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30 May 2023
Covid-19, IRS, News, Tax Credits, Tax Form Guidance, Tax Law Pearson & Co, PC 0 comment

AGGRESSIVE EMPLOYEE RETENTION CREDIT PROMOTERS

Business Owners & Managers Be Careful!

 


You may be planning to apply for the Employee Retention Credit … tax credit that could add up to a maximum credit of $26,000 per employee. Perhaps you already have done so.

You’re aware of, and perhaps responded to, solicitations by third-party advisers urging business owners to engage them to navigate the shoals of applying for the Employee Retention Credit (ERC). Typically an added inducement is the promise of no up-front fees … just a share of the credit your company receives from the IRS.

In this year’s annual Dirty Dozen summary, the IRS posted the following:

Employee Retention Credit claims

Taxpayers should be aware of aggressive pitches from scammers who promote large refunds related to the Employee Retention Credit (ERC). The warning follows blatant attempts by promoters to con ineligible people to claim the credit. The IRS highlighted these schemes from promoters who have been blasting ads on radio and the internet touting refunds involving Employee Retention Credits. These promotions can be based on inaccurate information related to eligibility for and computation of the credit. Additionally, some of these advertisements exist solely to collect the taxpayer’s personally identifiable information in exchange for false promises. The scammers then use the information to conduct identity theft.

In this article, we offer a summary of the ERC requirements and benefits. Additionally, we’ll share some cautionary thoughts for those of you who are contemplating or have already enlisted the services of a third-party ERC adviser.

What is the ERC?

The ERC is a refundable payroll tax credit rewarding businesses that continued to pay employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020 to Dec. 31, 2021.

The credit may be as much as $5,000 per employee in 2020 and up to $7,000 per employee per quarter (for the first three quarters) in 2021. That could add up to a maximum credit of $26,000 per employee.

Eligible employers can claim the ERC on an original or adjusted employment tax return for a period within those dates.

Employer Eligibility: An employer is eligible for the ERC if it:

  • Sustained a full or partial suspension of operations limiting commerce, travel or group meetings due to COVID-19 and orders from an appropriate governmental authority or,
  • Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021 or,
  • Qualified in the third or fourth quarters of 2021 as a recovery startup business.

Click here for more detail on each of the above eligibility requirements.

Filing Deadlines: Employers have until April 15, 2024, to file Form 941-X for the eligible quarters in 2020; and until April 15, 2025, for eligible quarters in 2021.

Note: Wages reported as payroll costs for PPP loan forgiveness or certain other tax credits can’t be claimed for the ERC in any tax period.

Employers … Be Careful!

Third-party advisers are typically new operations put together to capitalize on the preparation of ERC applications for employers. Lack of experience along with aggressive marketing often results in improper advice regarding employer eligibility and computing the amount of credit claimed.

Employers must become aware of the risks associated with engaging third-party promoters. Here are four critical concerns to be addressed:

  • Often, third-party advisers do not make it clear to employers that they will need to amend their business’s federal income tax return for the corresponding period because any payroll taxes used in the computation of the credit are no longer deductible.
  • Receipt of the refund from the IRS does not preclude the agency from examining the employment tax return and disallowing the credit. Employers are always responsible for the accuracy of the information reported on their tax returns. Improperly claiming the ERC could result in repayment of the credit, plus penalties and interest.
  • Employers that have received the ERC may be an audit target given the anticipated expansion of new IRS agent hires.
  • In the event the IRS disallows the ERC claim, fees paid to third-party companies may not be refundable.

Employers Considering Engaging a Third-party Adviser

Here are performance criteria to help evaluate the value a prospective adviser brings to the strength of your company’s ERC qualifications, filing efforts and subsequent follow-up.

At your request, a legitimate capable adviser will:

  1. Describe its history as tax advisers including whether the practice is exclusively devoted to ERC claims.
  2. Detail their policy to provide audit defense plus refund fees if all or part of the ERC claim does not survive an IRS audit.
  3. Not claim a high IRS audit success rate as the IRS audit program is so new that success claims are meaningless.
  4. Demonstrate a solid understanding of the facts and circumstances of your business operations before the pandemic as well as during each quarter of the pandemic … with special attention to the wage limits during the first three quarters of 2021?
  5. Prepare a written account of the specific state or local governmental orders your business was subject to and a description of the impact of each on your business operations.
  6. Review with you any circumstances pertinent to your ERC claim where the IRS guidance regarding ERC eligibility is unclear and that the adviser’s interpretation may prompt scrutiny by the IRS.
  7. Not present a sense of urgency for you to act by asserting the available funding for ERC claims is fast being depleted. Not so!  See above for filing claims deadlines.
  8. Make it clear to you that qualified wages applied in ERC computations are no longer deductible on your business income tax return?

Employers Who Already Engaged a Third-party Adviser and Filed an ERC Claim

If you now have second thoughts about the advice that led up to your ERC claim filing, your best next step is to seek counsel from an independent tax adviser to review the merits of your claim and the adequacy of your documentation.

If your independent review results in the recommendation to amend or withdraw your ERC filing (Form 941-X), you may be able to sidestep interest and penalties … along with the time, expense and stress of an IRS audit.

Alternatively, if your independent review delivers written opinion that your claim has a solid foundation based on relevant ERC tax law … at the very least you will be able to demonstrate your intent to honestly pursue support of your claim with appropriate facts.

Have Immediate Questions or Concerns?

Pearson & Co stand ready to help as needed. A phone call or email is all it takes.
We’ll respond promptly.

13 Feb 2023
IRS, News, Tax Form Guidance, Tax Law Pearson & Co, PC 0 comment

IRS PROMISES A SMOOTHER 2023 TAX SEASON

That’s In Contrast to the Challenges of the Last 2 Years

If you weren’t frustrated and inconvenienced by inefficiency in responses by the IRS, certainly you know one or more taxpayers who have … or heard of the considerable backlog in unprocessed returns and unissued refunds for the past two tax years. According to the U.S. Government Accountability Office, “Partly as a result of the COVID-19 pandemic, IRS has faced significant return processing backlogs and a decline in customer service since 2020”.

That said, the IRS is projecting less frustration for both taxpayers and the Agency this tax season. There is evidence that operational improvements have been in the works for months and were implemented effective with the official opening of the 2023 tax filing season on Monday January 23.

In a statement by acting IRS Commissioner Doug O’Donnell, “This filing season is the first to benefit the IRS and our nation’s tax system from multi-year funding in the Inflation Reduction Act. We’ve trained thousands of new employees to answer phones and help people. While much work remains after several difficult years, we expect people to experience improvements this tax season.”

So, the expectation is this year should be a better experience for taxpayers, with the IRS having:

  • Received additional funding,
  • Added 5,000 customer service representatives to help answer phones and provide other services,
  • Reduced a large backlog of tax returns that handicapped the agency.

The IRS has cautioned taxpayers with the following: Many different factors can affect the timing of a refund after the IRS receives a return. Although the IRS issues most refunds in less than 21 days, the IRS cautions taxpayers not to rely on receiving a 2022 federal tax refund by a certain date, especially when making major purchases or paying bills.

Now let’s put these predictions in perspective from the viewpoints of both the National Taxpayer Advocate and the Director of the Professional Managers Association, representing IRS managers and non-bargaining unit employees.

Keep in mind that choosing the standard mileage rate is optional. Taxpayers retain the alternative to calculate the actual costs of operating their vehicle if it has been used for business more than 50% of the time. That said, the standard rate generally must be used in the first year the car is operated for business use as described above. In subsequent years, either the standard mileage rate or itemized expenses may be preferred.

National Taxpayer Advocate (NTA)

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. Its stated purpose is to ensure that every taxpayer is treated fairly and understands their rights. TAS staff advocates are prepared to help taxpayers to deal with otherwise unresolved tax problems.

The National Taxpayer Advocate reports to Congress annually on the prior tax year’s challenges at the IRS … including recommendations to remedy any problem issues. In her report, Advocate Erin Collins presents two contrasting observations.

  1. “The bad news is that taxpayers and tax professionals experienced more misery in 2022.”
  2. “The good news is that since the close of the 2022 filing season, the IRS has made considerable progress in reducing the volume of unprocessed returns and correspondence.”

As evidence of the second point above, the IRS has slashed its 2022 unprocessed backlog of 4.7 million individual returns, 3.2 million business returns and 3.6 million amended returns … down to roughly 400,000 individual returns and about 1 million business returns.

Given this progress, the report finds the IRS is “poised to start the 2023 filing season in a stronger position.” With that optimism, Collins also cautions that improvements won’t happen immediately. “As employees are trained and report for duty, I expect we will start to see improvements in service, probably by the middle of 2023.”

In summary, Collins wrote, “We have begun to see the light at the end of the tunnel. I am just not sure how much further we have to travel before we see sunlight.”

Professional Managers Association (PMA)

Chad Hooper is Executive Director of the PMA. He commented on the conclusions presented in the NTA report to Congress.

“The latest National Taxpayer Advocate report underscores the importance of consistent dedicated funding for the IRS. In the last year, the IRS has leveraged additional funding and new authorities to reduce the backlog and onboard new staff. These improvements make a real difference for taxpayers and set the nation up for a less stressful filing season.

Still, it will take more than one year to rebound the IRS from a decade of budget cuts and staff reductions. We urge Congress to heed the progress that has been made and continue rebuilding the IRS’s capacity to serve taxpayers.”

We are less than a month into the period that 2022 tax returns were accepted for processing
So, let’s see what happens between now and the tax filing deadline of Tuesday, April 18.

16 Jan 2023
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IRS BOOSTS MILEAGE RATE BY NEARLY 5%

Vehicles Used for Business Qualify for Tax Savings of 65.5 Cents Per Mile

Tax Break for taxpayers who drive an automobile, van, pickup or panel truck for business, charitable, medical or moving purposes. 

Effective January 1, 2023, taxpayer-drivers who fit the above profile enjoy a 3 cents bump in the mileage rate … up from the 62.5 cents midyear increase in 2022. The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile … clearly more expensive in recent months.

Here’s a quick summary of the expanded IRS provisions:

  • 65.5 cents per mile driven for business use.
  • 22 cents per mile driven for medical or moving purposes for qualified active-duty members of the  Armed Forces.
  • 14 cents per mile driven in service of charitable organizations … unchanged from 2022.

Notably, the new mileage rates apply to qualifying vehicles regardless of how they are powered … gasoline, diesel, electric and hybrid … all good-to-go.

Keep in mind that choosing the standard mileage rate is optional. Taxpayers retain the alternative to calculate the actual costs of operating their vehicle if it has been used for business more than 50% of the time. That said, the standard rate generally must be used in the first year the car is operated for business use as described above. In subsequent years, either the standard mileage rate or itemized expenses may be preferred.

Note: Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.

Have Immediate Questions or Concerns?

Pearson & Co stand ready to help as needed. A phone call or email is all it takes.
We’ll respond promptly.

19 Dec 2022
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GET READY FOR TAX-TIME!

Learn About 4 Changes and 8 ‘To-Do’ Actions

Here we are in the closing days of December 2022. In addition to enjoying the Holiday Season, it’s also an excellent time to get ready to visit with your tax-preparer to make year-end, tax savings decisions. Your objectives: lower your tax bill and boost your retirement savings.

In this issue, we’ll start with a recap of changes in the tax code that may affect you, followed by a checklist to prepare for a smooth tax season.

4 Changes that Affect 2022 Federal Tax Returns

  1. If you received third party payments in tax year 2022 for goods and services that exceeded $600, expect to receive your Form1099-K by January 31,2023.
  2. The following tax credits will return to 2019 levels … reduced from tax year 2021 … Child Tax Credit; Earned Income Tax Credit and Child & Dependent Care Credit. Affected taxpayers will receive a significantly smaller refund.
  3. If you file your taxes taking a standard deduction, you may not take an above-the-line deduction for charitable donations.
  4. For tax year 2022, the American Rescue Plan Act of 2021 temporarily expanded eligibility for the Premium Tax Credit by eliminating the rule that a taxpayer with household income above 400% of the federal poverty line cannot qualify for a premium tax credit.

Tax-time 8-Item ‘To-Do’ List

  1. Paycheck Checkup: Make sure the right amount of tax is withheld from your earnings. If not, you need to submit a new Form W-4, Employee’s Withholding Certificate to your employer. All taxpayers should check, but especially those who fit the following profiles:
  • Are a two-income family or someone with multiple jobs
  • Work a seasonal job or only work part of the year
  • Claim the child tax credit
  • Have dependents age 17 or older
  • Itemized your deductions in previous tax years
  • Have high income or a complex tax return
  • Had a large tax refund last year
  • Had a tax bill last year
  • Received unemployment at any time during the year
  • Experienced a significant life-changing event, e.g., marriage, childbirth, adoption, home purchase.

A quick way to make sure you are having the right amount of tax taken out of your pay is to use the IRS Tax Withholding Estimator. It will help you to lessen year-end tax bills or estimate your refund.

Important! If you have a substantial portion of income not subject to withholding, (e.g., self-employed, investors, retirees, those with interest, dividends, capital gains, alimony, and rental income), you may need to pay quarterly installments of estimated tax.

2. Unemployment Compensation: You may be one of millions of Americans currently receiving unemployment compensation … or did so earlier this year. If that’s the case, it’s important for you to know that the IRS considers unemployment benefits as taxable income.

Withholding is voluntary. That said, you may choose to have a flat 10 percent withheld from your benefits to cover all or part of your tax liability. To do that, fill out Form W-4V, Voluntary Withholding Request (PDF) and give it to the agency paying the benefits. Do not send it to the IRS. If the payor has its own withholding request form, use that form instead.

If you don’t choose voluntary withholding, or if the withholding isn’t enough, you can make quarterly estimated tax payments. Fourth quarter 2022 payments will be due on January 17, 2023.

As an unemployment benefit recipient, expect to receive a Form 1099-G, Certain Government Payments (PDF) from the agency paying the benefits. The form will show the amount of unemployment   compensation you received during 2022 as well as any federal income tax withheld. This information, along with your W-2 income, will be included in your 2022 federal tax return.

Note: Unlike some other states, the Commonwealth of Virginia does not tax unemployment earnings.

3. Other Types of Payments to Check for Withholding: The IRS urges taxpayer to check the following sources of payments to check for withholding:

  • Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund
  • Railroad unemployment compensation benefits
  • Disability benefits paid as a substitute for unemployment compensation

4. Investment Gains/Losses: If you own stocks, bonds, mutual funds or other investments … check with your investment advisor to determine any realized gains or losses that may affect your tax status.

5. Make your charitable contributions … before the end of the year to ensure your deduction.

6. Remember your RMDs if you are 72 years of age or older: Your required minimum distribution (RMD) must be withdrawn before December 31. Failure to do so may result in a 50% penalty. RMDs are applicable to the following retirement plans: Traditional IRAs, Simplified Employee Pension (SEP) IRAs, Rollover IRAs, most 401(k) and 403(b) plans, as well as most small business accounts.

7. Check if you have contributed to tax-advantaged accounts: Contributions to Health Savings Accounts, IRAs, 401(k)s and 529 Plans provide significant tax savings. Important: Be aware of deadlines to contribute as they vary depending on the plan.

8. You may want to consider a Roth conversion: You and your tax advisor/preparer may decide to convert your existing IRA to a Roth IRA. The deadline to do so is December 30, not December 31.

Have Immediate Questions or Concerns?

Pearson & Co stand ready to help as needed. A phone call or email is all it takes.
We’ll respond promptly.

20 Sep 2022
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INFLATION REDUCTION ACT

Key Tax Provisions … a Summary

The Inflation Reduction Act, was signed into law on Aug. 16. It includes numerous tax provisions that relate to both businesses and individuals … including clean-energy-related tax incentives, and expanded funding for IRS enforcement.

This month’s article offers a summary outline of key provisions of the Act.

Business

Individuals

Internal Revenue Service

The foregoing outlines key provisions of the Inflation Reduction Act as it applies primarily to small businesses and individuals. There are many other provisions that apply to larger entities that are renewable energy oriented and measures to address potential climate change issues.

For more on how the above applies to your circumstances,
be sure to give Pearson & Co a call or drop an email. We’ll respond immediately

20 Jul 2022
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2 ENHANCED TAX BREAKS APPLY FOR REST OF THIS YEAR

Meal Deductions Extended & Mileage Rates Increased

The Internal Revenue Service has announced two tax savings benefits … the extension of the 100% deduction for the cost of business-related food and beverages purchased from a restaurant plus an increase in the allowable mileage rate deduction. Learn more below.

Enhanced Business Meal Deduction – Here’s What Businesses Need to Know

Beginning in 2021, businesses are permitted to deduct the full cost of business-related food and beverages purchased from a restaurant. That enhanced deduction is continued for tax year 2022 … a sizable increase in tax savings from the usual limit – 50% of the cost of qualifying meals.

Here are the qualification requirements to benefit from the enhanced deduction:

  • The business owner or an employee of the business must be present when food or beverages are
  • Meals must be from restaurants, which includes businesses that prepare and sell food or beverages to retail customers for immediate on-premises or off-premises consumption.
  • The cost of the meal can include taxes and tips.
  • The cost of transportation to and from the meal isn’t part of the cost of a business meal.
  • Payment or billing for the food and beverages occurs after December 31, 2020, and before January 1, 2023
  • The expense cannot be lavish or extravagant. An expense isn’t considered lavish or extravagant if it is reasonable based on the facts and circumstances. Meal expenses won’t be disallowed merely because they are more than a fixed dollar amount or because the meals take place at deluxe restaurants, hotels, or resorts.

Note: Grocery stores, convenience stores and other businesses that mostly sell pre-packaged goods not for immediate consumption, do not qualify as restaurants. The same holds true for employer-operated eating facilities, even if they operate under contract by a third party.

Business owners may be able to deduct the costs of meals and beverages provided during an entertainment event if either of these apply:

  • the purchase of the food and beverages occurs separately from the entertainment
  • the cost of the food and beverages is separate from the cost of the entertainment on one or more bills, invoices, or receipts.

Mileage Rate Increased

Effective July 1, the standard mileage rate for the final 6 months of 2022 has been increased by 4 cents per mile to 62.5 cents per mile. Likewise, the new rate for deductible medical or moving expenses (available for active-duty members of the military) is increased by 4 cents to 22 cents for the remainder of this year.

“The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices,” said IRS Commissioner Chuck Rettig. “We are aware a number of unusual factors have come into play involving fuel costs, and we are taking this special step to help taxpayers, businesses and others who use this rate.”

Additionally, other items comprise the calculation of mileage rates as well … such as depreciation, insurance and various fixed and variable costs.

Midyear increases in the optional mileage rates are rare. The last time the IRS made such an increase was in 2011.

Note: For travel from January 1 through June 30, 2022,
taxpayers should use the rates set forth in Notice 2022-03 PDF.

See the chart below for a quick reference to the increases described above.

For more on how these tax breaks apply to your specific circumstances,
be sure to give Pearson & Co a call or drop an email. We’ll respond immediately.

18 May 2022
2022 Tax Laws
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11 MAJOR TAX CHANGES FOR 2022 YOU NEED TO KNOW

Learn How Your Tax Bill May Be Affected

2022 Tax LawsThe old saying that the only thing constant is change … and that certainly applies annually to the U.S. tax code. That said, it’s no surprise that 2022 taxes will differ from last tax year. Here’s a rundown on how those revisions may affect your taxes come next filing season.

1.  Tax Brackets Increase

Your tax bracket triggers the calculation of your tax bill. Each year, the IRS adjusts these brackets to keep pace with inflation. The objective is to prevent “bracket creep” … where the rate of inflation drives a tax payer into a higher tax bracket.

Note: With higher-than-expected inflation, some taxpayers may pay more in 2022, even with the adjustments referred to above.

The table below shows federal tax brackets for 2022. The “Tax Rate” column refers to your Marginal Tax Rate … how much you would pay on one more dollar of taxable income. For example, if you’re a single filer with $30,000 of taxable income, you would be in the 12% tax bracket. If you had $41,000 of taxable income, however, most of it would still fall within the 12% bracket, but the last few hundred dollars would land in the 22% tax bracket. Your marginal tax rate would be 22%.

Rule of Thumb: About a 3% inflation-adjusted increase over 2021.

2022 Tax Brackets

2.    Standard Deduction Increase

You will likely choose the standard deduction which doubled with the passing of the Tax Cuts and Jobs Act to compensate for the loss of personal exemptions. The 2022 standard deductions for all filing statuses are as follows:

Single: $12,950 (up from $12,550 in 2021)

Head of Household: $19,400 (up from $18,800)

Married Filing Jointly: $25,900 (up from $25,100)

Married Filing Separately: $12,950 (up from $12,550.

3.    Capital Gains Tax Increase

Capital gains taxes are assessed on profits realized from the sale of an asset. Short-term gains are taxed as ordinary income. Long-term gains are those on assets you’ve held for at least a year. The long-term income thresholds have been increased for 2022 as illustrated in the following table.

Capital Gains Tax Rates

4.    Earned Income Tax credit

The earned income tax credit (EIC or EITC) is a refundable tax credit for low and moderate-income workers. The amount depends on income and the number of children. Note: People without kids can qualify. For 2022, the earned income credit range will be $560 to $6,935, depending on income and the number of children … a reduction from the range in 2021.

5.    Alternative Minimum Tax (AMT) Increase

The single taxpayer exemption for tax year 2022 increased to $75,900. That maximum exemption begins to phase out when taxpayer income reaches $539,900. The exemption for married couples filing jointly is $118,100 and begins to phase out at $1,079,800.

6.    Estate Tax Exemption Limits and Gift Tax Limits Rise

The federal estate tax exemption rises to $12.06 million from $11.7 million in 2022. The gift tax annual exclusion … the amount you can give each person before you use up some of the estate tax exemption (or owe gift taxes) … increases to $16,000 from $15,000.

7.    HSA Contribution Limits Increase

Health savings accounts let you save money in a special tax-advantaged account for future medical expenses. In 2022, the amount you can reserve increases to $3,650 for self-only coverage (up from $3,600 in 2021) and $7,300 for taxpayers with family coverage (up from $7,200).

8.    Traditional IRA Income Restrictions Rise

Contribution limits for IRAs remain unchanged at $6,000 if you are under 50 years old and $7,000 if you are 50 or older.

There are changes for IRAs in 2022 for taxpayers covered by an employer-sponsored plan. If you’re covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction.

Note: Your modified AGI is the sum of your adjusted gross income (AGI), your tax-exempt interest income, and specific deductions added back. The IRS uses MAGI to establish whether you qualify for certain tax benefits.

Filing Status Chart

9.    Increased Income Limits for Contributions to a Roth IRA

Contributions to Roth IRAs are restricted to taxpayers with income that exceeds specific limits.

Single filers: For 2022, your maximum contribution is reduced when your modified adjusted gross income is $129,000 (up from $125,000 in 2021) and eliminated at $144,000 (up from $140,000).

Joint filers: Your maximum contribution is reduced when your modified adjusted gross income is $204,000 (up from $198,000) and eliminated at $214,000 (up from $208,000).

10.    Employer-Sponsored Retirement Contribution Limits Increase

The contribution limit for elective deferrals to 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan increases to $20,500 for 2022. The total amount that can be contributed to a plan by you and your employer combined rises to $61,500 from $58,000 in 2021. However, the amount of the catch-up contribution for taxpayers aged 50 and older remains at $6,500.

11.    Child Care Tax Credit

The provisions for this credit expired December 31, 2021, and not renewed for tax year 2022.

Have Immediate Questions or Concerns!

Pearson & Co stand ready to help as needed. A phone call or email is all it takes.  We’ll respond promptly.

26 Feb 2022
Pearson & Co CPAs
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JUST WHEN YOU THOUGHT ‘TIS THE SEASON’ 2021 GREETINGS WERE OVER

‘Tis Tax Season 2022 … So, Time to Get Ready!

Pearson & Co CPAs

In this article, you’ll learn how to best comply with this year’s annual tax filing event with a minimum of frustration and effort. Whether you choose a do-it-yourself (DIY) approach or engage the expert advice of a tax preparation professional, here are 5 critical items to complete your 2021 tax return in a timely manner.

1.  Timing is Key

The IRS started accepting 2021 tax returns on January 24, 2022. To revisit a history of last filing season, the IRS had a huge inventory of tax returns waiting to be processed. The pandemic was and is a factor in delays in processing … coupled with the need to manually process more than 10 million electronically filed returns that contained errors. As of December 2021, the IRS remained backlogged with 9.3 million returns.

Lesson: A sense of urgency to file early is desirable to avoid delays in your 2021 return being processed and the potential for a wait on tax refunds you are due. Whether you intend to be a self-preparer in 2022 or not, it’s a good idea to prepare for the tax season sooner rather than later. To better understand your individual situation, consider contacting a tax professional to answer your specific questions.

2.  Organize Your Paperwork

Be sure to have all your 2021 tax information in hand before filing.  That way you, your tax-preparer and the IRS will avoid processing delays that could stall your receipt of a tax refund.

Here’s a list of common documents you may need to file your taxes:

  • W-2s from employers
  • 1099s from anyone who paid you miscellaneous, contract, or other relevant funds
  • Documents showing medical, educational, childcare, or other expenses, especially if you’re itemizing
  • Statements regarding investments or mortgage interest payments
  • Receipts for itemized expense deductions.
  • Deductible charitable donations over $300 for individual filers; $600 for married couples filing jointly.
  • Advance Child Tax Credit payments
  • Recovery Rebate Credit (stimulus payment)
  • Unemployment compensation
  • Health Insurance Marketplace Statements
  • State tax refund
  • Retirement plan contributions and distributions
  • Health Savings Account contributions

The above is not a complete list of tax filing documents you may need to deal with. Additionally, there are limitations and exclusions on many. Again, engaging a tax professional may save you hours of research and preparation time while better ensuring accuracy in filing your return.

3.  Dependent Information

Assemble the names and Social Security numbers of all dependents you claim on your tax return. Note: Only one taxpayer may claim the same child as a dependent in the same tax year. For example, if you’re divorced, work with your ‘ex’ to agree on which parent will claim a child or children for the 2021 tax year.

4.  Expedite Your Filing & Tax Refund

The filing deadline to submit 2021 tax returns or an extension to file and pay tax owed is Monday, April 18, 2022, for most taxpayers. Electronic filing and direct deposit are the way to go for the fastest refund. Filing electronically with direct deposit and avoiding a paper tax return is more important than ever this year to avoid refund delays. For optimal tax return processing, do not file on paper – use software, a trusted tax professional or Free File on IRS.gov. For people with an error-free tax return, the IRS anticipates most taxpayers will receive their refund within 21 days of when they file electronically and choose direct deposit.

5.  Need More Time?

Clearly, there’s a lot that goes into preparing to file your return. If you are running out of time or have not gathered all the information you will need, you can file an extension for your return. This gives you an additional six-month window for filing your federal tax return … until Monday, October 17, 2022.  to file. Note: An extension doesn’t apply to your tax payment. If you wait until later to pay your taxes, you might still owe penalties and interest.

Don’t feel like you can handle the job on your own? Engage a tax professional. You’ll likely save time and frustration … plus accelerate your refund and minimize your tax bite.

Have Immediate Questions or Concerns!

Pearson & Co stand ready to help as needed. A phone call or email is all it takes.  We’ll respond promptly.

27 Feb 2020
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NEW W-4 FORM IN THE NEW YEAR

YOUR NEW W-4 FORM IN THE NEW YEAR
Important to Pay Attention Early in 2020 to Avoid Surprises

You may have been among taxpayers who had an unexpected and unwelcomed experience last tax season … owing the feds rather than enjoying a refund. What happened? Well the tax code overhaul in 2017 resulted in positive tax savings for many if not most Americans. To complement these revisions to tax law, the IRS reduced the amount of tax withheld from wages to dovetail withholding with the provisions of the new law.

What followed was a demonstration of unintended consequences and many people didn’t have enough taxes withheld from their paychecks in 2018 to cover the taxes they owed … unintended consequences and unpleasant surprises.

As the remedy to avoid a repeat performance, the IRS overhauled the calculation of how much federal income tax an employer must withhold from an employee’s paycheck in 2020. The document for you to be concerned about is a revised Form W-4.

Yes, it’s different from the old form, so it’s important for you to review your entries on the new form to ensure accuracy in the amount of your withholdings. Your payoffs: 1) Avoid owing money at tax time along with a potential penalty. 2) Be sure you are not withholding too much and missing out on the use of that money all year … said another way, giving the IRS an interest-free loan!

While there is no requirement for you to file a new W-4 other than the practical reasons offered above, unless you start a new job after 2019. That will trigger your need to complete a new W-4 form. You’ll need to put together a fair amount of information which may require guidance from your tax preparer. So, it’s likely that you’ll choose to take the new form home and fill it out there rather than doing so on your first day at work.

If Your Taxes are Simple … So Is the New Form

Simple means you only have one job … and you’re not filing a joint return with a working spouse, no dependents, taking the standard deduction, not claiming tax credits and don’t receive income that is not employment related. If that’s your status, just provide your name, address, Social Security number and filing status followed by your signature and date.

Taxes Not So Simple

The new form provides entries for all income in your household. That means for each job you may have and your spouse’s income if you file jointly. You’ll have to assemble information about your spouse’s income, your dependents, tax credits, and the deductions you expect to claim. That information may trigger a call to your tax preparer to know your total deductions from last year, qualification for the child tax credit, non-wage income in 2019 and other tax-related items.

Note: If you choose not to disclose income from a second job that will be visible to your boss or to share your spouse’s income, you can use the IRS Tax Withholding Estimator to determine how much your household should have withheld and enter that on your W-4.

The Estimator doesn’t require you to provide sensitive information such as your name, Social Security number, address or bank account numbers. Additionally, the IRS doesn’t save or record the information you enter.

Be prepared with your most recent income tax return at hand, your and your spouse’s most recent pay stub plus other sources of income, e.g. invoices, statements and 1099 forms.

Sound Complex?

You are not alone … as with most tax-related things it can be confusing and time-consuming. There are resources that may help you. You could visit the IRS website and if you choose to dig deeper your might seek answers to frequently asked questions that others have posed. You may also receive guidance from your human resources department.

Better yet, why not give us a call and we’ll get it done for you.

27 Feb 2020
Employment, IRS, News, Tax Form Guidance, Tax Law Pearson & Co, PC 0 comment

EMPLOYERS! HEADS-UP ON NEW I-9

EMPLOYERS! HEADS-UP ON NEW FORM I-9
MAY 1, 2020 DEADLINE

You’re familiar with Form I-9 to verify the identity and employment authorization of individuals hired for employment in the United States. Through April 30, employers can choose to use the previous edition dated 07/17/2017 or the new edition. The new edition is now available and becomes mandatory beginning May 1, 2020.

All U.S. employers must properly complete Form I-9 for every individual they hire for employment in the United States …  that means citizens and noncitizens alike. Both employees and employers (or authorized representatives of the employer) must complete the form.

Employers must retain the completed forms for a designated period and make them available for inspection when called to do so.

For more detailed information visit the U.S. Citizenship & Immigration Services website, visit I-9 Central or join a free Form I-9 webinar.

As ever, Pearson & Co. stands ready to help!
Give us a call or an email. We’ll respond promptly.

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