Tag: IRS

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Tax

Are You Expecting a Tax Refund? Consider Direct Deposit.

Are you expecting a tax refund? With tax season officially underway as of Jan. 23, 2023, the IRS is encouraging taxpayers to streamline tax filing this year by having refunds directly deposited into their bank accounts. Although some people still like to receive a paper check, they should at least consider the advantages of direct deposit. It’s the fastest way to get a refund, even when filing a paper return. And it eliminates the risk of having a paper check stolen or lost in the mail. For more from the IRS about the advantages of choosing direct deposit, click here: http://bit.ly/3ZXXi1i

Contact us with questions or schedule a meeting with one of our tax experts.

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Tax

Time is Running Out for the October 17th Deadline

If you requested an extension from the IRS to file your 2021 tax return, the Oct. 17 deadline is coming up soon. Taxpayers who asked for an extension should file on or before the deadline to avoid a late-filing penalty. Although Oct. 17 is the last day for most people to file, certain taxpayers may have more time; including military members and others serving in a combat zone. They typically have 180 days after they leave the combat zone to file returns and pay any taxes due. Also, taxpayers in federally declared disaster areas who already had valid extensions are given more time. Contact us right away to prepare your return to avoid penalties and claim any refund due.

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Tax

IRS Provides Broad Penalty Relief for some 2019, 2020 Returns

The IRS on August 23, 2022, announced it will grant automatic penalty relief for late-file penalties imposed with respect to certain returns required to be filed for the 2019 and 2020 tax years.

Notice 2022-36 provides systemic penalty relief to taxpayers for certain civil penalties related to 2019 and 2020 returns. Penalty relief is automatic so that eligible taxpayers need not apply for it. If penalties have already been paid, the taxpayer will receive a credit or refund. However, the IRS has not yet announced if or when it will notify eligible taxpayers that it has waived their preexisting penalties pursuant to this announcement.

However, it is critical to note that some of these automatic penalty waivers are available only if a taxpayer files their delinquent returns on or before September 30, 2022. As such, there is a very short window for taxpayers with outstanding reporting obligations to file their delinquent 2019 and 2020 returns and receive this automatic penalty relief. Any penalty relief under these procedures will be credited or refunded as appropriate.

This automatic relief does not apply to penalties for fraudulent failure to file or when a taxpayer has already settled its late-file penalties via an offer in compromise, a closing agreement, or a judicial proceeding.

This chart summarizes the list of returns for which automatic penalty relief is now available.

If you have any questions about tax penalties or penalty relief, contact one of our experts.

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General Tax

Estates now have an additional three years to file for a portability election.

Portability allows a surviving spouse to apply a deceased spouse’s unused federal gift and estate tax exemption amount toward his or her own transfers during life or at death.

To secure these benefits, however, the deceased spouse’s executor must have made a portability election on a timely filed estate tax return (Form 706). The return is due nine months after death, with a six-month extension option.

Unfortunately, estates that aren’t otherwise required to file a return (typically because they don’t meet the filing threshold) often miss this deadline. The IRS recently revised its rules for obtaining an extension to elect portability beyond the original nine-months after death (plus six-month extension) timeframe.

What’s new? In 2017, the IRS issued Revenue Procedure 2017-34, making it easier (and cheaper) for estates to obtain an extension of time to file a portability election. The procedure grants an automatic extension, provided: The deceased was a U.S. citizen or resident, The executor wasn’t otherwise required to file an estate tax return and didn’t file one by the deadline, and The executor files a complete and properly prepared estate tax return within two years of the date of death.

Since the 2017 ruling, the IRS has had to issue numerous private letter rulings granting an extension of time to elect portability in situations where the deceased’s estate wasn’t required to file an estate tax return and the time for obtaining relief under the simplified method (two years of the date of death) had expired.

According to the IRS, these requests placed a significant burden on the agency’s resources. The IRS has now issued Revenue Procedure 2022-32. Under the new procedure, an extension request must be made on or before the fifth anniversary of the deceased’s death (an increase of three years). This method, which doesn’t require a user fee, should be used in place of the private letter ruling process. (The fee for requesting a private letter ruling from the IRS can cost hundreds or thousands of dollars.)

Don’t miss the revised deadline If your spouse predeceases you and you’d benefit from portability, be sure that his or her estate files a portability election by the fifth anniversary of the date of death.

Contact us with any questions you have regarding portability. © 2022

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General Helpful Articles

Unprecedented IRS Backlogs

In response to pressure from Congress, 1,200 IRS employees have been dispatched to sort and process millions of outstanding 2020 amended paper tax returns. IRS Commissioner Chuck Rettig says a separate team will tackle 2021 paper returns as they come in. The backlog has been caused, in part, because the IRS suspended approximately 35 million returns due to errors. But will the IRS’s action plan satisfy legislators? The National Taxpayer Advocate, Erin M. Collins, testified before the Senate Finance Committee that the agency also needs to provide temporary penalty relief to taxpayers, suspend collections and improve communications. In addition, she said the IRS needs sufficient funding to upgrade IT systems.

She told members of the Senate Finance Committee on 2/16/22 during a hearing on IRS customer service challenges, “In releasing my Annual Report to Congress, I said that paper is the IRS’s kryptonite and that the IRS is still buried in it.” She said that taxpayers have been experiencing significant delays in receiving their tax refunds because of unprecedented IRS backlogs in the processing of original and amended tax returns. Paper processing remains the agency’s biggest challenge, and that will continue throughout 2022. As of late December 2021, the IRS still had backlogs of 6 million unprocessed original individual returns (Form 1040 series) and 2.3 million unprocessed amended individual returns (Form 1040-X. E-filed original returns have mostly worked through the backlog. A written copy of her remarks can be found at this website.

Have questions about your 2021 taxes? Schedule an appointment with one of our tax professionals today.

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Tax

IRS Announces Transition Away from Use of Third-Party Verification Involving Facial Recognition

The IRS announced it will transition away from using a third-party service for facial recognition to help authenticate people creating new online accounts. The transition will occur over the coming weeks in order to prevent larger disruptions to taxpayers during filing season.

During the transition, the IRS will quickly develop and bring online an additional authentication process that does not involve facial recognition. The IRS will also continue to work with its cross-government partners to develop authentication methods that protect taxpayer data and ensure broad access to online tools.

“The IRS takes taxpayer privacy and security seriously, and we understand the concerns that have been raised,” said IRS Commissioner Chuck Rettig. “Everyone should feel comfortable with how their personal information is secured, and we are quickly pursuing short-term options that do not involve facial recognition.”

The transition announced today does not interfere with the taxpayer’s ability to file their return or pay taxes owed. During this period, the IRS will continue to accept tax filings, and it has no other impact on the current tax season. People should continue to file their taxes as they normally would.

*from IRS Newswire

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Helpful Articles Tax

Help Safeguard Your Personal Information by Filing Your 2021 Tax Return Early

The IRS announced it is opening the 2021 individual income tax return filing season on January 24. (Business returns are already being accepted.) Even if you typically don’t file until much closer to the April deadline (or you file for an extension until October), consider filing earlier this year. Why? You can potentially protect yourself from tax identity theft — and there may be other benefits, too.

How tax identity theft occurs: In a tax identity theft scheme, a thief uses another individual’s personal information to file a bogus tax return early in the filing season and claim a fraudulent refund. The actual taxpayer discovers the fraud when he or she files a return and is told by the IRS that it is being rejected because one with the same Social Security number has already been filed for the tax year. While the taxpayer should ultimately be able to prove that his or her return is the legitimate one, tax identity theft can be a hassle to straighten out and significantly delay a refund.

Filing early may be your best defense: If you file first, it will be the tax return filed by a potential thief that will be rejected — not yours. Note: You can still get your individual tax return prepared by us before January 24 if you have all the required documents. But processing of the return will begin after IRS systems open on that date.

Your W-2s and 1099s: To file your tax return, you need all of your W-2s and 1099s. January 31 is the deadline for employers to issue 2021 W-2 forms to employees and, generally, for businesses to issue Form 1099s to recipients for any 2021 interest, dividend or reportable miscellaneous income payments (including those made to independent contractors). If you haven’t received a W-2 or 1099 by February 1, first contact the entity that should have issued it. If that doesn’t work, you can contact the IRS for help.

Other benefits of filing early: In addition to protecting yourself from tax identity theft, another advantage of early filing is that, if you’re getting a refund, you’ll get it sooner. The IRS expects most refunds to be issued within 21 days. However, the IRS has been experiencing delays during the pandemic in processing some returns. Keep in mind that the time to receive a refund is typically shorter if you file electronically and receive a refund by direct deposit into a bank account. Direct deposit also avoids the possibility that a refund check could be lost, stolen, returned to the IRS as undeliverable or caught in mail delays.

If you were eligible for an Economic Impact Payment (EIP) or advance Child Tax Credit (CTC) payments, and you didn’t receive them or you didn’t receive the full amount due, filing early will help you to receive the money sooner. In 2021, the third round of EIPs were paid by the federal government to eligible individuals to help mitigate the financial effects of COVID-19. Advance CTC payments were made monthly in 2021 to eligible families from July through December. EIP and CTC payments due that weren’t made to eligible taxpayers can be claimed on your 2021 return.

Contact us if you have questions or need to make an appointment with your tax preparer.

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Helpful Articles Tax

New Reporting Guidelines for Third-Party Payment Services

As a result of the American Rescue Plan Act of 2021, sellers that receive at least $600 in a calendar year for goods and services transactions through a Third-Party Settlement Organization (TPSO) such as PayPal or Venmo will be required to report this income to the IRS when filing taxes for 2022. This reporting threshold was significantly lowered from 2021’s threshold of $20,000 in payments and 200 transactions. 

This is not a tax change, it is a reporting change. The new regulations make it possible for the IRS to verify the income business owners receive through TSPOs. No extra tax will be applied to these amounts.

These guidelines are not applicable to:

  • Amounts sent as a gift
  • Amounts from selling personal items at a loss
  • Amounts sent as reimbursements

Several TSPOs, including Venmo, allow users to mark a payment as a goods and services transaction, making it easier for sellers to keep records of their income. 

At the end of the calendar year, TSPOs will send Form 1099-K to users that received more than $600. This form will be provided to the user’s tax preparer when filing a 2022 tax return in 2023. These guidelines will not affect 2021 tax returns. 

Business owners and independent contractors should be prepared to provide their employer identification number (EIN), individual tax identification number (ITIN), or Social Security number to TSPOs in order to continue utilizing the services and to receive their 1099-K.

For more information regarding this reporting change, contact your ATA representative today.

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Helpful Articles Tax

Claiming Available Tax Credits for Businesses

The U.S. offers a variety of tax credits and other incentives to encourage employment and investment, often in targeted industries or areas such as innovation and technology, renewable energy and low-income or distressed communities. Many states and localities also offer tax incentives. Businesses should make sure they are claiming all available tax credits for 2021 and begin exploring new tax credit opportunities for 2022.

  • The Employee Retention Credit (ERC) is a refundable payroll tax credit for qualifying employers that have been significantly impacted by COVID-19. Employers that received a Paycheck Protection Program (PPP) loan can claim the ERC but the same wages cannot be used for both programs. The Infrastructure Investment and Jobs Act signed by President Biden on November 15, 2021, retroactively ends the ERC on September 30, 2021, for most employers.
  • Businesses that incur expenses related to qualified research and development (R&D) activities are eligible for the federal R&D credit.
  • Taxpayers that reinvest capital gains in Qualified Opportunity Zones may be able to defer the federal tax due on the capital gains. An additional 10% gain exclusion also may apply if the investment is made by December 31, 2021. The investment must be made within a certain period after the disposition giving rise to the gain.
  • The New Markets Tax Credit Program provides federally funded tax credits for approved investments in low-income communities that are made through certified “Community Development Entities.”
  • Other incentives for employers include the Work Opportunity Tax Credit, the Federal Empowerment Zone Credit, the Indian Employment Credit and credits for paid family and medical leave (FMLA).

There are several federal tax benefits available for investments to promote energy efficiency and sustainability initiatives. In addition, the Build Back Better Act proposes to extend and enhance certain green energy credits as well as introduce a variety of new incentives. The proposals also would introduce the ability for taxpayers to elect cash payments in lieu of certain credits and impose prevailing wage and apprenticeship requirements in the determination of certain credit amounts.

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Helpful Articles Tax

IRS Releases 2021 “Dirty Dozen” Tax Scam List

The IRS has released the 2021 “Dirty Dozen” tax scam list. This annual list helps taxpayers to be aware of potential ploys to steal money and personal information. This year’s list is divided into four categories: pandemic-related scams, personal information cons, ruses on unsuspecting victims and schemes that persuade taxpayers into unscrupulous actions. Continue reading below for scams to be aware of this tax year.

  • Economic Impact Payment theft

As a result of the CARES Act and the American Rescue Plan Act, many Americans received Economic Impact Payments (EIP), also known as stimulus checks. In general, these payments come straight from the IRS to eligible individuals. The IRS will not reach out asking for bank account information, Social Security numbers or personal information confirmation; ignore random calls, text messages and emails asking for this type of information. 

  • Unemployment fraud leading to inaccurate taxpayer 1099-Gs

The pandemic led to an increase of unemployed individuals applying for unemployment compensation from their respective states. Many of these individuals did not receive their compensation due to fraudulent claims from identity thieves. Taxpayers should look out for a Form 1099-G reporting unemployment compensation they did not receive. Individuals in this position should contact the appropriate state agency.

  • Fake charities

It is not uncommon for “new charities” to pop up all over the place when a disaster occurs. Most of these new charities are just scams, asking for donations for their cause but pocketing the money, or personal information, instead. Donating to charity sounds well and good, not to mention the tax deduction that comes with it, but donations must be made to a qualified charity. Taxpayers should always vet the charities before giving.

  • Immigrant/senior fraud

Just as the previous type of scammers prey on generosity during times of tragedy, they also prey on the most vulnerable of the population year-round. Immigrants should be aware that random phone calls threatening deportation, jail time or revocation of a driver’s license are not from the IRS. These scare tactics are not used by IRS agents, and phone calls are not typically the first attempt at contact from the IRS. Seniors and those that love them should also be aware of the persuasive and threatening techniques used by scammers.

  • Unscrupulous tax return preparers

Taxpayers should be wary of ghost tax preparers, preparers that refuse to sign and include their Preparer Tax Identification Number (PTIN) on tax returns. Having a tax return prepared by an unqualified and unlicensed preparer puts taxpayers at risk of getting into trouble with the IRS. Being picky is okay when it comes to choosing a tax preparer!

Other forms of tax scams that made the 2021 IRS “Dirty Dozen” list include unemployment insurance fraud, offer-in-compromise “mills,” syndicated conservation easements, abusive micro-captive arrangements, potentially abusive use of the US-Malta tax treaty, improper claims of business credits and improper monetized installment sales. For more on this year’s “Dirty Dozen,” visit https://www.irs.gov/newsroom/irs-announces-dirty-dozen-tax-scams-for-2021.

Our team is committed to keeping your information safe and secure, and we are always available to address concerns you may have about tax scams. Contact one of our tax experts to discuss these fraud attempts. If you are concerned about technological security, contact ATA Secure, ATA Family of Firms member.