Month: January 2022

In late December, Senator Joe Manchin (D. West Virginia) indicated that he would not support President Biden’s Build Back Better (BBB) legislation.

As a result, the legislation did not have enough votes in the Senate to be enacted. The BBB had been previously approved by the House of Representatives where the Democrats hold a slim majority. However, the Senate is evenly divided between Democrats and Republicans. Therefore, Senator Manchin’s decision not to endorse the current version of BBB meant that it would not become law.

Senator Manchin’s key disagreements with BBB are that its projected cost of $2 trillion would contribute to the current escalating inflation and that several of the social programs in the legislation did not have a means test to determine if an individual would qualify for the program. In addition, the bill’s proposal to increase the state and local tax deduction generally benefit taxpayers that have high incomes of $400,000 or more. Moreover, Senator Manchin maintained that the full cost of the BBB would approach $4 trillion, which is more than double that the bill’s supporters claimed.

While BBB is currently on hold, negotiations continue to potentially enact some form of the legislation. We will provide updates on any developments. The significant social programs included in the bill related to climate initiatives, healthcare subsidies, universal prekindergarten, childcare, eldercare, paid leave, prescription drug pricing, and affordable housing.

Under the bill, the cost of these programs was to be offset by various tax increases to corporations and high-income individuals. For example, a 15% corporate minimum tax was proposed on corporations that have $1 billion of book income. Taxable income for large corporations can be reduced by net operating losses, tax credits, and interest deductions that result in no income tax liability for the year. The minimum tax was designed to address this issue.

In addition, the BBB bill was going to impose the 3.8% investment income tax on individuals that had an income of $400,000 or more from a trade or business. As a result, active trade or business income allocated to a limited partner of a limited partnership or a shareholder of a subchapter S corporation would have been subject to the net investment income tax. Under current law, the tax applies only to certain portfolios and passive income.
Also, the bill was set to limit the gain exemption under IRC § 1202 for “qualified small business stock”. The exemption would have been reduced from 100% to 50% for taxpayers earning more than $400,000 in a year.

We will monitor any further developments regarding this legislation. It should be noted that Senator Manchin’s dispute with BBB was its cost and potential inflationary impact upon the economy, and not the tax increases. Therefore, if the cost or amount of programs in BBB are reduced it is likely that a variation of the law could be passed – which may include the tax increases described above.

If you have any questions regarding the information in today’s blog post, contact your trusted advisor at RVG & Company, today! (954) 233-1767.

IR-2022-16, January 20, 2022 WASHINGTON — With filing season beginning January 24, the Internal Revenue Service reminded taxpayers about several key items to keep in mind when filing their federal income tax returns this year.

Given the unprecedented circumstances around the pandemic and unique challenges for this tax season, the IRS offers a 5-point checklist that can help many people speed tax return processing and refund delivery while avoiding delays.

1. File an accurate return and use e-file and direct deposit to avoid delays. Taxpayers should electronically file and choose direct deposit as soon as they have everything they need to file an accurate return. Taxpayers have many choices, including using a trusted tax professional. For those using e-file, the software helps individuals avoid mistakes by doing the math. It guides people through each section of their tax return using a question-and-answer format.

2. For an accurate return, collect all documents before preparing a tax return; make sure stimulus payment and advance Child Tax Credit information is accurate. In addition to collecting W-2s, Form 1099s and other income-related statements, it is important people have their advance Child Tax Credit and Economic Impact Payment information on hand when filing.

• Advance CTC letter 6419: In late December 2021, and continuing into January, the IRS started sending letters to people who received advance CTC payments. The letter says, “2021 Total Advance Child Tax Credit (AdvCTC) Payments” near the top and, “Letter 6419” on the bottom righthand side of the page. Here’s what people need to know:
• The letter contains important information that can help ensure the tax return is accurate.
• People who received advance CTC payments can also check the amount of the payments they received by using the CTC Update Portal available on IRS.gov.
• Eligible taxpayers who received advance Child Tax Credit payments should file a 2021 tax return to receive the second half of the credit. Eligible taxpayers who did not receive advance Child Tax Credit payments can claim the full credit by filing a tax return.
• Third Economic Impact Payment letter 6475: In late January 2022, the IRS will begin issuing letters to people who received a third payment in late January 2021. The letter says, “Your Third Economic Impact Payment” near the top and, “Letter 6475” on the bottom righthand side of the page. Here’s what people need to know:
• Most eligible people already received their stimulus payments. This letter will help individuals determine if they are eligible to claim the Recovery Rebate Credit (RRC) for missing stimulus payments.
• People who are eligible for RRC must file a 2021 tax return to claim their remaining stimulus amount.
• People can also use IRS online account to view their Economic Impact Payment amounts.

Both letters – 6419 and 6475 – include important information that can help people file an accurate 2021 tax return. If a return includes errors or is incomplete, it may require further review while the IRS corrects the error, which may slow the tax refund. Using this information when preparing a tax return electronically can reduce errors and avoid delays in processing.

3. Avoid lengthy phone delays; use online resources before calling the IRS. Phone demand on IRS assistance lines remains at record highs. To avoid lengthy delays, the IRS urges people to use IRS.gov to get answers to tax questions, check a refund status or pay taxes. There’s no wait time or appointment needed — online tools and resources are available 24 hours a day.

Additionally, the IRS has several ways for taxpayers to stay up to date on important tax information:

• Follow the IRS’ official social media accounts and email subscription lists to stay current on the latest tax topics and alerts.
• Download the IRS2Go mobile app, watch IRS YouTube videos, or follow the IRS on Twitter, Facebook, LinkedIn and Instagram for the latest updates on tax changes, scam alerts, initiatives, products and services.
• Taxpayers can also get information in their preferred language. The IRS translates tax resources into several languages and currently has basic tax information in 20 languages. People can also file Schedule LEP, Request for Change in Language Preference, to receive written communications from the IRS in their preferred language.

4. Waiting on a 2020 tax return to be processed? Special tip to help with e-filing a 2021 tax return: In order to validate and successfully submit an electronically filed tax return to the IRS, taxpayers need their Adjusted Gross Income, or AGI, from their most recent tax return. For those waiting on their 2020 tax return to be processed, here’s a special tip to ensure the tax return is accepted by the IRS for processing. Make sure to enter $0 (zero dollars) for last year’s AGI on the 2021 tax return. For those who used a Non-Filer tool in 2021 to register for an advance Child Tax Credit or third Economic Impact Payment in 2021, they should enter $1 as their prior year AGI. Everyone else should enter their prior year’s AGI from last year’s return. Remember, if using the same tax preparation software as last year, this field will auto-populate.

5. Free resources are available to help taxpayers file. During this challenging year, the IRS reminds taxpayers there are many options for free help, including many resources on IRS.gov. For those looking to avoid the delays with a paper tax return, IRS Free File is an option. With Free File, leading tax software providers make their online products available for free as part of a 20-year partnership with the Internal Revenue Service. This year, there are eight products in English and two in Spanish. IRS Free File is available to any person or family who earned $73,000 or less in 2021. Qualified taxpayers can also find free one-on-one tax preparation help around the nation through the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs.

While the 2021 tax season presented challenges for the Internal Revenue Service and taxpayers, filing tax returns early can significantly reduce and minimize issues faced by both the IRS and individuals.

IRS Challenges

In a recent report issued by the National Taxpayer Advocate (NTA) to Congress, the NTA recognized the challenges faced by the IRS during 2021 and indicated that the IRS performed well under the circumstances. Similar to all organizations, the IRS was faced with a reduced workforce and closed offices resulting from COVID-19. Nevertheless, Congress charged the IRS with administering several COVID-19 pandemic relief programs during the filing season, These programs include: 1) the third round of stimulus payment in March of 2021 (also known as Economic Impact Payments); 2) monthly payments of the Advance Child Tax Credit; 3) implementing the provision to reduce of the taxability of unemployment compensation; 4) process tax returns and claims related to the Employee Retention Credit (ERC), and 5) assist the Small Business Administration is developing forms and guidelines for the Paycheck Protection Program loans.

This increased responsibility for the IRS led to significant delays in processing tax returns and refunds for taxpayers. During this period of time, corporate and individual taxpayers filed refund claims related to an expansion of the Net Operating Loss rules, Earned Income Tax Credits, ERC, and stimulus payments. As a result, there IRS saw a significant increase in tax returns to be processed.

In addition to the IRS encountering delays in processing tax returns and refunds, it was difficult for taxpayers to contact the IRS through their customer service lines. According to the NTA’s report, only 11% of calls made to the IRS customer representatives were answered. Also, during this time the IRS online tool titled “Where’s My Fund?” was often nonfunctional and unable to provide guidance for taxpayers.

Taxpayer Solutions – File as Early as Possible

In general, the IRS will process tax returns in the order that they are received. Moreover, tax returns that are filed electronically do not require processing by hand and their related refunds will be expedited. In addition, to efficient processing and turn-around time by the IRS, filing as early as possible does have several benefits that we will discuss below.

Stimulus Credits – As noted above, a significant reason to file early is to receive whatever is due back to you faster. This year, that not only includes refunds, but also any money from the third economic stimulus payment in March 2021 and the Child Tax Credit. While most of the payments were sent out correctly, some taxpayers’ circumstances changed during 2021 or they did not get the entire amount for which they qualified.

Avoid Tax Scammers – Filing your tax return as soon as possible is one of the best ways to guard against tax-related identity theft. In these instances, a criminal files a fraudulent return and collects a refund in your name before you file your return. If you file your legitimate return before a scammer attempts to file one for you, the fraudulent return is rejected. To protect yourself, remember that the IRS will not initiate requests for personal or financial information by email, text, or social media.

Obtain Tax Documents – 1099s, W-2s, and K-1s – Proactively ask financial institutions, employers, and charities for the appropriated documentation. Receiving these items early allows taxpayers to review their information to correct mistakes or any misunderstandings.

In sum, the challenges faced by the IRS during the 2021 tax season are expected to continue. While the IRS is taking steps to ensure a more efficient tax filing season, there are measures that taxpayers can take to minimize these issues.

If you have any questions regarding the information in today’s blog post, contact your trusted advisor at RVG & Company, today! (954) 233-1767.