Tax USA 411

Attention teachers: Those school expenses might be tax deductible School may look a little different this year, but eligible teachers and other educators can still deduct certain unreimbursed expenses on their tax return next year. Who is considered an eligible educator:... The taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal or aide. They must also work at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law. Things to know about this deduction: Educators can deduct up to $250 of trade or business expenses that were not reimbursed. As teachers prepare for the school year, they should remember to keep receipts after making any purchase to support claiming this deduction. The deduction is $500 if both taxpayers are eligible educators and file their return using the status married filing jointly. These taxpayers cannot deduct more than $250 each. Qualified expenses are amounts the taxpayer paid themselves during the tax year. Examples of expenses the educator can deduct include: Professional development course fees Books Supplies Computer equipment, including related software and services Other equipment and materials used in the classroom

Temporary suspension of limits on charitable contributions!! The CARES act suspended limits on charitable contributions for individuals and corporations. Individuals may deduct qualified charitable contributions up to 100 percent of their adjusted gross income. A corporation may deduct qualified charitable contributions up to 25 percent of its taxable income. Both individuals and corporations can carry over to the next year contributions that exceed the AGI limitation. To qua...lify, the contribution must be: a cash contribution; made to a qualifying organization; made during the calendar year 2020

This information is important for businesses and contractors that are taking loans available to them from the Economic Stimulus Programs as it may effect how they have to file their tax returns for 2020 and to assist in forming a plan on how to proceed advantageously to minimize tax consequences. The 2017 tax overhaul limited the business interest expense deduction, but the $2 trillion legislative package approved in March by Congress temporarily eliminated some of the restr...ictions as a way to help businesses cope with the impact of the novel coronavirus pandemic. For tax years starting after Dec. 31, 2017, business interest expense deductions are generally limited to the sum of: 1. The taxpayer’s business interest income; 2. 30 percent (or 50 percent, as applicable) of the taxpayer’s adjusted taxable income 3. The taxpayer’s floor plan financing interest expense. However, the business interest expense deduction limitation won’t apply to certain small businesses whose gross receipts are $26 million or less, electing real property trades or businesses, electing farming businesses, and certain regulated public utilities. The $26 million gross receipts threshold applies for the 2020 tax year and will be adjusted annually for inflation. Taxpayers have to use Form 8990, "Limitation on Business Interest Expense Under Section 163(j)," to calculate and report their deduction and the amount of disallowed business interest expense to carry forward to the next tax year. Along with the final regulations, the IRS also issued extra guidance related to the business interest expense deduction limitation. The proposed regulations spell out additional guidance on different business interest expense deduction limitation issues not addressed in the final regs, including more complex issues pertaining to the amendments made by the CARES Act. Subject to some restrictions, taxpayers can rely on some of the rules in the proposed regs until final regulations implementing the proposed regulations are published in the Federal Register.

Can I get money from my retirement account now? Under the CARES Act, individuals eligible for coronavirus-related relief may be able to withdraw up to $100,000 from IRAs or workplace retirement plans before Dec. 31, 2020, if their plans allow. In addition to IRAs, this relief applies to 401(k) plans, 403(b) plans, profit-sharing plans and others. These coronavirus-related withdrawals:... May be included in taxable income either over a three-year period (one-third each year) or in the year taken, at the individual’s option. Are not subject to the 10% additional tax on early distributions that would otherwise apply to most withdrawals before age 59, Are not subject to mandatory tax withholding, and May be repaid to an IRA or workplace retirement plan within three years. Can I take out a loan? Individuals eligible to take coronavirus-related withdrawals may also, until Sept. 22, 2020, be able to borrow as much as $100,000 (up from $50,000) from a workplace retirement plan, if their plan allows. Loans are not available from an IRA. For eligible individuals, plan administrators can suspend, for up to one year, plan loan repayments due on or after March 27, 2020, and before Jan. 1, 2021. A suspended loan is subject to interest during the suspension period, and the term of the loan may be extended to account for the suspension period. Taxpayers should check with their plan administrator to see if their plan offers these expanded loan options and for more details about these options. Who is eligible? To be eligible for COVID-19 relief, coronavirus-related withdrawals or loans can only be made to an individual if: The individual is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (collectively, COVID-19) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetics Act); The individual’s spouse or dependent is diagnosed with COVID-19 by such a test; or The individual experiences adverse financial consequences as a result of: The individual being quarantined, being furloughed or laid off, having work hours reduced, being unable to work due to lack of childcare, having a reduction in pay (or self-employment income), or having a job offer rescinded or start date for a job delayed, due to COVID-19; The individual’s spouse or a member of the individual’s household (that is, someone who shares the individual’s principal residence) being quarantined, being furloughed or laid off, having work hours reduced, being unable to work due to lack of childcare, having a reduction in pay (or self-employment income), or having a job offer rescinded or start date for a job delayed, due to COVID-19; or Closing or reducing hours of a business owned or operated by the individual, the individual’s spouse, or a member of the individual’s household, due to COVID-19.

Stimulus Payments If you haven't received your Stimulus payment yet, it may be because of issues with the IRS system. I was on a call last week with a representative who let us know that although the system is supposed to use the taxpayer's 2018 Tax Return to qualify a taxpayer for the stimulus payment, some issues with the 2019 Tax Return may cause it not to issue the payment. The best scenario for success in receiving the payment is to have both prepared and completely pro...cessed. If you are having problems receiving your payment feel free to inbox us for assistance.

The New Form 1099 In 2021, the IRS will introduce a new Form 1099 named "Form 1099-NEC". This for will be for businesses to report non-employee compensation or contractor compensation. Basically, income that the company used to report on Form 1099-MISC Box 7 will now be reported in 1099-NEC Box 1. Any Federal income tax withheld will be reported on Box 2 of Form 1099-NEC and any State tax withheld, the payer state ID number and the state income is going to be reported on B...oxes 5, 6 and 7 on the 1099-NEC. According to the IRS, the people for whom an organization should use the new 1099-NEC are those with at least $600 in income from: Services performed by someone who is not an employee (ie: contractor) Cash payments for fish (or other aquatic life) that the company purchases from anyone engaged in the trade or business of catching fish Payments to an attorney. The term "attorney" includes a law firm or other providers of legal services. Attorneys' fees of $600 or more paid in the course of the organization’s trade or business are reportable in Box 1 of Form 1099-NEC, under Section 6041A(a)(1); or, Each person from whom the company has withheld any federal income tax (report in Box 4) under the backup withholding rules, regardless of the amount of the payment. All of the other income typically reported on a 1099-MISC will stay on that form (ie: rents, etc).

Taxpayers should report tip income on their tax return Generally, income received from any source, including tips, is taxable. Here’s some information to help taxpayers report tip income. All tips that taxpayers receive are income and subject to federal income tax. Taxpayers must include all tips they receive in their gross income. This includes:... Tips directly from customers. Tips added using credit cards. Tips from a tip-splitting arrangement with other employees. The value of non-cash tips, such as tickets, passes or other items of value is also income and subject to tax. Three things can help taxpayers to correctly report their tip income. Keep a daily tip record. Report tips to their employer. Report all tips on their income tax return.

Here’s who qualifies a taxpayer for the child and dependent care credit Childcare or adult dependent care can be a major expense. Fortunately, the child and dependent care credit can provide some relief. Taxpayers who pay for daycare expenses may be eligible to claim up to 35% of what they spend; limits apply. For the purposes of this credit, the IRS defines a qualifying person as:... A taxpayer’s dependent who is under age 13 when the care is provided. A taxpayer’s spouse who is physically or mentally unable to care for themselves and lived with the taxpayer for more than half the year. Someone who’s physically or mentally unable to take care of themselves and lived with the taxpayer for six months and either: a) The qualifying person was the taxpayer’s dependent or b) They would have been the taxpayer’s dependent except for one of the following: The qualifying person received gross income of $4,200 or more The qualifying person filed a joint return The taxpayer or spouse, if filing jointly, could be claimed as a dependent on someone else’s return

Under the Families First Coronavirus Response Act, employers can grant paid leave for an employee to take care of their health needs related to COVID -19 or to care for their family members. This relief helps ensure employees are not forced to choose between being paid or staying home to care for themselves, a child or other family member. In addition to the relief for employees, businesses can claim two new refundable payroll tax credits for granting paid leave to their empl...oyees. The paid sick leave credit and paid family leave credit are available for eligible employers who pay qualified sick leave wages and/or qualified family leave wages from April 1, 2020 through December 31, 2020, and who have fewer than 500 employees. The paid sick leave credit and the paid family leave credit will immediately and fully reimburse employers for the cost of providing COVID-19 related leave to their employees.

The Internal Revenue Service and the Treasury Department are beginning to send nearly 4 million economic impact payments by prepaid debit card, instead of by paper check or direct deposit.

Taxpayers have until July 15 to file and pay their taxes The federal income tax filing deadline has been extended to July 15. Taxpayers also have until July 15 to make any federal income tax payments that were originally due on April 15, without penalties and interest, regardless of the amount they owe. This extension applies to all taxpayers. There’s no need to file any additional forms to qualify for this automatic federal tax filing and payment relief. Contact us for more information.

Low-income people are eligible to get an Economic Impact Payment Low-income individuals are eligible to receive an Economic Impact Payment. Those who do not have a regular filing requirement can use the free, online tool Non-Filers: Enter Payment Info to quickly and easily register to receive their payment. There is also a Spanish language version of the tool available. The Non-Filers tool is for married couples with incomes below $24,400 or single people with income below $...12,200. This includes couples and individuals who are homeless. Usually, married couples qualify to receive $2,400 while single people qualify to get $1,200. People with dependents under 17 can get up to an additional $500 for each child. Even if a person doesn’t work, they can still qualify for an Economic Impact Payment. However, if they were claimed as a dependent by someone else, they are not eligible. Contact us for more information.

Treasury, IRS deliver 88 million Economic Impact Payments in first three weeks, release state-by-state Economic Impact Payment figures WASHINGTON The Treasury Department and the Internal Revenue Service today released state-by-state figures for Economic Impact Payments, with 88 million individuals receiving payments worth nearly $158 billion in the program’s first three weeks. As of April 17, the IRS issued 88.1 million payments to taxpayers across the nation. More payments ...are continuing to be delivered each week. The IRS, Treasury and partner agencies are working non-stop to get these payments out in record time to Americans who need them, said IRS Commissioner Chuck Rettig. Tens of millions of people across the country are receiving these payments, and millions more are on the way. We encourage people to visit IRS.gov for the latest information, FAQs and updates on the payments. More than 150 million payments will be sent out, and millions of people who do not typically file a tax return are eligible to receive these payments. Payments are automatic for people who filed a tax return in 2018 or 2019, receive Social Security retirement, survivor or disability benefits (SSDI), Railroad Retirement benefits, as well as Supplemental Security Income (SSI) and Veterans Affairs beneficiaries who didn’t file a tax return in the last two years.