New Mileage Rate...With a Twist
The IRS recently announced that, beginning July 1st, the mileage rates for business travel, as well as deductible medical/moving travel has increased 4 cents to $0.625 and $0.22 per mile respectively. (Charitable miles remains the same at $0.14 per mile) The "twist" to this is the mileage recorded for the first 6 months of the year will be $0.585 ($0.18 medical/moving) per mile, and the second 6 months will be $0.625 ($0.22 medical/moving) per mile.Make certain you are dating your mileage log, and updating your mileage tracking apps, to reduce the confusion and headache at the end of the year!
Repayment of RMD Distributions Related to Covid-19
If you received a retirement distribution due to coronavirus-related early distribution in 2020 on account of hardship, you may choose to repay any portion of it within three years of receiving the distribution. Repayments reduce amounts subject to income and are not subject to any contribution limits.
If you made as payment before the due date of your 2020 return, the repayment reduces the amount included in income on your 2020 return. Alternatively, a repayment after filing your 2020 tax return, and the repayment is spread over 3 years, reduces the amount included in income on your 2021 return. You may need to file an amended 2020 return to reduce your income over the three-year period. Contact your financial planning professional to discuss if this applies to you.
2022 Required Minimum Distributions (RMD’s) & Life Expectancy Table
There is a major change in RMD’s for tax year 2022; most notably the new Life Expectancy Table. For individuals receiving RMD’s, your minimum distribution will change, and it will be a smaller percentage. Congress is realizing that Americans are living longer (even with COVID?), and therefore need to make certain we have ample retirement (but not from Social Security) to live on. Please discuss this with your Financial Planning professional.
In addition to updated life expectancy tables, they have also raised the age to begin taking RMD’s to age 72, instead of 70 ½ like was the case before 2020. If you reach 72 in 2021, you must take your RMD by April 1st of the year after you turn 72. In general, the year after you turn 72, you could be required to take two RMD’s (one by April 1st of that year, and a second one by December 31st of the same year to apply towards the following year); then take the normal by the December 31st deadline each year after that. If you don’t want to pay tax for both in the same year, you are permitted to take a distribution the year of your 72nd birthday instead of waiting until April of the following year.
Feel free to use this link from the IRS to see the new life expectancy table and a simple calculator to determine your current and future distribution amounts.
(Remember, if you are the beneficiary of an IRA, this rule applies to you, but using the age of the deceased beneficiate, and our age is younger.)
Virtual Currency
As much as we wanted to bury our heads in the sand and act like this trend was a flash in the pan, we have realized it is here to stay. So has the IRS, and they are catching on quickly! Both Ryan and Don have taken classes on this topic so we can keep up with our clients and their tax responsibilities. If you have questions, or more importantly, if you hold any cryptocurrency, please make us aware of this during discussions with us and when delivering/sending in your information. You will need to report all transactions. We will ask you for them.
Child Tax & Dependent Care Credit
If this applies to you, you probably have already seen the payments deposited into your account each month on the 15th. The government has made a one-time increase to the child tax credit to $3,000 per child (up from $2,000), or $3,600 for children 5 and under. Where do those payments come into play? The purpose was to get money into the taxpayers’ hands “immediately”. Therefore, they have been depositing $250-300 per child each month as an advanced credit, with the rest of the credit being paid out when the tax return is filed.
There are a few instances where this may affect some taxpayers in a different way. If your income has changed over the previous year, you may not receive the second half of the credit figured on your tax return. If a taxpayer had a child during the 2021 calendar year, you wouldn’t receive advanced payments for this child. Therefore, you would receive the full credit on your tax return. If there is a situation with alternating years’ custody between divorced parents, this becomes more complicated and probably requires special handling.
The IRS was instructed to create an online portal to give taxpayers an opportunity to update information including:
- Add/Change bank account information
- Unenroll from these advanced payments (receive full amount on tax return)
- Update your modified gross income
They were also instructed to give taxpayers an option to add/change dependent information, to add the new child and amend shared custody situations. Unfortunately, the IRS hasn’t completed this and will not by the end of the year. Use this link to check your payment status and history, as well as access the options mentioned above.
Threatening IRS Letters & Processing Delays
IRS Letters and Processing Delays
In the past year, many of our clients have received letters and notices from the IRS. Many of these letters are a bill for tax due, even if the client has paid it. A few have even been letters referencing previous tax years as far back as 2018! Some of these notices even border on a threatening tone. Most of these letters are autogenerated by computers. So, if the human element is delayed, the computers keep spitting out letters. Just like the wait times are extended at restaurants, the IRS is struggling also.
Part of our fee, as a paid preparer for our clients, includes responding to any IRS inquiries that may come to the client. If an amended return is required, we charge a very reasonable fee for an amended return. Always remember, if you ever receive any correspondence from the IRS, contact us immediately.
February Update
STIMULUS PAYMENTS & CHARITABLE CONTRIBUTION DEDUCTION
We wrote and attached to our website in November what is new with your taxes this year. Now, after two weeks talking with clients as they prepare to send us their info, or discuss omitted items, we think it is time to refresh some points made in the November posting. This will be our first edit to our November post, probably with more to come. If you have a question after reading the post, we welcome your inquiry-it may become the basis for another edit.
Stimulus Payments
There is a lot of misinformation circulating about how these will be treated in your return. (misinformation- how did it evolve into the popular press term “fact checks”?) When preparing your return, you are required to enter the amount received from your stimulus payment(s), including the one received in late December, early January. If you did not receive one or both of the payments, and based on the income parameters you should have, the shortfall will be added to your refund. Likewise, if your income was reduced, and you fit the income parameters in 2020 but not 2019, the amount owed will be added to your refund; or reduce the amount of tax owed for the year. If the IRS sent too much, whether it is because you earned more in 2019, had an extra dependent, or just made a mistake, they cannot take the money back! Nor will it reduce the refund they owe you,
How will they know if the amount you provide is correct? The same way they know if your child’s SS# is correct or if a dependent has already been claimed this tax season. If you provide them with the incorrect amount, and in-turn they overpay your refund, you can expect a letter in 6-18 months in a white envelope-we know how you love to receive those. And the computer is well trained to follow-up until the matter is resolved.
$300 Charitable Contribution Deduction
There is also confusion about the $300 per return allowance for charitable contributions. (This will be increased in 2021 to $300 per individual allowed) You are allowed to deduct this on the front of the return, even if you are unable to itemize. BUT, it is for a donation paid in cash-not clothing dropped off at the Goodwill drop box /store. It does not qualify for treats you bought for kids at church for which you have a receipt. You will receive a letter from the charity for your CASH donation-they are required to provide a written receipt for all donations more than $250 from a single donor. You cannot trust that copy of your cancelled check taken from your bank statement will be accepted. You can, however, make your case for it qualifying if you have cancelled checks less than $250 to each charity that total up to $300. Cash in the collection plate at church must be receipted-the only way to accomplish this is to use the church envelopes so the church secretary/treasurer knows who the offering is from and can tally those offerings at year end. If you do not have it this year, there are no do overs-just remember to change your offering to a check or cash in an envelope in 2021. And a check to the Girl Scouts is still for cookies-not qualified.
To date, these are the only questions that have arisen that require further clarification. However, return to this site frequently to see additions as we see the issues arise dealing with clients this tax season. We will also be posting the dirty dozen (scams highlighted by the IRS being made on taxpayers and/or Scams uncovered by the IRS processing tax returns).