Tag Archives: tax tips

Late September IRS Updates

Improperly Forgiven PPP Loans are Taxable

The IRS has released guidance addressing improper forgiveness of Paycheck Protection Program (PPP) loans. When a PPP loan is forgiven based upon misrepresentations or omissions, the taxpayer is not eligible to exclude the forgiven loan proceeds from taxable income. Taxpayers who inappropriately received PPP loan forgiveness are encouraged to file amended returns and come into compliance. 

September 30 Deadline for COVID Penalty Relief

The IRS reminds struggling individuals and businesses affected by the pandemic that they may qualify for late-filing penalty relief if they file their 2019 and 2020 returns by September 30, 2022. This aims to help not only taxpayers but to allow the IRS to focus resources on processing backlogged tax returns in an effort to return to normal operations for the 2023 filing season. The relief applies to the failure-to-file penalty, usually assessed at a rate of 5% per month, up to 25% of the unpaid tax, when a return is filed late.

Victim Relief Abounds

  • Victims of storms and flooding that began on September 15 in parts of Alaska now have until February 15, 2023, to file various individual and business tax returns and make tax payments. This applies to those in FEMA-designated areas, currently the Regional Education Attendance Areas of Bering Strait, Kashunamiut, Lower Kuskokwim and Lower Yukon. 
  • Hurricane Fiona victims in all 78 Puerto Rican municipalities also have until February 15, 2023, to file various returns and make payments. 
  • Farmers and ranchers in applicable regions forced to sell livestock because of drought conditions have more time to replace their livestock and defer tax on any gains from the forced sales. This includes parts of 44 states, and generally applies to gains realized on the sales of draft, dairy, or breeding livestock. Sales of other livestock held for slaughter or sport, or poultry, are not eligible. More information is available in Notice 2022-43.
  • Look for much of Florida to be offered relief shortly. Updated localities are always available on the disaster relief page of IRS.gov.
  • Employers using payroll service providers should ensure their provider has a fiduciary bond in place to protect the employer against a possible default. Using the Electronic Federal Tax Payment System (EFTPS) to make federal tax deposits and business tax payments makes it easy and convenient to pay the government even when disaster displaces employees and businesses. Any business can create an EFTPS account.

Reconstructing records after a disaster may be required for tax or insurance purposes or getting federal assistance. For more information, visit National Preparedness Month.

Tax Updates Mid July

ETAAC Submits Report to Congress

The Electronic Tax Administration Advisory Committee (ETAAC) has released its annual report to Congress, featuring recommendations focused on budget support for the IRS and e-filing enhancements. Their recommendations include providing the IRS with multi-year funding; removing impediments to e-filing with appropriate security features, consent, and acknowledgements; promoting the use of identity protection PIN through a national campaign; and working with states and software providers to improve Payroll and Information Returns. The full report can be accessed at the link.

IRS Nationwide Tax Forum Impending

The IRS Nationwide Tax Forum begins July 19, and the last day of full-access registration is July 14. The virtual event is being held over a five-week period ending August 18. Webinars will be livestreamed, and exhibitors from the Virtual Expo available for interaction during certain hours, with most content available 24 hours a day. Focus groups on a variety of subjects are available, and Forum attendance qualifies as continuing education credits for qualified professionals.

Time For a Paycheck Checkup?

With half the year behind us, it may be a good time for those earning a paycheck to do a “paycheck checkup” to avoid any disappointing tax-time surprises. Taxes are withheld from each paycheck and sent directly to the IRS, with the goal of having all taxes paid by the end of the year. To make sure your employer is withholding the proper amount of tax from your paycheck, employees may use the IRS’ convenient Withholding Estimator. To use the tool, you will need the most recent paystub from all jobs (and those of your spouse, if you file jointly), other income from side jobs or self-employment, and your most recent tax return. With this information, you may instruct your employer to increase or decrease your tax withholding and hopefully come out even at tax time.

 

 

 

Tax Updates Mid April

Educator Expense Deduction to Increase

For the first time since it was enacted in 2002, the special educator expense deduction limit has increased from $250 per year to $300 per year. The increase begins in 2022, so out-of-pocket classroom expenses for the current year can be claimed in the deduction when filing 2022 federal income tax return next year. Those filing for 2021 are still subject to the $250 limit. Deductible expenses include books, supplies, other classroom materials, professional development courses, computer equipment and software, and COVID-19 protective items such as face masks, hand sanitizer, disposal gloves, tape, paint or chalk to guide social distancing, and other CDC recommended items.

Foreign Account Report Deadline Approaches

The IRS reminds citizens and other entities that the deadline for filing their annual Report of Foreign Bank and Financial Accounts (FBAR) is April 15. However, those who miss the deadline will receive an automatic extension until October 15, 2022. An FBAR is required for those who have: (1) Financial interest in, signature authority or other authority over one or more accounts, such as a bank account, brokerage account, mutual fund or other financial account in a foreign country, and (2) The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year. Civil and criminal penalties may apply for those who fail to report accurately.

First Quarter Deadline Approaches

The IRS reminds taxpayers that Monday, April 18 is the deadline to make estimated tax payments. This applies to the self-employed, retirees, investors, businesses and corporations. Taxes are “pay as you go” and for those who aren’t subject to payroll withholding, estimated taxes are paid quarterly. There is assistance for figuring one’s estimated taxes, as well as streamlined methods for making payments online.

EIP Letters, Corrections

The IRS has completed mailing Letters 6475 to recipients of the third round of Economic Impact Payments (EIPs) and reminds filers to double-check records when filing their 2021 tax return. Most people received the full amount in advance, but for those who didn’t, the 2021 Recovery Rebate Credit may be claimed. If a mistake was made regarding this credit on a 2021 return which has already been filed, an amended return is not necessary. The IRS will make the correction and, if the filer agrees with the correction, no action on their part is required. There may be a delay in processing a return that requires correction. 

Tax Updates Feb 12

Tax Help FAQs

Tax filing this year is a bit more complicated, with the American Rescue Plan Act (ARPA) of 2021 which expanded the Child Tax Credit for last year only. Advance payments mean more paperwork for those who received them, and potentially repaying excess amounts, or claiming credit for remaining unpaid amounts. The IRS urges recipients to save Letter 6419 so their 2021 tax return can be properly prepared. A qualified tax preparer can help with this process, and several FAQs on the topic are available.

Be Ready to File

The IRS reminds taxpayers to be prepared to file their tax return, and to that end are providing a roundup of relevant information. Readiness topics include their Tax Time Guide, dealing with advance Child Tax Credit payments or Recovery Rebate Credit, a tax document checklist, filing tips and how to find help if needed.

IRS Backtracks Third-Party Facial Recognition

In response to concerns, the IRS has announced it will transition away from using a third-party service for facial recognition. This was intended to help authenticate people creating new online accounts. The IRS pledges to find authentication processes that do not involve facial recognition and which protect taxpayer data. This is not expected to interfere with filing returns or paying taxes owed, and people should continue to file their tax returns as they normally would. 

IRS Suspends Automatic Notices

The IRS is suspending the mailing of several letters to individuals and businesses. These automated notices include Balance Due notices, Notices of Unfiled Tax Returns, and Withholding Compliance letters. This suspension is intended to allow the IRS to catch up with the backlog of several million original and amended tax returns that have not been processed due to the pandemic and pandemic response. Other letters are legally required to be issued within a certain timeframe and cannot be stopped by the authority of the IRS. 

Tax Updates August 31

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. 

Paycheck Checkup for September

Tax Planning – Paycheck Checkup

With the change of seasons and start of the traditional school year, it’s a good time to
review your tax planning, and a Paycheck Checkup is an important part of that.

What is a Paycheck Checkup?

A Paycheck Checkup is a review of your tax withholding. Making sure the proper
amount of tax is being withheld from your paychecks will ensure you have no tax-time
surprises. Income tax is a pay-as-you-go system, and underpaying during the year can
result in taxes owed, and even penalties, when you file your tax return.

How To Do a Paycheck Checkup

The easiest way to do a Paycheck Checkup is to use the IRS’ Tax Withholding
Estimator . The Estimator will use information from a recent pay stub and your latest tax
return to estimate what should be withheld from current paychecks. The Estimator does
not save any of the information, nor does it ask for personally identifying information
such as social security or tax identification numbers.

What If the Withholding Is Wrong?

If you find the incorrect amount is being withheld from your paychecks, you could end
up loaning a lot of money, interest-free, to the government. This means too much is
being withheld, your paychecks are less, and you get a large tax refund. A large refund
might feel like a nice yearly boost, but it’s not the best management of your income.
If too little is being withheld, you could end up owing the IRS for your taxes (and even
penalties, in some cases). This would obviously be an unwelcome situation.

How To Change Withholding

Taxpayers who find their withholding should be changed need to ask their employer for
a Form W-4 (or print one here and submit it to their employer).
Those who have recently gotten married, divorced, had a child, gotten a raise, or begun
a side job should especially do a Paycheck Checkup, and end the year prepared for tax
season.

Tax Updates July 28

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. 

Earning Money From Hobbies: An IRS Tip

Money-making Hobbies

Hobbies can be a great source of fun and recreation, and they can also be a source of income. Whether it’s making art, arranging flowers, or baking muffins, taxpayers must report any money they make on their tax return.

Business Or Hobby?

The rules governing the reporting vary, depending on whether the activity is actually a business or a hobby (a business is operated solely for profit, a hobby is engaged in primarily for pleasure or recreation.) If you’re not sure where your activity falls, these questions can help

Deductions

Only expenses that are “ordinary and necessary” may be deducted. Ordinary is defined as an expense common and accepted for the hobby, and necessary expenses are those deemed appropriate for the activity. Muffin ingredients and the electricity to run the oven qualify, as do packaging materials.

Unlike a business, taxpayers can usually only deduct hobby expenses up to the amount of hobby income. If a hobby’s expenses exceed its income, the loss can’t be deducted from other income. If you made $3,000 selling muffins, but your expenses were $4,000, only the $3,000 is deductible as expenses.

Prepared To File

Taxpayers claiming hobby expenses must itemize deductions (not claim the standard deduction) on Schedule A (Form 1040). It can be helpful to plan ahead for this, as hobby rules are complex and expenses may fall into three different categories, with different rules applied to each category. A tax professional can help you be prepared to file next year’s tax return.

 

How to Find the IRS Online

Social IRS

Need to connect with the IRS? There’s an app for that. IRS2Go, available in English and Spanish, and for Android and Apple, offers tax tips, IRS YouTube videos, and your refund status. You can even pay your taxes via the app.

In an effort to connect with small business owners and taxpayers, the IRS also has several official social media accounts. Find them on YouTube, Instagram, Twitter, Facebook, and LinkedIn.

 

YouTube

 

The official IRS YouTube channel offers a small business playlist full of tax tips. The videos are available in English, Spanish, and even American Sign Language.

Instagram

News and information can be found on the IRS’ official Instagram account, IRSNews.

Twitter

The IRS has several Twitter accounts:

And the newly added:

Facebook

If Facebook is your social media platform of choice, find the IRS on Facebook and in Spanish, for news, updates, tips, and more.

LinkedIn

For agency updates and job opportunities, check the IRS’ LinkedIn account.