Premature Filings and Current Payments

2022-03-22 by Eva Rosenberg

 

 

It’s TaxQuips time from TaxMama.com® 
Today TaxMama® wants to talk to you about filing your tax return before you have all the information and to address all the money you’re going to need by April 18th .

 

 

 

 

 

 

 

Dear Family,

STOP! PLEASE, PLEASE STOP!

TaxMama® is getting more questions than ever before from people who have already filed their tax returns – then learned about missing W-2s, 1099s, investment income and whatever.

Really? You didn’t know about that extra $10,000 income you earned? Or the extra $30,000 of gambling winnings you didn’t report on the original return? Or that Schedule K-1 you were expecting, or the $50,000 IRA or 401(k) distribution you took, or…? Who else can know about all these things, but you? It’s your life. Remember it.

Sure, you can amend your tax return after you file it.
But before you can amend, you have to wait for the tax return to be fully processed and for your refund to be issued – or your balance to posted and/or paid. When there are discrepancies, it can take the IRS months to process the original return.

Then, when you do file the amended return (even electronically), expect to wait more than 20 weeks, because as of March 12, 2022, the IRS had 2.2 million unprocessed Forms 1040-X.

On the other hand, if you wait an extra 2-3 weeks to file your tax return, it  will be processed more quickly, because the IRS won’t find discrepancies – and your full refund will be issued to you sooner.

Now, what’s if you figured out that you owe more money? Do you really want to wait weeks or months to amend, piling up underpayment penalties?

You have no choice about the filing. BUT… you can avoid penalties by paying the balance you owe. Pay online only – remember how far behind the IRS is on processing paper.
https://www.irs.gov/payments

Be careful to specify tax year 2021 and tax form 1040 for last year’s balance due.

Now, we are rapidly coming up on April 18th. So you may also have a first quarter estimated tax payment due. Use the online payment system.
This time be careful to specify tax year 2022 and tax form 1040ES for this year’s estimated tax payments.

Along with last year’s balance due, and this year’s estimated tax payment being due, any contributions you want to make to your IRA (Roth or Traditional) must also be funded by April 18th this year.

That may turn out to be a lot of money. Do you have that much set aside? If not, you have about 3 weeks to pull it together. (Don’t feel too bad, one of my clients had to come up with nearly $90,000 – but that also included some smart planning to fund his retirement account.)

We are in a different world this decade. With all the logistical changes due to COVID19 staffing and operations, the IRS is trying to create more electronic self-service tools and phone bots to help taxpayers avoid sitting on the phone lines for hours – only to get a hang up in the end. I encourage you to take advantage of the electronic tools as much as possible.

 

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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TaxMama’s® TaxQuips Are You In Business?

2022-03-01 by Eva Rosenberg

It’s TaxQuips time from TaxMama.com®
TodayTaxMama® wants to talk to you about all those pesky 1099Ks that you’re receiving this year.

 

 

 

 

 

 

 

 

Dear Family,

We’re getting questions from people who have suddenly started getting 1099Ks from their various casual sales – like Etsy, eBay, PayPal, Zelle, and other bank-like sources where they send or receive money.

Why are they getting these 1099Ks this year? The IRS dropped the reporting threshold to payments of $600 or more, instead of 200 transactions and $20,000.

Every one of those 1099Ks is reported to the IRS. The IRS computer is looking for those numbers in specific places on the tax return. Generally, the IRS computer wants to see that income amount on Schedule C.

Let’s outline the different ways people use these accounts and how to report these 1099Ks on their tax returns. Remember, please, this is a brief outline. It may be a bit technical (and therefore, boring), so feel free to skip the rest of this if it doesn’t apply to you or your family, friends, or clients.

If there is a lot of money involved, please work with a tax professional. (YOU decide how much is a LOT.)

Before I go forward, I will tell you that some people recommend that you report all this income on Schedule 1, when you are not in  business. Don’t do that, except for hobbies. You’ll see why as we go along.

1) What are you supposed to do if you just use these payment systems to send or receive  money to/from friends and family?

Keep things simple. Report the income on Schedule C as Other income.
https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

Then, on page 2 in Part V, deduct out that full amount. The description on the line is “Personal Transactions Only”.

You end up paying taxes on nothing.

2) What’s if you are using these payment systems purely to sell things in your home or garage? You’re just cleaning things out, without having an in-person garage sale.

Keep things simple. Report the income on Schedule C as Other income.
https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

Then, on page 2 in Part V, deduct out that full amount. The description on the line is “Garage Sales – No Profits.”

Of course, if you want to be meticulous, you can then, also report this on Schedule D. https://www.irs.gov/pub/irs-pdf/f1040sd.pdf

In that case, change the description in Schedule C Part V to “Garage Sales – See Schedule D.”

On Schedule D, enter the amount from the 1099K in column (d) as the Proceeds. And the same amount in column (e) as the cost. Why – you cannot report a loss when you are selling personal property, so you want to zero out the loss.

Once again, you end up paying taxes on nothing.

3) You make things using your skills and talents and sell them to people who like them, just for fun. You’re not out to make a profit – and, in fact, you don’t generate more income than your costs.

In this case, you have a hobby.

Report your income on Schedule 1, as Other Income.
https://www.irs.gov/pub/irs-pdf/f1040s1.pdf

Take no deductions at all. Hobbyists are no longer permitted to deduct expenses. Perhaps that right will be restored after 2025, when the Trump Tax Cut expires.

In this case, you end up paying taxes on all your income.
But at least it’s not subject to self-employment taxes.

4) You’re actually selling things that you make or buy, or provide services in order to sell them for a profit. In that case, you’re in business – and should have been reporting this income all along. This is the population the IRS is trying to catch – folks who have taxable income and haven’t been reporting it. So, what do you do this year?

A) Report the income on Schedule C in box 1 as Gross Income.


B) Keep good records about your costs to make or buy the merchandise that you sold, and direct costs related to the services that you provide, and report those costs on Schedule C, Part III, Cost of Goods Sold. If you have costs for merchandise you didn’t sell, then they are not the cost of anything that was sold, right? So save those costs for next year. (Or learn how to report beginning and ending inventory.)

C) With good records, you will also have the data for all the other business expenses – enter those in Part II of Schedule C.

D) If you have mileage and office in home expenses – you need to learn how to compute and enter those on your Schedule C.


In other words, you need to do full-blown business reporting in order to reduce your net profits.
This will reduce two things for you – self-employment taxes (Schedule SE) and income tax (Form 1040).

My goal today is to help you avoid those under-reporting notices from the IRS and to help you reduce your tax burden. (Too many people are telling me that they are reporting their garage sale-type income and paying Self-Employment taxes – when they should not even have taxable income!)  As long as the IRS computer finds the numbers where it expects to see them, you can wipe out the income when the activity is not taxable.

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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TaxMama’s® TaxQuips IRS E-File is Open Today The IRS Goes Online!

2022-01-24 by Eva Rosenberg

Courtesy of VectorStock.com

It’s TaxQuips time from TaxMama.com®
Today TaxMama® wants to address some of your concerns.

 

 

 

Dear Family,

First of all, let’s start with the news you’ve been waiting to hear.
The IRS efiling system is officially open today.

more->

So anything you submitted to the tax software companies earlier – or from now on, can get transmitted immediately.  No doubt, there will be glitches for a while – but not as many as last year, when Congress changed the rules in the middle of the filing season.

In case you want to look up various filing deadlines, the TaxMama’s 2022-2023 Tax Calendar is up, ready for you to use.

The IRS has expanded some of their do-it-yourself resources this year for both taxpayers and tax professionals. Since the IRS is nearly impossible to reach by phone or in person (fewer offices – all require appointments), being able to do things electronically will reduce problems and save headaches. Here are some key things you should get set up to use ASAP:

Special Tip for folks who are STILL waiting for your 2020 tax return to be processed! (when H freezes over???). The IRS says to enter ZERO (0) on the line asking for your 2020 adjusted gross income (AGI). More details here.

  • To use the new online tools, you may be required to set up an me account for security purposes.
  • Taxpayer’s IRS Account – It will let you look up payments, refunds, transcripts and perhaps notices. It will also let you approve your tax professional’s power of attorney or information authorization rights, in minutes.
  • Look up your advance payments:
    • Advance Child Tax Credits – you should have gotten a 6419 Letter with the details
    • The 3rd Economic Payment – you should have gotten a 6475 Letter this month.
    • The IRS Free File system is now open. Millions of taxpayers can use this system to prepare simple tax returns themselves at no charge – and without being hassled to pay for anything. Many states are also participating in the program. Be SURE to print out or save the returns before transmitting.


  • Tax Professionals also have a Tax Pro account. This will make it possible for Enrolled Agents, CPAs, attorneys and certain others with existing Central Authorization File (CAF) numbers to gain access to clients’ accounts – with the client’s immediate permission. (Instead of waiting for many weeks for the CAF unit to activate their authorization.)
    • You can get your PTIN (if you don’t already have one (if you have to ask what it is – you don’t have one).
    • Get access to all the e-services for tax professionals


  • General online tools include:
    • Get Transcript
    • Where’s my refund?
    • Direct pay – and this year, DO only pay electronically – not via paper checks
    • Set up an Online Installment Agreement
    • Get your employer ID number
    • Locate an IRS office
    • Look up a charity to see if it’s in good standing with the IRS
    • And more


  • You can now file tax returns electronically:
    • For the current year and the last two years.
    • And amended returns for the same time frame

    And for those of you wanting to become Enrolled Agents, this year, please stay tuned. I will be opening the Early-Bird Registrations with special rates, during the first week of February. To get details, please sign up for the IRSExams newsletter.

    Sheesh! Were there enough links in today’s newsletter? Lots to do and know.

    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

    Download the MP3 (0:00min, 0MB) or listen now...

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TaxMama’s® TaxQuips Things to do in January 2022

2022-01-10 by Eva Rosenberg


It’s TaxQuips time from TaxMama.com® – Today TaxMama® wants talk to you about steps to take this month, and things to watch out for – even if they are annoying.


Dear Family,

2022 came rushing upon us so quickly. Did you also feel that it was just January of 2021 – and suddenly, we’re facing another new year? I blinked!

Let’s look at the some of the good and bad things that we are facing.

1) The IRS has significantly increased their online access for both taxpayers and tax professionals. (See our Good-Bye 2021 issue for details on how to use that access.)
This is a good thing – because we no longer have to wait for 6-12 weeks to activate a power of attorney or information authorization request. It can now be nearly instantaneous.

2) The IRS has locked the W-4 estimator while they re-tool for the new year. Considering that the IRS has always recommended that employees file a new W-4 with their employers early in January, that’s a bit short-sighted.
Meanwhile, you can use the W-4 estimators at Turbo Tax and H&R Block.

3) And speaking of IRS income reporting, I am hearing from tax pros that they are getting bombarded with frantic phone calls from clients who have just learned that they are getting 1099s from all the payment platforms for all transactions totaling $600 or more during 2021 (Paypal, Square, Zelle, Etsy, AirBnB, GooglePay, Apple, and others).
I don’t know why this is such a shock, it was announced in the middle of last year that this was coming. Why? Because when those platforms only issued the 1099-K for 200 transactions and $20,000, those people who didn’t get the 1099s, didn’t report the income. That’s billions of dollars of unreported income.
Folks, the money you get paid on those platforms IS generally taxable.
If you have related expenses, you can deduct the business expenses – just like any other business.

4) Speaking of 1099s – January is the month that all those forms need to be sent to anyone who provided services of $600 or more last year. Be sure you have their correct name, mailing address and Social Security number or Taxpayer ID number.
The request to get the Form W-9 filled out in January often results in rage and fury (worse than rage – sometimes leading to violence), and sometimes, refusal to provide that information. Why? Weren’t these people planning to report their income?
Solution for 2022 payments to service providers – get them to fill out that W-9 this month; or before they get the first payment in 2022. For more notes on my perspective and advice on this issue, read my answer about what to do THIS MONTH, when a contractor refuses to provide their SSN or TIN.

5) Estimated tax payments are due by January 18th. (The 15th falls on a weekend. The 17th is Martin Luther King, Jr. Day) When making your payments, please pay electronically. I am still hearing horror stories about people who mailed their checks months ago and the IRS still hasn’t recorded the payments in their accounts. And worse, the IRS Collections division is starting to issue lien notices and levy demands.

6) Student Financial Aid (FAFSA) forms are often due in January or February for the coming year. FAFSA requires tax information.  Even if the parents are separated or divorced, generally the application requires the financial information of both parents. Beware of assets belonging to the student – like Sec 529 accounts in their own names, IRAs, and Coverdell IRAs. You will need to provide a projection of the 2021 information. Don’t make this complicated. Use your logic based on your own financial activities for the year to fill out the form. You may have to modify later in the year, once the tax return is filed – and perhaps give FAFSA a copy.

Incidentally, the IRS JUST announced that the nation’s tax season will start on Monday, Jan. 24, 2022, when the tax agency will begin accepting and processing 2021 tax year returns.

And TaxMama’s 2022-2023 Tax Calendar is up, ready for you to use.

Whew! That’s enough for now.

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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TaxMama’s® TaxQuips Goodbye 2021

2021-12-27 by Eva Rosenberg

 

It’s TaxQuips time from TaxMama.com® –
Today TaxMama® wants talk to you about some year-end tips and ideas to get ready for next year.

 

 

 

 

 

 

 

 

 

 

Dear Family,

This year is coming to a close remarkably fast. It seems it was just January one blink ago – and now, it’s nearly over.

This year has been filled with lots of small and major successes for my students, family and friends. Tinged with a great deal of sadness, illness, and death. The Yin/Yang of life.

We still have a few days to take some steps to minimize taxes this year. So let’s look at some of those ideas first. Then I will give you some ways to make next tax season easier.

Year-end Tips

  • Taxpayers who do not itemize can deduct up to $300 worth of cash donations per person ($600 on a married filing jointly return).
  • If you are using itemized deductions be sure to get receipts dated in 2021.
    • Make your charitable contributions before year-end.
    • Go through the house and closets to clear out anything you haven’t used for a year or more. If the clothing, appliances, furniture, pictures, etc., are in good condition – take pictures or video to prove it. Then donate them to your favorite charity.
    • If you want to make a really big donation, but don’t have time to make the arrangements, consider having your brokerage or financial institution open a donor-advised fund.  You can fund it before year-end and distribute the donations to your charities in 2022.
    • Pre-pay your 2022 installment of property taxes (unless you have already reached the $10,000 State and Local Tax (SALT) deduction limit.
      • Will the Build Back Better Act ever pass, raising the limit?
        Not in time. But when it does, those who pay much more than $10,000 in the first place will get the benefit of the higher deduction.


    • Everyone aged 72 and over must take their Required Minimum Distributions (RMDs) from their IRAs and retirement accounts. (In 2020, we didn’t have to do it – we do now.)
      • There is a 50% penalty (excise tax) for failing to draw the funds.
      • If you don’t really need to use that money, and don’t want to add it to your adjusted gross income for the year, consider sending the amount of your RMD directly to your favorite charity.


    • Divorced parents dealing with an aggressive ex who doesn’t support your children, but claims them anyway. Get an IP PIN for each child, so that only you can claim the child on an electronically-filed tax return. Do it as soon as the portal opens in January – gather all the information now – http://iTaxMama.com/IRS_IP_PIN
    • Business assets – buy things you are going to need for next year. But start to put them to use this year, or you won’t be able to get the deduction until next year.




Tips for the next filing season

The IRS finally published the mileage rates for 2022  https://www.irs.gov/newsroom/irs-issues-standard-mileage-rates-for-2022
When they update their website, you will find 2022 – 2011 here: https://www.irs.gov/tax-professionals/standard-mileage-rates

To survive all the information, transcript and taxpayer account-related needs during 2022, do this:


For Tax Pros – What’s in it for you? This will make it possible to quickly activate a Power of Attorney (Form 2848) or Information Authorization Request (Form 8821), instead of waiting weeks for the Central Authorization Filed (CAF) unit to record your authority.

For Taxpayers – This will give you access to your transcripts, payments and so much more without having to sit on hold with the IRS for hours.

Expect Letters from the IRS in January:


Tell your clients to save these letters – very important.

It’s going to be bumpy this coming tax season as we try to reconcile all the payments received – and that were not received.

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.

Download the MP3 (0:00min, 0MB) or listen now...

Ask TaxMama
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Where you can you ask your tax questions
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Where you can you can read the full post



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