OK! Still feeling like I’ve turned a corner. Getting returns processed. Cat is finding her “work at home” groove too. We are moving slowly through the stacks that have been here since mid-March when all hell broke loose. I am still having to set aside some of the more complex ones for when I am able to fully focus. When it comes to tax returns it’s a lot harder to fix them than it is to just get them right the first time. So I want to make sure I’m in top form when I’m working on the ones with a lot of moving parts (you know who you are).

If you still haven’t gotten your stuff into the office, that’s OK! Once I feel like most of the backlog has been cleared I will get a bit more pro-active about getting what remains out into the office. I’m hoping that this will roughly coincide with at least a lightening of some of the stay-at-home restrictions. We will see—that’s going to depend both on how quickly I work and how well we do at flattening the curve here in NM.

Again, we’ve got until July 15th and I’m planning on having most of them out well before then unless additional chaos ensues.

Thanks for hanging in there with us!

#fullambo out

Economic Impact Payments

I got mine. So I can answer one question—no, the IRS is not going to “do the math” to see if your dependent child who was eligible for the Child Tax Credit (CTC) in 2018 or 2019 is going to be eligible in 2020. You will get the additional $500 payment if the child was CTC eligible (age 16 or under) on your most recently filed return. Every now and then my procrastination pays off. I’m pretty sure I’ll be filing my personal 1040 on July 14th.

Moving forward, and I am advising individual clients as their returns are prepared, I will be either filing immediately or recommending that you wait until you receive your Economic Impact Payment (EIP or ‘stimulus check’) to file your 2019 return. The recommendation will be based on whatever is most advantageous for you. I have already advised some clients whose income was higher in 2019 than it was in 2018 to wait to file their 2019 return until they receive their EIP. I’ll be doing the same for clients with kids who were 16 in 2018. It’s called “tax planning” and it’s one of the reasons you pay a #taxpro.

Non-filers (you aren’t required to file a return, not that you simply haven’t filed a return)

If you aren’t a client, or if you are a former client who dropped below the threshold for having to file a return, you have a couple of options depending on your individual circumstances:

It is important to remember that you should, under no circumstances, have to pay to receive your EIP. For best results always start at irs.gov or irs.gov/coronavirus, not Google. And watch out for phone calls and e-mails phishing for information as well. The scammers are out in force on this one.

Filers Who May Not Have Direct Deposit Information on File or Want to Update Their Direct Deposit information

According to Kelly Phillips Erb (aka The Tax Girl) in this Forbes article, the Treasury Department has created a new web tool for filers of 2018 or 2019 tax returns to input or update their direct deposit information (a whole two days before the #taxpro community expected it!). This tool can be used if you normally don’t get a refund, but rather, have to pay the IRS each tax season. You can use this tool to verify the amount of your EIP, confirm whether it will be direct deposit or check, and (if you are getting a paper check) enter direct deposit information to receive your payment more quickly as long as your check hasn’t already been mailed. Paper checks aren’t supposed to start being mailed until the end of this month or early May according to my most recent reading. You can also update your direct deposit information if your deposit isn’t already pending.

You need to have your most recently filed tax return in hand to answer some of the questions. If I prepared your return it is likely that the information the tool will be requesting will be on your COMPARE sheet (that handy three-year comparison that is usually at or near the top of the left-hand pocket of your tax folder).

Update! Word on the street (OK, on #TaxTwitter) is that the tool is not working correctly. Especially if you have not filed a 2019 return. Please be patient and check back once or twice a day. They will get it running eventually. Or I’ll post that they’ve scrapped it.

Finally, according to The Tax Girl:

For security reasons, the IRS plans to mail a letter about the economic impact payment to your last known address within 15 days after the payment is paid. The letter will provide information on how the payment was made and how to report any failure to receive the payment.

Based on my reading there are a host of complicating factors for economically vulnerable taxpayers, taxpayers who file injured spouse claims (one taxpayer of a married filing joint couple owes back child support and the other doesn’t), divorced taxpayers, etc. I’m not going to go into the weeds on those. If you are interested, I highly recommend the Procedurally Taxing Blog, but beware, the blog is written for tax attorneys and is not for the faint of heart. Nevertheless, several recent posts discuss some of the complicating factors in mostly plain language.

And that, taxpayers, is all I have to say about that. So, moving on…

Deadlines

As I already reported, the filing and payment deadline has been extended to July 15th. Pretty much all of the deadlines significant to my practice (including those for filing Tax Court petitions) have been extended. If you have to file an FBAR you have an automatic extension until October 15th. The good news is that the IRS recently clarified that the July 15th deadline specifically applied to taxpayers required to file a Form 8938 (for certain taxpayers with foreign bank account balances). Estate income tax returns as well as estate and gift wealth transfer tax returns have also, for the most part, been granted extended deadlines.

The one tiny bit that was still weird has also been fixed! All of the extensions resulted in Quarter 1 estimated tax payments being due after Quarter 2 payments were due. Until recently Quarter 1 payments were due on July 15th but Quarter 2 payments were still due on June 15th. That has been fixed. Now all balances due on 2019 returns as well as Quarter 1 and Quarter 2 estimated tax payments are due on July 15th (as of this writing). That’s good news and bad news. Yes, everyone has more time, but that does make it easier to forget about payments and to, perhaps, lose sight of just how much will be due in total on July 15, 2020. Consequently, I am encouraging all taxpayers with the means to do so to make their payments on time and/or to set calendar reminders with amounts due to ensure that those payments get made by the new deadline.

And speaking of payments…

Installment Agreements

If you are in an existing Installment Agreement with the IRS your payments have also been suspended. If you mail them a check, you can stop until July 15th. If you are in a direct debit agreement you need to contact your bank and ask them to suspend the payments temporarily. It is extremely important that you ensure that you direct the bank to reinstate your payments approximately two weeks before the first payment due after July 15th to ensure that you don’t default your agreement. I expect the IRS to be fairly graceful about this given the circumstances, but it’s always better not to count on that grace. And again, if the payments are not causing economic hardship, I certainly recommend that you continue to make them even though you don’t have to.

Student Loan Payments and Interest

One thing that I have not mentioned that was included in the CARES Act is that the Act suspends student loan payments through September 30, 2020. Both principal and interest payments are suspended with no penalty and no interest will accrue on these loans during the suspension period. So if making those payments is causing you a hardship, you can temporarily stop making them. Again, just don’t forget to start again when the suspension period ends!

That is what I know as of right now. The pace of legislation and the related relief provisions and the implementation guidance has slowed down a bit, especially for most of my clients. Larger firms and CPAs who handle larger small businesses are still getting hit pretty hard. Guidance concerning the Paycheck Protection Program loans (more on that in a future post) for partnerships and self-employed people just came out a day or two ago. I still expect that there will be more relief coming (including addressing the ‘donut hole’ for EIPs for college age dependents) but for now, the tax practitioner community is slowly catching up to the most recent batch of tax law changes and additional guidance.

Hang in there. Stay home. Stay healthy.

#fullambo out

When, where, how, I don’t know yet, but remember yesterday’s post where I mentioned the “donut hole” for college-age dependents? Two Michigan senators have introduced legislation to address that and it will probably be part of a larger Phase 4 relief package according to Kay Bell at Don’t Mess with Taxes.

This is me, showing you how to hold onto some of your money (or to mitigate the tax consequences of using it)…

Required Minimum Distributions (RMDs)

Recent legislation has suspended RMDs for 2020. If you haven’t already taken your RMD for 2020, you don’t have to. This includes RMDs from inherited IRAs.

You know what else got suspended? RMDs that were required by April 1, 2020 because the taxpayer turned 70.5 in 2019. Yep, so if you had to take your very first RMD in 2019, you actually had until April 1, 2020 to take it and now you don’t have to take it at all. Great if you happened to forget about it!

And remember, if you are turning 70.5 in 2020 your RMD age was increased to 72 (by the SECURE Act) so you don’t have a “first” RMD requirement this year. You take your first RMD by April 1 the year you turn 72.

But, Amber, what if I did take my RMD? Well, there might be some relief for you too. You have 60 days to roll that money back into your account or into an IRA (but you are only allowed one of these rollovers in a 12-month period, so be careful if you’ve done one recently). There’s a lot of fine print on this so it’s best to talk with either your investment adviser or an investment adviser you can trust. I happen to know one. Feel free to use the form on the home page or send me an e-mail if you would like his contact details. He can answer your questions, help you determine if you are eligible for the 60-day rollover, and can help you set up an IRA if you are allowed to put your funds back but maybe want a new account instead of, say, your employer’s 401(k).

Speaking of IRAs…

The deadline for making deductible contributions to your IRA has been extended to July 15, 2020 to coincide with the extended filing deadline. So if you haven’t filed your return yet you can still tweak your contribution (maybe contribute your Economic Impact Payment if you are sure you won’t need it). If you’ve already filed your return I expect you can still make an additional payment through July 15 and simply amend your return to reap the additional tax benefits. Please bear in mind that I have no official guidance on this specifically related to the CARES Act. It just seems logical that you would be able to amend your return to take advantage of the later contribution deadline. Remember, however, that amended returns must be filed on paper and if you use a paid preparer you will be charged for the work. You may even be charged more than you would save in taxes. It’s important to do the math. And it’s really important not to ask your #taxpro to do the math for you right now. I recommend waiting until at least mid-May to give us a chance to get through the returns on our desks (most of us are still working like the deadline wasn’t extended) and until some of this small business loan business has settled down (more on that in a future post).

I Need Money Now!

The CARES Act also provides some help if you need to take money out of your IRA or 401(k).

You can take out up to $100,000 from your IRA penalty free. Not tax free! But not subject to the 10% penalty for early withdrawal if you are under age 59.5. You can also include this income in three equal parts over three years instead of all in tax year 2020. That can help you use your money and stay in a lower tax bracket! And, in an unprecedented move, you also have three years to put some or all of that money back should your circumstances change.

If you are allowed to take a loan from your 401(k) the amount has been increased to a maximum of $100,000 (from $50,000). The due date for repayment has also been delayed for one year.

Please note that these must be “COVID-19 Related” distributions or loans. It is important to consult your IRA trustee/custodian (for an IRA distribution) or your company’s plan administrator and/or plan custodian (for 401(k) loans and distributions) to ensure that you meet the criteria for the distribution and to ensure you understand all of the requirements (the fine print). They can’t give advice on the tax consequences (how much to withhold, etc.) but they can tell you if you qualify for the COVID-19 distribution based on your specific circumstances and give other information related to your specific investments or plan. Finally, considering the state of the stock market right now, it may be best to avoid selling stocks that are in your retirement accounts right now. I mean, you want to buy low, sell high, not the other way around. So if you can avoid cashing out, it is probably best do try to ride this chaos out without selling low.

#fullambo out

They’re coming! Payments are supposed to start “within the next three weeks.” As to exactly what that means, your guess is probably not much better than mine. If you filed a 2018 and/or 2019 tax return and got a refund via direct deposit, your payment will be the first to be rolled out and you don’t have to do anything except wait for it to hit your bank account. But here’s what I know with respect to non-filers and everything else…

  • If you are below the threshold for needing to file a tax return and receive Social Security Benefits you will not have to do anything else to receive your payment. It will be automatically posted to the bank account where your receive your Social Security payments.
  • If you are below the filing threshold but don’t receive Social Security Benefits you may need to file a “simple” return or possibly a “zero” return. The details of what exactly these returns are and how the IRS wants to accomplish this are not available yet. But this situation will most likely apply to people receiving VA benefits and Social Security Disability payments. Neither of those types of payments are processed through the “regular” Social Security system. Update: Per Eva Rosenberg, the Tax Mama, “All software companies received guidance today (April 6, 2020) for filing returns with $0 tax liability.” Nothing is live yet, but the tax practitioner community will be ready when it is. I expect that low-income taxpayers will be provided with instructions on how to do this via the IRS free-file system. I’ll do a post once I’m sure everything is up and running as well.
  • The most important thing to know is that you will not have to pay a return preparer or anyone else to get your EIP! The scammers will be out en masse for this one as will unscrupulous preparers who want to charge you $$$ to ensure you get your payment. I will post an update when I get confirmed information as to how to file for your payment or you can periodically check irs.gov/coronavirus to get information straight from the source! In the meantime, do not respond to calls or e-mails from people offering to help you get your payment! We are supposed to be receiving information on where to report the bad actors, but for obvious reasons, that’s taking a back seat to getting those payments processed.
  • If you did not get a refund (if you had a balance due) then the IRS does not have your direct deposit amount on file. Paper checks may take up to 5 months to arrive! In theory, 1) the IRS will start mailing paper checks in May and 2) they are working on an app similar to the “Where’s My Refund” App that would allow you to enter direct deposit information if you prefer to do that rather than to receive a paper check. The latest information I read said that this app would be ready by late April or early May. So I would expect that they will wait to start issuing paper checks until people have had a chance to opt-in to direct deposit via the app. That means if the app is late, the paper checks will be even later. Again, I will post updates as soon as I have reliable information or you can follow along at irs.gov/coronavirus to get information as they update it.
  • If the IRS is mailing you a check they may not have your most recent address. Or perhaps you no longer have the account where your most recent refund was direct deposited. Former Taxpayer Advocate, Nina Olson, talks about her concerns with the implementation issues here. Not much we can do right now except to be aware of the potential bumps in the road that could delay your payment. It is really important not to call the IRS to ask about the amount of your payment or when to expect it. They are doing their best to continue to process 2019 returns, issue refunds, continue to work on other taxpayer issues, and to implement this new law. All with many staff working from home and many simply furloughed.
  • The additional $500 credit for “dependents” is for dependents who would qualify for the Child Tax Credit in 2020. That means children who turn 17 in 2020 do not qualify. At this time it is unclear if the system will be attempting to calculate payments based on your dependent child/children’s projected age in 2020. In other words, we don’t know if they are just going to look at your 2019 (or 2018) return, see if there’s a qualifying child and give you the $500 or if they are going to “do the math” to see how old that child will be in 2020. Surprise!
  • There’s kind of a “donut hole” for adult children in college. They are still dependents on their parents’ returns but they are too old to qualify for the Child Tax Credit. So the parents don’t get $500 but the kids don’t get a $1200 stimulus payment either. Trust me, Congress and the IRS are well aware of this issue by now. Whether or not they decide to address it in future legislation remains to be seen.
  • The EIPs are not subject to “offsets” other than child support. If you are behind on your child support, this payment will go towards that. But if you are behind on your taxes, your refund will not be used to offset balances due for federal or state returns.
  • This is not taxable income! It’s an “advance” on a refundable tax credit for 2020. That means (if you are a client) we will have to reconcile the amount of your credit received with what you were supposed to get on your 2020 tax return. So please, when you get your payment write down the amount of the credit, the date you got it, and how you got it (direct deposit or by paper check in the mail). If you didn’t get enough credit, the difference will be refunded when you file your 2020 tax return. If you got too much—nothing happens.

Finally, some people are saying “well, this won’t do me much good” and have asked about donating their payments. Of course you can! Here’s a list of some of the places I like to donate (in no particular order):

I also know that New Mexico’s school districts could use some help because they weren’t ready to pay for the cost of converting everyone to remote learning. The Navajo Nation and many of the pueblos are in dire need of help as well. If you are outside of New Mexico I recommend your local food banks, schools, local PBS, local arts organizations (who may be trying to help performing artists who are out of work), and charities that support your area’s indigenous populations.

Update: If you are reading this after you got my e-mail I just realized I forgot to update the subject line of the e-mail. Same name. Same website. 🙂

This post is mainly for clients to let them know what I will be working on this week in the office.

  • The window for filing amended returns for 2016 to claim a refund closes on April 15, 2020. I have one of those to prepare. These must be prepared for paper filing, signed, and mailed so they are time consuming and must be done with a great deal of care. That’s what I’m working on today.
  • To date the #taxpro community has not received guidance on an automatic deadline extension (to July 15, 2020) for Form 8938. This form is required if your foreign bank account balances meet certain thresholds. To protect the rights of my clients who may meet those thresholds (basically any client who files an FBAR) I will be filing Form 4868 (Request for Automatic Extension) to ensure that if you are required to file Form 8938 you have until October 15, 2020 to do so. I will be filing those forms this week (hopefully today, but we’ll see).
  • I have a client who needs some prior year returns filed to avoid having to file a Tax Court Petition (expensive process). I will be working on those.
  • I will be working on returns that have been in my office, mostly completed, for over a month. This includes some returns with multiple state returns, returns with complicated Schedule As (Itemized Deductions), and one estate return that whose extended deadline occurs in May. So if your return came in towards the end of February, or earlier, and you’ve been wondering where it is, it’s being worked on this week and early next week.
  • I will be filing returns for those of you who have signed your e-filing authorizations and doing the office paperwork that closes out your return processing.
  • I will be doing review & signature appointments for some of you.
  • I hope to, by the end of the week (time has been blocked out on Friday), be preparing NM GRT returns for myself and applicable clients.
  • I will be doing blog posts to keep you all updated on the Economic Impact Payments (stimulus checks); new rules for RMDs and retirement account distributions; NM State unemployment (plus a little bit for neighboring states in which I have clients); and what’s going on with the new Small Business Administration loans (hot mess) and a new tax credit that could be a better option. The short version is that for most of my Sch C clients your help won’t start until at least this Friday because most of you don’t have W2 employees—it’s just you.
  • I have a standing meeting on Tuesday morning and another 2-hour class on the new law Tuesday at noon.

As you can see from this list there’s not a lot of time available for processing “regular” returns. Once the really old, really complex ones are finished, I will be getting back to what is still in the office. The earliest date on those is 3/6. The latest came in around 3/20. A couple may have come in later. If you are reading this, you may have also read the e-mail that says that I work much more slowly without Cat in the office helping. She is doing what she can from her home office and as this situation evolves I am working on processes that allow her to do even more while still maintaining the necessary security precautions.

I am doing my best to continue processing returns on a first-in, first-out basis. I want to thank all of you who have let me know it is OK to extend your returns through October 15th and I will be filing those extensions probably in May (we have until July 15th).

#fullambo out #stayfrosty

 

Come Monday—it is still not alright. But I am in the office processing returns and I will be available by phone, Zoom, or e-mail if you have questions. I know a lot of you have questions. I did send out a detailed e-mail (via Constant Contact) about the stimulus payments and expect to send out another later this week.

As you can see, a large part of my time is being spent communicating the details of new tax law to you all as a group and to many of you as individuals. This, obviously, slows me down with respect to return processing. Please know I’m working as fast as I can but that, again, I am now focused on “Tax Day” being July 15th. Also, what you may not realize is how much time I am devoting to learning the “fine print” of the new tax law. I thought last year was unprecedented for changing the tax rules in the middle of the game, but Congress said “Hold my beer.” So now I’m learning law that amounts to thousands of pages of new material in addition to how that interacts with certain new human resources law and small business administration loans. I’m not going to lie. Doing this during the off season would be plenty of work. Trying to do it while processing returns and answering questions is nothing short of daunting.

 

I recently read that 95% of small businesses fail within the first 5 years due to either bad management, under capitalization, or some combination of the two. Tax issues for small business owners have the same roots. Bad record keeping is often a sign of bad management. Mileage is one of the most highly scrutinized and most common areas on which small businesses are examined (audited). If you are a small business owner who isn’t keeping good mileage records you may be leaving money on the table. Worse, if you are audited, legitimate business mileage expenses may be disallowed because of your failure to keep adequate records.

The Self Help tab of the Tax Therapy website (Get Organized and Get Answers) offers additional resources to help you track and substantiate your business mileage. In a nutshell, your business mileage log should be contemporaneous (done at about the same time or shortly after you make the drive) and should show the date of the trip, the business purpose of the trip, and the miles driven. It is really common for people to not record the business purpose of the trip on the mileage log. It’s a lot easier to do this when you record the miles than it is to try to re-build that from an appointment calendar!

Finally, a great way to record your starting and ending odometer readings for your annual mileage total is to take a picture of your odometer with your phone on January 1 and again on December 31. If you haven’t taken a picture of your odometer this year, it’s not too late. It won’t be perfect, but it will be close and it will help you get into a really good habit! I hope that one of your New Year’s Resolutions, if you are a small business owner, is to improve your record keeping! It’s easy to do once you make a habit of it. And it’s one of the simplest ways to make sure your start up stays up!

 

I mentioned in the last post and the one before that that during tax season we require a non-refundable deposit at the time of your intake appointment. Some of you may be wondering why we do that. The short answer is that one tax season I got burned by several “clients.” They came in during season to have their taxes prepared and when they didn’t like the results or didn’t like the amount of follow up and due diligence I was doing they decided to go elsewhere. This was after I had already done a lot of work on their returns. So 1) I was not paid for my time and 2) I was not able to take on clients who really did want to work with me. Lesson learned.

“Onboarding” makes the process sound super complicated, but it really isn’t. All paid preparers have to do a certain amount of due diligence for each tax client. At a minimum we have to check your ID to ensure you are who you say you are and collect the information necessary to prepare your tax returns. At a new client intake appointment (what happens when you get onboarded during tax season) we do the following:

  • ID Check for taxpayers and dependents
  • Engagement Letter & Privacy Policy Signed
  • Notice Assurance Program Opt In or Out
  • Client Interview & Question/Answer Session
  • Basic Review of Prior Year Returns
  • Collect your W2s, 1099s, and other information needed to prepare your return
  • Send you home with a list of missing items and information

During the off season I am happy to meet with potential clients and do an ID check, return review, and basic client interview for free. I am happy to spend some time discussing your needs and expectations.. We then send you a reminder at the beginning of tax season to request an organizer. In the meantime, if you have found someone else or have decided to do your own taxes and don’t call for the organizer, it’s not really a problem. We are sorry we didn’t earn your business, but we understand.

During tax season we are less understanding. The preliminary work required to bring in a new client takes 30 minutes to an hour (sometimes more if the tax situation involves a business or complex investments). During tax season our work time is limited and much more valuable (it’s like surge pricing for Uber). So, if we are going to spend the time getting to know you and your situation we want to make sure that you are serious enough about having us prepare your tax returns that you get all the way through the e-filing process and that if you don’t we still get paid for the time spent processing your return.

I’ve said it before but it bears repeating. Tax Therapy is a small business and this is how I earn my living. I appreciate the opportunity to show you just how valuable a good #taxpro can be but to make my business work, I have to stick to the processes and policies that work for me. Right now we are still accepting new clients with a non-refundable deposit. If you are still looking for a #taxpro and would like to schedule an intake appointment please get in touch!

Still shopping for a #taxpro? Give #TaxTherapy a call!

Are you thinking of going from doing it yourself with box software to hiring someone to help you? Did your preparer from last year retire? Get indicted? Die? Hey! It happens!

Right now we are still taking appointments for potential clients who are evaluating their options. We will be doing this for a few more weeks.

It’s kind of a moving target, but once tax season really gets going (usually shortly after e-filing for individuals opens) we can’t provide appointments for people who are not sure about having us do their tax returns. We will still take new clients (but we have a flexible deadline for that as well) but we will require a non-refundable deposit to schedule an intake appointment and before we start processing your returns.

I know it seems really early but at Tax Therapy the needs of our existing clients are always given top priority. We are a small office (it’s just me and Cat) and we want to make sure that we can do a great (thorough and accurate) job on all of the returns we have in process and expect to have come in during tax season. By the time March 10th rolls around I’m already looking toward moving returns out of the office, rather than bringing them in. And by March 20th or so I’m already making plans for summer notice clinics, extension season, and next filing season!

I answered a few calls last year from people who seemed to really want me to do their taxes but needed to get in right now. That’s just not how this office (and many other small offices work). When I suggested to one such caller that they visit one of the many large franchises in the immediate area, they didn’t want to do that. Unfortunately, if you wait until late March to try to find someone to “do your taxes” that may be your only option. And it isn’t a bad option! Large tax franchises are set up and staffed to meet the immediate needs of most new clients. Most small tax practices are not. So evaluate your needs and if you want to #shoplocal and #shopsmall then you need to shop now!