TaxMamas TaxQuips

 

It’s TaxQuips time from TaxMama.com^® .
Today TaxMama® wants talk to you about a big flaw in the current tax laws.

 

 

 

Dear Family,

It’s summer! Can you believe the year is going by so quickly?

The past month has been a whirlwind with teaching, taking classes and even going to a live, in-person CSTC Tax Symposium in Reno. It’s the first time since early 2000 that I have had the opportunity to meet friends, peers, students and TaxMama® fans. We met, learned, hugged, ate a LOT – and didn’t get the least bit sick. (Well, OK…a little sunburnt…but that passes.)

I also got started on a new crusade – to fix the tax law neglect when it comes to the Romance Scams – and the 14 other scams listed on the FBI’s site.

The problem? The Tax Cuts and Jobs Act (Trump Tax Act) completely eliminated taxpayers’ rights to deduct casualty and theft losses – unless they were in Presidentially-declared disaster areas.

As soon as I saw that in the law, it was clear this was going to be a problem for all the people who face routine disasters – like a fire burning down their home because of a smoldering cigarette; burst plumbing flooding the house (especially folks who are gone from home in the winter); people getting their assets stolen in scams that do not meet the limited definition of a Ponzi scheme; vandalism or theft from local thugs (or tenants)…and the list goes on.

Well, now it hits home. A client got scammed for over $400,000. There may actually be a round-about way to claim the deduction – but it’s almost guaranteed to be audited. So I would much rather find a way to change the law itself.

I am totally open to your help if you have contacts to bring this about.
It will affect the millions of people who have been victimized in the 15 scams on the FBI list – and possibly others, depending on how broadly we can change (or re-interpret)  the Tax Code or Regulations.  Perhaps you, or your family or friends – or clients have been affected, already. (Romance Scam victims have lost over $1 BILLION dollars in in 2021.)

Here’s what I was thinking – it’s really hard to get Congress to act jointly on practically anything these days. So I wanted to find a work-around.

But here is a possibility – the Seniors Fraud Prevention Act is a bi-partisan bill from Senators Susan Collins® and Amy Klobuchar (D) that recently passed by both houses! However, it’s limited to education and monitoring – and doesn’t go far enough to get those seniors the casualty loss deduction. If you have a way to reach either of these legislators, please help me ask them to add this to their bill – or add it to an upcoming bill.

Knowing this can take years, I have started the process to reach out to the IRS and the Taxpayers Advocate Service (TAS) to start exploring solutions – and to see if anyone can take this issue to the Secretary of Treasury, or someone close to President Biden or Vice President, Kamala Harris. Why, an easy solution would be to have the President declare these scams as Presidentially-Declared casualties. Then we don’t have to change the law itself. (There is precedent for a non-geographic declaration – COVID19.)

If I can get something started and know that there is movement, either with respect to legislation, or a potential  Presidential declaration, then everyone who has been affected could file a “Protective Claim” to request a refund once the law or procedure change has been confirmed. What does that mean? It means that you won’t lose the right to deduct the losses and get a tax refund three years after the tax return was filed. When a “Protective Claim”  is filed within those three years, it makes it possible to get that refund, even if it takes 10 years or more for the legislation to change. But to file that “Protective Claim,” we need to be able to point to some tangible activity that will ultimately make these deductions kosher.

This is probably a crazy idea. But the people I have spoken to at the IRS, TAS and even Kelly Phillips Erb at Bloomberg, think there may be something to this.

So if you can help – please do. If you, or someone you know, has been affected, I would love to hear from you. Especially if they are willing to be profiled in the press. Use this email address so we can track your responses – romancescamtax@gmail.com

That’s it for now.

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.

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It’s TaxQuips time from TaxMama.com® .
Today TaxMama® wants talk to you about an eclectic set of tidbits about IRS changes and news.

 

 

 

 

Dear Family,

Recently, the IRS started releasing updated Frequently Asked Questions (FAQs) about different topics. They didn’t actually add new information or change any procedures. But did add more clarifications (look for the updated date next to the FAQ):

The most important information for people still waiting for their 2020 and 2021 tax returns to be processed can be found in this FAQ. It tells you that your delay could be even longer than you could ever have imagined; to do nothing – just wait…and several other helpful tips.

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Are you missing stimulus/recovery payments? Are you convinced you never received them, even though the IRS transcripts say you did?

• Use Form 3911 to track the payment.
  
  • Save time and fax this request to the IRS to 855-332-3068
  • Call 800-919-9835 to follow up
  
  
  
  
• But first! Look through all your bank accounts to be sure the payments are not there.
• And here’s a delightful twist to make you crazy. Did you pay for your tax software or tax preparation fee by having it deducted from your refund?
  Your stimulus payments may have gone to bank that handled the fee payment to TurboTax, H&RBlock, etc., or to your tax pro. Oh no! That’s another place to inquire before filing your Form 3911.

Here are some other useful FAQs

• IRS revises FAQs for Tax Year 2021 Earned Income Tax Credit
• IRS revises 2021 Child Tax Credit and Advance Child Tax Credit frequently asked questions

What’s frustrating is that they don’t put the newest answers on top; or, on a page with 20 or more FAQs, it would be helpful to get a summary of which FAQs had changed. With links to those changed FAQs. (Remind me to suggest that to the IMRS team. They are the ones who convinced the IRS to show the dates of the changes.)

The IRS is raising interest rates on balances due. They have been pretty stable, at 3% until earlier in April of this year. With this 3^rd quarter increase, the IRS will have raised the interest rate by 2% for the second 2 quarters.

This is good news for people with refunds that are delayed. But not for people owe money to the IRS.

 

The IRS released their audit statistics for tax year 2019. As you can see, these audits are still in process. Look for your income bracket to see how likely you are to be selected. Audit rates have doubled for those in the $75,000 – $5 million range. Yet, they still remain well under 1% of the population.

Audits of those folks with incomes over $10 million have increased fourfold.(Believe it or not, the IRS has another set of statistics that shows the results of all these audits.)

 

 

Natural disasters are increasing. As we get ever more storms, floods, fires, hurricanes, tornadoes and other plagues, the IRS provides some tips to help you protect your financial data. These are things you can do now – before the next disaster hits your home.

Something no one seems to remind you about – your irreplaceable family documents, photographs, films – the memories and love that cannot be recreated if lost, stolen or damaged. Protect those! Load them someplace safe in the Cloud – perhaps copied into one or more different systems in case one of them gets hit with their own disaster. It’s inexpensive to be redundant about your most precious family treasures.

That’s it for now.  There are many, many  more questions in the TaxMama® Forum. Drop by and read – or ask your own.   http://iTaxMama.com/AskQuestion

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.

 

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It’s TaxQuips time from TaxMama.com^® .
Today TaxMama® wants talk to you about an issue raised by Jean Mammen, EA. She says that right around now, there is so much going on, helping refugees, the homeless, and others who have experienced adversity. So, let me give you some quick tips about the tax laws related to gifts.

 

 

 

 

Dear Family,

These are the questions raised by Jean Mammen, EA.

Here are some basic responses, with links to more details:

• Is a gift taxable?

Generally when you receive a gift, it is not taxable to you.
The person giving the gift should file a gift tax return, Form 709, if all the gifts they give you during the year are more than $15,000
 

• GoFundMe – again, the person setting it up, and also the recipient of the funds

This is a little more complicated.  Set up the GoFundMe-type of account in the name of the recipient  so all the funds go to an account for that recipient (their Social Security Number and signature authority). Do not give or promise anything to the donors (no e-books, cards, anything tangible) except, perhaps news of the progress of the person you are helping.

1. Then the funds are tax-free to the recipient. 
2. There is no charity deduction to the donor (generous giver) – UNLESS the organization that set up the account is an exempt organization in good standing with the IRS.
3. The recipient is able to get a tax deduction (or credit) if the funds are used to cover medical expenses or educational expenses.

• Full-ride scholarships, fellowships, etc. – tuition vs food and lodging amounts

The funds covering tuition, books, and class supplies are tax-free. The funds to cover food and lodging are taxable income. 

For  a student under age 24, you will need to file your own tax return, check the box if you are still your parents’ dependent.

And this income is subject to the “kiddie tax” rules. You will pay taxes on these amounts at your parents’ highest marginal tax rate.
 

• Direct-payment of school fees to schools, or medical fees to hospitals or doctors

Anyone may make a gift to anyone else – even if they are not related – see the GoFundMe notes above – they apply here, too.

When those funds are paid directly to a school (of any kind), or directly to medical providers there is no need to file a gift tax return, regardless of how much is donated on that person’s behalf. Beware if the beneficiary gets any of those funds refunded!
The interesting twist in this is – the beneficiary of these funds is considered to have received a gift – so they can claim the medical expense deduction, or the education credits. 

• Would direct pay to an electricity company or utility be a good idea?

Interesting question. Yes, if you know someone who needs that kind of help. You can pay their bills directly.

But paying their utilities is not an exclusion from gift tax filing. So once you have spent over $15,000 in total gifts to or on behalf of that person (aside from just the utility bills), you must file a gift tax return. The money paid is tax-free to recipient.
 

• There are now articles in my local paper about refugees and asylees who need help with everyday bills

It’s a great kindness to help refugees and those seeking asylum. There will be a place in Heaven for you. (whichever Heaven you believe in). What are the tax consequences?

1. If you help them directly – the gift tax rules apply, and you don’t get any kind of charitable contribution deduction – just gratitude
   Note: This may change – Congress may pass some legislation to provide benefits to you.
2. If you work through a recognized charity and run the funds for housing arrangements through them – then you can get a charitable contribution deduction. 
   Make sure you submit your expenses to them and get a receipt for your “donations” – either monthly or annually.

There are many, many  more questions in the TaxMama® Forum. Drop by and read – or ask your own.   http://iTaxMama.com/AskQuestion

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.

 

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Honoring Ramadan, Easter, Passover

It’s TaxQuips time from TaxMama.com^®
Today TaxMama® wants talk to you about changes to this year’s filing season that you may have missed – or forgotten about.

 

Honoring Ramadan, Easter, Passover

It’s TaxQuips time from TaxMama.com^®
Today TaxMama® wants talk to you about changes to this year’s filing season that you may have missed – or forgotten about.

 

 

 

 

Dear Family,

We are getting close to another year’s initial filing deadline. This year, our April 15^th deadline has moved to April 18^th, giving us a few extra days to file. I am not going to repeat all the usual tips and deadline information – you can find last  year’s links here. (Just disregard last year’s May due date.)

But if you haven’t filed your 2018 tax return yet and you want your refund – please file by the April 15^th date, just to be safe. Trust me on this – it will save arguments with the IRS later.  (Note: Some people say you can file until April 18^th; others, that if your 2018 tax return was on extension, that you can file until October 15^th. Why risk losing the refund? File now!) About $1.5 BILLION in refunds have been unclaimed and are about to expire.

Working on some tax returns last week, Lulu pointed out that some new forms that are now mandatory. Answering some TaxMama® Forum questions, I learned new information while researching answers – and was reminded about other information. So, I decided to find as many of those forms for you, so you don’t overlook them as I almost did. (I love her backing me up!) In addition, there may be tax provisions that have expired since last year. This may not be a complete list – and it may be random, as I find them or remember them:

• Form 8915F – Qualified Disaster Retirement Plan Distributions and Repayments. This is where 1/3^rd of last year’s retirement plan deferred distributions gets reported this year. (Or repayments of those funds.)
  The form was issued late. So if you have already filed your tax return and forgot to include this income – amend NOW before April 18^th and consider submitting the payment via IRS Online Payments .
• For S Corporations – Form 7203 – S Corporation Shareholder Stock and Debt Basis Limitations. You now have to reconcile the taxpayer’s basis in their S corporation stock. For taxpayers who never really kept formal books, or a Balance Sheet, this is going to be a challenge.
• Net Operating Loss Carryback (NOL) – The special provisions allowing us to carry NOLs back for 5 years only applied to 2018, 2019, 2020. NOLs originating in 2021 can only be carried forward.
  
  • Exception – Certain Farming NOLs can still be carried back to 2 years ago.
  
  
  
  
• Tuition and fees deduction (Schedule 1) – This ended last year. It might be renewed by Congress retroactively. But don’t hold your breath.
• Educator Expense – You have heard that this deduction rises to $300 (from $250). Forget it. That takes effect for the 2022 tax return.
• Virtual Currency – The checkbox on page 1 of the Form 1040/1040SR applies if you had any transactions with your virtual currency account whatsoever.
• Required Minimum Distributions (RMDs) – Seniors who turned age 72 in 2021 must have taken their RMDs for 2021 by April 1, 2022. If you missed that deadline, do it now and try to convince your financial institution to code it as a 2021 distribution. Otherwise, you will have to ask the IRS to waive the 50% penalty. And remember, you also need to take the RMD for 2022 before year-end.
• Partnership Schedule K-2 and K-3 – We have a reprieve from mandatory inclusion in 2021’s partnership and S corporation tax returns. This relates to information on any kind of foreign transactions whatsoever – by the entity, or by the taxpayers on their personal tax return. This will be such fun next year!
• Form 8962 Premium Tax Credit – For tax years 2021 and 2022, Congress eliminated the limitation that a taxpayer’s household income may not exceed 400% of the federal poverty line, generally increases the credit amounts, and makes it available to people on unemployment. If you don’t know what this is – this is the healthcare premiums the government pays on your behalf via the MarketPlace or your state equivalent.

There are probably many things I am overlooking. A good place to see more changes is the “What’s New” section of all IRS publications and forms instructions. For individual taxes, Publication 17 is a good place to look. For businesses, there is a little information in Publication 334.  For businesses, though, please be aware that there are a great many complexities because of the PPP loans and a variety of employee-related tax credits. You may need a tax pro, who is totally in tune with these changes, to help you. Not all of us are – which is why many tax pros are retiring this year. Sigh.

 

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.

 

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It’s TaxQuips time from TaxMama.com^® 
Today TaxMama^® wants to talk to you about filing your tax return before you have all the information and to address all the money you’re going to need by April 18^th .

 

 

 

 

 

 

 

Dear Family,

STOP! PLEASE, PLEASE STOP!

TaxMama® is getting more questions than ever before from people who have already filed their tax returns – then learned about missing W-2s, 1099s, investment income and whatever.

Really? You didn’t know about that extra $10,000 income you earned? Or the extra $30,000 of gambling winnings you didn’t report on the original return? Or that Schedule K-1 you were expecting, or the $50,000 IRA or 401(k) distribution you took, or…? Who else can know about all these things, but you? It’s your life. Remember it.

Sure, you can amend your tax return after you file it.
But before you can amend, you have to wait for the tax return to be fully processed and for your refund to be issued – or your balance to posted and/or paid. When there are discrepancies, it can take the IRS months to process the original return.

Then, when you do file the amended return (even electronically), expect to wait more than 20 weeks, because as of March 12, 2022, the IRS had 2.2 million unprocessed Forms 1040-X.

On the other hand, if you wait an extra 2-3 weeks to file your tax return, it  will be processed more quickly, because the IRS won’t find discrepancies – and your full refund will be issued to you sooner.

Now, what’s if you figured out that you owe more money? Do you really want to wait weeks or months to amend, piling up underpayment penalties?

You have no choice about the filing. BUT… you can avoid penalties by paying the balance you owe. Pay online only – remember how far behind the IRS is on processing paper.
https://www.irs.gov/payments

Be careful to specify tax year 2021 and tax form 1040 for last year’s balance due.

Now, we are rapidly coming up on April 18^th. So you may also have a first quarter estimated tax payment due. Use the online payment system.
This time be careful to specify tax year 2022 and tax form 1040ES for this year’s estimated tax payments.

Along with last year’s balance due, and this year’s estimated tax payment being due, any contributions you want to make to your IRA (Roth or Traditional) must also be funded by April 18^th this year.

That may turn out to be a lot of money. Do you have that much set aside? If not, you have about 3 weeks to pull it together. (Don’t feel too bad, one of my clients had to come up with nearly $90,000 – but that also included some smart planning to fund his retirement account.)

We are in a different world this decade. With all the logistical changes due to COVID19 staffing and operations, the IRS is trying to create more electronic self-service tools and phone bots to help taxpayers avoid sitting on the phone lines for hours – only to get a hang up in the end. I encourage you to take advantage of the electronic tools as much as possible.

 

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.

 

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