October 15 – CorporationsFile a 2020 calendar year income tax return (Form 1120) and pay any tax, interest, and penalties due. This due date applies only if you timely requested an automatic 6-month extension by April 15.October 15 – Social Security, Medicare and withheld income tax
If the monthly deposit rule applies, deposit the tax for payments in September. October 15 – Nonpayroll Withholding If the monthly deposit rule applies, deposit the tax for payments in September.
 

Article Highlights:

October 15 is the extended due date for filing federal individual tax returns for 2020. 
Late-filing penalty 
Interest on tax due 
Other October 15 deadlines 

The normal April 15, 2021 filing deadline for 2020 individual tax returns was extended by the IRS to May 17, 2021, due to the continuing Covid-19 pandemic. If you could not complete your 2020 tax return by May 17 and are now on extension, that extension expires on October 15, 2021. Failure to file before the extension period runs out can subject you to late-filing penalties. There are no additional extensions (except in designated disaster areas), so if you still do not or will not have all of the information needed to complete your return by the extended due date, please call this office so that we can explore your options for meeting your October 15 filing deadline. If you are waiting for a K-1 from a partnership, S-corporation, or fiduciary return, the extended deadline for those returns is September 15 (September 30 for fiduciary returns). So, you should probably make inquiries if you have not received that information yet. Late-filed individual federal returns are subject to a penalty of 5% of the tax due for each month, or part of a month, for which a return is not filed, up to a maximum of 25% of the tax due. If you are required to file a state return and do not do so, the state will also charge a late-file penalty. The filing extension deadline for individual returns is also October 15 for most states. In addition, interest continues to accrue on any balance due, currently at the rate of 3% per year. This rate is subject to adjustment quarterly. If this office is waiting for some missing information to complete your return, we will need that information at least a week before the October 15 due date. Please call this office immediately if you anticipate complications related to providing the needed information, so that a course of action may be determined to avoid the potential penalties. Additional October 15, 2021 Deadlines – In addition to being the final deadline to timely file 2020 individual returns on extension, October 15 is also the deadline for the following actions:

FBAR Filings – Taxpayers with foreign financial accounts, the aggregate value of which exceeded $10,000 at any time during 2020, must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). The original due date for the 2020 report was April 15, but individuals have been granted an automatic extension to file until October 15, 2021. 
SEP-IRAs – October 15, 2021 is the deadline for a self-employed individual to set up and contribute to a SEP-IRA for 2020. The deadline for contributions to traditional and Roth IRAs for 2020 was May 17, 2021. Usually, the deadline is April 15 for IRA contributions for the prior year, but for 2020 contributions it was extended a month because of the Covid-19 crisis. May 15 was a Saturday, so the due date was the next business day, the 17th.
Special Note – Disaster Victims – If you reside in a Presidentially declared disaster area, the IRS provides additional time to file various returns and make payments.

Please call this office for extended due dates of other types of filings and payments and for extended filing dates in disaster areas.

Article Highlights:

Increase in Corporate Tax Rate 
Increase in Top Marginal Individual Income Tax Rate 
Increase in Capital Gains Rate for Certain High-Income Individuals 
Deduction for Certain Employee Trade or Business Expenses 
Application of Net Investment Income Tax to Trade or Business Income 
Limitation Qualified Business Income Deduction 
Limitations on Excess Business Losses of Noncorporate Taxpayers 
Surcharge on High-Income Individuals, Trusts, and Estates 
Termination of Temporary Increase in Unified Credit 
Estate Tax Valuation for Real Property Used in Farming 
Certain Tax Rules Applicable to Grantor Trusts 
Valuation Rules for Certain Transfers of Nonbusiness Assets 
Contribution Limits for Individual Retirement Plans 
Increase in Minimum Required Distributions 
Limiting Back Door IRA Conversions 
Statute of Limitations with Respect to IRA Noncompliance 
Investment of IRA Assets in Entities Where Owner Has a Substantial Interest 
IRA Owners Treated as Disqualified Persons 
Funding of the Internal Revenue Service 
Limiting Qualified Conservation Contribution Deductions 
Limitation on Deduction of Excessive Employee Remuneration 
Termination of Employer Credit for Paid Family Leave and Medical Leave 
Temporary Rule to Allow Certain S Corporations to Reorganize as Partnerships Without Tax 
Enhancement of Work Opportunity Credit During COVID-19 Recovery Period 
Research and Experimental Expenditures 

The House Ways and Means Committee has released an extensive list of proposed tax changes that impact individual, retirement, international and corporate tax law. We have been selective and have only included a portion of the proposed changes. A full list of proposed changes are available from the PDF file titled Responsibility Funding Our Priorities. As you read through the article you will quickly become aware that the provisions are aimed at higher income taxpayers. The full list available from the link above includes numerous provisions not included in this article and primarily related to corporate foreign transactions.

Increase in Corporate Tax Rate – This provision replaces the flat corporate income tax with a graduated rate structure. The rate structure provides for a rate of 18 percent on the first $400,000 of income; 21 percent on income up to $5 million, and a rate of 26.5% on income thereafter. The benefit of the graduated rate phases out for corporations making more than $10,000,000. Personal services corporations are not eligible for graduated rates. The domestic dividends received deduction is adjusted to hold constant the tax on domestic corporate-to-corporate dividends. 
Increase in Top Marginal Individual Income Tax Rate – The provision increases the top marginal individual income tax rate to 39.6%. This marginal rate applies to married individuals filing jointly with taxable income over $450,000, to heads of households with taxable income over $425,000, to unmarried individuals with taxable income over $400,000, to married individuals filing separate returns with taxable income over $225,000, and to estates and trusts with taxable income over $12,500. The amendments made by this section apply to taxable years beginning after December 31, 2021. 
Increase in Capital Gains Rate for Certain High-Income Individuals – The provision increases the capital gains rate to 25%. The amendments made by this section apply to taxable years ending after the date of introduction of this Act. A transition rule provides that the preexisting statutory rate of 20% continues to apply to gains and losses for the portion of the taxable year prior to the date of introduction. Gains recognized later in the same taxable year that arise from transactions entered into before the date of introduction pursuant to a written binding contract are treated as occurring prior to the date of introduction. 
Deduction for Certain Employee Trade or Business Expenses – The provision allows for up to $250 in dues to a labor organization be claimed as an above-the-line deduction. The provision is effective for taxable years beginning after December 31, 2021. 
Application of Net Investment Income Tax to Trade or Business Income – This provision expands the net investment income tax to cover net investment income derived in the ordinary course of a trade or business for taxpayers with greater than $400,000 in taxable income (single filer) or $500,000 (joint filer), as well as for trusts and estates. The provision clarifies that this tax is not assessed on wages on which FICA is already imposed. Effective for taxable years beginning after December 31, 2021. 
Limitation Qualified Business Income Deduction – The provision amends IRC Sec 199A pass through deduction by setting the maximum allowable deduction at $500,000 in the case of a joint return, $400,000 for an individual return, $250,000 for a married individual filing a separate return, and $10,000 for a trust or estate. (Effective for taxable years beginning after December 31, 2021). 
Limitations on Excess Business Losses of Noncorporate Taxpayers – This provision permanently disallows excess business losses (i.e., net business deductions more than business income) for non-corporate taxpayers. The provision allows taxpayers whose losses are disallowed to carry those losses forward to the next succeeding taxable year. Effective for taxable years beginning after December 31, 2021. 
Surcharge on High-Income Individuals, Trusts, and Estates – This provision imposes a tax equal to 3% of a taxpayer’s modified adjusted gross income more than $5,000,000 ($2,500,000 for married individuals filing separately). Effective for taxable years beginning after December 31, 2021. 
Termination of Temporary Increase in Unified Credit – This provision terminates the temporary increase in the unified credit against estate and gift taxes which for 2021 is $11,700,000, reverting the credit to its 2010 level of $5,000,000 per individual, indexed for inflation. 
Estate Tax Valuation for Real Property Used in Farming – This provision would increase the special valuation reduction available for qualified real property used in a family farm or family business. This reduction allows decedents who own real property used in a farm or business to value the property for estate tax purposes based on its actual use rather than fair market value. This provision increases the allowable reduction from $750,000 to $11,700,000. 
Certain Tax Rules Applicable to Grantor Trusts – This provision adds IRC Sec 2901, which pulls grantor trusts into a decedent’s taxable estate when the decedent is the deemed owner of the trusts. Prior to this provision, taxpayers were able to use grantor trusts to push assets out of their estate while controlling the trust closely. The provision also adds a new section 1062, which treats sales between grantor trusts and their deemed owner as equivalent to sales between the owner and a third party. The amendments made by this section apply only to future trusts and future transfers. 
Valuation Rules for Certain Transfers of Nonbusiness Assets – This provision clarifies that when a taxpayer transfers nonbusiness assets, those assets should not be afforded a valuation discount for transfer tax purposes. Exceptions are provided for assets used in hedging transactions or as working capital of a business. A look-through rule provides that when a passive asset consists of a 10-percent interest in some other entity, the rule is applied by treating the holder as holding its ratable share of the assets of that other entity directly. The amendments made by this section apply to transfers after the date of the enactment of this Act. 
Contribution Limits for Individual Retirement Plans – Under current law, taxpayers may make contributions to IRAs irrespective of how much they already have saved in such accounts. To avoid subsidizing retirement savings once account balances reach very high levels, the legislation creates new rules for taxpayers with very large IRA and defined contribution retirement account balances. Specifically, the legislation prohibits further contributions to a Roth or traditional IRA for a taxable year if the total value of an individual’s IRA and defined contribution retirement accounts generally exceed $10 million as of the end of the prior taxable year. The limit on contributions would only apply to single taxpayers (or taxpayers married filing separately) with taxable income over $400,000, married taxpayers filing jointly with taxable income over $450,000, and heads of households with taxable income over $425,000 (all indexed for inflation). The legislation also adds a new annual reporting requirement for employer defined contribution plans on aggregate account balances more than $2.5 million. The reporting would be to both the Internal Revenue Service and the plan participant whose balance is being reported. Effective for taxable years beginning after December 31, 2021. 
Increase in Minimum Required Distributions – If an individual’s combined traditional IRA, Roth IRA and defined contribution retirement account balances generally exceed $10 million at the end of a taxable year, a minimum distribution would be required for the following year. This minimum distribution is only required if the taxpayer’s taxable income is above the thresholds described in the section above (e.g., $450,000 for a joint return). The minimum distribution generally is 50 percent of the amount by which the individual’s prior year aggregate traditional IRA, Roth IRA and defined contribution account balance exceeds the $10 million limit. In addition, to the extent that the combined balance amount in traditional IRAs, Roth IRAs and defined contribution plans exceeds $20 million, that excess is required to be distributed from Roth IRAs and Roth designated accounts in defined contribution plans up to the lesser of (1) the amount needed to bring the total balance in all accounts down to $20 million or (2) the aggregate balance in the Roth IRAs and designated Roth accounts in defined contribution plans. Once the individual distributes the amount of any excess required under this 100 percent distribution rule, then the individual is allowed to determine the accounts from which to distribute to satisfy the 50 percent distribution rule above. Effective for taxable years beginning after December 31, 2021. 
Limiting Back Door IRA Conversions – Under current law, contributions to Roth IRAs have income limitations. For example, the income range for single taxpayers for making contributions to Roth IRAs for 2021 is $125,000 to $140,000. Those single taxpayers with income above $140,000 generally are not permitted to make Roth IRA contributions. In 2010, the similar income limitations for Roth IRA conversions were repealed, which allowed anyone to contribute to a Roth IRA through a conversion. irrespective of the still-in-force income limitations for Roth IRA contributions. As an example, if a person exceeds the income limitation for contributions to a Roth IRA, he or she can make a nondeductible contribution to a traditional IRA – and then shortly thereafter convert the nondeductible contribution from the traditional IRA to a Roth IRA. To close these so-called “back-door” Roth IRA strategies, the bill eliminates Roth conversions for both IRAs and employer-sponsored plans for single taxpayers (or taxpayers married filing separately) with taxable income over $400,000, married taxpayers filing jointly with taxable income over $450,000, and heads of households with taxable income over $425,000 (all indexed for inflation). This provision applies to distributions, transfers, and contributions made in taxable years beginning after December 31, 2031. Furthermore, this section prohibits all employee after-tax contributions in qualified plans and prohibits after-tax IRA contributions from being converted to Roth regardless of income level, effective for distributions, transfers, and contributions made after December 31, 2021. 
Statute of Limitations with Respect to IRA Noncompliance – The bill expands the statute of limitations for IRA noncompliance related to valuation-related misreporting and prohibited transactions from 3 years to 6 years to help IRS pursue these violations that may have originated outside the current statute’s 3-year window. This provision applies to taxes to which the current 3-year period ends after December 31, 2021. 
Investment of IRA Assets in Entities Where Owner Has a Substantial Interest – To prevent self-dealing, under current law prohibited transaction rules, an IRA owner cannot invest his or her IRA assets in a corporation, partnership, trust, or estate in which he or she has a 50 percent or greater interest. However, an IRA owner can invest IRA assets in a business in which he or she owns, for example, one-third of the business while also acting as the CEO. The bill adjusts the 50 percent threshold to 10 percent for investments that are not tradable on an established securities market, regardless of whether the IRA owner has a direct or indirect interest. The bill also prevents investing in an entity in which the IRA owner is an officer. Further, the bill modifies the rule to be an IRA requirement, rather than a prohibited transaction rule (i.e., to be an IRA, it must meet this requirement). This section generally takes effect for tax years beginning after December 31, 2021, but there is a 2-year transition period for IRAs already holding these investments. 
IRA Owners Treated as Disqualified Persons – The bill clarifies that, for purposes of applying the prohibited transaction rules with respect to an IRA, the IRA owner (including an individual who inherits an IRA as beneficiary after the IRA owner’s death) is always a disqualified person. This section applies to transactions occurring after December 31, 2021. 
Funding of the Internal Revenue Service – This provision appropriates $78,935,000,000 for necessary expenses for the IRS for strengthening tax enforcement activities and increasing voluntary compliance and modernizing information technology to effectively support enforcement activities. No use of these funds is intended to increase taxes on any taxpayer with taxable income below $400,000. Further, $410,000,000 is appropriated for necessary expenses for the Treasury Inspector General for Tax Administration to provide oversight of the IRS. Finally, $157,000,000 is appropriated for the Tax Court for adjudicating tax disputes. These appropriated funds are to remain available until September 30, 2031. 
Limiting Qualified Conservation Contribution Deductions – To curb syndicated conservation easement tax shelters, this provision denies charitable deduction for contributions of conservation easements by partnerships and other pass-through entities if the amount of the contribution (and therefore the deduction) exceeds 2.5 times the sum of each partner’s adjusted basis in the partnership that relates to the donated property. This general disallowance rule does not apply to donations of property that meet the requirements of the 3-year holding period rule, and contributions by family partnerships. In addition, certain taxpayers whose deeds are found to have certain defects and are notified by the Commissioner can correct such defects within 90 days of the notice. This ability to cure does not apply in the case of reportable transactions and transactions for which deduction is disallowed under this section. Various accuracy-related penalties apply, including gross valuation misstatement penalty, and adjustments are made to the statute of limitations on assessment and collection by the IRS, in case of any disallowance of a deduction by reason of this provision. This section applies to contributions made after December 23, 2016 (the date of the relevant IRS Notice). In the case of contributions of easements related to the preservation of certified historic structures, this section applies to contributions made in taxable years beginning after December 31, 2018. The ability to cure defective deeds are permitted for returns filed after the date of the enactment and for returns filed on or before such date if the section 6501 period has not expired as of such date. 
Limitation on Deduction of Excessive Employee Remuneration – This provision moves up the effective date of the amendment to section 162(m) in the American Rescue Plan Act of 2021 (ARPA) to tax years following December 31, 2021. The ARPA expanded the set of applicable employees under section 162(m) to include the eight most highly compensated officers other than the principal executive and principal financial officers for a taxable year, beginning in tax years after December 31, 2026. The additional five employees scoped in under the ARPA amendment are not considered permanent covered employees for the purposes of the section. The provision also applies the section 414 aggregation rules for covered health insurance providers to the general rule under section 162(m), expands the IRS’s regulatory authority under the general rule, and expands the definition of applicable employee renumeration. 
Termination of Employer Credit for Paid Family Leave and Medical Leave -This provision accelerates termination of employer credit for wages paid to employees during family and medical leave to taxable years beginning after 2023. Currently, the credit will terminate for wages paid in taxable years beginning after 2025. 
Temporary Rule to Allow Certain S Corporations to Reorganize as Partnerships Without Tax – This provision allows eligible S corporations to reorganize as partnerships without such reorganizations triggering tax. Eligible S corporation means any corporation that was an S corporation on May 13, 1996 (prior to the publication of current law “check the box” regulations with respect to entity classification). The eligible S corporation must completely liquidate and transfer substantially all its assets and liabilities to a domestic partnership during the two-year period beginning on December 31, 2021. 
Enhancement of Work Opportunity Credit During COVID-19 Recovery Period – This provision increases the Work Opportunity Tax Credit (WOTC) to 50% for the first $10,000 in wages, through December 31, 2023, for all WOTC targeted groups except for summer youth employees. The increase is also available for qualified wages earned by a WOTC target group employee in his or her second year of employment (current law limits allows WOTC to be claimed only on first-year wages). 
Research and Experimental Expenditures – This provision delays the effective date of section 13206 of Public Law 115-97. That section provides for amortization of the research and experimental expenditures starting taxable years beginning after December 31, 2021. Under this provision, the amortization of research and experimental expenditures will begin for amount paid or incurred in taxable years beginning after December 31, 2025. 

Of course, these are all proposed changes that must pass Congress. But this article provides advance notice of these proposed changes and the opportunity to plan your tax strategies should they become law. Please give this office a call if we can be of assistance.

The IRS has long been a bogeyman for the American public, and there’s good reason for that. They have the unique ability to do what few other creditors can: taking your home and selling it out from under you. Still, despite its remarkable powers, fear has created mythologies around the agency. People both overestimate and underestimate the IRS’ abilities. Unfortunately, not being well versed in IRS procedures makes dealing with them that much more frustrating and fear-inducing, and there are very few taxpayers who are up to the task. Between the complexities involved in all aspects of tax audits and the overwhelming stress and emotions that arise when confronted by the agency, even highly capable people find themselves feeling defenseless and intimidated. It is this specific combination that leads to simple acceptance of what the IRS says and being afraid to push back and protect themselves. As wrong as it may seem, this reaction is exactly what the IRS counts on to keep people compliant with tax law. According to a former Commissioner of Internal Revenue, the agency relies on this fear to ensure that people report their income honestly and file and pay their taxes correctly and on time. There is a real need for people to either educate themselves about the audit process or to seek professional help from someone familiar with the IRS. Ignorance is not an excuse in the face of an audit, and mistakes can lead to additional taxes, penalties, and even seizure of your property if you do not have other assets with which to pay. Your Rights in The Face of an Audit No matter what the situation, the IRS employees are expected to treat you fairly and with courtesy and consideration. If you believe you are being treated in a way that falls short of this standard you have the right to complain about it and have the situation addressed. You also need to remember that there is a difference between optimizing your taxes and cheating on them and that the IRS makes mistakes too. Taxpayers are permitted to take advantage of all of the tax laws to minimize their tax liability, so as long as you can show that you are in compliance with the law, the agency will respect those actions. How the IRS is Organized The United States Department of Treasury oversees and controls the IRS, which has national offices as well as numerous subdivisions. Headed by the Commissioner of Internal Revenue, the employees that are most likely to interact with taxpayers are those that review and examine tax returns, those who pursue and collect delinquent returns, and those who enforce the criminal tax laws.

Enforcing Civil Tax Laws: Revenue Agents – When taxpayers file their income tax returns, it is the Revenue Agent that establishes that the return is correct or incorrectly prepared. They also review the deductions and write-offs and the amount of money you have paid in taxes to see whether you submitted the right amount, get a refund, or owe taxes. Their role gives them the authority to make changes to the information you have provided – including income and deductions – based on the other information that is collected and the IRS rules. 
Collecting Delinquent Taxes and Returns: The Revenue Officer – Revenue Officers are essentially the IRS’ collection agency, and their role is imbued with a significant amount of power. Unlike other creditors, the IRS is able to simply seize assets and sell them. 
Enforcing Criminal Tax Laws: The Special Agent – Special agents are assigned to cases in which taxpayers are suspected of criminal violations of tax law. These cases often lead to jail time, and there is enough risk in pursuing these cases that Special Agents are issued badges and carry weapons. If you need to be interviewed by an IRS Special Agent, you need a criminal tax attorney.

Why A Return Gets Flagged for Audit Every tax return goes through a review process, but some get flagged for a deeper dive into the details. Sometimes computers catch errors, sometimes they get reviewed manually, and sometimes a return will get pulled as a result of being associated with another return through a shareholder relationship, partnership, or similar relationship. These additional reviews are what are referred to as audits. Some audits – known as correspondence audits – require nothing more than inquiries and clarifications conducted through the mail. These are often looking for more information about charitable contributions, medical expenses, or other simple issues that often lead to overpayment or underpayment of tax liabilities. In other cases, an audit will require that you go to the IRS’ office. Known as an office audit, they are also generally simple but involve discussing more complex topics such as questions about income or deductions. Taxpayers will receive a letter that tells them what questions they will face and what documentation they will bring, and they can expect to spend no more than a few hours there. The most complex and detailed type of audit is the field audit. These can take several days and involve a Revenue Agent contacting the taxpayer by phone to make an appointment and then travel to their place of business or home. In all cases, audits are about the IRS getting more money from a taxpayer, whether by uncovering honest mistakes or fraud. The taxpayer is motivated to do the opposite – they want to minimize their tax liability by taking every deduction to which they are entitled. The tension between the two opposing goals can lead to high levels of stress, which are best addressed by speaking to a tax professional before having any kind of in-depth conversation or correspondence with the IRS. The more prepared you are and the better represented, the greater the chance of having a positive outcome. If you are concerned about an IRS action, feel free to reach out to this office for help.

Are you withholding enough tax for the year 2021, or do you need to prepay additional tax? Watch this video for common situations where you will need to adjust your withholding or make an estimated tax payment.
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Article Highlights:

What is an IP PIN? 
Social Security Number 
IP PIN Program Expansion 
How the IP PIN is Used 
Annual Number 
Applying for an IP PIN 
Current Availability 

An Identity Protection PIN (IP PIN) is a six-digit number assigned to eligible taxpayers by the IRS to help prevent the misuse of their Social Security number by ID thieves to file fraudulent federal income tax returns. The IP PIN aids IRS in verifying a taxpayer’s identity and accepting only valid returns via electronic filing or paper filed returns. For many years, IP PINs were only available to taxpayers with certain specific circumstances, who were residents of certain states, had their identity stolen and who had someone file a tax return using their Social Security number. In January 2021, the IRS expanded the IP PIN program to all taxpayers who wished to participate in this ID protection program and who can verify their identity. This is especially important for taxpayers who believe their ID has been compromised but is available to all taxpayers as protection if their IDs were to be compromised or believed to have been compromised. Even if a thief already filed a fraudulent return, an IP PIN would still offer protections for later years and prevent taxpayers from being repeat victims of tax-related identity theft. For security reasons only the taxpayer can apply for an IP PIN; a tax professional can’t provide this service for their client. An IP PIN can be obtained online by using the IRS’ Get an Identity Protection PIN (IP PIN). If you want to request an IP PIN, please be aware that to do so you will need to pass a rigorous identity verification process. If you can’t successfully validate your identity through the Get an IP PIN tool, there are a couple of alternatives. If your adjusted gross income is less than $72,000, you can complete and submit to IRS Form 15227, Application for an Identify Protection Personal Identification Number, to request an IP PIN. Another option if you don’t qualify to apply using Form 15227, is to request an in-person appointment at an IRS Taxpayer Assistance Center. You can find details on these alternative ways of requesting an IP PIN by using the link above. Both the application and appointment methods take longer for the IRS to assign an IP PIN to you than if you apply online. There are some additional things you should know about an IP PIN:

This six-digit number is known only to the taxpayer and the IRS. 
Participating in the program is voluntary. 
The IP PIN is used in addition to the Social Security number. 
There is a special place to enter the IP PIN on page 2 of the 1040 near the signature block. 
The IP PIN is valid for one calendar year. 
For security reasons, enrolled participants get a new IP PIN each year. 
Spouses and dependents are eligible for an IP PIN if they can verify their identities. 
IP PIN users should never share their number with anyone but the IRS and their trusted tax preparation provider. 
The IRS will never call, email or text a request for the IP PIN. Only scammers will do that.

Currently, taxpayers can get an IP PIN for 2021, which should be used when filing any federal tax returns during the rest of the year, including prior year returns. New IP PINs will be available starting in January 2022.

Not to overstate the obvious, but the last 18 months have seen major modifications in the ways that most Americans spent their money. Without the ability to visit department stores, malls, and big-box stores, retail therapy was significantly curtailed. Spending on travel, entertainment, restaurants, and bars all plummeted, and even with consumers splurging on grocery deliveries, buying essentials on Amazon, and falling prey to online sales promotions, there’s a lot more disposable cash in bank accounts than there was previously. But if retail sales reports and analyses are true, that’s all but over now. Cash is burning holes in proverbial pockets, and spending has been going way up according to a survey that the Federal Reserve Bank of New York conducted. Whether we have a temporary Delta slow down in the third quarter, no one knows. People who sat on spending through the worst of the crisis — waiting to see how it would affect them personally and limiting their buying to the essentials — people admitted they’re ready to buy non-essentials again, and expect to increase their spending by a median of 4.1% over the next year. That’s either a sign of confidence in the vaccine or of cabin fever, as it is a bump up of 1.6% from just four months earlier when the vaccines’ emergency approvals gave hope for an end to the crisis. The new number reflects the highest level of anticipated spending since the bank started conducting the survey in 2013, with most of the people responding to the April survey expecting to spend on vacations, home repairs, home appliances, and furniture. Feeling the urge to splurge is entirely understandable, but there’s a difference between treating yourself and putting yourself into a financial hole. Remember the lesson of the freshman in college at their first keg party. Going crazy just because you can feel good at the moment, but you’re going to regret it. For the freshman, the headache comes in the morning. For the consumer, it’s when your credit card bills come rolling in – or when you deplete your savings and then suddenly need them for something unexpected. It’s not hard to reward yourself for your pandemic austerity without putting yourself into debt. All it takes is a bit of planning. You may not like the idea of budgeting but it is one of the best tools available to ensure that your bank account still has a comfortable bit of reserve at the same time that you start spending again. One of the best approaches is to divide your savings into four separate categories: what you need to spend; what you’re saving for an emergency; what you’re saving for retirement; and what you can spend on anything your heart desires. It’s up to you what percentage or amount you put into each category, but the mere exercise of sitting down and making the decision seriously and with purpose will put the brakes on your deciding to blow it all on a trip to Cabo– or whatever else you’ve felt like you’ve deprived yourself of. Check out some of these top-rated budgeting apps that might make the process a lot easier. Feel free to contact us before you make any tax or personal finance life decisions.

Article Highlights:

Disaster Losses 
Extension of Filing Due Dates 
Hurricane Ida
California Wildfires 
Elections 
Net Operating Loss 
Possible Gain 

With the wildfires in the west, hurricanes, and flooding in the southeast and eastern seaboard, we have had several presidentially declared disaster areas this year. Use the FEMA site to determine if you are within a federally declared disaster area. You can also use the Address Look-Up provided by the Federal government. Those in one of the disaster areas are eligible for a variety of tax benefits. Of immediate concern is avoiding penalties for not meeting your tax filing obligations. A federal disaster declaration extends many federal tax filing deadlines and are different for each disaster. For example, here are the extended due dates for those impacted by hurricane Ida and the CA wildfires:
Ida: includes the entire state of Louisiana, but taxpayers and businesses in Ida-impacted localities designated by FEMA in neighboring states will automatically receive the same filing and payment relief. Thus, any federal due date beginning August 13 is automatically extended to Jan 3, 2022. For example, those with a valid 1040 extension to October 15, 2021, now have until Jan 3, 2022, to file their returns. The IRS noted, however, that because tax payments related to these 2020 returns were due on May 17, 2021, those payments are not eligible for this relief. The Jan. 3, 2022, deadline also applies to quarterly estimated income tax payments due on Sept. 15, 2021, and the quarterly payroll and excise tax returns normally due on Nov. 1, 2021. It also applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on Nov. 15, 2021. Businesses with filing extensions also have the additional time, including, among others, calendar-year corporations whose 2020 extensions run out on Oct. 15, 2021. In addition, penalties on payroll and excise tax deposits due on or after Aug. 26 and before Sept. 10, will be abated as long as the deposits are made by Sept. 10, 2021. CA Wildfires: IRS announced tax relief for individuals and households affected by wildfires that reside or have a business in Lassen, Nevada, Placer, and Plumas counties. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after July 14, 2021, and before November 15, 2021, are postponed through November 15, 2021. Unlike Hurricane Ida, the wildfires are an ongoing disaster and other areas experiencing major fires may also qualify for tax postponements. So, visit the IRS website for the latest California wildfire relief. 
The IRS automatically identifies taxpayers located in the covered disaster area and applies filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area should call the IRS disaster hotline at 866-562-5227 to request this tax relief. If you were an unlucky victim and suffered a loss because of a disaster, you may be able to recoup a portion of that loss through a tax deduction. If the casualty occurred within a federally declared disaster area, you can elect to claim the loss deduction in one of two years: the tax year in which the loss occurred or the immediately preceding year. By taking the deduction for a 2021 disaster area loss on the 2020 return, you may be able to get a refund from the IRS before you even file your tax return for 2021, the loss year. You have 6 months after the original due date of the 2021 return to file an amended 2020 return to claim the disaster loss. Generally, this will be October 15, 2022. Before making the decision to claim the loss in 2020, you should consider which year’s return would produce the greater tax benefit, as opposed to your desire for a quicker refund. If you elect to claim the loss on either your 2020 original or amended return, you can generally expect to receive the refund within a matter of weeks, which can help to pay some of your repair costs. However, at the present time, the IRS is still trying to catch up on a huge backlog of returns and correspondence that resulted from COVID-19 shutdowns of the IRS in 2020 – so even the processing of disaster loss returns may take longer than usual. If the casualty loss, net of insurance reimbursement, is extensive enough to offset all the income on the return, and results in negative income, you may have what is referred to as a net operating loss (NOL). Because tax reform changed how NOLs are treated after 2020 your decision whether to claim the loss in the current year or the prior year will have significant tax ramifications.

Claimed in 2020 – If the loss is claimed in 2020 and results in an NOL, that NOL is carried back five years and any unused balance is then carried forward indefinitely. Meaning if the loss results in a negative 2020 income, the NOL deduction can be carried back to your 2015 return with any loss not used up on your 2015 return being carried forward to 2016, then 2017 and so forth. The way this is done is by amending the returns from the prior years that have already been filed. 
Claimed in 2021 – Tax reform changed the treatment of NOLs and as a result no longer is an NOL deduction carried back to prior years. Instead, the loss is only carried forward to the future years’ returns. In addition, NOLs occurring in 2021 and subsequent years can only offset 80% of a subsequent year’s taxable income. 

Determining the more beneficial year in which to claim the loss requires a careful evaluation of your entire tax picture for multiple years, including filing status, amount of income and other deductions, and the applicable tax rates. The analysis should also consider the effect of a potential NOL. Qualified disaster losses resulting from major disasters are deductible only to the extent they exceed $500 For verification purposes, keep copies of local newspaper articles and/or photos that will help prove that your loss was caused by the specific disaster.As strange as it may seem, a disaster loss might result in a gain. This sometimes occurs when insurance proceeds exceed the tax basis of the destroyed property. When a gain materializes, there are ways to exclude or postpone the tax on the gain. If you need further information on disaster losses, your options for claiming the loss, or if you wish to amend your 2020 return to claim your 2021 disaster loss, please give this office a call.