Stymied About the Stimulus?

Making sense of stimulus payments on this year’s tax return.

As we all know, there’s nothing simple about filing tax returns, even in a normal year. But 2020, as we know, was not normal. It was full of complexities that will significantly affect tax filings this year.

One of them seems simple but actually is raising a lot of questions: stimulus payments.

The federal government has sent two stimulus payments (also called economic impact payments) to taxpayers. In spring, any adult whose individual adjusted gross income (AGI) was up to $75,000 (singles/marrieds filing separately) or up to a combined $150,000 for married couples received $1,200 per person. Added to that was $500 per qualifying child under the age of 17. For people whose salaries went above these thresholds, payments were lowered according to salary, based on a formula used by the IRS. Single taxpayers with AGI over $100,000 and marrieds with AGI over $200,000 have not been eligible for this aid.

Following that, in December, every American (including children) received an additional $600.

Technically, this is “free money.” By that I mean you are not expected to pay it back, and it is not considered taxable income. But CPAs like myself are realizing that the payments are not a cut-and-dried matter, and for many there are questions regarding how much they should have received and whether they’re still owed money, among other issues.

Some people received payments, some did not. Some saw their incomes changed, affecting how much they should have received. Some even received too much, in error, and are concerned about paying it back. Let’s address these concerns and what they mean for you:

What year was used to determine income? Good question. For some, it was 2019. For some, it was 2018. For some it was 2020. The issue gets more complicated if your income went up or down in any of those years. If it was previously above the income thresholds and dropped below them, you may be owed money. If it increased to above the thresholds, you may have received more than you might think you were owed.

Bottom line, be very sure how much you received (or didn’t) and be sure you let your CPA know upon filing your return how much you did or didn’t receive. In the mail, you should receive an IRS Notice 1444 for the first payment and a Notice 1444-B for the second. Provide these forms to your tax preparer. You won’t owe taxes on payments, but it’s important to acknowledge what you received. Without that information, it’s impossible to produce an accurate return. Payments also may erroneously be recorded as taxable income, which could mistakenly add to your tax burden, so it behooves you to share this information.

What if I received a higher stimulus payment than I should have due to my 2020 income being above the threshold? You are lucky — you don’t have to pay it back. I recommend putting it in some sort of savings vehicle.

What if I didn’t receive my payment, or I didn’t receive enough of it? You can still receive your full payment by claiming a Recovery Rebate Credit when you file your tax return. This credit would be claimed on a worksheet included in your Form 1040 or 1040-SR. The credit will either be sent to you as a refund or reduce the amount you would owe for 2020.

If I didn’t receive full stimulus payments in 2020 due to a high reported income, is there any way I can still qualify for the maximum payments? It may be possible to adjust your gross income for 2020 and bring it below the threshold for full payment ($1,200 + $600 per adult). For example, let’s say your income in 2020 was $155,000 — that’s $5,000 over the threshold for the full stimulus payment. But let’s also say you purchased a new truck you’ll use for your business. On your business return, you have a choice of whether to deduct the entire amount in one year or take it in installments over five years. If you take it all at once, you would lower your adjusted gross income below the $150,000 threshold, qualifying you for a full stimulus payment. And yes, as long as your 2020 income is below the threshold level, you are owed a credit for the full stimulus payment regardless what your 2019 AGI was. You can also lower your income by making IRA or Health Savings Account contributions toward the 2020 tax year before April 15.

What if someone in my household died but received the payment(s)? The answer to that question still is unclear as I write this. The IRS wants that money back, but right now it’s unclear whether there is a mechanism in place to enforce the collection. If this situation applies to you, please consult your tax professional. The last thing you want is to be charged later on for this mistake; be up front about it to avoid run-ins with the IRS it down the road.

What if an adult was claimed as a dependent in 2019 but otherwise qualifies for the full stimulus check? This could have happened for a number of reasons. Perhaps you have a child who now lives on their own. If they filed their own tax return instead of being claimed as your dependent, the child could be eligible to receive the full $1,200 (remember that you did not get any money for dependents over 17 years old). This might also be the case if, for example, a retired senior living with you were claimed previously as a dependent but could technically file a return. In either case, an individual tax return as a nondependent might result in receiving the full $1,800 as a credit or refund.

What if my ex-spouse and I share custody of a dependent? Many divorced couples take turns claiming their children as dependents, with each benefitting every other year. In that case, one parent may have received both the $500 and $600 stimulus payments for each child in 2020. But what if you’re the other parent and missed out on stimulus for your kids in 2020? I have good news: You’ll get both payments for each child you claim on your 2020 tax return (even if the other parent has already received money for the same children based on 2019 filings). Be sure to let your tax preparer know to file the Recovery Rebate Credit for you this tax season.

What if I got divorced in 2020? How should I handle the stimulus payments on my taxes? If you previously filed jointly, your payments would have come to you in one lump sum of $2,400. Each of you will need to file separately for 2020 and claim 50% of the payment ($1,200 per adult) on your tax return. Dependent stimulus payments should be reported by the parent who is claiming the child/children on the 2020 return.

What if I’m a retiree who doesn’t usually file a tax return and didn’t make enough income in the last few years to file? How can I claim my stimulus payments? Social Security recipients should have received payments, but some slipped through the cracks. If you didn’t receive your payments and are owed them, you’ll need to file a return this year in order to claim them.

What if I have a balance with the IRS, or I’m paying on an installment agreement? Can I still get a stimulus credit or refund? If you didn’t receive some or all of your stimulus, you should still receive it, even if you have bad debt with the IRS. Make sure you talk to your tax preparer about filing a claim for it. That money should be sent to you so that you can determine how best to use it — whether that’s toward your IRS debt or something else entirely.

NOTE: The only time this doesn’t apply is when you owe back payments on child support. The federal government takes this seriously and will deduct your stimulus payments from it before sending you whatever is left (if anything).

Do you have a question about stimulus payments or any other tax concern that I haven’t addressed? Give us a call or send us an email! We’d be happy to talk to you about simplifying this year’s tax filing process.

stimulus payments

What Does COVID-19 Mean for Your Taxes?

By now, I’m sure, you’ve heard that the federal government has postponed the deadline for filing your 2019 tax return and paying any tax owed, moving it from April 15 to July 15. This gave me and my team, as I’m sure it did you, a huge sense of relief as we all grapple with the more pressing crisis we all face: COVID-19 and the havoc it continues to wreak on our nation. Your top priority should be keeping yourself and your family safe and healthy.

Rest assured that you don’t have to do anything — no filing of any extension paperwork — in order to take advantage of this new deadline.

Note that this also new deadline also applies to the first installment of estimated tax payments for the first quarter of 2020 — that payment deadline has also been moved from April 15 to July 15.

However, you may be wondering about COVID-19’s impact on certain other deadlines and business or tax-related transactions, particularly at the state level. Here’s some important information for you to be aware of:

No change to Q2 federal estimated tax payment deadline: While the Q1 deadline has been pushed to July, what you may not realize is that at the time of this writing, the June 15 deadline for sending Q2 estimated tax payments has NOT yet changed. You should still plan to submit this estimated payment in June, with the Q1 payment due a month later.

Change to IRA and HSA contributions: There has been an adjustment to the April 15 deadline for making contributions to Traditional and Roth IRAs or Health Savings Accounts (HSAs) for 2019. If you plan to make contributions that count toward 2019, you must do this by July 15.

Depending on the state where you live and do business, you’ll need to take the following state-level information into account as well:

If you do business in Nevada… you file no state income tax, but take note that the Department of Taxation in the state is fully closed due to COVID-19. Taxpayers are advised to file and pay their taxes (this primarily applies to sales tax) through its online portal or by mail. Business license renewals have undergone no COVID-19-related changes; you should plan to renew through the Nevada Secretary of State’s online business portal, SilverFlume.

If you do business in California… you should know that the Franchise Tax Board (FTB) has postponed the filing and payment deadlines for all individuals and business entities to July 15. This applies to the following:

  • 2019 tax returns
  • 2019 tax return payments
  • 2020 Q1 and Q2 estimated payments (*Note: Remember, the federal Q2 deadline of June 15 is still in place as of today).
  • 2020 LLC taxes and fees ($800 LLC payments)

If you are an employer whose business has been affected by COVID-19, you may request an extension, in writing, of up to 60 days from the California Employment Development Department to file your state payroll reports and/or deposit payroll taxes without penalty or interest. This written request must be received within 60 days of the original delinquent date of payment or return.

Although the Ludmila CPA team are all working from home as we ride out the COVID-19 crisis safely, we want you to know that we are working. We’re available to assist you with filing returns, answering your questions, sharing financial advice, and providing peace of mind in this difficult time. Don’t hesitate to contact us with your questions or concerns.

A final word: If COVID-19 teaches us anything, it’s that nothing is more important than our health and well-being. Be present with your family, take care of yourself, and know that we’ll all get through this. Hang in there, and please let us know if we can help.

Tips for a Trouble-Free Tax Time

tax timeTax time ain’t what it used to be — and that’s a good thing! It used to be that you had to lug a box of documents (arduously collected over many months) into your accountant’s office and plan to spend a few excruciating hours poring over your receipts. Not so anymore! In these days of electronic filing, you really don’t even need to be present. At our offices, we can prepare your return quickly without needing to sit through meeting after meeting. We’re able to be far more efficient with our time (and your money) than ever before, and you’re able to get out and enjoy this unseasonably beautiful weather without giving it another thought.

The key is providing your information digitally (and securely) to your CPA or come by our office and drop it off with us. The information you’ll need to provide includes the following (not all may apply to you):

  • Your prior year’s tax return, if you are a new customer
  • Form W-2, if you worked for a company and even if the company is yours
  • Bank-provided Forms 1099-DIVS and INT — your dividend and interest income
  • Your investment portfolio Consolidated Form 1099, which would include all the sales of marketable securities
  • Form(s) 1099-R, if you are retired
  • Social security statement (also for retirees)
  • All Forms K-1, if you have invested in any companies (some may not arrive until sometime in September)
  • Form 1041, if you have been the beneficiary of a trust (if the trust did not make any distributions during the prior year, the form usually shows only zeros and is often not provided)
  • Forms 1099-MISC, if you are self-employed (Note: The IRS is really watching for under-reported income. Sometimes, these forms are issued with errors. We usually make corrections when filing your tax return. Also, bring the summary of your income and expenses.)
  • Forms 1099-MISC, if you are a real estate investor and have collected rent (as well as the schedule of expenses to offset that income, at least partially)
  • Form 1098-T for parents with students, allowing you to take a deduction for some of the tuition paid during the prior year (some parents with higher income will not be able to take advantage of this otherwise-generous tax credit)
  • Form 1098, the mortgage expense statement for homeowners
  • Detailed list of child care expenses, including tax ID of the institutions your child attended
  • Health Savings accounts contribution and distribution statements (Forms 5498-SA and 1099-SA)
  • A list of questions (The general rule is that it’s better to bring more than omit some very important information)
  • Any other documents which arrived in the envelope marked “Important Tax Information Enclosed”

Additionally, to help us make the decision about whether you should itemize or take the standard deduction, bring your real estate property tax paid, DMV registration fees, summary of charitable contributions (cash and non-cash separately) and summary of medical expenses (if they were significant: think “at least over $7,500 for taxpayers with AGI of $100,000).

Once you’ve assembled all this information, my advice is this: Schedule your appointment with us for AFTER tax season. Although we’re always happy to meet with any clients who would like to sit with us during tax preparation, it’s not an effective use of your time or ours. Instead, send the information in or drop it off personally, then give us a chance to prepare your return and get a clear understanding of your financial picture. Then we can speak about the return in person or by phone to go through it and, most importantly, schedule a meeting to plan the next year. This is the most important part of tax work — planning the next 12 months. This helps ensure that you’re achieving the financial goals you’ve set for yourself and can minimize tax risks for the coming year.

Are you convinced? The April 15 tax deadline is fast approaching, so contact us today to schedule an appointment or to discuss any concerns you may have. We’re ready to help you make tax time a lot less taxing.

Filing Taxes Late? Start Here.

Filing Taxes Late? Start Here.

It’s a bit like that nightmare where you show up for class on the day of the final, and you realize you never came to class before now and you don’t know any of the stuff on the test.

You’ve missed the April 15 deadline to file your tax return. You feel like a deadbeat. You’re scared about the consequences and you feel like the only person in America who didn’t make the deadline.

Well, I’m here to tell you, you’re not. We see a lot of this at our office. People skulk in, their tails between their legs, embarrassed that they didn’t make the deadline and imagining outrageous consequences.

These aren’t criminals. They aren’t dishonest people. Many times, they’re simply afraid they can’t afford what they owe, so they wait until they can pull the money together.

Or they’re perfectionists who fall behind trying to get everything just right and miss the deadline. They’re late one year, then that snowballs into the next year, and then the next, and before they know it, they’re five years behind and too afraid to file because they think there’s no way to catch up. They’re terrified about drawing attention to themselves.

In fact, Forbes says that about 7 million Americans fail to file their income tax returns each year. You aren’t alone, and the good news is that it’s not as difficult as you might think to get back on track. But the worst thing you can do is nothing.

  1. Schedule a meeting. Send us an email or give us a call. No matter how bad you think it is or how embarrassed you feel, you should know that we’ve seen it all before and we’re not going to intimidate you or make you feel bad. Taking that first step to schedule an appointment will go a long way toward helping you to breathe easier. When you call us, we’ll let you know what to bring with you to get the process started. Don’t worry if you’re missing documents. After all, that might be the reason you were late. We have ways to find some of that information you may be missing.
  1. Expect to sign a power of attorney. Usually, this is the first step in the process. Signing over power of attorney to us enables us to do all the talking for you. That way we can get hold of information, update all the information the IRS needs, and speak with the necessary parties, all so you don’t have to. Plus, as experts, we know the right things to say and the right questions to ask.
  1. Plan to make a plan. At our meeting, we’ll formulate a plan to track down information, submit letters, file forms, and make payments. Don’t worry that you’ll have to pay everything at our meeting—if you owe something (which we won’t know until we meet with you), we can come up with a reasonable payment plan that works for you. The IRS realizes that something is better than nothing, so as long as you’re committed to making regular payments, you’re usually in good shape.

Throughout my experience as a CPA, one of the most rewarding things about my job has been working with clients who were so behind on their taxes that they thought they were beyond hope. This is because, after working with them and coming up with a plan to correct the situation, I’ve witnessed them gaining peace of mind. The transformation was almost physical.

At Ludmila CPA, we know being behind on your taxes can be scary and even emotional. It affects your quality of life. But we do care, and we’re in your corner. Contact us today, and let’s figure it out together.

Need More Time? Here’s How to File a Tax Extension

Need More Time?

Here’s How to File a Tax Extension

April 15 is just around the corner, and let’s face it: Some people simply won’t be ready and will need to file an extension.

Call us if you need an extension.In certain cases—for instance, you’re missing some of your essential tax documents, working overseas, or even dealing with a major crisis such as a death or illness—the IRS does allow you to file for an extension. If you file by April 15, it buys you time until October 15, 2019, to file your return and helps you avoid any late-filing or late-payment penalties.

But there are a lot of misconceptions out there about filing an extension, and the biggest one is that filing an extension means you don’t have to pay anything until October.

Let me be clear: Filing an extension does NOT mean you avoid paying anything owed this month. Even if you file for an extension, you will still have to calculate your estimated payment and send it to the IRS by April 15, 2019. Filing for an extension only extends your time to file the return and, if necessary, the final amount due.

If you think you’ll need an extension, contact us right away. We not only can file the extension paperwork (Form 4858) quickly for you, but we can easily create an estimate of what you may owe. We do this by determining what, if anything, may have changed for you from last year or ask for copies of your W2 and 1099 forms and devise an estimate based solely on that. And if you find that you simply aren’t prepared to send your amount owed right now, you still need to file an extension with a request to get on a payment plan. This will help you avoid any late-payment fees on any balance due which could be almost 10 times higher than if you do not file an extension.

Be aware that filing for an extension most often results in being granted the extension. But it’s not guaranteed. In some cases—for instance, your estimated payment seems way off or problematic—your request may be rejected. This is why it pays to have a CPA do this filing for you: We have the knowledge to produce an accurate estimate to help avoid such problems, and we can do it quickly, to meet the April 15 deadline.

Making Your Tax Payment

Whether you’re filing for an extension or simply need to send what your return says you owe by April 15, there are a few options for sending in your payment.

  1. We recommend using the direct pay ACH (Automatic Clearing House) option provided on the IRS website, because the IRS charges “convenience fees” to process a credit card, costing you more, and because this is a safe option to ensure your money arrives on time and securely.
  2. The second-best option for submitting payment is to provide your accountant with bank information, and he or she can make the payment for you when the extension or return is filed.
  3. The third option is tried and true—mailing a check—and involves having your accountant provide you with a voucher and mail-in instructions. There are always risks with mail, such as interception by would-be thieves or simple lost-in-the-mail problems. However, for some who wait until the last minute, popping a check in the mail on April 15 is allowed, as long as the postmark reads April 15.

Can’t pay the whole thing? That’s okay. Pay what you can and have your accountant submit a request for a payment plan when you file your return. Depending on your circumstances and paperwork, you may have to pay penalties or interest, but your accountant can provide you with the details on this. A payment plan gives you a predictable payment amount to build into your monthly budget and ensures you won’t be charged for lateness.

As a last resort, if you simply can’t pay anything, at least file for the extension. The interest is high for late payments, but the penalty for being short on your payment is .5 percent of the balance owed per month, while the penalty without an extension is 5 percent—a significant difference. It behooves you to file without the payment versus not filing anything and taking your chances.

Also, don’t forget your IRA contributions! April 15 is the deadline for making IRA or Health Savings Account contributions for the year 2018. We work with our clients to help you plan these contributions in advance so that this isn’t a surprise.

Make an appointment or contact us today to find out how we can help you now or in the coming year! And congratulations for making it through another tax season!

Tips for Personal Tax Prep – Making Tax Season Less Taxing

Tips for Personal Tax Prep

We understand. The whole idea of hauling that box of papers out of the closet, sorting through them to decide what’s important and what’s not, pestering people to collect whatever documents are missing (and not being quite sure what those might be), then heading to the accountant’s office with frazzled nerves as you fear the worst outcome … tax season is rarely anyone’s favorite time of year. Trust us, we get it. We Make Tax Season Less Taxing

For some folks, going to the accountant is like going to the dentist: You dread it enough that you only go when you absolutely have to, and you spend the whole time there with a sinking feeling that you’re about to find out something bad.

The problem with that approach is that there might be something that’s a tiny issue now, something that’s easily fixable with a few adjustments, but it could wind up being a major issue next year. Avoiding your CPA doesn’t prevent the issue; it just makes it worse. (Also like the dentist.)

At our offices, we tend to only see some clients when there’s a huge problem. Maybe a few years ago they thought it would be easier, less scary, to have their friends do their taxes. Then they wind up sitting in our office, terrified because they owe a $4,000 penalty to the IRS for gross income omission.

Had they made the small investment in a CPA, they would have benefitted from a knowledgeable expert spotting such an oversight early on and correcting the mistake—or, at the very least, helping them to anticipate and mitigate the consequences. Paying us for an hour of our time buys you peace of mind. And trust us, there’s nothing more valuable than that.

We’re firm believers in surrounding yourself with professionals. You shouldn’t diagnose your own illnesses, you shouldn’t fix your own electrical system, and you shouldn’t manage your own stock portfolio—not without experts in your corner. And you shouldn’t file your tax return without insight from a trained professional, either.

We also won’t need you to bring in that dreaded box. When you call us and schedule an appointment, we’ll let you know what things we’ll actually need from you—and it won’t be as much as you’d think. At our meeting, we’ll go through your document package together, and we’ll let you know if anything’s incomplete, doesn’t look right, or is missing. Don’t worry about being perfect; no one expects that. We’re in this together, and we know that you’re not an expert. We’ll talk you through what’s next and make filing your tax return as un-scary a process as possible.

Then comes the most important part of the meeting: planning next year. The more thought you put into next year’s tax filing, the more rewards you’ll reap. Next year, we will remind you it’s tax preparation time to help you collect the documents you’ll need and to schedule a meeting. And then we’ll debrief—what went well, and what didn’t? What changed for you? What adjustments should we make in response? What are your financial goals, and how can we help you reach them?

Are you convinced? The April 15 tax deadline is fast approaching, so contact us today to schedule an appointment or to discuss any concerns you may have. We’re ready to help you make tax season a whole lot less taxing.

Are you a small business owner? Check out our tax prep tips for your small business!

 

Tax Prep Tips for Your Business

The jury is still out on what impacts the 2018 tax cut package will have on businesses as they file their 2018 tax returns this spring. CPAs like us are bracing for the unexpected, and we’re urging our business clients to get all their ducks in a row as we move through tax season. If you’re a business owner, hopefully, you’ve sent out your W2s and 1099s and are preparing to file your returns.

Understanding the new laws and keeping the deadlines straight can be tricky, but here’s what you need to know to be as prepared as possible for tax time:

S-Corps, partnerships, and multiple-member LLCs must file returns (or extensions) by March 15. For LLCs, this deadline has only been in place for three years, and it may still not be a habit for many. But if you miss this deadline — whether you only miss it by one day or 30 — the penalty is $195 per month, per owner. There’s no prorating, so don’t miss that deadline. Can’t make the filing deadline? File an extension, which is available until September 16, but ONLY if you file for it by March 15. (Why September 16? Because the 15this a Sunday.)

Yes, tax day is actually April 15 this year. It’s been a while, thanks to a couple weekend day interruptions that forced Tax Day to fall later, but this year the day is April 15. Don’t miss it!

Tax Day is April 15, 2019

Business tax extensions are filed either electronically by tax preparers OR by mailing paper Form 7004. We prefer electronic filing because we receive a record of acceptance from the IRS, which is not the case with paper forms (unless you use certified mail with return receipt, which would be your next best option).

C-Corps, trusts, sole proprietorships, and single-member LLCs must file by April 15. Sole proprietorships file their returns on their individual Schedule C forms by the standard filing date for individuals. This is also the date on which you’d need to file for an extension in order to avoid penalties. The extension would give you until October 15.

If your fiscal year ends on a day other than December 31 … your filing deadline is the 15th of the 3rd month for S Corporations and LLCs’, 15th of the 4th month for C Corporations and 15th of the 5th month for Non-profits.

Single-owner LLCs and partnerships run by married couples are disregarded entities, which file Schedule C by April 15. This means that their businesses are not seen by the IRS as distinct from their owners. These types of businesses file their returns on their individual Schedule C forms by the standard filing date for individuals (April 15). As if things weren’t already confusing, we should point out that this applies to LLCs organized in community property states, such as Nevada and California. In some states, LLCs owned by married couples may have to file separate tax returns, so be sure to speak with us about the rules in your state.

Don’t wait until your appointment with us to prepare your records! In order for us to be most effective with our time, in order to help you forecast the next year and make informed recommendations, we would have had access to your records to review beforehand. For your part, come prepared with questions or issues you’d like to discuss, and, of course, bring all your relevant documents, including any 1099, 1099K or 1099 misc. forms.

Contact us today to schedule an appointment or to discuss any deadlines or requirements that may pertain to your business. Happy tax season!