimates, instead of waiting until you get all the numbers? Your extension will run out on October 15th. The non-filing penalty is 5% per month for up to 5 months. That’s 25%. Does that start in October or April? I believe it starts in October. But the late payment penalty of ½% per month started in April, if you didn’t pay all the taxes you expected to owe for last year at the time you filed the extension. (So you’re already up to 7 months of late payment penalties plus interest.) In order to claim certain tax breaks and credits, you must file the tax return on time. They don’t work on late returns. Folks who miss this filing deadline often get stymied about what to do in the following year – and it starts a pattern of non-filing for the next few years until they get things sorted out. This ends up becoming very, very expensive. Oh yeah, There’s More Due tomorrow Yup. In addition to the final filing deadline for the prior year, you have the 3rd quarter estimated tax payment due for the current year.   Paying this is especially important if you find yourself owing more than you can pay for last year and/or earlier years. To get the IRS to agree to an Offer in Compromise or Installment Agreement, or any other breaks for past due balances, you must be current on this year’s withholding or estimated taxes. So, catch up – and pay online only, to ensure that your payment is credited to your taxpayer account – be sure to put the correct year on the payment – https://www.irs.gov/payments .  Do not send paper checks – they are taking too long to post to taxpayer’s accounts. This is also a good time to schedule a meeting to review your tax situation for the past year. Your tax pro is going to want a break, desperately. So schedule your meeting for next month. We know there will be more legislation coming from Congress this year. And we already know it’s going change a great many issues in your tax life – probably retroactive to the beginning of this year – after it’s (nearly) too late to change what you’ve done. So expect next year to be a challenge as well. I will keep you updated once they actually pass the legislation – hopefully before the end of December! And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion

It’s TaxQuips time from TaxMama.com®. Today TaxMama® wants talk to you about the unemployment refund checks the IRS has started to send out. Yours may be on the way!           Dear Family, In today’s TaxQuip, I want to reach taxpayers who prepare your own tax returns. Please share this with anyone else who is affected. Let’s do a little recap on the current situation: Long after millions of taxpayers filed their tax returns (American Rescue Act in March 2021), Congress decided to help out shocked taxpayers who learned that the unemployment benefits they received during this pandemic are taxable. Congress decreed that the first $10,200 of all unemployment benefits would not be taxable. The IRS said they would issue the refunds automatically and asked us all not to file amended returns until after they issued the refunds, as I reported earlier. So, now the refunds are arriving. Now that tax pros have seen how the IRS made their computations, they noted that many of their clients do need to file amended returns. Why? Frankly, for the IRS to perform a complete computation on each tax return would be so prohibitive that the refunds would be delayed for months. Instead, they took a short-cut. They multiplied the amount of the unemployment exclusion (up to $10,200 or double that for couples filing jointly in community property states) times the taxpayer’s tax bracket. This computation works really well for people who have jobs that provide health insurance coverage, little or no other income, and don’t have children. For instance, let’s look at a single person’s income of about $42,000, including unemployment income. They would be in the 22% tax bracket. Now, subtract $10,200 and their tax bracket drops to only 12%. This person gets an extra $1,000 of refund. This person isn’t going to want to amend! But what about people who have children – or more complex tax returns? Dropping their income by $10,200 will reduce their adjusted gross income (AGI) and might increase their refundable credits (child tax credit, earned income credit and American Opportunity credit).  The lower AGI may also increase their right to other deductions or tax credits: Suspended real estate losses (up to $25,000) might become deductible Non-deductible IRA contributions might now qualify for a deduction Student loan interest and tuition and fees deductions are limited by AGI – they might become deductible. Taxable advance premium tax credits (insurance from the marketplace) might well turn into refundable credits. Yes, we know that Congress waived the taxes for 2020 – but reducing the adjusted gross income might turn those (forgiven) balances due into refunds – this could be a substantial windfall. Then, look at people who collect Social Security benefits. Normally those benefits are tax-free. However, when they have other income, like wages, self-employed business income or investment income – or unemployment – up to 85% of those Social Security (SS) benefits can become taxable. Dropping the AGI can bring the income low enough so none of the SS benefits are taxable. For instance, let’s say a couple is receiving $18,000 of SS benefits each, $2,000 of tax-free interest income, a pension of $20,000 and $10,200 of unemployment benefits (assuming they didn’t get more than that…) Using live software, we determine that $11,270 of the SS benefits are taxable, resulting in taxes due to the IRS of  $1,407. (Details in our files) When we remove the unemployment from the equation, the taxable income is zero. The IRS would have sent them $1,020. By filing an amended return, they can get an additional refund of $387. Depending on the state they live in, they might get additional refunds from the state – although most states don’t tax Social Security income in the first place. Good News for people with Professionals Tax professionals will take care of their clients, either now or when you come in for next year’s tax appointment. So, feel free to wait until then – and see what else the IRS does about issuing refunds to those people who paid the penalties because their income was too high for the Premium Tax Credit. The folks at VITA (Volunteer Income Tax Assistance) have told me that they will be reviewing the 2020 tax returns for all of their clients – and that VITA does have the authority to prepare the amendments for them. At no charge. That means that the teams at TCE (Tax Counseling for the Elderly – often run by AARP), will probably do this as well. You might also be able to get help from the Low Income Tax Clinics, often run by colleges and universities, if you have a problem getting the IRS to accept your amended returns. In Short Although the numbers presented may not look enormous, for some households, this can mean thousands of dollars’ worth of refunds. Others – maybe only hundreds. It’s well worth your time to recompute your revised tax liability once you get that IRS refund check. And remember, the IRS will be paying interest on the additional refunds – a lot more than your bank pays. And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion To make comments please drop into the TaxQuips Forum.