Benefits of Itemized Deductions

March 3, 2022 by fasnew@fasnew@66541.6486513

Benefits of Itemized Deductions

If you itemized deductions instead of taking the standard deduction, you may be able to save more money on your taxes. This is because itemized deductions allow you to deduct certain expenses that aren’t covered by the standard deduction. For example, if you spent a significant amount of money for home improvements, or if you bought or refinanced a home during the year, those costs are deductible only if you itemize your deductions.

Here are some benefits of itemized deductions:

Deducting State and Local Income, Sales, and Property Taxes

Taxpayers are allowed to deduct income taxes they have paid to the state and their municipality, but the combined total of deductions cannot exceed $10,000 if married and filing jointly, $5,000 if married filing separately.

Buying a home

Starting in 2021, taxpayers who bought a new home may deduct mortgage interest for a total of $750,000 ($375,000 for married filing separately) on qualified debt for a first and second home. For mortgages with an original principal balance of $1 million or more that were taken out before December 15, 2017, the limit remains at $1 million.

Refinanced home

The mortgage interest deduction is limited to interest paid on a loan secured by the taxpayer’s main home or second home. If homeowners refinance, they may deduct only the interest paid on the amount of the loan used to improve their main or second home, but not any other amounts.

Donations

Making a charitable donation is one of the ways in which taxpayers can reduce their tax burden. To take advantage of this deduction, donate to a qualifying 501(c)(3) public charity or private foundation. Remember that non-cash donations may require that you have a qualified appraisal done to substantiate your deduction. You must be able to provide proof of all donations.

Investment Interest Expense

Investment interest expense is interest paid or accrued on a loan or part of a loan that is allocated to income from taxable investments, such as interest on a loan you took out to buy stock in a brokerage account.

Bottom line

Opting for a Standard Deduction is easier for most taxpayers so they choose it over Itemized Deduction. However, what most people don’t know is that using Itemized Deduction opens up a ton of tax break opportunities for you to take advantage of! But be careful, you must have an ample amount of tax know-how to properly itemize your deductions. A simple mistake might lead to hefty fines and penalties. If the thought of these tax break opportunities pique your interest but you don’t know how to itemize your deductions, well worry no more! Simply send us a message and let our expert Enrolled Agent do your taxes for you!

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2022 Tax Filing Season in Peril of Delays

February 23, 2022 by fasnew@fasnew@66541.6486513

2022 Tax Filing Season in Peril of Delays

2022 Tax filing season is in peril of delays because the Internal Revenue Service has not yet processed more than 24 million tax returns from last year, a large increase from the number reported by the agency. The IRS also said it is taking many taxpayers far longer than usual to get their refunds.

The Situation

The IRS’s taxpayer advocate service delivered a report to the tax-writing committees in Congress. The inventory lists unprocessed returns and related correspondence. The agency’s warning that it would provide poor service in the 2022 filing season is nothing new; this has been the case for years.

Three people who spoke on the condition of anonymity because they were not approved to speak publicly say that the IRS is struggling to hire and train new staff, and respond to growing bipartisan pressure from lawmakers and tax preparers to clear the logjam and provide relief to taxpayers. Among the considerations are suspending tax collections and excusing some penalty enforcement.

30 Senators wrote to Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig on Thursday, saying that a raft of delayed returns, some dating back to the 2019 filing season, along with millions of missed calls and other correspondence had threatened “our constituents’ ability to have their returns processed accurately and efficiently.” However, it can be noted that some Senators are hindering any new federal help that might be able to save the agency from drowning even further.

The IRS’s productivity took a big hit during the coronavirus pandemic, with thousands of employees working from home for months without access to returns, audits, and other business. The federal stimulus measures also added to the agency’s workload, as it emphasized getting relief money to millions of Americans. Paper returns took the greatest hit, as mail piled up on trucks outside closed offices for months. Foreboding peril of delay on the 2022 tax filing season.

The storm over hiring continued to intensify on Tuesday after IRS Inspector told lawmakers at a hearing that the agency continues to suffer from severe, long-standing hiring shortages, inefficient practices, and old equipment. That includes mail processing woes since its systems have “outdated dust collectors” that cause paper jams. Poor scanners, meanwhile, meant the IRS last year missed out on $56 million because of “untimely check deposits,” since the agency could not determine if envelopes it received contained checks.

Erin Collins, of the National Taxpayer Advocate, said in January that there was a backlog at the IRS of about 10 million tax returns. An IRS official said that 6 million individual tax returns were unprocessed from the previous filing season. In the past, the IRS typically processed only one million or fewer returns in a season.

But the new data include broader categories of work, such as manufacturing, that have been stagnant since the pandemic, and some positive returns that have come in this year. Taxpayer advocates, lawmakers, and others say the revised count is a more realistic representation of activity.

It does not include returns that are pending because of slowdowns related to enforcement actions, appeals of audits, notices of tax liens, penalties, or other business workflows.

More than 80 percent of taxpayers now file their tax returns electronically, and those can generally be processed quickly. The remaining 10 percent who file Form 1040 on paper should expect a delay in processing any tax return that contains errors.

The IRS is still processing paper returns filed for the 2020 tax year and has only caught up to April 2021 for returns without errors, according to the most recent information available on its website. Last year the vast majority of taxpayers— about 77 percent—received refunds.

IRS Burden

The IRS’s backlog of letters was formed in part by the many demands put on it during the Covid pandemic.

Congress gave the agency the power to send direct relief checks to millions of Americans, giving it immense pressure to act swiftly to help cash-strapped families newly out of work. Multiple rounds of such payments have been approved, and Democrats last March made an even more work-intensive request: to stand up a system that would distribute monthly tax payments to families with young children.

Since the IRS was underfunded and understaffed for decades before it was given new responsibilities, President Biden and top Democrats have proposed boosting the budget, but their effort has so far failed to gain enough support in Congress, where lawmakers are still working on a spending deal to fund the government and avoid a shutdown.

Both parties have said they are confident that the federal government can remain open for the rest of the fiscal year, which ends on September 30.

Rather than funding new IRS initiatives, Some Senators this week called on the agency to consider other tactics that it has previously used to ease the burden on taxpayers. These include halting automated invoice and collection processes until agency staff can sort through piles of unopened mail and better prioritizing which returns it takes.

The senators wrote in their letter, “When taxpayers cannot get help from those tasked with administering our tax laws, it diminishes the integrity of our voluntary tax system.”

The solution

The IRS has already halted collection notices that are triggered when records show a taxpayer owes taxes and has not filed a tax return. Many of these letters have gone out before the returns have been processed. With this they hope that the 2022 tax filing season won’t be in peril of delay.

A Treasury official who spoke on the condition of anonymity to describe private conversations said Rettig said at a Ways and Means Committee meeting in January that the agency is working to get the backlog of unprocessed tax returns back to normal levels by the end of the year.

The commissioner announced last week that he was temporarily reassigning 1,200 employees as part of a “surge team” to help. However, the House Ways and Means Committee oversight panel was told this week that staffing problems are far broader, due in part to recruiting challenges and low pay.

The agency had originally intended to hire 5,000 workers for several campus locations but ended up filling fewer than 200 positions. In a bid to attract talent, the organization is paying employees $500 if they refer job candidates that stay in their roles for at least a year.

The IRS is having issues with its staff. The agency has one of the oldest workforces in the U.S. Treasury Inspector General for Tax Administration reported that as of August 2021, the IRS faced a total staff shortfall in the submission processing unit of about 2,598 employees. The surge Rettig announced is not going to submission processing, but will be staffing a department known as accounts management, which answers the taxpayers’ phone calls and responds to general correspondence.

The watchdog urged the IRS not to close its processing center in Austin, Texas — a planned part of a long-term consolidation as more business is done electronically — until hiring and backlog shortages are addressed, rather than waiting for the agency’s current approaches to improve staffing to bear fruit.

The looming troubles with this filing season led tax preparer groups to form a coalition in recent weeks as part of an effort to pressure the agency for relief.

The executive director of the National Society of Tax Professionals, said groups representing more than 100,000 tax preparers have joined together to help taxpayers with an inventory of unprocessed returns. “There is nobody to help the taxpayer,” said Tross, quoted in the February issue of The Journal of the National Society of Tax Professionals. “What is it going to take to get this outstanding inventory through the system?”

The coalition said it has received complaints from members who claim they have gotten too many automated notices saying they failed to file or failed to pay, when in fact they have or have sent letters back contesting the charges. Members seeking to file power of attorney forms for clients also have gotten nowhere.

Bottomline

The IRS is facing an unprecedented level of backlog coupled with manpower deficiency and roadblocks manned by some Senators which forebods 2022 tax filing season in peril of delays. This level of hardship that the IRS is facing could mean that the tax returns for this year would be delayed, but nothing is for certain yet. The odds might be against the IRS, but they may still be able to come out ahead despite internal and external forces holding their hands back. What does it mean for taxpayers? Delays! Even though the tax preparer groups are doing everything they can to protect the interest of their clients, the ball is still in the hands of the IRS. At this point, all we can do is wait and see if the IRS will come through or if they will drop the ball this tax season.

Don’t want the hassle of taxes dragging you down? Send us a message today and let one of our Enrolled Agents do your taxes for you!

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IRS Red Flags That Trigger Audits

February 16, 2022February 15, 2022 by fasnew@fasnew@66541.6486513

IRS Red Flags That Trigger Audits

This tax season has begun, and the IRS has warned that filing mistakes may cause delays amid staffing shortages and a massive backlog. Tax experts say that filing electronically is your best chance for a quick refund but other moves may attract the IRS’s attention.

The IRS closed nearly half a million audits in the fiscal year 2020, or about 0.29% of the roughly 157 million individual income tax returns it received, according to agency data released.

The IRS has a three-year statute of limitations for auditing a tax return, but there’s no limit on the amount of time they may pursue fraud or non-filers. One of the first cues may be claiming too many credits or deductions compared to your income, tax experts say. Here are the IRS red flags that trigger audits and some pointers as to how you can be mindful of them.

Audit Triggers

The Internal Revenue Service uses software to assign numeric scores to each tax return, with higher scores more likely to set off audit alarms.

This system calculates the amount of each deduction and credit that taxpayers can claim based on income. If a taxpayer’s write-offs fall outside the system’s calculated range, the score may increase or decrease depending on whether the number of deductions exceeds what the taxman allows. For example, if a taxpayer earning $90,000 claims $60,000 in charitable deductions, the system will flag this as suspicious.

if the forms you submit do not match your reported income, an automated notice will be triggered, which may lead to further questions from the IRS.

For example, the IRS might receive your full-time wages on Form W-2, contract earnings on Form 1099-NEC. But to avoid underreporting, you should double-check these forms with a free IRS transcript before filing. You can get a copy of your tax transcripts by setting up an e-services account at the IRS website.

Top IRS Red Flags that Trigger Audits

Unreported Income
Rounded Numbers
Refundable credits like the earned income tax credit
Excessive write-offs compared with earnings

Write-Off Red Flags

Advance child tax credit or stimulus payment errors are likely to be caught by the IRS this year, but other write-offs tend to be a recurring reason. As an example, the earned income tax credit—a tax benefit for low- to middle-income families—is valuable because it is refundable; you may still get a refund even if your income is too low to owe taxes.

Claiming the earned income tax credit as a self-employed person is a give-away that you haven’t been reporting all your income. You need to have receipts for income, not just deductions. Self-employed taxpayers must be cautious when making deductions for a home office or a vehicle because the IRS typically disallows any deductions that can be classified as personal, rather than business expenses.

When you’re reporting income and expenses, be accurate and precise. Imprecise numbers are a tipoff that you have not done the work necessary to accurately report your revenue and expenses.

Burden of Proof

You should not be afraid to face those tax problems if you can back up your claims with proper documentation. “The IRS is not the enemy”.

Bottom line

While the chances of the IRS auditing you are slim, there are still several reasons why your return may get flagged by the IRS’ system, which could then in turn trigger a notice for the IRS to audit you. Signs of a possible audit include unusually high write-offs compared with revenues, unreported income, refundable tax credits, and more. Remember that when it comes to dealing with the IRS, you are only as good as your supporting documents. So you should be mindful of these IRS red flags that trigger audits.

Don’t want to deal with the IRS altogether? There is a way! Send us a message today and let our expert tax professional deal with them. Get yourself the peace of mind that your tax professional is working day and night to ensure that your tax return is made to be fully compliant with the IRS.

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Benefits of having a Tax Professional

February 2, 2022 by fasnew@fasnew@66541.6486513

Benefits of having a Tax Professional

The IRS announced the start of the 2021 tax year last January 24, 2022. When the IRS sounded the horn that signals the beginning of the tax filing season, most taxpayers are faced with the question of whether they should do their taxes at home or if they should hire a tax professional to do it for them. Some might say that they can do their taxes themselves without the need for any professional to help them. But is the US tax code really that simple that you don’t need to have a tax professional do your taxes for you?

Turns out the answer is not so simple!

DIY Tax Preparation

Taxpayers who choose to do their own taxes think that filing their taxes simply means that they have to answer the questions included in whatever form they think is applicable to them. They are partially correct; however, the US tax code is not as simple as they think it is. The US tax code is getting more and more complicated as the years go by.

Drake Software is a Professional Tax Software company that conducted a survey and they found out that around 46% of paid tax preparers did not have any professional designation. Compare that to the 29% of taxes filed by CPAs and 26% filed by Enrolled Agents.

Having someone with no professional designation to file your taxes for you is as dangerous as filing your taxes yourself without even flipping through the first page of the US tax code. Professional designations are provided to Accountants and Enrolled Agents because they have shown a high level of competency when it comes to dealing with the ever-evolving landscape of tax rules and policies. Going through the maze of taxes without the proper knowledge, continuing professional education and experience can have you facing hefty interest and penalties.

Tax Professionals

If the US tax code is as complicated as it ever was, going to a tax professional to do my taxes is the right move, right? The answer to that is also not as simple as it seems. Tax professionals are given the designation because they have shown a high level of competency in dealing with the tax code when they were tried and tested. However, not all tax professionals are created equal.

For example, out of all the registered tax professionals in the country, only 41% have finished their Continuing Professional Education coursework, the other 48% are yet to finish their CPE coursework. Meanwhile, only 47% of tax professionals say that they have studied the latest changes in the tax law that will affect the upcoming filing season, the other 53% say that they haven’t gotten to studying the changes yet according to the survey conducted by Drake Software.

Competency

Competency is not the only criteria to becoming a trusted and effective tax professional. Since tax professionals are dealing with sensitive financial information, you must choose someone that takes good care of them and makes every effort to keep your sensitive financial information away from prying eyes. According to the survey conducted by Drake Software, only 39% of tax professionals use secure online portals to accept and store their client’s sensitive financial documents. 35% of tax professionals haven’t gotten to using a secure online portal and the other 22% don’t intend to use a secure online portal to properly handle their clients’ sensitive financial information.

The bottom line is that the benefit of having a tax professional to do your taxes for you is not the same across the board. Some tax professionals are more competent and experienced when it comes to dealing with the US tax code and some tax professionals conduct their services in a more secure manner protecting you from the prying eyes of no good-doers. If you are to choose a tax professional to do your taxes for you this tax filing season, make sure that you ask them the right questions for you to know if they can give you the peace of mind that your taxes are done the right way according to the latest IRS guidelines and if they can handle and store your sensitive financial information in a secure and safe manner.

Bottomline

Doing your taxes to save you some money from hiring a tax professional might seem like a good idea but hiring a tax professional gives you the benefit of knowing that your taxes are done the right way helping you steer clear of the IRS’ bad side which can lead to an audit and then lead to hefty fines and penalties. However, if you are going to choose a tax professional to do your taxes for you, make sure that they can give you the benefit of peace of mind that they are well versed in the latest updates in the tax regulations and that they can handle your sensitive financial information in a safe and secure manner.

The benefit of having a tax professional is not the same across the board. If you want an experienced tax professional to do your taxes for you with the utmost regard for your sensitive financial information then look no further. We are here to help you have the peace of mind that your unique tax situation is handled accordingly to the latest tax code changes and that your sensitive financial information is handled in a safe and secure manner that keeps it away from prying eyes.

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2021 Highlights: Tax processing and refund delay

January 31, 2022 by fasnew@fasnew@66541.6486513

2021 Highlights: Tax processing and refund delay

Erin Collins, the National Taxpayer Advocate, sums up her assessment of the calendar year 2021 in this short sentence. In the Taxpayers’ Advocate’s Annual Report to Congress, the problems of last year were revealed and warnings were issued for this year’s tax season.

Let’s look at the 2021 highlights concerning tax processing and refund delays. The 2021 highlight on tax processing and refund delay might help us understand the situation facing the concerned agencies handling our 2021 tax processing and refund.

Tough Job

Collins says that the IRS faced a busy year in 2021, hence the tax processing and refund delay. The agency was recovering from the pandemic and at the same time had to carry out new laws meant to help combat the financial difficulties caused by that virus.

According to the IRS’s report, 478 million Economic Impact Payments were issued totaling more than $800 billion as the IRS processed and sent out Advance Child Tax Credit payments to more than 36 million families. Over $90 billion has been paid out so far. The report says that in 2021 the IRS lost 17% of its workforce while its workload increased by nearly 20%.

Backlogs

Despite a focus on the problems of 2021 highlights, Collins looks ahead to next year’s filing season. According to the report, “Paper is the IRS’s Kryptonite, and the agency is still buried in it.”

The Internal Revenue Service is still working hard to get its tax processing and refund backlog of 6 million unprocessed original individual Form 1040 returns, over 2 million unprocessed amended individual returns, and more than 2 million unprocessed Forms 941 and 941-X employer’s quarterly tax returns up to date.

In addition to all that, the IRS has another estimated 5 million pieces of taxpayer correspondence dating back to April and showing many taxpayers still waiting for refunds – nine months later. An evident proof of the tax processing and refund delay experienced by taxpayers.

E-filed returns are processed much more quickly than paper returns, minimizing refund delays, but the IRS found that millions of e-filed returns were suspended during processing because discrepancies were found between the amounts claimed on the returns and amounts on IRS records.

Delayed processing = Late refunds

When the IRS’s May 17, 2021 deadline for filing federal income tax returns dawned, more than 35 million returns were still on hand. About half of these were paper returns awaiting review by IRS staffers. The other half were e-filed returns that had been suspended during processing. Both instances caused large delays for taxpayers expecting refunds.

“Refund delay have a disproportionate impact on low-income taxpayers,” the report says. “Earned Income Tax Credit (EITC) benefits are worth up to $6,660, Child Tax Credit benefits worth up to $2,000 per qualifying child under the tax year 2020 rules, and RRCs are potentially worth several thousand dollars for families who did not receive some or all of their EIPs. Millions of taxpayers rely on the benefits from these programs to pay their basic living expenses, and when refunds are substantially delayed, the financial impact can range from mild inconvenience to severe financial hardship.”

Collins says that the number of returns requiring manual processing or an audit might increase in 2022. New legislation authorizing advances of the Earned Income Tax Credit could mean that even more discrepancies exist between what people report on their tax returns and the IRS records. Thsi legislation might be able to avoid tax processing and refund delay for 2022.

In addition, Congress has authorized monthly advance child tax credits. These payments can be claimed as a credit by taxpayers who don’t receive their Economic Impact Payments for one reason or another.

All these payments have to be reconciled when the recipients file their 2021 returns this tax season. Despite IRS efforts to head off problems, the risk of discrepancies – and math error notices generated by them – remains high.

Customer Service Shortfalls Top the List

While a number of problems were noted by the report to Congress, Collins found some had widespread effects on IRS operations:

The “Where’s My Refund?” tool isn’t exactly a fountain of information. The online tool won’t tell you about unprocessed returns and also won’t explain any status delays, reasons for delays, or what actions taxpayers should take.
The IRS answered 11% of 282 million calls. This pushed call volumes to triple from the previous year’s; with telephone support getting 282 million telephone calls. Not that they were all answered. Customer service representatives only were able to actually answer about 11 percent of those. “Among the lucky one in nine callers who were able to reach a CSR, the IRS reported that hold times averaged 23 minutes,” the report says. “Practitioners and taxpayers have reported that hold times were often much longer, and frustration and dissatisfaction was high throughout the year with the low level of phone service.”
The IRS mailed more than 6 million taxpayer notices during 2021. In many cases, a response was required by the receiving taxpayer and if the IRS automatic system didn’t process a response, the refund claimed on the return wasn’t released. If a taxpayer received a notice about an adjustment to their taxes, the automated system could take action against them if they didn’t respond within 30 days—a fact that many taxpayers were unaware of until it was too late.

Bottomline

The IRS may be known as one of the most cost-efficient agencies there is but they have their work cut out for them this tax filing season. To avoid any problems with your tax filing this year, it would be a great idea if you file your return with a tax professional. This way you can help reduce the paper returns that the IRS must process leading them to focus more of their manpower in processing tax returns filed online. As the report said, tax returns filed online get processed much faster, meaning you get to have your refunds faster.

Need a tax professional to help you? Get in touch with us today!