Dear Friends and Valued Clients:
Let me start by Hoping that everyone is safe! It has been an upside-down year. In sports, congratulations to the City of Los Angeles as their Dodgers and Lakers were world champions in their respective sports. We have a new President-Elect taking over January 20, 2021 so expect changes not only to the tax code but to many other areas as well. The Pandemic is still with us so PLEASE stay safe, wear your masks, stay socially distant. See page 2 for how we will be handling tax preparation this year.
Let’s talk taxes:
HEALTH INSURANCE: For 2020, we have MAJOR CHANGES in health insurance for those living in California. For federal purposes, the penalty for NOT having health insurance has been eliminated; however, some of you may still be eligible for the FEDERAL subsidy. If you are, you must note that if your income exceeds 400% of the poverty line, you must repay the subsidy in full. Beginning in 2020, Californians are now REQUIRED to have health insurance. There is a $ 750 penalty if you do not have coverage. CA also has created a subsidy program with individual income at or below 600% of the poverty line. You will receive Form 3895 which I will need to prepare Form 3849. This form reconciles if you need to pay back a part of the subsidy or not.
STANDARD DEDUCTION: $12,400 (Single); $24,800 (MFJ); $18,650 (HH)
CHILD TAX CREDIT: Children MUST have a Social Security number to be eligible
Mileage reimbursement for 2020: 57.5 cents. Charity: 14 cents; medical: 17 cents.
VIRTUAL CURRENCY: A truly big item these days. The question asking if you sold, sent or exchanged virtual currency has made its way to the front page of the Form 1040 right under the address section. Obviously, IRS is looking a this carefully.
Organizers or checklist: If you would like an organizer showing the previous year’s items, please call me and I will send you one. If you prefer a checklist, please go to www.censoprano.com. There you can find a generic organizer and the checklists.
Dateline: S Corporations are due March 15, C Corporations are due April 15; Partnerships are due March 15.
E-filing: Please let me know if you DO NOT want me to e-file your return. All states are requiring e-filing unless you have reasonable cause.
Late filing penalties: Please note that filing an extension is an extension of time to FILE your tax return; it is not an extension of time to PAY your taxes due. So if you owe money and file AFTER April 15, IRS will charge a penalty which is .5% of the tax due plus 6% interest. This is calculated on a monthly basis. You can only avoid the penalty if you pay your tax IN FULL by the due date. Sometimes that is not possible because you have not received certain information such as a K1 schedule. IRS is mandating that if you file your return after April 15 and have a balance due, the penalty and interest will be reflected on the bottom of the tax return.
EXTENSIONS: I must have an email or phone call verification from you asking for an extension. This is due to the problems concerning identity theft. Please make sure you let us know you want an extension otherwise it will not be filed.
1099’s and penalties: You MUST issue 1099’s by January 31. If you file these later, the penalty is $260 per return not filed. Note that independent contractors now receive FORM 1099-NEC, not 1099-MISC.
PROCEDURE: IF you are sending me your papers by email, please ask me for my portal “VERIFYLE” I will send it to you and your information will be protected. The old email address is being shut down
SOLAR: if the solar was placed in service ion 2020, the credit is 26%; 2021 22
RETIREMENT: Maximum IRA $6000 (you might not qualify);there is a $ 1000 catch-up. Maximum SEP: $57,000 based on a formula;401k maximum $19,500 under age 50; $26,000 50 and older. Starting in 2020, you can contribute to an IRA if you are working at ANY AGE! This is a good thing!
In addition to the above, If you took a COVID RELATED distribution in 2020, you can opt to pay the tax on the distribution over a three year period. So if you took $ 90,000 you would claim 30k in 2020, 30k in 21 and 30k in 22; and if you wanted to, you could repay the entire 90k before 2022 and not pay any tx as it would be considered an allowable rollover. THIS IS FANTASTIC! We use NEW FORM 8915-E
Charitable Contributions: If you do not itemize you can take an above-the-line deduction for 2020 of $ 300. Donor advised fund does not qualify, carryovers do not qualify, must be a qualified organization.
RECOVERY REBATE CREDIT: This deals with the STIMULUS Checks you may have received during 2020. We will need to reconcile this credit against the amount you received. Upon calculation if you did not receive enough stimulus, you will receive the difference here. If you received TOO MUCH stimulus, you DO NOT have to pay it back. If you missed the stimulus check, you may be able to get it during this filing. The IRS is to mail Notice 1444 called Your Economic Impact Payment to the last know address of the recipient. This shows the amount you may have received. I need this information to calculate the potential credit.
Unemployment: Sorry to say ALL the unemployment (including the Federal piece) is taxable for Federal only
2021 TAX PREPARATION: IN LIGHT OF THE PANDEMIC, I WILL AGAIN NOT SIT WITH CLIENTS FOR THE FORSEEABLE FUTURE. PLEASE PROVIDE YOUR DOCUMENTS TO ME IN THE FOLLOWING MANNERS:
PLEASE BE SAFE; WEAR A MASK; WASH HANDS AND SOCIAL DISTANCE
LIFE IS TOO PRECIOUS TO THROW IT ALL AWAY
In FAQs just posted on their website, the IRS answered many the questions regarding the July 15 filing and payment extension announced in IRS Notice 2020-18. Note the following highlights:
The FAQs are available at:
The IRS has issued Notice 2020-18, which clarifies some provisions for extended returns, but leaves other questions unanswered.
Here are the questions that were answered:
I will continue to keep you posted as additional filing and payment information is released
At a press conference held today, U.S. Treasury Secretary Mnuchin announced the following extensions for federal income tax payments:
A Kiplinger-Barclays poll shows that most Americans aren't feeling a financial boost from the tax overhaul.
By THE EDITORS OF KIPLINGER'S PERSONAL FINANCE
February 6, 2020
From Kiplinger’s Personal Finance
A majority of Americans surveyed in a new poll conducted by Kiplinger in partnership with Barclays Bank say their taxes stayed about the same after the 2017 Tax Cuts and Jobs Act, with remaining respondents almost equally split between higher and lower taxes.
SEE ALSO: 20 IRS Audit Red Flags
The tax overhaul lowered tax rates and expanded income thresholds, but employers also reduced withholding for many wage earners. That may have reduced refunds or inflated balances due with the returns of many taxpayers—and given the impression that savings under the new law were less generous. In addition, the law scaled back itemized deductions. Some 15% of respondents report being affected by the new $10,000 cap on deducting state and local taxes. Some 20% said they felt the impact of no longer being able to claim miscellaneous itemized deductions to write off items such as tax preparation and investment fees and unreimbursed business expenses.
Other highlights: Nearly 40% of respondents say they switched from itemizing deductions to taking the standard deduction, which increased to $12,000 for individuals and $24,000 for married couples filing jointly for the 2018 tax year (higher for taxpayers age 65 or older). Nonitemizers can’t deduct charitable contributions, and roughly 20% of respondents report reducing donations. But about two-thirds of those surveyed say they give to charity regardless of any tax break.
About three-fourths of respondents got a refund on their last return. Nearly two-thirds say they’d rather get a refund than a bigger paycheck throughout the year.
The poll surveyed a national sampling of 852 taxpayers between December 3 and 13, 2019. The median age was 49 years old, and the median household net worth was $203,850 (excluding a primary residence).
We’ve included highlights here (figures are medians unless otherwise indicated).
Which of these tax changes affected you?
I CAN NO LONGER TAKE MISCELLANEOUS ITEMIZED DEDUCTIONS: 20%
I CAN’T DEDUCT STATE AND LOCAL TAXES THAT EXCEED $10,000: 15%
I CAN ONLY DEDUCT INTEREST ON A MORTGAGE OF UP TO $750,000 (DOWN FROM $1 MILLION): 8%
NOW I CAN ONLY DEDUCT CASUALTY LOSSES IF THEY OCCURRED IN A FEDERALLY DECLARED DISASTER AREA: 7%
I CAN NO LONGER DEDUCT MOVING EXPENSES WHEN RELOCATING FOR A JOB: 4%
I CAN NO LONGER DEDUCT ALIMONY PAYMENTS: 1%
NONE OF THESE 58%
Has your charitable giving changed?
NO, I GIVE REGARDLESS OF ANY TAX BREAK: 66%
YES, I HAVE DECREASED THE AMOUNT I DONATE TO CHARITY: 20%
YES, I COMBINED TWO OR MORE YEARS OF CHARITABLE GIVING INTO A SINGLE YEAR TO QUALIFY FOR THE TAX DEDUCTION: 8%
I’M OVER 70 AND NOW GIVE TO CHARITY DIRECTLY FROM MY IRA: 3%
YES, I OPENED A DONOR-ADVISED FUND: 1%
I CAN NO LONGER DEDUCT ALIMONY PAYMENTS: 3%
Do you usually hire someone to prepare your tax return?
If you prepare your own return, do you use tax software?
Which tax software do you use?
H&R BLOCK: 17%
TAX ACT: 13%
Did you receive a refund after filing your last tax return?
SEE ALSO: 10 Tax Breaks for the Middle Class
Would your rather get a tax refund or have less tax withheld throughout the year and receive bigger paychecks?
BIGGER PAYCHECK: 37%
The median tax refund for 2018 was $2,154. What did you do with your refund?
SAVED IT: 38%
SPENT A PORTION; SAVED THE REST: 23%
CREATED AN EMERGENCY FUND: 6%
INVESTED IT: 10%
PAID CREDIT CARD BILLS: 25%
PAID STUDENT LOANS: 3%
BOUGHT GIFTS FOR FRIENDS OR FAMILY: 3%
BOUGHT MYSELF A GIFT: 6%
SPLURGED ON A VACATION: 7%
SPENT IT ON EVERYDAY ITEMS: 7%
After filing your last tax return, did you make changes to your W-4 to adjust your withholding?
NO, I’M FINE WITH THE WAY IT IS: 88%
YES, I HAD MORE TAXES TAKEN OUT OF MY PAYCHECK: 8%
YES, I HAD FEWER TAXES WITHHELD: 4%
In France, from the 14th Century until 1946 (minus short repeals), citizens paid the "Gabelle" tax. In its original form, prior to the 14th Century, the Gabelle was an indirect tax on agricultural products and commodities like spices and wine. However, from the 14th Century onward, the word "Gabelle" was only used to refer to the salt tax. The salt tax was repealed and reinstated numerous times over six hundred years before being completely stricken from the books in 1946.
On December 20, 2019, Congress and the President agreed on a tax extender package as part of the “Taxpayer Certainty and Disaster Tax Relief Act of 2019”.
The Act reinstates many expired tax provisions RETROACTIVE to the 2018 tax year through 2020. An amended return for 2018 must be filed to take advantage of these extenders IF you qualify.
These are the provisions:
The House, Senate and White House have reached a deal on dozens of tax extenders ( many retroactive to 2018) as well as the all new SECURE ACT, which makes significant changes to various retirement-related provisions impacting taxpayers and their employers. The President is expected to sign the bill.
A few highlights of these changes include:
Sal Censoprano is a Certified Public Accountant (CPA) and tax practice owner for over 40 years. He was born and raised in Brooklyn, New York and earned his master’s degree in taxation.