TaxMamas TaxQuips

It’s TaxQuips time from TaxMama.com^®
TodayTaxMama^® wants to talk to you about all those pesky 1099Ks that you’re receiving this year.

 

 

 

 

 

 

 

 

Dear Family,

We’re getting questions from people who have suddenly started getting 1099Ks from their various casual sales – like Etsy, eBay, PayPal, Zelle, and other bank-like sources where they send or receive money.

Why are they getting these 1099Ks this year? The IRS dropped the reporting threshold to payments of $600 or more, instead of 200 transactions and $20,000.

Every one of those 1099Ks is reported to the IRS. The IRS computer is looking for those numbers in specific places on the tax return. Generally, the IRS computer wants to see that income amount on Schedule C.

Let’s outline the different ways people use these accounts and how to report these 1099Ks on their tax returns. Remember, please, this is a brief outline. It may be a bit technical (and therefore, boring), so feel free to skip the rest of this if it doesn’t apply to you or your family, friends, or clients.

If there is a lot of money involved, please work with a tax professional. (YOU decide how much is a LOT.)

Before I go forward, I will tell you that some people recommend that you report all this income on Schedule 1, when you are not in  business. Don’t do that, except for hobbies. You’ll see why as we go along.

1) What are you supposed to do if you just use these payment systems to send or receive  money to/from friends and family?

Keep things simple. Report the income on Schedule C as Other income.
https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

Then, on page 2 in Part V, deduct out that full amount. The description on the line is “Personal Transactions Only”.

You end up paying taxes on nothing.

2) What’s if you are using these payment systems purely to sell things in your home or garage? You’re just cleaning things out, without having an in-person garage sale.

Keep things simple. Report the income on Schedule C as Other income.
https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

Then, on page 2 in Part V, deduct out that full amount. The description on the line is “Garage Sales – No Profits.”

Of course, if you want to be meticulous, you can then, also report this on Schedule D. https://www.irs.gov/pub/irs-pdf/f1040sd.pdf

In that case, change the description in Schedule C Part V to “Garage Sales – See Schedule D.”

On Schedule D, enter the amount from the 1099K in column (d) as the Proceeds. And the same amount in column (e) as the cost. Why – you cannot report a loss when you are selling personal property, so you want to zero out the loss.

Once again, you end up paying taxes on nothing.

3) You make things using your skills and talents and sell them to people who like them, just for fun. You’re not out to make a profit – and, in fact, you don’t generate more income than your costs.

In this case, you have a hobby.

Report your income on Schedule 1, as Other Income.
https://www.irs.gov/pub/irs-pdf/f1040s1.pdf

Take no deductions at all. Hobbyists are no longer permitted to deduct expenses. Perhaps that right will be restored after 2025, when the Trump Tax Cut expires.

In this case, you end up paying taxes on all your income.
But at least it’s not subject to self-employment taxes.

4) You’re actually selling things that you make or buy, or provide services in order to sell them for a profit. In that case, you’re in business – and should have been reporting this income all along. This is the population the IRS is trying to catch – folks who have taxable income and haven’t been reporting it. So, what do you do this year?

A) Report the income on Schedule C in box 1 as Gross Income.

B) Keep good records about your costs to make or buy the merchandise that you sold, and direct costs related to the services that you provide, and report those costs on Schedule C, Part III, Cost of Goods Sold. If you have costs for merchandise you didn’t sell, then they are not the cost of anything that was sold, right? So save those costs for next year. (Or learn how to report beginning and ending inventory.)

C) With good records, you will also have the data for all the other business expenses – enter those in Part II of Schedule C.

D) If you have mileage and office in home expenses – you need to learn how to compute and enter those on your Schedule C.

In other words, you need to do full-blown business reporting in order to reduce your net profits.
This will reduce two things for you – self-employment taxes (Schedule SE) and income tax (Form 1040).

My goal today is to help you avoid those under-reporting notices from the IRS and to help you reduce your tax burden. (Too many people are telling me that they are reporting their garage sale-type income and paying Self-Employment taxes – when they should not even have taxable income!)  As long as the IRS computer finds the numbers where it expects to see them, you can wipe out the income when the activity is not taxable.

And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion

To make comments please drop into the TaxQuips Forum.

Download the MP3 (0:00min, 0MB) or listen now...

Ask TaxMama

Where Taxes are Fun

TaxQuips

The best Free Tax Podcast Online

TaxQuips Forum

Where you can you ask your tax questions

TaxMama.com

Where you can you can read the full post

Courtesy of VectorStock.com

It’s TaxQuips time from TaxMama.com®
Today TaxMama® wants to address some of your concerns.

 

 

 

Dear Family,

First of all, let’s start with the news you’ve been waiting to hear.
The IRS efiling system is officially open today.

more->

So anything you submitted to the tax software companies earlier – or from now on, can get transmitted immediately.  No doubt, there will be glitches for a while – but not as many as last year, when Congress changed the rules in the middle of the filing season.

In case you want to look up various filing deadlines, the TaxMama’s 2022-2023 Tax Calendar is up, ready for you to use.

The IRS has expanded some of their do-it-yourself resources this year for both taxpayers and tax professionals. Since the IRS is nearly impossible to reach by phone or in person (fewer offices – all require appointments), being able to do things electronically will reduce problems and save headaches. Here are some key things you should get set up to use ASAP:

Special Tip for folks who are STILL waiting for your 2020 tax return to be processed! (when H freezes over???). The IRS says to enter ZERO (0) on the line asking for your 2020 adjusted gross income (AGI). More details here.

• To use the new online tools, you may be required to set up an me account for security purposes.
• Taxpayer’s IRS Account – It will let you look up payments, refunds, transcripts and perhaps notices. It will also let you approve your tax professional’s power of attorney or information authorization rights, in minutes.
• Look up your advance payments:
  
  • Advance Child Tax Credits – you should have gotten a 6419 Letter with the details
  • The 3^rd Economic Payment – you should have gotten a 6475 Letter this month.
  • The IRS Free File system is now open. Millions of taxpayers can use this system to prepare simple tax returns themselves at no charge – and without being hassled to pay for anything. Many states are also participating in the program. Be SURE to print out or save the returns before transmitting.
  
  
  
  
• Tax Professionals also have a Tax Pro account. This will make it possible for Enrolled Agents, CPAs, attorneys and certain others with existing Central Authorization File (CAF) numbers to gain access to clients’ accounts – with the client’s immediate permission. (Instead of waiting for many weeks for the CAF unit to activate their authorization.)
  
  • You can get your PTIN (if you don’t already have one (if you have to ask what it is – you don’t have one).
  • Get access to all the e-services for tax professionals
  
  
  
  
• General online tools include:
  
  • Get Transcript
  • Where’s my refund?
  • Direct pay – and this year, DO only pay electronically – not via paper checks
  • Set up an Online Installment Agreement
  • Get your employer ID number
  • Locate an IRS office
  • Look up a charity to see if it’s in good standing with the IRS
  • And more
  
  
  
  
• You can now file tax returns electronically:
  
  • For the current year and the last two years.
  • And amended returns for the same time frame
  
  

  And for those of you wanting to become Enrolled Agents, this year, please stay tuned. I will be opening the Early-Bird Registrations with special rates, during the first week of February. To get details, please sign up for the IRSExams newsletter.

  Sheesh! Were there enough links in today’s newsletter? Lots to do and know.

  And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion

  Download the MP3 (0:00min, 0MB) or listen now...

  Ask TaxMama

  Where Taxes are Fun

  TaxQuips

  The best Free Tax Podcast Online

  TaxQuips Forum

  Where you can you ask your tax questions

  TaxMama.com

  Where you can you can read the full post

 

It’s TaxQuips time from TaxMama.com® –
Today TaxMama® wants talk to you about some year-end tips and ideas to get ready for next year.

 

 

 

 

 

 

 

 

 

 

Dear Family,

This year is coming to a close remarkably fast. It seems it was just January one blink ago – and now, it’s nearly over.

This year has been filled with lots of small and major successes for my students, family and friends. Tinged with a great deal of sadness, illness, and death. The Yin/Yang of life.

We still have a few days to take some steps to minimize taxes this year. So let’s look at some of those ideas first. Then I will give you some ways to make next tax season easier.

Year-end Tips

• Taxpayers who do not itemize can deduct up to $300 worth of cash donations per person ($600 on a married filing jointly return).
• If you are using itemized deductions be sure to get receipts dated in 2021.
  
  • Make your charitable contributions before year-end.
  • Go through the house and closets to clear out anything you haven’t used for a year or more. If the clothing, appliances, furniture, pictures, etc., are in good condition – take pictures or video to prove it. Then donate them to your favorite charity.
  • If you want to make a really big donation, but don’t have time to make the arrangements, consider having your brokerage or financial institution open a donor-advised fund.  You can fund it before year-end and distribute the donations to your charities in 2022.
  • Pre-pay your 2022 installment of property taxes (unless you have already reached the $10,000 State and Local Tax (SALT) deduction limit.
    
    • Will the Build Back Better Act ever pass, raising the limit?
      Not in time. But when it does, those who pay much more than $10,000 in the first place will get the benefit of the higher deduction.
    
    
    
    
  • Everyone aged 72 and over must take their Required Minimum Distributions (RMDs) from their IRAs and retirement accounts. (In 2020, we didn’t have to do it – we do now.)
    
    • There is a 50% penalty (excise tax) for failing to draw the funds.
    • If you don’t really need to use that money, and don’t want to add it to your adjusted gross income for the year, consider sending the amount of your RMD directly to your favorite charity.
    
    
    
    
  • Divorced parents dealing with an aggressive ex who doesn’t support your children, but claims them anyway. Get an IP PIN for each child, so that only you can claim the child on an electronically-filed tax return. Do it as soon as the portal opens in January – gather all the information now – http://iTaxMama.com/IRS_IP_PIN
  • Business assets – buy things you are going to need for next year. But start to put them to use this year, or you won’t be able to get the deduction until next year.
  
  
  
  

Tips for the next filing season

The IRS finally published the mileage rates for 2022  https://www.irs.gov/newsroom/irs-issues-standard-mileage-rates-for-2022
When they update their website, you will find 2022 – 2011 here: https://www.irs.gov/tax-professionals/standard-mileage-rates

To survive all the information, transcript and taxpayer account-related needs during 2022, do this:

• First create an account with ID.me – have your photo identification ready
  https://sa.www4.irs.gov/secureaccess/ui/resources/img/idme/create-acct.svg
• Then, Tax Professionals, set up your Tax Pro accounts
  https://www.irs.gov/tax-professionals/use-tax-pro-account
• Next, help your clients set up their Taxpayer Accounts
  (or Taxpayer – do this for yourself!)
  https://www.irs.gov/payments/your-online-account

For Tax Pros – What’s in it for you? This will make it possible to quickly activate a Power of Attorney (Form 2848) or Information Authorization Request (Form 8821), instead of waiting weeks for the Central Authorization Filed (CAF) unit to record your authority.

For Taxpayers – This will give you access to your transcripts, payments and so much more without having to sit on hold with the IRS for hours.

Expect Letters from the IRS in January:

• IRS 6419 letter – Advance Child Tax Credits
  http://iTaxMama.com/IRS_6419_Letter
• IRS Letter 6475 – for stimulus payments
  http://iTaxMama.com/IRS_6475_Letter

Tell your clients to save these letters – very important.

It’s going to be bumpy this coming tax season as we try to reconcile all the payments received – and that were not received.

And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion

To make comments please drop into the TaxQuips Forum.

Download the MP3 (0:00min, 0MB) or listen now...

Ask TaxMama

Where Taxes are Fun

TaxQuips

The best Free Tax Podcast Online

TaxQuips Forum

Where you can you ask your tax questions

TaxMama.com

Where you can you can read the full post

It’s TaxQuips time from TaxMama.com.
Today TaxMama^® wants talk to you about the final income filing deadline for this year’s tax returns.

 

 

 

     

 

 

Dear Family,

Every year we get to this point in time. Getting down to the wire.

In private social media forums, tax professionals are posting notes and screams of frustration, dealing with clients showing up at the last minute with surprise income, off-handedly mentioning – Oh, I sold that property last year, or mention of an LLC they opened that they forgot to bring up earlier. Or still not providing the missing documents or expense summaries the tax pros have been requesting for months. And then there are those charming folks who think it’s fun to walk into their tax pro’s office two days before the final filing deadline, all ready to sit down and get the tax return prepared on the spot.  (I have a friend who thinks that’s cute – he’s not a client, though.)

Let’s face a few realities, my friends.

This has been a tremendously stressful year – on so many levels. Aside from the COVID dangers, Congress has been passing laws in 2020 and 2021 that they expect taxpayers, tax professionals and the IRS to understand and implement – some of the laws being retroactive for the last year or two. In addition to tax compliance and enforcement, Congress has tasked the IRS with issuing several series of payments to taxpayers – and the IRS is trying so hard to make the information easier for taxpayers to find that they simply don’t have time to answer all the questions people have.

And with everyone working from home, the IRS is totally behind on opening paper mail, including payments people have made – so the IRS computers are spewing out past due notices to people who have already paid their taxes.

This year is a total mess.  But that doesn’t mean you’re off the hook about meeting this October 15^th filing deadline. (Unless you live in a disaster area. Then you still have more time.)

My message to you?

If you haven’t already filed your tax return, finish up and do it IMMEDIATELY!
Today. File it electronically and keep an eye out for rejections, so you or your tax pro can fix the problem quickly.

But, you don’t have all the information?

Too darn bad! You have had over 9 months to gather the data. If you don’t already have it all – make your best estimate of the missing income or expenses. Include a disclosure statement, Form 8275, to explain why you have estimated amounts – and that you will amend your tax return as soon as you get the correct data.

Why should you file a tax return with estimates, instead of waiting until you get all the numbers?

• Your extension will run out on October 15^th. The non-filing penalty is 5% per month for up to 5 months. That’s 25%. Does that start in October or April? I believe it starts in October.
  
  • But the late payment penalty of ½% per month started in April, if you didn’t pay all the taxes you expected to owe for last year at the time you filed the extension. (So you’re already up to 7 months of late payment penalties plus interest.)
  
  
  
  
• In order to claim certain tax breaks and credits, you must file the tax return on time. They don’t work on late returns.
• Folks who miss this filing deadline often get stymied about what to do in the following year – and it starts a pattern of non-filing for the next few years until they get things sorted out. This ends up becoming very, very expensive.

Oh yeah, There’s More Due tomorrow

Yup. In addition to the final filing deadline for the prior year, you have the 3^rd quarter estimated tax payment due for the current year.  

Paying this is especially important if you find yourself owing more than you can pay for last year and/or earlier years. To get the IRS to agree to an Offer in Compromise or Installment Agreement, or any other breaks for past due balances, you must be current on this year’s withholding or estimated taxes. So, catch up – and pay online only, to ensure that your payment is credited to your taxpayer account – be sure to put the correct year on the payment – https://www.irs.gov/payments .  Do not send paper checks – they are taking too long to post to taxpayer’s accounts.

This is also a good time to schedule a meeting to review your tax situation for the past year. Your tax pro is going to want a break, desperately. So schedule your meeting for next month.

We know there will be more legislation coming from Congress this year. And we already know it’s going change a great many issues in your tax life – probably retroactive to the beginning of this year – after it’s (nearly) too late to change what you’ve done. So expect next year to be a challenge as well.

I will keep you updated once they actually pass the legislation – hopefully before the end of December!

And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion

Download the MP3 (0:00min, 0MB) or listen now...

Ask TaxMama

Where Taxes are Fun

TaxQuips

The best Free Tax Podcast Online

TaxQuips Forum

Where you can you ask your tax questions

TaxMama.com

Where you can you can read the full post

It’s TaxQuips time from TaxMama.com®.
Today TaxMama® wants talk to you about the unemployment refund checks the IRS has started to send out.
Yours may be on the way!

 

 

 

 

 

Dear Family,

In today’s TaxQuip, I want to reach taxpayers who prepare your own tax returns. Please share this with anyone else who is affected.

Let’s do a little recap on the current situation:

Long after millions of taxpayers filed their tax returns (American Rescue Act in March 2021), Congress decided to help out shocked taxpayers who learned that the unemployment benefits they received during this pandemic are taxable. Congress decreed that the first $10,200 of all unemployment benefits would not be taxable.

The IRS said they would issue the refunds automatically and asked us all not to file amended returns until after they issued the refunds, as I reported earlier.

So, now the refunds are arriving. Now that tax pros have seen how the IRS made their computations, they noted that many of their clients do need to file amended returns. Why?

Frankly, for the IRS to perform a complete computation on each tax return would be so prohibitive that the refunds would be delayed for months. Instead, they took a short-cut. They multiplied the amount of the unemployment exclusion (up to $10,200 or double that for couples filing jointly in community property states) times the taxpayer’s tax bracket.

This computation works really well for people who have jobs that provide health insurance coverage, little or no other income, and don’t have children. For instance, let’s look at a single person’s income of about $42,000, including unemployment income. They would be in the 22% tax bracket. Now, subtract $10,200 and their tax bracket drops to only 12%. This person gets an extra $1,000 of refund. This person isn’t going to want to amend!

But what about people who have children – or more complex tax returns?

Dropping their income by $10,200 will reduce their adjusted gross income (AGI) and might increase their refundable credits (child tax credit, earned income credit and American Opportunity credit).  The lower AGI may also increase their right to other deductions or tax credits:

• Suspended real estate losses (up to $25,000) might become deductible
• Non-deductible IRA contributions might now qualify for a deduction
• Student loan interest and tuition and fees deductions are limited by AGI – they might become deductible.
• Taxable advance premium tax credits (insurance from the marketplace) might well turn into refundable credits.
  
  • Yes, we know that Congress waived the taxes for 2020 – but reducing the adjusted gross income might turn those (forgiven) balances due into refunds – this could be a substantial windfall.
  
  

Then, look at people who collect Social Security benefits.

Normally those benefits are tax-free. However, when they have other income, like wages, self-employed business income or investment income – or unemployment – up to 85% of those Social Security (SS) benefits can become taxable. Dropping the AGI can bring the income low enough so none of the SS benefits are taxable.

For instance, let’s say a couple is receiving $18,000 of SS benefits each, $2,000 of tax-free interest income, a pension of $20,000 and $10,200 of unemployment benefits (assuming they didn’t get more than that…)

Using live software, we determine that $11,270 of the SS benefits are taxable, resulting in taxes due to the IRS of  $1,407. (Details in our files)

When we remove the unemployment from the equation, the taxable income is zero.

The IRS would have sent them $1,020. By filing an amended return, they can get an additional refund of $387.

Depending on the state they live in, they might get additional refunds from the state – although most states don’t tax Social Security income in the first place.

Good News for people with Professionals

Tax professionals will take care of their clients, either now or when you come in for next year’s tax appointment. So, feel free to wait until then – and see what else the IRS does about issuing refunds to those people who paid the penalties because their income was too high for the Premium Tax Credit.

The folks at VITA (Volunteer Income Tax Assistance) have told me that they will be reviewing the 2020 tax returns for all of their clients – and that VITA does have the authority to prepare the amendments for them. At no charge. That means that the teams at TCE (Tax Counseling for the Elderly – often run by AARP), will probably do this as well. You might also be able to get help from the Low Income Tax Clinics, often run by colleges and universities, if you have a problem getting the IRS to accept your amended returns.

In Short

Although the numbers presented may not look enormous, for some households, this can mean thousands of dollars’ worth of refunds. Others – maybe only hundreds. It’s well worth your time to recompute your revised tax liability once you get that IRS refund check. And remember, the IRS will be paying interest on the additional refunds – a lot more than your bank pays.

And remember, you can find answers to all kinds of questions about taxes and business issues, and EA Education, free. Where? Where else? At http://iTaxMama.com/AskQuestion

To make comments please drop into the TaxQuips Forum.

 

Download the MP3 (0:00min, 8MB) or listen now...

Ask TaxMama

Where Taxes are Fun

TaxQuips

The best Free Tax Podcast Online

TaxQuips Forum

Where you can you ask your tax questions

TaxMama.com

Where you can you can read the full post