To say COVID-19 has made 2020 a disastrous year for just about everyone would be an understatement. In response to the economic slowdown and losses of income, Congress passed several extensive laws to benefit individuals and businesses that suffered financial hardship because of COVID-19. However, 2020 has given rise to more than the usual tax-planning opportunities. Thus, you may find it appropriate to schedule a tax-planning appointment well before the close of the year to take advantage of the tax benefits and strategies available for 2020. Although everyone’s situation is unique, the following are examples of tax opportunities and strategies that may apply to your circumstances.Continue reading →
You have probably heard others discussing living trusts but may not understand the reasons for them or whether you should have one.
Living trusts are an estate-planning tool, and there is not a one-type-fits-all living trust. Each one is customized to suit the special circumstances of the individual for whom it was created. The vast majority of the population can get by without using a living trust, and a simple will is perfect for most people, unless their estate is large or there are some special circumstances to deal with.
There actually are two types of these trusts: revocable and irrevocable. As the names imply, an irrevocable trust generally cannot be undone once made, while the provisions of a revocable trust can be changed or rescinded as long as the grantor (the individual who established the trust) is still living. A living trust becomes irrevocable when the grantor passes.Continue reading →
The Internal Revenue Service has resurrected a form that has not been used since the early 1980s, Form 1099-NEC (the NEC stands for non-employee compensation). This form will be used to report non-employee compensation in place of the 1099-MISC, which has been used since 1983 to report payments to contract workers and freelancers. Form 1099-MISC has also been used to report rents, royalties, crop insurance proceeds and several other types of income unrelated to independent contractors.
The revival of the 1099-NEC was mandated by Congress with the passage of the PATH Act back in 2015. However, there have been some complications with implementing the form, so its use has been delayed. It will now make its return debut in 2021 for payments made in 2020.Continue reading →
The Internal Revenue Service has announced it will reopen the registration period for federal beneficiaries with children who didn’t receive a $500 per child Economic Impact (stimulus) Payment earlier this year.
When to Apply – The IRS urges certain federal benefit recipients to use the IRS.gov Non-Filers tool between August 15 and September 30 to enter information on their qualifying children to receive the supplemental $500 payments.Continue reading →
As part of tax reform put into place a couple of years ago, individuals are able to defer both short- and long-term capital gains into what are referred to as Qualified Opportunity Zone Funds (QOFs). What is nice about this is that only the actual amount of gain needs to be invested into a QOF to avoid taxes on the gain for the sale year. The gains invested in a QOF are deferred until you cash out of the QOF investment or December 31, 2026, whichever occurs first.
This includes the gain from the sale of all capital assets, such as stocks or bonds, property, rentals, land, and even partnership interests.
Example: Another example would be if you had inherited vacant land several years ago, and the fair market value of the land at the time you inherited it was $50,000. This year, a grocery chain wants to build a grocery store on the land and purchases it from you for $300,000. As a result of the sale, you have a gain of $250,000 ($300,000 – $50,000). If you invest that $250,000 gain in a QOF within the required 180-day period, you can defer the gain and the tax on the sale.
If you hire a domestic worker to provide services in or around your home, you probably have a tax liability that you don’t know about – or one that you do know about but are ignoring. Either situation can come back to bite you. When the worker is your employee, your liability includes both withholding and paying payroll taxes as well as issuing a W-2 after the close of the year.
Sure, it is a lot easier simply to pay your worker in cash so as to avoid federal and state payroll taxes – and all the paperwork that goes with them. Your domestic worker will likely be fully cooperative with a cash deal because he or she can also avoid paying taxes. However, if the IRS or your state employment department finds out about these payments, the result could be very unpleasant for you.
Not everyone who performs services in or around your home is classified as an employee. For instance, a plumber or electrician who makes repairs in your home will generally be a licensed contractor; the government does not classify contractors as employees.Continue reading →
Most taxpayers don’t intentionally incur tax penalties, but many who are penalized are simply not aware of the penalties or the possible impact on their wallets. Let’s look at some of the more commonly encountered penalties and how they may be avoided.Continue reading →
Tired of having all those old tax records taking up drawer or closet space and collecting dust. Want to dump as much as you can? People often ask how long records must be kept and the amount of time IRS has to audit a return after it is filed.
How long to keep the records depends on the circumstances! In most cases, the federal statute of limitations can be used to help you determine how long to keep records. With certain exceptions, the statute for assessing additional tax is 3 years from the return due date or the date the return was filed, whichever is later.
However, the statute of limitations for many states is one year longer than the federal limitation. The reason for this is that the IRS provides state taxing authorities with federal audit results. The extra time on the state statute gives states adequate time to assess tax based on any federal tax adjustments.Continue reading →
The outcome of the November elections could have a significant impact on taxes for the wealthy. The COVID-19 pandemic has wreaked havoc on the economy, as the government’s tax revenues have declined while government spending has soared. Although the President has not revealed his tax policies for the future, Joe Biden, his presumptive opponent in November, has, and that is why the wealthy are strategizing for potential increases.
Regardless of who wins the November election, with rising deficits at the state and federal levels, government spending skyrocketing, and revenue dropping due to the COVID-19 pandemic, it is sure that taxes will go up in coming years, and the likely focus for generating this additional tax revenue is the wealthy.Continue reading →
The IRS is mailing all recipients of Economic Impact Payments a Notice 1444 that provides information about the amount of their payment, how the payment was made and how to report any payment that wasn’t received. If you’ve already received your economic impact payment, you’ve probably already received this document too. This notice was issued from The White House and looks more like a letter than a traditional IRS notice, but the notice number is in the upper right of the heading, just below the date.
For security reasons, the IRS mails this notice to each recipient’s last known address within 15 days after the payment goes out. Don’t discard this notice, as you may need it when your 2020 tax return is prepared. The economic impact payment is actually an advance payment of a refundable tax credit based upon your 2020 tax return. In order to get the money into people’s hands during the time of the greatest need, these payments generally were made based upon each individual’s 2019 return, or in some cases their 2018 return.Continue reading →