Carolina Tax and Accounting Experts

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09/02/2021

Tax Tip: Summer Activities May Affect Your 2021 Taxes

Both major life events and small changes to your work or family routines can have an impact on your taxes. These events and changes often occur during the summer, especially this summer with the economy reopening. If your life circumstances take either a planned or unexpected turn this summer, you may want to take a few extra steps to prepare for tax season next spring.

If you get married, you should report any name or address change to the Social Security Administration, IRS and post office to ensure that you receive important tax documents.

If your child returns to in-person day camps or daytime education programs, some of the cost may qualify for the Child and Dependent Care Credit. Make sure to save records of all fees paid.

Seasonal and part-time work create a variety of record keeping and tax reporting challenges. If you are a student and do not earn enough money to owe federal income tax, you may need to file a 2021 tax return to claim a refund of any tax withheld from your pay. Those who earn side income from a part-time job or gig economy work may need to adjust their paycheck withholding for their primary job to make sure enough tax is withheld. You can use the IRS Withholding Estimator tool to check where you stand.

Also keep in mind that income earned as a freelancer or independent contractor may be subject to self-employment tax. Figuring out whether you are officially an employee or an independent contractor can get tricky for temporary work. A tax professional can help you determine your status, and plan for self-employment tax if appropriate.

07/09/2021

TaxBrief Keeping you informed June 2021
Check W-4 withholdings
With so many changes recently, it’s a good idea to
check how much federal income tax you’re having
withheld from each paycheck. Too little can lead to
a tax bill. Too much means smaller paychecks and
a larger refund, but you can’t use the money until
you file and receive your refund.
Check your withholding if you have any:
• Lifestyle changes such as marriage, divorce,
birth of a child or retirement
• Change in wages because you or your spouse
started or stopped working
• Taxable income not subject to withholding such
as self-employment income, IRA distributions
or capital gains
• Tax credits such as the child tax credit, earned
income credit (EIC), dependent care credit or an
education credit
Be sure to notify me, your tax preparer, of any
of these changes. Together, we can perform a
“paycheck checkup” to ensure you have the right
amount of tax withheld from your paycheck.
Amended returns
Certain retroactive tax law changes occurred after
the 2021 tax season began. If you filed your 2020
tax return before the American Rescue Plan (ARP)
was enacted on March 11, 2021, some changes will
be adjusted automatically by the IRS while others
require an amended tax return.
The IRS is making the following corrections
automatically and issuing the resulting refunds,
so an amended return should not be filed.
• Excluding $10,200 of 2020 unemployment compensation
from income if your modified adjusted
gross income (MAGI) is less than $150,000
• Refunding the excess advance premium tax credit repaid with your 2020 return
• Adjusting the 2020 recovery rebate credit (RRC) if an amount was entered on your 2020 return but it’s incorrect
Alternatively, you should file an amended return if you:
• Received tax forms reporting additional income after filing your 2020 return
• Failed to claim the unemployment compensation exclusion and become eligible for certain income-based credits not claimed on the original return
• Failed to deduct business expenses because you received Paycheck Protection Program (PPP) loans that were forgiven
• Are eligible for the 2020 RRC but didn’t enter any amount on your 2020 return
IRS notices/letters
The IRS sends notices and letters for various reasons. First and foremost, don’t panic if you receive one. Read it carefully. Sometimes it’s just valuable information to keep with your tax records. Other times, the notice might say the IRS needs more information or changed something on your tax return, especially if you filed your tax return before March 11, 2021 (see prior article). If you agree with the change, there’s no need to contact the IRS, but you must follow the instructions in the notice if you have a balance due. On the other hand, if you disagree with the change, you must respond as directed in the notice. Contact me if you receive a notice, and we can work together on how to respond.
Third economic impact payment
The third ($1,400) economic impact payment (EIP) is an advance payment of the 2021 RRC, which is refundable even if you don’t owe any tax. This payment is based on your 2019 return if your 2020 return wasn’t filed when the payment was issued. However, if your payment was less than the full amount based on your 2019 return, and you qualify for a larger amount based on your 2020 return, the IRS will issue a “plus-up payment” after they process your 2020 return for the additional amount.
If you don’t qualify for the third EIP based on your 2019 or 2020 returns, you may be eligible to claim the RRC on your 2021 return based on your 2021 income and dependents. The IRS is issuing Notice 1444-C to people who received the third EIP; it provides the amount of the payment. You don’t need to do anything with this notice, other than keep it with your 2021 tax records so we can determine if you’re eligible for the credit on your 2021 return.
Advance child tax credit payments
For 2021 only, the child tax credit (CTC) is fully refundable and increases from $2,000 to $3,600 for each child under age 6 and $3,000 for each child age 6 to 17 at the end of 2021. However, the increased credit amount is reduced (phased out), when income exceeds $150,000 for married taxpayers filing a joint return and qualifying widow(er)s, $112,500 for heads of household and $75,000 for single taxpayers.
In addition, advance payments of the 2021 CTC will be made monthly from July through December 2021. Generally, they will be 50% of your estimated 2021 CTC based on your 2020 return (2019 return if your 2020 return hasn’t been filed). You may receive up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 to 17. Keep in mind, if you receive advance payments in excess of the CTC allowed
on your 2021 return, you may have to repay some or all of it.
The IRS is sending Letters 6416 and 6416-A to taxpayers who may be eligible for advance CTC payments. You’ll also receive a second, personalized letter listing an estimate of your monthly payment. If you want to receive these payments, you don’t need to take any action. On the other hand, you must unenroll or opt out using the online Child Tax Credit Update Portal if you don’t want to receive them. The portal will also allow you to check on the status of your payments and make updates to your information to ensure you are receiving the right amount as quickly as possible. If you’re unsure whether you should opt out based on your circumstances, or need help opting out, get in touch with me.
Repayment of distributions related to coronavirus
If you received a coronavirus-related distribution in 2020 that is eligible for tax-free rollover treatment or made on account of hardship, you may choose to repay any portion of it within three years of receiving the distribution. Repayments are treated as trustee-to-trustee transfers, meaning they aren’t included in income and aren’t subject to any contribution or rollover limits.
If you make a repayment before the due date (including extensions) of your 2020 return, the repayment reduces the amount included in income on your 2020 return. Alternatively, if you make a repayment after filing your 2020 return and the income was spread over three years, the repayment generally reduces the amount included in income on your 2021 return. However, you may file an amended return for 2020 to reduce your income by the repayment if you:
• Elected to include the entire distribution in income in 2020, or
• Spread the income over three years, the repayment exceeds the amount included in income on the 2021 return and you choose to carry the excess back to 2020 instead of forward to 2022
Please contact my office if you have any questions or concerns regarding these issues, need to file an amended return or still need to file your 2020 return.

04/08/2021

IRS Extends Individual Income Tax Filing Deadline to May 17

The IRS has announced a filing deadline extension for all 2020 federal personal income tax returns. This decision moves the filing due date from April 15 to May 17, 2021. Individual taxpayers, including joint filers and those with self-employment earnings, now have until May 17 to file their 2020 returns and pay any tax due. Here are the highlights of the IRS announcement:

This deadline change applies to individual tax filers, not to corporate tax returns. The term “individual taxpayers” refers to everyone whose filing status is Single, Married Filing Jointly, Married Filing Separately, Head of Household or Qualifying Widow(er).

You do not need to request this extension. It is automatic for all individual filers.

The May 17 deadline applies to both filing 2020 IRS returns and paying any tax due. Payments made by May 17 will not be subject to penalties or interest charges (unless a penalty applies for reasons other than the date of payment).

The due date change applies to paying both income tax and self-employment tax.

The extended deadline applies only to 2020 tax returns and payments of 2020 tax. The deadline for 2021 first-quarter estimated tax payments currently remains April 15.

In spite of the deadline change, the IRS urges all taxpayers who may be owed a refund to have their returns filed as quickly as possible. Most refunds are issued within 21 days for returns filed electronically, if the taxpayers provide direct deposit banking information.

Keep in mind that as of this publishing date, the May 17 filing deadline applies only for 2020 FEDERAL income taxes. Your state income tax filing due date may be different and your state’s tax department website may have more information.

10/07/2019

You can use your 2018 tax return to do a withholding checkup

Millions of people have filed their 2018 tax return, making this a prime time to consider whether their tax situation came out as expected. If not, you can use your finished 2018 return and the Tax Withholding Estimator to do a Paycheck Checkup and, if needed, adjust your withholding. Having your 2018 return handy can make it easier for you to estimate deductions, credits and other amounts for 2019. Performing a Paycheck Checkup is a good idea for anyone who:

Adjusted their withholding in 2018, especially those who did so later in the year.
Owed additional tax when they filed their tax return this year.
Had a refund that was larger or smaller than expected.
Had life changes such as marriage, childbirth, adoption, buying a home or income changes.

Since most people are affected by the Tax Cuts and Jobs Act all taxpayers should check their withholding. They should do a checkup even if they did one in 2018. This especially includes taxpayers who:

Have children and claim credits such as the Child Tax Credit.
Have older dependents, including children age 17 or older.
Experienced changes to itemized deductions this year.
Itemized deductions in the past.
Are a two-income family.
Have two or more jobs at the same time.
Only work part of the year.Have high income or a complex tax return.

This Tax Withholding Estimator works for most taxpayers. Those with more complex situations may need additional assistance.

05/15/2019

Tax tips for taxpayers to consider when selling their home

The IRS has some good news for taxpayers who are selling their home. When filing their taxes, they may qualify to exclude all or part of any gain from the sale from their income. Here are some things that homeowners should think about when selling a home:

Ownership and use
To claim the exclusion, the taxpayer must meet ownership and use tests. During a five-year period ending on the date of the sale, the homeowner must have owned the home and lived in it as their main home for at least two years.

Gains
Taxpayers who sell their main home and have a gain from the sale may be able to exclude up to $250,000 of that gain from their income. Taxpayers who file a joint return with their spouse may be able to exclude up to $500,000.
Homeowners excluding all the gain do not need to report the sale on their tax return.

Losses
Some taxpayers experience a loss when their main home sells for less than what they paid for it. This loss is not deductible.

Multiple homes
Taxpayers who own more than one home can only exclude the gain on the sale of their main home. They must pay taxes on the gain from selling any other home.

Reported sale
Taxpayers who don’t qualify to exclude all of the taxable gain from their income must report the gain from the sale of their home when they file their tax return. Anyone who chooses not to claim the exclusion must report the taxable gain on their tax return. Taxpayers who receive Form 1099-S must report the sale on their tax return even if they have no taxable gain.

Mortgage debt
Generally, taxpayers must report forgiven or canceled debt as income on their tax return. This includes people who had a mortgage workout, foreclosure, or other canceled mortgage debt on their home. Taxpayers who had debt discharged after Dec. 31, 2017, can’t exclude it from income as qualified principal residence indebtedness unless a written agreement for the debt forgiveness was in place before January 1, 2018.

Possible exceptions
There are exceptions to these rules for some individuals, including persons with a disability, certain members of the military, intelligence community and Peace Corps workers.

04/29/2019

Millions of taxpayers filed a 2018 tax return in the last few weeks, making now a prime time for everyone to consider whether their tax situation came out as they expected. If it didn’t, they can use their recently finished 2018 return and the IRS Withholding Calculator to do a Paycheck Checkup and adjust their withholding.
Checking and then adjusting their tax withholding can help make sure they don’t owe more tax than they are expecting. Usually they can also avoid a surprise tax bill and possibly a penalty when they file next year. At the same time, with the average refund more than $2,700, some taxpayers may choose to reduce their withholding to have a larger paycheck and smaller refund.
Now is an ideal time to check withholding, since having a completed tax return is helpful when using the Withholding Calculator on IRS.gov. Since taxpayers need to estimate deductions, credits and other amounts for 2019, having similar information from the 2018 return can make using the Withholding Calculator easier.
Who should do a Paycheck Checkup?
Though doing a Paycheck Checkup is a good idea every year, for many people, it’s even more important this year. This includes anyone who:
• Adjusted their withholding in 2018 – especially those who did so in the middle or later part of the year.
• Owed additional tax when they filed their tax return this year.
• Had a refund that was larger or smaller than expected.
• Had life changes such as marriage, childbirth, adoption, buying a home or when income changes.
In addition, most people are affected by changes made in the Tax Cuts and Jobs Act (TCJA), the tax reform legislation enacted in December 2017. These changes included lowered tax rates, increased standard deductions, suspension of personal exemptions, the increased Child Tax Credit and limited or discontinued deductions. As a result, the IRS continues to encourage people to check their withholding, even if they did a Paycheck Checkup in 2018.
This includes taxpayers who:
• Have children and claim credits, such as the Child Tax Credit
• Have older dependents, including children age 17 or older
• Itemized deductions in the past
• Are a two-income family
• Have two or more jobs at the same time
• Only work part of the year
• Have high income or a complex tax return
Sooner is better for a Paycheck Checkup

The IRS urges everyone to do a Paycheck Checkup as early in the year as possible so that if a tax withholding adjustment is needed, there is more time for withholding to happen evenly during the rest of the year. Waiting means there are fewer pay periods to withhold the necessary federal tax.
Changing withholding
Employees can use the results from the Withholding Calculator to see if they need to complete a new Form W-4, Employee’s Withholding Allowance Certificate, and submit it to their employer. In some instances, the calculator may recommend that the employee have an additional flat-dollar amount withheld each pay period. Taxpayers don’t need to send this form to the IRS after giving it to their employer.
Those who don’t pay taxes through withholding, or pay too little tax that way, may still use the Withholding Calculator to determine if they need to pay estimated tax to the IRS quarterly during the year. Those who are self-employed generally pay tax this way. See Form 1040-ES, Estimated Taxes for Individuals, for details.

11/12/2018

Check Withholding Now to Avoid Tax Surprises Later

With the year more than halfway over, the Internal Revenue Service urges taxpayers who haven’t yet done a “Paycheck Checkup” to take a few minutes to see if they are having the right amount of tax withholding following major changes in the tax law.

A summertime check on tax withholding is critical for millions of taxpayers who haven’t reviewed their tax situation. Recent reports note that many taxpayers could see their refund amounts change when they file their 2018 taxes in early 2019.

The Tax Cuts and Jobs Act, passed in December 2017, made significant changes, which will affect 2018 tax returns that people file in 2019. These changes make checking withholding amounts even more important. These tax law changes include:

Increased standard deduction
Eliminated personal exemptions
Increased Child Tax Credit
Limited or discontinued certain deductions
Changed the tax rates and brackets

Checking and adjusting withholding now can prevent an unexpected tax bill and penalties next year at tax time. It can also help taxpayers avoid a large refund if they’d prefer to have their money in their paychecks throughout the year.

You can use the free IRS Withholding Calculator to check your withholding now.

03/26/2018

Itemize or Take Standard Deduction for Tax Year 2017?

Most taxpayers claim the standard deduction when they file their federal tax return. However, some filers may be able to lower their tax bill by itemizing when they file their 2017 tax return. Before choosing to take the standard deduction or itemize, it’s a good idea to figure deductions using both methods and choose the method with the most benefit. The IRS offers the following tips to help taxpayers decide:

Figure Itemized Deductions. Taxpayers who itemize basically add up the year’s deductible expenses to arrive at their total deduction. Deductions include:

Home mortgage interest
State and local income taxes or sales taxes – but not both
Real estate and personal property taxes
Gifts to charities
Casualty or theft losses
Unreimbursed medical and employee business expenses above certain amounts

Know the Standard Deduction. For taxpayers who don’t itemize, the standard deduction for 2017 depends on their filing status:

Single — $6,350
Married Filing Jointly — $12,700
Head of Household — $9,350
Married Filing Separately — $6,350
Qualifying Widow(er) — $12,700

If a taxpayer is 65 or older, or blind, the standard deduction is more, but may be limited if another person claims that taxpayer as a dependent.

03/06/2018

Tax Reform and Some Tax Breaks that Made the Cut

Recent tax reform legislation affected the tax code in many ways. Here are four tax breaks that survived the cut that will take effect for the 2018 filing year.

Mortgage Interest Deduction

The mortgage interest deduction is limited to mortgage principal of $750,000 on new homes. Previously, the limit was $1 million. Existing mortgages are grandfathered in and purchases made before April 1, 2018 are able to use the prior limit of $1 million.

State and Local Income Tax, Sales Tax and Property Tax

Previously, taxpayers who itemize were allowed to deduct the amount they pay in state and local taxes from their federal tax returns. The total deduction for property taxes, state, local, and foreign income taxes, or sales taxes is limited to $10,000 a year ($5,000 married filing separately) for taxable years 2018 through 2025.

Educator Expense Deduction

Primary and secondary school teachers buying school supplies out-of-pocket are still able to take an above-the-line deduction of up to $250 for unreimbursed expenses. Expenses for professional development are also eligible.

Medical Expense Threshold Amounts

For tax years 2017 and 2018, the threshold amount for medical expense deductions is reduced to 7.5 percent of Adjusted Gross Income.

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