Article Highlights:

State Income Tax Refund
Social Security Taxes Deduction
NOL Carryback
Charitable Contribution Deduction for Non-Itemizers
PPP Loan Expenses
Military Reservist Travel Expenses
Child’s Private School Expenses
Student-Loan Interest
Extended Tax Benefits
Gambling Losses
Live in a State without a State Income Tax?
Spousal IRA
Economic Impact Payment
Economic Impact Payment Document
Reinvested Dividends
Worthless Stock
Lifetime Learning Credit
Charity Volunteer Tax Breaks
Self-Employed Travel Expenses
Self-Employed Health Insurance Deduction
Summer Camp
Medical Dependent
Income in Respect of a Decedent (IRD)

As tax time approaches, here are some tax issues that taxpayers frequently overlook, ranging from obscure deductions to overlooked tax credits and benefits. Of course, not everything can be included since the tax law has grown significantly in complexity, and it would take a thick book to list everything. But besides what you are probably accustomed to, here are over 20 issues you may not be aware of and that can save you tax dollars. State Income Tax Refund – For those who took the standard deduction on their 2019 federal return, your state income tax refund received in 2020 is not taxable income. If you itemized your deductions, then the state tax was a federal tax deduction, and to the extent you received a tax benefit from the deduction, the state tax refund you received in 2020 is federally taxable. However, in many cases, the entire refund will be tax-free if you were subject to the alternative minimum tax (AMT) for 2019, the deductible amount was reduced by the $10,000 limit on tax deductions, or part of the deduction pushed your deductions over the standard deduction threshold. Although the Form 1099-G shows the entire amount of the refund, not all of it may be taxable, so you do not want to report more than necessary. If you owed state income tax on your 2019 return and paid that tax during 2020, then that tax payment can be added to your state tax deduction for 2020, subject to the $10,000 limit for state and local taxes. Social Security Taxes Deduction – If you are self-employed, you can deduct half of the self-employment tax (Social Security and Medicare tax) that you are liable for on your 2020 net profits. You don’t have to itemize on a Schedule A to take the deduction because it is an adjustment to income. NOL Carryback – The year 2020 has been challenging for many businesses, especially those that were subjected to COVID-19 closure orders and ended up with a tax loss for the year. However, the CARES Act does allow a 5-year carryback period in which to use the loss (known as a net operating loss) for business owners who cannot utilize the full loss in 2020. This is done by amending prior returns to recover the taxes paid in the earlier year(s). First, the 2015 return is amended, and if not all of the loss is used on that return, then the 2016 return is amended, and so on. Charitable Contribution Deduction for Non-Itemizers – For the first time ever, taxpayers can claim a cash charitable contribution without itemizing their deductions on Schedule A. Non-itemizers can deduct up to $300 in cash contributions per tax return. Unfortunately, the $300 limit – and not $600 – also applies to married taxpayers filing jointly. So, hold onto those receipts to substantiate the contributions. PPP Loan Expenses – Don’t forget that the COVID-Related Tax Relief Act passed late in December 2020 confirmed that business expenses paid for with proceeds from a forgiven PPP loan continue to be deductible on the business schedule. However, this may not be true for state taxes. Military Reservist Travel Expenses – Armed forces reservists who travel more than 100 miles away from home and stay overnight in connection with service as a member of a reserve component can deduct their travel expenses as an adjustment to gross income (they don’t have to itemize deductions). Unreimbursed expenses for the reservist’s transportation, meals (subject to the 50% limit for 2020), and lodging qualify for the above-the-line deduction, but the deduction is limited to the amount that the federal government pays its employees for travel expenses – i.e., the general federal government per diem rate for lodging, meals, and incidental expenses applicable to the locale as well as the standard mileage rate (57.5 cents per mile for 2020) for car expenses plus parking, ferry fees, and tolls. Child’s Private School Expenses – If your child is attending a private school, the Tax Cuts and Jobs Act allows up to $10,000 per year of Sec. 529 college savings plan funds to be used to pay tuition for kindergarten through grade 12. However, tapping your college savings plan for these expenses may be detrimental to your overall long-term savings plan to pay for college tuition. Student-Loan Interest – If parents pay back a non-dependent child’s student loans, the IRS treats the transactions as if the money were a gift to the child and the child made the payment. Thus, the child is deemed as having paid any interest included in the payment and can deduct it as student-loan interest, which is deductible without having to itemize deductions, up to the annual limit of $2,500. Extended Tax Benefits – A number of tax benefits that had expired at the end of 2019 were extended, without much fanfare, and are still available in 2020. In case you missed any of them, they include the following:

A tax credit of up to $500 for installing energy-efficient improvements in your home, including exterior windows and skylights, exterior doors, metal roofs with appropriately pigmented coatings, asphalt roofing with appropriate cooling granules, energy-efficient heating and air-conditioning systems, insulation materials, or systems designed to reduce heat loss or gain. The $500 limit is a lifetime limit, so if you’ve taken this credit in the past, you need to take into account the amount of credit you claimed previously.
A tax credit of up to $2,500 for purchasing a qualifying electric motorcycle.
A deduction for mortgage insurance premiums on a loan used to purchase the home (acquisition debt).
Forgiveness of qualified cancellation of debt income on a principal residence.
Tax credits for fuel-cell vehicles and alternative-fuel-refueling property.

Gambling Losses – Gambling losses up to the extent of one’s gambling winnings are allowed as a deduction and can help to offset gambling winnings, provided the taxpayer itemizes deductions. Live in a State Without a State Income Tax? – If you live in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming, these states do not have an income tax. Because you can choose to deduct either state income tax or sales tax, if you itemize your deductions, your only choice will be sales tax. The sales tax that can be deducted is the actual amount paid during the year, which can be determined by the larger of the following: (1) Actual receipts for purchases OR (2) The amount from the IRS’s income-based table PLUS sales tax paid when purchasing motor vehicles, boats, and other items specified by the IRS. Spousal IRA – If one spouse works and the other does not, the tax law allows the non-working spouse to base his or her contribution to an IRA on the working spouse’s income. This tax benefit is frequently overlooked when spouses have been working for years and basing their individual contributions on their own income, and then one of the spouses retires. Even if the working spouse has a pension plan at work and his or her income precludes making a deductible IRA contribution, the non-working retired spouse may still make a contribution based on the working spouse’s income. Spousal contributions can also be made to Roth IRAs if the spouses’ joint income does not exceed IRS limits. As of 2020, the law was changed so that there is no longer an age limitation for making contributions to IRAs. Economic Impact Payment – If you qualified for an economic recovery payment, in either the first or the second round, and did not receive the amount you were entitled to, you can claim the underpayment on your 2020 tax return as a tax credit. Economic Impact Payment Document – If you received an economic impact payment, you should have received a Notice 1444, which documents the payment you actually received. The IRS has requested that taxpayers keep this form with all other important tax records, including W-2s from employers, 1099s from banks and other payers, and other income documents and records, to support their tax deductions. Reinvested Dividends – If you are invested in a mutual fund, you are probably reinvesting the annual dividends. Reinvested dividends add to the basis of your investment, and when you sell the mutual fund, having a higher basis will reduce the gain. Mutual funds are required to track your basis for mutual fund shares purchased after 2012. Some even track the basis and reinvested dividends going further back. However, some do not, and it would be your responsibility to track the reinvested dividends so that you get the benefit of all reinvested dividends when you sell. Worthless Stock – If you are like most investors, you occasionally will pick a loser that declines in value. Sometimes, a security can even become totally worthless when the issuing company goes out of business. Whatever you do, don’t wait until it’s too late to claim your loss. If the IRS challenges the loss and the security is found to have become worthless in an earlier year, then the current year’s loss will be denied. Lifetime Learning Credit – The American Opportunity Credit (AOTC) is the education credit most familiar to taxpayers because it is available for the first four years of post-secondary education and provides a higher credit. It also requires the student to attend the college or university on at least a half-time basis and to pursue a program leading to a degree or other recognized educational credential. On the other hand, the Lifetime Learning Credit (LLC) is available for all years of post-secondary education and for courses to acquire or improve job skills. The student doesn’t need to be pursuing a program leading to a degree or other recognized education credential, and it is available for one or more courses. Many individuals who do not qualify for the AOTC overlook the LLC. Charity Volunteer Tax Breaks – If you volunteered your time for a charity or governmental entity during the COVID-19 pandemic, then you probably qualify for some tax breaks. These rules actually apply to all charity volunteers, not just COVID-19 volunteers. Although no tax deduction is allowed for the value of services performed for a qualified charity or a federal, state, or local governmental agency, some deductions are permitted for out-of-pocket costs incurred while performing the services, such as away-from-home travel, lodging, and meals; automobile travel; and uniforms. Self-Employed Travel Expenses – If you are self-employed and travel for business, don’t overlook highway tolls, porter fees, airline baggage fees, tips, taxi fares, Uber fees, car rentals, laundry, cleaning, or other incidentals while away, in addition to the normal meal, lodging, and transportation expenses. Self-Employed Health Insurance Deduction – A self-employed individual (or a partner or a more-than-2%-shareholder of an S corporation) can generally deduct, as an above-the-line expense, 100% of the amount paid during the tax year for medical insurance on behalf of themselves, their spouse, and their dependents limited to the self-employed taxpayer’s net income from self-employment. However, no deduction is allowed for any month when the self-employed individual is eligible to participate in a subsidized health plan maintained by an employer of the taxpayer, the taxpayer’s spouse, any dependent, or any child of the taxpayer who hasn’t attained age 27 as of the end of the tax year. The term “subsidized” means that the employer pays at least 50% of the coverage’s cost. The health insurance premiums claimed as an above-the-line self-employed health insurance expense cannot also be claimed as a Schedule A medical expense. Summer Camp – If you are single and working, or married and both you and your spouse work, you may not realize that the costs of day camp during the summer generally count as expenses toward the child and dependent care credit allowing you to work. A day camp or similar program may qualify even if the camp specializes in a particular activity, such as soccer or computers. The credit ranges from 20% to 35% of the day camp’s cost, not exceeding $3,000 for one child or $6,000 for two or more. Overnight camps do not count. Medical Dependent – You may not realize that if you itemize your deductions, you can deduct medical expenses paid for certain individuals who are not your dependents. One such situation involves divorced parents, in which the non-custodial parent can deduct medical expenses they pay for their child, even when the other parent claims the child as a dependent. Another situation, which we refer to as a medical dependent, involves paying the expenses for someone who would qualify as your dependent except that their gross income is too much, which disqualifies them. For 2020, the gross income limitation is $4,300.
Example – The taxpayers’ adult son was seriously injured in a motorcycle accident and did not have medical insurance. His parents paid all of his medical expenses for the year. Their son meets all of the dependent qualifications, except that his gross income of $20,000 is too much, which disqualifies him. However, under the exception, they can still include his medical expenses on their 1040 Schedule A.
Income in Respect of a Decedent (IRD) – One of the most overlooked tax deductions is what is referred to as the IRD deduction. IRD is the acronym for income in respect of a decedent. IRD income is income that is taxable to the decedent’s estate and also taxable to the estate’s beneficiaries. Thus, it is double taxed; as a result, the beneficiaries generally receive a deduction equal to the difference between the decedent’s estate tax figured with and without the taxed income. Beneficiaries will only have this deduction if the decedent’s estate was large enough to be subject to the estate tax. If you have questions about how these or other tax issues apply to your particular tax circumstances, please give this office a call.

Article Highlights:

IP PIN
Identity Verification
Opt-in Program
Application Process

In the past, the IRS has assigned verification numbers to victims of identity theft to file their tax returns, if requested by the victimized individual. These numbers are referred to as identity protection (IP) PINs. The IP PIN is a six-digit code known only to the taxpayer and the IRS. It helps prevent identity thieves from filing fraudulent tax returns using a taxpayer’s personally identifiable information. The IP PIN serves as the key to an individual’s tax account. Electronically filed returns that do not contain the correct IP PIN will be rejected, and paper returns will go through additional scrutiny for fraud. The IRS launched the IP PIN program nearly a decade ago to protect confirmed identity theft victims from ongoing tax-related fraud. In recent years, the IRS has expanded the program to specific states where taxpayers can opt into the IP PIN program. Now, the voluntary program is going nationwide. Key things you should know about the IP PIN opt-in program:

The program is voluntary.
You must pass a rigorous identity verification process before IRS will issue you an IP PIN.
Spouses and dependents are eligible for an IP PIN if they can verify their identities.
An IP PIN is valid for a calendar year, and a new IP PIN must be obtained each year.
The online tool to apply for IP PINs is offline between November and mid-January each year.
Correct IP PINs must be entered on electronic and paper tax returns to avoid rejections and delays.
Never share your IP PIN with anyone but your trusted tax professional. The IRS will never call, text or email requesting your IP PIN. Beware of scams to steal your IP PIN.
There currently is no opt-out option, but the IRS is working on one for 2022.

If you want an IP PIN for 2021, go to IRS.gov/IPPIN and use the Get an IP PIN tool. This online process will require that you verify your identity using the Secure Access authentication process if you do not already have an IRS account. See IRS.gov/SecureAccess for what information you need to be successful. There is no need to file a Form 14039 (Identity Theft Affidavit) to opt into the program. After you have authenticated your identity, a 2021 IP PIN will immediately be revealed. Once in the program, this PIN must be used when prompted for electronic tax returns or entered by hand near the signature line on paper tax returns. All taxpayers are encouraged to first use the online IP PIN tool to obtain their IP PIN. Taxpayers who cannot verify their identities online have options, as explained next.Taxpayers whose adjusted gross income is $72,000 or less may complete Form 15227, Application for an Identity Protection Personal Identification Number, and mail or fax it to the IRS. An IRS customer service representative will contact the taxpayer and verify their identity by phone. Taxpayers should have their prior year’s tax return at hand for the verification process. Taxpayers who verify their identities through this process will have an IP PIN mailed to them the following tax year. This is for security reasons. Once in the program, the IP PIN will be mailed to these taxpayers each year. Taxpayers who cannot verify their identities online or by phone and who are ineligible to file Form 15227 can contact the IRS and make an appointment at a Taxpayer Assistance Center to verify their identities in person. Taxpayers should bring two forms of identification, including one government-issued picture identification. Taxpayers who verify their identities through the in-person process will have an IP PIN mailed to them within three weeks. Once in the program, an IP PIN will be mailed to these taxpayers each year. Taxpayers who are confirmed identity theft victims or who have filed an identity theft affidavit because of suspected stolen-identity refund fraud will automatically receive an IP PIN via mail once their cases are resolved. Current tax-related identity theft victims who have been receiving IP PINs via mail will experience no change. If you have questions related to the IP PIN program, please call.

Tax time can be one of the most hated times of the year. Just preparing the forms is enough to be an irritant, and if you owe the government money there’s a good chance that you’re downright annoyed. But neither of those things compare to the feeling that accompanies an envelope bearing an IRS return address, alerting you to the fact that your taxes are about to be audited. The truth is that audits are relatively rare in the United States. As much as people fear them, the IRS reports that between 2010 and 2018 only 0.6% of individual tax returns resulted in an audit. That may make you feel better, but statistically speaking that still means that more than 250,000 taxpayers had to go through the process. In many cases the audit process could have been avoided had the taxpayers simply known what we’re about to spell out for you – that there are specific triggers that send up IRS red flags and frequently lead to an audit process. The red flags include: Disparities Between Information on Tax Forms and Reported Income Whether you’re a W-2 employee or self-employed, the IRS will compare the income information that you report on your tax forms with the W-2 and 1099 forms that are sent by those individuals and entities that have paid you. If the two don’t match, the IRS is going to want to know why. Disparities Between Business Income and Business Expenses Just as the IRS will respond when your tax form income and reported income don’t match, the same is true for businesses that report business expenses that don’t make sense. In some cases, they are looking for people who are trying to take business expense deductions for what is really a hobby rather than a business. Many times these disparities are the result of actual expenses incurred for which income went unreported. Though there is always the chance that the odd numbers are an accident, such as the result of duplication of employee and business expenses, that oversight can lead to the discomfort of an audit, so take the time to double and triple check before filing your tax forms. Outsized Charitable Contributions Our tax system awards charitable contributions with tax deductions, and though that has proven to be a powerful incentive for some, it has also served as a temptation. To counter this, the IRS has created an automated computer program that analyzes nearly every return to identify figures that seem outsized as compared to an individual’s income, as well as other factors that are commonly abused. The system assesses each return based on numerous factors and assigns a DIF, or Discriminate Function, score. If your return exceeds the IRS DIF score threshold, there’s a good chance you’re headed for an audit. Disparities Between Lifestyle Expenses and Reported Income As with other mismatches found on tax returns, the IRS is particularly sensitive to returns in which taxpayers take deductions for expenses reflective of a high income living and yet report income that is much more modest. Paying personal property taxes, real estate taxes and taking mortgage interest deductions for million-dollar lifestyles will raise a red flag if the income you’re reporting is not enough to support it. When You Happen to Hit Right on the Income to Expense Ratio You Need to Qualify for the Earned Income Credit To claim the Earned Income Credit — which can be as high as $6,660 for tax year 2020 — taxpayers’ income has to be below a certain level, and if you’re a business owner whose return includes a Schedule C to prove all offsetting expenses, there is a particular ratio that you need to achieve in order to qualify. In most cases a business will either be somewhere below the ratio or above the ratio: They’ll either qualify for a larger earned income credit or they won’t. If the number hits exactly at the level needed to qualify for the larger credit, the IRS is more likely to ask for a closer look to see if numbers on either side of the equation have been manipulated. Disproportionate Itemized Deductions If you qualify to itemize, then you’re entitled to take deductions for qualifying expenses. But in cases where itemized deductions seem disproportionately high, the IRS is likely to ask some questions. If the expenses are legitimate and you’re able to present documentation, you’ll be fine, but make sure that you hold onto all receipts, as there’s a good chance that you’ll be called in for an audit. One important thing to remember: You may have been able to deduct unreimbursed employee business expenses in the past, but that stopped being true for federal income taxes after tax year 2017. Some states, including California, still permit those deductions on state taxes, so make sure that you maintain receipts for those returns as well. Lapses in Reporting Cryptocurrency Transactions Bitcoin and other virtual currency transactions have led to plenty of tax return headaches, as in the last several years approximately 10,000 taxpayers have failed to report gains or losses on this innovative currency. To address the issue, the IRS has taken to sending taxpayers letters providing a chance to take part in a voluntary disclosure program. The agency is clearly on the watch for and acting upon this particular red flag. In addition, the IRS has added a question to the 1040: “Did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” Of course, if you answer no and later it is determined you did, then you have committed perjury since you sign your return under penalty of perjury. Rental Property Expenses that Appear to be Inflated One of the most common reasons for tax returns to be flagged is rental expenses that appear to be inflated. Taxpayers who prepare their own returns and who report deductions for rental income on their Schedule E need to ensure that they fully understand that some deductions are allowed and some need to be capitalized over time, as not knowing which is which could lead to a return being flagged. There are also special and rather complicated rules associated with renting a vacation home, room rentals and short-term rentals. Two People Claiming the Same Dependent It is not at all uncommon for families that split custody of a dependent as a result of separation or divorce to alternate the years in which they claim a dependent, but if mistakes – or fraud – are detected and both are claiming the same individual, that will be sure to trigger an audit. Proving custody will require documentation, including school records and birth certificates. Not Understanding Which Filing Status to Use Though the head of household filing status is extremely useful, it can also be confusing and lead to mistakes when filling out status, and especially regarding how dependents are treated. Though the Tax Cuts and Jobs Act of 2017 was supposed to simplify the tax form process, in this particular area it made things even more complicated by introducing a new $500 credit for ‘qualifying relatives’, which is defined by certain tests that may make people not related to the taxpayer eligible as a dependent while not making the taxpayer eligible for the head of household filing status. Failure to Report Overseas Accounts Whether it generates taxable income or not, if you are a U.S. citizen or U.S. resident with interest in, authority over, or signature authority on foreign financial accounts that exceed $10,000 at any time during the calendar year, you are required to report them to the U.S. Treasury Department under the Bank Secrecy Act. The appropriate form to be filed is the Report of Foreign Bank and Financial Accounts, or FBAR. Failing to disclose these accounts can have significant repercussions and are likely to be discovered as a result of disclosure requirements placed on foreign financial institutions. In Case of Audit The goal of providing this information is to fend off the possibility of red flags ever being raised on your tax filing. However, if one of those envelopes with the IRS return address appears in your mailbox, contact us immediately.

Article Highlights:

Economic Impact Payments
Unemployment Compensation
Minimum Wage
Education Assistance
Families First Coronavirus Response Act
Child Care Tax Credit
Child Tax Credit
Earned Income Tax Credit
Healthcare Coverage
Evictions & Foreclosures
Homelessness

Incoming President Biden released his “American Rescue Plan” on January 14. It is a wish list of proposals he wants Congress to enact to address the COVID-19 pandemic and associated economic crisis. While some of the proposals are intended to be in effect for just one year, it isn’t too great a stretch of the imagination that these could later be extended or made permanent, as many of them have been on the Democrats’ agenda for some time. The anticipated cost of the American Rescue Plan, if all of the proposals are agreed to by Congress, is $1.9 trillion. None of Biden’s proposals are revenue raisers, and according to a January 15, 2021 Wall Street Journal report, he intends to use government borrowing to pay for his plan. Following are some of the tax-related proposals. Stimulus (Economic Impact) Payments: Biden’s plan requests that Congress provide an additional stimulus payment of $1,400 to qualified lower income households. Combined with the $600 that Congress authorized in December legislation, this will bring the latest total direct assistance to $2,000 per person. The prior stimulus distributions included stipends for dependent children under the age of 17, whereas the proposed payments will be provided for all dependents regardless of age. So far, the payments have counted as advances toward a 2020 Recovery Rebate Credit. This is so even for the second round of payments that didn’t reach recipients until early January 2021. Individuals will need to reconcile the payments they received and the credits they are entitled to on their 2020 returns. Whether the proposed additional payments will be considered part of the 2020 credit (which could delay some 2020 return filings) or as an advance toward a new 2021 credit will need to be clarified in the legislation. Unemployment Compensation: This part of the plan requests that Congress provide a $400-per-week unemployment insurance supplement through September 2021, and extend the unemployment benefits to self-employed workers such as ride-share drivers and many grocery delivery workers, who do not typically qualify for regular unemployment compensation. Presumably, the $400-per-week enhancement would be in lieu of the $300-per-week benefit passed in the Consolidated Appropriations Act in December 2020. In any event, the unemployment benefits are taxable income for federal purposes; most states also tax this income, but a few do not. Raise the minimum wage to $15 per hour. Education Assistance: The CARES Act, passed in late March 2020, included a Higher Education Emergency Relief Fund that provides funding to institutions to provide emergency financial aid grants to students whose lives have been disrupted by the COVID-19 pandemic. Emergency financial aid grants to students are nontaxable and can be used for expenses related to the disruption of campus operations due to coronavirus (including eligible expenses under a student’s cost of attendance, such as food, housing, course materials, technology, health care, and child care). Biden’s proposal would increase funding for the Higher Education Emergency Relief Fund, including providing college and university students with up to an additional $1,700 in financial assistance from their institutions. Families First Coronavirus Response Act: This part of the American Rescue Plan requests that Congress fund an extension of sick leave through September 30, 2021, which would provide over 14 weeks (up from 12) of paid sick and family and medical leave to help parents with additional caregiving responsibilities when a child or loved one’s school or care center is closed; for people who have or are caring for people with COVID-19 symptoms, or who are quarantining due to exposure; and for people needing to take time to get the vaccine. The maximum payment would be increased from $1,000 per week to $1,400 per week. Under Biden’s plan, the exemptions for businesses with over 500 employees and those with fewer than 50 employees would be eliminated, making the program mandatory for all sizes of businesses. The government will reimburse employers with fewer than 500 employees for 100% of the cost. Increase the Child Care Tax Credit: Currently, a nonrefundable tax credit is available to some taxpayers for the expenses they incur for the care of a child, spouse, or other dependent while the taxpayer is gainfully employed (or is seeking a job). The maximum expenses that can be used to determine the credit are $3,000 for one child and $6,000 for two or more children. The credit rate ranges from 20% to 35% depending on income (the higher the income, the lower the credit rate). Biden’s plan requests Congress to authorize an increase in the child care credit and make it refundable for one year. The credit would be a full 50% of the expenses, with maximum expenses of $4,000 for one child under age 13 and $8,000 for two or more children. The credit would be phased out when income ranges from $125,000 to $400,000. Child Tax Credit: For years 2018 through 2025, the child tax credit is a maximum of $2,000 per dependent child under the age of 17. In some cases, up to $1,400 of the credit is refundable. The credit phases out when the taxpayer’s modified adjusted gross income exceeds $200,000 ($400,000 for married joint filers). Biden is asking Congress, for a period of one year, to include children through age 17 in the credit and increase the Child Tax Credit to $3,000 ($3,600 for children under the age of 6). Earned Income Tax Credit (EITC): Childless adults are eligible for a lesser earned income tax credit amount than if they had a qualifying child. Biden’s plan requests that Congress make a one-year increase in the EITC for childless adults from roughly $530 to $1,500 and increase these individuals’ income limit for the credit from roughly $16,000 to $21,000. Biden also would also like Congress to eliminate the age cap so that older workers without a qualifying child can claim the credit (currently, a childless individual cannot claim the credit after reaching age 65). Healthcare Coverage: Individuals who purchase their health insurance through the government marketplace may be eligible for a premium tax credit, with an advance premium tax credit (APTC) used to reduce monthly premiums, and the advance and actual credits reconciled on their income tax return each year. Biden’s plan asks Congress to increase the premium tax credit so that workers will pay no more than 8.5% of their income for coverage. Although not tax-related, other issues in the plan affecting individuals include: Evictions and Foreclosures: President-Elect Biden is calling on Congress to extend the eviction and foreclosure moratoriums and continue applications for forbearance on federally guaranteed mortgages until September 30, 2021, as well as to provide funds for legal assistance for households facing eviction or foreclosure. Homelessness: The plan requests that Congress provide $5 billion to help secure housing for the approximately 200,000 individuals and families. Remember, these are only Biden’s proposed changes; quite often, what Congress ends up passing is not the same as the originally proposed legislation. If you need assistance or have questions related to other tax issues, please give this office a call.

February 1 – 1099-NECs Due to Service Providers & the IRSIf you are a business or rental property owner and paid $600 or more to individuals (other than employees) as nonemployee compensation during 2020, you are required to provide Form 1099-NEC to those workers by February 1. ‘Nonemployee compensation’ can mean payments for services performed for your business or rental by an individual who is not your employee, commissions, professional fees and materials, prizes and awards for services provided, fish purchases for cash, and payments for an oil and gas working interest. In order to avoid a penalty, copies of the 1099-NECs also need to be sent to the IRS by February 1, 2021. The 1099-NECs must be submitted on optically scannable (OCR) forms. This firm prepares 1099s in OCR format for submission to the IRS with the 1096 submittal form. This service provides both recipient and file copies for your records. A business or individual who is required to file 250 or more information returns (i.e., 1099s among others) must file those forms electronically. Please call this office for preparation assistance. February 1 – Form 1098 and Other 1099s Due to RecipientsForm 1098 (Mortgage Interest Statement) and Forms 1099, including 1099-NEC (see above) are due to recipients by February 1. The IRS’ copy, other than for 1099-NECs, is not due until March 1, 2021, or March 31, 2021 if electronically filed. These 1099s may be reporting the following types of income:

Dividends and other corporate distributions
Interest
Rent
Royalties
Payments of Indian gaming profits to tribal members
Profit-sharing distributions
Retirement plan distributions
Original issue discount
Prizes and awards
Medical and health care payments
Debt cancellation (treated as payment to debtor)

February 1 – Employers – W-2s Due to All Employees & the GovernmentEMPLOYEE’S COPY: All employers need to give copies of the W-2 form for 2020 to their employees. If an employee agreed to receive their W-2 form electronically, post it on a website and notify the employee of the posting. GOVERNMENT’S COPY: W-2 Copy A and Transmittal Form W-3, whether filed electronically or by paper, are due January 31 to the Social Security Administration.February 1 – File Form 941 and Deposit Any Undeposited TaxFile Form 941 for the fourth quarter of 2020. Deposit any undeposited Social Security, Medicare and withheld income tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. February 1 – File Form 943All farm employers should file Form 943 to report Social Security, Medicare taxes and withheld income tax for 2020. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the year in full and on time, you have until February 10 to file the return.
February 1 – File Form 945
File Form 945 to report income tax withheld for 2020 on all non-payroll items, including back-up withholding and withholding on pensions, annuities, IRAs, gambling winnings, and payments of Indian gaming profits to tribal members. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the year in full and on time, you have until February 10 to file the return.
February 10 – Non-Payroll TaxesFile Form 945 to report income tax withheld for 2020 on all non-payroll items. This due date applies only if you deposited the tax for the year in full and on time.
February 10 – Social Security, Medicare and Withheld Income Tax File Form 941 for the fourth quarter of2020. This due date applies only if you deposited the tax for the quarter in full and on time.February 10 – Certain Small Employers File Form 944 to report Social Security and Medicare taxes and withheld income tax for 2020. This due date applies only if you deposited the tax for the year in full and on time.February 10 – Farm Employers File Form 943 to report Social Security and Medicare taxes and withheld income tax for 2020. This due date applies only if you deposited the tax for the year timely, properly, and in full.February 10 – Federal Unemployment Tax File Form 940 for 2020. This due date applies only if you deposited the tax for the year in full and on time.February 16 – Social Security, Medicare and Withheld Income TaxIf the monthly deposit rule applies, deposit the tax for payments in January.February 16 – Non-Payroll WithholdingIf the monthly deposit rule applies, deposit the tax for payments in January.February 16 – Payroll Withholding
Employers begin withholding for employees who claimed exemption from withholding in 2020 but have not provided a W-4 (or W-4(SP)) to continue the exemption for 2021.February 16 – All BusinessesThe following information statements are due to recipients to whom certain payments were made during 2020: Form 1099-B (Proceeds from Broker and Barter Exchange Transactions), Form 1099-S (Proceeds from Real Estate Transactions) and Form 1099-MISC (Miscellaneous Income) if substitute payments are reported in Box 8 or gross proceeds paid to an attorney are reported in Box 14. With consent of the recipient, the 1099 can be issued electronically.

February 1 – Tax AppointmentIf you don’t already have an appointment scheduled with this office, you should call to make an appointment that is convenient for you. February 1 – File 2020 Individual Return to Avoid Penalty for Not Making 4th Quarter Estimated PaymentIf you file your prior year’s individual income tax return and pay any tax due by this date, you need not make the 4th Quarter Estimated Tax Payment that was otherwise due in January.February 1 – Individuals Who Must Make Estimated Tax Payments If you didn’t pay your last installment of estimated tax by January 15, you may choose (but aren’t required) to file your income tax return (Form 1040 or Form 1040-SR) for 2020 by February 1. Filing your return and paying any tax due by February 1 prevents any penalty for late payment of the last installment. If you can’t file and pay your tax by February 1, file and pay your tax by April 15.
February 10 – Report Tips to Employer
If you are an employee who works for tips and received more than $20 in tips during January, you are required to report them to your employer on IRS Form 4070 no later than February 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.
February 16 – Last Date to Claim Exemption from Withholding
If you are an employee who claimed an exemption from income tax withholding last year on the Form W-4 you gave your employer, you must file a new Form W-4 by this date to continue your exemption for another year.