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When it comes to working on your taxes, earlier is better, but many people find preparing their tax return to be stressful and frustrating and wait until the last minute. Complicating matters this year is tax reform and the newly redesigned Form 1040. If you’ve been procrastinating on filing your tax return this year, here are eight tips that might help.

Don’t Delay

Resist the temptation to put off your taxes until the very last minute. Your haste to meet the filing deadline may cause you to overlook potential sources of tax savings and will likely increase your risk of making an error. Getting a head start – even if it is a week or two) will not only keep the process calm but also mean you get your return faster by avoiding the last-minute rush.

Gather Tax Documents in Advance

Make sure you have all the records you need, including W-2s and 1099s. Don’t forget to save a copy for your files.

Double-check Math and Verify Social Security Numbers

These are among the most common errors found on tax returns. Taking care will reduce your chance of hearing from the IRS. Submitting an error-free return will also speed up your tax refund.

E-file for a Faster Tax Refund

Taxpayers who e-file and choose direct deposit for their refunds, for example, will get their refunds in as few as ten days. That compares to approximately six weeks for people who file a paper return and get a traditional paper check.

Don’t Panic if You Can’t Pay

If you can’t immediately pay the taxes you owe, consider some stress-reducing alternatives. You can apply for an IRS installment agreement, suggesting your monthly payment amount and due date and getting a reduced late payment penalty rate. You also have various options for charging your balance on a credit card. There is no IRS fee for credit card payments, but the processing companies charge a convenience fee. Electronic filers with a balance due can file early and authorize the government’s financial agent to take the money directly from their checking or savings account on the April due date, with no fee.

Request an Extension of Time to File

If the clock runs out, you can get an automatic six-month extension bringing the filing date to October 15, 2021 – but make sure you pay by the May 17 due date. However, the extension itself does not give you more time to pay any taxes due. You will owe interest on any amount not paid by the April deadline, plus a late payment penalty if you have not paid at least 90 percent of your total tax by that date.

Taxpayers Outside the United States File June 15

U.S. citizens and resident aliens who live and work outside the U.S. and Puerto Rico have until June 15, 2021, to file their 2020 tax returns and pay any tax due. The special June 15 deadline also applies to military members on duty outside the U.S. and Puerto Rico who do not qualify for the longer combat zone extension. Affected taxpayers should attach a statement to their return explaining which of these situations apply. Although taxpayers abroad get more time to pay, interest – currently at the rate of 3% per year, compounded daily – applies to any payment received after this year’s May 17 deadline.

Military Service Members Serving in a Combat Zone

Combat zone taxpayers (including eligible support personnel) have at least 180 days after they leave the combat zone to file their tax returns and pay any tax due – including those serving in Iraq, Afghanistan, and other combat zones. A complete list of designated combat zone localities is available on the IRS website. Combat zone extensions also give affected taxpayers more time for a variety of other tax-related actions, including contributing to an IRA. Various circumstances affect the exact length of the extension available to taxpayers.

Help is Just a Phone Call Away

If you run into any problems, have any questions, or need to file an extension, contact us today!

The Paycheck Protection Program Extension Act of 2021 was signed into law on March 31, 2021, extending the deadline to apply for a loan by an extra 60 days, from March 31 to May 31, 2021. The law also gives the Small Business Administration (SBA) an additional 30 days after the May 31 deadline to review and process loan applications.

The passage of the PPP Extension Act does not provide additional funding; however, as part of the American Rescue Plan Act, an additional $7.25 billion was earmarked for the Paycheck Protection Program to expand eligibility to additional nonprofits and digital news services.

In February 2021, SBA also made four additional changes to open the PPP to more underserved small businesses, generally small and low- and moderate-income (LMI) businesses who have not received the needed relief a forgivable PPP loan provides. Congress set a $15 billion set-aside for small and LMI First Draw borrowers. To advance these goals, SBA has:

• Allowed sole proprietors, independent contractors, and self-employed individuals to receive more financial support by revising the PPP’s funding formula for these categories of applicants
• Eliminated an exclusionary restriction on PPP access for small business owners with prior non-fraud felony convictions, consistent with a bipartisan congressional proposal
• Eliminated PPP access restrictions on small business owners who have struggled to make student loan payments by eliminating student loan debt delinquency as a disqualifier to participating in the PPP
• Ensured access for non-citizen small business owners who are lawful U.S. residents by clarifying that they may use Individual Taxpayer Identification Number (ITIN) to apply for the PPP

Prior to addressing these inequities, the current 2021 round of PPP loans had only deployed $2.4 billion to small LMI borrowers, in part because a disproportionate amount of funding in both wealthy and LMI areas is going to firms with more than 20 employees. As a result, in February 2021, SBA established a 14-day, exclusive PPP loan application period for businesses and nonprofits with fewer than 20 employees. The program opened to all borrowers on March 10, 2021, and, as mentioned, has been extended through May 31, 2021.

Business owners who have not received a PPP loan previously can apply for a First Draw Loan. Certain businesses that have already received a PPP loan are eligible for a Second Draw PPP loan.

Finally, borrowers may be eligible for PPP loan forgiveness. First Draw PPP loans made to eligible borrowers qualify for full loan forgiveness if during the 8 to 24-week covered period following loan disbursement:

• Employee and compensation levels are maintained
• The loan proceeds are spent on payroll costs and other eligible expenses; and
• At least 60 percent of the proceeds are spent on payroll costs

Second Draw PPP loans made to eligible borrowers qualify for full loan forgiveness under the same requirements as First Draw PPP loans provided employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan.

Need help with bookkeeping, individual and/or cross-border tax preparation, contact us today!

Generally, unemployment compensation received under the unemployment compensation laws of the United States or a state is considered taxable income and must be reported on your federal tax return. However, a new tax break – in effect only for the 2020 tax year – lets you exclude the first $10,200 from taxable income. Here’s what you should know:

What do I need to do to get the tax break?

The tax break, which is part of the American Rescue Plan Act of 2021 (ARPA is available to all taxpayers whose 2020 modified adjusted gross income is less than $150,00 and allows you to exclude the first $10,200 of unemployment compensation received in 2020. For joint returns, the first $10,200 per spouse (i.e., $20,400 for two workers who are married filing jointly) is not included in gross income.

Amounts over $10,200 for each individual taxpayer are still considered taxable income and the tax break only applies to federal income taxes.

Who doesn’t qualify for the tax break?

Taxpayers with a modified adjusted gross income of $150,000 or more last year do not qualify for the tax break and are required to file taxes on the full amount of unemployment compensation.

The $150,000 earnings limit does not include amounts received as unemployment compensation.

How do I know how much unemployment compensation I received and how much tax was taken out?

If you received unemployment compensation, you should have received Form 1099-G, Certain Government Payments (Info Copy Only). Form 1099-G shows the amount of unemployment compensation paid and any federal income tax you elected to have withheld. Many taxpayers chose to have federal income tax withheld from their unemployment benefits by filling out Form W-4V, Voluntary Withholding Request. If you completed the form and gave it to the paying office (e.g., your state’s Department of Labor), they should have withheld tax at 10 percent of your payments.

What if I already filed my 2020 tax return?

If you already filed your 2020 tax return and paid tax on unemployment compensation that qualifies for the tax break, in most cases, there is no need to file an amended return. Taxpayers should only file an amended return if the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return. Taxpayers may want to review their state tax returns as well.

The IRS can adjust returns for those taxpayers who claimed the Earned Income Tax Credit (EITC) and because the exclusion changed the income level, may now be eligible for an increase in the EITC amount, which may result in a larger refund. However, taxpayers would have to file an amended return if they did not initially claim the EITC or other credits but now are eligible because the exclusion changed their income.

The IRS will determine the correct taxable amount of unemployment compensation and tax. If there is any overpayment of tax, it will be either refunded or applied to other outstanding taxes owed. The recalculations will take place in two phases; single filers and other taxpayers eligible for the up to $10,200 exclusion, followed by married filing jointly taxpayers eligible for the up to $20,400 exclusion and others with more complex returns.

If you need assistance with bookkeeping, individual and/or cross-border tax preparation, contact us today! Contact FAS Bookkeeping and Tax Services at admin@fas-accountingsolutions.com or at 713-855-8035.

On March 12, following the American Rescue Plan Act’s approval and signing, the IRS began sending out the third round of Economic Impact Payments. Most payments were sent out via direct deposit, but approximately 150,000 checks were mailed by the Treasury Department as well. Taxpayers who received EIP1 or EIP2 but didn’t receive a third payment (EIP3) via direct deposit will generally receive a check or, in some instances, a prepaid debit card (EIP Card).

Highlights:

• The third stimulus payment will generally be larger for most people. Most eligible people will get $1,400 for themselves (those filing joint returns will get $2,800) and $1,400 for each of their qualifying dependents claimed on their tax return. Eligible families will get a payment based on all of their qualifying dependents claimed on their return, including older relatives like college students, adults with disabilities, parents, and grandparents. Unlike the first two payments, the third stimulus payment is not restricted to children under 17. Typically, this means a single person with no dependents will get $1,400, while a family of four (married couple with two dependents) will get $5,600.

Note: Under the new law, an EIP3 cannot be offset to pay various past-due federal debts or back taxes.

• • The first batch of payments primarily went to eligible taxpayers who provided direct deposit information on their 2019 or 2020 returns, including people who don’t typically file a return but who successfully used the Non-Filers tool on IRS.gov last year. Additional batches and payments will be sent in the coming weeks by direct deposit and through the mail as a check or debit card.

 

• • The payments are automatic and, in many cases, similar to how people received their first and second round of Economic Impact Payments in 2020. No action needs to be taken by most taxpayers, and contacting either financial institutions or the IRS on payment timing will not speed up their arrival.

 

• • Income levels in this new round of stimulus payments have changed. As such, some people will not be eligible for the third payment even if they received a first or second Economic Impact Payment or claimed a 2020 Recovery Rebate Credit. Payments begin to phase out for individuals making $75,000 or above in Adjusted Gross Income ($150,000 for married filing jointly). The payments end at $80,000 for individuals ($160,000 for married filing jointly); people above these levels are ineligible for a payment.

 

• Taxpayers who received EIP1 or EIP2 but didn’t receive a third payment (EIP3) via direct deposit will generally receive a check or, in some instances, a prepaid debit card (referred to as an “EIP Card).

Note: A payment will not be added to an existing EIP card mailed for the first or second round of stimulus payments.

• If a taxpayer’s payment is less than the full amount and is based on their 2019 return, they may qualify for a supplemental payment after filing their 2020 return. The IRS will automatically reevaluate their eligibility. If they are entitled to a larger payment or the full payment, then a supplemental payment will be sent covering the difference. If the reevaluated amount is smaller, they won’t need to pay back the difference. Aside from filing a 2020 tax return, no additional action needs to be taken.

Paper Checks and Prepaid Debit Cards

Taxpayers who did not receive a direct deposit by March 24 should check their mail carefully in the coming weeks for a paper check or a prepaid debit card, known as an Economic Impact Payment Card, or EIP Card.

The form of payment for the third EIP may be different than earlier stimulus payments. More people are receiving direct deposits, whereas those receiving the economic impact payments in the mail may get either a paper check or an EIP Card. This may be different from how they received their previous stimulus payments.

Paper Checks. Paper checks will arrive by mail in a white envelope from the U.S. Department of the Treasury. For those taxpayers who received their tax refund by mail, this paper check will look similar but referenced as an “Economic Impact Payment” in the memo field.

EIP Card. The EIP Card will also come in a white envelope prominently displaying the seal of the U.S. Department of the Treasury. The card has the Visa name on the front and the issuing bank, MetaBank, N.A., on the back. The information included with the card will explain that this is an Economic Impact Payment. Each mailing will include instructions on how to activate and use the card securely.

None of the EIP cards issued for any of the three rounds is reloadable; recipients will receive a separate card and will not be able to reload funds onto an existing card. EIP Cards are safe, convenient, and secure. EIP Card recipients can make purchases online or in stores anywhere Visa Debit Cards are accepted.

They can get cash from domestic in-network ATMs, transfer funds to a personal bank account, and obtain a replacement EIP Card if needed without incurring any fees. They can also check their card balance online, through a mobile app, or by phone without incurring fees. The EIP Card provides consumer protections against fraud, loss, and other errors and is sponsored by the Bureau of the Fiscal Service and issued by Treasury’s financial agent, MetaBank, N.A. The IRS does not determine who receives a prepaid debit card.

Social Security and Other Federal Beneficiaries

Most Social Security retirement and disability beneficiaries, railroad retirees, and recipients of veterans benefits who are eligible for an Economic Impact Payment do not need to take any action to receive a payment. These payments will be automatic, and Social Security and other federal beneficiaries will generally receive this third payment the same way as their regular benefits.

Anyone who didn’t file a return but receives Social Security retirement, survivor or disability benefits (SSDI), Railroad Retirement benefits, Supplemental Security Income (SSI), or Veterans Affairs benefits, will receive their third round of economic impact payments the same way as their regular benefits – similar to the first and second rounds of Economic Impact Payments.

If You Don’t Normally File a Tax Return

While payments will be automatic for many people based on their federal benefits information, some may need to file a 2020 tax return – even if they don’t usually file – to provide information the IRS needs to send payments for any qualified dependent. People in this group should file a 2020 tax return to be considered for an additional payment for their dependent as quickly as possible.

People who don’t normally file a tax return and don’t receive federal benefits may also qualify for these stimulus payments, including those experiencing homelessness and others. If you’re eligible and didn’t get a first or second Economic Impact Payment (that is, an EIP1 or EIP2) or got less than the full amounts, you may be eligible for the 2020 Recovery Rebate Credit but will need to file a 2020 tax return.

 

Need help with bookkeeping, individual and/or cross-border tax preparation? Contact us today so our Enrolled Agent can assist you!

 

Signed into law on March 11, 2021, the American Rescue Plan Act (ARPA) contains several tax provisions affecting individuals and families. Let’s take a look:

Economic Impact Payments (EIP3). A third round of economic impact payments (EIP3) will be sent to qualifying taxpayers; individuals will receive $1,400 ($2,800 for married taxpayers filing jointly) plus $1,400 for each dependent, which includes college students and relatives who can be claimed as dependents. These payments are sent out as advance payments of the recovery rebate credit. Anyone not receiving EIP3 will be able to claim the recovery rebate credit when they file a 2021 tax return next year. There are specific income phaseouts, and eligibility is determined using a taxpayer’s 2019 adjusted gross income unless the taxpayer has already filed a 2020 return. For more information, see, Economic Impact Payments: Round Three, below.

Student Loan Debt Forgiveness. Normally, canceled debt – including student loan debt – is considered taxable income and taxed as such. Under the ARPA, however, for eligible loans, the discharge of student loan debt – either full or partial – will not be viewed as taxable income for tax years 2021 through 2025. Eligible loans are those that have been used solely for post-secondary education and that are made, insured, or guaranteed by the US government.

COBRA: Continuing Health Coverage. ARPA requires employers to subsidize at 100 percent premiums paid for COBRA continuation coverage for assistance eligible individuals (AEIs) and is in effect for the period April 1, 2021, to September 30, 2021. Employer costs for the subsidy are offset by a payroll tax credit against the employers’ quarterly taxes. Employers whose credit is greater than the amount of payroll tax owed receive a refund when they submit Form 941, Employer’s Quarterly Federal Tax Return.

Unemployment Benefits. A $300-per-week supplement to federal unemployment benefits that would have expired March 14, 2021, is now extended through September 6, 2021. ARPA also gives eligible taxpayers a special tax break for 2020: the first $10,200 in unemployment benefits is tax-free for taxpayers whose income is less than $150,000 per year. For more information about this topic see, Q & A: the $10,200 Unemployment Tax Break, below.

Child Tax Credit. ARPA includes several important changes pertaining to families, which are summarized below:

• The amount of the credit is $3,000 per child ($3,600 for children under age 6)
• The credit is reduced by $50 for each additional $1,000 of income above the following threshold limits: $150,000 and up for married taxpayers filing jointly, $112,500 for heads of household, and $75,000 for single taxpayers and married filing separately.
• The amount of child tax credit is to be paid monthly in advance in the amount of one-twelfth of an annual amount estimated by the IRS. Payments begin in July 2021 and continue through December 2021.

Child and Dependent Care Credit. For tax year 2021, the child and dependent care credit is refundable and is a maximum of $4,000 for one qualifying individual and a maximum of $8,000 for two or more. The credit begins to decrease for households whose income exceeds $125,000 – and as much as 20 percent for households whose income is more than $400,000.

Earned Income Tax Credit. Several special rules pertain to individuals without children. For 2021, the age range of workers without children is expanded to include adults ages 19-24 and older adults age 65 and over. Students under age 24 who are attending school at least part-time are excluded. The maximum earned income credit increases threefold and income levels required to qualify for the credit increase from $16,000 to $21,000. Additional changes under ARPA include:

• Allowing taxpayers to temporarily use 2019 instead of 2021 income if that income is greater
• Allowing certain separated spouses to take the credit
• Increasing the amount of investment income that would disqualify a taxpayer from receiving the EITC from $2,200 to $10,000.

Affordable Care Act Premium Tax Credit. For 2020, taxpayers who received premium tax credits in advance that were more than what they should have received will not have to repay the excess amount. It applies to taxpayers who have received, or have been approved to receive, unemployment compensation for any week beginning during 2021.

If you have any questions or would like more information about how recent tax law changes affect your tax situation, contact us today!

The federal income tax filing due date for individual taxpayers, including individuals who pay self-employment tax, has been extended to Monday, May 17, 2021, for the 2020 tax year. There is no need to file any forms to qualify for this automatic federal tax filing and payment relief.

Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17; however, penalties, interest, and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. The extended tax return due date applies to any individual who files a federal individual income tax return – or has a federal tax payment reported on one of these forms that would otherwise be due April 15, 2021 – using the Form 1040 series, including Form 1040, 1040-SR, and 1040-PR. Additionally, foreign trusts and estates with federal income tax filing or payment obligations that file Form 1040-NR now have until May 17, 2021.

The extended deadline also applies to schedules, returns, and other forms that are filed with a Form 1040 or are required to be filed by the due date of the Form 1040, such as Schedules H, Schedule SE, and Forms 965-A, 3520, 5329, 5471, 8621, 8858, 8865, 8915-E, and 8938.

This extended deadline does not apply to any other type of federal tax or any federal information returns, including estates, trusts, corporations, and other businesses. Nor does it apply to quarterly estimated payments related to self-employment income, dividends, and rental income, all of which remain due April 15, 2021.

File as Soon as Possible for Refunds

Even with the new deadline, however, taxpayers should consider filing as soon as possible, especially those who are owed refunds. Filing electronically with direct deposit is the fastest way to get refunds and can help some taxpayers receive any remaining stimulus payments they may be entitled to.

Individual taxpayers who need additional time to file beyond the May 17 deadline can request a filing extension until October 15, 2021, by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. If you think you need an extension, please contact the office as soon as possible.

Filing Form 4868 gives taxpayers until October 15 to file their 2020 tax return; it does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by May 17, 2021, to avoid interest and penalties.

Contributions to IRAs and Health Savings Accounts

The May 17 extended deadline also applies to individuals making 2020 contributions to their individual retirement arrangements (IRAs and Roth IRAs), health savings accounts (HSAs), Archer Medical Savings Accounts (Archer MSAs), and Coverdell education savings accounts (Coverdell ESAs). The date for reporting and payment of the 10% additional tax on amounts includible in gross income from 2020 distributions from IRAs or workplace-based retirement plans is also automatically postponed until May 17, 2021.

Estimated Tax Payments

This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS by people whose income isn’t subject to income tax withholding, including self-employment income, interest, dividends, alimony, or rental income.

Most taxpayers automatically have their taxes withheld from their paychecks and submitted to the IRS by their employer and do not need to pay estimated taxes.

State Tax Returns

The extended federal tax filing deadline of May 17, 2021, only applies to individual federal income returns and tax (including tax on self-employment income) payments that are normally due April 15, 2021. As such, taxpayers also will need to file income tax returns in 42 states plus the District of Columbia. State filing and payment deadlines vary and are not always the same as the federal filing deadline, and it is up to individual states to decide whether to extend tax return deadlines.

Unclaimed Refunds Deadline Extended to May 17

There is a three-year window of opportunity to claim a refund on prior-year tax returns. If taxpayers do not file a return within three years, the money becomes property of the U.S. Treasury. For tax year 2017 Federal income tax returns, the normal April 15 deadline to claim a refund has also been extended to May 17, 2021. Taxpayers must properly address, mail, and ensure the tax return is postmarked by the May 17, 2021, due date.

Help is Just a Phone Call Away

If you need help with bookkeeping, individual income tax, and/or cross-border tax services, contact FAS! We have an Enrolled Agent ready to assist you. Contact us at admin@fas-accountingsolutions.com or at 713-855-8035.