Here are reasons people who don’t normally file should file a 2021 tax return

January 14th, 2022 Posted by Uncategorized 0 thoughts on “Here are reasons people who don’t normally file should file a 2021 tax return”

With tax filing season is just around the corner, this is a good time for those who don’t normally file to consider the benefits of filing a 2021 tax return. Filing can help them claim a refundable tax credit or get an income tax refund.

Here are some things taxpayers should consider when deciding whether to file a tax return:

Find out the general reasons to file

In most cases, income, filing status and age determine if a taxpayer must file a tax return. Other rules may apply if the taxpayer is self-employed or can be claimed as a dependent of someone else. There are other reasons when a taxpayer must file. The Interactive Tax Assistant can help someone determine if they the need to file a return.

Look at tax withheld or paid

Here are a few questions for taxpayers to ask themselves:

  • Did the taxpayer’s employer withhold federal income tax from their pay?
  • Did the taxpayer make estimated tax payments during the tax year?
  • Did they overpay last year on their taxes and have it applied to their 2021 tax?

If the answer is yes to any of these questions, they could be due a refund. They must file a 2021 tax return to get their money.

Look into whether they can claim the earned income tax credit

A working taxpayer who earned $57,414 or less last year could receive the EITC as a tax refund. For the 2021 tax year, the tax return taxpayers file in 2022, the earned income credit ranges from $1,502 to $6,728 depending on their filing status and how many children they claim on their tax return. The law allows taxpayers to use either their 2020 income or 2021 income to calculate their EITC — taxpayers may choose whichever amount gives them a larger credit. They can check eligibility by using the EITC Assistant on IRS.gov. Taxpayers need to file a tax return to claim the EITC. By law, the IRS cannot issue refunds to taxpayers claiming EITC until mid-February.

Child tax credit or credit for other dependents
Taxpayers can claim the child tax credit if they have a qualifying child under the age of 17 and meet other qualifications. Other taxpayers may be eligible for the credit for other dependents. This includes people who have:

  • Dependent children who are age 17 or older at the end of 2020
  • Parents or other qualifying individuals they support

The Child-Related Tax Benefits page of IRS.gov can help people determine if they qualify for these two credits.

Education credits
There are two higher education credits that reduce the amount of tax someone owes on their tax return. One is the American opportunity tax credit and the other is the lifetime learning credit. The taxpayer, their spouse or their dependent must have been a student enrolled at least half time for one academic period to qualify. The taxpayer may qualify for one of these credits even if they don’t owe any taxes. Form 8863, Education Credits is used to claim the credit when filing the tax return.

Recovery rebate credit
Individuals who didn’t qualify for a third Economic Impact Payment or got less than the full amount, may be eligible to claim the 2021 recovery rebate credit based on their 2021 tax year information. If they’re eligible, they’ll need to file a 2021 tax return even if they don’t usually file a tax return. The credit will reduce any tax owed for 2021 or be included in the tax refund.

If you need help with your tax situation or have tax questions, give us a call at LCI Taxes – 386-586-3976.
Chris Kocher CPA

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It’s important for taxpayers to know the difference between standard and itemized deductions

January 12th, 2022 Posted by Uncategorized 0 thoughts on “It’s important for taxpayers to know the difference between standard and itemized deductions”

Taxpayers have two options when completing a tax return, take the standard deduction or itemize their deductions. Most taxpayers use the option that gives them the lowest overall tax.

Due to all the tax law changes in the recent years, including increases to the standard deduction, people who itemized in the past might want to switch to the standard deduction.

Here are some details about the two options.

Standard deduction
The standard deduction amount increases slightly every year and varies by filing status. The standard deduction amount depends on the taxpayer’s filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don’t itemize deductions are entitled to a higher standard deduction.

Most filers who use Form 1040 can find their standard deduction on the first page of the form. The standard deduction for most filers of Form 1040-SR, U.S. Tax Return for Seniors, is on page 4 of that form.

Not all taxpayers can take a standard deduction, which is discussed in the Instructions for Forms 1040 and 1040-SR. Those taxpayers include:

  • A married individual filing as married filing separately whose spouse itemizes deductions—if one spouse itemizes on a separate return, both must itemize.
  • An individual who files a tax return for a period of less than 12 months. This is uncommon and could be due to a change in their annual accounting period.
  • An individual who was a nonresident alien or a dual-status alien during the year. However, nonresident aliens who are married to a U.S. citizen or resident alien can take the standard deduction in certain situations.

Itemized deductions
Taxpayers choose to itemize deductions by filing Schedule A, Form 1040, Itemized Deductions. Itemized deductions that taxpayers may claim include:

  • State and local income or sales taxes
  • Real estate and personal property taxes
  • Home mortgage interest
  • Mortgage insurance premiums on a home mortgage
  • Personal casualty and theft losses from a federally declared disaster
  • Gifts to a qualified charity
  • Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income

Some itemized deductions, such as the deduction for taxes, may be limited. Taxpayers should review the instructions for Schedule A Form 1040 for more information on limitations.

If you need help with your tax situation or have tax questions, give us a call at LCI Taxes – 386-586-3976.
Chris Kocher CPA

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IRS sending information letters to recipients of advance child tax credit payments and third Economic Impact Payments

January 7th, 2022 Posted by Uncategorized 0 thoughts on “IRS sending information letters to recipients of advance child tax credit payments and third Economic Impact Payments”

The IRS started issuing information letters to advance child tax credit recipients in December. Recipients of the third round of the Economic Impact Payments will begin receiving information letters at the end of January. Using the information in these letters when preparing a tax return can reduce errors and delays in processing.

People receiving these letters should keep them. Do not throw them away. These letters can help taxpayers, or their tax professional prepare their 2021 federal tax return.
Advance child tax credit payments letter can help people get remainder of 2021 credit

To help taxpayers reconcile and receive all the 2021 child tax credits to which they are entitled, the IRS started sending Letter 6419, 2021 advance CTC, in late December 2021 and will continue into January. This letter includes the total amount of advance child tax credit payments taxpayers received in 2021 and the number of qualifying children used to calculate the advance payments. People should keep this and any other IRS letters about advance child tax credit payments with their tax records.

Families who received advance payments need to file a 2021 tax return and compare the advance payments they received in 2021 with the amount of the child tax credit they can properly claim on their 2021 tax return.

The letter contains important information that can make preparing their tax returns easier. People who received the advance payments can also check the amount of their payments by using the CTC Update Portal available on IRS.gov.

Eligible families who did not receive any advance child tax credit payments can claim the full amount of the child tax credit on their 2021 federal tax return. This includes families who don’t normally need to file a tax return.

Economic Impact Payment letter can help people claim the 2021 recovery rebate credit
The IRS will begin issuing Letter 6475, Your Third Economic Impact Payment, to EIP recipients in late January. This letter will help Economic Impact Payment recipients determine if they are entitled to and should claim the recovery rebate credit on their 2021 tax returns when they file in 2022.

Letter 6475 only applies to the third round of Economic Impact Payments, which were issued in March through December of 2021. The third round of Economic Impact Payments, including “plus-up” payments, were advance payments of the 2021 recovery rebate credit that would be claimed on a 2021 tax return. Plus-up payments were additional payments the IRS sent to people who received a third Economic Impact Payment based on a 2019 tax return or information received from the Social Security Administration, Railroad Retirement Board or Veterans Affairs. Plus-up payments were also sent to people who were eligible for a larger amount based on their 2020 tax return.

Most eligible people already received the payments. However, people who are missing stimulus payments should review information on IRS.gov to determine their eligibility and whether they need to claim a recovery rebate credit for 2020 or 2021. This includes people who don’t normally need to file a tax return.
The Economic Impact Payment letters include important information that can help people quickly and accurately file their tax return.

If you need help with your tax situation or have tax questions, give us a call at LCI Taxes – 386-586-3976.

Chris Kocher CPA

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Tips to help taxpayers choose a reputable tax return preparer

January 4th, 2022 Posted by Uncategorized 0 thoughts on “Tips to help taxpayers choose a reputable tax return preparer”

As taxpayers get ready to file their 2022 tax return, they may be considering hiring a tax return preparer. The IRS reminds taxpayers to choose a tax return preparer wisely. This is important because taxpayers are responsible for all the information on their return, no matter who prepares it for them.
There are different kinds of tax preparers, and a taxpayer’s needs will help determine which kind of preparer is best for them. With that in mind, here are some quick tips to help people choose a preparer.

When choosing a tax professional, taxpayers should:

  • Check the IRS Directory of Preparers. While it is not a complete listing of tax return preparers, it does include those who are enrolled agents, CPAs and attorneys, as well as those who participate in the Annual Filing Season Program.
  • Check the preparer’s history with the Better Business Bureau. Taxpayers can verify an enrolled agent’s status on IRS.gov.
  • Ask about fees. Taxpayers should avoid tax return preparers who base their fees on a percentage of the refund or who offer to deposit all or part of their refund into their financial accounts.
  • Be wary of tax return preparers who claim they can get larger refunds than others.
  • Ask if they plan to use e-file.
  • Make sure the preparer is available. People should consider whether the individual or firm will be around for months or years after filing the return. Taxpayers should do this because they might need the preparer to answer questions about the preparation of the tax return.
  • Ensure the preparer signs and includes their preparer tax identification number. Paid tax return preparers must have a PTIN to prepare tax returns.
  • Check the person’s credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in tax matters. Other tax return preparers who participate in the IRS Annual Filing Season Program have limited practice rights to represent taxpayers during audits of returns they prepared.

If you need help with your tax situation or have tax questions, give us a call at LCI Taxes – 386-586-3976.
Chris Kocher CPA

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Important charitable giving reminders for taxpayers

December 6th, 2021 Posted by Uncategorized 0 thoughts on “Important charitable giving reminders for taxpayers”

Giving Tuesday is the kickoff of the season of charitable giving. The IRS encourages taxpayers to research charities before donating and to familiarize themselves with the expanded tax benefits that may come with giving to causes that mean something to them.

Taxpayers may be able to deduct donations to tax-exempt organizations on their tax return. As people are deciding where to make their donations, the IRS has a tool that may help. Tax Exempt Organization Search on IRS.gov is a tool that allows users to search for charities. TEOS provides information about an organization’s federal tax status and filings.

Here are some facts about the Tax Exempt Organization Search tool:

  • Donors can use it to confirm an organization is tax-exempt and eligible to receive tax-deductible charitable contributions.
  • Users can find out if an organization had its tax-exempt status revoked. A common reason for revocation is when an organization does not file its Form 990-series return for three consecutive years.
  • TEOS does not list certain organizations that may be eligible to receive tax-deductible donations, including churches, organizations in a group ruling, and governmental entities.
  • Organizations are listed under the legal name or a “doing business as” name on file with the IRS. No separate listing of common or popular names is searchable.

Taxpayers can also use the interactive tax assistant, Can I Deduct my Charitable Contributions? to help determine if a charitable contribution is deductible. They should get a written acknowledgement for any charitable contributions of $250 or more.

Expanded tax benefits
The law now permits taxpayers to claim a limited deduction on their 2021 federal income tax returns for cash contributions they made to certain qualifying charitable organizations even if they don’t itemize their deductions. Taxpayers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021. The maximum deduction is $600 for married individuals filing joint returns.

Qualified charitable distributions
Taxpayers age 70 ½ or older can make a qualified charitable distribution, up to $100,000, directly from their IRA, other than a SEP or SIMPLE IRA, to a qualified charitable organization. It’s generally a nontaxable distribution made by the IRA trustee directly to a charitable organization. A qualifying deduction may also count toward the taxpayers required minimum distribution requirement for the year. Taxpayers should review Publication 590B, Distributions from Individual Retirement Arrangements for more information.

Cash donations
Most cash donations made to charity qualify for the deduction. However, there are some exceptions. Cash contributions that are not tax deductible include those:

These exceptions also apply to taxpayers who itemize their deductions.

Cash contributions include those made by check, credit card or debit card as well as unreimbursed out-of-pocket expenses in connection with volunteer services to a qualifying charitable organization. Cash contributions don’t include the value of volunteer services, securities, household items or other property.

If you need help with your tax situation or have tax questions, give us a call at LCI Taxes – 386-586-3976.
Chris Kocher CPA

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Some important things all taxpayers should do before the tax year ends

December 2nd, 2021 Posted by Uncategorized 0 thoughts on “Some important things all taxpayers should do before the tax year ends”

The IRS reminds taxpayers there are things they should do before the current tax year ends on Dec.31.

Donate to charity
Taxpayers may be able to deduct donations to tax-exempt organizations on their tax return. As people are deciding where to make their donations, the IRS has a tool that may help. Tax Exempt Organization Search on IRS.gov allows users to search for charities. It provides information about an organization’s federal tax status and filings.

The law now permits taxpayers to claim a limited deduction on their 2021 federal income tax returns for cash contributions they made to certain qualifying charitable organizations even if they don’t itemize their deductions. Taxpayers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021. The maximum deduction is $600 for married individuals filing joint returns.

Most cash donations made to charity qualify for the deduction. However, there are some exceptions. Cash contributions include those made by check, credit card or debit card as well as unreimbursed out-of-pocket expenses in connection with volunteer services to a qualifying charitable organization.

Check Individual Taxpayer Identification Number
An ITIN only needs to be renewed if it has expired and is needed on a U.S. federal tax return.

If an Individual Taxpayer Identification Number was not included on a U.S. federal tax return at least once for tax years 2018, 2019 and 2020, the ITIN will expire on Dec. 31, 2021.

As a reminder, ITINs with middle digits 70 through 88 have expired. In addition, ITINs with middle digits 90 through 99, if assigned before 2013, have expired. Individuals who previously submitted a renewal application that was approved, do not need to renew again.

Find information about retirement plans
IRS.gov has end-of-year tax information about retirement plans. This includes resources for individuals about retirement planning, contributions and withdrawals.

Contribute salary deferral
Taxpayers can make a salary deferral to a retirement plan. This helps maximize the tax credit available for eligible contributions. Taxpayers should make sure their total salary deferral contributions do not exceed the
$19,500 limit for 2021.

Get banked and set up direct deposit
Direct deposit gives taxpayers access to their refund faster than a paper check. Those without a bank account can learn how to open an account at an FDIC-Insured bank or through the National Credit Union Locator Tool.

Veterans should see the Veterans Benefits Banking Program for access to financial services at participating banks.

Connect with the IRS
Taxpayers can use social media to get the latest tax and filing tips from the IRS. The IRS shares information on things like tax changes, scam alerts, initiatives, tax products and taxpayer services. These social media tools are available in different languages, including English, Spanish and American Sign Language.

Think about tax refunds
Taxpayers should be careful not to expect getting a refund by a certain date. This is especially true for those who plan to use their refund to make major purchases or pay bills. Just as each tax return is unique to the individual, so is each taxpayer’s refund. Taxpayers can take steps now to Get Ready to file their federal tax return in 2022.

If you need help with your tax situation or have tax questions, give us a call at LCI Taxes – 386-586-3976.
Chris Kocher CPA

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Why it’s important that taxpayers know and understand their correct filing status

November 23rd, 2021 Posted by Uncategorized 0 thoughts on “Why it’s important that taxpayers know and understand their correct filing status”

As taxpayers get ready for the upcoming filing season, It’s important for them to know their correct filing status. A taxpayer’s filing status defines the type of tax return form they should use when filing their taxes. Filing status can affect the amount of tax they owe, and it may even determine if they have to file a tax return at all.
There are five IRS filing statuses. They generally depend on the taxpayer’s marital status as of Dec.31. However, more than one filing status may apply in certain situations. If this is the case, taxpayers can usually choose the filing status that allows them to pay the least amount of tax.
When preparing and filing a tax return, the filing status affects:
• If the taxpayer is required to file a federal tax return
• If they should file a return to receive a refund
• Their standard deduction amount
• If they can claim certain credits
• The amount of tax they should pay
Here are the five filing statuses:
• Single. Normally this status is for taxpayers who are unmarried, divorced or legally separated under a divorce or separate maintenance decree governed by state law.
• Married filing jointly. If a taxpayer is married, they can file a joint tax return with their spouse. When a spouse passes away, the widowed spouse can usually file a joint return for that year.
• Married filing separately. Married couples can choose to file separate tax returns. When doing so it may result in less tax owed than filing a joint tax return.
• Head of household. Unmarried taxpayers may be able to file using this status, but special rules apply. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person living in the home for half the year.
• Qualifying widow(er) with dependent child. This status may apply to a taxpayer if their spouse died during one of the previous two years and they have a dependent child. Other conditions also apply.

If you need help with your tax situation or have tax questions, give us a call at LCI Taxes – 386-586-3976.

Chris Kocher CPA

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Common tax scams and tips to help taxpayers avoid them

November 12th, 2021 Posted by Uncategorized 0 thoughts on “Common tax scams and tips to help taxpayers avoid them”

In recent years, tax schemes and scams have been on the rise. Con artists work year-round which means taxpayers must remain vigilant to avoid being victimized. Here are some tips to help people recognize and avoid some of the most common tax-related scams.
Email phishing scams
The IRS does not initiate contact with taxpayers by email to request personal or financial information. Generally, the IRS first mails a paper bill to the person who owes taxes. In some special situations, the IRS will call or come to a home or business.
Taxpayers should report IRS, Treasury or tax-related suspicious phishing scams by saving the email and then sending that file as an attachment to phishing@irs.gov. They should not open any attachments, click on any links, reply to the sender, or take any other actions that could put them at risk.
Phone scams
The IRS generally first mails a bill to the taxpayer who owes taxes. There are specific ways to pay taxes. The agency and its authorized private collection agencies will not:
• Leave pre-recorded, urgent, or threatening messages on an answering system.
• Threaten to immediately bring in local police or other law enforcement groups to arrest the taxpayer for not paying, deport them or revoke their licenses.
• Call to demand immediate payment with a prepaid debit card, gift card or wire transfer.
• Ask for checks to third parties.
• Demand payment without giving the taxpayer an opportunity to question or appeal the amount owed.
Criminals can fake or spoof caller ID numbers to appear to be anywhere in the country. Scammers can even spoof an IRS office phone number or the numbers of various local, state, federal or tribal government agencies.
If a taxpayer receives an IRS or Treasury-related phone call, but doesn’t owe taxes and has no reason to think they do, they should:
• Not give out any information. Hang up immediately.
• Contact the Treasury Inspector General for Tax Administration to report the IRS impersonation scam call.
• Report the caller ID and callback number to the IRS by sending it to phishing@irs.gov. The subject line should include “IRS Phone Scam.”
• Report the call to the Federal Trade Commission.
If a taxpayer wants to verify what taxes they owe the IRS, they should:
• View tax account information online at IRS.gov.
• Review their payment options.

If you need help with your tax situation or have tax questions, give us a call at LCI Taxes – 386-586-3976.

Chris Kocher CPA

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The tax responsibilities that come with shutting down a business

October 22nd, 2021 Posted by Uncategorized 0 thoughts on “The tax responsibilities that come with shutting down a business”

There are many reasons a business owner may choose to close their doors, and there are many things that must be done to go out of business. Two important steps all business owners must take are fulfilling their federal tax responsibilities and informing the IRS of their plans. The closing a business page of IRS.gov is designed to help owners navigate the process of shutting down.
Small businesses and self-employed taxpayers will find a variety of information on the page including:
• What forms to file
• How to report revenue received in the final year of business
• How to report expenses incurred before closure
The page also details steps all business owners should take when closing a business.
• File a final tax return and related forms. The type of return to file and related forms depends on the type of business.
• Take care of employees. Business owners with one or more employees must pay any final wages or compensation, make final federal tax deposits and report employment taxes.
• Pay taxes owed. Even if the business closes now, tax payments may be due next filing season.
• Report payments to contract workers. Businesses that pay contractors at least $600 for services including parts and materials during the calendar year in which they go out of business, must report those payments.
• Cancel EIN and close IRS business account. Business owners should notify the IRS so they can close the IRS business account.
• Keep business records. How long a business needs to keep records depends on what’s recorded in each document.
The page also provides helpful information for business owners declaring bankruptcy, selling their business and terminating retirement plans.

If you need help with your tax situation or have tax questions, give us a call at LCI Taxes – 386-586-3976.

Chris Kocher CPA

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Service levels hit new lows at swamped IRS

October 12th, 2021 Posted by Uncategorized 0 thoughts on “Service levels hit new lows at swamped IRS”

The Internal Revenue Service is inundated with the volume of returns yet to be processed and phone calls for assistance, and is working hard to remedy the situation. While there are many factors contributing to this, it is overwhelming to the agency, according to Stephen Mankowski, tax chair of the National Conference of CPA Practitioners, who attended a recent IRS meeting for stakeholders.

“The National Taxpayer Advocate reported they are working to remedy this in multiple ways. The level of service is at its lowest historically, with more calls coming in daily than ever,” he said.

“Hiring and training take time. The automated callback program has been successful, but the number of people in the queue is limited to the number of assistants available,” he said. “The number of calls coming in, particularly regarding the Child Tax Credit, are exacerbating the problem.”

“Paper returns have piled up — there are 5.5 million Form 1040s and over 4 million business returns that have been opened but not processed. The goal is that by year-end, the paper returns will be processed. However, there are an additional 4 million returns anticipated by mid-October,” he said.

National Taxpayer Advocate Erin Collins is empathetic, Mankowski commented. “She truly feels our pain. She understands the taxpayer issues that exist, and the problems getting through to the IRS. She’s dealing with a lot of calls from practitioners and taxpayers trying to get resolution on issues. It’s just a matter of not having enough bodies to do the work.”

It’s not a static situation, Mankowski emphasized, noting that while the service is catching up on returns already filed, more returns are coming in.

And it’s more than just having the money to hire additional personnel, he suggested: “Even if they had the money and had the people willing to work, they couldn’t just snap their fingers and put 50, 100 or 500 people to work manning the phone lines. It takes at least 12 to 18 weeks to train someone to answer and assist callers. They have to understand the systems, and be able to understand and interpret what’s going on.”

In some cases they need to have people with better knowledge or information to help on practitioner lines, Mankowski observed. “But in a lot of cases, it’s easier to explain the issues to a practitioner than it is to taxpayers,” he said. “There’s a lot of training that is necessary to have someone able to assist all levels of taxpayers.”

The late December 2020 changes affected the 2021 filing season, he noted. “The reconciliation of the Economic Impact Payments is anticipated to be fixed within the computer system shortly, and they are hoping for the same with the Child Tax Credits. The IRS is looking to send out notices to taxpayers verifying their child tax payments, and the data is expected to also be available on the IRS portal.”

Other developments that were discussed at the meeting included the launch on July 18 of Tax Pro Accounts. “So far, over 37,000 sessions have logged into the accounts,” Mankowski said. “Nine thousand of these have initiated [power of attorney] requests, with 3,000 of those fully created and authenticated.”

A lot of the early users were “tire kickers,” according to Mankowski. “They might have been wanting to go through the motions. They had a general idea of how it works from watching the videos, but wanted to try out a dummy case just to test drive the system.”

The Secure Access Digital Identity, or SADI, was also launched with respect to the Child Tax Credits, with 4.1 million users seeking to gain credentials. SADI will be implemented into Tax Pro Accounts in November 2021. “The goal is that SADI will assist in allowing taxpayer authentication,” Mankowski explained.  Story by: Roger Russell Senior Editor, Accounting Today

If you need help with your tax situation or have tax questions, give us a call at LCI Taxes – 386-586-3976.

Chris Kocher CPA

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