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I’ve had dozens of questions relating a variety of tax and economic topics. These are the most common ones:

Q. I’m self-employed, a sole proprietor (or in some cases a freelancer or gig worker). Can I apply for unemployment?
A. Yes you may. In normal circumstances, you would not be able to because you haven’t paid into the system. But these are different times and allowances are being made to help us all. In CA go to https://www.edd.ca.gov/unemployment/filing_a_claim.htm to file a claim

Q. I did not file a tax return for 2018 or 2019 because I was on Social Security and had no other income. Will I get a stimulus check automatically or do I have to file a return to get the check?
A. Yes, you will get the check automatically. There is no need to file an abbreviated tax return. At first, this was a requirement but the IRS realized that it can pick up your bank account info from the roles at SSA. So that’s what they are doing. They will provide you with a direct deposit of the stimulus check into your bank account.

Q. What if I didn’t have a filing requirement for the last two years and I wasn’t collecting social security? How will they know to send me a check?
A. Right now nothing is in place to help you. As soon as the IRS releases information about how people can go online to make sure they receive their EIP, they will let you know. Info on this should be coming out this week. Go to: https://www.irs.gov/coronavirus to check on recent developments. I understand they will be setting up a portal to deal with individuals in these situations.
You may also file an EIP tax return. Most tax pros are equipped to handle this. Or go to www.irs.gov and file it yourself. Click on the Free File button on the home page.

Q. Do I have to do anything, file any forms, to get the new extension to July 15? When must I pay my taxes?
A. No additional paperwork required; no extension need be filed. It’s automatic for both federal and CA. the extension includes time to pay not only your 2019 tax liability free of penalty and interest. July 15 is also the new due date for your first two installments of your estimated tax payments for 2020, normally due April 15 and June 15.

Q. I got a call from the IRS saying they don’t have my direct deposit information. Is it okay to provide them with that information over the phone or was that a scam? I hung up on them.
A. Yes, hanging up was the right thing to do because indeed it was a SCAM! Beware, the scammers are out there taking advantage of you during this trying time. Remember: The IRS will NEVER call you or email you. They always deal through snail mail correspondence.

Q. I tried to call the IRS this week to set up an installment agreement for the taxes I owe but no one answered the phones. Are they overwhelmed right now?
A. As a matter of fact, there are no phone operators on duty, so forget about calling them. They have also suspended collection activity for the duration. And the Practioner Hotline is closed as well. Many tax matters, such as setting up installment agreements can be dealt with online. Go to: www.irs.gov to set up your payment plan. You can also do many other things: apply for an EIN, get transcripts of your account, and check the status of your refund, among others. Their website has become a handy tool.

Q. My business needs help! I don’t know which loan to apply for: the Disaster Assistance or the Payroll Protection Loan.
A. The disaster assistance loan caps at $10,000 and may be forgiven if you use the funds for operating expenses. You may apply for it directly with the Small Business Administration (SBA) The payroll protection loan can be for much higher amounts and in addition to operating expenses, it covers 8 weeks of payroll for your employees. You must apply for this loan through your bank. Go to: https://www.sba.gov and click on the golden ruler bar at the top “Corona virus (COVID-19): Relief options and Additional Resources.”

Please note that on April 9 the IRS announced that Individuals, trusts, estates, corporations and other non-corporate tax filers qualify for the extra time to file and pay their 2019 taxes to July 15, 2020. Initially, only individuals were allowed this automatic extension.

If additional time is needed to file and pay, you may file an extension to October 15,2020. This extension must be filed by July 15, 2020. Also, any tax due (you may need to estimate) must be paid by July 15. There is no further extension granted of time to pay.

If you have a tax question, please write to me at bonnie@taxpertise.com.

California is under the Shelter in Place mandate and it’s a little freaky out there. All these crazy changes to our way of life, our way of shopping (do you have enough toilet paper yet?), to our economy. Temporary, we expect. We hope. Of course one thing doesn’t ever change, does it? And you know I’m talking about taxes.

The IRS has just announced today that the new filing and payment deadline for your 2019 individual income tax return is July 15, 2020. You do not have to file any additional paperwork to enjoy the new extension. It is automatic.

And if you are anticipating a refund, it is wise to file early so you can get your money sooner.

Having to pay is a different story. It’s natural to want to put that off to the last minute. The good news is that the IRS has extended your payment deadline to July 15, 2020. So if you have a liability, you may pay it at that time without being charged any interest or penalties. This good news includes an extension for the payment of your first installment of 2020 estimated tax payments. Those may be paid by July 15 as well without penalty or interest.

According to Spidell Publishing, an education resource for tax professionals:

“Any person with a federal income tax payment due April 15, 2020, who is affected by the COVID-19 emergency is eligible for the following relief:

  • Deferral of up to $1 million in aggregate for all taxpayers other than C corporations, regardless of filing status (so the $1 million limit applies to joint filers); or
  • Deferral of up to $10 million in aggregate for C corporations (the $10 million limit applies at the consolidated group level if the corporation is part of a consolidated group).

The relief only applies to:

  • 2019 income tax payments due on April 15, 2020 (including self-employment taxes); and
  • The April 15, 2020, estimated income tax payment due on April 15, 2020, for the 2020 taxable year (including self-employment taxes).

This federal relief is granted under IRC §7508A, which California conforms to. As a result, we believe California conforms to the July 15 payment extension.”

Stay safe, stay healthy. We will make it through this!

You may realize that your income is below the threshold for filing a 2019 income tax return and to save the irritation and fees for filing, you don’t do it. That’s completely acceptable and possibly reasonable. I say possibly, because there are many good reasons to file. And why? Because you may be entitled to money back from the IRS.

The IRS sums it up with not just one, but five reasons you may want to file:

Find out the general reasons to file
In most cases, income, filing status and age determine if a taxpayer must file a tax return. Other rules may apply if the taxpayer is self-employed – in this case, you must file if you had at least $400 in self-employment income – or can be claimed as a dependent of someone else. There are other reasons when a taxpayer must file. The Interactive Tax Assistant can help someone determine if they the need to file a return.

Refund Potential – Look at tax withheld or paid
Here are a few questions for taxpayers to ask themselves:

  • Did your employer withhold federal income tax from your pay?
  • Did you make estimated tax payments?
  • Did you overpay last year and have it applied to this year’s tax?

If the answer is “yes” to any of these questions, you could be due a refund. You must file a tax return to get their money.

Look into whether you can claim the earned income tax credit
A working taxpayer who earned less than $55,592 last year could receive the EITC as a tax refund. You must qualify and may do so with or without a qualifying child. You can check eligibility by using the 2019 EITC Assistant on IRS.gov. Taxpayers need to file a tax return to claim the EITC.

Child tax credit or credit for other dependents
Taxpayers can claim the child tax credit if they have a qualifying child under the age of 17 and meet other qualifications. Other taxpayers may be eligible for the credit for other dependents. This includes people who have:

  • Dependent children who are age 17 or older at the end of 2019
  • Parents or other qualifying individuals they support

The Child-Related Tax Benefits tool can help people determine if they qualify for these two credits.

Education credits
There are two higher education credits that reduce the amount of tax someone owes on their tax return. One is the American opportunity tax credit and the other is the lifetime learning credit. You, your spouse or your dependent must have been a student enrolled at least half time for one academic period to qualify. You may qualify for one of these credits even if you don’t owe any taxes. Form 8863, Education Credits is used to claim the credit when filing the tax return.

And note that if your total income for the year is $69,000 or less you qualify to file for free. Go to www.irs.gov and press the button for Free File to connect to a service that charges no fees for filing your 2019 income tax return.

More information:
Schedule 8812 (Form 1040), Child Tax Credit
Publication 972, Child Tax Credit
Free Tax Return Preparation for Qualifying Taxpayers
Choosing a tax professional
Free File
Let Us Help You

The scammers are out there and they just don’t stop. By now you know better than to worry if someone from the IRS calls (it’s never them; they correspond by Snail Mail only)/ Taxpayers should be on the lookout for new variations of tax-related scams. In the latest twist on a scam related to Social Security numbers, scammers claim to be able to suspend or cancel the victim’s SSN. It’s yet another attempt by con artists to frighten people into returning ‘robocall’ voicemails.

Scammers may mention overdue taxes in addition to threatening to cancel the person’s Social Security Number (SSN). If taxpayers receive a call threatening to suspend their SSN for an unpaid tax bill, they should just hang up.

Make no mistake…it’s a scam.

Taxpayers should not give out sensitive information over the phone unless they are positive they know the caller is legitimate. When in doubt –hang up. Here are some telltale signs of this scam. The IRS and its authorized private collection agencies will never:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, iTunes gift card or wire transfer. The IRS does not use these methods for tax payments.
  • Ask a taxpayer to make a payment to a person or organization other than the U.S. Treasury.
  • Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
  • Demand taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.

Taxpayers who don’t owe taxes and have no reason to think they do should:

Taxpayers who owe tax or think they do should:

So don’t be fooled. Don’t subject yourself to undue stress. If you still have doubts, consult with your tax professional to determine the legitimacy of any calls or correspondence you receive.

 

 

With summer almost here, many students will turn their attention to making money from a summer job. Whether it’s flipping burgers or filing documents, the IRS wants student workers to know some facts about their summer jobs and taxes.

Not all the money they earn will make it to their pocket because employers must withhold taxes from their paycheck. Here are some tax tips young individuals should know when starting a summer job.

New employees:  Employees – including those who are students – normally have taxes withheld from their paychecks by their employer. When anyone gets a new job, they need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Employers use this form to calculate how much federal income tax to withhold from the new employee’s pay. The Withholding Calculator on IRS.gov can help a taxpayer fill out this form.

If your total income from all sources for the year will be less than $12,000 you will likely not be required to file a tax return. Therefore, you should indicate “Exempt” on your Form W4 so that your employer does not withhold federal and state income taxes from your pay. Otherwise, you would need to file a return to get that money refunded to you.

Self-employment: Students who do odd jobs over the summer to make extra cash are self-employed. This include jobs like baby-sitting or lawn care. Money earned from self-employment is taxable, and self-employed workers may be responsible for paying taxes directly to the IRS. One way they can do this is by making estimated tax payments on a quarterly basis during the year. Read up on this at www.irs.gov or check with your tax pro to determine when and how much you should pay in. In addition to income tax, payment in the form of Self-employment tax  which funds your Social Security and Medicare accounts is required.

Tip income: Students working as waiters or camp counselors who earn tips as part of their summer income should know tip income is taxable. They should keep a daily log to accurately report tips. They must report cash tips to their employer for any month that totals $20 or more.

Payroll taxes: This tax pays for benefits under the Social Security system. While students may earn too little from their summer job to owe income tax, employers usually must still withhold Social Security and Medicare taxes from their pay. If a student is self-employed, Social Security and Medicare taxes may still be due and are generally paid by the student.

Reserve Officers’ Training Corps pay: If a student is in an ROTC program, and receives pay for activities such as summer advanced camp, it is taxable. Other allowances the student may receive – like food and lodging – may not be taxable. The Armed Forces’ Tax Guide on IRS.gov provides details.

More Information:
Tax rules for students
Is My Tip Income Taxable?
Do I Have Income Subject to Self-Employment Tax?

 

For 2018 a complicated tax reform bill the “Tax Cuts and Jobs Act (TCJA) took effect promising to help the middle and lower classes enjoy bigger take home pay and lower tax liabilities. Tax rates dropped, the standard deduction doubled. This was major stuff. The biggest tax reform act since 1986.

So how is it shaking out? The IRS reported today, February 28, 2019, that the average refund at this point in the filing season is now up 1.3 percent over last year based on 47.7 million individual returns processed thus far in 2019 compared 49.2 million returns processed in 2018. Not a significant leap but still, it’s something positive.

On the other hand, there have been a lot of complaints. For many the new tax law isn’t working out as anticipated and many taxpayers are experiencing much smaller refunds and they wonder why. People are confused and angry.

Let’s examine some of the reasons. As with all tax reform, the new bill involved a lot of giving with one hand and slapping across the face with the other. Explained below are various reasons that your refund is much lower than expected:

  1. Compare your 2018 income and withholdings against your 2017 income tax return. For some the reason is simply that income has increased but insufficient tax was withheld or paid in the form of estimates to cover the additional liability.
  2. The standard deduction has essentially doubled. However, personal exemptions have been removed ($4,050 for each person listed on the tax return) making the benefit of the increased standard deduction negligible or completely insignificant or worse yet, throwing you into a higher liability.
  3. For those who itemize with totals above the standard deduction for their filing status, it doesn’t matter to them that the standard deduction has doubled. But it definitely hurts to lose the personal exemption. For those in the middle class, this could be an increase in tax liability of nearly $1,000 or in some cases substantially more.
  4. Itemized deductions have also been trimmed. No longer can you deduct employee business expenses, tax preparation software or tax preparation fees, portfolio management advisory fees, safe deposit rental fees among other miscellaneous itemized deductions. Also, the amount of taxes you can deduct in 2018 (real estate taxes, state income taxes, DMV fees, etc.) has been capped at $10,000. If you are a high earner, you likely have a large state tax liability. Say bye bye to any deduction greater than $10,000.
  5. Even though tax rates decreased, your refund may be less because you elected to take home a larger net pay. Your withholding was adjusted downward so could enjoy a bigger paycheck throughout the year. This action will reduce your refund or put you in the position of owing Uncle Sam.
  6. There may have been other taxable events this year that are out of the norm. Perhaps you sold investments or collected unemployment or began receiving Social Security benefits. Or you may have experienced other taxable transactions that increased your liability.
  7. Here’s a strange one: your income decreased but it caused a reduction in the Earned Income Credit and therefore a lower refund.

These are the main causes. The best idea is to review your 2017 tax return and compare it to your 2018 data to see if you can find any other reason(s) why your refund is lower. Your tax pro can assist you with this process.

Happy Holidays! And Beware! It’s a little bit of Halloween mixed in with gingerbread and spice. But in today’s world we must always be on guard. Identity thieves thrive on the holidays.

Here are some shopping tips direct from the IRS along with seven steps to help with online safety and protecting tax returns and refunds:

  • Avoid unprotected Wi-Fi. Unprotected public Wi-Fi hotspots in malls or at holiday events also may allow thieves to view transactions. Do not engage in online financial transactions if using unprotected public Wi-Fi.
  • Shop at familiar online retailers. Generally, sites using the “s” designation in “https” at the start of the URL are secure. Look for the “lock” icon in the browser’s URL bar. But remember, even bad actors may obtain a security certificate so the “s” may not vouch for the site’s legitimacy. Beware of purchases at unfamiliar sites or clicks on links from pop-up ads.
  • Learn to recognize and avoid phishing emails that pose as a trusted source such as those from financial institutions or the IRS. The IRS has seen an increase in these schemes this year. These emails may suggest a password is expiring or an account update is needed. The criminal’s goal is to entice users to open a link or attachment. The link may take users to a fake website that will steal usernames and passwords. An attachment may download malware that tracks keystrokes — putting personal information at risk.
  • Keep a clean machine. This applies to all devices – computers, phones and tablets. Use security software to protect against malware that may steal data and viruses that may damage files. Set it to update automatically so that it always has the latest security defenses. Make sure firewalls and browser defenses are always active. Avoid “free” security scans or pop-up advertisements for security software.
  • Use passwords that are strong, long and unique. Experts suggest a minimum of 10 characters but longer is better. Avoid using a specific word; longer phrases are better. Use a combination of letters, numbers and special characters. Use a different password for each account. Use a password manager, if necessary.
  • Use multi-factor authentication. Some financial institutions, email providers and social media sites allow users to set accounts for multi-factor authentication. This means users may need a security code, usually sent as a text to a mobile phone, in addition to usernames and passwords.
  • Encrypt and password-protect sensitive data. If keeping financial records, tax returns or any personally identifiable information on computers, this data should be encrypted and protected by a strong password. Also, back-up important data to an external source such as an external hard drive. And, when disposing of computers, mobile phones or tablets, make sure to wipe the hard drive of all information before trashing.

The IRS, state tax agencies and the tax industry are committed to working together to fight against tax-related identity theft and to protect taxpayers. But the Security Summit needs help. With the steps listed above, people can take steps to protect themselves online.

Taxpayers can also visit the “Taxes. Security. Together.” awareness campaign or review Publication 4524, Security Awareness for Taxpayers, to see what can be done.Tax professionals can also get more information through the Protect Your Clients; Protect Yourself campaign as well as the Tax Security 101 series.

AND FINALLY: To protect against porch thieves, fill an Amazon box with spiders or garbage or stuff you no longer want and leave it at your front door!

 

Late last year Congress signed into law the most massive changes in tax reform (Tax Cuts and Job Act – TCJA) since 1986. It is important to take a quick break from holiday festivities to analyze your tax picture so you are not surprised or terrified next April 15. If your return is prepared by a tax professional, it would behoove you to set up a meeting before year end to see how the tax law changes affect your 2018 tax return and beyond.

Standard Deduction Increases

No matter your filing status, the standard deduction pretty much doubles in 2018. If your itemized deductions don’t exceed the amount indicated below for your filing status (To determine, check your 2017 Schedule A total if you itemized), your taxes will be simplified. You will no longer have to compile all that extraneous data – medical, charitable, property taxes, DMV fees, employee business expenses, investment fees, etc); you will simply take the standard deduction as allowed below:

  • Single and Married Filing Separately: $12,000
  • Married Filing Jointly: $24,000
  • Head of Household: $18,000

Personal Exemption Eliminated

Under tax reform, taxpayers can no longer claim the $4,050 personal exemption for themselves or each of their dependents. The government gives with one hand and slaps with the other. But read on for some more good news.

Child Tax Credit Rises

The Child Tax Credit increases in value from $1,000 to $2,000. The tax reform bill also introduces a new $500 credit for non-child dependents. This takes some of the sting out of the removal of the personal exemption.

State and Local Taxes Capped

Taxpayers can deduct up to $10,000 in state and local income taxes. Previously there was no cap. This affects taxpayers who pay significant amounts in state income taxes and/or property taxes. Check your 2017 Schedule A total for state tax deductions to determine if you are affected by this change.

ACA Individual Mandate Repealed

Beginning in 2019, individuals who choose to go without healthcare coverage for the year will not have to pay tax penalties. The penalty is still in play for 2018, so prepare to pay if you did not have health insurance and if you did not qualify for the exemption.

Mortgage Interest Deduction Drops

Individuals who purchase a home in 2018 can only deduct interest up to $750,000 in mortgage debt (previously $1 million). The interest deduction on home-equity loans is eliminated.

Elimination of Employee Business Expenses, Tax Prep Fees, Investment Fees as Deductions

Effective for 2018, you may no longer deduct these expenses on Schedule A Itemized Deductions. If you have a large amount of unreimbursed employee business expenses that you normally deduct, you may want to negotiate with your employer. If the employer can restructure your pay to include payment for these expenses, they can take the deduction and you may be able to enjoy some of these expenses as a tax-free fringe benefit. It could be a bit tricky, so I would suggest discussing it with your tax pro as well as your employer.

 

There were many other huge changes enacted that apply to alimony, self-employed business expenses, self employed business income, rental income, fringe benefits, etc. Some take effect in 2018 some in 2019. Consult with your tax professional to determine how these changes will be reflected on your 2018 tax return and beyond.

Other than that, All of us here at Taxpertise wish you a Happy Holiday Season! Enjoy!

 

Monday, October 15, 2018, is the extension deadline for most taxpayers who requested an extra six months to file their 2017 tax return.

For taxpayers who have not yet filed, here are a few tips to keep in mind about the extension deadline and taxes:

  • Try IRS Free File or e-file. Taxpayers can still e-file returns for free using IRS Free File. The program is available only on IRS.gov. Filing electronically is the easiest, safest and most accurate way to file taxes.
  • Use direct deposit. For taxpayers getting a refund, the fastest way to get it is to combine direct deposit and e-file.
  • Use IRS online payment options. Taxpayers who owe taxes should consider using IRS Direct Pay. It’s a simple, quick and free way to pay from a checking or savings account. There are other online payment options.
  • Don’t overlook tax benefits. Taxpayers should be sure to claim all entitled tax credits and deductions. These may include income and savings credits and education credits.
  • Keep a copy of the tax return. Taxpayers should keep copies of tax returns and all supporting documents for at least three years. This will help when adjusting withholding, making estimated tax payments and filing next year’s return.
  • File by October 15. File on time to avoid a potential late filing penalty.
  • More time for the military. Military members and those serving in a combat zone generally get more time to file. Military members typically have until at least 180 days after leaving a combat zone to both file returns and pay any tax due.

With a straight face, the IRS recently released the 2018 Form 1040. The form has shrunk from a two-sided 8 x 11.5 sheet to post card sized, just as Trump promised. As if size matters. Everyone electronically files these days so it’s not like you will save a few bucks in postage.

Those who shy away from anything pertaining to taxes likely jumped up and down with joy in anticipation of tax simplification. Thing is, it’s a big fat joke. And I’m here to tell you that taxes got more complicated not simpler.

What the IRS accomplished was the butchering of Form 1040 to fit several line items on a two-sided postcard. The previous line items not included on the new Form 1040 have been added to six, count ‘em, six pages of additional schedules to attach to the “postcard.” When you do the math, you realize that the two-page form is now expanded to eight pages. Simplification indeed.

I was attending the California Society of Enrolled Agents Super Seminar in Reno when the new form was announced on June 27. The collective roar of disappointment and disapproval was followed by many snarky remarks and eventually laughter and plenty of eye rolling.

Just because Congress doubled the standard deduction does not mean we are headed into a new era of tax simplification. In any case, I agree with this move. After all, those who can’t itemize are generally renters because they don’t have the mortgage interest write off. I always felt this was unfair.  Doubling the standard deduction levels the playing field and opens up an increased  tax savings for those who cannot itemize.  But the savings is not as grand as you might think. Sure, if you’re married filing joint you will enjoy an extra $12,000 deduction from income, $6,000 if single, before tax is calculated. However, the IRS gives with one hand and smacks you across the face with the other. How did they do that? They yanked personal exemptions – that’s roughly $4,100 per person. So married filing joint, you net a reduction in income of only $3,800 ($12,000-$8,200) not the twelve grand you may have thought you would enjoy. It gets worse if you have kids because you previously received the $4,100 exemption for each dependent declared on the tax return as well. Now that’s gone. To make up for pulling the rug out from under for those with children, the IRS introduced a new and improved child tax credit to make up for the lack of personal exemption. Give, take, give, take, slap, without missing a beat.

I picture some malevolent nerd with nothing better to do creating all these complex moves and formulas and “if’s, and’s, and but’s” in some dank basement office. Maybe he’s just trying to keep us tax professionals in business. Keep our heads spinning is more like it. Thank you very much.

And as if things aren’t complicated enough, California does not conform to the new federal regulations. So we all get to memorize another set of tax code in order to comply with state tax law. Part of it is a good thing. For example, the deductions for employee business expenses, investment expenses, tax preparation software costs and preparer fees have been abolished by the IRS. But they are still deductible for CA purposes. so be sure to track those and report them next April 15. These deductions will decrease the amount of state tax you will owe.

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