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May 17, 2022
NewsIn 2020 the IRS processed 3.2 billion information returns such as 1099-DIV, 1099-MISC, etc. These were not tax returns but documents submitted to the IRS by third-party payers and 99 percent were matched to corresponding tax returns and processed. The remaining 1% of those documents were destroyed due to a software limitation and to make room for new documents relevant to the pending 2021 filing season. There were no negative taxpayer consequences as a result of this action. Taxpayers or payers have not been and will not be subject to penalties resulting from this action. For more information, go to IRS Statement--Information Returns
Tip of the DayShould you move your 401(k) plan? . . . If you change jobs you may be able to leave your money with the company's plan. Your other option is to roll it over to the new company's plan (if allowed) or roll it over into an IRA. What's the best approach? It depends on the performance of the company's plan and the fees involed. Some company plans have negotiated low fees and have good performance. Some don't. If you switch to an IRA you can better manage your funds (if you want to) and you may be able to secure investments with low fees. It may take some homework, but it'll be worth it in the long run. Talk to a trusted adviser.
May 16, 2022
NewsNotice 2022-27 provides a 6-month extension, through December 31, 2022 of the temporary relief provided in Notice 2021-40 from the requirement in Reg. Sec. 1.401(a)-21(d)(6)(i) that certain participant elections be witnessed in the physical presence of a plan representative or a notary public (the physical presence requirement). This extension of relief is provided in response to the continuing COVID-19 pandemic.
Tip of the DayGot PMI? . . . If you bought a home and didn't make a large enough down payment, or the home wasn't worth enough, the bank may have required you to get PMI, private mortgage insurance. But your mortgage should also contain ways for you to terminate the need for the insurance. The specific remedy depends on the lender. In some cases you may be relieved of paying for the insurance if the amount of the loan does down as a result of your regular payments, or if you can show the value of the home has gone up, etc., or, in some loans, simply as a result of the passage of time (e.g., after 5 years). Check your mortgage document or talk to the bank. Getting rid of that payment could easily put $2,000 or more a year into your pocket.
May 13, 2022
NewsThe IRS announced that victims of wildfires and straight-line winds in New Mexico that began April 5, 2022, now have until August 31, 2022, to file various individual and business tax returns and make tax payments. Following the recent disaster declaration issued by the FEMA affected taxpayers in certain areas will receive tax relief. Individuals and households affected by wildfires and straight-line winds that reside or have a business in Colfax, Lincoln, Mora, San Miguel and Valencia counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for affected taxpayers. For instance, certain deadlines falling on or after April 5, 2022, and before August 31, 2022, are postponed through August 31, 2022. Penalties on payroll and excise tax deposits due on or after April 5, 2022, and before August 31, 2022, will be abated as long as the tax deposits were made by August 31, 2022. The IRS automatically identifies taxpayers located in the covered disaster area and applies filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area should call the IRS disaster hotline at 866-562-5227 to request this tax relief.
Tip of the DayMarket in turmoil . . . You don't have to be a financial genius to see that. But it appears that the Federal Reserve will have to raise interest rates more aggressively and that brings the risk of recession. This is definitely the time you want protect your cash in case it's needed in the near future. As for the market, while down, quality, dividend paying stocks have held up well in general. Aggressive growth stocks with high P/E multiples have taken some serious hits. It seems any hint of bad news can have a disastrous effect. If you haven't already, take a look at any high fliers you have an check with your financial advisor on whether to hold them or fold them.
May 12, 2022
NewsThe IRS has updated the Frequently Asked Questions on Employer Shared Responsibility Provisions Under the Affordable Care Act.
The IRS has released a webpage on Virtual Currency with links to several publications and a Frequently Asked Questions page on virtual currency transactions.
Tip of the DayBorrowing from your 401(k)? . . . Not all 401(k) plans are the same. The IRS lists certain rules to which all 401(k) plans have to subscribe in order to pass muster, but there are a number of provisions to which a business has the option to accept or reject. In service withdrawals from the plan and loans from the plan are just two examples.
May 11, 2022
NewsIn an audit the Treasury Inspector General for Tax Administration (TIGTA) found that in March 2021 the Service decided to destroy an estimated 30 million paper-filed information return documents because it could not catchup on the backlog of paper-filed returns. The information returns include forms in the 1099 series, 1098, etc. While individual tax returns were not destroyed, that supporting documentation will mean the accuracy of some line items on the returns may not be verifiable for the IRS when a return is examined. Keep in mind that most 1099s, 1098s etc. are filed electronically and while 30 million sounds like a large number, it's a drop in the bucket compared to the total returns filed.
Although filing season has come and gone, the IRS announced (IR-2022-106) many Taxpayer Assistance Centers (TACs) around the country, including Puerto Rico, will be open and offering face-to-face help on Saturday, May 14. This special Saturday help is available from 9 a.m. to 4 p.m., and without an appointment. Normally, TACs are open by appointment only on weekdays. The IRS.gov webpage, Contact Your Local IRS Office, lists all TAC services offered during the event and regular office hours. Many have used a Saturday visit to ask about IRS identity protection services, or to request Individual Taxpayer Identification Numbers (ITINs), refunds and payment options. Taxpayers can make payments by check or money order. The IRS will not accept cash during these events.
Tip of the DayRenting a vacation home? . . . Sounds like a no-brainer. Get top dollar during the prime summer or ski season for a couple of months and still have the home available for personal use. And get the rentals to pay the mortgage and taxes. It often doesn't work out that way. Finding tenants can be more difficult than you might think. In some locations there can be considerable competition from other owners who have the same idea. If the property isn't rented for much of the prime time your income won't go far. Then there's always damage and maintenance expenses to consider. If the property is some distance away you should strongly consider a rental manager or real estate agent to assist. That will take a bite out of your gross. You'll have better luck if the property was rented regularly by the former owner. There's a good chance you'll get repeat business which makes marketing easier and the tenants more reliable. There are some areas that do really well. Houses in the Hamptons on Long Island are usually rented for a month or the season. It's not unusual for a season rental to generate $50,000 plus for just three months. Homes on many lakes or near a ski slope can be a close second. Just don't depend on the rental income to cover the mortgage and taxes.
May 6, 2022
NewsIf you've elected S corporation status you can't change to a C corporation without making an affirmative revocation and filing it with the IRS. But in Hong Jun Chan and Suzhen Mei (T.C. Memo. 2021-136) the taxpayers failed to file tax returns for two years and failed to report the income from the business of the S corporation. The IRS reconstructed the taxpayer's income using the bank deposits method and allowed no deductions for the costs of operating the business. The taxpayers contended the entity was a C corporation and the income did not have to be passed through to the shareholders. The Court granted the IRS's motion for summary judgment with respect to type of entity, holding it was indeed an S corporation. However, the Court found there was still a dispute with respect to material facts and allowed the taxpayers to show the expenses incurred by the business.
Tip of the DayLook behind the numbers . . . Often the numbers speak the truth. Your sales are up 20% year over year as a result of a new product that's cheaper and better. Or you've introduced a new service boosting revenue and traffic. But before taking the numbers at face value, ask yourself if they make sense. Is it the new product that generated the sales or the fact that your competitor was shut down for three months because of storm damage. If it's the former, you should take steps to take advantage of the new product. If it's the latter, you may still be able to take advantage of the situation, but in a much different way.
May 5, 2022
NewsNotice 2022-23 sets forth proposed changes to the qualified intermediary (QI) withholding agreement (QI agreement) described in Sec. 1.1441-1(e)(5) and (6) that will permit a QI to assume withholding and reporting responsibilities for purposes of Sections 1446(a) and (f). In general, the QI agreement allows foreign persons to enter into an agreement with the IRS to simplify certain of their obligations as a withholding agent under chapters 3 and 4 and as a payor under chapter 61 and section 3406 for amounts paid to their account holders.
Have a foreign bank account and haven't filed a FBAR (Report of Foreign Bank and Financial Accounts)? Willfully failing to do so can result in a maximum penalty of up to the greater of $100,000 or 50 percent of the value in the account at the time of the violation. In Monica Toth, Defendant, Appellant (U.S. Court of Appeals, First Circuit) the IRS found the taxpayer willfully failed to file an FBAR with respect to an account in Switzerland with just over $4 million in it. The IRS assessed a penalty of just over $2 million and the taxpayer refused to pay. A District Court upheld the penalty and the taxpayer appeal to the Court of Appeals which upheld the penalty.
Tip of the DayReconstructing lost records . . . With hurricanes in Texas, Florida, Georgia, Puerto Rico and Virgin Islands as well as fires, floods and other disasters, there's a chance your tax and business records may be partially or wholly destroyed, despite your best efforts. If you can show the IRS or court that your records were in the disaster area you're sure to get sympathy as well as some leeway. Nonetheless, you can't just say they were lost in the flood and expect to be believed. You're expected to take steps to reconstruct your records. That includes requesting bank and credit card statements from the financial institutions, invoices from vendors, etc. If you paid by credit card or check you should be able to secure the original invoice at many stores. Paid cash at the gas pumps? No way you'll recover those. Often the IRS and courts will accept less documentation than they would under other circumstances. And you may be able to use a back door approach. Your mechanic provided oil change receipts that show the car mileage. The court may estimate the amount of gas used based on a prior year's documentation and use an average cost per gallon. Chances are the 80-20 rule will apply. You should be able to alternatively document 80% of the expenses fairly easily (though time consuming). The other 20% could be extremely difficult. The IRS and court may give you a significant part of the 20%. Talk to your accountant and tax advisor on other tips.
May 4, 2022
NewsIncome tax law contains multiple penalties. One of the most common ones is the accuracy-related penalty. That's 20 percent of the tax underpayment attributable to an issue like claiming a deduction you're not entitled to or underreporting your income. You may be able to avoid the penalty if you can show reasonable cause, but that's not easy. In Plateau Holdings, LLC, Waterfall Development Manager, LLC, Tax Matters Partner (T.C. Memo. 2021-133) the taxpayer valued a donated conservation easement at far more than than the amount allowed by the court and was subject to the 40 percent for gross overvaluation of the easement. But the IRS disallowed the remainder of the contribution because the easement was not protected in perpetuity as required by tax law. As a result, the IRS assessed the 20 percent accuracy-related penalty to the the portion of the underpayment that was not attributable to a valuation misstatement. The Court sided with the taxpayer on this penalty, concluding that the taxpayer had reasonable cause and acted in good faith with respect to the claimed charitable contribution deduction corresponding to the correct value of the easements.
Tip of the DayContemporaneous records . . . The IRS and the courts give more value to diary entries, etc. made near the time of the action. For example, a car log entry regular made at the time of the trip has more value than one made at the end of the week and much more value than one made at the end of the month. The IRS and the courts can usually spot a log you made the night before you saw the IRS agent. But the IRS and courts also look at other aspects such as do you regularly keep such records. A single entry in your diary for a six-month period showing the detail of a certain transaction carries less weight than if you made regular entries. Finally, sometimes a well-kept diary or log can substitute for missing receipts. But there are some areas of tax law where strict recordkeeping rules won't allow that, e.g., in the case of travel and entertainment receipts, charitable contributions, etc. The law requires a receipt and the neither the IRS nor the courts can waive that rule.
May 3, 2022
NewsNotice 2022-19 provides the inflation adjustment factor for use in determining the enhanced oil recovery credit in Sec. 43. For calender year 2022 the factor is 1.8607. Because the reference price for the 2021 calendar year ($65.90) exceeds $28 multiplied by the inflation adjustment factor for the 2022 calendar year ($28 multiplied by 1.8607 = $52.10) by $13.80, the enhanced oil recovery credit for qualified costs paid or incurred in 2022 is phased out completely.
Notice 2022-18 provides the applicable reference price for qualified natural gas production from qualified marginal wells during taxable years beginning in calendar year 2021 for the purpose of determining the marginal well production credit (MWC) under Sec. 45I of the Code. The applicable reference price for taxable years beginning in calendar year 2021 is $1.52 per 1,000 cubic feet (Mcf). This notice also provides the credit amount used for the purpose of determining the MWC for taxable years beginning in calendar year 2021. The credit amount is determined using the 2021 inflation adjustment factor of 1.3402 and the applicable reference price of $1.52 per Mcf. The credit amount for taxable years beginning in calendar year 2021 is $0.67 per Mcf.
Tip of the DayBonus depreciation shrinking . . . Currently you can take 100 percent bonus depreciation on most personal property asset purchases for a trade or business. But that 100 percent deduction drops to 80 percent on equipment purchased after December 31, 2022. In most cases that's not fatal. The remaining 20 percent can still be written off on an accelerated basis. After December 31, 2023 bonus depreciation drops to 60 percent. If you're thinking of making large asset purchases, factor this into your planning.
May 2, 2022
NewsRevenue Procedure 2022-24 (IRB 2022-20) provides the 2023 inflation adjusted amounts for Health Savings Accounts (HSAs) as determined under Sec. 223 of the Code and the maximum amount that may be made newly available for excepted benefit health reimbursement arrangements (HRAs) provided under Reg. Sec. 54.9831-1(c)(3)(viii) of the Pension Excise Tax Regulations.
Almost 70 percent of taxpayers qualify for the Free File option on the IRS website, but only about 3 percent use it. The General Accountability Office (GAO) was asked to examine the Free File program. The software is not developed by the IRS but by tax prep software companies. The GAO identified certain risks associated with the program, principally that software companies could leave the Free File program at any time. The study showed that fewer people use the system after a company drops out. The concluded the IRS is not properly managing the risks associated with the program and that it develop additional free filing options. You can find the full report at www.gao.gov/assets/gao-22-105236.pdf.
Tip of the DayEmployee fraud . . . While internet scams get the headlines, employee fraud is a major concern. Small businesses can be particularly vulnerable because they don't have the internal controls to make fraud more difficult. There are more than a few stories about how an employee in a small company managed to embezzle $200,000, $400,000 or more. And those are the ones where the perpretrator was caught. There are probably many times that number where the business just incurs losses, is sold, or goes bankrupt without ever discovering the theft. Some studies suggest a better than 25% chance a small business has been defrauded to a significant amount by an employee. Your CPA has ideas on ways to discourage fraud and to protect your business.
April 29, 2022
NewsNotice 2022-22 provides updated mortality improvement rates and static mortality tables to be used for defined benefit pension plans under Sec. 430(h)(3)(A) of the Code and section 303(h)(3)(A) of the Employee Retirement Income Security Act of 1974, as amended (ERISA). These updated mortality improvement rates and static mortality tables, which are being issued pursuant to the regulations under section 430(h)(3)(A) of the Code, apply for purposes of determining present value and making any other computation under section 430 for valuation dates occurring during the 2023 calendar year.
Tip of the DayIs it really free? . . . Sometimes. It could be as innocent as an inducement to bring on or keep you as a customer. But it could also be a gimmick in upselling where you end up paying for additional products or services you didn't want. Or it could be an information grab. That's when a company offers free or heavily discounted products or services to get your personal (or business) information. While the information may be useful to that company, there's a good chance it may be making money on the sale of your information. How much is your information worth? Could be plenty. Anywhere from $1 or less to hundreds depending on what the name buyer is using it for and the detail involved in the information. This isn't new. Publishers have been selling lists of subscribers for years. Got a subscription to Guns and Hunting? You're a candidate for a gun, ammo, knife, camping equipment, even fishing equipment. The difference now is the detail in the information and where it's used.
April 28, 2022
NewsThe IRS today issued a revised set of frequently asked questions for tax year 2021 and filing season 2022 for the Child Tax Credit. These frequently asked questions (FAQs) are released to the public in Fact Sheet 2022-28 PDF, April 27, 2022. The revision adds Topic F: Commonly Asked Filing Season Questions, Questions 1 through 6.
The IRS has posted a list of suggestions on resolving tax issues after filing including checking refund status, payment options, and points on filing an amended return. Go to COVID Tax Tip 2022-63.
Tip of the DayMultiple businesses under same roof? . . . Just because you've got separate businesses in the same S corporation or partnership doesn't mean you can lump them all together. For example, you inherited your parents' feed and grain store and you and your wife have a financial services company in town. These are two different businesses and you've got to deal with them separately from a tax standpoint, even if they're in the same corporation or partnership. On the other hand, two or more operations that are related, such as the feed and grain store and an associated equipment rental business may be grouped. This is a tricky area. Talk to your tax advisor.
April 27, 2022
NewsThe IRS has released the new Collection Financial Standards that are used to help determine a taxpayer's ability to pay a delinquent tax liability. Allowable living expenses include those expenses that meet the necessary expense test. The necessary expense test is defined as expenses that are necessary to provide for a taxpayer's (and his or her family's) health and welfare and/or production of income. Taxpayers are allowed the total National Standards amount monthly for their family size, without questioning the amount actually spent. Maximum allowances for monthly housing and utilities and transportation, known as the Local Standards, vary by location. In most cases, the taxpayer is allowed the amount actually spent, or the local standard, whichever is less. For more information and links to additional resources, go to Collection Financial Standards.
The IRS is requesting (Notice 2022-21) the public to submit recommendations for items to be included in the 2022-2023 Priority Guidance Plan. The Priority Guidance Plan is used each year to identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance in the upcoming year.
Tip of the DayTax-exempt organization deadline . . . Many business owners may also be involved in one or more charitable or nonprofit organizations. You should know that the deadline for such organizations that have a calendar year is May 15 (16 this year). Despite the fact that no tax is normally due, the organization could be subject to a penalty of $20 per day ($105 per day if gross receipts exceed $1,094,500). Form 990 must be filed electronically. An automatic extension is available on Form 8868. And some small organizations, those which normally have gross receipts of $50,000 or less must submit Form 990-N electronically requesting basic information on the organization.
April 26, 2022
NewsFailure to file the FBAR, Report of Foreign Bank and Financial Accounts can be costly. In Sali Hadley (U.S. District Court, M.D. Forida Tampa Div.) the taxpayer did not file FBARs on any of the 23 foreign bank accounts she held. The IRS imposed the $10,000 penalty on each of the 23 accounts resulting in a penalty of $230,000. The Court noted the term "violation" is not the procedural failure to file an FBAR form. Instead, each unreported relationship with a foreign financial agency constitutes an FBAR violation. Instead, under the statutory duty imposed in Section 5314 and the implementing regulations, the meaning of the term "violation" is failing to report each foreign financial account relationship. The Court sustained the IRS penalty of $230,000.
Tip of the DayBrand loyalty . . . It may not be what it used to be. With current inflation rates many customers are switching to house brands, cheaper suppliers, etc. And even if you hold the line on your prices, a customer may go to the house brand to improve his overall budget. You should be aware of the possibility and take steps to insure your product is still relevant to your customers.
April 25, 2022
NewsYou may be able your reasonable litigation costs if you can sustain your position with the IRS. But you have to clear several hurdles and there are some specific rules. In Gina C. Lewis (158 TC No. 3) the IRS proposed adjustments to the taxpayer and her ex-spouse's returns for several years. The taxpayer submitted a letter purporting (under Sec. 7430) to concede all the tax and penalties but reserved the right to claim relief from joint and several liability under Sec. 6015. The IRS refused the offer. The taxpayer claimed Sec. 6015 relief but did not provide Form 8857 with the relevant documentation. Later the IRS conceded relief under Sec. 6015. The IRS moved for entry of decision reflecting no liabilities for the years, but the taxpayer claimed that was an attempt to prevent her from getting litigation costs. The Court held that a qualified offer under Sec. 7430 must meet certain requirements and that an offer that reserves the right to claim relief from liability for income tax under Sec. 6015 is not a qualified offer because it does not specify the offered amount that, if accepted, would fully resolve the taxpayer's income tax liability under Sec. 7430(g)(1)(B). Since there was no qualified offer, the taxapyer was not entitled to litigation costs because the IRS's position was substantially justified.
Tip of the DayCost to hire an employee . . . We've mentioned this before. When it comes to employees (and customers) it's much cheaper to hold onto an employee than get a new one. How much does it cost to get a new employee. One study showed it can take between 30 percent to over 100 percent of the employee's salary when all the costs are added up. Clearly, the cost will vary depending on the job position, the local market, etc. But starting salaries considerably above minimum wage often accompanied by a sign-on bonus for starting retail employees is an indication that even entry level jobs are costing more to fill. For higher-level positions posting ads and word-of-mouth is less likely to produce results than in the past. Sign-on bonuses are common and you may need a recruiter. Benefits are important to many potential employees.
April 22, 2022
News>b>In an audit, the General Accountability Office (GAO) found the IRS experienced multiple challenges during the 2021 filing season as it struggled to respond to an unprecedented workload that included delivering COVID-19 relief. IRS began the filing season with a backlog of 8 million individual and business returns from the prior year that it processed alongside incoming returns. IRS reduced the backlog of prior year returns, but as of late December 2021, had about 10.5 million returns to process from 2021. Further, IRS suspended and reviewed 35 million returns with errors primarily due to new or modified tax credits. As a result, millions of taxpayers experienced long delays in receiving refunds. GAO found that some categories of errors occur each year; however, IRS does not assess the underlying causes of taxpayer errors on returns. Doing so could help reduce future errors, refund delays, and strains on IRS resources. To see the complete report go to www.gao.gov/assets/730/720018.pdf.
Tip of the DayCan price increases hold? . . . With inflation high more than a few companies are hiking prices to cover costs and some are just raising them hoping they'll be accepted along with overall inflation. But after years of generally low prices for goods, some consumers may balk. A number of companies are seeing that now. A small increase may be tolerated, but after a certain threshold, consumers may not buy. That's particularly true for purchases that can be put off. Be careful how you increase prices. Walking it back later can be embarrassing.
April 20, 2022
NewsRev. Proc. 2022-23 provides guidance allowing a taxpayer to make a late election under Secs. 168(j)(8) and 168(l)(3)D) of the Code the taxpayer's taxable year ending in 2018 or in 2019 for certain property placed in service after December 31, 2017. The revenue procedure also povides guidance allowing a taxpayer to make a late election under Sec. 181(a)(1) of the Code for the taxpayer's taxable year ending in 2018 or 2019 for certain film, televisdion, or live atheatrical productions commenced by the taxayer after December 31, 2017.
Tip of the DayDon't close that bank account . . . Or email, website, telephone number, etc. too soon after your business moves, merges, closes, etc. Keeping your former bank account can be particularly important. It's not unusual for customers to continue to forward funds to an old account even after they're informed of a change. Businesses have continued to receive payments to an old account years after an change. The same is true for mail and email addresses. How long should you keep the account? It depends on your business. Got 10 consulting clients you deal with regularly? Not long. Use of the wrong account or address will pop up quickly. If you deal with clients or customers sporadically, have a large number of customers, or have customers that are large companies it may take longer to catch.
April 19, 2022
NewsThe IRS has received requests from taxpayers and their advisors for relief from penalties arising when additional income tax is owed because the deduction for qualified wages is reduced by the amount of a retroactively claimed employee retention tax credit (ERTC), but the taxpayer is unable to pay the additional income tax because the ERTC refund payment has not yet been received. Treasury and the IRS are aware that this situation may arise, in part, due to the IRS's backlog in processing adjusted employment tax returns (e.g., Form 941-X) on which the taxpayers claim ERTC retroactively. Based on applicable law, IRS guidance provides that an employer must reduce its income tax deduction for the ERTC qualified wages by the amount of the ERTC for the tax year in which such wages were paid or incurred. Taxpayers that claimed the ERTC retroactively and filed an amended income tax return reducing their deduction for the ERTC qualified wages paid or incurred in the tax year for which the ERTC is retroactively claimed have an increased income tax liability but may not yet have received their ERTC refund. For more information, see IR-2022-89.
Tip of the DayInsurance coverage . . . Inflation can take a toll on assets other than houses. Some three-year old used cars with low mileage may fetch as much as the original purchase price. That could mean you insurance coverage is inadequate. You may want to keep collision on a car longer than you did before. And you certainly want to make sure you have gap coverage on a leased vehicle. Talk to your insurance agent.
April 18, 2022
NewsBeginning in mid-April 2022, the IRS will send CP2100 and CP2100A notices to financial institutions, businesses or payers who filed certain types of information returns (e.g., 1099-MISC, 1099 NEC, etc.) that don't match IRS records. CP2100 and CP2100A notices are sent twice a year; an initial mailing in September and October and a second mailing in April of the following year. The notices inform payers that the information return is missing a Taxpayer Identification Number (TIN), has an incorrect name or a combination of both. Each notice has a list of payees, or the persons receiving certain types of income payments, with identified TIN issues. Payers need to compare the accounts listed on the notice with their account records and correct or update their records, if necessary. This can also include correcting backup withholding on payments made to payees. The notices also inform payers that they are responsible for backup withholding. Payments reported on the information returns listed above are subject to backup withholding if:
Tip of the DayCan't pay? . . . What should you do if you can't pay the amount due with a return? First, file your return or request an extension and pay as much as you can. There are separate penalities for failure to file and for failure to pay. Second, if you're filing the return you can request an installment agreement and pay the amount due over time. There's a fee and you'll pay interest, but it's a better solution than ignoring the problem. The IRS allows you to send an installment agreement request (Form 9465) with the return. That form is probably included in your tax software. State rules vary, but most states allow an installment agreement in some form.
April 15, 2022
NewsThe IRS has released Fact Sheet 2022-25 that can help a taxpayer who believes their personal information is being used to file fraudulent tax returns. While Form 14039 Identity Theft Affidavit can be submitted, in in most cases, taxpayers do not need to complete this form. Only victims of tax-related identity theft should submit the Form 14039, and only if they haven't received certain letters from the IRS. The IRS identifies a suspicious tax return based on hundreds of processing filters and pulls the suspicious return for review. The IRS will send a letter to the taxpayer and will not process the tax return until hearing back from the taxpayer. For more information and a list of signs of possible tax-related identity theft click on the link above.
Tip of the DayGetting down to the wire . . . There's a couple of days left, but two of those are the weekend. Unless you've got your information together and are familiar with your tax software, you could find yourself in a bind. If you're planning on a contribution to an IRA, make sure you've got the money together and can get it in the account. You might want to consider an extension, but you'll still have to pay to avoid a penalty. There's nothing wrong with filing an extension. It does not increase your audit chances, and it's better than rushing the return and risking an error.
April 14, 2022
NewsThe IRS has once again updated the frequently asked questions (FAQs) for the 2020 Recovery Rebate Credit. These FAQs are in Fact Sheet FS-2022-26) and update Topic E, receiving the credit on a 2020 tax return. The Fact Sheet modified questions 1, 4, 5, and 8 and adds new questions 9 and 10. For additional information see IR-2022-82. Separately, the IRS announced the update (FS-2022-27) of frequently asked questions for the 2021 Recovery Rebate Credit.
Tip of the DaySchedule D information . . . Much of the time reporting securities transactions is simply a job of entering dates and amounts on Form 8949. But you may run into special situations that aren't as easy to deal with. The basis provided by your broker may be incorrect because for several reasons, you may have received the proceeds as a nominee, etc. that could require an adjustment. In the case of bonds there may be accured market discount. You may have to specify if the property is an option that expired, is from an Employee Stock Purchase Plan, from a incentive or nonqualified stock option plan, etc. If you're claiming a nonbusiness bad debt you'll have to provide information on the debt and why it should be considered worthless.
April 13, 2022
NewsIn IR-2022-79 the IRS reported that taxpayers who may need to take additional actions related to Qualified Opportunity Funds (QOFs) should begin receiving letters in the mail in April. Taxpayers who attached Form 8996, Qualified Opportunity Fund, to their return may receive Letter 6501, Qualified Opportunity Fund (QOF) Investment Standard. This letter lets them know that information needed to support the annual certification of investment standard is missing, invalid or the calculation isn't supported by the amounts reported. If they intend to maintain their certification as a QOF, they may need to take additional action to meet the annual self-certification of the investment standard requirement. To correct the annual maintenance certification of the investment standard, these taxpayers should file an amended return or an administrative adjustment request (AAR). If an entity that receives the letter fails to act, the IRS may refer its tax account for examination. Investors who made an election to defer tax on eligible gains invested in that entity may also be subject to examination. Additionally, taxpayers may receive Letter 6502, Reporting Qualified Opportunity Fund (QOF) Investments, or Letter 6503, Annual Reporting of Qualified Opportunity Fund (QOF) Investments. These letters notify them that they may not have properly followed the instructions for Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments, since it appears that information is missing, invalid or that they may not have properly followed the requirements to maintain their qualifying investment in a QOF with the filing of the form. If these taxpayers intend to maintain a qualifying investment in a QOF, they can file an amended return or an AAR with a properly completed Form 8997 attached. Failure to act will mean those who received the letter may not have a qualifying investment in a QOF and the IRS may refer their tax accounts for examination. This may result in letter recipients owing taxes, interest and penalties on gains not properly deferred. General information is available at the IRS Opportunity Zones webpage.
Tip of the DayLooking for your refund? . . . The only way to get an idea of the status is by going to Where's My Refund? on the IRS website or IRS2Gomobile app for mobile devices. The website is updated every 24 hours so checking more frequently won't provide more information. The IRS claims about 90 percent of the refunds are sent out within 21 days, but if you've got a more complex return it could be longer.
April 12, 2022
NewsThe IRS is reminding (IR-2022-78) taxpayers--particularly those who are identity theft victims--of an important step they should take to protect themselves from tax fraud. Some identity thieves use taxpayers' information to file fraudulent tax returns. By requesting Identity Protection PINs from the Get an IP PIN tool on IRS.gov, taxpayers can prevent thieves from claiming tax refunds in their names. An IP PIN is a six-digit number the IRS assigns to an individual to help prevent the misuse of their Social Security number or Individual Taxpayer Identification Number (ITIN) on federal income tax returns. The IP PIN protects the taxpayer's account, even if they're no longer required to file a tax return, by rejecting any e-filed return without the taxpayer's IP PIN. Taxpayers should request an IP PIN:
Tip of the DayState returns . . . If you're doing your own return and using tax preparation software, you should be aware that most items carry automatically to your state return. That's one of the advantages of computers. But, depending on the state, the software may not handle all the special items. Some require an entry on the state return. That's especially true for nonresident and part-year resident returns. Check the instructions for any lines that require a special entry. Some states provide a special credit for volunteer firemen; some don't tax certain pensions.
April 11, 2022
NewsYou may be able to discharge your tax liabilities over time using an installment agreement, but you've got to meet certain requirements. In Tandra Anne Roberts (T.C. Memo. 2021-131) the IRS noted the taxpayer could not be considered for an installment agreement because she was not current on her Federal tax filings and failed to supply financial information on Form 433-A. In addition, one of the requirements of an installment agreement is that the taxpayer was approach the IRS with a specific proposal and the taxpayer failed to do so. The Court sided with the IRS and found no abuse of discretion by the settlement officer.
Tip of the DayState returns . . . If you do business in other states you may have to file an individual return in those states. That's true if you do business as a sole proprietorship, partnership, or S corporation. In the case of a partnership or S corporation, the entity files and the partners or shareholders file an individual return and pay the tax on their share of the income in that state. Some states allow the entity--partnership, LLC, or S corporation--to file a "composite" return and it pays the tax. Check the rules for the states you do business in and talk to your tax advisor.
April 8, 2022
NewsStill haven't filed your individual return for 2018? You've got until April 18, 2022 to do so. After that there's no way to claim any refund. If you haven't filed for 2019 and or 2020 the IRS may hold any refund check. Most states have similar rules. If you're mailing a return this late, send it certified, return receipt to insure you've got a record. For more information, see IRS Tax Tip 2022-51.
Tip of the DayRecession on the horizon? . . . Having just survived the pandemic most businesses are not ready for another problem. Many small businesses have little, if any, cash reserves and it's unlikely the government will be able to provide the suppor they did in 2020 and 2021. More than a few economists believe we could be headed for trouble. That assessment is far from universal, but rising prices could put a damper on sales of both goods and services. Consumers could have less spendable cash if they're paying more for gasoline, utilities, groceries, etc. and could decide to save money by spending less on clothes, dining out, etc. It may not be time to run for cover, but you should be ready for anything.
April 7, 2022
NewsThe IRS is reminding taxpayers (IR-2022-77) that those who have to make estimated tax payments the due date this year is April 18th, the same day returns are due.
Tip of the DayProve your income? . . . The IRS usually doesn't find taxpayers reporting too much income on a return. But that could be the case for taxpayers who may qualify for the earned income tax credit. The credit is based on your earned income so, up to a point, the more income the larger the tax credit. In some cases you can come out ahead by overreporting your self-employment income. As a result this is a rare time whem you may be asked to prove the amount of income shown on the return.
April 6, 2022
NewsThe Taxpayer Advocate Service (TAS) is recommending using machine-reading technology to scan tax forms that are not submitted by electronic means. While recommended by the Taxpayer Advocate Service some years ago, the suggestion was never acted on. The TAS noted that a number of states are using 2-D barcoding for returns that were prepared on a computer but filed by mail. The number of returns prepared that way was sufficient to save tens of millions of dollars in labor costs and reduce the backlog caused by entering data from returns manually.
Tip of the DayFile now and pay later . . . Can't pay what you owe with the return? You can still file and delay payment to April 18 (this year's due date). If you're paying by check, just mail the voucher and the check by the 18th. If you're paying electronically you can have the money withdrawn from your bank account at any time (but no later than the due date of the return). Filing now and paying later makes even more sense if you're getting a refund on either your state or federal return.
April 5, 2022
NewsThe IRS announced (IR-2022-76) that many Taxpayer Assistance Centers will be open around the country this Saturday, April 9 for face-to-face help. This special Saturday help is available from 9 a.m. to 4 p.m., and no appointment is needed. Normally, TACs are only open by appointment on weekdays. People can also ask about reconciling advance Child Tax Credit or third round Economic Impact Payments or inquire about various other services available while at an IRS office. If assistance from IRS employees specializing in these services is not available, the individual will receive a referral for these services. IRS staff will schedule appointments for a later date for deaf or hard of hearing individuals who need sign language interpreter services. Foreign language interpreters will be available. While no tax return preparation will be available at any IRS TAC, the IRS.gov webpage, Contact your local office, lists all services provided. Taxpayers can make payments by check or money order. The IRS will not accept cash during these events.
Tip of the DayHaven't seen your preparer yet? . . . Many are overwhelmed. And they're not ready for a mess from clients. Even if you don't know anything about taxes, you can make sure you have all the forms and information the preparer noted in the "organizer" if they sent you one. You can also check last year's return to make sure you have all required brokerage statements, 1099s, income and expenses for rental properties, etc. If you're unsure of an item, bring it along. And make sure you organize your material. W2s together, 1099s together, etc.
April 4, 2022
NewsIn an audit, the Treasury Inspector General for Tax Administration (TIGTA) Fiscal Year 2020, the IRS used lien foreclosure suits more often than seizures when pursing principal residences, which do not provide the same legal protections as seizures. For seizures, the IRS must comply with the legal provisions set forth in Sec. 6330 through 6344, which govern many aspects of the seizure process, including requiring a thorough exploration of collection alternatives before a levy action can be taken and additional Collection Due Process appeal rights. In contrast, for lien foreclosure suits, Sec. 7403 offers very little discretion for the court to consider anything other than determining the merits of all claims to and liens upon the property. In addition, unlike the sale of real property at a distraint (seizure) sale, the taxpayer has no right to redeem the property after court ordered foreclosure of the Federal tax lien. Therefore, it is important that the IRS pursue a seizure rather than a suit to foreclose, whenever possible, to ensure that taxpayers are afforded all available administrative and legal protections. TIGTA made five recommendations, including recommending that the IRSwork with the Department of the Treasury Office of Tax Policy to consider a legislative proposal to amend the law (Sec. 7403) so that taxpayers are afforded the same rights and protections whether the IRS is conducting a Federal tax lien foreclosure or a seizure on their property. Additionally, TIGTA recommended that the IRS make several updates to the Internal Revenue Manual to ensure that Field Collection managers and employees take timely and proper case actions when determining whether to recommend a suit to foreclose on a taxpayer's property. For the complete report see www.treasury.gov/tigta/auditreports/2022reports/202230026fr.pdf.
Tip of the DayIRA, HSA, and other penalty traps . . . Early distributions from an IRA, HSA, etc., or excess contributions to an IRAs, etc. can be subject to a penalty tax. Form 5329 contains list a substantial number of these taxes (or penalties). In many cases tax software will automatically compaute these penalties based on entries from a 1099-R. But there are also a number of exceptions to these penalties. Check the instructions for Form 5329 for the exceptions and additional information.
April 1, 2022
NewsThe House has passed, by a 415-5 vote the SECURE Act 2.0. The bill would includes some 45 provisions, most to encourage retirement savings and expand benefits, but with some revenue offsets. The bill would a higher catch-up limit for older workers, raising catch-up contributions to $10,000 for taxpayers 62 to 64, for 401(k) and 403(b) plans; 5,000 for taxpayers in SIMPLE plans (the limit for younger workers would remain unchanged). The law would allow hardship limitations for 403(b) plans the same as those for 401(k) plans and delay the required minimum distribution (RMD) from 72 to age 75 in stages with the final increase occurring in 2031. The bill would also expand automatic enrollment and provide a safe harbor for corrections of employee elective deferral failures.
The IRS has announced that victims of severe storms, flooding and landslides in certain areas of Puerto Rico beginning February 4, 2022 now have until June 15, 2022, to file various individual and business tax returns and make tax payments. Individuals and households affected by severe storms, flooding, and landslides that reside or have a business in municipalities of Catano, Dorado, Toa Baja, Vega Alta, and Vega Baja qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after February 4, 2022, and before June 15, 2022, are postponed through June 15, 2022. This includes 2021 individual and business tax returns, normally due on April 18 and various 2021 business returns normally due on March 15. The June 15 deadline also applies to 2021 returns of tax-exempt organizations, normally due on May 16.
Tip of the DayForeign bank account? . . . The IRS is reminding U.S. citizens, resident aliens and any domestic legal entity with foreign bank accounts, or signatory authority over foreign accounts, that the deadline for filing their annual Report of Foreign Bank and Financial Accounts (FBAR) is April 16. Filers missing the April deadlines will receive an automatic extension until October 15, 2022, to file the FBAR. They don't need to request the extension. For more information, go to April FBAR Deadline.
March 31, 2022
NewsIn IR-2022-72 the IRS reported the completion of special mailings of all Letters 6475 to recipients of the third-round of Economic Impact Payments. Through December 31, 2021, the IRS issued more than 175 million third-round payments totaling over $400 billion to individuals and families across the country. Most of the third-round payments were issued in the spring and early summer of 2021. The IRS continued to send plus-up payments through December if, after their 2020 tax return was processed last year, the taxpayer was eligible for additional amounts. Individuals who did not get a letter may securely access their IRS Online Account to view the total amount of the third-round Economic Impact Payment issued to them. This information became available on January 15, 2022, under the Tax Records page in Online Account. For married individuals filing a joint return, each spouse will need to log into their own Online Account. For more information see IR-2022-72.
The IRS will be supplying weekly updates on the IVES (Income Verification Express Service) program status while processing delays continue. As Tuesday, March 30, 2022, IRS IT department continues to resolve software issues impacting the IVES program. Last week IVES processed Acknowledgments for requests dated through March 14, 2022 and Transcripts/Rejection Notices for requests dated through March 3, 2022.
Tip of the DayRecovery Rebate Credit . . . As noted above the IRS has sent out all the letters relating to the Economic Impact Payment, also known as the Recovery Rebate Credit. The amount is not taxable, but, if you didn't receive the payment you can take credit on the return. If you got the payment but claim the Recovery Rebate Credit on the return, the processing of your return will be delayed. Don't file an amended return, the IRS will make the correction. However, if you claim you got the credit, but didn't, you may have to file an amended return to secure the credit. The same is true for taxpayers who didn't get the full credit.
March 30, 2022
NewsThe Treasury Department has released the latest "Greenbook" an explanation of the administration's revenue proposals for fiscal year 2023. It's far to early to speculate which, if any, of the proposals will make it into law, but a partial list includes:
To download a copy of the book, go to https://home.treasury.gov/system/files/131/General-Explanations-FY2023.pdf
Tip of the DayCharitable contributions . . . Chances are that if you're married and either live in rent or don't have a big mortgage you won't have enough deductions to itemize. But, like in recent years, you can take a charitable contribution anyway on the front page of your Form 1040. This year, if you're married filing jointly, you can take up to $600. Single individuals are still limited to $300. It's not a giveaway. You still have to have the required documentation and this deduction is only for cash contributions. Property contributions don't count. Check your software. You may have to enter the amount in the charitable contribution section of Schedule A. Unless it's clear you can't itemize (e.g., no mortgage interest) you should complete Schedule A with the correct info. There are several reasons. One, it's a good reference point for next year when your situation may be different. Two, you may still be able to itemized on your state return. And, three, you might find yourself in that strange point where you can just itemize but because you have $600 in charitable contributions the software may decide it's better to take the standard deduction and put the contributions on the front page of the return.
March 29, 2022
NewsThe IRS is suspending the issuance of several notices generally mailed to tax-exempt or governmental entities in case of a delinquent return. Due to the pandemic, the IRS hasn’t yet processed several million returns filed by individuals and entities. The suspension of the notices will help avoid confusion when a filing is still in process. The IRS will continue to assess the inventory of pending returns to determine the appropriate time to resume mailing these notices. Some taxpayers and tax professionals may still receive the notices during the next few weeks. Generally, there is no need to call or respond to the notices as long as the return was filed timely. That doesn't mean you won't be responsible for late filing or failure to file penalties, it just means the IRS won't be sending notices. These notices involve Form 990 series and Form 5500 series. Keep in mind that late filing of these forms can involve substantial penalties, so check to make sure you're in compliance.
In IR-2022-66 the IRS is reminding taxpayers who haven't filed their 2018 returns to do so before the April deadline. In cases where a federal income tax return was not filed, the law provides most taxpayers with a three-year window of opportunity to claim a tax refund. If they do not file a tax return within three years, the money becomes the property of the U.S. Treasury. For 2018 tax returns, the window closes April 18, 2022, for most taxpayers. Taxpayers living in Maine and Massachusetts have until April 19, 2022. The law requires taxpayers to properly address, mail and ensure the tax return is postmarked by that date.
Tip of the DayWon that church raffle? . . . The prize you won is taxable at it's fair market value. And, in most cases you'll have to pay sales tax on the item. Unless you're in love with the item--that totally restored '69 Camaro like the one that you and your wife took on your honeymoon--you're better off with the cash if there's a choice. With a prize you may pay tax on an inflated value for the item, or, end up arguing with the IRS on the valuation.
March 28, 2022
NewsThe IRS is reminding (IR-2022-69) retirees who turned 72 during the last half of 2021 that, in most cases, Friday, April 1, 2022, is the last day to begin receiving payments from Individual Retirement Arrangements (IRAs), 401(k)s and similar workplace retirement plans. The payments, called required minimum distributions (RMDs), are normally made by the end of the year. But anyone who reached age 72 after June 30, 2021, is covered by a special rule that allows IRA account owners and participants in workplace retirement plans to wait until as late as April 1, 2022, to take their first RMD. In other words, in general, the special April 1 rule applies to IRA owners and other participants in these plans who were born after June 30, 1949. Click on the link above for more information.
The IRS has updated (IR-2022-67) its frequently asked questions (FAQs) on the third-round Economic Impact Payment (FS-2022-22) . These FAQs revisions (as noted by date at the end of each revised question) are as follows:
Tip of the DayCancellation of a debt . . . If a debt you owe is forgiven, it's generally income. There are some exceptions. If you're a shareholder in a corporation and the corporation forgives a debt you owe it, that's income, but it's considered a constructive dividend. How that's taxed will depend on whether the entity is a C corporation or an S corporation. In the reverse situation, where you cancel a debt the corporation owes you, the canceled debt is considered a contribution to the corporation's capital.
March 25, 2022
NewsIn an audit, the Treasury Inspector General for Tax Administration (TIGTA) found the IRS is not effectively tracking the program costs related to the PDC (Private Debt Collection) program. Specifically, TIGTA identified over $7.1 million in underreported costs (background investigations, contracts, labor, etc.) not included by the IRS as part of the PDC program for FYs 2016 through 2019. The IRS also incorrectly calculated the indirect cost for FY 2019, which resulted in overstating indirect costs by $607,099. The IRS retained 25 percent of the commissionable payments from the PDC program in the Cost of Services Fund, but the PCAs were only paid 19.8 percent for FYs 2017 through 2020. This difference in percentages is resulting in the growth of the Cost of Services Fund balance of $25.8 million as of the end of FY 2020. The IRS should determine the amount necessary to retain to pay the PCAs without causing further growth in this fund. TIGTA also determined the IRS did not distinguish $30.1 million of $121.2 million in PDC program costs as startup costs or identify what costs were reimbursed by the program or paid with discretionary funds for FYs 2016 through 2020. You can find the complete report at www.treasury.gov/tigta/auditreports/2022reports/202230022fr.pdf.
Tip of the DayElectric, gas, or hybrid? . . . The price of gas is skyrocketing and more than a few drivers are looking at electric or hybrid cars. But before putting a down payment on a vehicle, work through the numbers. The batteries for electrics and hybrids aren't cheap and at some point they have to be replaced. Insurance can also be higher. But that expense might be offset by lower maintenance But the big question is how much do you drive and what kind of driving. If you only drive 5,000 miles a year, the savings from an electric is likely to be minor. The type of driving is also a factor. Electrics and hybrids are in their element around town. Savings on highway driving are less. Got a monster SUV or pickup? You can easily cut your fuel cost in half by getting a mid-size sedan.
March 24, 2022
NewsThe IRS has updated its frequently asked questions on the 2020 unemployment compensation exclusion.
The IRS is advising taxpayers (?IR-2022-65) concerning potential delays in the processing of a return and the issuing of a refund. If you file electronically and request direct deposit the IRS issues most refunds in less than 21 days--sometimes much less. But any refund will be delayed if the IRS has to correct a return for the advance Child Tax Credit, the Recovery Rebate Credit, or the Earned Income Tax Credit. There are some other reasons for a delay, but those are by far the most common. If the IRS needs more information to process the return it will contact you by mail.
Tip of the DayEnergy credits . . . They're still available for solar electric, solar water heating, insulation, exterior doors and windows, special roofing, and several others. Use Form 5695.
March 23, 2022
NewsIn an audit, the Treasury Inspector General for Tax Administration (TIGTA) found that the IRS has not provided taxpayers with adequate information on PPIAs on its public website or with the instructions pertaining to the form used to request an installment agreement, nor has the IRS created an effective means for taxpayers to request PPIAs or appeal rejected PPIAs as required by law.PPIAs generally accounted for less than 2 percent of the new installment agreements established from Fiscal Years 2016 through 2020, while streamlined installment agreements accounted for 56 percent. Also, TIGTA found that PPIAs were established without evidence of a complete financial analysis of the taxpayers' ability to pay. From a judgmental sample of 30 PPIAs, TIGTA determined that the taxpayers' financial statement had been deleted from IRS files for 11 PPIAs because more than one year had elapsed since the PPIA was established. With no financial statement in the file, TIGTA could not determine whether the IRS had properly computed the maximum monthly payment amount the taxpayers had the ability to pay. Collection default data indicate that the IRS is also establishing PPIAs for amounts that taxpayers cannot afford. For the complete report, go to www.treasury.gov/tigta/auditreports/2022reports/202230021fr.pdf.
Tip of the DayFiling help . . . Most tax software can be used in two modes--entering information directly on forms and worksheets or using a question and answer (Q and A) approach. You might want to start with a Q and A approach for the basics such as filing status, dependents, etc. For income items such as W-2s, 1099s, etc. entering data directly is usually easy and faster. For example, if you're entering a 1099-DIV, the software will show a form that looks like a 1099-DIV. In most cases it's just taking numbers from the information return and putting it on the software form. For the forms where you need help, go back to Q and A.
March 22, 2022
NewsRevenue Ruling 2022-7 updates Rev. Rul. 2004-53 in accordance with the Taxpayer First Act by explaining that all recipients of returns or return information pursuant to Section 6103(c), including government employees, are subject to the tax return disclosure restrictions of Section 6103(a). Rev. Rul. 2004-53 modified and superseded.
Tip of the DayScrutinize bank and brokerage statements carefully . . .Check those statements when you're preparing your return. You've probably got a number of accounts--some in your own name, some inyour children's names, some that are IRAs. Because banks and brokerage houses can issue substitute 1099s that often look like regular statements, it's easy to make a mistake. You don't want to report more income than necessary. But you don't want to underreport income and risk a penalty. And many brokerage 1099s run to two pages detailing not just dividends, interest, etc. but foreign tax credits, royalty payments, withheld federal taxes, tax-exempt interest, market discount on bonds, and investment management fees. There can be important numbers hidden in a bunch of zeros.
March 21, 2022
NewsThe IRS is reminding (IR-2022-61) taxpayers that there is a virtual currency question at the top of Form 1040, Form 1040-SR and Form 1040-NR. It asks: "At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?" All taxpayers filing Form 1040, Form 1040-SR or Form 1040-NR must check one box answering either "Yes" or "No" to the virtual currency question. The question must be answered by all taxpayers, not just taxpayers who engaged in a transaction involving virtual currency in 2021. According to IR-2022-61 taxpayers who merely owned virtual currency at any time in 2021 can check the "No" box when they have not engaged in any transactions involving virtual currency during the year, or their activities were limited to:
IR-2022-61 also provides a list of situations where a taxpayer must check the "Yes" box.
Tip of the DayMortgage interest limitation . . . Interest on a home mortgage is limited based on the principal outstanding. Debt incurred before October 13, 1987 is deductible without limit. Interest on debt incurred after October 12, 1987 and prior to December 16, 2017 is limited to the first $1 million. Interest on debt incurred after December 15, 2017 is limited to the first $750,000 of indebtedness. For example, you have $1 million of debt outstanding on a home you acquired in 2019. The interest paid for 2021 was $40,000. You can only deduct 75 percent of that or $30,000. If you're using computer software you probably have a worksheet where you can enter the raw data and let the program compute the deductible amount.
March 18, 2022
NewsReflecting the increase in vehicle prices, the IRS has just announced (Rev. Proc. 2022-17) the auto (and truck) depreciation limits for 2022. The first-year depreciation for cars placed in service in 2022 and for which additional first-year depreciation applies, is up $1,000 from 2021. Secon-year depreciation is up $1,600. Third and subsequent year depreciation is also up. For vehicles not qualifying for additional first-year depreciation, is up $1,000. Second and subsequent year depreciation amounts are also up.
As part of a larger hiring effort underway, the IRS announced plans to hire more than 200 additional technologists to help the agency further modernize its technology. The IRS is offering entry-level positions as well as career opportunities for experienced and supervisory IT specialists in the fields of system development, architecture, engineering, cybersecurity, IT operations, network services and customer support. In addition, the IRS is seeking applicants with knowledge of cloud, zero trust security, low/no-code enterprise platforms, artificial intelligence and machine learning, or NoSQL database among other modern technologies. To learn more about IRS IT modernization and recent accomplishments, visit IRS Modernization. For more information, see IR-2022-59.
Tip of the DayDisability pensions . . . The general rule is that if your employer paid for the disability plan, the amounts you receive are taxable. If you paid the full amount of the plan, the benefits are not taxable. If you and your employer shared the cost of the plan, the benefits are partially taxable. Military nd government disability may or may not be taxable. You may be able to exclude the payments from income if the payments result from active service in the armed forces of any country, the National Oceanic and Atmospheric Administration, the Public Health Service or the Foreign Service. You can exclude the payments if you were entitled to the payments before September 25, 1975, received the disability payments for a combat-related injury, or would be entitled to receive disabilty compensation fro the VA. Check with your tax advisor on the details.
March 17, 2022
NewsThe Small Business Admnistration (SBA) has announced a further extension of the deferment period for COVID-19 Economic Injury Disaster Loan (EIDL) repayments. Under the new deferral small business and non-profits that received EIDL loans now have until 30 months after the date of the note. Interest will accrue during the deferral period. The conditions on these loans have been modified several times. Check to make sure you've got the latest information and begin repayment no later than the required starting date.
Tip of the DayFailure to file . . . That's different from failure to pay. And the IRS takes a dimmer view of not filing returns than not paying the tax. Why? One of the reasons is because not filing is more work for the IRS. Many taxpayers who don't file don't get caught for a number of years. But when the day of reckoning comes, and it will, the bill will be huge. Not only taxes, but substantial penalties and interest. In fact, failure to file is one of the 11 "badges of fraud". On the other hand, if you file a return and can't pay the amount due, the IRS has a number of options from settling for less than the full amount to putting a lien on your property and forcing a sale. If you've got returns for unfiled years (business or personal), talk to a tax professional and to see about getting current.
March 16, 2022
NewsThe IRS has announced (IR-2022-58) the latest expansion of its multilingual products, Braille, text, audio and large print products are now available in Spanish. The agency's Alternative Media Center (AMC) is converting IRS Form 1040, its main schedules and six publications in Spanish Braille and large print. This announcement highlights the agency's commitment to make alternative format documents and multilingual resources available to those who need them. The IRS also has a Languages webpage available in 20 languages to help taxpayers find basic tax information, such as how to check a refund status, pay taxes or file a federal tax return.
Notice 2022-13 provides a waiver of the addition to tax under Section 6654 for underpayment of estimated income tax by qualifying farmers and fishermen described in the notice. Under the notice, the addition to tax is waived for farmers and fishermen who, by April 18, 2022, or, for those taxpayers who reside in Maine or Massachusetts, by April 19, 2022, file their 2021 federal income tax return and pay in full any tax reported as due on the return.
Tip of the DayCheck your work . . . If you're using a computer to prepare your return the software will check for certain errors such as unchecked boxes, missing info on some forms, etc., but it can't do catch bad data entry. Common mistakes are putting a number on the wrong line of the form and transposing numbers, such as entering 5432 as 5423. Only a second look can catch those errors. If you're entering stock transactions, make sure your totals agree with those on the brokerage statement (there are some exceptions). The easiest approach for capital gains and losses is to enter the summary numbers from each category (e.g., A for short-term gains and losses where basis is reported to IRS) and then attach the brokerage statement to the return as a PDF. Doing can prevent errors.
March 15, 2022
NewsIn a review of the 2021 filing season the Treasury Inspector General for Tax Administration (TIGTA) found that inventory backlogs from the 2020 Filing Season continued to affect the IRS’s ability to provide timely service to taxpayers in the 2021 Filing Season. These backlogs will likely continue into the 2022 Filing Season unless the IRS takes unprecedented steps to address them. In addition, the closure of the Tax Processing Center in Fresno, California, further increased backlogs at the Tax Processing Centers in Kansas City, Missouri, and Ogden, Utah. The IRS continues to face challenges in hiring sufficient staff. For example, as of May 18, 2021, the IRS had a hiring shortfall of 814 individuals it estimates are needed to meet demand in the Kansas City and Ogden Tax Processing Centers. The IRS achieved just under 67 percent of the hiring goal for Submission Processing. For the full report, go to www.treasury.gov/tigta/auditreports/2022reports/202240024fr.pdf
Announcement 2022-06 notifies taxpayers of a temporary suspension of the IRS prototype IRA opinion letter program. The announcement also advises taxpayers that, until further notice, adopters of prototype IRAs, SEPs, and SIMPLE IRA plans may rely on a previously received favorable opinion letter, and that taxpayers may use existing model forms to maintain current plans and accounts or establish new plans and accounts.
Tip of the DayEstimated tax penalty . . . If you haven't paid in enough in withholdings or estimated taxes you could be subject to a penalty on your return. This is another year where there's a good chance of that happening. Generally, you can avoid a penalty if you've paid in as much as last year's liability. If your AGI is over $150,000 you'll have to have paid in at least 110 percent of last year's liability. But all is not lost if you haven't reached the threshold. You still might be able to avoid a penalty, or at least reduce it, if you "annualize" your income. You'll need to file Form 2210 Underpayment of Estimated Tax by Individuals and show when you earned your income. You'll compute your income and the tax for every quarter of the year (these are not the same as calendar quarters). You can reduce (or even avoid) a penalty if your income was earned unevenly with a disproportionate amount in the third and fourth quarters. But think twice before you do this yourself or ask your accountant to do it. There can be a lot of work involved if there are multiple sources of income to allocate. The larger the income item and the later in the year it occurs, the better the chance of saving money. For example, a large bonus or capital gain in December.
Copyright 2022 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536