Blog

Relax, early filers!  You might be ready for the IRS, but the IRS is not yet ready for you.

Taxpayers itching to file their 2020 tax returns at the first possible moment will have to wait about two weeks longer than usual this year.

The Internal Revenue Service has set Feb. 12 as the first day of the 2021 tax season. That’s when the agency will start accepting and processing an estimated 150 million federal returns. Last year’s kick-off came on Jan. 27.

Tax returns will be due on April 15, according to an IRS announcement. That is the normal deadline date.

The IRS says that it needs time to program its computers for tax-related changes in the latest law sending stimulus payments and other benefits to Americans. President Trump signed the legislation on Dec. 27, 2020.

We should note that many people using tax preparation software can send returns to those software companies right away. However, the returns actually will not be submitted to the IRS until Feb. 12.

As in the past, the IRS advises electronic filing, and direct deposit of refunds. The average refund from 2019 returns was more than $2,500, according to the agency.  

As tax season opens, be sure about your tax situation. Contact Eric Buechler, owner of EricJohn Ltd., for expert advice and preparation of federal and state returns. Eric is an enrolled agent recognized by the IRS.

Small businesses were not left behind in the latest stimulus package. The government again is ramping up “PPP”, the Paycheck Protection Program.

It was revived just before year-end with 284 billion bucks of support for small employers. Among other improvements, Congress managed to clear up a tax dilemma that had troubled many of those companies.

In short, the original PPP has been intended to help businesses reeling from the economic effects of the coronavirus epidemic. It’s a wide-ranging relief measure. The federal government provided $525 billion to fund 5.2 million loans in the first version last spring.
The loans went out at 1 percent interest, with no other fees. But, most of all, they were forgivable. If the business used the money within PPP guidelines, the feds simply wiped away repayment. Of course, a vital use was payroll for employees.

Now, here’s where Congress fixed a tax mess from the initial program.  The money from loans that had been forgiven clearly came tax-free, according to the law. But the Internal Revenue Service was not allowing businesses to deduct expenses paid from those forgiven PPP funds. In the improved PPP, Congress explicitly stated that any forgiven funds simply will not appear in gross income on tax returns. Any spending with them also will not affect business deductions and will not reduce workforce-related tax credits.

Let us offer a rundown of some of the more important features of what we will call “PPP2”:

• Sizes of eligible businesses 500 or fewer employees; if it’s an initial PPP loan; 300 workers for businesses seeking second loan.

• Expanded types of businesses: Included in PPP2 are sole proprietors, independent contractors, self-employed workers, seasonal employers, (generally operating no more than seven months a year) and certain types of non-profit organizations not covered in the prior round.

 • Financial losses: For a second loan, a 25% decline in gross receipts in any quarter in 2020 compared to the same one in 2019.

• Maximum loan in new round: $2 million. Business still must establish necessity for loan.

• Simplified forgiveness app:  Businesses that obtained loans smaller than $150,000 can use a single-page application for forgiveness. The U.S. Small Business Administration is required to produce the application this month (January 2021).

• Types of expenses allowed:  Expanded to include business software, unreimbursed expenses to repair property damage from civil unrest that happened in 2020, costs of protecting workers, especially from COVID-19, and some expenses owed to suppliers, experts at National Law Review note.

The new PPP is authorized until March 31, 2021. Like the latest stimulus package, it was part of the enormous Consolidated Appropriations Act of 2021. To decide how PPP2 fits your small business, feel free to contact Eric Buechler, owner of EricJohn Ltd. and an enrolled agent recognized by the IRS.

Here’s some good news for generous taxpayers who will not be itemizing deductions on this year’s federal tax returns. They will be able to deduct as much as $300 in cash donations to their favorite charities with ease on their 2020 returns. One important note:  This new deduction is limited to cash donations; gifts of household goods, clothing, stocks, etc., don’t qualify.

This is a change from past years. Charitable contributions were one of several types of spending that were grouped together as “itemized deductions.” The entire group had to reach a certain level before it made sense to claim the deduction.  Most people took the simpler “standard deduction” instead. In fact, the Internal Revenue Service figures that 87 percent of taxpayers went with standard deduction in 2018, the latest figures available.

Congress placed the new tax break in its coronavirus relief package (the CARES Act) earlier this year.  “So, if someone makes a cash donation to a qualifying charity before the end of 2020, they can get a deduction of up to $300,” said Edward T. Killen, the IRS commissioner for tax-exempt entities. “It will be easy to report when they (taxpayers) fill out their Form 1040 in 2021,” he promised in an announcement.

The new deduction is limited to $300 per return. From the taxpayer’s standpoint, it lowers taxable income, leading to savings of taxes that are due. Of course, some taxpayers who have larger charitable deductions still can benefit by itemizing as in the past. However, they cannot double-dip by claiming the $300 tax break as well.

One other objective of Congress, besides taxpayer relief, was to encourage more donations to tax-exempt organizations during the crisis caused by COVID-19.

Currently, the tax break for charitable contributions is available only for the 2020 tax year.  Donations must be made by Dec. 31, the IRS noted. For more information, check IRS Publication 526 dealing with charitable contributions.

Minnesotans have been able to subtract some charitable contributions without itemizing on their state income tax returns in previous years, but that deduction kicked in after $500 worth of donations.  

With tax season on the horizon, contact EricJohn Ltd. owner Eric Buechler for expert advice about individual or business tax returns. He is an enrolled agent recognized by the IRS.

Thursday (Oct. 15) is the last deadline for 2019 income tax returns. It really only affects those who asked to delay filing earlier.

For those taxpayers, here’s your reminder. If you applied for an automatic extension to file with the IRS around Tax Day – which, you’ll remember, was moved from April 15 to July 15 because of the coronavirus epidemic – your time is almost up. The 2019 return is due to the Internal Revenue Service by 11:59 p.m. on Thursday.

Most likely, you estimated and paid an amount of income tax back then. Now is the time to add in the rest of the actual amount.  You’ll avoid penalties if you already have paid at least 90% of the total tax due for 2019. There may be exceptions to the deadline for taxpayers who live overseas or who are serving in the military.

One note for Minnesota taxpayers. The state Department of Revenue has said it will consider abating penalties or interest due if any part of taxes were unpaid due to situations involving COVID-19. That includes job losses or layoffs because of the epidemic.

Of course, EricJohn Ltd. can help taxpayers meet federal or state tax deadlines, as well as advise on wise tax moves   

Retirees now can act to change their normal IRA payouts and avoid some income taxes, but they’ll have to be quick. 

The Internal Revenue Service this week reminded owners of IRAs and beneficiaries of other retirement plans about the Aug. 31 deadline for halting their scheduled payments from those plans.

Congress suspended the Required Minimum Distributions (RMD) from those plans only for the year 2020. The thought was to help them minimize taxes in these difficult financial times. That waiver was part of the coronavirus relief package called the CARES Act, which is short for Coronavirus Aid, Relief and Economic Security.

 Normally a worker or retiree is obliged to withdraw a certain amount of retirement savings – the RMDs — each year after reaching age 70½.  However, this year, the law allows them to leave those payments in their retirement accounts. If they already have drawn out their RMDs, they also can return them to the original accounts or roll them over into another tax-deferred retirement plan. the IRS said. Either way, the retirees will protect the money from federal income taxes. The deadline for taking action is Monday, Aug. 31.

It is important to note that this waiver doesn’t apply to Roth IRA accounts, which are not taxed when withdrawn and do not demand RMDs.

In another side note, the IRS said that the waiver also applies to workers/retirees who turned 70½ in 2019, but waited until 2020 to take their distributions.

Eric Buechler, who owns EricJohn Ltd., can guide retirees through the regular and the special cases involved in retirement distributions.

Well, you should sign, obviously!  So should any tax preparer you paid to fill out the return. But sometimes life gets in the way of that simple solution. 

What if you’re in a hospital bed? What if you’re out of the country on military duty?  What if your son or daughter is too young to sign? (Children can have income and taxes due before they can write, of course.)

Here are a few Internal Revenue Service guidelines passed along by seminar firm TaxSpeaker.

• Child’s return – Children can turn in their own tax returns and still qualify as dependents on the parent’s form. They generally should sign their own paper returns. If that’s not possible, a parent or guardian can sign with this notation: “By (parent’s signature), parent for minor child.” Filing electronically through a tax preparer makes it somewhat easier. The preparer typically uses a “practitioner PIN,” as IRS says, for security anyway. So, the preparer verifies the child’s identity as usual and makes the filing. Now, children also can submit returns using tax software. But the IRS has an important caution for first timers under age 16. If they never have filed a return, they cannot sign electronically with commercial software. They must file on paper or through a tax preparer.
• Spouse situations – The other spouse can sign for a taxpayer who is disabled, dealing with a medical emergency, or mentally incompetent. He/she can sign for the disabled spouse in the name space using the words: “By (signature), Husband (or wife).”  The IRS also wants a statement explicitly stating signing permission and the reason for it.
• Military in combat zone – Likewise, a spouse can sign for a taxpayer who cannot because of military service in a combat zone that is recognized by the IRS. See https://www.irs.gov/newsroom/combat-zones He or she also must attach a signed statement saying that service member is on duty in the zone.
• Deceased taxpayer – The personal representative (such as an estate executor) for the taxpayer must sign the return. If a joint return is involved, the surviving spouse also must sign.   If there is no personal representative appointed, the spouse may sign the joint return and note in the signature block: “Filing as surviving spouse.”

Signatures for business returns can be more complicated, of course. EricJohn Ltd. owner Eric Buechler, who is an enrolled agent recognized by the IRS, routinely verifies signing permissions in preparing returns. Feel free to contact him about signatures or other tax reporting questions.

Where can you expect to find a 50 percent return on some of your extra money? For some workers, the answer is:  Internal Revenue Service.   

If that prospect seems too good to be true, take a look at the Retirement Savings Contribution Credit, also known as the “Saver’s Credit,” financial seminar firm Taxspeaker suggested recently.  You can find that 50 cents on the dollar in your federal tax return, if you satisfy two basic qualifications:

·  Savings:  Make a contribution to either a personal or an employer-sponsored retirement plan. Just about any type qualifies including traditional and Roth IRAs, a 401(k) account, a 403(b), SEP, etc.  So does the specialized ABLE (Achieving a Better Life Experience) account. One caution:  Rollover contributions won’t work for this tax break.  

·  Income:  Report adjusted gross income of $39,000 or less for a married couple filing jointly or $19,500 for a single individual in 2020, the current tax year. (Those amounts were $38,500 for marrieds and $19,250 for 2019.)  

Taxpayers meeting both requirements can take a 50 percent tax credit on new retirement deposits as large as $4,000 for married couples or $2,000 for single individuals. Credits directly reduce taxes, so we’re talking about cutting a maximum $2,000 or $1,000, respectively, off the income tax bill.

The IRS also offers credits of 20 percent and 10 percent for bigger incomes, phasing out at $32,500 for singles and $65,000 for marrieds.

The tax break has been around for a number of years. Reduced earnings due to COVID-19 job losses, furloughs or pay cuts could make more workers eligible for it in 2020. For some more depth, see the IRS explanation at https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit

To plan for this year’s Saver’s Credit — or other tax matters — feel free to contact Eric Buechler of EricJohn Ltd., tax specialist and an enrolled agent recognized by the IRS.

Yes, the coronavirus extension expires on Wednesday.  Federal and state taxpayers have until the end of the day on July 15 to file their 2019 income tax returns and make payments.

As almost everyone knows, the Internal Revenue Service and the Minnesota Department of Revenue granted a 3-month reprieve from the normal April 15 deadline because of the coronavirus emergency.

So, on Wednesday, we’re back to the normal taxpaying procedures. Taxpayers who still cannot finish up their 2019 returns by then can file for an automatic extension on federal Form 4868. It postpones the date for filing the return to Oct. 15 but payments of any 2019 taxes are due on July 15.

People who pay estimated taxes throughout the year also must send in their first two payments for 2020 – normally due on April 15 and June 15 – to the federal government.  Minnesota did not extend its deadline for those quarterly estimated tax payments, so they were due as scheduled.

The IRS made a special point last week of asking taxpayers to file electronically because of limited staffing.  “Taxpayers who filed a paper tax return and expect a refund may experience a delay beyond the normal time frame of four to six weeks from the time they mailed the return,” the agency announced.  Electronic returns typically result in refunds within 21 days, the IRS said.

More information is available at IRS and Minnesota Department of Revenue Web sites. Both have COVID-19 pages. Here is Minnesota’s:  https://www.revenue.state.mn.us/our-response-covid-19

For a more detailed assessment of your own situation, feel free to contact tax specialist Eric Buechler, www.ericjohnltdcom .