TaxMamas TaxQuips

 

It’s TaxQuips time from TaxMama.com® – today TaxMama® wants to talk to you about the sticker shock (high tax return balances) you just faced – and how to reduce some of that financial pain.

 

 

 

Dear Family,

There’s a lot going on right now, and new legislation about to be passed tomorrow. Drop by TaxMama.com tomorrow for a quick summary of the final changes.

Meanwhile, you thought you did everything right last year, but when you prepared your tax returns, you suddenly owe a whole lot of money that you didn’t expect to owe.

What caused that? A few things – here are the main issues you face, and perhaps, didn’t quite anticipate:

1. The new IRS withholding tables are so confusing your employer didn’t withhold as much as you expected.
2. You received a lot of unemployment income and didn’t know it was taxable!
   
   1. We expect a small fix for this in the American Rescue Act, making the first $10,200 of unemployment income tax-free, as long as your adjusted gross income (AGI) is under $150,000.
   
   
   
   
3. You took distributions from your IRA or retirement plans, knowing there would be no penalties. But you didn’t realize that ALL of those funds are taxable – and dramatically increased your AGI.
4. With the higher AGI, all sorts of things that were not normally taxable before, suddenly became taxable – like your Social Security benefits, and the advance-paid insurance premiums from the “Marketplace.”
5. There may be other issues you will only see if you run a report to compare this year’s and last year’s tax return numbers.

Is there a way to reduce any of these unexpected taxes? Now? After the end of 2020?

Actually, yes! Here are several things you can do – they all revolve around reducing your AGI to avoid causing some of your other income or credits to become taxable. For folks who got the Premium Tax Credit (health insurance), you need to reduce your AGI below 400% of the poverty level.

• If you or your child have education expenses, consider claiming the $4,000 tuition and fees deduction instead of a tax credit. It sounds counter-intuitive. But this will reduce your AGI.
• Take advantage of the $300 above the line deduction for cash contributions to charity. (It won’t help much…but it’s something.)
• Fund your IRA for 2020 even if you cannot afford it. You must do this by April 15^th. Designate the funds as a 2020 contribution so you can reduce your AGI. You can take the money out later as a 2021 distribution.
• If you took a large distribution from your retirement account last year, based on your COVID19 qualifications (FAQ #3), you can spread that income over three years – instead of including it all in your 2020 AGI. THIS can make a huge difference to your taxes.
  
  • Since they have already taken out withholding based on the full amount, consider rolling over part of your refund to 2021 and 2022, since you will be adding 1/3 of this income to your tax return for those years.
  
  
  
  
• Fund a business retirement account from your business profits. Depending on your profits or the type of retirement account you use, you can fund anywhere from $13,000 to $57,000 for 2020. (Some of them will let you borrow some of your money back.)

Regardless, be sure to put your business tax return on extension (by March 15^th for partnerships and S Corporations  - April 15^th for everything and everyone else).

There’s more you need to know, and your tax pros are rapidly learning everything we can to get you the most tax credits and refunds, legally possible.

For those folks planning to study for the EA Exam this year,  it’s going to be a really tough exam! Join me our annual webinar (a discount is included for those who attend):
Everything You Wanted to Know About the 2021-2022 Enrolled Agent Exam.

Sign up for one of these dates.

March 18 – 4:00 pm Pacific
http://iTaxMama.com/Everything_EA_March

April 19 – 10:05 am Pacific
http://iTaxMama.com/Everything_EA_April

Meanwhile, I will be posting various updates and webinars that I am teaching, on this Events page – https://irsexams.school/events-and-webinars/

And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion

To make comments please drop into the TaxQuips Forum.

 

Keep an eye on these links – the IRS is adding topics every month -no charge and potential CPE or CE credits.

IRS webinars for Professionals – https://www.irs.gov/businesses/small-businesses-self-employed/webinars-for-tax-practitioners

The next one is Sale of Partnership Interest - 

IRS webinars for Small Businesses – https://www.irs.gov/businesses/small-businesses-self-employed/webinars-for-small-businesses
There are some for North Carolina businesses – and the link to the Partnership webinar above.

IRS Webinars for Exempt Organizations and Governmental Entities – in case you are involved with a non-profit, there’s lots of guidance here.
https://www.irs.gov/government-entities/webinars-for-tax-exempt-government-entities

You’re never too old to learn! And since you’re generally stuck at home anyway – why not improve your skills?!

 

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Wow, an entire month has just flashed by. We’ve been buried in work at our office – how about yours?

 

 

 

 

 

 

 

 

Dear Family,

The 2020 tax return filing brings lots of questions, a certain amount of uncertainty, and for many Americans, a surprise balance due. (You didn’t realize your unemployment benefits were taxable?) Drop by the TaxMama® Forum to see the questions people are asking.  http://iTaxMama.com/AskQuestion

The IRS is pumping out their daily Tax Tips (did you know they’ve been doing this for a few years?) https://www.irs.gov/newsroom/irs-tax-tips

Your tax preparation software (or your tax pro’s) is still in the process of being updated, a little more each day. Yes – so is the IRS’. And many IRS forms are still in the draft stage, not quite ready for prime-time. I guess that’s what happens when Congress passes a massive 5,593 page law, signed on December 27, 2021. Everyone is scrambling to update everything! (One of the reasons I’ve been so busy – is redoing all the seminars and materials I had finished by December 15^th –  and now I have to re-do everything all over again!)

more->

Are we getting another massive law that will affect your 2020 tax returns?
I surely hope not. Most of what I am seeing in the current Biden Rescue package doesn’t involve changes to the 2020 tax return.  The tax return changes appear to relate to the 2021 tax return – see the Tax Foundation summary in case you want reassurance.
https://taxfoundation.org/biden-stimulus-american-rescue-plan/

Some great news for people who received the Paycheck Protection Loans  (PPP) and the early (up to $10,000) EIDL grants and certain other grants. You can get these loans fully forgiven (you don’t have to pay them back). And you are now permitted to deduct the expenses you paid with those funds. But wait! Your state may not have complied with one or both of these provisions. They might – but their legislators have not yet had time to meet to pass these conformity laws. So, if you’re affected, put your tax return on extension. I expect most states to comply. (Even in CA, someone has already put forward a Bill to conform to the federal laws.)

Incidentally, another round of funds IS available for those businesses whose gross receipts have dropped by 25% or more last year.
https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program/second-draw-ppp-loans

NOTE: This forgiveness does not apply to the EIDL loans. Those are real loans that must be paid back. Read your contracts.

Some good news for people whose spouse doesn’t have a Social Security Number. You may file a joint return this year with that spouse and still get your share of the stimulus benefits.

Some bad news for people who got the stimulus funds. YOU need to know how much you received. The IRS log-in system only tells you the date the payment was issued to you, but not how much. I have asked the IRS for a look-up tool (since last summer). I was just told last week that they have received so many complaints about this from all over the country, that they are now working on it. Expect to see it – long after you file your tax return – perhaps before April 15^th. (She said in disgust.)
https://www.irs.gov/coronavirus/economic-impact-payments

The IRS has opened up the Identity Protection PIN (IP PIN) for everyone (both spouses), not just people whose identity was stolen. The good thing is – no one can file a tax return using your Social Security number but you. The bad part is – you will need to get that IP PIN updated every year and won’t be able to file without it.
https://www.irs.gov/newsroom/all-taxpayers-are-now-eligible-for-identity-protection-pins

There’s a lot more going on. For complete updates – please drop by Lambers for this updated course – COVID19 World and The December 2020 Consolidated Appropriations Act
https://www.lambers.com/shop/tax-update-in-the-covid19-world-and-in-the-december-2020-consolidated-appropriations-act/

Speaking of which, an awful lot of people are going to need the help of their tax professionals to reach the IRS this year. The IRS phone lines are basically useless. Only Enrolled Agents, CPAs and attorneys who understand how to reach the IRS through certain special channels are going to get through. If you are not already licensed, this IS the year to become an Enrolled Agent (faster than either of the other two options).

Join me our annual webinar (a discount is included for those who attend):
Everything You Wanted to Know About the Enrolled Agent Exam for 2021-2022.

Sign up for one of these dates.

Wednesday February 17 – 10:00 am Pacific
http://iTaxMama.com/Everything_EA_February

March 18 – 4:00 pm Pacific
http://iTaxMama.com/Everything_EA_March

We might have another session in April – to be determined.

 

Meanwhile, I will be posting various updates and webinars that I am teaching, on this Events page – https://irsexams.school/events-and-webinars/

And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion

To make comments please drop into the TaxQuips Forum.

 

 

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Whew! This has been an astonishing year.

We still have new challenges to face in 2021.

But look at what an inspiring group of women did to rise out of the ashes of a burned out town.

The indomitable ladies in Paradise, California have pooled their spirits, resources and funds to help a woman who lost everything – by becoming Disaster Diva Calendar Girls!

 

 

[ You can’t keep a good woman down![/caption]

 

We will give away calendars to the first 10
people who post a story about how they
helped someone in 2020 – on this Facebook page – We Found a Solution

Wishing you all a healthy, happy and optimistic  2021!

Hugs
Eva

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We have legislation pending today – which might actually go through!

 

 

 

 

 

 

 

 

Dear Family,

Until some of the data released this morning, I didn’t think the new budget legislation was going to have any impact on our 2020 tax returns…but there are strong hints that aside from additional stimulus funds and unemployment funds – there may also be a provision to allow us to deduct the expenses we paid with the PPP loans. (Don’t hold your breath – but a definite MAYBE!)

When we get news, we will add it to the materials in our December COVID19 Update class – so it will be there for all our students, family members and upgraded students.

In the meantime, I want to alert you that next year will be a frustratingly confusing tax year for everyone – taxpayers and tax professionals, alike.

Two things will be critical for tax professionals:

1)  To keep updated on tax law and procedure changes on a very regular basis – because I guarantee there will be more changes coming during the first 6 months of 2021.

2) To have the credentials necessary to represent your clients before the IRS and the state taxing agencies -  Enrolled Agents (EAs), Certified Public Accountants (CPAs) or Attorneys.

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The problems I anticipate lie in these  four main areas:

1) The stimulus checks – people who didn’t get them, those who did, and those who need to get additional funds.

Note: Only people with Social Security numbers (SSNs) are eligible. And a joint return with a spouse who has an ITIN is not eligible. So, folks who are eligible to get green cards or US citizenship – it’s time to start the process IMMEDIATELY.
And put your 2020 tax returns on extension until that valid SSN is issued.

2) People who received (and will receive) unemployment benefits – and didn’t take withholding for IRS (and certain state taxes). There will be some substantial balances due. They will need help to establish payment plans,…or…

3) People who drew money from retirement accounts. Sure, you probably are not subject to the 10% early withdrawal penalty from the IRS (and possibly your state). But you will have to pay tax on that income – either now – or over three years. Tax pros will need to understand how to handle that deferred reporting.

HOWEVER, all that extra income is going to cause enormous OTHER tax problems because of the increase to Adjusted Gross Income (AGI). A variety of adjustments to income and tax credits won’t be available. WORSE! People who received insurance coverage through the Marketplace may find themselves having to repay thousands of dollars of the advanced premiums because their AGI has risen to exceed 400% of the poverty level.

4) And the PPP Loans and EIDL loans that people received – and did or didn’t use correctly or took the money out for personal use. There will be lots of struggles, paperwork – and balances to deal with.

There will be more issues. Many more.

So if you’re not already an EA, CPA or attorney and you want to help your clients, it’s time to become an EA as soon as you can – because, at this time, this is the fastest way to get the authority to represent clients before the IRS.

As a result, I have a very unusual, special offer, something I have never done before. You are invited to join the TaxMama® Premium EA Exam Course right now – so you can start studying and pass at least one or two of the exams by the end of February – and finish up in the summer with the live sessions.
Or you can join the Self-Study class for the entire study process.

This is the lowest price I will ever offer. The details are here.
(To see what all is included, follow the links on this page)
http://iTaxMama.com/TM_SpecialOrderPage

This opportunity will end on December 28^th and will not be renewed.

And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free.
Where? Where else? At http://iTaxMama.com/AskQuestion

To make comments please drop into the TaxQuips Forum.

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Today is a special day, especially precious to those facing serious challenges this year – it’s Giving Tuesday.

 

 

 

 

Dear Family,

Giving Tuesday is apparently in its ninth year, as a reaction to the commercialization of the holiday season.

There are so many people struggling to stay in their homes; making decisions about eating – or feeding their children instead; many more are facing the same choice when it comes to their beloved pets, as well. And of course, so many people are dealing with COVID19 tests, illnesses and even deaths – sometimes it’s the breadwinner of the family who is gone. With all the recent storms, cold weather and other problems, we have new terms floating around, like “food challenged.”

If you can afford to help people in your community, please, be generous.

When it comes to the tax side of the donations, here are some tips and considerations.

• Money you give to people on the street or directly to someone in need is not deductible. And if you’re donating to GoFundMe-type appeals, look to see if they are directly for an individual, or handled through a non-profit organization (some are).
• Try to donate to charities that use your money to actually help people – rather than paying themselves ginormous wages and benefits.
  You can actually see their spending by looking up the Form 990 that the charity files with the IRS each year, The reports are easy to find on the Charity Navigator website. https://www.charitynavigator.org/
• If you’re like many Americans, your standard deduction is so high that you cannot even itemize. So you’re not going to get a deduction for your contributions. What can you do instead?
  
  • Give the money to a relative or friend who IS itemizing and let them make the donations. If you want recognition for the donation – they can donate in your honor.
  
  
  
  
• If you like making large donations, consider making two years’ or more worth of donations now, so you have enough to itemize your deductions. You can actually do that a couple of ways:
  
  • Naturally, you can simply donate to your favorite organizations directly.
  • Consider opening a Donor-Advised Fund (DAF) with your favorite financial institution. That let’s you make extremely substantial donations to your DAF right now – but gives you time to distribute the money to your various, favorite charities.
  
  
  
  
• For seniors, age 70.5 or older, there is a special way to make donations directly from your retirement accounts. It’s called a Qualified Charitable Distribution (QCD) – and allows you to transfer up to $100,000 directly from your retirement account to charity without paying any tax on the distribution at all. The benefit is that this distribution won’t increase your adjusted gross income, potentially causing your Social Security benefits to become taxable. This is ideal for folks who like to donate $10,000 or so to their churches, mosques, synagogues, temples, etc. Incidentally, this distribution would also qualify for the Required Minimum Distribution (RMD) in years when they are required. (All requirements are waived for 2020 – but that doesn’t mean you may not take RMDs.)
• Receipts – please be sure to get written receipts for all donations of $250 or more to any organization – before you file your tax return This is very important if you want the deduction.

Folks who cannot get any tax breaks for your donations – it still might make you feel good if you can help someone who’s worse off than you this year. While your donation might not be in the form of money or something tangible, even babysitting, or grocery shopping or running errands for someone can still be so valuable. Sometimes, even just a phone call or a hug is enough (if it’s safe to touch someone). (That means I need to start making calls to my family today, too, right?)

And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion

To make comments please drop into the TaxQuips Forum.

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