Taxes

Yes, it is once again tax season.  Your mailbox has probably started to receive those ever important tax information mailings.  So, what can you do to help ease the stress that often comes with tax season? 

First of all, remember irs.gov.  There are many resources available that can be found by searching the site and using the online tools and resources which are available 24 hours a day. 

For taxpayers with earned income of $72,000 or less, IRS Free File could be an opportunity to file electronically for free.  If you don’t want to file electronically, but want to file on paper, Free File Fillable Forms are also available. 

While preparing your taxes, you may have questions.  There is an interactive tax assistance that has updated answers to many questions for situations which may not have been encountered previously.  Here again, this is available 24 hours a day.

Have you decided that you don’t want to prepare your own taxes, but don’t know how to find a preparer? IRS.gov has a great resource – Choosing a Tax Professional – which provides information to assist in what you need to look for in making your selection.

There is also a Directory of Federal Tax Return Preparers with Credentials and Select Qualifications that list professionals with IRS-recognized credentials.  This directory is arranged by geographical areas.  

Once your taxes are done, you may be looking to receive your refund.  Where’s My Refund is available on irs.gov which is updated daily and can track electronically filed returns within 24 hours after being filed or four weeks after a paper return is received. 

To expedite receiving your refund, you should file electronically and select direct deposit for receiving your refund. 

If you would like to view your federal account information online, visit irs.gov to set up an account.  This will enable you to view your account balance, payment history and key information.  If you are accessing the site for the first time, you will need to authenticate your identity through a secure access process. 

Good luck for the tax season and please, don’t procrastinate.  We can’t plan on an extended period of time to file as we saw in 2020. 

Looking for highlights of items to keep in mind for your 2020 income taxes and the changes that could impact you?  The IRS has a special page on IRS.gov that outlines many tips and explanations about returns for 2020.      

Here are some of the highlights to remember:

• If you received a Recovery Rebate Credit/Economic Impact Payment, KEEP Notice 1444 for tax filing.  If you didn’t receive an Economic Impact Payment or your Economic Impact Payment was less than $1,200 ($2,400 married filing jointly in 2018/2019), plus $500 for each qualifying child, you may be eligible to claim the Recovery Rebate Credit. 
  
• If you received a refund on an overpayment of taxes and received interest on the refund, you will receive a Form 1099-INT if that interest totaled $10.00 or more.  This interest is taxable to you.
  
• As 2020 proved, don’t rely on a refund being received by a certain date.  The time for receipt of refunds is estimated and is not cast in stone.  Therefore, if you want to use your refund, don’t commit to using the refund on a specific date.  Delays can happen….
  
• Also, remember that if you are entitled to the Earned Income Tax Credit or Additional Child Tax Credit, refunds on these returns will not be issued before mid-February.
  
• You can track your refund using Where’s My Refund? on irs.gov.
  
• As mentioned previously, you can use Free File if you meet the income guidelines. 
  
• The IRS is making Identity Protection available to all taxpayers nationwide.  This is a PIN consisting of a six-digit number known only to the taxpayer and the IRS to help in preventing identity theft.  Visit irs.gov and review the Get An Identity Protection PIN details for more information.
  
• Standard deductions for married couples filing jointly rises to $25,100, single taxpayers and married filing separately will be $12,550 and for heads of households, the standard deduction will be $18,800.
  
• Like 2019, there will be no personal exemptions available.
  
• There continues to be no limitation on itemized deductions.
  
• The Alternative Minimum Tax exemption amount for tax year 2021 is $73,600 and begins to phase out at $523,600 ($114,600 for married filing jointly the exempt begins to phase out at $1,047,200).  The exemption for 2020 was $72,900 and began to phase out at $518,200 ($113,400 for married filing jointly for whom the exemption began to phase out at $1,036,800.)
  
• For Federal Estate Taxes, the basic exclusion amount is $11,700,000 for decedents dying in 2021.
  
• For Federal Gift Taxes, the annual exclusion amount for gifts remains at $15,000.

Finally, 2020 is in the rearview mirror and we are all looking forward to a healthier 2021 around the globe.  And, as we look forward, we all have income taxes to look forward to. 

So, what can you do NOW to ease the overwhelming feeling when you start the process?  Here are some helpful tips:

• Start now to assemble your information, don’t wait until the last minute. 
• Don’t rely upon receiving the necessary tax document; make a list of your income sources which can be used to check off the tax documentation as you receive the same.  This will help to know when you have received all expected information.
• Have you made charitable contributions?  Now is the time to organize the receipts and acknowledgments of those contributions.  Remember that, for 2020, you are able to take a deduction of up to $300 for charitable donations if you do not itemize deductions.  If you itemize deductions, you may report all of your charitable donations.  Remember:  the contributions must be made to qualifying organizations – those recognized by the IRS.
• If you are one of the unfortunate people who have had considerable medical expenses, you can gather all of your receipts for these expenses.  Remember that medical expenses include not only doctors and prescriptions, but also premiums paid for medical insurance, long-term care insurance, eyeglasses, hearing aids, etc.  Don’t overlook the opportunity to claim a deduction.
• If you have an account for securities, it is a good idea to put your December statement with your tax information, as many financial institutions use December as a recap of the yearly activity in the account. 
• If you prepare your own income taxes and your income is $72,000 or less for 2020, you can use the IRS Free File program which is available through irs.gov. 
• Also, there are free file fillable forms which can be accessed to file returns either by mail or online on irs.gov. 
• The IRS offers an online interactive tax assistant which helps to answer general tax questions, including what income is taxable, how to handle life events and credits and deductions.
• If you prefer to have someone prepare your income taxes for you, the IRS has resources available to help you find a qualified preparer.  On irs.gov, you can access the publication of Choosing a Tax Professional or a Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.  My best advice is to make certain that the person you select has the proper credentialing to prepare taxes.  You won’t do yourself any favors if the preparer you select does not have the proper knowledge to address your income tax needs.  (And, just because someone claims to know income taxes does not mean they have the background and knowledge.)
• Lucky enough to get a refund? You can check the status of your refund using the Where’s My Refund? tool on irs.gov.  This is available approximately 24 hours after an electronic filing or four weeks after paper filing.
• The fastest way to get your refund is via direct deposit into a financial account.  If you don’t have a financial account, visit the FDIC website for information on opening an account. 

For more information about planning ahead, see Publication 5348, Get Ready to File, and Publication 5349, Year-Round Tax Planning is for Everyone.

Good luck!  Happy New Year!

What a year this has been.  So many events never dealt with.  And, as we approach the end of the year, perhaps you are thinking about charities that you have or would like to support but feel that because you don’t itemize deductions on your personal income tax returns, you don’t get the benefit of any contributions.  Well, one positive change this year has brought is that you do NOT have to itemize deductions to get the benefit of charitable CASH contributions of up to $300 to qualifying organizations.  This is thanks to the CARES Act. 

You may not think that $300 is enough to make a difference but that is $300 off of your taxable income and could even be what is needed to reduce your tax bracket. 

But, remember, it has to be to a “qualified” organization.  It cannot be to a Go Fund Me account or donations made to a grieving family, etc.

So, what is a “qualified” charity?  Religious, charitable, educational, scientific or literary in purpose.  If you would like more information about qualifying charity, visit irs.gov and do a “Tax Exempt Organization” Search, review Publication 526 – Charitable Contributions, or Tax Topic 506. 

If you itemize deductions, unfortunately you will not get the benefit of the $300 as your charitable donations will be itemized on your Schedule A.  If you itemize your deductions, always make certain to keep receipts for all donations – cash and/or non-cash.  If you need some guidance with non-cash contributions, visit irs.gov and look for Publication 561 and Form 8283. 

Finally, if you have reached the magical age for required minimum distributions from your IRA, you are eligible to make a charitable contribution from your IRA of up to $100,000 directly to the charity which will count toward your minimum distribution requirement for the year.  Check with your financial advisor or accountant for further information.

Happy contributing.

The IRS mails letters or notices to taxpayers for many different reasons.  Other than panicking, what should you do if you receive such a notice?   

Here are some do’s and don’ts for taxpayers who receive one:

• Don’t ignore it. Most IRS letters and notices are about federal tax returns or tax accounts. Each notice deals with a specific issue and includes specific instructions on what to do.
• Don’t panic. The IRS and its authorized private collection agencies do send letters by mail. Most of the time, all the taxpayer needs to do is read the letter carefully and take the appropriate action.
• Don’t reply unless instructed to do so. There is usually no need for a taxpayer to reply to a notice unless specifically instructed to do so. On the other hand, taxpayers who owe should reply with a payment. IRS.gov has information about payment options.
• Do take timely action. A notice may reference changes to a taxpayer’s account, taxes owed, a payment request or a specific issue on a tax return. Acting timely could minimize additional interest and penalty charges.
• Do review the information. If a letter is about a changed or corrected tax return, the taxpayer should review the information and compare it with the original return. If the taxpayer agrees, they should make notes about the corrections on their personal copy of the tax return and keep it for their records.
• Do respond to a disputed notice. If a taxpayer doesn’t agree with the IRS, they should mail a letter explaining why they dispute the notice. They should mail it to the address on the contact stub included with the notice. The taxpayer should include information and documents for the IRS to review when considering the dispute. People should allow at least 30 days for the IRS to respond.
• Do remember there is usually no need to call the IRS. If a taxpayer must contact the IRS by phone, they should use the number in the upper right-hand corner of the notice. The taxpayer should have a copy of their tax return and letter when calling the agency.
• Do avoid scams. The IRS will never contact a taxpayer using social media or text message. The first contact from the IRS usually comes in the mail. Taxpayers who are unsure if they owe money to the IRS can view their tax account information on IRS.gov.

If you had an overpayment on your 2019 federal income tax return, you may be receiving interest on the overpayment. 

Interest payments, averaging about $18, have been made to individual taxpayers who filed a 2019 return by this year’s July 15 deadline and either received a refund in the past three months or will receive a refund. Most interest payments will be issued separately from tax refunds.

In most cases, taxpayers who received their refund by direct deposit will have their interest payment direct deposited in the same account. If you received a check, look for the notation on the check − saying “INT Amount” – which will identify it as a refund interest payment and indicate the interest amount.

By law, these interest payments are taxable and taxpayers who receive them must report the interest on the 2020 federal income tax return they file next year. In January 2021, the IRS will send a Form 1099-INT to anyone who receives interest totaling at least $10.

This year’s COVID-19-related July 15 due date is considered a disaster-related postponement of the filing deadline. Where a disaster-related postponement exists, the IRS is required, by law, to pay interest, calculated from the original April 15 filing deadline, as long as an individual files a 2019 federal income tax return by the postponed deadline − July 15, 2020, in this instance. This refund interest requirement only applies to individual income tax filers − businesses are not eligible.

Death taxes are commonly referred to as INHERITANCE tax or ESTATE tax.  Some states have both, some states have neither and some states have one or the other.  For Federal purposes, there is only estate taxes to be concerned with. 

If you become subject to Federal Estate Tax, that means that you have a gross estate (which includes probate and non-probate assets as well as jointly-owned assets) in excess of approximately $11.5 million (indexed each year for inflation and scheduled to sunset in 2025 with the current legislation). 

More individuals are concerned with their state death tax laws and what would apply to their estates.  To provide a simple distinction between the two types of death taxes – Inheritance and Estate – generally an Inheritance Tax is based upon the relationship of the beneficiary to the decedent while Estate Tax is based upon the value. 

If you live in New Jersey, your estate could be subject to Inheritance Tax.   Estate Tax in New Jersey was abolished a few years ago.  If your estate passes to lineal heirs or charities, there is no Inheritance Tax.  However, any assets passing to non-lineal (collateral) heirs – siblings, aunts, uncles, non-relatives – would be subject to New Jersey Inheritance Tax at rates up to 16 percent.  (Life insurance payable to a designated beneficiary is not subject to New Jersey Inheritance Tax regardless of the relationship.) 

However, if you live across the River in Pennsylvania, your estate becomes subject to Pennsylvania Inheritance Tax for all assets passing to a non-spouse or charity.  Yes, even children will pay Inheritance Tax on what they inherit from their parents at the rate of 4,5 percent.  The top Inheritance Tax rate in Pennsylvania is 15 percent.  There is no Estate Tax in Pennsylvania. 

Our neighbor to the north, New York, imposes an Estate Tax of 3.06 to 16 percent on estates valued over $5.9 million. 

Looking at a couple of New England states, Connecticut has an Estate Tax of 10 to 12 percent on estates above $5.1 million; Maine has an Estate Tax of 8 to 12 percent on estates over $5.7 million; Estate Tax in Massachusetts ranges from 0.8 to 16 percent on estates above $1 million; Rhode Island has an Estate Tax ranging from 0.8 to 16 percent on estates above $1.6 million; and Vermont’s Estate Tax is 16 percent on estates above $2.8 million. 

Southern states such as the District of Columbia have an Estate Tax of 12 to 16 percent on estates above $5.8 million while Maryland has an Estate Tax of 0,8 to 16 percent on estates above $5 million as well as Inheritance Tax of up to 10 percent.  If you live in Kentucky, there is an Inheritance Tax of up to 15 percent.

There are other states which have Inheritance Taxes of up to 18 percent and Estate Taxes of up to 20 percent on estates above $2.2 million. 

As long as I have lived in New Jersey, I have consistently heard that we are a heavily-taxed state, but I recently saw a comparison of taxes imposed in each of the 50 states and DC, which included Sales Taxes, Income Taxes, Personal Property Taxes, Estate Taxes, Inheritance Taxes, Wage Taxes, Real Estate Taxes. I was quite surprised that, in the end, most states have approximately the same aggregate tax rates but they are just identified differently.  As the saying goes “There are only two things for certain in life – death and taxes”.