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!
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).
Helpful Resources
Lewis Financial Tax Service, LLC encourages the use of these helpful links for common requests from federal and state revenue cabinets. If you have questions with any of the information, let us know.
TAX WITHOLDING CALCULATOR: https://apps.irs.gov/app/tax-withholding-estimator
WHERE’S MY AMENDED RETURN?: https://sa.www4.irs.gov/wmar/login
REFUND STATUS (IRS): https://sa.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp
STATE REFUND STATUS:
- NORTH CAROLINA: https://eservices.dor.nc.gov/wheresmyrefund/SelectionServlet
- SOUTH CAROLINA: https://mydorway.dor.sc.gov/_/
- KENTUCKY: https://refund.ky.gov/
- ILLINOIS: https://mytax.illinois.gov/_/
- OHIO: https://www.tax.state.oh.us/IFILE/WheresMyRefundWeb/wheresmyrefund.jsp
- MICHIGAN: https://etreas.michigan.gov/iit/p/iitWMR
- PENNSYLVANIA: https://www.doreservices.state.pa.us/PITServices/WheresMy/Refund
- WISCONSIN: https://www.revenue.wi.gov/Pages/Apps/TaxReturnStatus.aspx
Tax Law Changes for 2020
2020 has been a one-of-a-kind year. Everyone has been affected in some way or another. No matter how this year ends, or if he just morphs into next year, there are only two things in life you can count on…death and taxes. So as “generous” as the government has been (or hasn’t been) this past year, their “payday” is right around the corner. It’s not all bad, though; most of the tax law changes are still aimed at easing the economic impact of the pandemic as well as expanding opportunities for increasing retirement savings.
Below are the most prominent to date. Check back with us at Lewis Financial Tax Service, LLC for other changes specific to you and any additions that will undoubtedly come with a new President.
(Disclaimer: The following is a list of items that have changed the tax law due to the passing of the SECURE Act, CARES Act, and others. Once the Presidency changes hands in January, there will likely be other tax law updates.)
2020 Recovery Rebates
Also known as the “stimulus checks”, it was more specifically a rebate for 2020 that was paid early. Receiving any amount of payment will not reduce your refund for the 2020 tax year. However, if you didn’t qualify for the rebate, or only received a partial “phase out” amount, that amount could be increased if your income was different in 2020 as opposed to 2019 OR there was an added dependent.
Charitable contributions
Nonitemizers can claim up to $300 in charitable cash donations. For itemizers, the limitation of 60% of your modified income has been pushed to 100% for cash contributions. It remains at 50% for non-cash items
Educators
Teachers who don’t itemize, can claim $250 in educator expenses this year. If two educators are married and filing jointly, that number is $500. (These expenses must be unreimbursed.)
Self-Employed Family and Medical Leave
Self-employed individuals can receive a credit against the Self Employment Tax. This applies if you were forced to quarantine based on federal, state, or local order, or medical advice; or if you were caring for someone who met those conditions; or caring for a son or daughter whose daycare had been closed due to Covid-19 precautions. The amount varies so much that it would be best to just contact us so we could discuss it.
Employers Paid Family and Medical Leave
This is too in-depth to begin to discuss here. However, we are up to speed with every aspect of the Families First Coronavirus Response Act, so please contact Ryan for a FREE consultation.
Required Minimum Distributions (RMDs)
The RMD rules have been waived for certain plans and IRAs for 2020. The required beginning date for RMDs has changed from 70 ½ to 72 for individuals turning 70 ½ after 2019.
Retirement Early Distributions
The 10% early withdrawal penalty has been waived for distributions up to $100,000 from IRAs and 401(k) plans. These distributions must be made between January 1, 2020 and December 31, 2020.You can elect to have the income from these distributions taxed over a three-year period, and you may also elect to recontribute the funds to an eligible plan within three years without regard for that year’s cap on contributions. Please note: the CARES Act provision must be included in your plan.
Traditional IRA Contributions
The maximum age limit of 70 ½ has been repealed.
New Standard Deduction (Update for inflation)
While only 13.7% of Americans now itemize following the JCJA in 2018, the IRS continues to increase the Standard Deduction each year for inflation. (Reminder: You don’t have to itemize to claim the $300 charitable contribution discussed above) Tax Year 2020 table:
Single: $12,400 (+$200); $14,050 if over age 65
Married Filing Joint: $24,800 (+$400); additional $1,300 each individual over age 65
Head-of-Household: $18,650 (+$300); additional $1,650 each individual over age 65
Standards Mileage Rates
Business: $0.575 per mile
Medical & Military Relocation: $0.17 per mile
Charitable: $0.14
Others
There are many more tax tables that have changed that are more specific to certain clients and would be too in-depth for the purpose of this entry. Please reach out to us regarding any other tax tables that may apply to you. Contact US.