Category: Personal Income Taxes

Personal Income Taxes.

Posted on

What is the difference between IRS Form 1099-NEC and Form 1099-MISC?

Beginning with tax year 2020, the 1099-MISC has been redesigned due to Form 1099-NEC. Employers will no longer report nonemployee compensation, such as payments to independent contractors, on Form 1099-MISC.

Form 1099-NEC

This tax year 2020, employers must use Form 1099-NEC to report nonemployee compensation, if the following criteria is met.

  1. Payment made to someone who is not your employee.
  2. Payment made for services of your business
  3. Payment made to an individual, a partnership, or an estate.
  4. Payments made of $600 or more during the year.

This nonemployee compensation are payments made to independent contractors, fees paid for professional services such as of attorneys and accountants, and commissions paid to nonemployee salespersons that are subject to repayment but not repaid during the calendar year.

Form 1099-NEC must be given by employers to the individual and filed to the IRS by January 31, 2021.

Form 1099-NEC example:

1099NEC.gif

Source: Internal Revenue Service

Form 1099-MISC

This tax year 2020, employers must use Form 1099-MISC to report payments made if the following criteria is met.

  • At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
  • At least $600 in the following:
    • Rents.
    • Prizes and awards.
    • Other income payments.
    • Generally, cash from a notional principal contract to an individual, a partnership or an estate.
    • Medical and health care payments.
    • Payments to an attorney.
    • Section 409A deferrals.
    • Nonqualified deferred compensation.

Form 1099-MISC must be given by employers to the individual by January 31, 2021 and filed to the IRS by February 28 or March 31st if filed electronically.

Form 1099-MISC example:

1099-MISC

Source: Internal Revenue Service

Posted on

IRS NEWS: New Tax Debt Relief Rules

Posted from IRS website.
https://www.irs.gov/newsroom/irs-makes-it-easier-to-set-up-payment-agreements-offers-other-relief-to-taxpayers-struggling-with-tax-debts

IR-2020-248, November 2, 2020

WASHINGTON — The Internal Revenue Service today announced a number of changes designed to help struggling taxpayers impacted by COVID-19 more easily settle their tax debts with the IRS.

The IRS assessed its collection activities to see how it could apply relief for taxpayers who owe but are struggling financially because of the pandemic, expanding taxpayer options for making payments and alternatives to resolve balances owed.

“The IRS understands that many taxpayers face challenges, and we’re working hard to help people facing issues paying their tax bills,” said IRS Commissioner Chuck Rettig. “Following up on our People First Initiative earlier this year, this next phase of our efforts will help with further taxpayer relief efforts.”

“We want people to know our IRS employees are committed to continue helping taxpayers wherever possible, including offering many options for those struggling to pay their tax bills,” said Darren Guillot, the IRS Small Business/Self-Employed Deputy Commissioner for Collection and Operations Support. Guillot discussed the new relief options in a new edition of IRS “A Closer Look.”

Taxpayers who owe always had options to seek help through payment plans and other tools from the IRS, but the new IRS Taxpayer Relief Initiative is expanding on those existing tools even more.

The revised COVID-related collection procedures will be helpful to taxpayers, especially those who have a record of filing their returns and paying their taxes on time. Among the highlights of the Taxpayer Relief Initiative:

  • Taxpayers who qualify for a short-term payment plan option may now have up to 180 days to resolve their tax liabilities instead of 120 days.
  • The IRS is offering flexibility for some taxpayers who are temporarily unable to meet the payment terms of an accepted Offer in Compromise.
  • The IRS will automatically add certain new tax balances to existing Installment Agreements, for individual and out of business taxpayers. This taxpayer-friendly approach will occur instead of defaulting the agreement, which can complicate matters for those trying to pay their taxes.
  • To reduce burden, certain qualified individual taxpayers who owe less than $250,000 may set up Installment Agreements without providing a financial statement or substantiation if their monthly payment proposal is sufficient. 
  • Some individual taxpayers who only owe for the 2019 tax year and who owe less than $250,000 may qualify to set up an Installment Agreement without a notice of federal tax lien filed by the IRS.
  • Additionally, qualified taxpayers with existing Direct Debit Installment Agreements may now be able to use the Online Payment Agreement system to propose lower monthly payment amounts and change their payment due dates.

Additional details on the Taxpayer Relief Initiative

The IRS offers options for short-term and long-term payment plans, including Installment Agreements via the Online Payment Agreement (OPA) system. In general, this service is available to individuals who owe $50,000 or less in combined income tax, penalties and interest or businesses that owe $25,000 or less combined that have filed all tax returns. The short-term payment plans are now able to be extended from 120 to 180 days for certain taxpayers.

Installment Agreement options are available for taxpayers who cannot full pay their balance but can pay their balance over time. The IRS expanded Installment Agreement options to remove the requirement for financial statements and substantiation in more circumstances for balances owed up to $250,000 if the monthly payment proposal is sufficient. The IRS also modified Installment Agreement procedures to further limit requirements for Federal Tax Lien determinations for some taxpayers who only owe for tax year 2019.

In addition to payment plans and Installment Agreements, the IRS offers additional tools to assist taxpayers who owe taxes:

Temporarily Delaying Collection — Taxpayers can contact the IRS to request a temporary delay of the collection process. If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer’s financial condition improves.

Offer in Compromise — Certain taxpayers qualify to settle their tax bill for less than the amount they owe by submitting an Offer in Compromise. To help determine eligibility, use the Offer in Compromise Pre-Qualifier tool. Now, the IRS is offering additional flexibility for some taxpayers who are temporarily unable to meet the payment terms of an accepted offer in compromise.

Relief from Penalties — The IRS is highlighting reasonable cause assistance available for taxpayers with failure to file, pay and deposit penalties. First-time penalty abatement relief is also available for the first time a taxpayer is subject to one or more of these tax penalties.

All taxpayers can access important information on IRS.gov. Many taxpayers requesting payment plans, including Installment Agreements, can apply through IRS.gov without ever having to talk to a representative.

Other requests, including this new relief, can be made by contacting the number on the taxpayer’s notice or responding in writing. However, to request relief, the IRS reminds taxpayers they must be responsive when they receive a balance due notice.

“If you’re having a tax issue, don’t go silent. Please don’t ignore the notice arriving in your mailbox,” Guillot said. “These problems don’t get better with time. We understand tax issues and know that dealing with the IRS can be intimidating, but our employees really are here to help.”

Throughout COVID-19, the IRS has continued to adjust operations to help ensure the health and safety of employees and taxpayers, including the extensive and temporary relief of the IRS People First Initiative. More information and background on the collection relief and procedures can be found in “A Closer Look.”

“While it’s been important for us and the nation to resume our critical tax compliance responsibilities, we continue to assess the wide-ranging impacts of COVID-19 and other difficulties people are experiencing,” Guillot said.

Posted on

IRS debunks tax refund myths

https://www.irs.gov/newsroom/irs-debunks-tax-refund-myths

Taken from the IRS Newsroom page.

IR-2020-161, July 16, 2020

WASHINGTON ― With the July 15 tax deadline now past, the Internal Revenue Service reminds all taxpayers that there is no secret way to find out when a refund will be issued.

Most taxpayers have already filed their federal tax return, and many have already received their refund. Those that have not are understandably eager for details about when their refund will arrive. When it comes to tax refunds, a few common myths keep circulating and misinforming taxpayers.

Some key facts can help people understand the refund process better:

  • Taxpayers who file electronically and use direct deposit can expect their refund faster than those who mail a paper return, especially since the COVID-19 outbreak has reduced IRS staffing available to process paper returns.
  • Taxpayers who file a paper tax return are likely to face processing and refund delays.
  • The best and easiest way to check on a refund is Where’s My Refund?
  • The Where’s My Refund? tool available on IRS.gov and the IRS2Go mobile app.
  • A tax refund’s status can be checked within 24 hours after the taxpayer receives the e-file acceptance notification.
  • “Where’s My Refund?” is updated once a day, usually overnight.

Processing delays for paper tax returns

The IRS continues to process electronic and paper tax returns, issue refunds, and accept payments.

The IRS is experiencing delays in processing paper tax returns due to limited staffing. This is causing refund delays. Taxpayers who have already filed a paper return should know that the IRS is processing paper returns in the order in which they are received.In addition, interest on individual 2019 refunds reflected on returns filed by July 15, 2020, will generally be paid from April 15, 2020, until the date of the refund. Interest payments may be received separately from the refund and are considered taxable income in the year received.

Taxpayers who filed a paper return should not file the same tax return again or call the IRS.

Common myths about tax refunds include:

Getting a refund this year means there’s no need to adjust withholding for 2020

To help avoid a possible surprise next year, taxpayers should look to make changes now. Adjusting tax withholding with an employer can help ensure that neither too much nor too little tax is withheld from an employee’s paycheck. The Tax Withholding Estimator helps taxpayers figure out the right amount.

Calling the IRS or a tax professional will provide a better refund date

Contacting the IRS or a tax professional will not expedite a refund. IRS assistors and tax professionals cannot move up a refund date nor do they have access to any “special” information that will provide a more accurate refund date.

Ordering a tax transcript is a secret way to get a refund date

Ordering a tax transcript will not help taxpayers find out when they will get their refund and it does not accelerate the issue date of a refund.

The Where’s My Refund? tool is wrong because there’s no deposit date yet

WhenWhere’s My Refund?shows the tax return status is received it means that we have received the tax return and are processing it. Some returns may take longer to process than others and needs further review. This includes when a return:

  • Includes errors
  • Is incomplete
  • Is affected by identity theft or fraud
  • Includes a Form 8379, Injured Spouse Allocation, which could take up to 14 weeks to process

Taxpayers will be contacted by mail if the IRS needs more information to process a tax return. People waiting for a refund in the mail should plan for the additional time a check takes to arrive.

Something is wrong when the refund amount is less than expected

There are a lot of reasons that cause a tax refund to be different than expected. Situations that could decrease a refund include:

  • Taxpayer math errors or mistakes
  • Owing federal or state taxes, child support, student loans or other federal non-tax obligations
  • A portion of the refund is held while IRS reviews an item claimed on the return

The IRS will mail a letter of explanation if these adjustments are made. Some taxpayers may also receive a letter from the Department of Treasury’s Bureau of the Fiscal Service if their refund was reduced to offset certain financial obligations.

Taxpayers can call the IRS’s automated refund hotline at 800-829-1954, which uses the same information as “Where’s My Refund?”. There is no need to call the IRS unless Where’s My Refund? says to do so.

Posted on

Pending: Americans Waiting for their Tax Refund

This year, 2020, gave American taxpayers an extra three months to file and pay your taxes. But with that, many Americans that filed before April 15th are still waiting for their refunds.

An IRS spokesperson, Eric Smith said, “Yes, some paper returns filed early in the season have not yet been processed.”

Check the status of your refund

Use the “Where’s My Refund?” tool at irs.gov/refunds or by calling 800-829-1954. Check once a day, since the refund portal is only updated once a day.

Over 21 Days

If its been longer than 21 days since you e-filed, you should call the IRS. If you received a letter or the refund portal reads to contact the IRS. You should call the IRS. Expect long waits. I learned that the best time to call is on Wednesday’s. They tend to be the slowest days and hold time can range from 2 hours to they are no longer receiving calls. Yes, you read that right. I have called at 11 am and got the message that said they are no longer taking calls for the day.

Keep in mind that if you’re due a refund, you’ll get the full amount. There’s no penalty assessed by the IRS even if the return is late. There is only a late-filing penalty if you owe.

Posted on

Free Apps to Track Your Business Miles

If you drive your personal vehicle for business they may qualify for the standard mileage rate deduction.

Prior to Apps, can you believe that tracking was done by notebook. Just as with a notebook, you miss noting down a business drive you took. But with an App, it can automatically track mileage for you. Here is a few of the Apps, I believe you will enjoy using, in no particular order.

Free Mileage Tracker Apps That Work

Stride

This app tracks your miles and more. The app is FREE and log every mile you drive and can help track expenses like parking fees and toll fees.

Cost: Free
Android and Apple

MileIQ

This app tracks your miles and more. MileIQ has a free version with limited drives per month, max of 40 drives. Do more than 40 drives a month and you will need to sign up for the premium unlimited version. Drives can be categorized into personal or business drives.

Cost: Free with 40 drives. Unlimited $5.99 P/ Month
Android and Apple

Everlance

This app tracks your miles and more. The app automatically starts and stops by detecting when your car starts moving and tracking those miles. All you have to do is swipe to identify if it was a business or personal drive. Still need more, set a work schedule and the App will categorize any drive during that as a business drive.

Cost: $8 P/Month or $60 for the Year.
Android and Apple

Posted on

Income Tax Credits

Child Tax Credit (CTC)

The federal child tax credit (CTC) is a partially Refundable credit that allows low- and moderate-income families to reduce their tax liability dollar-for-dollar by up to $2,000 for each qualifying child. The credit phases out depending on the modified adjusted gross income amounts for single filers or joint filers.

Child Tax Credit Qualification

For a taxpayer to qualify for the credit, any children must meet several criteria: age, relationship, support, dependent, citizenship, and residence. The child must be under age 17, biologically-related to and claimed as a dependent by the taxpayer applying for the credit, not provide more than 50 percent of their own financial support, be a U.S. citizen, U.S. national, or U.S. resident alien, and have lived with the taxpayer for more than half of the preceding calendar year. (Step-children and foster children may qualify if they meet certain requirements.) The Tax Cuts and Jobs Act also added a requirement that parents be able to verify a valid Social Security Number (SSN) for each eligible dependent.

Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) is used to offset income and payroll taxes for low-income workers. It was created to mainly promote work and to reduce poverty. Therefore, it is only available to those who are employed.

At the same time, the EITC is complicated, has a consistently high error rate, and creates a disincentive to work once recipients reach a certain income level. It also imposes a marriage penalty, reducing the credit’s value for married workers, and creates disparity between workers with and without children.

Taxpayers generally receive the credit while filing their taxes. This tax credit is refundable.

Proudly powered by WordPress