Security Awareness Week Wraps Up
The National Tax Security Awareness Week has finished its focused campaign to help tax professionals and taxpayers protect themselves from security risks. Issues for the week included basic steps that should be taken to avoid scams and identity theft schemes taking advantage of holiday shopping, the approaching tax season and coronavirus concerns; the multi-factor authentication that will be available on all 2021 online tax preparation products; the expanded Identity Protection PIN Opt-In Program for all taxpayers who can properly verify their identities; security advice for businesses; and more security advice for tax professionals.
Interest Rates To Remain The Same
The IRS has announced that interest rates for under- and overpayments will remain the
same for the calendar quarter beginning January 1, 2021. The rates will continue at three (3) percent for overpayments (two (2) percent in the case of a corporation); one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000; three (3) percent for underpayments; and
five (5) percent for large corporate underpayments.
Wage Statements Due February 1, 2021
The IRS reminds employers that Forms W-2 and other wage statements must be filed with the Social Security Administration no later than February 1, 2021, to avoid penalties and reduce fraud. Normally, such statements are due January 31, but since that date falls on a Sunday, the deadline has been pushed to the next business day. Copies to employees are also due by then, as well as Forms 1099-MISC and 1099-NEC.
Final QTF Regulations Issued
The IRS and Treasury have issued final regulations on the deduction for qualified transportation fringe (QTF) and commuting expenses following changes made by the Tax Cuts and Jobs Act (TCJA). These final regulations address expenses related to QTFs, including providing guidance on determining the amount of QTF parking expenses that is nondeductible, and the disallowance of the deduction for expenses of transportation between an employee’s home and workplace.
Natural Disaster Relief
Victims of recent disasters have had many deadlines extended to December 15, 2020. This includes many individual and business tax returns and tax payments normally due in September, October, and November. The extensions have been granted to those living in FEMA-designated disaster zones, including parts of Iowa affected by the August 10 derecho storm, and those affected by wildfires in California. Hurricane affected areas are being added; the IRS’ disaster relief page provides a current list of designated areas. No action is needed for qualified taxpayers to take advantage of this relief.
Economic Impact Payment Catchup
Some 50,000 spouses will receive their economic impact payment in the form of a check. In some cases, an individual’s payment was redirected to pay their husband’s or wife’s child support debt. Those who filed Form 8379, Injured Spouse Allocation with a recent tax return will receive their check in early- to mid-September. Those who have not filed Form 8379 will still receive their EIP check, but it is not yet known when to expect it. No action is required in either case.
Interest To Be Paid To Millions of Taxpayers
Individual taxpayers who filed their return by July 15 and were due a refund will receive an interest payment along with it. This applies to those who have received refunds in the past three months, or who are still waiting on their refunds. The interest is calculated from the original filing due date of April 15, and will be direct-deposited with the refund for those who use direct-deposit. Paper checks will be issued to others. Additionally, the interest is considered taxable income and recipients will receive a Form 1099-INT early next year.
Guidance For Presidential Payroll Tax Memorandum
The IRS and Treasury Department have issued guidance implementing the August 8 Presidential Memorandum allowing employers to defer withholding and payment of an employee’s share of Social Security tax. The deferral generally applies to wages paid from September 1, 2020 through December 31, 2020, and only if the wages total less than $4,000 during a bi-weekly pay period.
Simplified Small Business Accounting Regulations Proposed
The IRS has released proposed regulations to adopt the simplified tax accounting rules for small businesses under the Tax Cuts and Jobs Act (TCJA). For tax years beginning in 2019 and 2020, these simplified tax accounting rules apply to taxpayers having average annual gross receipts of $26 million or less (known as the gross receipts test), and exempted these taxpayers from the uniform capitalization rules. Accounting and inventory methods are addressed, as well as long-term construction contracts. Taxpayers classified as tax shelters may not use the simplified rules.
Rehabilitation Credit Deadlines Extended
Additional pandemic relief has been provided by the IRS for rehabilitation credits. These are projects that satisfy the “substantial rehabilitation test” within a 24- or 60-month period. Any qualified project whose deadline was on or after April 1, 2020 but before March 31, 2021, now has until March 31, 2021 to satisfy the test. Projects usually have to claim the credit over five years, but under a transition rule, some projects may be able to claim the credit in a single year.
Guidance For Business Interest Expense Deduction Limitation
The IRS has issued final regulations regarding TCJA provisions that limit the deduction for business interest expense, including the changes made by basic statutory amendments to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). In addition to these final regulations, proposed regulations have been issued for other situations not addressed, including more complex issues related to CARES Act amendments. Written and electronic comments in response to the proposed regulations are encouraged.
Retirement Account Rules Loosened
The IRS reminds taxpayers that CARES Act provisions allow for easier access to retirement funds, for those who qualify. Early distribution of some retirement funds may be made without the usual penalties. Those eligible for coronavirus-related relief may be able to withdraw up to $100,000 before December 31, 2020, from IRAs, 401(k) plans, 403(b) plans, profit-sharing plans and others. Relief includes delayed loan repayments, an increase in loan limits, a waiver of the 10% tax on early distributions, and more.
Guidance Issued re: Retirement, Annuity Withholding
The IRS and Treasury have issued a proposed regulation impacting federal income tax withholding rules for periodic retirement and annuity payments made after December 31, 2020. Prior to the Tax Cuts and Jobs Act (TCJA), if there was no W-4 in effect for periodic payments, the withholding was determined by treating the taxpayer as a married individual claiming three withholding exemptions. That will continue for year 2020. Beginning in 2021, when there is no W-4 in effect, the IRS and Treasury Department will provide the rules and procedures to determine the withholding with
various forms, instructions, publications and other guidance.
Plain Envelopes Deliver Economic Impact Payments
The IRS reminds taxpayers that their economic impact payment may arrive in the form of a prepaid debit card in a plain white envelope from "Money Network Cardholder Services.” Not every recipient will receive their payment in the form of a prepaid debit card, but for those who do, it may be used to make purchases online or in person anywhere a Visa credit card is accepted, get cash from an ATM, and transfer money to a bank account. More information can be found at EIPcard.com.
Safe Harbor For Renewable Energy Projects
Because Covid-19 has impacted the supply chain for many renewable energy projects eligible for tax credits , the IRS and Treasury have issued a notice for tax relief. Projects include those that produce electricity from wind, biomass, geothermal, landfill gas, trash, and hydropower, and use technologies such as solar panels, fuel cells, microturbines, and combined heat and power systems. Some projects begun in 2016 or 2017 have had a fifth year added to the four-year "Continuity Safe Harbor,” and those paid for by the taxpayer on or after September 16, 2019 and received by October 15 of this year have 3½ months safe harbor added. This aims to allow the taxpayers to remain eligible for certain tax credits.
Qualified Opportunity Funds Tax Relief
The Internal Revenue Service has provided guidance for Qualified Opportunity Funds (QOFs) and their investors in response to the ongoing COVID-19 pandemic. Taxpayers looking to invest in a QOF to defer gain may have additional time. Certain statutory penalties and working capital safe harbor rules have been eased and timelines extended. The QOF FAQ has also been updated.
The IRS is Not Accepting Paper Applications
Little Giant Tax Services are are here to help you with your tax filing throughout the next few months of stay at home orders. At this time, the IRS is not accepting physical returns. If you want to have one of our staff help you e-file your return, please call or email us.
Extensions Extended To Trusts, Estates, Corporations
The IRS recently extended the filing and payment deadline for most individual taxpayers to July 15, from April 15. Now they have extended that same relief to trusts, estates, corporations, and other non-corporate filers. Additionally, those with estimated tax payments typically due June 15, 2020 can wait until July 15 to make that payment, without penalty.
Registration Tool For Non-Filers
The Treasury and IRS have released a new tool for certain individuals to register to receive economic impact payments. Those who have not filed taxes for 2018 or 2019, and also did not receive Social Security payments or Railroad Retirement benefits will need to use the new web tool to register and input their information in order to receive payment. This may apply to individual and joint filers who do not make enough to file a tax return, but will not apply to students or others who are claimed as dependents on another tax return. A new tool is being built to check the status and expected date of all economic impact payments, and should be online by the end of this week.
Reschedule April 15 Payments Now
Taxpayers who have scheduled quarterly payments for April 15 have until midnight eastern time on the 13th to reschedule their payment for July 15, 2020. Those who have scheduled electronic funds transfer (EFT) or debit, credit, or digital wallet payments can reschedule those payments, but those adjustments must be made right away.
Reminder: Up-To-Date Coronavirus Tax Relief
The IRS is aggregating all pertinent tax information regarding Coronavirus tax relief in one central site. Whether you are a taxpayer, employer, small business owner, health plan administrator, or just wanting to know the latest deadline updates, you can find it here.
Withholding Rules Updates Proposed
The IRS and Treasury have proposed regulations updating payroll withholding rules to reflect changes in the Tax Cuts and Jobs Act (TCJA) and related legislation. These updates accommodate the redesigned Form W-4, and the adjusted tables and computations for tax withholding. The regulations also address other withholding issues, such as how to treat an employee who hasn’t turned in a completed W-4.
IRS Increases Visits To High-Income Delinquents
In an effort to promote compliance and fairness among taxpayers, the IRS has committed to increasing face-to-face visits with those taxpayers who haven’t filed tax returns in 2018 or previous years. Their goal is to inform taxpayers of their obligations and to bring them into compliance. Revenue officers will not make threats or demand unusual forms of payment, but rather inform and assist. Taxpayers have the right to see credentials and should do so to protect themselves against fraud. Furthermore, getting ahead of the situation is advisable: “Taxpayers having delinquent filing or payment obligations should consult a competent tax advisor before waiting to be contacted by an IRS revenue officer,” according to Paul Mamo, Director of Collection Operations, Small Business/Self Employed Division.
Meals And Entertainment Deduction Guidance Updated
The IRS has updated its proposed guidance regarding the handling of business meals and entertainment expense deductions. The TCJA eliminated the deduction for activities generally considered entertainment, amusement or recreation. It also limited the deduction for expenses related to food and beverages provided by employers to their employees. The proposed guidelines help determine what qualifies as entertainment and address the meals expense limit. As these are proposed guidelines, the IRS is taking public comment and will hold a public hearing on these proposed regulations on April 7, 2020.
Military Members’ Tax Benefits Explained
A newly-revised publication aims to inform members of the military of their tax benefits under the law. The Armed Forces Tax Guide will help those serving in the military, including National Guard, reservists, and those stationed abroad, understand specific tax issues related to their situation. Moving expenses, treatment of combat pay, IRA contribution limits and extended tax deadlines are included in this helpful guide.
National Tax Security Awareness Week
The IRS and Security Summit partners marked National Tax Security Awareness Week earlier this month with a series of tips and reminders for consumers, taxpayers, businesses, and professionals. Advice focused on protecting your personal and financial information while online shopping, guarding against email and phishing scams, creating strong passwords, tips for business owners to avoid identity theft, and encouraging tax professionals to have a data security plan.
Foreign Tax Credit Regulations Finalized
The IRS and Treasury issued final regulations regarding the Foreign Tax Credit. This credit generally allows individuals and businesses to claim a US tax credit for income taxes paid to foreign governments. These regulations were updated due to changes the Tax Cuts and Jobs Act (TCJA) made in how taxable income is calculated and how the US taxes international income.
Jan 31 Filing Deadline For Businesses
The IRS reminds employers and other businesses that wage statements and independent contractor forms have a due date of January 31. While businesses used to have more time to file such forms as Form W-2, Form W-3, and 1099-MISC, the 2015 Protecting Americans from Tax Hikes (PATH) Act permanently changed the due date to help protect against fraud.
Dec 31 Deadline For Minimum Distributions
December 31 is the deadline for retirees to take their required minimum distributions (RMDs) from certain retirement plans. Those who turned 70½ in 2019 are allowed to wait until April 1, 2020, to take their first RMD. This deadline applies to most IRAs, SEP IRAs, SIMPLE IRAs, and workplace plans such as 401(k), 403(b) and 457(b) plans. Roth IRAs don’t require distributions while the original owner is alive.
Interest Rates To Remain the Same
The IRS announced that interest rates will remain the same for the quarter beginning January 1, 2020. The rates will be:
- 5% for overpayments (4% in the case of a corporation)
- 2.5% for the portion of a corporate overpayment exceeding $10,000
- 5% for underpayments
- 7% for large corporate underpayments
These rates are computed from the federal short-term rate determined during October 2019.
The IRS has warned about a recent gift card scams, one of the many scams that people need to be aware of.
IRS GIft Card Scams
These scams follow many of the traits of a typical phone scam: someone calls you from a source that you wouldn’t question. They tell you that something bad has happened (in recent cases, your identity is stolen). Then, they get you to do something that gives them access to your income. In this case, they attempt to convince you that you need to buy different gift cards and give them the card numbers in order to prove that you are who you say you are.
If you think this sounds silly, remember that aware and alert people don’t fall to scammers, but anyone can fall to this type of scam when tired, scared about an actual IRS issue, or too nervous or hopeful from some other issue.
Avoid IRS Scams
If someone contacts you and asks for immediate payment, purchasing gift cards, giving your info, or some other time sensitive activity, remember these principles:
- Call Them – If you are dealing with financial or tax issues, you will get many calls from creditors, collectors, and so on. Look up the organization you are dealing with and call them on an official number. If they demand you do something now, thank them for the information and inform them you will call them back. Then, find the official customer service number and call them.
- Get it in writing – Official correspondence in the United States is in writing. If the IRS is dealing with you in an official manner, they will send you paperwork.
- If It’s too good (or bad) to be true, it’s not true – not to sound too pessimistic, but scammers always attempt to appeal to our hopes by giving us limited time offers to something that has the potential to completely change our lives. Demand double verification and time if something seems to be life changing, either good or bad.
What to Do if You are Contacted By Scammers
If you happen to be targeted by a scammer, you have several options to notify governmental enforcement:
Don’t get scammed by fraudsters pretending to be with the IRS. If you are worried about IRS collections or other issues, come by our office for an appointment and we will discuss your tax needs.
Third Quarter Tax Payments Due
The IRS reminds taxpayers that those owing estimated quarterly tax payments must
pay their third quarter installment by September 16 . This generally applies to small
business owners and the self-employed, including those participating in the sharing
economy as well as others whose earnings aren’t subject to withholding, such as
retirees, investors, landlords, and those receiving alimony.
Regulations For 100% Depreciation Released
The IRS and Treasury released final and proposed regulations regarding the 100% first-
year depreciation allowed on certain depreciable business assets. Machinery,
equipment, computers, appliances and furniture generally qualify. The final regulations
provide guidance on the depreciation of used property as well as qualified film,
television and live theatrical productions. The proposed regulations deal with new
provisions not addressed previously.
Reporting Relief For Some Tax-Exempt Organizations
The IRS has issued proposed regulations regarding the reporting requirements for
certain tax-exempt organizations which include, among other things, the existing
exception from having to file an annual return for certain organizations that have gross
receipts of $50,000 or less, and relief from the requirement to report contributor names
and addresses. In compliance with a recent court decision, the IRS and Treasury
welcome all public comments on the proposed regulations.
Former US Citizens Offered Tax Relief
New procedures have been announced that will enable certain individuals who
relinquished their U.S. citizenship to fulfill their tax and filing requirements and receive
some relief for back taxes. Those whose tax non-compliance was non-willful, who owe
less than $25,000 in back taxes, and whose net assets are less than $2 million may be
able to avoid interest and penalties, and come into compliance with their tax obligations.
The IRS will host a webinar in the near future with additional information and practical
tips for making a submission to the Relief Procedures for Certain Former Citizens .
Transition Tax On Untaxed Foreign Earnings
The IRS has provided details on Section 965, transition tax on untaxed foreign earnings. The Tax Cuts and Jobs Act (TCJA) requires some untaxed foreign earnings and profits to be taxed as if those earnings have been repatriated to the US. Details on the income that must be recognized are provided, as well as a related deduction which generally lowers the effective tax rate to between 8% and 15.5%. Information is also available detailing how some taxpayers may choose to make installment payments over eight years.
Preventive Care To Include Some Chronic Conditions
The IRS has expanded the list of preventive care for HSA participants to include care for some chronic conditions. Preventive care benefits that may be provided by a high deductible health plan (HDHP) are not subject to the deductible, and now include certain medical care services received and items purchased, including prescription drugs, for certain chronic conditions for someone with that chronic condition. These include SSRIs, beta blockers, ACE inhibitors, diabetes testing materials, and more, for people with specific diagnoses.
Tax Security Remains a Priority
The IRS continues to help tax professionals secure client data and reduce tax fraud. “Taxes-Security-Together” – Step 1 details six sub-steps to secure basic protections, including anti-virus software, firewalls, two-factor authentication, backup services, encryption, and VPNs. The “Taxes-Security-Together” Checklist – Step 2 reminds tax professionals of their duty to have a written data security plan, and what is required in that plan. More steps to come.
IRS Pursues Virtual Currency Taxes
The IRS has begun sending letters to virtual currency owners, reminding them of their obligations to file amended returns and pay back taxes, interest, and penalties where appropriate. Ten thousand taxpayers are expected to receive these letters by the end of August as the IRS continues its efforts of addressing virtual currency non-compliance. Taxpayers who do not properly report such transactions could even be subject to criminal prosecution.