#IRSTaxTip

What is a 1444 / 1444-B Notice?

Todd Laytham

The IRS sent out a notice on our around the time you received your stimulus checks by Direct Deposit or mail.  The Notice looked something like this:

Most taxpayers probably threw away this letter once they verified they received their funds, but this was an important letter stating how much was sent to you and must be included on your 2020 Income Tax Return. 

How do you get or verify this information to prepare your taxes?

Recovery Rebate Credit

The IRS announced last week that, as required by law, all legally permitted first and second round of Economic Impact Payments have been issued. Get My Payment was updated on January 29 to reflect the final payments and will not be updated again. If individuals didn’t receive all or part of their payment, they may be eligible to claim the Recovery Rebate Credit with their 2020 tax return.

Important Notes:

Claiming the wrong amount of the Recovery Rebate Credit will cause the return to require additional IRS review which will delay refund processing. Taxpayers can confirm their stimulus payments either by referencing IRS-mailed Payment Confirmation Notices 1444 and 1444-B, checking their bank account activity, creating/viewing their online account, verifying issued payments through the Get My Payment tool, or requesting an account transcript.

Eligibility for the RRC is based on 2020 tax year information, while the Economic Impact Payments were based on 2019 (or 2018) information.

Additional RRC information on IRS.gov: https://www.irs.gov/newsroom/recovery-rebate-credit

Why You Need To File Your 2019 Taxes By July 15, 2020

Todd Laytham

By: Laura Saunders, WSJ

July 10, 2020 5:30 am ET

No matter how stressed or financially stretched you are this year, file tax forms with the Internal Revenue Service by July 15. Not doing so will only make your bad situation worse.

The deadly coronavirus pandemic has upended the lives and finances of millions of Americans, leaving the U.S. with about 15 million fewer jobs than in February. In response, the IRS issued a historic emergency declaration easing a host of requirements. For the first time, it delayed the traditional April 15 filing deadline by three months.

Now the July 15 deadline to file 2019 taxes is days away, while many Americans’ lives are still in disarray. Some, feeling overwhelmed, may be tempted to ignore their taxes.

That would be a huge mistake: If you owe Uncle Sam, blowing off tax filings has immediate consequences that compound and are almost impossible to escape, because the IRS is the most powerful creditor in the nation.

“To get its money, the IRS can file a lien on your property that wrecks your credit, seize your bank account, and take your wages. It can even get money from your IRA or 401(k) savings account, and you’ll owe tax on the withdrawal,” says Bryan Skarlatos, a criminal tax attorney with Kostelanetz & Fink in New York.

However, taxpayers can take steps to minimize the damage if they can’t pay in full or at all. With tax debts, small moves can mean big differences.

Here’s an example: Two of the IRS’s most potent penalties are for failure to file a return and failure to pay tax. If someone doesn’t file or pay $1,000 of tax for a year, then the failure-to-file penalty adds $435 to the bill and the failure-to-pay penalty adds $60. The $495 total is often far higher than credit card interest on a similar amount.

Interest is also due on unpaid taxes and penalties. It compounds daily, currently at an annual rate of 3%. In this case it adds another $45 after a year. Smaller penalties may apply as well.

But say this same taxpayer files the IRS form to get an automatic three-month filing extension by July 15 and then files a return by Oct. 15. Even if this person can’t pay the balance due, filing the return on time removes the large failure-to-file penalty. If this person can pay something, the cost can shrink further.

The IRS isn’t known for its mercy, but it has programs and other measures for taxpayers who can’t pay what they owe. These can be confusing, especially for filers who haven’t used them before, so here are steps to take and pitfalls to avoid in this extraordinary tax year.

• File something by July 15. As the example above shows, the failure-to-file penalty is immediate and large.

Be sure your return is accurate, and try to file it by July 15. If that’s impossible, then file IRS Form 4868 by July 15 to get an automatic three-month extension to prepare the form until Oct. 15.

There’s no extension to pay your tax, so interest on what you owe starts accruing on July 15 even though you have an extension to send in the return and may not know exactly what you owe yet.

If you miss these deadlines, file as soon as possible. Bottom line: If you can’t pay, you should still file.

• Know which excuses work. The IRS abates penalties for “reasonable cause,” with the pandemic as a possible cause this year.

Still, the reasonable-cause defense has limits. For example, a family death or serious illness three years ago probably won’t count as an excuse to be late in filing or paying 2019 taxes.

Taxpayers with a clean record until their lapse can often receive a “first-time abatement” because of prior good behavior.

• Understand the IRS’s payment plans. It can be fairly simple to pay back taxes to the IRS. To qualify for a short-term payment agreement, you must owe $100,000 or less in taxes, penalties and interest and be able to pay within 120 days. Usually, this plan can be set up quickly online at IRS.gov. There’s no set-up fee for online agreements.

Taxpayers who need longer than 120 days to pay and owe less than $50,000 can opt for an installment agreement. For many, the online set-up fee is $31 for a plan with direct monthly debits and $149 for one without monthly debits.

• Consider how to raise funds. Mr. Skarlatos warns that penalties and interest continue to compound on unpaid taxes if you use an IRS payment plan. So he recommends borrowing the funds from a bank, a 401(k), a relative or even a credit card, if possible. Congress eased terms for 401(k) loans due to the pandemic.

• Beware of sales pitches promising miracles. For taxpayers who can’t pay the IRS in full, a program known as Offers in Compromise may accept a lower amount in settlement. Some firms promising to secure these offers advertise on radio or TV.

The IRS typically accepts less than 40% of offers it receives. Fees to firms that advertise them can be high and include recurring charges while the IRS considers a proposal over many months.

IRS Commissioner Chuck Rettig urges taxpayers seeking an offer in compromise to check with the IRS first.

“To hear some of these ads, struggling taxpayers can think their tax debts will magically disappear. Many people can avoid unnecessary disappointments and fees by quickly reviewing the program or asking an IRS representative,” he adds.

• If all else fails… The IRS won’t pursue tax debtors if that leaves them without living expenses. In this case, the account is designated as “currently not collectible” and the IRS pauses collections, usually for up to a year. Penalties and interest continue to accrue.

To qualify for this status, says Szu-Ju Chang, an attorney in Las Vegas who has worked extensively with low-income taxpayers, a person will need to provide detailed information about income, expenses, and assets for the IRS to assess.

For more information, contact the Taxpayer Advocate Service or a low-income taxpayer clinic.

https://www.irs.gov/

Update: Stimulus Payments and Social Security Recipients

Todd Laytham

The IRS has announced that Social Security recipients will automatically receive economic impact payments.

Those receiving Social Security benefits who don’t typically file a tax return will not need to file an abbreviated (simple) tax return to receive their stimulus payment.  The IRS will use information from Forms SSA-1099 and RRB-1099 to generate payments for these individuals. The payment will be sent as a direct deposit or check, however they normally receive their benefits.

From the IRS news release: “We want to ensure that our senior citizens, individuals with disabilities, and low-income Americans receive Economic Impact Payments quickly and without undue burden,” said Secretary Steven T. Mnuchin. “Social Security recipients who are not typically required to file a tax return need to take no action.”

Based on the latest information I have, the IRS still plans to offer an online portal for the purpose of collecting direct deposit information from taxpayers who have not provided it on their 2018 or 2019 tax return.

Providing account information is not required to receive a stimulus payment.

Checks will be mailed if deposit information is not available.

At this time, I haven’t received guidance regarding low-income taxpayers who are not required to file a return and don’t receive Social Security benefits. My best advice at this time is to wait for further information from the IRS.

Why Taxpayers Should Be Using Direct Deposit For Tax Refunds

Todd Laytham

With the filing season just around the corner, taxpayers should be aware of the benefits of using direct deposit for refunds. It’s easy, secure and the fastest way to get a tax refund.

Here are 10 quick facts about direct deposit.

  • It’s the best and fastest way for taxpayers to get their tax refund.
  • It’s free.
  • It’s secure.
  • Taxpayers can deposit their refund into not only one, but also two or three accounts.
  • Combining direct deposit with IRS e-file is the fastest way for taxpayers to receive their refund.
  • When using direct deposit, there’s no risk of having a paper check stolen or lost.
  • The IRS uses the same system to deposit tax refunds that Social Security and Veterans Affairs use to deposit benefits into millions of accounts.
  • It’s easy. Just follow the instructions in the tax software or on the tax form.
  • Taxpayers can use direct deposit even if they are filing by paper.
  • Direct deposit saves taxpayers money. It costs the IRS more than $1 for every paper refund check issued, but only a dime for each direct deposit made.

More information:
Direct Deposit
Direct Deposit Limits
Where’s My Refund

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All Taxpayers Should Know Their Rights

Todd Laytham

The Taxpayer Bill of Rights protects all taxpayers working with the IRS. In fact, they lay out the framework to make sure the IRS fairly and impartially carries out tax administration.

These rights are explained on IRS.gov and in Publication 1, Your Rights As A Taxpayer. They describe what taxpayers can expect if they need to work with the IRS on a personal tax matter, such as:
•Filing a return
•Paying taxes
•Responding to a letter
•Going through an audit
•Appealing an IRS decision

To help taxpayers understand their rights, here they are, along with links where people can go for more information.

1.The right to be informed
2.The right to quality service
3.The right to pay no more than the correct amount of tax
4.The right to challenge the IRS’s position and be heard 
5.The right to appeal an IRS decision in an independent forum
6.The right to finality
7.The right to privacy
8.The right to confidentiality
9.The right to retain representation
10.The right to a fair and just tax system


More information:
Publication 1, Your Rights As A Taxpayer, in Spanish
What the Taxpayer Bill of Rights Means for You
Taxpayer Advocate Service

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Taxpayers Should Know The Difference Between Standard and Itemized Deductions

Todd Laytham

It’s a good idea for people to find out if they should file using the standard deduction or itemize their deductions. Deductions reduce the amount of taxable income when filing a federal income tax return. In other words, they can reduce the amount of tax someone owes.

Individuals should understand they have a choice of either taking a standard deduction or itemizing their deductions. Taxpayers can use the method that gives them the lower tax. Due to tax law changes in the last couple years, people who itemized in the past might not want to continue to do so, so it’s important for all taxpayers to look into which deduction to take.

Here are some details about the two methods to help people understand which they should use:

Standard deduction
The standard deduction amount adjusts every year and can vary by filing status. The standard deduction amount depends on the taxpayer’s filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don’t itemize deductions are entitled to a higher standard deduction.

Most filers who use Form 1040 or Form 1040-SR, U.S. Tax Return for Seniors, can find their standard deduction on the first page of the form.

Taxpayers who can’t use the standard deduction include:

  • A married individual filing as married filing separately whose spouse itemizes deductions.
  • An individual who files a tax return for a period of less than 12 months. This could be due to a change in their annual accounting period.
  • An individual who was a nonresident alien or a dual-status alien during the year. However, nonresident aliens who are married to a U.S. citizen or resident alien can take the standard deduction in certain situations.

Itemized deductions
Taxpayers may need to itemize deductions because they can’t use the standard deduction. They may also itemize deductions when this amount is greater than their standard deduction.

Taxpayers who itemize file Schedule A, Form 1040, Itemized Deductions or Form 1040-SR, U.S. Tax Return for Seniors.

A taxpayer may benefit by itemizing deductions for things that include:

  • State and local income or sales taxes
  • Real estate and personal property taxes
  • Mortgage interest
  • Mortgage insurance premiums
  • Personal casualty and theft losses from a federally declared disaster
  • Donations to a qualified charity
  • Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income

Individual itemized deductions may be limited. Form 1040, Schedule A Instructions can help determine what limitations may apply.

More information:
Publication 501, Standard Deduction, and Filing Information
How Much Is My Standard Deduction?
Topic No. 551 Standard Deduction

Share this tip on social media — #IRSTaxTip: Taxpayers should know the difference between standard and itemized deductions. https://go.usa.gov/xdKBs.

Tax Withholding and New 2020 W4

Todd Laytham

How will this effect my 2020 Refund

Many companies will be asking you to complete a new revised W4.  While we were confused about the complexity of the old form, we can be more confused with the simplicity of the new form. Especially when our federal withholding goes down.

The new form incorporates more of a strategy of filing status and dependents against income using the new TCJA (Tax Cut and Jobs Act) tax rules.  The TCJA eliminated a lot of Itemized Filing (Schedule A) for taxpayers by raising the standard deduction.

This change made the tax withholding calculation tables become more skewed for employees working part-time or more than 1 job.  This is because the tables are estimating the earnings for each payroll as the earnings for the entire year.  Generally, working a part-time or second job the hours works are not enough to trigger federal withholding.

Because of this, you should review your withholding early and use the IRS Tax Withholding Estimator to determine how much withholding you should have. There is even a new feature allowing you to even customize the refund amount you want to receive.

If you need help with your W4 or to have a tax planning and withholding review, please call or email my office.

IRS Launches Improved Tax Withholding Estimator

The IRS launched a new and improved Tax Withholding Estimator, designed to help workers target the refund they want by having the right amount of federal income tax taken out of their pay. The Tax Withholding Estimator incorporates the changes from the redesigned Form W-4, Employee’s Withholding Certificate, that employees can fill out and give to their employers this year.

You can find the updated Tax Withholding Estimator and the redesigned 2020 Form W-4 on IRS.gov.

IRS YouTube Videos:

IR-2020-09, January 14, 2020

WASHINGTON — The Internal Revenue Service has launched a new and improved Tax Withholding Estimator, designed to help workers target the refund they want by having the right amount of federal income tax taken out of their pay.

The Tax Withholding Estimator, now available on IRS.gov, incorporates the changes from the redesigned Form W-4, Employee’s Withholding Certificate, that employees can fill out and give to their employers this year.

The IRS urges everyone to see if they need to adjust their withholding by using the Tax Withholding Estimator to perform a Paycheck Checkup. If an adjustment is needed, the Tax Withholding Estimator gives specific recommendations on how to fill out their employer’s online Form W-4 or provides the PDF form with key parts filled out.

To help workers more effectively adjust their withholding, the improved Tax Withholding Estimator features a customized refund slider that allows users to choose the refund amount they prefer from a range of different refund amounts. The exact refund range shown is customized based on the tax information entered by that user.

Based on the refund amount selected, the Tax Withholding Estimator will give the worker specific recommendations on how to fill out their W-4. This new feature allows users who seek either larger refunds at the end of the year or more money on their paychecks throughout the year to have just the right amount withheld to meet their preference.

The new Tax Withholding Estimator also features several other enhancements, including one allowing anyone who expects to receive a bonus to indicate whether tax will be withheld. In addition, improvements added last summer continue to be available, including mobile-friendly design, handling of pension income, Social Security benefits and self-employment tax.

Starting in 2020, income tax withholding is no longer based on an employee’s marital status and withholding allowances, tied to the value of the personal exemption. Instead, income tax withholding is generally based on the worker’s expected filing status and standard deduction for the year. In addition, workers can choose to have itemized deductions, the Child Tax Credit and other tax benefits reflected in their withholding for the year.

It is important for people with more than one job at a time (including families in which both spouses work) to adjust their withholding to avoid having too little withheld. Using the Tax Withholding Estimator is the most accurate way to do this. As in the past, employees can also choose to have an employer withhold an additional flat-dollar amount each pay period to cover, for example, income they receive from the gig economy, self-employment, or other sources that is not subject to withholding.

For more information about the updated Tax Withholding Estimator and the redesigned 2020 Form W-4, visit IRS.gov.

What To Do If You Get A 1099-C Form For Student Loans

Todd Laytham

The IRS has issues guidance on Educational Institutions that went bankrupt and that they should not issue 1099-C for Cancellation of Debt or Student Loan Forgiveness.

So what do you do if you get a 1099-C…be sure to get all the facts on why it was issues and refer to the information below.  It helps to talk openly with your tax advisor and make sure they have all the information correct to determine if you have to report this on your tax return or not.

Revenue Procedure 2020-11 provides relief to additional taxpayers who took out federal or private student loans to finance attendance at a nonprofit or for-profit school.  The IRS will not assert that taxpayers within the scope of the revenue procedure must recognize gross income as a result of the discharge of their student loans.  Additionally, the IRS will not assert that a creditor must file information returns and furnish payee statements for the discharge of any indebtedness within the scope of the revenue procedure.  To avoid confusion, the IRS strongly recommends that these creditors not furnish students nor the IRS with a Form 1099-C.

Revenue Procedure 2020-11 will be in IRB 2020-6, dated February 3, 2020.

Prepare For Filing Taxes

Todd Laytham

Charitable Contributions

For most taxpayers, December 31 is the last day to take actions that will impact their 2019 tax return. For example, those who plan to itemize deductions should know that charitable contributions are deductible in the year made. Donations charged to a credit card before the end of 2019 count for the 2019 tax year, even if the bill isn’t paid until 2020. Checks to a charity count for 2019 if they are mailed by the last day of the year.

Retirement Plans

Taxpayers who are over age 70 ½ are generally required to take distributions from their individual retirement accounts and workplace retirement plans by the end of 2019. However, a special rule allows those who reached 70 ½ in 2019 to wait until April 1, 2020, to receive them.

Most workplace retirement account contributions should be made by the end of the year, but taxpayers can make 2019 IRA contributions until April 15, 2020. For 2019, the basic limit for 401(k) contributions is $19,000, plus another $6,000 for those who are at least age 50.

For 2019, total contributions to all traditional and Roth IRAs cannot exceed $6,000, or for taxpayers age 50 and older, $7,000. Taxpayers should check IRS.gov for more information about contribution limits, as well as cost-of-living adjustments affecting pension plans and other retirement-related items for tax year 2019.

Some taxpayers may be eligible for the Retirement Savings Contributions Credit, also known as the Saver’s Credit. The income limit is $64,000 for married couples filing jointly, $48,000 for heads of household, and $32,000 for singles and married individuals filing separately for 2019.

Refunds

The vast majority of taxpayers get their refunds faster by filing electronically and using direct deposit. It is simple, safe and secure. This is the same electronic transfer system used to deposit nearly 98% of all Social Security and Veterans Affairs benefits into millions of accounts.

Just as each tax return is unique and individual, so is each taxpayer’s refund. Here are a few things taxpayers should keep in mind if they are waiting on their refund but hear or see on social media that other taxpayers have already received theirs.

Different factors can affect the timing of a refund. Even though the IRS issues most refunds in less than 21 days, it’s possible a particular taxpayer’s refund may take longer. Some tax returns require additional review and take longer to process than others. It may be necessary when a return has errors, is incomplete or is affected by identity theft or fraud. The IRS will contact taxpayers by mail when more information is needed to process a return.

By law, the IRS cannot issue refunds to people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) before mid-February. The law requires the IRS to hold the entire refund, including the portion not associated with the credits. This helps ensure taxpayers receive the refund they’re due by giving the IRS more time to detect and prevent fraud.

Taxpayers should not count on getting a refund by a certain date, especially when planning major purchases or paying other financial obligations.

Update address

Taxpayers who moved during 2019 should tell the US Postal Service, employers and the IRS. Notify the IRSby mailing IRS Form 8822, Change of Address, to the address listed on the form’s instructions. Taxpayers who purchase health insurance through the Health Insurance Marketplace should also notify the Marketplace when they move out of the area covered by their current plan.

For name changes due to marriage or divorce, notify the Social Security Administrationso the new name will match IRS and SSA records. Also notify the SSA if a dependent’s name changed. A mismatch between the name shown on a tax return and SSA records often causes refund delays.

https://www.irs.gov/newsroom/get-ready-for-taxes-what-to-do-before-the-tax-year-ends-december-31

Giving Tuesday

Todd Laytham

Today is another “Day”, but unlike the prior days (Black Friday, Small Business Saturday, CyberMonday) which focused on buying STUFF (or selling for the commercial business)…we change our focus to generosity.

What and When was this Created

Giving Tuesday was created in 2012 as a simple idea: a day that encourages people to do good.  Over the past seven years, this idea has grown into a global movement that inspires hundreds of millions of people to give, collaborate, and celebrate generosity. In 2018 US donations on Giving Tuesday surpassed $400million from over 3.6million donations. (source https://www.givingtuesday.org)

Tax Exemption Status

As with any day there are things to be aware of when contributing to charities.  Many people want their donation to be “tax deductible”.  Below is an IRS Tip and tool for determining if your charity is tax exempt. 

Are My Donations Helping

Another concern with donating to a charity is how “efficient” your charity is, meaning how much is spent on Programs & Services that you are donating to. 1 out of 10 charities spends less than 65% of their donations on Programs & Services. On a positive note 7 of 10 spend more than 75% on their Programs & Services. Many charities do not live up to their reputations and executive compensation or other expenses are unreasonable.  This information can be found on the public Form 990 Tax Return and there are rating organizations such as www.charitynavigator.org.

Two of My Favorite Charitable Organizations

MidAmerica Nazarene University & Foundation – www.mnu.edu – my alma mater where I decided to pursue a career in accounting and become a CPA. MNU was founded in 1966 as the Pioneers when the campus in Olathe a small town south of metro Kansas City was farmland. Since that time the University has graduated thousands of students with their three enduring values of Pioneering Spirit, Purposeful Lives and Passion to Serve. Donate to MNU to help with student financial aid and support their mission of helping reduce the burden of student debt.

KC Pet Project – www.kcpetproject.org – we are Foster Parents for this organization providing temporary shelter to “senior” dogs not doing well in the shelter.  Many senior dogs get dumped at the shelter when their owners are tired of taking care of them or their medical needs during their final years. Donate to KC Pet Project with money, supplies or time (as a foster or dog walker) or ADOPT a new pet.  We highly recommend seniors that are less hyper and are already potty trained!

IRS Issue Number: Tax Tip 2019-165

How taxpayers can make sure their donations are tax deductible

It’s that time of year when taxpayers are thinking about how they want to give back, and many taxpayers will want to donate to a charity that means something to them. The IRS has a tool that may help them make sure their donations are as beneficial as possible.

Tax Exempt Organization Search on IRS.gov is a tool that allows users to search for tax-exempt charities. Taxpayers can use this tool to determine if donations they make to an organization are tax-deductible charitable contributions. 

Here are some things to know about the TEOS tool:

  • It provides information about an organization’s federal tax status and filings.
  • It’s mobile device friendly.
  • Donors can use it to confirm that an organization is tax-exempt and eligible to receive tax-deductible charitable contributions.
  • Users can find out if an organization had its tax-exempt status revoked.
  • Organizations are listed under the legal name or a “doing business as” name on file with the IRS.
  • The search results are sortable by name, Employee Identification Number, state, and country.
  • Users may also download entire lists of organizations eligible to receive deductible contributions, auto-revoked organizations and e-Postcard filers.


Taxpayers can also use the Interactive Tax Assistant, Can I Deduct my Charitable Contributions? to help determine if a charitable contribution is deductible.

More Information:
Tips for Tax Exempt Organization Search
Tax Exempt Organization Search: Frequently Asked Questions
Subscribe to the Exempt Organizations Newsletter

IRS YouTube Videos:
Tax Exempt Organization Search English | ASL