The Treasury Department and the Internal Revenue Service issued guidance allowing deductions for the payments of eligible expenses when such payments would result (or be expected to result) in the forgiveness of a loan (covered loan) under the Paycheck Protection Program (PPP).
Revenue Ruling 2021-02 reflects changes to law contained in the COVID-related Tax Relief Act of 2020, enacted as part of the Consolidated Appropriations Act, 2021 (Act), Public Law 116-260, which was signed into law on Dec. 27, 2020.
The COVID-related Tax Relief Act of 2020 amended the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to say that no deduction is denied, no tax attribute is reduced, and no basis increase is denied by reason of the exclusion from gross income of the forgiveness of an eligible recipient’s covered loan. This change applies for taxable years ending after March 27, 2020.
Revenue Ruling 2021-02 obsoletes Notice 2020-32 and Revenue Ruling 2020-27. This obsoleted guidance disallowed deductions for the payment of eligible expenses when the payments resulted (or could be expected to result) in forgiveness of a covered loan.
The Internal Revenue Service issued the 2021 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2021, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
• 56 cents per mile driven for business use, down 1.5 cents from the rate for 2020,
• 16 cents per mile driven for medical or moving purposes for qualified active duty members of the Armed Forces, down 1 cent from the rate for 2020, and
• 14 cents per mile driven in service of charitable organizations, the rate is set by statute and remains unchanged from 2020.
The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, unless they are members of the Armed Forces on active duty moving under orders to a permanent change of station.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
Taxpayers can use the standard mileage rate but must opt to use it in the first year the car is available for business use. Then, in later years, they can choose either the standard mileage rate or actual expenses. Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.
Notice 2021-02 contains the optional 2021 standard mileage rates, as well as the maximum automobile cost used to calculate the allowance under a fixed and variable rate (FAVR) plan. In addition, the notice provides the maximum fair market value of employer-provided automobiles first made available to employees for personal use in calendar year 2021 for which employers may use the fleet-average valuation rule in or the vehicle cents-per-mile valuation rule.
This holiday season is unlike any other, to cap off a year unlike any other. Throughout this season, and as we move into a new (and hopefully better) year, we wish you moments of peace amid the difficulties, connections with family and friends even if they can’t be in person, the warmth of memories from holidays past, and wonderful glimpses of the joy that still lives under the surface. The occasion of Christmas reminds us that we all must stay positive even in these difficult times when things are not easy.
On behalf of partners and staff at RCBM, we wish you, your team and your loved ones a healthy and safety Christmas and New Year.
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When people get ready to file their federal tax return there are new things to consider when it comes to which credits to claim and what deductions to take. These things can affect the size of any refund the taxpayer may receive.
Here are some new key things people should consider when filing their 2020 tax return.
Recovery rebate credit
Taxpayers may be able to claim the recovery rebate credit if they met the eligibility requirements in 2020 and one of the following applies to them:
• They didn’t receive an Economic Impact Payment in 2020.
• They are single and their payment was less than $1,200.
• They are married, filed jointly for 2018 or 2019 and their payment was less than $2,400.
• They didn’t receive $500 for each qualifying child.
Refund interest payment
People who received a federal tax refund in 2020 may have been paid interest. The IRS sent interest payments to individual taxpayers who timely filed their 2019 federal income tax returns and received refunds. Most interest payments were received separately from tax refunds. Interest payments are taxable and must be reported on 2020 federal income tax returns. In January 2021, the IRS will send a Form 1099-INT, Interest Income, to anyone who received interest of at least $10.
New charitable deduction allowance
New this year, taxpayers who don’t itemize deductions can take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations.
Other refund-related reminders
• Taxpayers shouldn’t rely on receiving a refund by a certain date, especially when making major purchases or paying bills. Some tax returns may require additional review and processing may take longer.
• Refunds for taxpayers claiming the earned income tax credit or additional child tax credit can’t be issued before mid-February. This applies to the entire refund, not just the portion associated with this credit.
• The fastest and most secure way to receive a refund is to combine direct deposit with electronic filing.
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Whether taxpayers are supporting natural disaster recovery, COVID-19 pandemic aid or another cause that’s personally meaningful to them, their charitable donations may be tax deductible. These deductions basically reduce the amount of their taxable income.
Here’s how the CARES Act changes deducting charitable contributions made in 2020:
Previously, charitable contributions could only be deducted if taxpayers itemized their deductions.
However, taxpayers who don’t itemize deductions may take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations. For the purposes of this deduction, qualifying organizations are those that are religious, charitable, educational, scientific or literary in purpose. The law changed in this area due to the Coronavirus Aid, Relief, and Economic Security Act. The CARES Act also suspends limits on charitable contributions and temporarily increases limits on contributions of food inventory.
Taxpayers need to know their correct filing status and be familiar with each option.
Generally, the taxpayer’s filing status depends on whether they are single or married on Dec. 31 and that determines their status for the whole year. However, more than one filing status may apply in certain situations. If this is the case, taxpayers can usually choose the filing status that allows them to pay the least amount of tax.
When preparing and filing a tax return, the filing status affects:
Here’s the five filing statuses:
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The Internal Revenue Service today reminded the self-employed, investors, retirees and others with income not subject to withholding that third quarter estimated tax payments for 2020 are due Sept. 15.
Taxes are paid as income is received during the year through withholding from pay, pension or certain government payments such as Social Security or unemployment; and/or making quarterly estimated tax payments.
Who should pay quarterly?
Individuals, including sole proprietors, partners and S corporation shareholders, generally make quarterly estimated tax payments if they expect to owe $1,000 or more when their tax return is filed. Taxpayers with income not subject to withholding, including interest, dividends, capital gains, alimony and rental income, normally make estimated tax payments.
If a taxpayer underpaid their taxes, they may have to pay a penalty. This applies whether they paid through withholding or through estimated tax payments. A penalty may also apply for late estimated tax payments even if someone is due a refund when they file their tax return.
In general, taxpayers don’t have to pay a penalty if they meet any of these conditions:
To see if they owe a penalty, taxpayers should use Form 2210. The IRS may waive the penalty if someone underpaid because of unusual circumstances and not willful neglect. Examples include:
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Don’t amend for math errors or missing forms. Taxpayers generally don’t need to file an amended return to correct math errors on their original return. The IRS may correct math or clerical errors on a return and may accept it even if the taxpayer forgot to attach certain tax forms or schedules. The IRS will mail a letter to the taxpayer, if necessary, requesting additional information.
Wait until receiving refund for tax year 2019 before filing. Taxpayers who are due refunds from their original tax year 2019 tax return should wait for the IRS to process the return and they receive the refund before filing Form 1040-X to claim an additional refund.
File Form 1040-X to amend. Taxpayers must file using Form 1040-X, Amended U.S. Individual Income Tax Return, to correct their tax return. If they are filing an amend 1040 or 1040-SR for 2019, they can now file electronically using commercial tax-filing software. All other amended returns must still be mailed to the IRS. When filing, taxpayers should indicate the year of the original return and explain all changes made by attaching any forms or schedules. Taxpayers then sign and mail the Form 1040-X to the address listed in the instructions. Taxpayers filing Form 1040-X in response to an IRS letter should mail it to the address shown on the letter.
Amend to correct errors. Taxpayers should correct their return if they find that they should have claimed a different filing status or didn’t report some income. Taxpayers who claimed deductions or credits they shouldn’t have claimed or didn’t claim deductions or credits they could have claimed may need to file an amended return. Changes made on a federal return may also affect state taxes. The taxpayer should contact the state tax agency to see if this is so.
Pay additional tax. Taxpayers who will owe more tax should file Form 1040-X and pay the tax as soon as possible to avoid penalties and interest. They should consider using IRS Direct Pay to pay any tax directly from a checking or savings account for free.
File within three-year time limit. Taxpayers generally have three years from the date they filed their original tax return to file Form 1040-X to claim a refund. They can file it within two years of the date they paid the tax, if that date is later.
Use separate forms if amending more than one tax year. Taxpayers must file a submit a separate Form 1040-X for each tax year to avoid confusion. They should check the box for the calendar year or enter the other calendar year or fiscal year they are amending. The form’s instructions have the mailing address for the amended return.
Track amended return status online. Taxpayers can track the status of their amended tax return in English and Spanish using Where’s My Amended Return? Amended returns take up to 16 weeks to process and up to three weeks from the date of mailing to show up in the system. Before that time, there’s no need to call the IRS unless the tool specifically tells the taxpayer to do so.
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El 15 de octubre está a la vuelta de la esquina. Ese es el último día para presentar para la mayoría de las personas que solicitaron una prórroga para su declaración de impuestos de 2019. Estos contribuyentes pueden presentar su declaración en cualquier momento antes del jueves, 15 de octubre si tienen todos los documentos tributarios requeridos. También pueden pagar parte o la totalidad de sus impuestos en cualquier momento en IRS.gov.
Presente para obtener un reembolso. Cualquier persona a la que se le deba un reembolso debe presentar lo antes posible y usar el depósito directo (en inglés) para que su reembolso de impuestos se deposite electrónicamente de forma gratuita en su cuenta financiera. No hay multa por presentar una declaración tardía para las personas a las que se les debe un reembolso.
Pague el saldo de impuestos lo antes posible. La fecha límite para pagar los impuestos sobre el ingreso de 2019 fue el 15 de julio de 2020. Los contribuyentes pueden verificar el saldo de su cuenta o ver las opciones de pago en línea. Aquellos que deben y no pueden pagar su saldo en su totalidad deben pagar lo más que puedan para reducir los intereses y las multas por pago atrasado.
Presente antes de la fecha límite para evitar multas e intereses. Los contribuyentes deben presentar su declaración antes del jueves, 15 de octubre de 2020 para evitar una multa por no presentar.
Qué deben hacer los contribuyentes ante una fecha límite incumplida. Cualquiera que no haya solicitado una prórroga antes de la fecha límite del 15 de julio de este año debe presentar y pagar lo antes posible. Esto evitará que se acumulen intereses y multas adicionales.
Más tiempo para los militares. Los miembros del ejército y otros (en inglés) que sirven en una zona de combate tienen más tiempo para presentar su declaración. Estos contribuyentes suelen tener hasta al menos 180 días después de salir de la zona de combate para presentar declaraciones y pagar los impuestos adeudados.
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The home office deduction allows qualifying taxpayers to deduct certain home expenses on their tax return. With more people working from home than ever before, some taxpayers may be wondering if they can claim a home office deduction when they file their 2020 tax return next year.
Here are some things to help taxpayers understand the home office deduction and whether they can claim it: