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What taxpayers can do now to get ready to file taxes in 2022 January 19, 2022

Posted by bradstreetblogger in : Business consulting, Business Consulting, Charitable Giving, COVID, Deductions, Depreciation options, Electronic Tax Filing, Fraud, General, Healthcare, QuickBooks, Retirement, Section 168, Section 179, tax changes, Tax Deadlines, Tax Planning Tips, Tax Preparation, Tax Rules, Tax Tip, Taxes, Uncategorized , add a comment
‘Tax time’ memo on 1040 individual tax form

This Week’s Quote:

Everything started as nothing. 

Now that the holidays are over, we at Bradstreet & Company want to thank you for another year of great relationships and meaningful friendships, and hope you have a joyous and prosperous new year. 
As you start thinking about gathering all of your tax related information, please keep in mind that the new tax laws and recent provisions have made it more important than ever to have the correct information available to prepare your returns.  Our last tax tip in 2021 mentioned several items for you to watch for as tax time rolls around.  In this tax tip, we wanted to mention a few things that will be needed that you would not normally have to worry about.  For example, when we were working on 2020 returns, we needed to know how much in stimulus payments you received.  Several folks knew exactly, but some had no clue.  This was a brand new issue for 2020, and we have the same issue again for 2021.  You will need to know how much you received for the third stimulus round because it will be reconciled on your 2021 return.  Although stimulus payments are not taxable income, they have to be reconciled in the return, and for those of you who didn’t get the full amount, you could be entitled to more money.  Another item that will be needed to prepare your returns are the amounts of advance child tax credits you might have received.  In addition, if you deal in virtual currency, you will need a complete summary of any dispositions and related acquisitions since these transactions will need to be reported in your returns.  Below is an IRS tax tip that summarizes a lot of the information that will be needed this tax season in order to prepare returns, and also provides some other useful information.  We hope it will help with gathering the information needed.

Issue Number: COVID Tax Tip 2021-177


What taxpayers can do now to get ready to file taxes in 2022
There are steps people, including those who received stimulus payments or advance child tax credit payments, can take now to make sure their tax filing experience goes smoothly in 2022. They can start by visiting the Get Ready page on IRS.gov. Here are some other things they should do to prepare to file their tax return.
Gather and organize tax records
Organized tax records make preparing a complete and accurate tax return easier. They help avoid errors that lead to processing delays that slow refunds. Having all needed documents on hand before taxpayers prepare their return helps them file it completely and accurately. This includes:

Taxpayers should also gather any documents from these types of earnings. People should keep copies of tax returns and all supporting documents for at least three years.
Income documents can help taxpayers determine if they’re eligible for deductions or credits. People who need to reconcile their advance payments of the child tax credit and premium tax credit will need their related 2021 information. Those who did not receive their full third Economic Impact Payments will need their third payment amounts to figure and claim the 2021 recovery rebate credit.
Taxpayers should also keep end of year documents including:

Confirm mailing and email addresses and report name changes
To make sure forms make it to the them on time, taxpayers should confirm now that each employer, bank and other payer has their current mailing address or email address. People can report address changes by completing Form 8822, Change of Address and sending it to the IRS. Taxpayers should also notify the postal service to forward their mail by going online at USPS.com or their local post office. They should also notify the Social Security Administration of a legal name change.
View account information online
Individuals who have not set up an Online Account yet should do so soon. People who have already set up an Online Account should make sure they can still log in successfully. Taxpayers can use Online Account to securely access the latest available information about their federal tax account.
Review proper tax withholding and make adjustments if needed
Taxpayers may want to consider adjusting their withholding if they owed taxes or received a large refund in 2021. Changing withholding can help avoid a tax bill or let individuals keep more money each payday. Life changes – getting married or divorced, welcoming a child or taking on a second job – may also be reasons to change withholding. Taxpayers might think about completing a new Form W-4, Employee’s Withholding Certificate, each year and when personal or financial situations change.
People also need to consider estimated tax payments. Individuals who receive a substantial amount of non-wage income like self-employment income, investment income, taxable Social Security benefits and in some instances, pension and annuity income should make quarterly estimated tax payments. The last payment for 2021 is due on Jan. 18, 2022.
Credit given to:  IRS Tax Tip 2021-177
Thank you for all of your questions, c

Now that the holidays are over, we at Bradstreet & Company want to thank you for another year of great relationships and meaningful friendships, and hope you have a joyous and prosperous new year. 

As you start thinking about gathering all of your tax related information, please keep in mind that the new tax laws and recent provisions have made it more important than ever to have the correct information available to prepare your returns.  Our last tax tip in 2021 mentioned several items for you to watch for as tax time rolls around.  In this tax tip, we wanted to mention a few things that will be needed that you would not normally have to worry about.  For example, when we were working on 2020 returns, we needed to know how much in stimulus payments you received.  Several folks knew exactly, but some had no clue.  This was a brand new issue for 2020, and we have the same issue again for 2021.  You will need to know how much you received for the third stimulus round because it will be reconciled on your 2021 return.  Although stimulus payments are not taxable income, they have to be reconciled in the return, and for those of you who didn’t get the full amount, you could be entitled to more money.  Another item that will be needed to prepare your returns are the amounts of advance child tax credits you might have received.  In addition, if you deal in virtual currency, you will need a complete summary of any dispositions and related acquisitions since these transactions will need to be reported in your returns.  Below is an IRS tax tip that summarizes a lot of the information that will be needed this tax season in order to prepare returns, and also provides some other useful information.  We hope it will help with gathering the information needed.

Issue Number: COVID Tax Tip 2021-177


What taxpayers can do now to get ready to file taxes in 2022

There are steps people, including those who received stimulus payments or advance child tax credit payments, can take now to make sure their tax filing experience goes smoothly in 2022. They can start by visiting the Get Ready page on IRS.gov. Here are some other things they should do to prepare to file their tax return.

Gather and organize tax records
Organized tax records make preparing a complete and accurate tax return easier. They help avoid errors that lead to processing delays that slow refunds. Having all needed documents on hand before taxpayers prepare their return helps them file it completely and accurately. This includes:

Taxpayers should also gather any documents from these types of earnings. People should keep copies of tax returns and all supporting documents for at least three years.
Income documents can help taxpayers determine if they’re eligible for deductions or credits. People who need to reconcile their advance payments of the child tax credit and premium tax credit will need their related 2021 information. Those who did not receive their full third Economic Impact Payments will need their third payment amounts to figure and claim the 2021 recovery rebate credit.

Taxpayers should also keep end of year documents including:

Confirm mailing and email addresses and report name changes
To make sure forms make it to the them on time, taxpayers should confirm now that each employer, bank and other payer has their current mailing address or email address. People can report address changes by completing Form 8822, Change of Address and sending it to the IRS. Taxpayers should also notify the postal service to forward their mail by going online at USPS.com or their local post office. They should also notify the Social Security Administration of a legal name change.

View account information online
Individuals who have not set up an Online Account yet should do so soon. People who have already set up an Online Account should make sure they can still log in successfully. Taxpayers can use Online Account to securely access the latest available information about their federal tax account.

Review proper tax withholding and make adjustments if needed
Taxpayers may want to consider adjusting their withholding if they owed taxes or received a large refund in 2021. Changing withholding can help avoid a tax bill or let individuals keep more money each payday. Life changes – getting married or divorced, welcoming a child or taking on a second job – may also be reasons to change withholding. Taxpayers might think about completing a new Form W-4, Employee’s Withholding Certificate, each year and when personal or financial situations change.

People also need to consider estimated tax payments. Individuals who receive a substantial amount of non-wage income like self-employment income, investment income, taxable Social Security benefits and in some instances, pension and annuity income should make quarterly estimated tax payments. The last payment for 2021 is due on Jan. 18, 2022.

Credit given to:  IRS Tax Tip 2021-177

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.
 
This Week’s Author, Norman S. Hicks, CPA

–until next week.

omments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.
 
This Week’s Author, Norman S. Hicks, CPA
–until next week.

The Dos and Don’ts of Buying or Selling a Home January 12, 2022

Posted by bradstreetblogger in : Business consulting, Business Consulting, Charitable Giving, COVID, COVID-19, Deductions, Depreciation options, Electronic Tax Filing, Fraud, General, Healthcare, QuickBooks, Retirement, Section 168, Section 179, tax changes, Tax Deadlines, Tax Planning Tips, Tax Preparation, Tax Rules, Tax Tip, Taxes, Taxes, Uncategorized , add a comment

This Week’s Quote:


Keep the bad moments short.
                                  -Chris Norton

At the beginning of the pandemic, I made several predictions.  I have been wrong about every one.  None of my predictions were more wrong than on the real estate market.  I underestimated the impact of the federal and state stimulus packages.  For certain groups of people, money and/or credit abound.  Although cooling slightly, the real estate market remains hot.  Properties sell commonly above asking price.  Sight unseen.  Bidding wars abound.  Buyers making offers of $X,XXX above any other offer.  Crazy times! 

From a tax standpoint, what are the consequences of selling your personal residence?  If you have lived in that home for 2 out of the last 5 years and your gain is less than $250,000 (single taxpayer) or less than $500,000 (married filing jointly taxpayer), you are all good.  No tax.  Of course, exceptions apply – they always do, look at this guide to go viral on TikTok.  One exception is if any depreciation expense was ever claimed on your home, it may need recaptured and taxed.  This could happen if you claimed an office in the home.  Another exception is, if you inherited your home – your tax basis is equal to the fair value in the estate.  Remember the sales price less your tax basis is your gain which may be taxed if the gain is above the $250,000/$500,000 exemption and you otherwise qualify.  If you lived in your home less than 2 years, the exemptions may be prorated so all is not necessarily lost.  If your home was gifted to you, your basis is the donor’s basis.  For example, if the home gifted to you was built by your grandparents in 1950 using lumber logged from the family farm, your grandparents, most likely, don’t have much money in the home.  Thusly, your tax basis is low and if you sell you may more likely have a taxable gain than had your basis been higher.  But, what the heck – the house was gifted to you.  I guess you can’t have your cake and eat it too.  But, as always, check with your tax advisor.   

Sorry, I got sidetracked by some tax aspects of selling your home.  Below Beth DeCarbo explains “The Biggest Mistakes Home Buyers and Sellers Make.”  Her WSJ story was released on September 20, 2021 and is an enlightening read.

                                  -Mark Bradstreet


The Biggest Mistakes Home Buyers and Sellers Make

When people say they “fell in love with a house,” they would do well to remember another common saying: Love is blind.

Overcome by strong emotions, potential buyers of the biggest investments of their lives overlook things like a lousy view, choppy floor plan or ancient mechanical systems. Likewise, would-be sellers are often so eager to sell—or so in love with the homes they’re leaving—that they are blind to the house’s fixable flaws, or to the need to plan for capital-gains taxes.

And that’s how it goes in normal times. The current frenzied real-estate market is only exacerbating those emotion-driven mistakes—with buyers feeling they need to do anything to get a house, and sellers cutting corners to take advantage of a hot market. The result is that some buyers are overpaying for the house they’re buying, while some sellers are leaving money on the table.

To help restore some common sense to potential buyers and sellers, we asked financial planners, real-estate agents, interior designers and other professionals to name the five biggest mistakes buyers and sellers make with real estate.

As Matt Celenza, a financial adviser in Beverly Hills, Calif., reminds his clients: “Buying a house is an emotional purchase, but it’s an investment, too.”

Buying Mistakes

1. Picking a so-so location
Too often, real-estate experts say, people may fall in love with the house, and forgive it for the company it keeps. Maybe it surrounds itself with a lot of noise. Or unsavory characters. Or few places to get out and find peace. In other words, they violate the first rule of real estate: location, location, location.

That has rarely been more true than today, as desperate buyers find themselves pushed out of coveted neighborhoods because of a shortage of available houses.

“Today, in Miami Beach, people don’t care if a house is next to a bridge or if airplanes are flying over,” says Dina Goldentayer, executive director of sales at Douglas Elliman Real Estate in Miami Beach.

Out-of-state buyers have been flocking to Florida in recent years for economic reasons—the state has no income tax or estate tax. Then last year, the pandemic brought in waves of corporate executives who could work remotely from the beach. The inventory of available homes got so low that some buyers felt they had no choice but to make compromises.

Sometimes buyers knowingly purchase homes in poor locations because of economic reasons, Ms. Goldentayer says. Perhaps they’re selling a property in California and want to quickly establish Florida residency for the tax benefits. A new school year compels some buyers to purchase in their desired school district, even if the home’s location is less than ideal. And in a supercharged real-estate market, sometimes a home in an inferior location is the only option.

A poor location could haunt today’s buyers when they decide to sell. “You can change your floor plan,” Ms. Goldentayer says. “You can always add a bathroom. You can never change your view exposure or your placement on a street. You may be a seller someday when the market isn’t as hot. Buyers will be more particular in that market.”

2. Buying a house sight unseen
An online listing may include professional photography, 3-D floor plans and virtual walk-throughs, but nothing can replace an in-person visit, says Cindy Stanton, an agent with Parks Real Estate in Brentwood, Tenn.

Such listings can look too good to be true. And, as anybody who has followed up with an in-person visit knows, they often are. How did they make that tiny room look so spacious?

And yet a lot of buyers—especially these days with people buying out of state or not wanting to visit a stranger’s house because of the pandemic—are satisfied with the online presentation. Ms. Stanton’s firm recently had a client from California who bought a house based solely on the listing photos. The agent toured the property “live” with the client via FaceTime, pointing out carpet stains and other flaws along the way. Nonetheless, the client waived an inspection and skipped the pre-closing walk-through. After the sale, when the client walked through the house for the first time, she was disappointed, Ms. Stanton says. The house is currently undergoing repairs and upgrades, after which the new owner will put it back on the market.

Buyers’ remorse can also set in when only one person in a couple tours a home, leading to panicked “front-yard decisions,” says Learka Bosnak, a real-estate agent of Heather & Learka at Douglas Elliman in Beverly Hills, Calif. “The last thing you want is to be standing in the front yard of a house you just toured, trying to call your partner who is not picking up because they are in the middle of a work dinner in London,” Ms. Bosnak says. “That’s not the time to decide if it’s OK for you to submit an offer.”

3. Waiving the inspection
In this hypercompetitive housing market, many buyers have been skipping preliminary home inspections to make their offers more enticing to sellers. That’s a big mistake, says Vincent Deorio, an executive with Altas, a real-estate investment and management firm based in Denver.

One of his clients wanted to skip a sewer-line inspection that would assess the piping and identify any blockages. Mr. Deorio persuaded the client to have the pipes professionally scoped with a small camera, which revealed a large crack in a pipe under the street and driveway. Because it was detected early, the sellers were responsible for the $15,000 to $20,000 repair.

In other cases, inspections have revealed layers of improperly laid roofing materials, faulty foundations, and subpar wiring and plumbing concealed by wood paneling. What you can’t see can be costly to repair. Mr. Deorio tells clients to never “judge a book by its cover and to always dig as deep as possible when assessing a potential property.”

Inspections are important even if potential buyers want to raze an existing house to build a new one, says Judy Zeder, an agent with the Jills Zeder Group in Miami. “In an old house, you can have a buried septic tank in the yard or asbestos in the roof or air-conditioning system. Competent inspections are the only way buyers can be sure they can proceed with the teardown and build what they want to build,” Ms. Zeder says.

4. Getting a high-maintenance vacation home
When buying a weekend retreat or vacation home, most people focus on properties they “dream about” and not the cost of ownership, says Will Rogers, a private wealth adviser with Ameriprise Financial in Augusta, Ga. “They often don’t realize that renovations, repairs and ongoing maintenance costs can drain their bank accounts and sap the fun right out of a pleasure property.”

He recently talked a client out of buying a lake house north of Minneapolis that was listed for just under $300,000. It was an older home in need of big-ticket upgrades in the coming years—electrical wiring, the heating system and the roof. It also had a big yard with lots of grass. Buyers don’t want their second home to become a second job, Mr. Rogers told his client.

5. Tying your own hands
Are you prepared to be told what color to paint your house, where to park your car and how often to mow your lawn? For some people, the answer is no.

That’s why buyers planning to purchase a home in any community controlled by a homeowners association should be sure to review the association’s regulations and restrictions, says Kristi Nelson, a Los Angeles-based interior designer. “Otherwise, you’re in for a very rough experience on top of what’s already a mentally and emotionally challenging journey,” she says.

Selling Mistakes
1. Showing the house at its worst
People are so in love with their own homes that they sometimes don’t see its flaws. But buyers do.

“I’m a big believer in the presentation of a house,” says John Manning of Re/Max On Market in Seattle. “We’re emotional creatures. When we walk into an untidy house, we don’t see the house. We see the stuff—dirty laundry, uncleaned Kitty Litter, dishes in the sink.” An unkempt house affects the seller’s bottom line, even in a red-hot real-estate market. “If it’s a $1 million house, you could go down $50,000,” Mr. Manning says. “That’s just leaving money on the table.”

Ideally, he says, the homeowners will move out of the house, which is then staged to highlight its best features. “For a seller, the listing is only the beginning of the process. They need to be prepared to show their home throughout the process.”

2. Not planning for capital-gains taxes
If the sellers’ home has appreciated in value, the profit could be subject to capital-gains taxes. Certain home improvements can potentially reduce the tax bill—but only if the sellers have documentation showing that improvements increased the home’s market value, prolonged its useful life or adapted it to new uses, says Mr. Rogers, the financial adviser in Augusta.

He recently worked with a widowed client who sold her home and moved into an assisted-living facility. Her home had been purchased decades ago for $64,000, and it sold for $457,000. The profit exceeded the IRS’s capital-gains exemption of $250,000 for individuals and $500,000 for married couples, meaning the client faced a hefty tax bill.

The client, who had Alzheimer’s disease, had scanty records on improvements that had been made over the years. Luckily, Mr. Rogers had financial records that documented a new roof, a remodeling project and deck extension—and that proof allowed his client to avoid capital-gains taxes entirely.

3. Mishandling the sale of an estate
The impact of a mistake isn’t felt just when the owner is alive. If a homeowner doesn’t provide a detailed estate plan—and have clear communications with heirs—disputes over the estate can delay or even scrub a home sale after the owner dies.

Mr. Manning says his firm recently worked with clients who wanted to buy a rural property listed for about $500,000. But in investigating the title, the firm realized that the property was involved in a legal dispute among siblings. “There was a strong chance that our client could find himself in a lawsuit fighting claims that the sale to him was improper,” Mr. Manning says. As a result, the potential buyer walked away from the deal.

Similarly, homeowners who bequeath a home to heirs in hopes of keeping it in the family often fail to provide funds to cover the annual costs of maintaining it, says Frank Riviezzo, a New York-based CPA. As a result, the heirs may feel pressured to sell—even if a down market prevents the house from getting top dollar.

4. Fudging facts and flaws
Maybe they won’t notice.

How many sellers have said that to themselves, hoping that buyers won’t see the problem with the roof, or the signs of former water damage—even though sellers are required by law to disclose any known deficiencies in a home.

“When you’re selling a home, you have to establish some degree of trust between yourself and the buyer,” says Mr. Manning. “That’s how you get the highest price for your home.” But, he says, “when you withhold information about the condition of a house, the buyer might get more aggressive if they think you’re hiding something.”

That trust is also eroded when sellers withhold or provide incorrect information that could affect a potential buyer’s offer price. Cindy Cole, a real-estate agent in Destin, Fla., has seen sellers who exaggerated the amount of rental income generated by a vacation property.

5. Steamrolling your significant other
There’s nothing that hurts a relationship like a spouse who buys a surprise house for their beloved. Except perhaps a spouse who sells a beloved’s house. Tim Gorter, an architect in Santa Barbara, Calif., recalls a case in which the husband sold a vacation house without first consulting his wife, who cherished the property. The wife was upset, so the husband hired Mr. Gorter to design her a “dream vacation home” on a property they owned next door.

It took two years to design the home and obtain proper permits. Shortly after construction began, the husband chatted with the owners who had purchased his vacation home—and they were willing to sell it back to him for a profit. In short, says Mr. Gorter, “my client sold his vacation home without consulting his wife, only to buy the property back at a higher price two years later, while paying a handsome architectural commission to design a project on the neighboring property that he never built. Still, the wife was happy she got her house back, and that made the husband happy.”
 
Credit Given to:  Beth DeCarbo. Published September 30, 2021 in the Wall Street Journal.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Mark Bradstreet

-until next week.

How To Apply For Studen Loan Forgiveness January 12, 2022

Posted by bradstreetblogger in : Business consulting, Business Consulting, COVID, COVID-19, Deductions, Depreciation options, General, tax changes, Tax Planning Tips, Tax Preparation, Tax Rules, Tax Tip, Taxes, Uncategorized , add a comment
Student loan forgiveness written on a memo stick.

This Week’s Quote:

It always seems impossible until it is done.
                                      -Nelson Mandela

During these difficult times, I thought that this article may be helpful to those with student loans.

-Belinda Stickle

There are many options for student loan forgiveness and discharge, but each has different eligibility restrictions and a different application process. Learn how to apply for student loan forgiveness.

Student loan forgiveness and discharge options include:

Some student loan forgiveness is automatic. Other student loan forgiveness requires the borrower to submit an application form. Application forms can be obtained by contacting the loan servicer or by calling the U.S. Department of Education’s Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243).

There is no fee to apply for loan forgiveness. You do not need to pay anyone for help in applying for loan forgiveness.

The American Rescue Plan Act of 2021 made all student loan forgiveness and student loan discharge tax-free through December 31, 2025. This legislation is likely to be extended or made permanent before it sunsets.

Public Service Loan Forgiveness

Public Service Loan Forgiveness (PSLF) cancels the remaining debt on eligible student loans after the borrower makes 120 qualifying monthly payments in an eligible repayment plan while working full-time in an eligible public service job.

The entire remaining debt is forgiven, including the outstanding interest and principal balance. If the borrower has made more than 120 qualifying payments, the extra payments will be refunded to the borrower.

The 120 qualifying payments do not need to be consecutive. It takes at least 10 years to qualify, since borrowers cannot make 120 qualifying payments in less than 10 years.

Payments that were paused during the pandemic under the payment pause and interest waiver count toward forgiveness.

Deferments and forbearances count toward loan forgiveness for borrowers who suspended repayment while serving on active duty in the U.S. Armed Forces. For example, the military service deferment counts toward PSLF.

Eligible public service jobs include working directly for a government agency (not indirectly through a government contractor), working for a 501(c)(3) tax-exempt charitable organization or working in public interest law for a non-profit organization.

Eligible loans include loans in the William D. Ford Federal Direct Loan Program (Direct Loans). Loans in the Federal Family Education Loan Program (FFELP) and Federal Perkins Loans may be made eligible by consolidating them into a Federal Direct Consolidation Loan. Borrowers can check their loan types using the Aid Summary tool, which is available at StudentAid.gov/aid-summary.

Eligible repayment plans include Standard Repayment and the four income-driven repayment plans: Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), Pay-As-You-Earn Repayment (PAYE) and Revised Pay-As-You-Earn Repayment (REPAYE).

The Temporary Expanded Public Service Loan Forgiveness (TEPSLF) program provides $700 million in funding to forgive eligible student loans that were repaid in the graduated and extended repayment plans, if the last year of payments are at least as much as they would have been under an income-driven repayment plan.

To apply for PSLF and TEPSLF, borrowers should use the PSLF Help Tool available at StudentAid.gov/PSLF.  This tool will confirm that the borrower is working for an eligible employer. It will also enable the borrower to file an Employment Certification Form (ECF) or apply for public service loan forgiveness. (Borrowers should file an ECF every year and whenever they change employers, to confirm that they are on track toward loan forgiveness and to create a record of qualifying payments.)

temporary waiver is available through October 31, 2022 to allow payments to count toward PSLF regardless of loan program or repayment plan. Late payments and partial payments will count toward loan forgiveness. Borrowers must file an Employment Certification Form (ECF) or apply for loan forgiveness before the deadline. Federal Parent PLUS loans are not eligible for the waiver.

The waiver also allows monthly payments on FFELP and Federal Perkins loans to count toward loan forgiveness, if the loans are consolidated into a Federal Direct Consolidation Loan and the borrower files an ECF or applies for loan forgiveness before the deadline. It can take up to 45 days to consolidate federal student loans, so borrowers should not procrastinate. The PSLF Help Tool should be updated by the end of the year to recognize FFELP and Federal Perkins Loans.

Teacher Loan Forgiveness

College graduates who teach full-time in a low-income elementary or secondary school (or educational service agency) for five years may qualify for up to $17,500 in loan forgiveness on their subsidized and unsubsidized Federal Stafford Loans. Both FFELP and Direct Loans can qualify.

Only people who were new borrowers as of October 1, 1998 are eligible.

Eligibility is limited to highly qualified teachers. Highly qualified teachers have at least a Bachelor’s degree, full state certification as a teacher, and certification or licensing on a permanent basis. Elementary school teachers must also have passed a rigorous state test of knowledge and teaching skills in reading, writing and mathematics. Middle and secondary school teachers must also have passed a rigorous state test in each of the academic subjects in which the teacher is teaching or have an academic major or graduate degree or advanced certification in each of the academic subjects in which the teacher is teaching. Rigorous state tests can include state-required certification or licensing tests.

Math, science and special education teachers are eligible for up to $17,500 in student loan forgiveness. Other teachers may receive up to $5,000 in student loan forgiveness.

Teacher Loan Forgiveness is stackable with the Public Service Loan Forgiveness program. The same period of teaching service, however, cannot qualify for both loan forgiveness programs.

Borrowers who are in default are not eligible unless they have made satisfactory repayment arrangements with the holder of the loan.

To apply for Teacher Loan Forgiveness, submit a Teacher Loan Forgiveness Application to the loan servicer or servicers. The chief administrative officer at the school or educational service agency must complete the certification section of the application form.

Loan Forgiveness for Volunteering

Volunteers with AmeriCorps may earn Segal AmeriCorps Education Awards which can be used to repay their federal student loans and state student loans. The education awards are worth up to the maximum Federal Pell Grant amount. There is a seven-year limit on using the education awards. Volunteers age 55 and older may transfer their education awards to their children or grandchildren.
Volunteers with the Peace Corps may receive a transition payment (readjustment allowance) of more than $10,000 after completion of two years of service.

Both the education awards and transition payments may be used to repay federal student loans. These lump sum payments count toward up to 12 qualifying monthly payments for Public Service Loan Forgiveness.

However, some borrowers may be better off making payments under an income-driven repayment plan. These payments can be as low as $0 and still count toward Public Service Loan Forgiveness. Volunteering full-time with AmeriCorps or Peace Corps qualifies as full-time employment in an eligible public service job.

The U.S. Department of Education publishes a guide to repaying federal student loans for Peace Corps volunteers.

Recipients of the Segal AmeriCorps Education Award may apply the award to their student loans through the My AmeriCorps portal. Choose “Create Education Award Payment Request” and then specify “Loan Payment” as the Payment Type.

Borrowers should contact the PSLF loan servicer if they want to apply their education awards or transition payments as a lump sum payment that qualifies for Public Service Loan Forgiveness. Include the date and amount of the transition payment and the amount that was applied as a lump sum payment toward your student loans when filing an Employment Certification Form (ECF). Also include a statement that the lump sum payment was from a transition payment for service in the Peace Corps and that the lump sum payment should count toward PSLF.

Total and Permanent Disability Discharge

Federal education loans may be discharged if the borrower has a Total and Permanent Disability (TPD).

Note that Federal Parent PLUS loans can be discharged if the parent borrower becomes disabled, but not if the student becomes disabled.

There are three ways of demonstrating a total and permanent disability:

The U.S. Department of Education performs a data match with the VA and SSA to identify borrowers who are eligible for a TPD discharge and will discharge their federal education loans automatically.

To apply for a TPD discharge based on a doctor’s certification, the doctor must sign the TPD Discharge Application.

The TPD Discharge Application is available on the DisabilityDischarge.com website as a printable PDF form. There is also an online Application Wizard that can be completed instead of the PDF version. Borrowers can request that an application form be mailed to them by calling 1-888-303-7818, by faxing 1-303-696-5250 or by sending email to disabilityinformation@nelnet.net.

If the borrower’s loans are discharged based on a doctor’s certification or SSA determination, there is a three-year post-discharge monitoring period. There is no post-discharge monitoring period if the loans are discharged based on a VA determination. During the post-discharge monitoring period, the borrower’s annual earnings from employment must be less than 100% of the poverty line for a family of two and the borrower must not get a new federal education loan or TEACH Grant. (A pending proposal will eliminate the post-discharge monitoring period.)

Some lenders of private student loans provide a disability discharge that is similar to the TPD discharge available for federal student loans. Contact the lender to ask whether they offer a disability discharge. If the lender does not provide a disability discharge, ask about their compassionate review process.

Death Discharge

Federal education loans are discharged if the borrower dies. Federal Parent PLUS loans may also be discharged if the student dies.

To apply for a death discharge, provide the loan servicer with proof of death. Proof of death includes an original or certified copy of the death certificate or a photocopy of the death certificate.

Some lenders of private student loans will cancel the borrower’s loans if the borrower dies. Contact the lender for more information. If the lender does not offer a death discharge, ask about their compassionate review process.

Close School Discharge

If the student’s college closed while the student was enrolled or within 180 days of the student’s withdrawal, the student may be eligible for a closed school discharge of their federal education loans, including federal student loans and Federal Parent PLUS loans.

If the student is able to complete their program through a teach-out program or at another college, they are ineligible for the closed school discharge. If the student transfers their credits to another college, they may be ineligible for the closed school discharge.

To apply for a closed school discharge, submit a Closed School Discharge Form to the loan servicer after confirming that the college is listed on the U.S. Department of Education’s list of closed schools.

If a borrower is ineligible for a closed school discharge, they may be eligible for a borrower defense to repayment discharge.

Borrowers should also check whether their state has a tuition recovery fund or performance bond.

Borrower Defense to Repayment Discharge

Borrowers may be eligible for discharge of their federal education loans if their college engaged in fraudulent, deceptive or illegal practices concerning their student loans or education under federal or state law. Examples include providing false information about college costs, accreditation, job placement statistics or the ability to transfer credits.

Borrowers who qualify for the borrower defense to repayment discharge may also qualify for a refund of some or all of the payments they made on the loans.

To apply for a borrower defense to repayment discharge, submit an application on the U.S. Department of Education’s website.

False Certification and Unpaid Refund Discharges

If the student’s college certified the student as eligible for federal student aid, but the student is ineligible for employment in the occupation for which they are being trained due to age, criminal record, or physical or mental conditions, they may be eligible for a false certification discharge (Disqualifying Status Discharge).

If the student’s college signed their name to a loan promissory note without the student’s authorization, the student’s federal education loans may be eligible for a false certification discharge (Unauthorized Signature Discharge). Note that the student must not have received the loan proceeds, had the loan proceeds applied to charges owed by the student to the college, or otherwise benefited from the loan.

If the student did not have a high school diploma or GED, the student’s federal education loans may be eligible for a false certification discharge (Ability to Benefit Discharge).

If the student is a victim of identity theft in connection with their federal education loans, they may be eligible for the Identity Theft Discharge, sometimes called the Forgery Discharge.

When a student withdraws from a college, some or all of their federal education loans borrowed during the academic term must be returned to the U.S. Department of Education. If the college did not do this, the student may be eligible for an Unpaid Refund Discharge of their federal education loans.

To apply for a false certification discharge, submit the appropriate form to the loan servicer.

Discharge after 20 or 25 Years in an Income-Driven Repayment Plan

After 20 or 25 years in an income-driven repayment plan, the remaining debt is forgiven.

Time spent in an economic hardship deferment counts toward the 20 or 25-year repayment term in an income-driven repayment plan, but not toward Public Service Loan Forgiveness, according to the current regulations. (This may change.)

The payment pause and interest waiver counts toward the 20 or 25-year forgiveness.

Time spent in other deferments or forbearances does not count toward the 20 or 25-year forgiveness. Likewise, periods of delinquency and default does not count toward loan forgiveness. Any payments made on a defaulted loan, whether voluntary or involuntary, do not count toward the 20 or 25-year forgiveness period.

The forgiveness will be automatic. Borrowers do not need to apply for the 20 or 25-year forgiveness, but must continue repaying their loans until they are notified that the remaining balance has been forgiven. Any excess payments will be refunded to the borrower.

Credit Given to:  Mark Kantrowitz. Published October 22, 2021 on the Forbes Website.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Belinda Stickle

-until next week.

Most Common Mistakes In Doing IRA Rollovers January 9, 2022

Posted by bradstreetblogger in : Business consulting, Business Consulting, Charitable Giving, COVID, COVID-19, Deductions, Depreciation options, Electronic Tax Filing, Fraud, General, Healthcare, QuickBooks, Retirement, Section 168, Section 179, tax changes, Tax Deadlines, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

This Week’s Quote:


You are never too old to set another goal or dream a new dream.
                                  -Les Brown, Author

With the ongoing pandemic, greater numbers of people are either retiring or changing jobs.  Many of these people in flux are making rollovers from their 401(k)s to their own individual retirement accounts.  There are exacting procedures as defined by the IRS for accomplishing these rollovers tax-free.  Any violation of these rules can be VERY costly and next to impossible to cure, look at this guide to go viral on TikTok.  Some of the more common methods and errors follow:

A “direct” rollover of funds from one retirement account to another is also known as a trustee-to-trustee transfer.  In this type of rollover, the retirement plan owner never touches the money.  A “direct” rollover is the method least prone to error.  As always, verify as soon as possible that the funds were correctly disbursed and timely deposited into the appropriate account. 

More common errors occur when retirement funds are distributed to the owner (indirect) who then has 60 days to complete the rollover.  Please don’t forget that only one indirect rollover is allowed in any 12 month period.  As you may imagine, a myriad of ways exists for this plan to go sideways.  Some of these mistakes include: (1) forgetting the 60 day deadline, (2) missing the deadline because of an ill-fated effort to have the monies for another day or so, (3) lacking some of the funds necessary for the full rollover because you bought a yacht, (4) often on an indirect rollover, the plan administrator withholds 20% federal taxes so your net rollover check is now short for the full rollover, or (5) transferring the funds to a ROTH instead of an IRA.  Any of these mistakes will result in a taxable event.  Also, if you are not yet 59 ½ years old, add another 10% tax/penalty.  OUCH!

Excerpts and ideas are taken from a WSJ article by author, Leonard Sloane published on Monday, October 4, 2021 and is reprinted below.

Excerpts and ideas are taken from a WSJ article by author, Leonard Sloane published on Monday, October 4, 2021 and is reprinted below.

                                  -Mark Bradstreet


The Biggest Mistakes People Make With IRA Rollovers

As the number of rollovers increases, so does the number of mistakes. And they can cost savers a lot of money.

With Covid-triggered changes in the economy and more people taking early retirement or changing jobs, there has been a surge in rollovers from 401(k)s to individual retirement accounts.

And mistakes that are commonly made with such transfers of money are rising, too.

These mistakes can be costly, potentially amounting to tens of thousands of dollars, since the funds in a workplace retirement plan like a 401(k) often represent one of the largest payouts an individual receives.

Rolling these funds directly into a traditional IRA offers flexibility and control without paying immediate taxes, along with the ability to select from a variety of investment options—such as stocks, bonds, mutual funds, exchange-traded funds, certificates of deposit and annuities. With a company plan, you are likely to have a limited number of choices, perhaps only a half-dozen or so.

“We’ve seen an increased frequency of rollovers recently,” says Sarah Brenner, director of retirement education at Ed Slott & Co., a tax consulting firm in Rockville Centre, N.Y. “And we’ve seen a lot of questions about how to avoid mistakes in these rollovers.”

Here are some of those mistakes:

1) Taking a lump-sum distribution of the 401(k) funds instead of moving them directly to the IRA custodian. In such cases, called indirect rollovers, you have only 60 days to deposit them in the IRA. If you miss the deadline, the amount is considered a distribution that will likely need to be included in your gross income for tax purposes. If you are younger than 59½, you also could be charged a 10% early-withdrawal penalty on the money received.

There is an exception, however, for employees who have highly appreciated stock of the company they are leaving in their 401(k). It’s called the net unrealized appreciation, or NUA, strategy.

Those employees can take the lump-sum distribution and will have to pay tax at the ordinary income-tax rate—but only on the cost basis, or the adjusted original value, of that stock. The difference between the cost basis and the current market value is the NUA, and they can defer the tax on that difference until they sell the stock.

For example, if you paid $30,000 for company stock and it is now worth $90,000, the NUA is $60,000. Even when it comes time to pay, the tax on this $60,000 appreciation will be at the long-term capital-gains rate.

2) Not realizing that when you do an indirect rollover, your workplace plan administrator will usually withhold 20% of your account and send it to the Internal Revenue Service as prepayment of federal-income tax on the distribution. This happens even if you plan to immediately deposit the money in an IRA. (When you file your tax return in April, you will get a refund from the IRS if too much tax was withheld.) So, if you want to contribute the same amount that was in your 401(k) to your IRA, you must provide funds from other sources to make up for the amount withheld.

3) Rolling over funds from a 401(k) to an IRA before taking a required minimum distribution, or RMD. This mistake affects those who are required to take an RMD for the year that they are receiving the distribution from the 401(k)—individuals age 72 or older. Doing so would result in an excess contribution, which is subject to an annual 6% penalty until it is corrected.

4) Not realizing that rolling over funds from a 401(k) to a Roth IRA is considered a conversion and you must pay the tax immediately. However, if there are after-tax dollars in your 401(k) plan, you can make a tax-free distribution of those funds to a Roth IRA. You must hold funds in a Roth IRA account for at least five years before withdrawing any earnings or those earnings will be taxable and potentially subject to penalty. 

5) Not knowing there are limits when moving funds from one IRA to another IRA if you do a 60-day rollover.  Generally, you are allowed to roll over just one distribution from an IRA to another IRA within a 12-month period, regardless of how many IRAs you have. If you make more than one distribution, it is considered taxable income. And if you are under 59½, there is an additional 10% penalty.

According to the IRS, “The limit will apply by aggregating all of an individual’s IRAs, including SEP and Simple IRAs, as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit.”

To ensure a successful rollover, it may be useful to make a direct trustee-to-trustee transfer marked “for the benefit of” the IRA owner, rather than an indirect one. Then there will be no 60-day rule or once-a-year rule to worry about.
 
Credit Given to:  Leonard Sloane. Published October 4, 2021 in the Wall Street Journal.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Mark Bradstreet

-until next week.

Will the 2022 Income Tax Season be Normal? January 5, 2022

Posted by bradstreetblogger in : Business consulting, Business Consulting, Charitable Giving, COVID, COVID-19, Deductions, Depreciation options, Electronic Tax Filing, General, Healthcare, QuickBooks, Retirement, Section 168, Section 179, tax changes, Tax Deadlines, Tax Planning Tips, Tax Preparation, Tax Rules, Tax Tip, Taxes, Uncategorized , add a comment

This Week’s Quote:

If opportunity doesn’t knock, build a door. 
                                      -Milton Berle

Here is an article we found that sums up what the tax season may look like.

-Laurie Gentile and Belinda Stickle

So will the 2022 tax filing season be normal? Not likely. In addition to lasting health concerns, a number of new tax law provisions will create complications for some filers, as well as potential pitfalls to avoid. And maybe new tax laws by year’s end.

The upcoming 2022 tax return season for filing 2021 returns will be the third one since the COVID-19 pandemic hit in early 2020. If you’re like many tax practitioners, your staffers are returning to the business premises, or have already returned, as much of the country resumes regular business activities. So, will the 2022 tax filing season be normal?

Not likely. In addition to lasting health concerns, a number of new tax law provisions will create complications for some filers, as well as potential pitfalls to avoid. What’s more, prospects are brightening for year-end tax legislation that could have a significant impact. Let’s call it the “new normal.”

Start with the scheduled tax-filing deadline of April 15, 2022, for individuals to file tax returns for the 2021 tax year. During the 2020 tax season, the IRS pushed back the tax return filing due date until July because of the COVID pandemic. In 2021 the deadline was pushed back to May. The IRS isn’t expected to change the deadline for 2022, barring any unforeseen circumstances. At least that should be business as usual.

But consider some of the tax changes in the American Rescue Plan Act (ARPA) that went into effect in 2021. These could result in out-of-the-ordinary situations for clients. Here are a few common examples.  

Economic Impact Payments: The third round of Economic Impact Payments (EIPs) began going out in March. The maximum EIP of $1,400, plus payments for qualified dependents, isn’t subject to federal income tax. However, clients may have received less than they are entitled to and, therefore, are eligible for a credit on their 2021 return.

Child Tax Credit: ARPA enhanced the Child Tax Credit (CTC) by raising the maximum CTC to $3,000 ($3,600 for children under age six), making the credit fully refundable and authorizing advance payments of the credit. The IRS began issuing advance CTC payments in July. This must be factored into 2021 tax returns and could cause tax return headaches. Clients should be informed that their tax refund may be smaller than they expected due to advance CTC payments.

Dependent care credits: Under ARPA, the maximum dependent care credit for 2021 is increased for taxpayers with an adjusted gross income of $125,000 or less to $4,000 for one child; $8,000 for two or more children (up from $600 and $1,200, respectively). In addition, the credit is made fully refundable. Ensure that your clients are reaping the maximum tax rewards on their 2021 returns.

Unemployment benefits: The new law also provides a unique tax break for some workers who lost their jobs in 2020. In brief, the first $10,200 of unemployment benefits is exempt from tax if your AGI was below $150,000. But many taxpayers have missed this tax break, so review your clients’ situation carefully.

COBRA subsidies: Generally, employees who leave a company may elect to continue health insurance coverage for a specified time (usually, up to 18 months) under the Consolidated Omnibus Budget Reconciliation Act (COBRA). But the employees must pay the tab (plus a standard 2% administrative fee). Fortunately, ARPA creates a 100% subsidy for COBRA premiums spanning April 1, 2021 through September 30, 2021. These payments are completely tax-free to those that benefit. Note: Employers may recoup their costs through a payroll tax credit.   

Net result: This is shaping up as another challenging tax return season for taxpayers and tax return preparers alike. Plus, drums are beating louder in Washington for tax increases that might be enacted before the end of the year. Don’t think that things are back to “normal” quite yet.    
 
Credit Given to:  Ken Berry, J.D. Published September 27, 2021 on The CPA Practice Advisor.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Laurie Gentile & Belinda Stickle

-until next week.

Some Distribution Strategies From Retirement Accounts January 2, 2022

Posted by bradstreetblogger in : Business consulting, Business Consulting, Charitable Giving, Deductions, Depreciation options, Electronic Tax Filing, Fraud, General, Healthcare, QuickBooks, Retirement, Section 168, Section 179, tax changes, Tax Deadlines, Tax Planning Tips, Tax Preparation, Tax Tip, Taxes, Uncategorized , add a comment

This Week’s Quote:

Winning doesn’t always mean being first.  Winning means you’re doing better than you’ve done before.
                                  -Bonnie Blair, Speed Skater

Over a dozen options exist for withdrawing retirement funds.  Many of these options have a common goal of being sure your retirement funds don’t “expire” before you do.  However, many ever-changing variables may influence your decision model for optimizing withdrawal strategies.  These variables include inflation, market return, the timing of your returns, asset allocations, and life expectancy – all of which may be continually changing and evolving.  Most of these variables, you do not have any control over.  So, it is not unlikely through little fault of your own, to end up with a shortfall OR a large amount of unexpended funds TikTok for business.
 
One of the more well-known distribution methods is the “4% rule.”  In the first year, 4% is withdrawn and then thereafter that dollar amount plus more to account for annual inflation is disbursed.  Other methods include variations of using the “dynamic spending” rules – where your withdrawals are computed based upon the change in your portfolio performances.  In this model, your withdrawals go up and down with the value of your portfolio.  That could be interesting to say the least. 

                                  -Mark Bradstreet

Is there a better or best strategy for withdrawing money from retirement savings? I’m familiar with the 4% rule and RMDs. But there seem to be dozens of different ways to tap a nest egg in later life. Do you have a favorite?
 
There might not be a best way, but there is, I think, a safer way.
 
You’re right: A person getting ready to pull money from retirement savings can choose from among a dozen or more methods. The so-called 4% rule is among the best known. Here, you withdraw about 4% of your nest egg in the first year, and then that dollar amount plus more to account for inflation every year after that.
 
Or, you can use “dynamic spending rules,” in which withdrawals each year are tied to, and change with, your portfolio’s performance. If your nest egg rises in value, your withdrawal increases as well—and vice versa. Required minimum distributions, or RMDs, are an example of this: The same math (courtesy of the Internal Revenue Service) used to calculate annual withdrawals from tax-deferred accounts can be applied to your retirement savings as a whole.
 
These methods and others all have the same objective: making sure your nest egg doesn’t expire before you do. And all have the same shortcoming: Given the myriad variables involved (among them: life expectancy, market returns, the sequence of those returns, inflation, your assets and how they are allocated), there is still the chance that your savings could fall to disturbingly low levels—or, conversely, that you’ll die with piles of money unspent. (Yes, some people end up regretting that they didn’t enjoy their assets more and/or earlier.)
 
If you’re going the do-it-yourself route, I would recommend, first, getting a copy of “How Much Can I Spend in Retirement?” by Wade Pfau. Mr. Pfau, a professor of retirement income at the American College of Financial Services, examines thoroughly most of the major strategies for tapping a nest egg. (His most recent book, “Retirement Planning Guidebook,” places such withdrawals in a broader context.)

Second, spend time with Karsten Jeske, a chartered financial analyst and author of the Early Retirement Now blog, which focuses in large part on safe withdrawal rates. Note: Neither of these experts is for the financially faint of heart; some of their research and writing can be difficult to wade through. But the rewards can be considerable.
 
Again, all withdrawal strategies have their virtues and faults. As such, a safer path might be to put this decision on the back burner and focus, first, on establishing a “secure base of lifetime income,” says Joe Tomlinson, an actuary and financial planner.
 
Yes, your goal is not to run out of money in retirement. But we can divide that goal into two parts: not running out of money for essential expenses (like shelter, food and health insurance) and not running out of money for discretionary expenses, like travel. If you can cover the former with guaranteed sources of income—Social Security, a pension, an annuity, a reverse mortgage—then choosing the “With a secure base of income, the year-to-year variability [in withdrawals from retirement savings] is mitigated by the secure base,” he says.
 
Fortunately, there is a good book that lays out this very approach. “Don’t Go Broke in Retirement,” by Steve Vernon, a consulting research scholar at the Stanford Center on Longevity, looks at establishing, first, “retirement paychecks,” a reliable monthly income, and, second, setting up “retirement bonuses,” Mr. Vernon’s description for withdrawals from savings. (He prefers using RMDs and shows how the math would work for retirees age 60 and older.)
 
In short, a valuable read with lots of good examples—and a smart way to make sure your money lasts as long as you do.
 
I have a Social Security question. My wife will receive a larger benefit than I will—about $9,000 more annually. Does it matter which one of us claims our Social Security first?
 
It could matter a great deal.
 
So-called claiming strategies for spouses, in which a couple seeks to maximize their Social Security payouts over their lifetimes, have changed in recent years. Two of the most popular approaches—“file and suspend” and a “restricted application”—largely were eliminated as part of the Bipartisan Budget Act of 2015. That said, there are still options that couples should weigh before claiming benefits.
 
To start, I assume the figure you cite is based on your respective “full retirement ages.” That’s the age, according to the Social Security Administration, when a person can first collect an unreduced benefit. In your case, it could make sense for your wife—who, apparently, is the higher wage earner—to wait until she turns 70 to file for Social Security. Meantime, you could claim benefits at your full retirement age.

This approach offers several advantages. First, your wife will collect “delayed retirement credits,” which will result in the largest benefit possible for her as an individual and help boost your combined payout as a couple. Second, if your wife should die first, you would be eligible for her age-70 payout, the largest survivor benefit possible.
 
And third, if you claim benefits at full retirement age, the two of you could enjoy a monthly payment from Social Security while you’re waiting for your wife to file.
 
Of course, there are caveats. This approach tends to work best if you’re both in good health, about the same age and if your wife can, in fact, wait until 70 to file for benefits. Which is why it’s smart to take advantage of Social Security calculators that can account for such variables and help couples make these decisions.

Credit Given to:  Glenn Ruffenach. Published October 1, 2021 in the Wall Street Journal.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Mark Bradstreet

-until next week.

Happy New Year! December 29, 2021

Posted by bradstreetblogger in : Business consulting, Business Consulting, Charitable Giving, Deductions, Depreciation options, Electronic Tax Filing, Fraud, General, Healthcare, QuickBooks, Retirement, Section 168, Section 179, tax changes, Tax Deadlines, Tax Planning Tips, Tax Preparation, Tax Rules, Tax Tip, Taxes, Uncategorized , add a comment

Happy New Year!

And get ready for the tax filing season.

Hopefully, you followed some of the suggestions outlined in Publication 552 to organize your records.  If you did, great!  This will make filing your tax returns a lot easier this year.  It also means that you and your tax advisor can spend more time on tax and financial planning issues for 2022 vs. looking back to 2021.

This week we will look at some of the more common forms that you should be watching for in the coming weeks and months:

W-2:    Employers should mail these by 1/31/22.  If you have moved during the year, make sure former employers are aware of your new address. Some employers provide W-2’s to their employees via a website. Be sure to login and print out your W-2 after it is available.

W-2G:    Casinos, Lottery Commissions and other gambling entities should mail these by 1/31/22 if you have gambling winnings above a certain threshold.  Note:  Some casinos will issue you a W-2G at the time you win a jackpot.  Make sure you have saved those throughout the year.

1096:    Employers may received this form if any 1099s were prepared. This is a compilation sheet that shows the totals of the information returns that you are physically mailing to the IRS. The check box for Form 1099-H was removed from line 6, while a check box for Form 1098-Q was added to line 6. The spacing for all check boxes on line 6 was expanded. The amounts reported in Box 13 of Form 1099-INT should now be included in box 5 of Form 1096 when filing Form 1099-INT to the IRS.

1098-C:    You might receive this form if you made contributions of motor vehicles, boats, or airplanes to a qualified charitable organization. A donee organization must file a separate Form 1098-C with the IRS for each contribution of a qualified vehicle that has a claimed value of more than $500.  All filers of this form may truncate a donor’s identification number (social security number, individual taxpayer identification number, adoption taxpayer identification number, or employer identification number), on written acknowledgements. Truncation is not allowed, however, on any documents the filer files with the IRS.

1099-NEC:   This form, which  was new for 2021, reports the total paid during the year to a single person or entity for services provided. Certain Medicaid waiver payments may be excludable from the income as difficulty of care payments. 

1099-MISC:  This form will be used to report miscellaneous income such as rent or payments to an attorney, legal settlements, or prize or award winnings.

1099-INT:    This form is used to report interest income paid by banks and other financial institutions. Box 13 was added to report bond premium on tax-exempt bonds. All later boxes were renumbered.  A new check box was added to this form to identify a foreign financial institution filing this form to satisfy its Chapter 4 reporting requirement.

1099-DIV:    This form is issued to those who have received dividends from stocks.  A new check box was added to this form to identify a foreign financial institution filing this form to satisfy its Chapter 4 reporting requirement.

1099-B:     This form is issued by a broker or barter exchange that summarizes the proceeds of sales transactions. For a sale of a debt instrument that is a wash sale and has accrued market discount, a code “W” should be displayed in box 1f and the amount of the wash sale loss disallowed in box 1g.

1099-K:    This form is issued by those merchants accepting payment card transactions.  Completion of box 1b (Card Not Present transactions) is now mandatory.

K-1s:    If you are a partner, member or shareholder in a partnership or S corporation, your share of the income and expenses of the business will be reported to you on a K-1.  The tax returns for these entities are not due until 3/15/22 (if they have a calendar-year accounting).  Sometimes, you may not receive a K-1 until shortly after the entity’s tax return is filed in March.

If you are a beneficiary of an estate or trust, your share of the income and expenses for the year will also be reported on a K-1.  These returns will be due 4/15/22 so you might not receive your K-1 before the due date of your Form 1040.

NOTE:  Many times corporations, partnerships, estates and trusts will put their tax returns on extension.  If they do, the due date of the return is not until 9/15/22 or later.  We often see client’s receiving K-1s in the third week of September.

If you receive, or expect to receive, a K-1 it is best if you place your personal return on extension.  It is a lot easier to extend your return then it is to amend your return after receiving a K-1 later in the year.

1098:    This form is sent by banks or other lenders to provide the amount of mortgage interest paid on mortgage loans.  The form might also show real estate taxes paid and other useful information related to the loan.

1098-T:    This form is provided by educational institutions and shows the amounts paid or billed for tuition, scholarships received, and other educational information.  These amounts are needed to calculate educational credits that may be taken on your returns.

So start watching your mailbox and put all of these statements you receive in that new file you created!

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

–until next week

Special charity tax deduction December 22, 2021

Posted by bradstreetblogger in : Business consulting, Business Consulting, Charitable Giving, Deductions, Depreciation options, General, Retirement, Section 168, Section 179, Tax Deadlines, Tax Planning Tips, Tax Preparation, Tax Rules, Tax Tip, Taxes, Uncategorized , add a comment

This Weeks Quote:

You’re braver than you believe, and stronger than you seem, and smarter than you think.”
A.A. Mine, Author/Poet     

I received this in an email from the Internal Revenue Service and thought it would be appropriate with the year-end coming.

-Belinda Stickle

WASHINGTON – The Internal Revenue Service today reminded taxpayers that a special tax provision will allow more Americans to easily deduct up to $600 in donations to qualifying charities on their 2021 federal income tax return.

Ordinarily, people who choose to take the standard deduction cannot claim a deduction for their charitable contributions. But a temporary law change now permits them to claim a limited deduction on their 2021 federal income tax returns for cash contributions made to qualifying charitable organizations. Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify. 

Under this provision, individual tax filers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions made to qualifying charities during 2021. The maximum deduction is increased to $600 for married individuals filing joint returns.

Included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in March 2020, a more limited version of this temporary tax benefit originally only applied to tax-year 2020. The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted last December, generally extended it through the end of 2021.

Cash contributions include those made by check, credit card or debit card as well as amounts incurred by an individual for unreimbursed out-of-pocket expenses in connection with their volunteer services to a qualifying charitable organization. Cash contributions don’t include the value of volunteer services, securities, household items or other property.

The IRS reminds taxpayers to make sure they’re donating to a recognized charity. To receive a deduction, taxpayers must donate to a qualified charity. To check the status of a charity, they can use the IRS Tax Exempt Organization Search (irs.gov) tool.

Cash contributions to most charitable organizations qualify. But contributions made either to supporting organizations or to establish or maintain a donor advised fund do not. Contributions carried forward from prior years do not qualify, nor do contributions to most private foundations and most cash contributions to charitable remainder trusts.

In general, a donor-advised fund is a fund or account maintained by a charity in which a donor can, because of being a donor, advise the fund on how to distribute or invest amounts contributed by the donor and held in the fund. A supporting organization is a charity that carries out its exempt purposes by supporting other exempt organizations, usually other public charities.

Keep good records
Special recordkeeping rules apply to any taxpayer claiming a charitable contribution deduction. Usually, this includes obtaining an acknowledgment letter from the charity before filing a return and retaining a cancelled check or credit card receipt for contributions of cash.

For details on the recordkeeping rules for substantiating gifts to charity, see Publication 526, Charitable Contributions, available on IRS.gov.

Remind families about the Child Tax Credit
Besides  the special charitable contribution deduction, the IRS also encourages employers to help get the word out about the advanced payments of the Child Tax Credit because they have direct access to many employees and individuals who receive this credit. In particular, remind low-income workers, especially those who don’t normally file returns, that the deadline for signing up for these payments is now Nov. 15, 2021. More information on the Advanced Child Tax Credit is available on IRS.gov.

For more information about other Coronavirus-related tax relief, visit IRS.gov/Coronavirus.


Credit Given to:  The Internal Revenue Service.  Published on their News Wire on Nov. 3, 2021.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Belinda Stickle

-until next week.

How Remote Work Could Affect Your 2021 Income Tax December 15, 2021

Posted by bradstreetblogger in : Business consulting, Business Consulting, COVID-19, Tax Planning Tips, Tax Preparation, Taxes, Taxes, Uncategorized , add a comment

This Week’s Quote:

“You always pass failure on the way to success.” 
                                     -Mickey Rooney

With so many working from home during this ongoing Pandemic this article will be of interest to many employees.

-Laurie Gentile

Remote workers may face multistate taxation and other tax consequences this year.

Remote work continues to be commonplace amid the coronavirus pandemic, which experts say has only served to speed up the trend of increased teleworking. Remote work is often appealing to employees seeking more flexibility, but in some cases remote work can also offer tax advantages alongside reduced housing and transportation costs.

In April 2020, 69% of U.S. employees worked remotely some or all of the time, and one year later, that portion was still sizable at 51%, according to a Gallup poll. With a large portion of the U.S. workforce still working remotely and a recent uptick in relocation and job hopping, the 2021 tax season is shaping up to be complicated for many.

For now, many of those remote workers can save on taxes by relocating to low-tax states. But the taxation of remote workers is still a new and developing issue as states become more aggressive in their taxation of nonresident workers based on employer location.

“States are still playing catch-up to preserve their revenue streams,” says David Danic, director of tax services at Summit CPA Group in Indiana. “Most states are still in a relative standstill based on pre-pandemic rules, though there were some temporary rules that allowed more remote work, and I believe states are going to start trying to pick up more revenue based on where the employer is located so they’re not losing all of those employees that used to be taxed in that state.”

Remote Work and the Convenience Rule

As a general rule of thumb, workers pay income tax to their state of residence. This can offer great advantages to the city dwellers migrating to suburban or rural areas who can take advantage of their company’s work-from-home policy and relocate to a low tax state.

For example, if a taxpayer who lives and works in Washington, D.C., where the maximum individual income tax rate is 8.9%, opts to work remotely from Wyoming, where there is no state income tax, the taxpayer avoids the income tax altogether.

However, as remote work becomes more popular and taxpayers migrate, states are seeking ways to recoup that lost revenue – and instead of saving a bundle, some remote workers will end up paying taxes in two states instead of one, possibly doubling their tax burden.

Pros and Cons of Working From Home.
 
Remote workers whose companies are based in seven states will incur a tax liability in their state of residence as well as in the state in which their company is located due to convenience rules. These include Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York, and Pennsylvania.

In these states, the worker need not ever step foot in the state where their company office is located to generate this tax liability.

“When you get multiple states involved, things get complicated,” says Justin Gilmartin, managing director of tax services at the Colony Group in Boston. “If you work in a different state, those wages could be taxable in both your home state and the state where you perform the work. Usually, your home state would give you a credit for any taxes you paid to that other state, but we’ve been seeing states become more and more aggressive.”

A credit may not be offered, and credit amounts that are offered vary by state.

“There are credits so that in theory you’re not paying tax in more than one state, but I do say in theory,” says Donna H. Laubscher, partner at Henry and Horne in Arizona. “For example, if you live in Arizona and receive a 1099 from a company in California, you need to file a California tax return and include that income on an Arizona tax return. So you get a credit for paying tax in California, but because California rates are higher than the Arizona rates, it’s generally not a one-to-one credit.”

Experts say remote workers should ask employers to elect the proper state withholding and take formal steps to establish a bona fide office at your teleworking location to avoid paying additional taxes.

Each state has its own tax code that determines how your remote work will affect your tax liability, so taxpayers should seek to understand the codes for the states in which they live and work and seek professional help when needed.

Tax Deductions for Remote Workers

Though the pandemic’s effect on the popularity of remote work could not have been known, the Tax Cut and Jobs Act of 2017 would go on to hurt the many employees tasked with setting up a home office with very little notice.
This act stripped employees of all miscellaneous itemized deductions, which previously could be used for items like a desk and monitor used for work purposes. Remote contract workers and remote self-employed workers, however, can still take advantage of these deductions for items used solely for business purposes.

“If you are an employee, there is absolutely no benefit,” Laubscher says. “But if you had a variety of income or are self-employed, if that was all income coming from a 1099 and Schedule C, then you can deduct for a home office.”

Remote Workers and Travel

When the pandemic hit, some workers took advantage of the new flexibility by working from family homes or heading out on a road trip, working along the way. But Gilmartin says individuals can face an additional liability even if they only worked from a certain state for a limited time, depending on the state’s laws.

In these cases, the taxpayer becomes a resident of both states and as such, Gilmartin says states are unlikely to offer a credit.

“Many states have a statutory residency, often if you’re in that state for more than half the year. Now all of the sudden all of your income, not just your wages but potentially any portfolio investment income would be fully taxable in both states,” Gilmartin says. “Keep your employer informed if you plan to travel.”

Credit Given to: Emma Kerr with US News on Oct. 26, 2021.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Laurie Gentile

-until next week.

Mission Possible – Finding Great Employees in this Job Market December 8, 2021

Posted by bradstreetblogger in : Business consulting, Business Consulting, Charitable Giving, COVID, COVID-19, Deductions, Depreciation options, Electronic Tax Filing, Fraud, General, Healthcare, QuickBooks, Retirement, Section 168, Section 179, tax changes, Tax Deadlines, Tax Planning Tips, Tax Preparation, Tax Rules, Tax Tip, Taxes, Uncategorized , add a comment

This weeks quote:


It makes a big difference in your life when you stay positive.
                                  -Ellen DeGeneres

Finding the Best Talent
Sometimes hiring the best talent can seem like a near impossible mission. Searching through mounds of resumes. Completing phone screenings. Scheduling interviews for the top choices, all to find out they have already taken another job or simply don’t show up for the interview. You think you found the right fit, only to have them slip away and out of the picture too quickly.

Keep in mind that the job market has had a major shift. The pandemic has fundamentally changed the way people are looking and evaluating job opportunities. It’s clear to many job seekers that working remotely is now an acceptable alternative to commuting. But many jobs can’t be done effectively remotely, and the applicant pool has become shallower due to many factors, and it will be difficult to find good talent for some time.

So how do you adjust and what types of hiring process changes should you consider implementing new recruiting practices.

There are three things to consider about the current job market that might make it easier to manage.
https://www.macslist.org/for-employers/3-things-everyone-should-know-about-the-changing-workforce

To make sure you are attracting the best talent, consider the following;

Keep in mind that applicants who come into contact with your organization via an application process, are also likely doing some research on you. So, make sure your website and social media profiles are updated and have the most current information. If you can conduct live interviews, update your Google My Business Page and your Yelp pages, as those are both great resources for directions that candidates may look at prior to your interview sessions. Every touchpoint with an applicant is a chance to raise the awareness of your brand and leave a lasting impression even with those that don’t make it far in the hiring process.

Hiring the right candidate is costly and time-consuming. Don’t cut corners. Do your due diligence on references, background checks and other evaluation diagnostics to ensure you are choosing the best possible fit for your company. If your churn of employees is high and your tenure lacks depth, you need to reexamine not only your hiring processes but also the work environment that you are creating. You can continue to search aimlessly, or you can make the hiring journey more proactive and productive.
 
Credit Given to:  Pinnacle ActionCoach

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This Week’s Author, Lance Bradstreet

-until next week.