Johnson & Associates

IRS Allows Medical Expense Deduction for COVID PPE Did You Know? If you have bought personal protective equipment (PPE) during the pandemic, you may be able to deduct those expenses on your tax return. Alternatively, you may choose to reimburse yourself with funds from a tax-advantaged medical savings plan. Eligible PPE includes sterile gloves, face masks and shields, and hand sanitizer and sanitizing wipes, as long as these items were purchased primarily to prevent the spr...ead of coronavirus. The IRS recently confirmed that taxpayers who itemize deductions may deduct the cost of COVID-related PPE as a medical expense. For tax year 2020, you may generally only deduct medical expenses that exceed 7.5% of your adjusted gross income (AGI). For example, since 7.5% of $40,000 is $3,000, a couple with an AGI of $40,000 could not deduct their first $3,000 of medical expenses. However, if their unreimbursed medical expenses total $5,000, they can generally claim a $2,000 deduction ($5,000 $3,000) if they itemize. If you do not claim the tax deduction, you may instead use a qualified medical savings plan to reimburse yourself for eligible PPE costs. Qualified plans may include health flexible spending arrangements (FSAs), health savings accounts (HSAs) and Archer MSAs. Just remember that reimbursed medical expenses cannot be claimed as tax deductions. In other words, you may EITHER claim a tax deduction for your coronavirus PPE expenses OR use your qualified medical savings plan to reimburse yourself, but not both. A tax professional can help you determine which tax strategy works out better for you.

Common Tax Filing Errors Did You Know? (3/3) Every year, many taxpayers make mistakes on their returns that cause IRS processing delays. Some common errors can also result in paying too much or too little tax. A miscalculation in either direction can be costly, since the IRS may assess penalties for underpayment. The following mistakes often cause filers to pay the wrong amount of tax:... Incorrectly Figuring Credits or Deductions: Once you determine that you qualify for a tax deduction or credit, you must carefully compute the amount that you can claim. Many taxpayers fail to take into account income limitations (including the calculations that must be made if your income falls within a phase-out range) and other restrictions. Others claim less than they could, or miss out on deductions and credits entirely by not filing the required forms and schedules. The IRS notes that filing errors are common among taxpayers eligible for the earned income credit (EIC) and/or Child and Dependent Care Credit. Expired ITIN: Those who file their IRS returns using individual tax identification numbers (ITINs) must keep in mind that ITINs periodically expire. Although a return filed with an expired ITIN may be accepted, the IRS generally will not allow any of the exemptions or tax credits claimed. The taxpayer must renew their ITIN in order to obtain the full refund that they are owed. To avoid costly mistakes, the IRS recommends having a tax professional prepare or check your return and file it electronically. A tax pro might also help you claim deductions and credits that you would otherwise miss.

IRS Extends Additional 2021 Filing Season Deadlines to May 17 Did You Know? Recently, the IRS moved the deadline for individuals to file 2020 federal income tax returns and pay any tax due from April 15 to May 17, 2021. The same automatic extension now applies to several other key tax deadlines, including: DEADLINE FOR 2020 IRA CONTRIBUTIONS: If you have not reached your contribution limit for tax year 2020, you may continue to make 2020 contributions to traditional or Roth... IRAs up until May 17. Taxpayers also have until May 17 to pay any tax due on 2020 IRA distributions, including the 10% penalty on non-exempt early withdrawals. DEADLINE TO CLAIM 2017 TAX REFUNDS: If you are owed a federal tax refund for 2017, you have until May 17, 2021 to file any returns or amended returns necessary to claim the refund. FILING DEADLINE FOR CERTAIN FOREIGN TRUSTS: Foreign estates and trusts that file Form 1040-NR have until May 17 to meet their federal tax filing and payment requirements. Again, all of these deadline changes are automatic. You do not need to take any action in order to receive the extensions. As of now, one critical deadline for many taxpayers has NOT changed. The due date for making an estimated tax payment for the first quarter of 2021 remains April 15. You may need to make estimated tax payments if you have significant income that is not subject to paycheck withholding, such as interest, dividend or self-employment income. A tax professional can help you determine if you owe estimated taxes.

Common Tax Filing Errors Did You Know? (2/3) Every year, many taxpayers make mistakes on their returns that cause IRS processing delays. Some common errors may also result in paying too much or too little tax. A miscalculation in either direction can be costly, since the IRS may assess penalties for underpayment. The following mistakes often cause filers to pay the wrong amount of tax:... Math Mistakes: Even mathematicians sometimes make errors in simple addition and subtraction, and some of the calculations required for 1040 schedules can be complicated. Thoroughly double-check every bit of math on your return. Incorrect Filing Status (Single, Married Filing Jointly, etc.): The IRS will not accept a return showing a filing status that you are not eligible to claim. If you qualify for more than one status (for example, filing jointly or separately if you are married), the option you choose may significantly change your tax. The difference can be especially great for single taxpayers who qualify to file as a head of household. Make sure that you have not chosen a filing designation that causes you to pay more tax than you owe. To avoid costly mistakes, the IRS recommends having a tax professional prepare or check your return and file it electronically. A tax pro might also help you claim deductions and credits that you would otherwise miss.

Common Tax Filing Errors Did You Know? (1/3) Every year, many taxpayers make mistakes on their returns that cause IRS processing delays. Some common errors may also result in paying too much or too little tax. A miscalculation in either direction can be costly, since the IRS may assess penalties for underpayment. The following mistakes may not change your tax, but they can cause processing problems. The IRS may even withhold your refund until the errors are corrected.... Missing or Inaccurate Social Security Number (SSN): Even when filing electronically, many people mistype their SSNs and do not catch the error. If the SSN on your return does not match the number on your Social Security card, the IRS may not be able to process your return. Misspelled Name: Take your time when filling in every blank on your return, even your name. A misspelling or illegible writing can prevent proper processing. Incorrect Bank Account or Routing Number: Getting your return filed electronically and requesting direct deposit is the fastest way to get your refund, IF you provide accurate information. An error in your banking info can cause big headaches. Missing Signature: Remember that in most cases, couples filing jointly must both sign their return. To avoid costly mistakes, the IRS recommends having a tax professional prepare or check your return and file it electronically. A tax pro might also help you claim deductions and credits that you would otherwise miss.

IRS Has Begun Sending Stimulus Payments to Eligible Americans Did You Know? The IRS started sending out a third round of Economic Impact Payments (EIP3s, also called stimulus payments) shortly after the American Rescue Plan became law on March 11. The vast majority of eligible Americans will receive their payments automatically, usually by direct deposit. If a person entitled to an EIP3 has not provided current banking information to the IRS, their payment will be sent by m...ail as a check or prepaid debit card. In general, EIP3s are larger than previous EIPs sent in 2020 and 2021. The standard payment amount is $1,400 per person, plus $1,400 for each dependent. For example, an eligible married couple with two dependent children will receive 4 X $1,400 = $5,600. People qualify to receive EIP3s if they are U.S. citizens or resident non-citizens, have valid Social Security Numbers (SSNs), cannot be claimed as someone else's dependent, and have adjusted gross income (AGIs) below the limit. For single tax filers, the AGI limit to receive the full EIP3 amount is $75,000. Single taxpayers with AGIs of $80,000 or above will not receive an EIP3, while those with incomes between $75,000 and $80,000 (the "phase-out" range) will receive reduced payments. Joint tax filers qualify for the full EIP3 amount if their AGI is $150,000 or less, with the phase-out range going from $150,000 to $160,000. For Head of Household (HoH) tax filers, the AGI limit for a full EIP3 is $112,500, with the phase-out range ending at $120,000. As with Single individuals, HoH and joint filers with AGIs above the phase-out range will not receive EIP3s. You can use the IRS Get My Payment portal (link below) to check on the status of your EIP3. This tool can often provide the precise date when your payment will be deposited or mailed. Because payments are calculated and sent automatically, contacting the IRS will not speed up the process. Beware of scammers who claim that they can get your stimulus payment faster. IRS Get My Payment portal: https://www.irs.gov/coronavirus/get-my-payment

IRS Extends Filing and Payment Deadlines Due in April Did You Know? In response to the pandemic, the IRS has extended both the 2021 federal income tax filing and payment deadlines for individual taxpayers. Here are the important details: - The filing deadline for 2020 federal individual income tax returns has been automatically moved from April 15, 2021 to May 17, 2021.... - The payment deadline for individual taxpayers to pay their 2020 tax due has also been automatically extended from April 15, 2021 to May 17, 2021. This extension also applies to those who pay self-employment tax. - The same extension does not apply to estimated tax payments with the due date of April 15, 2021. (For most payers of estimated taxes, this is their first-quarter payment for 2021). Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the May 17 deadline can request a filing extension to October 15, but this does not include an extension to pay.

Changing Life Circumstances Can Affect Your Taxes Did You Know? When a momentous life event like a marriage or the birth of a child occurs, taxes are probably the furthest thing from your mind. However, once the excitement of the moment settles down, it is important to perform a quick tax checkup to avoid an unpleasant IRS surprise. Here is a checklist of some of the most common life changes that may affect your taxes: Change of Name: ... Your name on your tax return must match the name on file for you with the Social Security Administration (SSA). Therefore, if your name changes due to marriage, divorce, or for any other reason, it is important to request a new Social Security card, which can be done at ssa.gov. Change of Filing Status: Married couples may choose to file either jointly or separately, and this choice can affect both tax rates and eligibility for certain deductions and credits. If your marital status changes during the year, or you and your spouse decide to change your filing method, it is a good idea to use the IRS Withholding Estimator tool (link below) to determine whether a change in your paycheck withholding amount is needed. Change of Address: From time to time, the IRS may need to contact you about your return, refund, stimulus payments, or other matters. If you move during the year, inform the IRS by filing Form 8822, Change of Address, to ensure that you do not miss any important communications. Change in Number or Ages of Dependents: If your family grows this year due to a birth or adoption, you may be eligible for additional tax deductions and credits. Conversely, your eligibility for certain credits might change as your children grow older. Some of the tax implications of these and other life changes can get complicated. A professional tax advisor can help you evaluate these impacts, and if necessary, take action to stay on track with your tax payments and qualify for the deductions or credits available to you. IRS Withholding Estimator: https://www.irs.gov/individuals/tax-withholding-estimator

Missing or Incorrect W-2s or 1099s Did You Know? When the time comes to get your taxes filed, it can be frustrating to discover that you have not received the documents you need to complete your return. This problem occurs most often with Form W-2 (Wage and Tax Statement for employees) or the various versions of Form 1099 (for earnings as an independent contractor, pension or IRA distributions, etc.). According to the IRS, if you have not received an anticipated W-2 or 109...9, you should first contact the employer or payer to request the missing document. The same applies if a form you received contains incorrect information. Taxpayers who cannot obtain these documents for some reason must still file their returns on time and provide accurate information. In some cases, you may need to account for a missing W-2 or 1099R (for distributions from pensions, annuities, IRAs, etc.) by including Form 4852 with your return. A tax professional can help you determine if you must file this form, and what information to include on it. If you have received an incorrect Form 1099-G for unemployment compensation from your state employment office, contact the agency immediately. An incorrect form may indicate that a scammer collected unemployment benefits using your Social Security Number (SSN). Your state may issue additional warnings about scams related to 2020 unemployment benefits. Read these notices carefully to keep yourself safe.

Where's My Refund? - Did You Know? You can use the IRS 'Where's my Refund' (https://www.irs.gov/refunds) tool to check the status of your refund. The 'Where's my Refund' tool is updated once daily, usually overnight. Your status is generally available within 24 hours upon the IRS receiving your e-filed return. If you have filed a paper return, the IRS is currently experiencing processing delays for paper filed returns, but will process them in the order received.

How to Set Yourself Up for a Hassle-Free Tax Season (4/4) By taking a few simple steps now, you can greatly reduce uncertainty and stress during the 2020 tax filing season. These actions will help set you up to complete your return efficiently, without unpleasant surprises: Start Early!... The IRS opens for tax filing season tomorrow, February 12th. With all the unpredictability of life during a pandemic, staying ahead of the tax game is more important than ever. Assemble your records as soon as possible. If you have any questions, a tax advisor can help you identify and organize the documents you need. Tax professionals will have far greater availability early in the tax season than at the last minute.

How to Set Yourself Up for a Hassle-Free Tax Season (3/4) By taking a few simple steps now, you can greatly reduce uncertainty and stress during the 2020 tax filing season. These actions will help set you up to complete your return efficiently, without unpleasant surprises: Be Aware of Refund Interest And Stimulus Payments... Because the processing of some tax refunds was delayed in 2020 due to the pandemic, the IRS paid interest to many refund recipients. Unlike refunds themselves, these interest payments are classified as taxable income. If you received a tax refund interest payment, the IRS will send you Form 1099-INT in January, which you will need when preparing your return. Recipients of a 2020 Economic Income Payment (EIP, also called a stimulus payment) should have also received IRS Notice 1444, Your Economic Impact Payment. Make sure to keep this notice handy. If your EIP amount was lower than it should have been, Notice 1444 will give you the information you need to claim a tax refund for the balance owed to you.

Choosing the Correct Filing Status for Your Tax Return Did You Know? Your federal tax filing status (Single, Married Filing Jointly, Head of Household, etc.) can affect the amount of your standard or itemized deductions, your eligibility for tax credits, and your tax rate. Correctly identifying your filing status is one of the most critical tax decisions to make each year. The principal IRS filing designations are:... SINGLE: This designation applies to most unmarried taxpayers, including those who are divorced or legally separated according to their state's laws. MARRIED FILING JOINTLY: Under this designation, a married couple can file a single tax return that covers both spouses. MARRIED FILING SEPARATELY: Married couples may choose to file separate returns. While filing jointly offers tax benefits in many cases, some couples may lower their total tax by filing separately. HEAD OF HOUSEHOLD: Unmarried taxpayers who pay more than half the cost of maintaining a home for themselves and a qualifying individual (such as a dependent child) may qualify to claim this status. Heads of Household get a higher standard deduction and higher income limits for certain credits and deductions than Single filers. QUALIFYING WIDOW(ER) WITH DEPENDENT CHILD: Taxpayers whose spouses passed away within the last two years may qualify for this special filing status if they have one or more dependent children. Note that under IRS rules, your status as either single or married as of December 31st usually determines your filing status options for the entire year. For example, if you were single for nearly all of 2020 but got married on December 30th, you most likely need to choose either Married Filing Jointly or Married Filing Separately as your filing designation for the year. One important exception to this rule is that a widowed spouse may typically file a joint return for the year in which the other spouse passed away. The IRS now offers an interactive What Is My Filing Status? tool (link below) to help you determine the appropriate choice for you. Taxpayers who qualify for multiple designations are free to choose whichever status results in the lowest tax. If you are unsure which filing status is most advantageous for you, a professional tax advisor can help you make this determination. IRS What Is My Filing Status? Tool: https://www.irs.gov/help/ita/what-is-my-filing-status

Potentially Taxable Events Did You Know? In addition to traditional income sources like employee wages and business profits, there are a number of other activities and transactions that the IRS classifies as potentially taxable. It is important to consider all of these taxable events for your tax return. The most commonly overlooked taxable events include:... - Investment income, including receiving stock dividends or cashing in bonds - Converting a traditional IRA to a Roth IRA - Forgiveness (discharge) of a loan or other debt, including student loans - Sale of assets such as vehicles, musical instruments, or a home at a gain (that is, for more than you paid to purchase the assets) - Sale or exchange of cryptocurrency (like Bitcoin), or making purchases with cryptocurrency - Withdrawing funds from a retirement plan (or from the cash value of a life insurance policy if you withdraw more than you have paid in premiums) - Gifts and inheritances A tax professional can advise you about which events in your life may have tax implications, and how to properly report those events. For example, in some cases, you may only need to declare the event to the IRS if the amount of money involved exceeds a minimum threshold, known as an exclusion.

How to Set Yourself Up for a Hassle-Free Tax Season (2/4) By taking a few simple steps now, you can greatly reduce uncertainty and stress during the 2020 tax filing season. These actions will help set you up to complete your return efficiently, without unpleasant surprises: Organize Records of Other Potentially Taxable Transactions... The sale of major assets like stock, a house or any other big ticket item may yield a taxable capital gain. Many cryptocurrency transactions (such as buying and selling Bitcoin) also have tax implications, since the IRS classifies cryptocurrencies as property. Make sure you have complete records of all your significant financial and property transactions during 2020.

Other Dependent Tax Credit Did You Know? If you have a dependent who does not meet the criteria for the Child Tax Credit (CTC), you may still qualify for a $500 credit called the Other Dependent Credit. Examples of qualifying dependents include children of age 17 or 18 (or up to age 23 if they are full-time students), and adult relatives who are unable to support themselves due to a disability. Your claimed dependents must be US citizens, resident aliens, or nationals, and ...must have a taxpayer ID number (SSN or ITIN). Children must not have been claimed for the CTC by you or anyone else, must rely on you for at least half of their financial support, and generally must live with you for over half the year. Claimed adult dependents (called qualifying relatives by the IRS) must have a gross income of less than $4,300 for 2020, and must either be your true relative or live with you full time. The term true relative covers a broad range of relationships, including in-laws and stepchildren. A qualified tax advisor can help you determine your eligibility for the Other Dependent Credit. If you have more than one qualifying dependent, you may be able to take the credit for each of them.

How to Set Yourself Up for a Hassle-Free Tax Season (1/4) By taking a few simple steps now, you can greatly reduce uncertainty and stress during the 2020 tax filing season. These actions will help set you up to complete your return efficiently, without unpleasant surprises: Gather Documents Showing Wage, Business And Other Income... If you work as an employee, you should receive a W-2 from your employer(s) by early February, showing your earnings for the year and the total tax withheld from your paychecks. If you are self-employed (including gig economy work) or own a business, you should receive 1099 forms from your clients showing fees paid to you. Interest and dividend income, along with royalties from past work, are also reported on 1099 forms. Recipients of unemployment benefits (including $600 federal Pandemic Unemployment Assistance payments) and/or taxable Social Security benefits should receive a year-end statement detailing these payments as well. Store all of these documents with your tax records.

Tax Credit, Income and Exclusion Limits Increasing for 2021 Did You Know? As a result of annual IRS cost-of-living adjustments, a number of federal tax credit amounts and income limits will increase in 2021. Here are some of the most significant changes affecting taxpayers at a variety of income levels. EARNED INCOME CREDIT (EIC) CHANGES. The maximum credit amounts for taxpayers with zero, one, two, or three or more children will all increase. For example, the maximum credi...t for a family with three or more children will be $6,728, up from $6,600 in 2020. The income limit to receive the maximum credit, along with the maximum income at which a taxpayer may receive an EIC in any amount, will also rise from 2020 levels. HIGHER EXCLUSION FOR ESTATE TRANSFERS. The lifetime exclusion for estate transfers and bequeathals will be $11,700,000 in 2021, up from $11,580,000 in 2020. However, the annual gift and transfer exclusion limit will remain at $15,000. INCREASED INCOME LIMIT FOR THE LIFETIME LEARNING CREDIT. For couples filing jointly who claim the Lifetime Learning Credit, the gross income level used to calculate a reduction in the credit will rise from $118,000 to $119,000. LARGER ADOPTION CREDIT. The maximum credit for adoption expenses will increase by $140 for 2021, up to $14,440. HIGHER FOREIGN INCOME EXCLUSION. The foreign earned income exclusion amount will be $108,700 in 2021, a $1,100 increase over the 2020 level of $107,600. A tax professional can help you determine whether these and other IRS adjustments could affect your 2021 taxes. If a significant change in your annual tax bill might occur, you may need to adjust your paycheck withholding amount and/or quarterly estimated tax payments.