Tax Breaks for Families With Children
If you have children, one or more
of these tax credits and deductions could help your family reduce the amount of
tax owed when you file your 2020 tax return. Let's take a look:
1.
Child Tax Credit
Generally, taxpayers can claim the Child Tax Credit for each
qualifying child under the age of 17. The maximum credit is $2,000 per child.
Taxpayers who get less than the full amount of the credit may qualify for the
Additional Child Tax Credit (see below). The refundable portion of the credit
is $1,400 so that even if taxpayers do not owe any tax, they can still claim
the credit. A $500 nonrefundable credit is also available for dependents who do
not qualify for the Child Tax Credit (e.g., dependents age 17 and older).
2.
Child and Dependent Care Credit
If you pay someone to take care of your dependent to work or look
for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000
of eligible expenses. For two or more qualifying dependents, you can claim up
to 35 percent of $6,000 (or $2,100) of eligible expenses. The credit percentage
is reduced for higher-income earners but not below 20 percent, regardless of
the amount of adjusted gross income. This tax credit is nonrefundable.
Even if you don't have dependent children if
you care for an elderly relative and can claim them as a dependent, you might
be able to take the Child and Dependent Care Credit. Please call for details.
3.
Earned Income Tax Credit
Taxpayers who worked but earned less than $56,844 in 2020 could
qualify for this credit, which is worth up to $$6,660 in 2020. Taxpayers may
qualify with or without children.
Due to the pandemic, taxpayers can use their
2019 earned income to figure your EITC, if their 2019 earned income was more
than their 2020 earned income.
4.
Additional Child Tax Credit
This refundable tax credit is for certain individual taxpayers for
whom the Child Tax Credit exceeds the amount of income tax owed. The credit is
worth $1,400 and may give you a refund even if you do not owe any tax.
Due to the pandemic, taxpayers may be able to
use their 2019 earned income to figure this credit if their 2019 earned income
is more than your 2020 earned income.
5.
Adoption Credit.
It is possible to claim a tax credit for certain costs paid to
adopt a child. For details, see Form 8839, Qualified Adoption Expenses.
6.
Education Tax Credits
An education credit can help with higher education costs. Two
credits are available: the American Opportunity Tax Credit and the Lifetime
Learning Credit. These credits may reduce the amount of tax owed. If the credit
cuts a taxpayer's tax to less than zero, it could mean a refund. Taxpayers may
qualify even if they owe no tax. Complete Form 8863, Education Credits, and
file a return to claim these credits.
7.
Student Loan Interest
Taxpayers may be able to deduct interest paid on a qualified
student loan. They can claim this benefit even if they do not itemize
deductions. If you're not sure if the interest you paid on a student or
educational loan is deductible, don't hesitate to call.
Questions?
If you have any questions about tax credits and deductions that
could benefit your tax situation, please contact the office.
For More Information
Visit: http://www.avyantax.com/
Renting Out a Second Home
In general, income from renting a
vacation home for 15 days or longer must be reported on your tax return on
Schedule E, Supplemental
Income and Loss. You should also keep in mind that the definition
of a "vacation home" is not limited to a house. Apartments,
condominiums, mobile homes, and boats are also considered vacation homes in the
eyes of the IRS. Tax rules on rental income from second homes can be confusing,
especially if you rent the home out for several months of the year and use the
home yourself.
Minimal
Rental Use
However, there is one provision
that is not complicated; homeowners who rent out their property for 14 or fewer
days a year can pocket the rental income tax-free. In other words, if you live
close to a vacation destination such as the beach or mountains, you may be able
to make some extra cash by renting out your home (principal residence) when you
go on vacation as long as it's two weeks or less. Although you can't take
depreciation or deduct for maintenance, you can deduct mortgage interest,
property taxes, and casualty losses on Schedule A (1040), Itemized Deductions.
Dividing
Expenses Between Rental and Personal Use
A vacation home is considered a
residence if personal use exceeds 14 days or more than 10 percent of the total
days it is rented to others (if that figure is greater). When you use a
vacation home as your residence and also rent it out to others, you must divide
the expenses between rental use and personal use. You may not deduct the rental
portion of the expenses that are more than the rental income.
Let's say you own a beach house (your
"second home") and rent it out during the summer between mid-June and
mid-September. You and your family also vacation at the house for one week in
October and two weeks in December. The rest of the time, the house is unused.
The family uses the house for 21
days, and it is rented out to others for 121 days for a total of 142 days of use
during the year. In this scenario, 85 percent of expenses such as mortgage
interest, property taxes, maintenance, utilities, and depreciation can be
written off against the rental income listed on Schedule E. As for the
remaining 15 percent of expenses, only the owner's mortgage interest and
property taxes are deductible on Schedule A.
Tax
Reform and Vacation Rentals
Under tax reform, the amount of
interest a homeowner can write off is limited to mortgage loan amounts of
$750,000 or less for tax years 2018-2025. If you own a second home as well, the
two mortgages combined could exceed the $750,000 cap. In addition, property tax
deductions (combined with state income taxes) are capped at $10,000.
If you do not rent out your second home, you could be losing out
on deductions (taxes and mortgage interest) that lower your taxable income.
Therefore, it is prudent to consider renting out your second home as a vacation
rental since you would then be able to deduct these expenses and possibly
others such as Homeowners Association fees, maintenance expenses, and
utilities. Furthermore, you can still use the home 14 days a year (more if you
stay there for home maintenance-related activities) and deduct these expenses.
Even if you use it more than 14 days a year, you can still deduct these
expenses proportional to the amount of rental use.
Net
Investment Tax
If you have a rental income, you
may be subject to the Net Investment Income Tax (NIIT), a 3.8 percent tax that
applies to individuals, estates, and trusts that have net investment income
above applicable threshold amounts.
Questions?
Tax laws are complicated. If you
have any questions about renting out your second home or any other tax matters,
please call.
For More Information
Visit: http://www.avyantax.com/
Avoiding an IRS Tax Audit
Just 0.45 percent of taxpayers
were audited in fiscal year 2019. Still, with taxes becoming more complicated
every year, there is an even greater possibility of confusion turning into a
tax mistake and an IRS audit.
Avoiding "red flags" like the ones listed below could help.
Red
Flags That Trigger IRS Audits
When you operate a business and
file Schedule C, the IRS assumes you operate that business to make a profit.
Claiming losses year after year without any profit raises a red flag with the
IRS.
Resist the temptation to
underreport your income if you are self-employed or have a second job. The IRS
receives the same 1099 forms that you do, and even if you didn’t receive a Form
1099 when you think you should have, you can't be sure the IRS didn't either.
If the IRS finds a mismatch, you are sure to hear about it.
In general, if you withdraw money
from a retirement account before age 59 1/2, you will need to pay a 10 percent
penalty. You will also owe income tax on the amount withdrawn unless you
qualify for an exception. Sometimes - but not always - these types of early
withdrawals trigger an audit, typically a correspondence audit where the IRS
sends you a letter.
Income derived from a hobby such
as operating a vineyard or breeding horses must be reported on your return.
Expenses are deductible up to the amount of that income. On the other hand, you
can only deduct losses if you run your hobby like a business, i.e., with a
reasonable expectation of making a profit. Most hobbies that make a profit in
three years out of five are considered a business.
Too many deductions for your
income and type of business, claiming 100 percent use of a car for business,
and inflating business meals, travel, and entertainment expenses are examples
of excessive business expenses that could raise a red flag. Always save
receipts and document your mileage and expenses.
Taxpayers that don't itemize can
take an above-the-line deduction for charitable contributions made in tax year
2020 on their tax returns of up to $300 for qualified charitable cash donations
that reduce taxable income. The maximum amount for 2020 tax returns is $300
(i.e., not $600), even if you are married filing jointly.
For taxpayers that do itemize,
taking disproportionately large deductions as compared to your income could
raise a red flag. The IRS keeps records of average charitable donation at
various income levels, and even if you inherited a large sum of money and want
to donate it to charity, there's a chance you could get audited.
Professional gamblers report
winnings/losses on Schedule C, Profit
or Loss from Business (Sole Proprietorship). They can also deduct
costs related to their profession, such as lodging and meals, for example.
Gambling winnings are reported on Form W-2G, which is sent to the IRS. As such,
you must report this income. You may deduct gambling losses, but you must
itemize your deductions on Schedule A (Form 1040) and keep a record of your
winnings and losses. Ordinary taxpayers (recreational gamblers) report
income/losses as "Other Income" on Schedule 1 of their Form 1040 tax
return.
What
To Do if You Are Audited
If you've received correspondence from the IRS in the U.S. mail
that indicates that you are being audited, don't try to handle it yourself.
Instead, contact the office immediately for assistance.
Taxpayers who have been audited or otherwise interacted with the
IRS should know that they have the right to know when the IRS has finished the
audit. The right to finality is one of ten basic taxpayer rights - known
collectively as the Taxpayer Bill of Rights. All taxpayers dealing with the IRS
are entitled to these rights.
For More Information
Visit: http://www.avyantax.com/
What's New for 2020 Tax Returns
As always, taxpayers
should be aware of several key items involving credits, deductions, and refunds
when filing their tax returns. Let's take a look:
1. Recovery Rebate Credit/Economic Impact Payment. In January, the Treasury Department and the IRS
began sending the second round of Economic Impact Payments (EIP2) to millions
of Americans as part of the implementation of the Coronavirus Response and Relief
Supplemental Appropriations Act. As with the first round of Economic Impact
Payments (EIP1), taxpayers don't need to take any action to receive these
payments.
Taxpayers who didn't
receive an advance payment should review the eligibility criteria when they
file their 2020 taxes because many people, including recent college graduates,
may be eligible for a credit.
Taxpayers who received
an Economic Impact Payment should have received Notice 1444, Your Economic Impact
Payment, and should keep it
with their 2020 tax records.
Individuals who received
the full amount for both Economic Impact Payments do not need to complete
information about the Recovery Rebate Credit on their 2020 Form 1040 or 1040-SR
because they've already received the full amount of the Recovery Rebate Credit
as advance payments.
Eligible individuals who
did not receive an Economic Impact Payment – either the first or the second
payment – can claim a Recovery Rebate Credit when filing their 2020 Form 1040
or 1040-SR this year. They may be eligible to claim the Recovery Rebate Credit
on their tax year 2020 federal income tax return if:
they
didn't receive an Economic Impact Payment, or
their
Economic Impact Payment was less than the full amount of the Economic
Impact Payment for which they were eligible.
2. Option to Use Prior Year Income Amounts. Also new this year is the option to use prior
year income amounts (2019) when computing the Earned Income Tax Credit and the
Additional Child Tax Credit.
3. Interest on Refunds is Taxable. Taxpayers who received a federal tax refund in
2020 may have been paid interest. Refund interest payments are taxable and must
be reported on federal income tax returns. In January 2021, the IRS will send
Form 1099-INT, Interest Income to anyone who received interest totaling $10 or more.
4. Charitable Deductions. In 2020, taxpayers who don't itemize deductions may take a
charitable deduction of up to $300 for cash contributions made in 2020 to
qualifying organizations. Please note that this amount applies whether filing
individual or joint returns. In 2021, this amount increases to $600 for joint
filers ($300 for single filers).
5. Virtual Currency. If in 2020, you engaged in a transaction involving virtual
currency, you will need to answer the question on page 1 of Form 1040 or
1040-SR. In 2019, this question was on Schedule 1.
6. Form 1099-NEC. Individuals may receive Form 1099-NEC, Nonemployee Compensation, rather than Form 1099-MISC, Miscellaneous Income, if they performed certain services for and
received payments from a business in 2020.
Don't hesitate to
contact the office with any questions or concerns about these and other tax
changes related to the pandemic.
For More Information
Visit: http://www.avyantax.com/
Tax Filing Season Starts February 12
Although
tax season usually starts in late January, this year, the tax filing season is
delayed until February 12, 2021. The delayed start date for individual tax
return filers allowed the IRS time to do additional programming and testing of
IRS systems following the December 27, 2020, tax law changes that provided a
second round of Economic Impact Payments and other benefits to many taxpayers.
This programming work is critical to ensuring IRS systems run smoothly to
minimize refund delays and ensure that eligible people will receive any
remaining stimulus money as a Recovery Rebate Credit when they file their 2020
tax return.
File Electronically for Faster Refunds
Last year's average tax refund
was more than $2,500. Once again, the IRS anticipates that nine out of 10
taxpayers will receive their refund within 21 days when filing electronically
with direct deposit - and there are no issues with their tax return.
More than 150 million tax returns
are expected to be filed this year - the majority before the Thursday, April 15
deadline. To speed refunds during the pandemic, the IRS urges taxpayers to file
electronically with direct deposit as soon as they have the information they
need. To avoid delays in processing, people should avoid filing paper returns
wherever possible.
Taxpayers eligible for IRS Free File were able to begin submitting
tax returns on January 15, 2021, although the returns will not be transmitted
to the IRS until February 12, 2021.
Reminders
Under the PATH Act, the IRS
cannot issue a refund involving the Earned Income Tax Credit (EITC) or
Additional Child Tax Credit (ACTC) before mid-February. The law provides this
additional time to help the IRS stop fraudulent refunds and claims from being
issued, including to identity thieves.
The IRS anticipates a first week
of March refund for many EITC and ACTC taxpayers if they file electronically
with direct deposit and there are no issues with their tax returns. This would
be the same experience for taxpayers if the filing season opened in late January.
Taxpayers will need to check Where's
My Refund for their personalized refund date.
Key Dates for Taxpayers Filing a Return
Important dates that taxpayers
should keep in mind for this year's filing season include:
January 2021
January 15. IRS Free
File opens. Taxpayers can begin filing returns through Free File partners;
tax returns will be transmitted to the IRS starting Feb. 12. Tax software
companies also are accepting tax filings in advance.
January
29. Earned
Income Tax Credit Awareness Day to raise awareness of valuable tax credits
available to many people – including the option to use prior-year income
to qualify.
February 2021
February
12. IRS
begins 2021 tax season. Individual tax returns begin being accepted and
processing begins.
February 22. Projected
date for the IRS.gov Where's
My Refund tool being updated for those claiming EITC and
ACTC, also referred to as PATH Act returns.
March 2021
April 2021
October 2021
Help is Just a Phone Call Away
Taxes are more complicated than
ever. If you have any questions or concerns regarding tax filing this year,
don't hesitate to contact the office.
For More Information
Visit: http://www.avyantax.com/
Identity Protection PIN
Available To All Taxpayers
Starting
in January 2021, the IRS Identity Protection PIN Opt-In Program will be
expanded to all taxpayers who can properly verify their identity. Previously,
IP PINs were only available to identity theft victims.
What is an Identity Protection PIN?
An identity protection personal
identification number (IP PIN) is a six-digit number assigned to eligible
taxpayers to help prevent their Social Security number from being used to file
fraudulent federal income tax returns. This number helps the IRS verify a taxpayer's
identity and accept their tax return. Taxpayers with either a Social Security
Number or Individual Tax Identification Number who can verify their identity
are eligible for the program and the number is valid for one year. Each
January, the taxpayer must get a new one.
How to get an IP PIN
The
preferred method of obtaining an IP PIN - and the only one that immediately
reveals the PIN to the taxpayer - is the Get an IP PIN tool located on the IRS
website. The tool is available starting mid-January 2021 and uses Secure Access
authentication to verify a person's identity. If someone is unable to pass the
Secure Access authentication, there are two alternate ways to get an IP PIN.
Taxpayers with income of $72,000
or less should complete Form 15227,Application
for an Identity Protection Personal Identification Number, and mail
or fax it to the IRS. An IRS employee will call the taxpayer to verify their
identity using a series of questions. Those who pass authentication will
receive an IP PIN the following tax year.
Taxpayers who cannot verify their
identities remotely or who are ineligible to file Form 15277 should make an
appointment for in-person identity verification at an IRS Taxpayer Assistance
Center and bring two forms of picture identification. After the taxpayer passes
authentication, an IP PIN will be mailed to them within three weeks.
What else taxpayers need to know before
applying:
The IP PIN must
be entered correctly on electronic and paper tax returns to avoid
rejections and delays.
Any primary or
secondary taxpayer or dependent can get an IP PIN if they can prove their
identity.
Taxpayers who
want to voluntarily opt into the IP PIN program don't need to file a Form
14039, Identity
Theft Affidavit.
The IRS plans to
offer an opt-out feature to the IP PIN program in 2022.
Confirmed victims of tax-related
identity theft
For
confirmed victims of tax-related identity theft, there is no change in the IP
PIN Program. These taxpayers should still file a Form 14039, Identity Theft Affidavit if
their e-filed tax return is rejected because of a duplicate SSN filing. The IRS
will investigate their case and once the fraudulent tax return is removed from
their account, they will automatically receive an IP PIN by mail at the start
of the next calendar year.
IP PINs will be mailed annually
to confirm victims and participants enrolled before 2019. For security reasons,
confirmed identity theft victims can't opt-out of the IP PIN program. Confirmed
victims also can use the IRS Get
an IP PIN tool to retrieve lost IP PINs assigned to them.
As a reminder, taxpayers should
never share their IP PIN with anyone but their tax provider. The IRS will never
call to request the taxpayer's IP PIN, and taxpayers must be alert to potential
IP PIN scams. If you have any questions about the IP PIN, don't hesitate to
call.
For More
Information Visit: http://www.avyantax.com/
Important Tax Changes
for Individuals and Businesses
Every
year, it's a sure bet that there will be changes to current tax law and this
year is no different. From standard deductions to health savings accounts and
tax rate schedules, here's a checklist of tax changes to help you plan the year
ahead.
Individuals
In 2021,
a number of tax provisions are affected by inflation adjustments, including
Health Savings Accounts, retirement contribution limits, and the foreign earned
income exclusion. The tax rate structure, which ranges from 10 to 37 percent,
remains similar to 2020; however, the tax-bracket thresholds increase for each
filing status. Standard deductions also rise, and as a reminder, personal
exemptions have been eliminated through tax year 2025.
Standard
Deduction
In 2021, the standard deduction increases to $12,550 for individuals (up from
$12,400 in 2020) and to $25,100 for married couples (up from $24,800 in 2020).
Alternative
Minimum Tax (AMT)
In 2021, AMT exemption amounts increase to $73,600 for individuals (up from
$72,900 in 2020) and $114,600 for married couples filing jointly (up from
$113,400 in 2020). Also, the phaseout threshold increases to $523,600
($1,047,200 for married filing jointly). Both the exemption and threshold
amounts are indexed annually for inflation.
"Kiddie
Tax"
For taxable years beginning in 2021, the amount that can be used to reduce the
net unearned income reported on the child's return that is subject to the
"kiddie tax," is $1,100. The same $1,100 amount is used to determine
whether a parent may elect to include a child's gross income in the parent's
gross income and to calculate the "kiddie tax." For example, one of
the requirements for the parental election is that a child's gross income for
2021 must be more than $1,100 but less than $11,000.
Health
Savings Accounts (HSAs)
Contributions to a Health Savings Account (HSA) are used to pay current or
future medical expenses of the account owner, his or her spouse, and any
qualified dependent. Medical expenses must not be reimbursable by insurance or
other sources and do not qualify for the medical expense deduction on a federal
income tax return.
A qualified individual must be
covered by a High Deductible Health Plan (HDHP) and not be covered by other
health insurance with the exception of insurance for accidents, disability,
dental care, vision care, or long-term care.
For calendar year 2021, a
qualifying HDHP must have a deductible of at least $1,400 for self-only
coverage or $2,800 for family coverage and must limit annual out-of-pocket
expenses of the beneficiary to $7,000 for self-only coverage and $14,000 for
family coverage.
Medical
Savings Accounts (MSAs)
There are two types of Medical Savings Accounts (MSAs): The Archer MSA created
to help self-employed individuals and employees of certain small employers, and
the Medicare Advantage MSA, which is also an Archer MSA, and is designated by
Medicare to be used solely to pay the qualified medical expenses of the account
holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in
Medicare. Both MSAs require that you are enrolled in a high-deductible health
plan (HDHP).
Self-only coverage. For
taxable years beginning in 2021, the term "high deductible health
plan" means, for self-only coverage, a health plan that has an annual
deductible that is not less than $2,400 ($2,350 in 2020) and not more than
$3,600 (up $50 from 2020), and under which the annual out-of-pocket expenses
required to be paid (other than for premiums) for covered benefits do not
exceed $4,800 (up $50 from 2020).
Family
coverage. For taxable years beginning in 2021, the term "high
deductible health plan" means, for family coverage, a health plan that has
an annual deductible that is not less than $4,800 and not more than $7,150, and
under which the annual out-of-pocket expenses required to be paid (other than
for premiums) for covered benefits do not exceed $8,750.
AGI Limit
for Deductible Medical Expenses
In 2021, the deduction threshold for deductible medical expenses is 7.5 percent
of adjusted gross income (AGI), made permanent by the Consolidated
Appropriations Act, 2021.
Eligible
Long-Term Care Premiums
Premiums for long-term care are treated the same as health care premiums and
are deductible on your taxes subject to certain limitations. For individuals
age 40 or younger at the end of 2021, the limitation is $450. Persons more than
40 but not more than 50 can deduct $850. Those more than 50 but not more than
60 can deduct $1,690 while individuals more than 60 but not more than 70 can
deduct $4,520. The maximum deduction is $5,640 and applies to anyone more than
70 years of age.
Medicare
Taxes
The additional 0.9 percent Medicare tax on wages above $200,000 for individuals
($250,000 married filing jointly) remains in effect for 2021, as does the
Medicare tax of 3.8 percent on investment (unearned) income for single
taxpayers with modified adjusted gross income (AGI) more than $200,000
($250,000 joint filers). Investment income includes dividends, interest, rents,
royalties, gains from the disposition of property, and certain passive activity
income. Estates, trusts, and self-employed individuals are all liable for the
tax.
Foreign
Earned Income Exclusion
For 2021, the foreign earned income exclusion amount is $108,700 up from
$107,600 in 2020.
Long-Term
Capital Gains and Dividends
In 2021 tax rates on capital gains and dividends remain the same as 2020 rates
(0%, 15%, and a top rate of 20%); however, threshold amounts have increased:
the maximum zero percent rate amounts are $40,400 for individuals and $80,800
for married filing jointly. For an individual taxpayer whose income is at or
above $445,850 ($501,600 married filing jointly), the rate for both capital
gains and dividends is capped at 20 percent. All other taxpayers fall into the
15 percent rate amount (i.e., above $40,400 and below $445,850 for single
filers).
Estate
and Gift Taxes
For an estate of any decedent during calendar year 2021, the basic exclusion
amount is $11.70 million, indexed for inflation (up from $11.58 million in
2020). The maximum tax rate remains at 40 percent. The annual exclusion for
gifts remains at $15,000.
Individuals - Tax Credits
Adoption
Credit
In 2021, a non-refundable (only those individuals with tax liability will
benefit) credit of up to $14,440 is available for qualified adoption expenses
for each eligible child.
Earned
Income Tax Credit
For tax year 2021, the maximum Earned Income Tax Credit (EITC) for low and
moderate-income workers and working families rises to $6,728 up from $6,660 in
2020. The credit varies by family size, filing status, and other factors, with
the maximum credit going to joint filers with three or more qualifying
children.
Child Tax
Credit
For tax years 2020 through 2025, the child tax credit is $2,000 per child. The
refundable portion of the credit is $1,400 so that even if taxpayers do not owe
any tax, they can still claim the credit. A $500 nonrefundable credit is also
available for dependents who do not qualify for the Child Tax Credit (e.g.,
dependents age 17 and older).
Child and
Dependent Care Tax Credit
The Child and Dependent Care Tax Credit also remained under tax reform. If you
pay someone to take care of your dependent (defined as being under the age of
13 at the end of the tax year or incapable of self-care) to work or look for
work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of
eligible expenses in 2021. For two or more qualifying dependents, you can claim
up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher-income
earners, the credit percentage is reduced, but not below 20 percent, regardless
of the amount of adjusted gross income. This tax credit is nonrefundable.
Individuals – Education
American
Opportunity Tax Credit and Lifetime Learning Credit
The maximum credit is $2,500 per student for the American Opportunity Tax
Credit. The Lifetime Learning Credit remains at $2,000 per return. To claim the
full credit for either, your modified adjusted gross income (MAGI) must be
$80,000 or less ($160,000 or less for married filing jointly). Prior to the
passage of the Consolidated Appropriations Act, 2021, taxpayers with MAGI of
$139,000 (joint filers) or $69,500 (single filers) were not able to claim the
Lifetime Learning Credit.
While the phase-out limits for Lifetime Learning Credit increased,
taxpayers should note that the qualified tuition and expenses deduction has
been repealed starting in 2021.
Interest
on Educational Loans
In 2021, the maximum deduction for interest paid on student loans is $2,500.
The deduction begins to be phased out for higher-income taxpayers with modified
adjusted gross income of more than $70,000 ($140,000 for joint filers) and is
completely eliminated for taxpayers with modified adjusted gross income of
$85,000 ($170,000 joint filers).
Individuals – Retirement
Contribution
Limits
The elective deferral (contribution) limit for employees who participate in
401(k), 403(b), most 457 plans, and the federal government's Thrift Savings
Plan remains at $19,500. Contribution limits for SIMPLE plans also remain at
$13,500. The maximum compensation used to determine contributions increases to
$290,000 (up from $285,000 in 2020).
Income
Phase-out Ranges
The deduction for taxpayers making contributions to a traditional IRA is phased
out for singles and heads of household who are covered by an employer-sponsored
retirement plan and have modified AGI between $66,000 and $76,000.
For married couples filing
jointly, in which the spouse who makes the IRA contribution is covered by an
employer-sponsored retirement plan, the phase-out range increases to $105,000
to $125,000. For an IRA contributor who is not covered by an employer-sponsored
retirement plan and is married to someone who is covered, the deduction is
phased out if the couple's modified AGI is between $198,000 and $208,000.
The modified AGI phase-out range
for taxpayers making contributions to a Roth IRA is $125,000 to $140,000 for
singles and heads of household, up from $124,000 to $13999,000. For married
couples filing jointly, the income phase-out range is $198,000 to $208,000, up
from $196,000 to $206,000. The phase-out range for a married individual filing
a separate return who makes contributions to a Roth IRA is not subject to an
annual cost-of-living adjustment and remains $0 to $10,000.
Saver's
Credit
In 2021, the AGI limit for the Saver's Credit (also known as the Retirement
Savings Contribution Credit) for low and moderate-income workers is $66,000 for
married couples filing jointly, up from $65,000 in 2020; $49,500 for heads of
household, up from $48,750; and $33,000 for singles and married individuals
filing separately, up from $32,500 in 2020.
Businesses
Standard
Mileage Rates
In 2021, the rate for business miles driven is 56 cents per mile, down one half
of a cent from the rate for 2020.
Section
179 Expensing
In 2021, the Section 179 expense deduction increases to a maximum deduction of
$1,050,000 of the first $2,620,000 of qualifying equipment placed in service during
the current tax year. This amount is indexed to inflation for tax years after
2018. The deduction was enhanced under the TCJA to include improvements to
nonresidential qualified real property such as roofs, fire protection, and
alarm systems and security systems, and heating, ventilation, and
air-conditioning systems. Also, of note is that costs associated with the
purchase of any sport utility vehicle, treated as a Section 179 expense, cannot
exceed $26,200.
Bonus
Depreciation
Businesses are allowed to immediately deduct 100% of the cost of eligible
property placed in service after September 27, 2017, and before January 1,
2023, after which it will be phased downward over a four-year period: 80% in
2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027 and years beyond.
Qualified
Business Income Deduction
Eligible taxpayers are able to deduct up to 20 percent of certain business
income from qualified domestic businesses, as well as certain dividends. To
qualify for the deduction business income must not exceed a certain dollar
amount. In 2021, these threshold amounts are $164,900 for single and head of
household filers and $329,800 for married taxpayers filing joint returns.
Research
& Development Tax Credit
Starting in 2018, businesses with less than $50 million in gross receipts can
use this credit to offset alternative minimum tax. Certain start-up businesses
that might not have any income tax liability will be able to offset payroll
taxes with the credit as well.
Work
Opportunity Tax Credit (WOTC)
Extended through 2025 (The Consolidated Appropriations Act, 2021), the Work
Opportunity Tax Credit is available for employers who hire long-term unemployed
individuals (unemployed for 27 weeks or more) and is generally equal to 40
percent of the first $6,000 of wages paid to a new hire.
Employee
Health Insurance Expenses
For taxable years beginning in 2021, the dollar amount of average wages is
$27,800 ($27,600 in 2020). This amount is used for limiting the small employer
health insurance credit and for determining who is an eligible small employer
for purposes of the credit.
Business
Meals and Entertainment Expenses
Taxpayers who incur food and beverage expenses associated with operating a
trade or business are able to deduct 100 percent (50 percent for tax years
2018-2020) of these expenses for tax years 2021 and 2022 (The Consolidated
Appropriations Act, 2021) as long as the meal is provided by a restaurant.
Employer-provided
Transportation Fringe Benefits
If you provide transportation fringe benefits to your employees in 2021, the
maximum monthly limitation for transportation in a commuter highway vehicle as
well as any transit pass is $270. The monthly limitation for qualified parking
is $270.
While this checklist outlines
important tax changes for 2021, additional changes in tax law are likely to
arise during the year ahead. Don't hesitate to call if you have any questions
or want to get a head start on tax planning for the year ahead.
For More
Information Visit: http://www.avyantax.com/
Business Tax Provisions:
The Year in Review
Here's
what business owners need to know about tax changes for 2020.
Standard
Mileage Rates
The standard mileage rate in 2020 is 57.5 cents per business mile driven.
Health
Care Tax Credit for Small Businesses
Small business employers who pay at least half the premiums for single health
insurance coverage for their employees may be eligible for the Small Business
Health Care Tax Credit as long as they employ fewer than the equivalent of 25
full-time workers and average annual wages do not exceed $50,000 (adjusted
annually for inflation). This amount is $55,200 for 2020 returns.
In 2020 (as in 2014-2018), the
tax credit is worth up to 50 percent of your contribution toward employees'
premium costs (up to 35 percent for tax-exempt employers).
Section
179 Expensing and Depreciation
Under the Tax Cuts and Jobs Act of 2017, the Section 179 expense deduction
increases to a maximum deduction of $1.04 million of the first $2.59 million of
qualifying equipment placed in service during the current tax year. The
deduction was indexed to inflation for tax years after 2018 and enhanced to
include improvements to nonresidential qualified real property such as roofs,
fire protection, and alarm systems and security systems, and heating,
ventilation, and air-conditioning systems.
Businesses are allowed to
immediately deduct 100% of the cost of eligible property placed in service
after September 27, 2017, and before January 1, 2023, after which it will be
phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025,
and 20% in 2026. The standard business depreciation amount is 27 cents per mile
(up from 26 cents per mile in 2019).
Please call if you have any
questions about Section 179 expensing and the bonus depreciation.
Work
Opportunity Tax Credit (WOTC)
Extended through 2020 under the Further Consolidated Appropriations Act, 2020,
the Work Opportunity Tax Credit can be used by employers who hire long-term
unemployed individuals (unemployed for 27 weeks or more). It is generally equal
to 40 percent of the first $6,000 of wages paid to a new hire. Please call if
you have any questions about the Work Opportunity Tax Credit.
SIMPLE
IRA Plan Contributions
Contribution limits for SIMPLE IRA plans increased to $13,500 for persons under
age 50 and $16,500 for persons age 50 or older in 2020. The maximum
compensation used to determine contributions is $285,000.
Please contact the office if you
would like more information about these and other tax deductions and credits to
which you are entitled.
For More Information Visit: http://www.avyantax.com/
Individual Taxpayers: Recap for 2020
As we close out the year and get ready for tax season, here's what individuals and families need to know about tax provisions for 2020.
Personal Exemptions
Personal exemptions are eliminated for tax years 2018 through 2025.
Standard Deductions
The standard deduction for married couples filing a joint return in 2020 is $24,800. For singles and married individuals filing separately, it is $12,400, and for heads of household, the deduction is $18,650.
The additional standard deduction for blind people and senior citizens in 2020 is $1,300 for married individuals and $1,650 for singles and heads of household.
Income Tax Rates
In 2020 the top tax rate of 37 percent affects individuals whose income exceeds $523,600 ($628,300 for married taxpayers filing a joint return). Marginal tax rates for 2020 are as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. As a reminder, while the tax rate structure remained similar to prior years under tax reform (i.e., with seven tax brackets), the tax-bracket thresholds increased significantly for each filing status.
Estate and Gift Taxes
In 2020 there is an exemption of $11.58 million per individual for estate, gift, and generation-skipping taxes, with a top tax rate of 40 percent. The annual exclusion for gifts is $15,000.
Alternative Minimum Tax (AMT)
For 2020, exemption amounts increased to $72,900 for single and head of household filers, $113,400 for married people filing jointly and for qualifying widows or widowers, and $56,700 for married taxpayers filing separately.
Pease and PEP (Personal Exemption Phaseout)
Both Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) have been eliminated under TCJA.
Flexible Spending Account (FSA)
A Flexible Spending Account (FSA) is limited to $2,750 per year in 2020 (up from $2,700 in 2019) and applies only to salary reduction contributions under a health FSA. The term "taxable year" as it applies to FSAs refers to the plan year of the cafeteria plan, which is typically the period during which salary reduction elections are made.
Long-Term Capital Gains
In 2020 tax rates on capital gains and dividends remain the same as 2019 rates (0%, 15%, and a top rate of 20%); however, taxpayers should be reminded that threshold amounts don't correspond to the tax bracket rate structure as they have in the past. For example, taxpayers whose income is below $40,000 for single filers and $80,000 for married filing jointly pay 0% capital gains tax. For individuals whose income is at or above $441,450 ($496,600 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.
Miscellaneous Deductions
Miscellaneous deductions that exceed 2 percent of AGI (adjusted gross income) are eliminated for tax years 2018 through 2025. As such, you can no longer deduct on Schedule A expenses related to tax preparation, moving (except for members of the Armed Forces on active duty who move because of a military order), job hunting, or unreimbursed employee expenses such as tools, supplies, required uniforms, travel, and mileage.
Business owners are not affected and can still deduct business-related expenses on Schedule C.
Individuals - Tax Credits
Adoption Credit
In 2020 a nonrefundable (i.e., only those with tax liability will benefit) credit of up to $14,300 is available for qualified adoption expenses for each eligible child.
Child and Dependent Care Credit
The Child and Dependent Care Tax Credit was permanently extended for taxable years starting in 2013 and remained under tax reform. As such, if you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses.
For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher-income earners, the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.
Child Tax Credit and Credit for Other Dependents
For tax years 2018 through 2025, the Child Tax Credit increases to $2,000 per child. The refundable portion of the credit increases from $1,000 to $1,400 - 15 percent of earned income above $2,500, up to a maximum of $1,400 - so that even if taxpayers do not owe any tax, they can still claim the credit. Please note, however, that the refundable portion of the credit (also known as the additional child tax credit) applies higher-income when the taxpayer isn't able to fully use the $2,000 nonrefundable credit to offset their tax liability.
Under TCJA, a new tax credit - Credit for Other Dependents - is also available for dependents who do not qualify for the Child Tax Credit. The $500 credit is nonrefundable and covers children older than age 17 as well as parents or other qualifying relatives supported by a taxpayer.
Earned Income Tax Credit (EITC)
For tax year 2020, the maximum earned income tax credit (EITC) for low and moderate-income workers and working families increased to $6,660 (up from $6,557 in 2019). The maximum income limit for the EITC increased to $56,844 (up from $55,952 in 2019) for married filing jointly. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.
Individuals - Education Expenses
Coverdell Education Savings Account
You can contribute up to $2,000 a year to Coverdell savings accounts in 2020. These accounts can be used to offset the cost of elementary and secondary education, as well as post-secondary education.
American Opportunity Tax Credit
For 2020, the maximum American Opportunity Tax Credit that can be used to offset certain higher education expenses is $2,500 per student, although it is phased out beginning at $160,000 adjusted gross income for joint filers and $80,000 for other filers.
Lifetime Learning Credit
A credit of up to $2,000 is available for an unlimited number of years for certain costs of post-secondary or graduate courses or courses to acquire or improve your job skills. For 2020, the modified adjusted gross income (MAGI) threshold at which the Lifetime Learning Credit begins to phase out is $114,000 for joint filers and $57,000 for singles and heads of household. The credit cannot be claimed if your MAGI is $67,000 or more ($134,000 for joint returns)
Employer-Provided Educational Assistance
As an employee in 2020, you can exclude up to $5,250 of qualifying postsecondary and graduate education expenses that are reimbursed by your employer.
Student Loan Interest
In 2020, you can deduct up to $2,500 in student-loan interest as long as your modified adjusted gross income is less than $65,000 (single) or $135,000 (married filing jointly). The deduction is phased out at higher income levels.
Individuals – Retirement
Contribution Limits
For 2020, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is $19,500 ($19,000 in 2019). For persons age 50 or older in 2020, the limit is $26,000 ($6,500 catch-up contribution).
Retirement Savings Contributions Credit (Saver's Credit)
In 2020, the adjusted gross income limit for the saver's credit for low and moderate-income workers is $65,000 for married couples filing jointly, $48,750 for heads of household, and $32,500 for married individuals filing separately and for singles. The maximum credit amount is $2,000 ($4,000 if married filing jointly). As a reminder, starting in 2018, the Saver's Credit can be taken for your contributions to an ABLE (Achieving a Better Life Experience) account if you're the designated beneficiary. However, keep in mind that your eligible contributions may be reduced by any recent distributions you received from your ABLE account.
If you have any questions about these and other tax provisions that could affect your tax situation, don't hesitate to call.
Year-End Tax Planning Strategies for Business Owners
Several end-of-year tax planning strategies are available to business owners that can be used to reduce their tax liability. Let's take a look:
Deferring Income
Businesses using the cash method of accounting can defer income into 2021 by delaying end-of-year invoices so that payment is not received until 2021. Businesses using the accrual method can defer income by postponing the delivery of goods or services until January 2021.
Purchase New Business Equipment
Bonus Depreciation. Businesses are allowed to immediately deduct 100% of the cost of eligible property such as machinery and equipment that is placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.
The first-year 100% bonus depreciation deduction is available for qualifying assets even if they are placed in service for only a few days in 2020.
Section 179 Expensing. Businesses should take advantage of Section 179 expensing this year whenever possible. In 2020, businesses can elect to expense (deduct immediately) the entire cost of most new equipment up to a maximum of $1.04 million of the first $2.59 million of property placed in service by December 31, 2020. Keep in mind that the Section 179 deduction cannot exceed net taxable business income. The deduction is phased out dollar for dollar on amounts exceeding the $2.59 million threshold and eliminated above amounts exceeding $3.63 million.
Computer or peripheral equipment placed in service after December 31, 2017, are not included in listed property.
Qualified Property. Qualified property is defined as property that you placed in service during the tax year and used predominantly (more than 50 percent) in your trade or business. Property that is placed in service and then disposed of in that same tax year does not qualify, nor does property converted to personal use in the same tax year it is acquired.
Taxpayers can also elect to include certain improvements made to nonresidential real property after the date of when the property was first placed in service.
1. Qualified improvement property refers to any improvement to a building's interior; however, improvements do not qualify if they are attributable to:
• the enlargement of the building,
• any elevator or escalator or
• the internal structural framework of the building.
2. Roofs, HVAC, fire protection systems, alarm systems and security systems.
These changes apply to property placed in service in taxable years beginning after December 31, 2017.
Real estate qualified improvement property is eligible for immediate expensing, thanks to the CARES Act, which corrected an error in the Tax Cuts and Jobs Act. Taxpayers are also able to amend 2018 tax returns, if necessary.
Please contact the office if you have any questions regarding qualified property.
Other Year-End Moves to Take Advantage Of
Qualified Business Income Deduction. Many business taxpayers - including owners of businesses operated through sole proprietorships, partnerships, and S corporations, as well as trusts and estates, may be eligible for the qualified business income. This deduction is worth up to 20 percent of qualified business income (QBI) from a qualified trade or business for tax years 2018 through 2025. Your taxable income must be under $163,300 ($326,600 for joint returns)in 2020 to take advantage of the deduction.
The QBI is complex, and tax planning strategies can directly affect the amount of deduction, i.e., increase or reduce the dollar amount. As such, it is especially important to speak with a tax professional before year's end to determine the best way to maximize the deduction.
Small Business Health Care Tax Credit. Small business employers with 25 or fewer full-time-equivalent employees with average annual wages of $50,000 indexed for inflation (e.g., $55,000 in 2019) may qualify for a tax credit to help pay for employees' health insurance. The credit is 50 percent (35 percent for non-profits).
Business Energy Investment Tax Credits. Business energy investment tax credits are still available for eligible systems placed in service on or before December 31, 2022, and businesses that want to take advantage of these tax credits can still do so.
Business energy credits include geothermal electric, large wind (expires at the end of 2020), and solar energy systems used to generate electricity, to heat, cool, or to provide hot water for use in a structure, or to provide solar process heat.
Hybrid solar lighting systems, which use solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight, are eligible; excluded, however, are passive solar and solar pool heating systems. Utilities are allowed to use the credits as well.
Repair Regulations. Where possible, end of year repairs and expenses should be deducted immediately, rather than capitalized and depreciated. Small businesses lacking applicable financial statements (AFS) can take advantage of de minimis safe harbor by electing to deduct smaller purchases ($2,500 or less per purchase or invoice). Businesses with applicable financial statements can deduct $5,000. Small businesses with gross receipts of $10 million or less can also take advantage of safe harbor for repairs, maintenance, and improvements to eligible buildings. Please call if you would like more information on this topic.
Depreciation Limitations on Luxury, Passenger Automobiles, and Heavy Vehicles. As a reminder, tax reform changed depreciation limits for luxury passenger vehicles placed in service after December 31, 2017. If the taxpayer doesn't claim bonus depreciation, the maximum allowable depreciation deduction for 2020 is $10,100 for the first year.
Deductions are based on a percentage of business use. A business owner whose business use of the vehicle is 100 percent can take a larger deduction than one whose business use of a car is only 50 percent.
For passenger autos eligible for the additional bonus first-year depreciation, the maximum first-year depreciation allowance remains at $8,000. It applies to new and used ("new to you") vehicles acquired and placed in service after September 27, 2017, and remains in effect for tax years through December 31, 2022. When combined with the increased depreciation allowance above, the deduction amounts to as much as $18,100 in 2020.
Heavy vehicles including pickup trucks, vans, and SUVs whose gross vehicle weight rating (GVWR) is more than 6,000 pounds are treated as transportation equipment instead of passenger vehicles. As such, heavy vehicles (new or used) placed into service after September 27, 2017, and before January 1, 2023, qualify for a 100 percent first-year bonus depreciation deduction as well.
Retirement Plans. Self-employed individuals who have not yet done so should set up self-employed retirement plans before the end of 2020. Call today if you need help setting up a retirement plan.
Dividend Planning. Reduce accumulated corporate profits and earnings by issuing corporate dividends to shareholders.
Paid Family and Medical Leave Credit. Last chance to take advantage of the employer credit for paid family and medical leave, which expires at the end of 2020.
Year-end Tax Planning Could Make a Difference in Your Tax Bill
If you'd like more information, please call to schedule a consultation to discuss your specific tax and financial needs and develop a plan that works for your business.
For More Information Visit: http://www.avyantax.com/
Tax Treatment of Virtual Currency Transactions
Whether you've invested in Bit coin and sold it at a profit or loss or received it for services performed, you'll need to report it on your tax return. Here's what you should know:
Background
Prior to 2014, there was no IRS guidance and many people did not understand that selling virtual currency was a reportable transaction. They may have found themselves with a hefty tax bill -- money they were hard-pressed to come up with at tax time. Others were unaware that they needed to report their transactions at all or failed to do so because it seemed too complicated.
In October 2019, the IRS expanded their guidance to include two additional pieces of information that help taxpayers understand their reporting and tax obligations concerning their virtual currency transactions. This expanded guidance included answers to common questions regarding the tax treatment of a crypto currency hard fork and a set of FAQs that addressed virtual currency transactions for those who hold virtual currency as a capital asset.
More recently, taxpayers may have noticed a checkbox at the top of Form 1040, Schedule 1, and Additional Income and Adjustments to Income when preparing their 2019 tax return. Looking ahead, taxpayers should look for a crypto currency question on the front page of their 2020 Form 1040.
Definitions
Virtual Currency - a digital representation of value, other than a representation of the U.S. dollar or foreign currency ("real currency"), that functions as a unit of account, a store of value, and a medium of exchange.
Crypto currency - a type of virtual currency that uses cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a block chain.
Hard Fork - when a single crypto currency splits in two. This may result in the creation of a new crypto currency on a new distributed ledger such as block chain in addition to the legacy crypto currency on the legacy distributed ledger (e.g., block chain).
Virtual Currency Taxed as Property
Virtual currency, as generally defined, functions in the same manner as a country's traditional currency. An IRS memorandum issued in August 2020, reiterated that convertible virtual currency is "property" for federal tax purposes and that its receipt in exchange for performing services is considered gross income including receiving convertible virtual currency in exchange for performing a micro task through a crowd sourcing platform in exchange for performing a service.
The same general tax principles that apply to property transactions also apply to transactions using virtual currency such as:
• A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.
• Payments using virtual currency made to independent contractors and other service providers are taxable, and self-employment tax rules generally apply. Normally, payers must issue Form 1099-MISC.
• Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
• Certain third parties who settle payments made in virtual currency on behalf of merchants that accept virtual currency from their customers are required to report payments to those merchants on Form 1099-K, Payment Card and Third-Party Network Transactions.
• The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
What to Do if You Failed to Report Virtual Currency Transactions
The good news is that if you failed to report income from virtual currency transactions on your income tax return, it's not too late. Even though the due date for filing your income tax return has passed, taxpayers can still report income by filing Form 1040X, Amended U.S. Individual Income Tax Return within 3 years after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later. For tax year 2019, taxpayers may file an electronic Form 1040-X.
Noncompliance
Taxpayers should also be aware that forgetting, not knowing, or generally pleading ignorance about reporting income from these types of transactions on your tax return is not viewed favorably by the IRS. Taxpayers who do not properly report the income tax consequences of virtual currency transactions can be audited for those transactions and, when appropriate, can be liable for penalties and interest.
Taxpayers who do not report transactions involving virtual currency or who reported them incorrectly may, when appropriate, be liable for tax, penalties, and interest. In more extreme situations, taxpayers could be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions. Criminal charges could include tax evasion and filing a false tax return. Anyone convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Anyone convicted of filing a false return is subject to a prison term of up to three years and a fine of up to $250,000.
Help is Just a Phone Call Away
If you have any questions about virtual currency and your taxes, don't hesitate to contact the office.
For More Information Visit: http://www.avyantax.com/
Six Tips for Starting Your Own Business
Starting your own business can be an exciting prospect, but there is more to it than simply writing a business plan. Also, if you expect to have employees, there are a variety of federal and state forms and applications that you need to complete to get your business up and running. That's where a tax professional can help. With this in mind, let's take a look at what you need to know before you start a new business.
1. Business Entity
The first decision you need to make is determining which business entity you will use because the type of business structure you choose determines what taxes you need to pay and how to pay them, as well as which income tax return you file. The most common types of business entities are:
• Sole proprietorship - An unincorporated business owned by an individual. There's no distinction between the taxpayer and their business.
• Partnership - An unincorporated business with ownership shared between two or more people.
• Corporation - Also known as a C corporation. It’s a separate entity owned by shareholders.
• S Corporation - A corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders.
• Limited Liability Company - A business structure allowed by state statute.
2. Employer Identification Number (EIN)
Securing an Employer Identification Number (also known as a Federal Tax Identification Number) is the first thing you must do since many other forms require it. The IRS issues EINs to employers, sole proprietors, corporations, partnerships, nonprofit associations, trusts, estates, government agencies, certain individuals, and other business entities for tax filing and reporting purposes.
An EIN is used to identify a business. Most businesses need one of these numbers. A business with an EIN needs to keep the business mailing address, location, and responsible party up to date. IRS regulations require EIN holders to report changes in the responsible party within 60 days. They do this by completing Form 8822-B, Change of Address or Responsible Party, and mailing it to the address on the form.
Even if you already have an EIN as a sole proprietor, for example, if you start a new business with a different business entity, you will need to apply for a new EIN.
The fastest way to apply for an EIN is online through the IRS website or by telephone. Applying by fax and mail generally takes one to two weeks, and you can apply for one EIN per day. There is no cost to apply.
3. Choosing a Tax Year
A tax year is defined as an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either calendar year or fiscal year defined as follows:
• Calendar year. 12 consecutive months beginning January 1 and ending December 31.
• Fiscal year. 12 consecutive months ending on the last day of any month except December.
4. State Withholding, Unemployment, Sales, and other Business Taxes
Once you have your EIN, you need to fill out forms to establish an account with the state for payroll tax withholding, Unemployment Insurance Registration, and sales tax collections (if applicable). Business taxes include income tax, self-employment tax, employment tax, and excise tax. Generally, the type of tax your business pays depends on the type of business structure. Keep in mind that you may also need to make estimated tax payments.
5. Payroll Record Keeping
Payroll reporting and recordkeeping can be very time-consuming and costly. Also, keep in mind that almost all employers are required to transmit federal payroll tax deposits electronically. Personnel files should be kept for each employee and include an employee's employment application as well as the following:
• Form W-4, Employee's Withholding Allowance Certificate. Completed by the employee and used to calculate their federal income tax withholding. This form also includes necessary information such as the employee's address and Social Security number.
• Form I-9 Employment Eligibility Verification U.S. Citizenship and Immigration Services. This form verifies that an employee is legally permitted to work in the U.S.
6. Employee Healthcare
As an employer with employees, you may have certain healthcare requirements you need to comply with as well. If so, you should know about the Small Business Health Care Tax Credit, which helps small businesses (fewer than 25 employees who work full-time or a combination of full-time and part-time) pay for health care coverage they offer their employees. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities. It is available to eligible employers for two consecutive taxable years.
Questions?
If you have any questions or need help setting up a payroll and accounting system for your new business, help is just a phone call away.
For More Information Visit: http://www.avyantax.com/
Tax Considerations When Hiring Household Help
If you employ someone to work for you around your house, it is important to consider the tax implications of this type of arrangement. While many people disregard the need to pay taxes on household employees, they do so at the risk of paying stiff tax penalties down the road.
Household Employee Defined
If a worker is your employee, it does not matter whether the work is full-time or part-time or that you hired the worker through an agency or from a list provided by an agency or association. It also does not matter whether you pay the worker on an hourly, daily or weekly basis or by the job.
If the worker controls how the work is done, the worker is not your employee but is self-employed. A self-employed worker usually provides his or her own tools and offers services to the general public in an independent business.
Also, if an agency provides the worker and controls what work is done and how it is done, the worker is not your employee.
You pay Kate an hourly wage to babysit your child and do light housework four days a week in your home. Kate follows your specific instructions about household and childcare duties. You provide the household equipment and supplies that she needs to do her work. Kate is your household employee.
You pay Nick to care for your lawn. Nick also offers lawn care services to other homeowners in your neighborhood and provides his own tools and supplies, He hires and pays any helpers he needs. Neither Nick nor his helpers are your household employees.
USCIS Form I-9: Employment Eligibility Verification
When you hire a household employee to work for you on a regular basis, they must complete USCIS Form I-9, Employment Eligibility Verification. It is your responsibility to verify that the employee is either a U.S. citizen or an alien who can legally work. Once this is determined, you then complete the employer part of the form.
It is unlawful for you to knowingly hire or continue to employ a person who cannot legally work in the United States. Keep the completed form for your records. Do not return the form to the U.S. Citizenship and Immigration Services (USCIS).
Employment Taxes
If you have a household employee, you may need to withhold and pay Social Security and Medicare taxes, or you may need to pay federal unemployment tax or both. If you pay cash wages of $2,200 or more in 2020 to any one household employee, then you will need to withhold and pay Social Security and Medicare taxes. Also, if you pay total cash wages of $1,000 or more in any calendar quarter of 2019 or 2020 to household employees, you are also required to pay federal unemployment tax.
If neither of these two contingencies applies, you do not need to pay any federal unemployment taxes; however, you may still need to pay state unemployment taxes. Please contact the office if you're not sure whether you need to pay state unemployment tax for your household employee. A tax professional will help you figure out whether you need to pay or collect other state employment taxes or carry workers' compensation insurance.
Social Security and Medicare Taxes
Social Security taxes pays for old-age, survivor, and disability benefits for workers and their families. The Medicare tax pays for hospital insurance. Both you and your household employee may owe Social Security and Medicare taxes. Your share is 7.65 percent (6.2 percent for Social Security tax and 1.45 percent for Medicare tax) of the employee's Social Security and Medicare wages. Your employee's share is 6.2 percent for Social Security tax and 1.45 percent for Medicare tax.
You are responsible for payment of your employee's share of the taxes as well as your own. You can either withhold your employee's share from the employee's wages or pay it from your own funds.
Do not count wages you pay to any of the following individuals as Social Security and Medicare wages:
1. Your spouse.
2. Your child who is under age 21.
3. Your parent.
Exception. You should count wages to your parent if they are caring for your child and your child lives with you and is either under age 18 or has a physical or mental condition that requires the personal care of an adult and you are divorced and have not remarried, or you are a widow or widower, or you are married to and living with a person whose physical or mental condition prevents him or her from caring for your child.
4. An employee who is under age 18 at any time during the year.
However, you should count these wages to an employee under 18 if providing household services is the employee's principal occupation. If the employee is a student, providing household services is not considered to be his or her principal occupation.
Maximum Taxable Earnings. If your employee's Social Security and Medicare wages reach $137,700 in 2020, then do not count any wages you pay that employee during the rest of the year as Social Security wages to figure Social Security tax. You should, however, continue to count the employee's cash wages as Medicare wages to figure Medicare tax. Meals provided at your home for your convenience and lodging provided at your home for your convenience and as a condition of employment are not counted as wages
Help is Just a Phone Call Away
As you can see, tax rules for hiring household employees are complex; therefore, professional tax guidance is highly recommended. This is definitely an area where it's better to be safe than sorry. If you have any questions at all, please contact the office to set up a consultation.
For More Information Visit: http://www.avyantax.com/
Preparing for a Successful Retirement
As you approach retirement, it's vital that you pay attention to several important financial matters to ensure a smooth transition. Here are five of them:
1. Health Insurance
Are you among the lucky few who will continue to be covered after retirement? If not, then you'll need to replace your health coverage.
If you will be eligible for Medicare at the time of your retirement, then you may want to start checking into "Medigap" coverage. Original Medicare pays for much, but not all, of the cost for covered health care services and supplies. Medigap is Medicare Supplement Insurance that helps fill "gaps" in and is sold by private companies to individuals age 65 and older that covers medical expenses not covered or only partially covered by Medicare.
If your employee plan coverage is broader than Medicare, then take care of any non-emergency medical, dental, or optical needs before you retire.
2. Other Insurance
Once you retire, and depending on individual circumstances, you may need to replace employer-provided life insurance with extra coverage. You should also consider purchasing long-term health care insurance in case of a lengthy nursing home stay in the future. Premiums for qualified long-term care insurance policies are tax deductible to the extent that they, along with other unreimbursed medical expenses (including Medicare premiums), exceed 10 percent of the insured's adjusted gross income in 2020.
3. Social Security
Decide whether you want to take early Social Security benefits if you're retiring before your full retirement age, which is currently 66 years of age for people born between 1943 and 1954 and age 67 for those born after 1960. The years in between are prorated accordingly. If you choose to retire as early as age 62, doing so may result in a reduction of as much as 30 percent of your full benefits. Conversely, starting to receive benefits after normal retirement age may result in larger benefits.
Taking Social Security benefits at full retirement age makes financial sense for most people, but if you think you might need to take early benefits, please call and speak to a tax professional first.
4. Pension Plan or 401(k) Retirement Plan Payout
You should plan well in advance how you'll take the payout from your pension plan or 401(k) plan. For example, will you transfer the funds to a conventional or Roth IRA? How will the funds be invested?
5. Relocation
If you're planning a move to another state or country, make sure that you fully explore the financial ramifications of living there before you move. Cost of living as well as rates of taxation can vary significantly from one region of the country to another.
If you have any questions or need assistance planning for a smooth transition into retirement, please call the office.
For More Information Visit: http://www.avyantax.com/
It's Never Too Early to Check Tax Withholding
While it probably seems like tax season just ended, it is never too early to do a "Paycheck Checkup" to make sure the right amount of tax is withheld from earnings - and avoid a tax surprise next year when filing your 2020 tax return. As a reminder, because income taxes operate as a pay-as-you-go system, taxpayers are required by law to pay most of their tax as income is received.
Income tax withholding is generally based on the worker's expected filing status and standard deduction. The Tax Withholding Estimator is a tool on IRS.gov designed to help taxpayers determine how to have the right amount of tax withheld from their paychecks. It allows workers, retirees, self-employed individuals, and other taxpayers to enter their information using a clear, step-by-step method that helps them determine if there is a need to adjust their withholding and submit a new Form W-4, Employee's Withholding Certificate, to their employer.
Who Should Check Income Tax Withholding
People who should check their withholding include anyone who:
• is part of two-income families
• works two or more jobs or who only work for part of the year
• has children and claims credits such as the child tax credit
• has older dependents, including children age 17 or older
• itemized deductions on their 2019 tax return
• is a high-income earner with a complex tax return
• received a large tax refunds or had a substantial tax bill for 2019
• receives unemployment at any time during the year
When To Do a Paycheck Check-Up
Taxpayers should check their withholding annually and when life changes occur, such as marriage, childbirth, adoption, and buying a home. The IRS recommends anyone who changed their withholding this year or received a tax bill after they filed their 2019 return should do a Paycheck Checkup.
Unemployment Compensation
By law, unemployment compensation is taxable and must be reported on a 2020 federal income tax return. Taxable benefits include any of the special unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted this spring.
Millions of Americans currently receiving unemployment compensation (and for many individuals, an extra $600 in addition to regular unemployment benefits) may not realize that unemployment benefits are considered taxable income by the IRS and that tax should be withheld now to avoid owing taxes on this income when filing a federal income tax return next year.
Withholding is voluntary; however, federal law allows any recipient to choose to have a flat 10 percent withheld from their benefits to cover part or all of their tax liability. To do that, fill out Form W-4V, Voluntary Withholding Request (PDF), and give it to the agency paying the benefits. Do not send it to the IRS. If the payor has its own withholding request form, use that form instead.
There are a number of different types of payments that taxpayers should check their withholding on including:
• Unemployment compensation includes: Benefits paid by a state or the District of Columbia from
The Federal Unemployment Trust Fund
• Railroad unemployment compensation benefits
• Disability benefits paid as a substitute for unemployment compensation
• Trade readjustment allowances under the Trade Act of 1974
• Unemployment assistance under the Disaster Relief and Emergency Assistance Act of 1974, and
• Unemployment assistance under the Airline Deregulation Act of 1978 Program
Recipients who return to work before the end of the year can use the IRS Tax Withholding Estimator to make sure they are having enough tax taken out of their pay.
In January 2021, unemployment benefit recipients should receive a Form 1099-G, Certain Government Payments (PDF) from the agency paying the benefits. The form will show the amount of unemployment compensation they received during 2020 in Box 1, and any federal income tax withheld in Box 4. Taxpayers report this information, along with their W-2 income, on their 2020 federal tax return.
Paying Estimated Taxes
Taxpayers with a substantial portion of their income not subject to withholding − the self-employed, investors, retirees, those with interest, dividends, capital gains, alimony, and rental income − often need to pay quarterly installments of estimated tax.
Recipients of unemployment compensation that don't choose withholding - or realize that the amount withheld is not enough - can also make quarterly estimated tax payments. The payment for the first two quarters of 2020 was due on July 15. Third and fourth quarter payments are due on September 15, 2020, and January 15, 2021, respectively.
Form 1040-ES, Estimated Tax for Individuals, includes instructions to help taxpayers figure their estimated taxes. They can also visit IRS.gov/payments to pay electronically. IRS offers two free electronic payment options where taxpayers can schedule their estimated federal tax payments up to 30 days in advance with IRS Direct Pay or up to 365 days in advance with the Electronic Federal Tax Payment System (EFTPS).
Financial transactions, especially those incurred late in the year, can often have an unexpected tax impact. Examples include year-end and holiday bonuses, stock dividends, capital gain distributions from mutual funds and stocks, bonds, virtual currency, real estate or other property sold at a profit.
Don't hesitate to contact the office if you need assistance figuring the correct withholding amount or have any questions about your tax situation.
For More Information Visit: http://www.avyantax.com/
Small Business Update: Payroll Tax Deferral
On August 8, 2020, the President issued a Memorandum allowing employers to defer withholding and payment of an employee's portion of the Social Security tax (i.e., the 6.2% FICA portion of the federal payroll tax on employees). Medicare taxes, however, are not covered. The payroll tax deferral is effective starting September 1, 2020, and also applies to the employee portion of the Railroad Retirement Act Tier 1 tax. While employers are allowed to defer the withholding and payment of the payroll taxes on employees' applicable wages, they are not required to do so.
Let's take a look at how this affects employers and employees:
Applicable Wages
Applicable wages refer to wages paid to employees during the period September 1, 2020 through December 31, 2020. The payroll tax deferral only applies to an employee's taxable wages that are less than $4,000 during a bi-weekly pay period (approximately $104,000 per year) or the equivalent threshold amount with respect to other pay periods.
An employee earning $50,000 a year will owe approximately $1,073 in deferred taxes next year while one making $104,000 will owe $2,232.
No deferral is available for any payment to an employee of taxable wages of $4,000 or above for a bi-weekly pay period.
The determination of applicable wages is made on a pay period-by-pay period basis. For example, if the amount of wages or compensation payable to an employee for the pay period is less than the corresponding pay period threshold amount, then that amount is considered applicable wages for the pay period, and the relief applies - irrespective of the amount of wages or compensation paid to the employee for other pay periods.
Payment of Deferred Applicable Taxes
The IRS has issued a draft of a revised Form 941, Employer's Quarterly Federal Tax Return that adds a line to reflect any payroll tax deferrals. If an employer chooses not to defer the FICA portion of an employee's wages (i.e., the taxes are withheld as they normally are), payment of any applicable payroll taxes is required as it normally is.
Unless Congress authorizes forgiveness for these tax liabilities, employers deferring payroll tax obligations must withhold and pay the total applicable taxes between January 1, 2021 and April 30, 2021. Interest, penalties, and additions to tax do not begin to accrue until May 1, 2021. This means that employees could, in effect, have double the deduction taken from their paychecks next year to pay back the deferred portion of tax.
Additional information regarding payroll tax deferral is likely forthcoming, but if you have any questions about payroll tax deferment right now, please don't hesitate to call.
For More Information Visit: http://www.avyantax.com/
Dirty Dozen Tax Scams: 2020 Edition
The "Dirty Dozen" is a list of common tax scams that target taxpayers. Compiled and issued annually every year by the IRS, this year it includes many aggressive and evolving schemes related to coronavirus tax relief, including Economic Impact Payments. The criminals behind these bogus schemes view everyone as potentially easy prey and everyone should be on guard, especially vulnerable populations such as the elderly.
While tax-related scams usually increase at tax time, this year, scam artists are using pandemic to try stealing money and information from honest taxpayers. As such, taxpayers should refrain from engaging potential scammers online or on the phone.
Here are this year's "Dirty Dozen" tax scams:
1. Phishing
Taxpayers should be alert to potential fake emails or websites looking to steal personal information. IRS Criminal Investigation has seen a tremendous increase in phishing schemes utilizing emails, letters, texts, and links. These phishing schemes are using keywords such as "coronavirus," "COVID-19" and "Stimulus" in various ways.
These schemes are blasted to large numbers of people to get personal identifying information or financial account information, including account numbers and passwords. Most of these new schemes are actively playing on the fear and unknown of the virus and the stimulus payments.
Don't click on links claiming to be from the IRS and be very wary of emails and websites as they may be nothing more than scams to steal personal information. As a reminder, the IRS will never initiate contact with taxpayers via email about a tax bill, refund or Economic Impact Payments.
2. Fake Charities
Criminals frequently exploit natural disasters and other situations such as the current COVID-19 pandemic by setting up fake charities to steal from well-intentioned people trying to help in times of need. Fake charity scams generally rise during disaster times like these.
Fraudulent schemes normally start with unsolicited contact by telephone, text, social media, e-mail, or in-person using a variety of tactics. Bogus websites use names similar to legitimate charities to trick people to send money or provide personal financial information. They may even claim to be working for or on behalf of the IRS to help victims file casualty loss claims and get tax refunds.
Taxpayers should be particularly wary of charities with names like nationally known organizations. Legitimate charities will provide their Employer Identification Number (EIN) if requested, which can be used to verify their legitimacy. Taxpayers can find legitimate and qualified charities using the search tool on IRS.gov.
3. Threatening Impersonator Phone Calls
IRS impersonation scams come in many forms such as receiving threatening phone calls from a criminal claiming to be with the IRS where the scammer attempts to instill fear and urgency in the potential victim. These types of phone scams or "vishing" (voice phishing) pose a major threat. Scam phone calls, including those threatening arrest, deportation or license revocation if the victim doesn't pay a bogus tax bill, are reported to the IRS year-round and are very common. These calls often take the form of a "robocall" (a text-to-speech recorded message with instructions for returning the call).
The fact is, the IRS will never threaten a taxpayer or surprise him or her with a demand for immediate payment. Nor will it threaten, ask for financial information over the phone, or call about an unexpected refund or Economic Impact Payment. Taxpayers should contact the real IRS or consult a tax and accounting professional if they are worried there is a tax problem.
4. Social Media Scams
Social media enables anyone to share information with anyone else on the Internet. Scammers use that information as ammunition for a wide variety of scams. As such, taxpayers need to protect themselves against social media scams, which frequently use events like COVID-19 to try tricking people. These methods of trickery include emails where scammers impersonate someone's family, friends or co-workers.
Social media scams have also led to tax-related identity theft. The basic element of social media scams is convincing a potential victim that he or she is dealing with a person close to them that they trust via email, text or social media messaging.
Using personal information, a scammer may email a potential victim and include a link to something of interest to the recipient which contains malware intended to commit more crimes. Scammers also infiltrate their victim's emails and cell phones to go after their friends and family with fake emails that appear to be real and text messages soliciting, for example, small donations to fake charities that are appealing to the victims.
5. Economic Impact Payment or Refund Theft
Great strides have been made against refund fraud and theft in recent years, but they remain an ongoing threat. Due to the corona virus pandemic, this year, criminals turned their attention to stealing Economic Impact Payments as provided by the Corona virus Aid, Relief, and Economic Security (CARES) Act. Much of this stems from identity theft whereby criminals file false tax returns or supply other bogus information to the IRS to divert refunds to wrong addresses or bank accounts.
Recent victims of this type of scam include residents of nursing homes and other care facilities when concerns were raised that people and businesses may be taking advantage of vulnerable populations who received the payments. Economic Impact Payments generally belong to the recipients, not the organizations providing the care.
As a reminder, economic impact payments do not count as a resource for determining eligibility for Medicaid and other federal programs they also do not count as income in determining eligibility for these programs.
6. Senior Citizen Fraud
Seniors are more likely to be targeted and victimized by scammers than other segments of society and fraud targeting older Americans is pervasive. Financial abuse of seniors is a problem among personal and professional relationships but seems to be less of a problem when the service provider knows that a trusted friend or family member is keeping an eye out and taking an interest in the senior's affairs.
Also, as older Americans become more comfortable with evolving technologies, such as social media, scammers have moved in to take advantage. Phishing scams linked to Covid-19, for example, have been a major threat this filing season. Seniors need to be alert for a continuing surge of fake emails, text messages, websites, and social media attempts to steal personal information.
7. Scams Targeting Non-English Speakers
IRS impersonators and other scammers also target groups with limited English proficiency. These scams target those potentially receiving an Economic Impact Payment and request personal or financial information from the taxpayer.
Phone scams are often threatening in nature and pose a major threat to people with limited access to information, including individuals not entirely comfortable with the English language. These calls frequently take the form of a "robocall" (a text-to-speech recorded message with instructions for returning the call), but in some cases may be made by a real person. These con artists may have some of the taxpayer's information, including their address, the last four digits of their Social Security number or other personal details, which make the phone calls, seem more legitimate.
One of the most common scams is the IRS impersonation scam where a taxpayer receives a telephone call threatening jail time, deportation or revocation of a driver's license from someone claiming to be with the IRS. Taxpayers who are recent immigrants often are the most vulnerable and should ignore these threats and not engage the scammers.
8. "Ghost" Tax Return Preparers
Selecting the right return preparer is important because they are entrusted with a taxpayer's sensitive personal data. Most tax professionals provide honest, high-quality service, but dishonest preparers pop up every filing season committing fraud, harming innocent taxpayers or talking taxpayers into doing illegal things they regret later.
Taxpayers should always avoid so-called "ghost" preparers who expose their clients to potentially serious filing mistakes as well as possible tax fraud and risk of losing their refunds. With many tax professionals impacted by COVID-19 and their offices potentially closed, taxpayers should take particular care in selecting a credible tax preparer.
Ghost preparers don't sign the tax returns they prepare. They may print the tax return and tell the taxpayer to sign and mail it to the IRS. For e-filed returns, the ghost preparer will prepare but not digitally sign as the paid preparer. By law, anyone who is paid to prepare or assists in preparing federal tax returns must have a Preparer Tax Identification Number (PTIN). Paid preparers must sign and include their PTIN on returns.
Unscrupulous preparers may also target those without a filing requirement and may or may not be due to a refund. They promise inflated refunds by claiming fake tax credits, including education credits, the Earned Income Tax Credit (EITC), and others. Taxpayers should avoid preparers who ask them to sign a blank return, promise a big refund before looking at the taxpayer's records or charge fees based on a percentage of the refund.
Taxpayers are ultimately responsible for the accuracy of their tax return, regardless of who prepares it.
9. Offer in Compromise (OIC) Mills
Taxpayers need to be wary of misleading tax debt resolution companies that can exaggerate chances to settle tax debts for "pennies on the dollar" through an Offer in Compromise (OIC). These offers are available for taxpayers who meet very specific criteria under the law to qualify for reducing their tax bill. But unscrupulous companies oversell the program to unqualified candidates so they can collect a hefty fee from taxpayers already struggling with debt.
These scams are commonly called OIC "mills," which cast a wide net for taxpayers, charge them pricey fees and churn out applications for a program they're unlikely to qualify for. Although the OIC program helps thousands of taxpayers each year reduce their tax debt, not everyone qualifies for an OIC. In Fiscal Year 2019, there were 54,000 OICs submitted to the IRS. The agency accepted 18,000 of them.
10. Fake Payments with Repayment Demands
Criminals are always finding new ways to trick taxpayers into believing their scam including putting a bogus refund into the taxpayer's actual bank account. Here's how the scam works:
A con artist steals or obtains a taxpayer's data including Social Security number or Individual Taxpayer Identification Number (ITIN) and bank account information. The scammer files a bogus tax return and has the refund deposited into the taxpayer's checking or savings account. Once the direct deposit hits the taxpayer's bank account, the fraudster places a call to them, posing as an IRS employee. The taxpayer is told that there's been an error and that the IRS needs the money returned immediately or penalties and interest will result. The taxpayer is told to buy specific gift cards for the amount of the refund.
The IRS will never demand payment by a specific method. There are many payment options available to taxpayers and there's also a process through which taxpayers have the right to question the amount of tax we say they owe. Anytime a taxpayer receives an unexpected refund and a call from us out of the blue demanding a refund repayment, they should reach out to their banking institution and the IRS.
11. Payroll and HR Scams
Tax professionals, employers, and taxpayers need to be on guard against phishing designed to steal Form W-2s and other tax information. These are Business Email Compromise (BEC) or Business Email Spoofing (BES). This is particularly true with many businesses closed and their employees working from home due to COVID-19. Currently, two of the most common types of these scams are the gift card scam and the direct deposit scam.
Gift card scam. In the gift card scam, a compromised email account is often used to send a request to purchase gift cards in various denominations.
Direct deposit scam. In the direct deposit scheme, the fraudster may have access to the victim's email account (also known as an email account compromise or "EAC"). They may also impersonate the potential victim to have the organization change the employee's direct deposit information to reroute their deposit to an account the fraudster controls.
BEC/BES scams have used a variety of ploys to include requests for wire transfers, payment of fake invoices as well as others. In recent years, the IRS has observed variations of these scams where fake IRS documents are used to lend legitimacy to the bogus request. For example, a fraudster may attempt a fake invoice scheme and use what appears to be a legitimate IRS document to help convince the victim.
The Direct Deposit and other BEC/BES variations should be forwarded to the Federal Bureau of Investigation Internet Crime Complaint Center (IC3) where a complaint can be filed. The IRS requests that Form W-2 scams be reported to phishing@irs.gov (Subject: W-2 Scam).
12. Ransomware
Ransomware is malware targeting human and technical weaknesses to infect a potential victim's computer, network, or server and is a rapidly growing cybercrime. It doesn't just affect individuals either. Recently, Garmin Ltd., a GPS, and fitness-tracker company was the victim of a ransomware attack and asked to pay $10 million in "ransom" to restore its systems.
Malware is a form of invasive software that is often frequently inadvertently downloaded by the user. Once downloaded, it tracks keystrokes and other computer activity. Once infected, ransomware looks for and locks critical or sensitive data with its encryption. In some cases, entire computer networks can be adversely impacted.
Victims generally aren't aware of the attack until they try to access their data, or they receive a ransom request in the form of a pop-up window. These criminals don't want to be traced so they frequently use anonymous messaging platforms and demand payment in virtual currency such as Bitcoin.
Cybercriminals might use a phishing email to trick a potential victim into opening a link or attachment containing the ransomware. These may include email solicitations to support a fake COVID-19 charity. Cybercriminals also look for system vulnerabilities where human error is not needed to deliver their malware.
If you think you've been a victim of a tax scam, please contact the office immediately.
For More Information Visit: http://www.avyantax.com/
Tax Tips for Students with a Summer Job
Whether the goal is to gain experience or earn some spending money or help pay for college, summer is the prime job season for teens and college students. This year, however, with the corona virus pandemic, the job situation has not been as easy - not to mention that it is starting later than usual. Nonetheless, if you are a high school or college student (or the parent of one) who has been lucky enough to find summer employment, here's what you should know about income earned during the summer months
1. All new employees fill out a W-4 when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. Taxpayers with multiple summer jobs will want to make sure all their employers are withholding an adequate amount of taxes to cover their total income tax liability. Form W-4 was revised for 2020. If you have questions about how to fill out this form, don't hesitate to call.
2. From pet sitting to mowing lawns and pulling weeds, many students do odd jobs over the summer to make extra cash. If this is your situation, keep in mind that the earnings you receive from self-employment are subject to income tax.
3. Net earnings of $400 or more from self-employment is taxable, as is church employee income of $108.28 and is reported on Form 1040, Schedule SE. Social Security and Medicare benefits are available to individuals who are self-employed just as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages.
4. If you hire your child under age 18 to work in a trade or business you own, he or she is not subject to social security and Medicare taxes if it is a sole proprietorship or a partnership in which each partner is a parent of the child. Payments for the services of a child under age 21 who works for his or her parent in a trade or business are not subject to the Federal Unemployment Tax Act (FUTA) tax. However, payment for the services of a child are subject to income tax withholding, regardless of age, but only to the extent that the amount paid exceeds the standard deduction amount for the year, which in 2020 is $12,400.
5. When you work in some jobs such as a waiter, valet, or even a camp counselor, you may receive tips as part of your summer income. You should be aware that tips are considered taxable income and subject to federal income tax. Employees should keep a daily log to accurately report tips and they must report cash tips to their employer for any month that totals $20 or more.
6. While some 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. This tax pays for your future benefits under the Social Security system.
7. Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pays such as pay received during summer advanced camp is taxable.
8. Special rules apply to services you perform as a newspaper carrier or distributor. Please call the office if you'd like more information about this.
Summer work for students can be a patchwork of odd jobs, which makes for confusion at tax time. Don't hesitate to call if you have any questions at all about income earned from a summer job.
For More Information Visit: http://www.avyantax.com/
Q & A: Returning an Economic Impact Payment
According to the Treasury Department, more than 159 million individuals have already received their Economic Impact Payments; however, a recent audit found that the IRS sent $1.4 billion in stimulus checks to deceased individuals. As such, many people may have received a payment for a deceased family member or another taxpayer who is not eligible to receive a payment and may have questions about what to do. Here are some answers:
Q: How should an individual return an Economic Impact Payment?
Mail the payment to the correct IRS mailing address listed on the Economic Impact Payment Information Center page at IRS.gov. The mailing address is based on the state that the person lives in and may be different from where you send your tax forms and payments.
Q: What if a payment was received for someone who has died?
A payment made to someone who died before they received the payment should be returned to the IRS. Return the entire payment unless the check was made out to joint filers and one spouse is still living. In that case, return half the payment, but not more than $1,200.
If someone can't deposit a check because it was issued to both spouses and one spouse has died, the individual should return the check. Once the IRS receives and processes the returned payment, an Economic Impact Payment will be reissued to the surviving spouse.
Q: What if the paper check was not cashed or deposited?
If the paper check was not cashed or deposited take the following steps:
1. Write Void in the endorsement section on the back of the check.
2. Mail the voided Treasury check immediately to the appropriate IRS location.
3. Don't staple, bend or paper clip the check.
4. Include a brief explanation of why they return the check.
Q: How should a direct deposit payment or a paper check that was already cashed or deposited is returned?
In this case, mail a personal check, money order, etc., to the appropriate IRS location. Visit the Economic Impact Payment Information Center on IRS.gov or call the office if you aren't sure where to send the payment.
Make the check or money order payable to the U.S. Treasury and write 2020 EIP, as well as the taxpayer identification number, Social Security number or individual taxpayer identification number of the person whose name is on the check. A brief explanation of why the Economic Impact Payment is being returned should also be included.
If you received your EIP as a debit card and want to return the money to the IRS and NOT have the payment re-issued, please visit the Economic Impact Payment Information Center on IRS.gov or call the office for assistance as there are specific instructions.
For More Information Visit: http://www.avyantax.com/
Here's How to Pay If You Owe Money to the IRS
The federal tax deadline is quickly approaching. If you owe money to the IRS - including estimated and other business taxes - here are six options for quick and easy electronic payments:
Taxpayers, who owe a 2019 income tax liability, as well as estimated tax for 2020, must make two separate payments on or by July 15, 2020 - one for their 2019 income tax liability and one for their 2020 estimated tax payments. The two estimated tax payments (originally due April 15 and June 15), however, can be combined into a single payment.
1. Electronic Funds Withdrawal (EFW). This option allows taxpayers to file and pay electronically from their bank account when using tax preparation software or a tax professional. EFW is free and only available when electronically filing a tax return.
2. Direct Pay. Direct Pay is free and allows taxpayers to securely pay their federal taxes directly from their checking or savings account without any fees or preregistration. Taxpayers can schedule payments up to 30 days in advance. After submitting a payment through Direct Pay, taxpayers will receive immediate confirmation. They can opt-in to receive email notifications about their payments each time they use Direct Pay.
3. Credit, Debit Card or digital wallet. Pay online, by phone, or with a mobile device through any of the authorized payment processors. The processor charges a fee. The IRS doesn't receive any fees for these payments. Go to IRS.gov/payments for authorized card processors and phone numbers.
4. IRS2Go. The IRS2Go mobile app is free and offers taxpayers the option to make a payment with Direct Pay for free, or by debit, credit card, or digital wallet through an approved payment processor for a fee. Download IRS2Go free from Google Play, the Apple App Store or the Amazon App Store.
5. Electronic Federal Tax Payment System. This free service gives taxpayers a safe and convenient way to pay individual and business taxes by phone or online. To enroll and for more information, call 800-555-4477 or visit eftps.gov. Both business and individual taxpayers can opt-in to receive email notifications about their payments.
6. Cash. Taxpayers paying with cash can use the PayNearMe option. Payments are limited to $1,000 per day, and a $3.99 fee applies to each payment. Taxpayers choosing this option should start earlier rather than later because PayNearMe involves a four-step process. Initiating a payment well ahead of the tax deadline will help taxpayers avoid interest and penalty charges. The IRS offers this option in cooperation with Official Payments and participating retail stores. Details, including answers to frequently asked questions, are at IRS.gov/paywithcash.
As a reminder, taxpayers must file their 2019 tax returns by July 15, 2020, or request a three-month extension to October 15, 2020. Any taxes owed, however, are still due on July 15 and even if they can't pay, taxpayers should still file an extension to avoid the higher penalties for not filing at all.
For More Information Visit: http://www.avyantax.com/
Get the Payroll Services Solution That Best Fits Your Needs
Our high standards, service and specialized staff spell the difference between our outstanding performance, and other firms. We make sure that every client is served by the expertise of our whole firm. Our firm is responsive. Companies who choose our firm rely on competent advice and fast, accurate personnel. We provide total financial services to individuals, large and small businesses and other agencies.
Small business owners spend an average of eight hours a month performing payroll functions. That's 12 full days a year that could be spent generating sales, prospecting new business opportunities, improving products or services, or servicing customers.
We offer payroll services in Frisco that meet your business's needs and enable you to spend time doing what you do best--running your company.
When it comes to paying employees, laws and the IRS have made the payroll function a time consuming nightmare for the small business owner.
Small business owners spend an average of eight hours a month performing payroll functions. That's 12 full days a year that could be spent generating sales, prospecting new business opportunities, improving products or services, or servicing customers.
We offer payroll solutions that meet your business's needs and enable you to spend time doing what you do best--running your company.
Why Outsource Your Payroll...
• It's Cost Effective
Use your staff more efficiently by letting us handle payroll and the associated legal details. Reduce overhead by removing the need to hire specialized employees.
• It's a Time Saver
Our payroll service eliminates the burden of customizing, updating and maintaining your own payroll system--no more data entry, no more researching updates or new laws, no more worries.
• Worry Free Payroll Tax Filing
Eliminate the risks of calculating and filing your own payroll taxes by having professionals do it for you. Federal, state and local payroll tax laws are frequently changing and becoming more complex. How much time do you want to spend learning all the rules and keeping your information up to date?
• Allows You To Focus On Core Competencies
Our professional staff allows you to focus on the core competencies of your business. We are accounting professionals--you get the experts working for you and with you.
• Comprehensive Reports
You get a wide variety of user-friendly and accurate payroll reports. For a nominal fee, we will include union reports, certified payroll, workers' compensation reports and much more.
We know that when it comes to payroll service - no one size fits all. That's why we offer the following 3 custom payroll processing options.
1. Comprehensive Payroll Services
Our Comprehensive Payroll Service takes care of the entire payroll processing for you, so that you won't have to. You get...
• Your payroll checks prepared and printed on-time, every-time.
• All of your payroll checks are laser printed on "blank" check stock to ensure maximum security and meet the micro encoding standards as set forth by the Federal Reserve System.
• Free Direct Deposits
• Worry Free IRS and State tax reporting as well as EFTPS tax deposits.
• User friendly, and easy to understand monthly, quarterly, and annual payroll tax reports, including W-2, W-3 and 1099 forms.
• Detailed reports on your employee's vacation, sick days, and personal days accruals.
• Creation and filing of the required new hire reports
• Your payroll records maintained in tip top shape.
2. After-the-Fact-Payroll Services
We will take your manually-prepared payroll records and other payroll information and post this information to our data files, so you get...
• Worry Free IRS and State tax reporting as well as EFTPS tax deposits.
• User friendly, and easy to understand monthly, quarterly, and annual payroll tax reports, including W-2, W-3 and 1099 forms.
• Detailed reports on your employee's vacation, sick days, and personal day’s accruals.
• Creation and filing of the required new hire reports
• Your payroll records maintained in tip top shape.
3. Online Payroll Processing
You can enter your employee's hours and earnings securely online and get...
• The ability to instantly print payroll checks on your own printer.
• Free Direct Deposits
• Worry Free IRS and State tax reporting as well as EFTPS tax deposits.
• User friendly, and easy to understand monthly, quarterly, and annual payroll tax reports, including W-2, W-3 and 1099 forms.
• Detailed reports on your employee's vacation, sick days, and personal days accruals.
• Creation and filing of the required new hire reports
• Your payroll records maintained in tip top shape.
Custom Payroll Reports Service
There seems to be an endless amount of special reports Government agencies require. We can prepare the following reports for you.
• Worker's Compensation Audits
• Unemployment Claims
• Social Security Audits
• Child Support Audits
• W-2 and W-3 processing
• 1099 and 1096 processing
• Preparation/assistance with Federal and State registration forms
For More Information Visit: http://avyantax.com/