Category: Tax

Checking the Economic Impact Payment

The IRS now allows taxpayers to view their Economic Impact Payment amounts online, if any, by using their online account. Online account is an online system that allows taxpayers to securely access their individual account information. Taxpayers can view:

  1. The amount they owe, updated for the current calendar day
  2. Their balance details by year
  3. Their payment history and any scheduled or pending payments
  4. Key information from their most recent tax return
  5. Payment plan details, if they have one
  6. Digital copies of select notices from the IRS, and
  7. Their Economic Impact Payments (EIP 1 and EIP 2), if any

Use: https://www.irs.gov/payments/view-your-tax-account

Taxpayers can also:

  1. Make a payment online,
  2. See payment plan options and request a plan via Online Payment Agreement, &
  3. Access their tax records via Get Transcript. The amount of the Economic Impact Payment is needed when calculating the amount of the taxpayer’s Recovery Rebate Credit for 2020.

Warning. Taxpayers must first create an account with the IRS before accessing any information. Tax professionals are not allowed to access or create an account for their tax clients. The taxpayer must create his or her own account and is the only person allowed to access the information, even if the client provided their information to the tax professional to create or access an account, or consented to use their information to create or access the account. Unauthorized use of the online account system is prohibited and subject to criminal and civil penalties.

What Taxpayers Need To Know About Claiming The Credit For Other Dependents

Tax Tip 2021-18, February 11, 2021

Taxpayers with dependents who don’t qualify for the child tax credit may be able to claim the credit for other dependents.

The maximum credit amount is $500 for each dependent who meets certain conditions. These include:

  • Dependents who are age 17 or older.
  • Dependents who have individual taxpayer identification numbers.
  • Dependent parents or other qualifying relatives supported by the taxpayer.
  • Dependents living with the taxpayer who aren’t related to the taxpayer.

The credit begins to phase out when the taxpayer’s income is more than $200,000. This phaseout begins for married couples filing a joint tax return at $400,000.

A taxpayer can claim this credit if:

  • They claim the person as a dependent on the taxpayer’s return.
  • They cannot use the dependent to claim the child tax credit or additional child tax credit.
  • The dependent is a U.S. citizen, national or resident alien.

Taxpayers can claim the credit for other dependents in addition to the child and dependent care credit and the earned income credit. They can use the IRS Interactive Tax Assistant, Does My Child/Dependent Qualify for the Child Tax Credit or the Credit for Other Dependents?, to help determine if they are eligible to claim the credit.

More information:

Credit: IRS Tax Tips

FBAR & Crypto

Update on Pending FBAR Changes

Frankfurt, Hesse, Germany – April 17, 2018: Many coins of various cryptocurrencies

Foreign Bank and Financial Accounts (FBAR) Filing Requirement for Virtual Currency:   Virtual currency is a digital representation of value that functions as a unit of account, a store of value, or a medium of exchange. Some virtual currencies have an equivalent value in real currency or act as a substitute for real currency. Generally, a U.S. person who has a financial interest in, or signature or other authority over, any foreign financial accounts, including bank, securities, or other types of financial accounts located in a foreign country, must file an FBAR with the FinCEN if the aggregate value of those foreign financial accounts exceeds $10,000 at any time during the calendar year. Currently, the FBAR regulations do not define a foreign account holding virtual currency as a type of reportable account . However, FinCEN intends to propose to amend the regulations regarding FBARs to include virtual currency as a type of reportable account under 31 CFR 1010.350. FinCEN Notice 2020-2.

Thank you to NCCPAP and Bruce Oberfest, member of the Westchester/Rockland Chapter, for bringing this to our attention.

More TCJA!

More TCJA!

The Tax Cuts and Jobs Act, P.L. 115-97 keeps on giving! Relief for small business! Proposed Regulation 132766-18 was issued in July. It addresses the TCJA changes dealing with who can use the cash basis of accounting for tax purposes.

TCJA simplifies recordkeeping for “small business”. If a business has average annual gross receipts of $25 million or less the cash method of accounting may be used for tax purposes (adjusted for inflation to $26 million for 2019 and 2020) (Sec. 448(c)). Also, uniform capitalization to inventory is not required (Sec. 263A), immaterial inventory can be treated as supplies and materials (Sec. 471 (c)), and the percentage of completion method of accounting for long term construction contracts is not required (Sec. 460(e)).

Average annual gross receipts amount is computed using the gross receipts for the three years preceding the tax year in question. Caution, aggregation rules apply at 50% or more common control. Filing a change in accounting method is required.

Not So Fast!

These benefits are not allowed for “tax shelters”. The definition of tax shelters is broad. It includes any non-C corp entity where more than 35% of losses in any tax year are allocated to owners who do not actively participate in management. This includes syndicates. Care is advised because a change in accounting method may generate a loss causing the entity to be classified as a tax shelter. Once this happens the taxpayer will be locked into the accrual method for five years.

Some things don’t change!

Sec 448(c) provides that qualified personal service corporations, farming businesses, partnerships with no C corp partners, and S corps  generally can continue to use the cash method regardless of the gross receipts test as long as they are not “tax shelters”.

Conflicts between code sections have arisen and will require additional clarification.

Senate passes HR 7010

Wednesday night 6/3/20, the Senate passed House bill HR 7010 which provides relief for PPP loan payback. The 8 week period is extended to 24 weeks. The payroll cost percentage is now 60% as opposed to 75%. Payback period for loan is now 5 years instead of 2. Business may now delay payroll tax payments.

The bill now goes to the President for signature. More to come!

Data Security

IRS Tax Tip 2019-114, August 21, 2019

Tax pros should review new checklist with steps to protect data

Despite major progress against identity and data theft, these threats still happen. They continue to put tax professionals and their clients at risk. To help combat this, the IRS and its Security Summit partners created a new Taxes-Security-Together Checklist. The checklist includes things tax pros can do now to prevent and recognize data theft. It also gives steps tax preparers can follow if they do experience a data breach

Following this checklist is a great starting point for tax professionals who want to protect their offices, computers and data. This tax tip is the first in a series highlighting the items in this checklist.

Here’s a rundown of the Taxes-Security-Together checklist:

Follow these steps, known as the “Security Six” measures

  • Activate anti-virus software.
  • Use a firewall.
  • Use two-factor authentication.
  • Use backup software or services.
  • Use drive encryption.
  • Create and secure virtual private networks.

Create a data security plan

  • Federal law requires all professional tax preparers to create and maintain an information security plan for client data. 
  • The security plan requirement is flexible enough to fit any size of tax preparation firm. 
  • Tax professionals should focus on risk areas. These include employee management and training, information systems, and detection and management of system failures.

Be on the lookout for common email scams

Recognize the signs of client data theft

  • Clients receive IRS letters about tax returns someone else filed using their name.
  • More tax returns are filed with a tax pro’s Electronic Filing Identification Number than the preparer actually submitted.
  • Clients receive tax transcripts they did not request.

Create a data theft recovery plan including

  • Contact the local IRS Stakeholder Liaison immediately.
  • Assist the IRS in protecting clients’ accounts.
  • Work with a cybersecurity expert to help prevent and stop thefts.