jump to navigation

The New Child Tax Credit April 21, 2021

Posted by bradstreetblogger in : Deductions, General, tax changes, Tax Planning Tips, Tax Preparation, Tax Rules, Tax Tip, Taxes, Uncategorized , add a comment

When President Joe Biden signed the $1.9 trillion-dollar American Rescue Plan last month, he launched a new and improved Child Tax Credit. The Child Tax Credit has been around since the Clinton Administration, yet this new version may have a positive effect on Americans who have been trying to find financial stability through the Covid-19 pandemic.

As with all new legislation, there are a lot of moving parts. From determining income requirements to who is a qualifying child, it is a dizzying array of details to determine which taxpayers will be allowed to take the credit. 

Here is what we know so far:

The Credit Is a Monthly Payment In 2021

The new Child Tax Credit is currently for 2021 only.  For families that qualify, it will be a $3,600 credit for each child under age 6. For children ages 6 to 17, the credit is $3,000. The big difference from previous year is that half of the credit will pay out monthly from July through December.

In each of those months, the IRS will deposit the Child Tax Credit into taxpayers’ bank accounts – $300 for each child under age 6 and $250 for each child ages 6 to 17.

The remaining half of the credit will then be an adjustment – a “true up”- on the 2021 income tax return to be filed in April of 2022.

For dependents over 18, the credit will be $500.

It Is Income Based and There Is A Phase Out

Like the stimulus checks for the Covid-19 pandemic, the new Child Tax Credit will be based on adjusted gross income (In each of those months, the IRS will deposit the Child Tax Credit into taxpayers’ bank accounts – $300 for each child under age 6 and $250 for each child ages 6 to 17.

The remaining half of the credit will then be an adjustment – a “true up”- on the 2021 income tax return to be filed in April of 2022.GI). For single taxpayers, that is an AGI of $75,000 or less. For head of household, that is an AGI of $112,500 or less. Finally, for those filing married filing joint, it is an AGI of $150,000 or less.

But keep in mind that the credit is subject to a phase out. That means for every $1,000 a taxpayer earns over the AGI limit, their credit will be reduced by $50. For instance, if the taxpayer is a single filer with an AGI of $85,000, their credit will be reduced by $500 per child.

How to Qualify

The new Child Tax Credit is a 2021 tax credit, which means it will be based on your 2021 income. However, in order to quickly begin providing relief to taxpayers, the IRS will look at your 2020 income tax, as they did with the stimulus programs. If the taxpayer has not yet filed for 2020, they will look back to the 2019 return. One benefit for many taxpayers is that they still have until May 17, 2021 to file their tax return without an extension, which also gives them an additional opportunity to provide the IRS with direct deposit instructions.

As this is an AGI-based program, if a taxpayer’s 2020 income is within the AGI to qualify, but their 2021 income exceeds the limitations and phase out, the taxpayer will need to pay back the credit on their 2021 tax return.

The IRS Is Embracing Technology

While the new credit might be straightforward for some families, it won’t be for others. Situations where a new baby is born, a divorce occurs or a family might have too high an income in 2021 create challenges. While the IRS initially indicated that getting a portal set up in time for the July 1st launch was unlikely, in comments to the Senate Finance Committee on Tuesday, April 13th, IRS Commissioner Charles Rettig stated that, “We will launch by July 1 with the absolute best product we are able to put together.”

As a result, for taxpayers that have unique situations, they should keep an eye out for the new IRS portal to open so they can enter key data in regards to the tax credit.

Unique Situations Where A Child Hits Age Threshold

As the program is based on AGI and age, there will be situations where a child changes age groups during 2021. As a result, taxpayers will need to consider the child’s age on December 31, 2021. For instance, if a taxpayer’s 5-year-old turns 6 before the end of the year, they will qualify for the $3,000 credit not the $3,600. Similarly, if a 17-year-old turns 18 before December 31, 2021, they will only receive a $500 credit instead of $3,000.

The Existing Child Tax Credit Is Still Available

There will be many taxpayers who will not qualify for the new Child Tax Credit. However, keep in mind, the Child Tax Credit that was established in the Tax Cuts and Jobs Act of 2017 (TCJA), will still be available. This is a tax credit for single taxpayers with an AGI of $200,000 or less or taxpayers filing married with an AGI of $400,000 or less. This group of taxpayers will still qualify for a $2,000 tax credit for each child under age 17.

Keep in mind this group might also need to access the portal if their 2020 income would have them qualify for the higher credit.

More to Come

As we get closer to the July 1 rollout date, more details on the plan will be available, along with the IRS portal. In the meantime, taxpayers should focus on filing their 2020 income tax return as well as estimating their 2021 income to make sure that they qualify for this tax credit. It may be prudent to seek the help of a professional or use one of the new Child Tax Credit calculators that are available.

Credit Given to:  Megan Gorman. This article was published in Forbes on April 14, 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, Bobbie Haines

–until next week.

Business Interruption Insurance Coverage March 3, 2021

Posted by bradstreetblogger in : Business consulting, COVID-19, General, Tax Tip, Uncategorized , add a comment

Question:  What is a business interruption insurance loss? 

Answer: “We will pay for the actual loss of business income you sustain due to the necessary suspension of your “operations” during the period of “restoration.” The suspension must be caused by the direct physical loss, damage, or destruction to insured property. The loss or damage must be caused by or result from a covered cause of loss.”

Several of our clients have suffered business interruptions over the years. Most of these interruptions have been the result of fire and water damage. The process of obtaining a settlement with the insurance adjusters are never fun and the process is often lengthy. The adjusters are typically difficult to work with and understandably so. Their job is to minimize the dollar amount of the claim. And, the adjusters have a lot of experience at doing just that. Our job is to maximize the insurance dollars our clients receive. Good recordkeeping is crucial to this process. Many of the formulas used to calculate the business loss are based on your financials. If your records are poor or even worse nonexistent, the adjuster will do their best to reconstruct your records but it won’t be in your favor. Every business owner believes their claim should be higher. A nonprofitable business regardless of the company size may not receive any insurance monies. The argument being that the business was losing money and during the down time, it lost just that much less. The insurance company will typically lowball their first offer. If you dig in your heels the settlement number will usually climb especially with the help of an attorney and an accountant. 


– Mark Bradstreet
                                                                                              

Eight Key Concepts to Understanding Business Interruption Coverage

The COVID-19 pandemic has resulted in unprecedented disruptions for businesses and the economy. Compounding the challenges for businesses are recent civil unrest in major cities along with the early days of what may be an active Atlantic hurricane season. These trends mean it’s vital for risk professionals to know how their property insurance policies — including business income or business interruption coverage — may respond to potential losses.

What’s in a Business Income or Business Interruption Clause or Endorsement?

Many insurers’ property policies include business interruption or business income either as a coverage within the form; others, including those insurers that use Insurance Services Office (ISO) forms for their policies’ content, add this coverage via endorsement. A business interruption clause or endorsement is designed to protect the insured for losses of business income it sustains as a result of direct physical loss, damage, or destruction to insured property by a covered peril.

While many such clauses are in use today, a typical business interruption insurance clause might read as follows:

“We will pay for the actual loss of business income you sustain due to the necessary suspension of your “operations” during the period of “restoration.” The suspension must be caused by the direct physical loss, damage, or destruction to insured property. The loss or damage must be caused by or result from a covered cause of loss.

Although the contents of individual policies and endorsements may vary slightly, many use relatively consistent language to describe business interruption coverage. To better understand this coverage and how it might respond to potential losses, it’s important for risk professionals to focus on eight key concepts.

Actual Loss Sustained

Business interruption coverage protects against an actual loss sustained by an insured as a result of direct physical loss or damage to the insured’s property by a peril not otherwise excluded from the policy. The insurer is only obligated to pay if the insured actually sustains an interruption of business leading to a business income loss. This loss, however, is subject to the policy limit or sublimit that is applicable to the specific location where the loss occurs or the type of peril that leads to the loss.

Business Income

Usually, an insurer is responsible for the reduction in net income that results from suspension of operations — whether wholly or partially — due to a physical loss at an insured’s premises. Generally, insurers consider business income to include:

Period of Restoration

Insurers are liable for the loss of business income only during the period of restoration, which is often defined as the length of time required to rebuild, repair, or replace damaged or destroyed property. The period of restoration begins when the physical loss or damage occurs; it ends when the property should, with reasonable speed, be repaired or replaced and the location is made ready for normal operations to resume.

Expiration of the policy does not end the period of restoration; as long as the insured’s physical loss occurs during the policy period, a business interruption endorsement will provide coverage for the duration of the period of restoration.

An endorsement published by ISO includes a 30-day extended period of restoration provision beyond the standard period of restoration, as do some insurers’ forms. This provides additional coverage after an insured business resumes operations following the date of repair or replacement of the damaged property, which can be crucial since it may take time for the business to return to pre-loss income levels. However, if an insured requires more than this 30-day limit, it may be able to increase this limit — from 30 days to any multiple of 30 days up to 720 days — by purchasing an extended period of indemnity optional endorsement.

Extra Expense

A business interruption clause in a property policy or added endorsement can provide additional coverages, including for extra expense. This extension covers necessary expense sustained by an insured during the period of restoration that would not have been incurred had there been no physical loss to real or personal property caused by a covered peril.

When a business income loss occurs, an insured is obligated to take reasonable steps to prevent or minimize it. Any expenses incurred to reduce the loss are covered as part of the business income loss, as long as they do not exceed the loss itself.

An insurer will typically not pay any part of the expense that is more than the claim itself. For example, an insurer will reimburse an insured $100 to reduce the business income loss of $200, but will not reimburse the insured $100 if the claim is only reduced by $50. Any additional expenses above this $50 amount that are incurred to continue the business may be recoverable under an extra expense provision in an insurance policy.

Business income clauses or endorsements may also include “extensions of coverage” wherein the insured’s policy will insure against business income losses resulting from certain specified events. These include service interruption, contingent business interruption, leader property, and interruption by civil or military authority. A sublimit typically applies for each additional coverage.

Service Interruption

If included within the policy, a service interruption extension typically provides business income coverage arising from direct physical loss, damage, or destruction to electrical, steam, gas, water, sewer, telephone, or any other utility service’s transmission lines and related plants, substations, and equipment supplying such services to an insured business. The owners, managers, or operators of such utilities or services are not named insureds under the policy.
A physical loss, damage, or destruction at the location of the utility or service typically must be the result of a peril similar to those covered under the insured’s policy. Some restrictions on coverage may apply, however, including:

Contingent Business Interruption (CBI)

A CBI extension is designed to cover an insured’s business income loss resulting from physical loss, damage, or destruction of property owned by others. These typically include direct “suppliers” of goods or services to an insured and direct “receivers” of goods or services manufactured or provided by the insured. The physical damage to these suppliers or receivers usually must be of a type that would be covered by the insured’s policy had the damage happened to the insured’s property.

A CBI extension typically provides coverage for the “direct” relationship between an insured’s “suppliers” or “receivers” of its goods or services. Coverage can sometimes be extended for suppliers of a direct supplier — typically known as “indirect” or “second tier” suppliers. Such coverage may require, among other things, that indirect suppliers are specifically identified.

Leader Property (Attraction Property)

A leader property endorsement provides coverage to an insured for direct physical loss, damage, or destruction — of the type insured by the insured’s property policy — to property not owned or operated by the insured, located within a stated distance to the insured’s property or business, that attracts business to the insured. Examples would include a nearby amusement park, casino, mall, or destination retail store.

Interruption by Civil or Military Authority

This extension provides coverage to an insured for the actual loss of business income it sustains during the length of time when access to its premises is prohibited by order of civil authority as a direct result of physical damage — as insured against in the policy — to property of the type insured. An interruption by civil or military authority extension is commonly found under most policies insuring business income or business interruption.

The coverage time period most commonly specified in this extension is 30 consecutive days. An insurer may also impose a waiting period — typically 48 or 72 hours — that must be reached in order for coverage to apply.

Familiarity with these critical terms and specific relevant policy language is crucial to any organization’s understanding of how business interruption coverage may or may not apply to a loss, the preparation of potential claims, and future purchasing decisions. Risk professionals — working with their advisors — should carefully review their specific policy language and other coverage options that may be appropriate given their companies’ individual needs.

For more information, contact your Marsh representative or:

Mike Rouse
US Property Practice Leader
212-345-0429

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, CPA

–until next week.

Special Holiday Edition December 23, 2020

Posted by bradstreetblogger in : Business consulting, Depreciation options, General, Retirement, tax changes, Tax Planning Tips, Tax Rules, Tax Tip, Taxes, Uncategorized , add a comment

Enjoy the Holidays!

We are going to take a break from our tax and business tips this week.  Instead, the family of Bradstreet & Company would like to wish you and your family the most joyous holiday season and best wishes for 2021.

We hope you enjoy the Tax Tip of The Week.  As always, your topic suggestions and questions are always appreciated.

Is the Tax Tip of the Week real?

While your kids are questioning if Santa is real, we continue to receive some interesting feedback that some of you don’t realize this is really Bradstreet CPAs reaching out each week (… some suspect this is a “packaged” communication to which we add our logo.) Well, rest assured it’s us and we love to hear from you.
Enjoy the week and, “Yes Virgina, there is a Santa Claus”.

Wishing you all great things,

The Staff at Bradstreet & Company

Do Trust Beneficiaries Pay Taxes? November 11, 2020

Posted by bradstreetblogger in : Business consulting, Depreciation options, General, Tax Planning Tips, Tax Rules, Tax Tip, Uncategorized , add a comment

Trusts are commonly used for estate planning purposes and numerous other reasons.  So it makes sense that there are also numerous types of trusts.  The article below describes the two main categories of trusts, revocable and irrevocable, but does not mention types of trusts, a discussion of which would be beyond the scope of this article.

Generally, revocable trusts are set up to avoid probate.  However, control of the assets during the grantor’s lifetime remains with the grantor.  As such, revocable trusts generally do not file their own returns, nor do they have their own identification number, and the income is reported in the grantor’s individual returns as if the trust didn’t exist.  A commonly used term for these types of trusts is “disregarded entity”.

Irrevocable trusts, on the other hand, do need to file returns if trust assets produce income.  These types of trusts are considered separate entities, and have their own federal tax identification number.  Who pays the tax is determined by the trust agreement.  The article below discusses the taxes paid, who pays them, and also mentions trust tax rates.  Keep in mind that trust tax rates are the same as individual tax rates, but the brackets are much smaller, resulting in significantly higher taxes if the trust pays them.  If you are considering setting up a trust, first, be sure you need one by consulting with a reputable attorney and / or tax advisor, and second, be sure to structure the trust to create the best tax solution.

                                   -Norm Hicks

“Beneficiaries of a trust typically pay taxes on the distributions they receive from the trust’s income, rather than the trust itself paying the tax. However, such beneficiaries are not subject to taxes on distributions from the trust’s principal.

When a trust makes a distribution, it deducts the income distributed on its own tax return and issues the beneficiary a tax form called a K-1. The K-1 indicates how much of the beneficiary’s distribution is interest income versus principal and, thus, how much the beneficiary is required to claim as taxable income when filing taxes.

KEY TAKEAWAYS
•             Trusts are subject to different taxation than ordinary investment accounts.
•             Trust beneficiaries must pay taxes on income and other distributions that they receive from the trust, but not on returned principal.
•             IRS forms K-1 and 1041 are required for filing tax returns that receive trust disbursements.

Understanding Trusts and Beneficiaries

A trust is a fiduciary relationship whereby the trustor or grantor gives another party–the trustee–the right to hold property or assets for the benefit of a third party (usually the beneficiary).

Trusts are established to provide legal protection and to safeguard assets usually done as part of estate planning. Trusts can be used to ensure the assets are properly distributed to the beneficiaries according to the wishes of the grantor. Trusts can also help to reduce estate and inheritance taxes as well as avoid probate, which is the legal court process of distributing assets upon the death of the owner.

Although there are several types of trusts, they typically fall into one of two categories. A revocable trust can be changed or closed at any time during the grantor’s lifetime. Conversely, an irrevocable trust cannot be amended or closed once it has been opened, including those trusts that become irrevocable upon the grantor’s death. The grantor–by establishing an irrevocable trust–essentially has transferred all ownership or title of the assets in the trust. There are various tax rules for beneficiaries of income from trusts, depending on whether the trust is revocable or irrevocable–as well as the type of income received from the trust.

Interest vs. Principal Distributions

When trust beneficiaries receive distributions from the trust’s principal balance, they do not have to pay taxes on the distribution. The Internal Revenue Service (IRS) assumes this money was already taxed before it was placed into the trust. Once money is placed into the trust, the interest it accumulates is taxable as income, either to the beneficiary or the trust itself.

The trust must pay taxes on any interest income it holds and does not distribute past year-end. Interest income the trust distributes is taxable to the beneficiary who receives it.

The amount distributed to the beneficiary is considered to be from the current-year income first, then from the accumulated principal. This is usually the original contribution plus subsequent ones and is income in excess of the amount distributed. Capital gains from this amount may be taxable to either the trust or the beneficiary. All the amount distributed to and for the benefit of the beneficiary is taxable to him or her to the extent of the distribution deduction of the trust.

If the income or deduction is part of a change in the principal or part of the estate’s distributable income, income tax is paid by the trust and not passed on to the beneficiary. An irrevocable trust that has discretion in the distribution of amounts and retains earnings pays a trust tax that is $3,011.50 plus 37% of the excess over $12,950 (updated for 2020).

Tax Forms

The two most important tax forms for trusts are the 1041 and the K-1. Form 1041 is similar to Form 1040. On this form, the trust deducts from its own taxable income any interest it distributes to beneficiaries.

At the same time, the trust issues a K-1, which breaks down the distribution, or how much of the distributed money came from principal versus interest. The K-1 is the form that lets the beneficiary know the tax liability from the trust’s distributions.

The K-1 schedule for taxing distributed amounts is generated by the trust and handed over to the IRS. The IRS, in turn, delivers the document to the beneficiary to pay the tax. The trust then completes Form 1041 to determine the income distribution deduction that is accorded on the distributed amount.”

Article credit given to – Greg Depersio (Investopedia – February 8, 2020)

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 Hicks, CPA

–until next week.

BWC Board Approves 10% Rate Cut for Public Employers September 23, 2020

Posted by bradstreetblogger in : Business consulting, General, Tax Planning Tips, Tax Tip, Taxes, Uncategorized , add a comment

Ohio’s public employers will pay $14.8 million less in premiums to the Ohio Bureau of Workers’ Compensation (BWC) in 2021 thanks to a rate cut the BWC Board of Directors approved Friday.

The rate reduction means approximately 3,700 counties, cities, public schools and other public taxing districts will pay an average of 10% less on their annual premiums than this calendar year. The reduction, made possible by declining injury trends and relatively low medical inflation costs, is the twelfth cut for public employers since 2009 and follows a 10% cut that went into effect in January.

“We are pleased to pass these savings along to our public employer community, especially as the COVID-19 pandemic continues to challenge our economy,” said BWC Administrator/CEO Stephanie McCloud. “It is our hope they invest these dollars in workplace safety and improving their communities.”

The 10% reduction represents an average statewide change to premiums and does not include costs related to the administrative cost fund or other funds BWC administers. The actual total premium paid by individual employers depends on several factors, including the expected future claims costs in their industry, their company’s recent claims history, and their participation in various BWC programs.

A history of BWC rate changes since 2000 can be found online by clicking this link.

Credit given to BWC Website, News Release August 24, 2020

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.

–until next week.

Where’s My Refund? July 29, 2020

Posted by bradstreetblogger in : 2019 Taxes, tax changes, Tax Rules, Tax Tip, Taxes, Taxes, Uncategorized , add a comment

                     

Due to the COVID-19 pandemic, IRS live phone assistance is extremely limited. People are encouraged to first check the Where’s My Refund? tool on the IRS website and the IRS2Go app. Taxpayers can also review the IRS Services Guide (PDF) which links to additional IRS online services.

The IRS issues 9 out of 10 refunds in less than 21 days, and the fastest way to get a refund is to use IRS e-file and direct deposit. Taxpayers should also know they can have their refunds divided into up to three separate accounts.

Please note: Ordering a tax transcript will not speed delivery of tax refunds nor does the posting of a tax transcript to a taxpayer’s account determine the timing of a refund delivery. Calls to request transcripts for this purpose are unnecessary. Transcripts are available online and by mail at Get Transcript.

A few necessary items

To use the “Where’s My Refund” tool, taxpayers will need to enter their Social Security number, tax filing status (single, married, head of household) and exact amount of the tax refund claimed on the return.

Taxpayers who file electronically can check “Where’s My Refund” within 24 hours after they receive their e-file acceptance notification. The tool can tell taxpayers when their tax return has been received, when the refund is approved and the date the refund is to be issued.

Some refunds may take longer

While the IRS continues to process electronic and paper tax returns, issue refunds, and accept payments, there are delays in processing paper tax returns due to limited staffing. If a taxpayer filed a paper tax return, the return will be processed in the order in which it was received. Do not file a second tax return or call the IRS.

Many different factors can affect the timing of a refund. In some cases, a tax return may require additional review. It is also important to consider the time it takes for a financial institution to post the refund to an account or for a refund check to be delivered by mail.

Taxpayers who owe

The IRS encourages taxpayers who owe to do a Paycheck Checkup every year to ensure enough tax is withheld from their pay to avoid an unexpected tax bill.

This week’s article – From IRS.gov – Click Here

– Tammy

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.  

– until next week.

“Dirty Dozen” List of Tax Scams for 2020 July 22, 2020

Posted by bradstreetblogger in : COVID, COVID-19, General, Tax Rules, Tax Tip, Taxes, Uncategorized , add a comment

On July 16, 2020, the Internal Revenue Service announced its annual “Dirty Dozen” list of tax scams with a special emphasis on aggressive and evolving schemes related to coronavirus tax relief, including Economic Impact Payments.

On July 16, 2020, the Internal Revenue Service announced its annual “Dirty Dozen” list of tax scams with a special emphasis on aggressive and evolving schemes related to coronavirus tax relief, including Economic Impact Payments.

This year, the Dirty Dozen focuses on scams that target taxpayers. The criminals behind these bogus schemes view everyone as potentially easy prey. The IRS urges everyone to be on guard all the time and look out for others in their lives. In addition, attending tax planning classes will surely help one from getting scammed.

“According to a cpa tax scams tend to rise during tax season or during times of crisis, and scam artists are using the pandemic to try stealing money and information from honest taxpayers,” said IRS Commissioner Chuck Rettig. “The IRS provides the Dirty Dozen list to help raise awareness about common scams that fraudsters use to target people. We urge people to watch out for these scams. The IRS is doing its part to protect Americans. We will relentlessly pursue criminals trying to steal your money or sensitive personal financial information.”

Taxpayers are encouraged to review the list in the “special section” on IRS.gov and be on the lookout for these scams throughout the year. Taxpayers should also remember that they are legally responsible for what is on their tax return even if it is prepared by someone else. Consumers can help protect themselves by choosing a reputable tax preparer.

The IRS urges taxpayers to refrain from engaging potential scammers online or on the phone. The IRS plans to unveil a similar list of enforcement and compliance priorities this year as well.

An upcoming series of press releases will emphasize the illegal schemes and techniques businesses and individuals use to avoid paying their lawful tax liability. Topics will include such scams as abusive micro captives and fraudulent conservation easements.

Here are this year’s “Dirty Dozen” scams:

Phishing:

Taxpayers should be alert to potential fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a tax bill, refund or Economic Impact Payments. Don’t click on links claiming to be from the IRS. Be wary of emails and websites − they may be nothing more than scams to steal personal information.

IRS Criminal Investigation has seen a tremendous increase in phishing schemes utilizing emails, letters, texts and links. These phishing schemes are using keywords such as “coronavirus,” “COVID-19” and “Stimulus” in various ways.

These schemes are blasted to large numbers of people in an effort to get personal identifying information or financial account information, including account numbers and passwords. Most of these new schemes are actively playing on the fear and unknown of the virus and the stimulus payments. 

Fake Charities:

Criminals frequently exploit natural disasters and other situations such as the current COVID-19 pandemic by setting up fake charities to steal from well-intentioned people trying to help in times of need. Fake charity scams generally rise during times like these.

Fraudulent schemes normally start with unsolicited contact by telephone, text, social media, e-mail or in-person using a variety of tactics. Bogus websites use names similar to legitimate charities to trick people to send money or provide personal financial information. They may even claim to be working for or on behalf of the IRS to help victims file casualty loss claims and get tax refunds.

According to a great accountant, taxpayers should be particularly wary of charities with names like nationally known organizations. Legitimate charities will provide their Employer Identification Number (EIN), if requested, which can be used to verify their legitimacy. Taxpayers can find legitimate and qualified charities with the search tool on IRS.gov.

Threatening Impersonator Phone Calls:

IRS impersonation scams come in many forms. A common form is bogus, threatening phone calls from a criminal claiming to be with the IRS. The scammer attempts to instill fear and urgency in the potential victim. In fact, the IRS will never threaten a taxpayer or surprise him or her with a demand for immediate payment.

Phone scams or “vishing” (voice phishing) pose a major threat. Scam phone calls, including those threatening arrest, deportation or license revocation if the victim doesn’t pay a bogus tax bill, are reported year-round. These calls often take the form of a “robocall” (a text-to-speech recorded message with instructions for returning the call).

The IRS will never demand immediate payment, threaten, ask for financial information over the phone, or call about an unexpected refund or Economic Impact Payment. Taxpayers should contact the real IRS if they worry about having a tax problem.

Social Media Scams:

Taxpayers need to protect themselves against social media scams, which frequently use events like COVID-19 to try tricking people. Social media enables anyone to share information with anyone else on the internet. Scammers use that information as ammunition for a wide variety of scams. These include emails where scammers impersonate someone’s family, friends or co-workers.

Social media scams have also led to tax-related identity theft. The basic element of social media scams is convincing a potential victim that he or she is dealing with a person close to them that they trust via email, text or social media messaging.

Using personal information, a scammer may email a potential victim and include a link to something of interest to the recipient which contains malware intended to commit more crimes. Scammers also infiltrate their victim’s emails and cell phones to go after their friends and family with fake emails that appear to be real and text messages soliciting, for example, small donations to fake charities that are appealing to the victims.

EIP or Refund Theft:

The IRS has made great strides against refund fraud and theft in recent years, but they remain an ongoing threat. Criminals this year also turned their attention to stealing Economic Impact Payments as provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Much of this stems from identity theft whereby criminals file false tax returns or supply other bogus information to the IRS to divert refunds to wrong addresses or bank accounts.

The IRS recently warned nursing homes and other care facilities that Economic Impact Payments generally belong to the recipients, not the organizations providing the care. This came following concerns that people and businesses may be taking advantage of vulnerable populations who received the payments. These payments do not count as a resource for determining eligibility for Medicaid and other federal programs They also do not count as income in determining eligibility for these programs. See IR-2020-121, IRS alert: Economic Impact Payments belong to recipient, not nursing homes or care facilities for more.

Taxpayers can consult the Coronavirus Tax Relief page of IRS.gov for assistance in getting their EIPs. Anyone who believes they may be a victim of identity theft should consult the Taxpayer Guide to Identity Theft on IRS.gov.

Senior Fraud:

Senior citizens and those who care about them need to be on alert for tax scams targeting older Americans. The IRS recognizes the pervasiveness of fraud targeting older Americans along with the Department of Justice and FBI, the Federal Trade Commission, the Consumer Financial Protection Bureau (CFPB), among others.

Seniors are more likely to be targeted and victimized by scammers than other segments of society. Financial abuse of seniors is a problem among personal and professional relationships. Anecdotal evidence across professional services indicates that elder fraud goes down substantially when the service provider knows a trusted friend or family member is taking an interest in the senior’s affairs.

Older Americans are becoming more comfortable with evolving technologies, such as social media. Unfortunately, that gives scammers another means of taking advantage. Phishing scams linked to Covid-19 have been a major threat this filing season. Seniors need to be alert for a continuing surge of fake emails, text messages, websites and social media attempts to steal personal information.

Scams targeting non-English speakers:

IRS impersonators and other scammers also target groups with limited English proficiency. These scams are often threatening in nature. Some scams also target those potentially receiving an Economic Impact Payment and request personal or financial information from the taxpayer.

Phone scams pose a major threat to people with limited access to information, including individuals not entirely comfortable with the English language. These calls frequently take the form of a “robocall” (a text-to-speech recorded message with instructions for returning the call), but in some cases may be made by a real person. These con artists may have some of the taxpayer’s information, including their address, the last four digits of their Social Security number or other personal details – making the phone calls seem more legitimate.

A common phone scan is the IRS impersonation scam. This is where a taxpayer receives a telephone call threatening jail time, deportation or revocation of a driver’s license from someone claiming to be with the IRS. Taxpayers who are recent immigrants often are the most vulnerable and should ignore these threats and not engage the scammers.

Unscrupulous Return Preparers:

Selecting the right return preparer is important. They are entrusted with a taxpayer’s sensitive personal data. Most tax professionals provide honest, high-quality service, but dishonest preparers pop up every filing season committing fraud, harming innocent taxpayers or talking taxpayers into doing illegal things they regret later.

Taxpayers should avoid so-called “ghost” preparers who expose their clients to potentially serious filing mistakes as well as possible tax fraud and risk of losing their refunds. With many tax professionals impacted by COVID-19 and their offices potentially closed, taxpayers should take particular care in selecting a credible tax preparer.

Ghost preparers don’t sign the tax returns they prepare. They may print the tax return and tell the taxpayer to sign and mail it to the IRS. For e-filed returns, the ghost preparer will prepare but not digitally sign as the paid preparer. By law, anyone who is paid to prepare or assists in preparing federal tax returns must have a Preparer Tax Identification Number (PTIN). Paid preparers must sign and include their PTIN on returns.

Unscrupulous preparers may also target those without a filing requirement and may or may not be due a refund. They promise inflated refunds by claiming fake tax credits, including education credits, the Earned Income Tax Credit (EITC) and others. Taxpayers should avoid preparers who ask them to sign a blank return, promise a big refund before looking at the taxpayer’s records or charge fees based on a percentage of the refund.

Offer in Compromise Mills:

Taxpayers need to be wary of misleading tax debt resolution companies that can exaggerate chances to settle tax debts for “pennies on the dollar” through an Offer in Compromise (OIC). These offers are available for taxpayers who meet very specific criteria under law to qualify for reducing their tax bill. But unscrupulous companies oversell the program to unqualified candidates so they can collect a hefty fee from taxpayers already struggling with debt.

These scams are commonly called OIC “mills,” which cast a wide net for taxpayers, charge them pricey fees and churn out applications for a program they’re unlikely to qualify for. Although the OIC program helps thousands of taxpayers each year reduce their tax debt, not everyone qualifies for an OIC. In Fiscal Year 2019, there were 54,000 OICs submitted to the IRS. The agency accepted 18,000 of them.

Individual taxpayers can use the free online Offer in Compromise Pre-Qualifier tool to see if they qualify. The simple tool allows taxpayers to confirm eligibility and provides an estimated offer amount. Taxpayers can apply for an OIC without third-party representation; but the IRS reminds taxpayers that if they need help, they should be cautious about whom they hire.

Fake Payments with Repayment Demands:

Criminals are always finding new ways to trick taxpayers into believing their scam including putting a bogus refund into the taxpayer’s actual bank account. Here’s how the scam works:

A con artist steals or obtains a taxpayer’s personal data including Social Security number or Individual Taxpayer Identification Number (ITIN) and bank account information. The scammer files a bogus tax return and has the refund deposited into the taxpayer’s checking or savings account. Once the direct deposit hits the taxpayer’s bank account, the fraudster places a call to them, posing as an IRS employee. The taxpayer is told that there’s been an error and that the IRS needs the money returned immediately or penalties and interest will result. The taxpayer is told to buy specific gift cards for the amount of the refund.

The IRS will never demand payment by a specific method. There are many payment options available to taxpayers and there’s also a process through which taxpayers have the right to question the amount of tax the IRS says they owe. Anytime a taxpayer receives an unexpected refund, and a call from the IRS out of the blue demanding a refund repayment, they should reach out to their banking institution and to the IRS.

Payroll and HR Scams:

Tax professionals, employers and taxpayers need to be on guard against phishing designed to steal Form W-2s and other tax information. These are Business Email Compromise (BEC) or Business Email Spoofing (BES). This is particularly true with many businesses closed and their employees working from home due to COVID-19. Currently, two of the most common types of these scams are the gift card scam and the direct deposit scam.

In the gift card scam, a compromised email account is often used to send a request to purchase gift cards in various denominations. In the direct deposit scheme, the fraudster may have access to the victim’s email account (also known as an email account compromise or “EAC”). They may also impersonate the potential victim to have the organization change the employee’s direct deposit information to reroute their deposit to an account the fraudster controls.

BEC/BES scams have used a variety of ploys to include requests for wire transfers, payment of fake invoices as well as others. In recent years, the IRS has observed variations of these scams where fake IRS documents are used in to lend legitimacy to the bogus request. For example, a fraudster may attempt a fake invoice scheme and use what appears to be a legitimate IRS document to help convince the victim.

The Direct Deposit and other BEC/BES variations should be forwarded to the Federal Bureau of Investigation Internet Crime Complaint Center (IC3) where a complaint can be filed. The IRS requests that Form W-2 scams be reported to: phishing@irs.gov  (Subject: W-2 Scam).

Ransomware:

This is a growing cybercrime. Ransomware is malware targeting human and technical weaknesses to infect a potential victim’s computer, network or server. Malware is a form of invasive software that is often frequently inadvertently downloaded by the user. Once downloaded, it tracks keystrokes and other computer activity. Once infected, ransomware looks for and locks critical or sensitive data with its own encryption. In some cases, entire computer networks can be adversely impacted.

Victims generally aren’t aware of the attack until they try to access their data, or they receive a ransom request in the form of a pop-up window. These criminals don’t want to be traced so they frequently use anonymous messaging platforms and demand payment in virtual currency such as Bitcoin.

Cybercriminals might use a phishing email to trick a potential victim into opening a link or attachment containing the ransomware. These may include email solicitations to support a fake COVID-19 charity. Cybercriminals also look for system vulnerabilities where human error is not needed to deliver their malware.

The IRS and its Security Summit partners have advised tax professionals and taxpayers to use the free, multi-factor authentication feature being offered on tax preparation software products. Use of the multi-factor authentication feature is a free and easy way to protect clients and practitioners’ offices from data thefts. Tax software providers also offer free multi-factor authentication protections on their Do-It-Yourself products for taxpayers.

This week’s article – From IRS.gov – Click Here

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.

– Tammy

– until next week.

Two New Employer Tax Credits July 15, 2020

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

July 15, 2020                         

Many businesses that have been severely impacted by Coronavirus (COVID-19) will qualify for two new employer tax credits – the Credit for Sick and Family Leave and the Employee Retention Credit.

Sick and Family Leave – Credit for Sick and Family Leave

An employee who is unable to work (including telework) because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis, is entitled to paid sick leave for up to ten days (up to 80 hours) at the employee’s regular rate of pay, or, if higher, the Federal minimum wage or any applicable State or local minimum wage, up to $511 per day, but no more than $5,110 in total.

Caring for someone with Coronavirus

An employee who is unable to work due to caring for someone with Coronavirus, or caring for a child because the child’s school or place of care is closed, or the paid child care provider is unavailable due to the Coronavirus, is entitled to paid sick leave for up to two weeks (up to 80 hours) at two-thirds the employee’s regular rate of pay or, if higher, the Federal minimum wage or any applicable State or local minimum wage, up to $200 per day, but no more than $2,000 in total.

Care for children due to daycare or school closure

An employee who is unable to work because of a need to care for a child whose school or place of care is closed or whose child care provider is unavailable due to the Coronavirus, is also entitled to paid family and medical leave equal to two-thirds of the employee’s regular pay, up to $200 per day and $10,000 in total. Up to ten weeks of qualifying leave can be counted towards the family leave credit.

Credit for eligible employers

Eligible employers are entitled to receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and the employer’s share of Medicare tax on the leave, for the period of April 1, 2020, through December 31, 2020.  The refundable credit is applied against certain employment taxes on wages paid to all employees. Eligible employers can reduce federal employment tax deposits in anticipation of the credit.  They can also request an advance of the paid sick and family leave credits for any amounts not covered by the reduction in deposits. The advanced payments will be issued by paper check to employers.

Employee Retention Credit

Eligible employers can claim the employee retention credit, a refundable tax credit equal to 50 percent of up to $10,000 in qualified wages (including health plan expenses), paid after March 12, 2020 and before January 1, 2021.  Eligible employers are those businesses with operations that have been partially or fully suspended due to governmental orders due to COVID-19, or businesses that have a significant decline in gross receipts compared to 2019.

The refundable credit is capped at $5,000 per employee and applies against certain employment taxes on wages paid to all employees.  Eligible employers can reduce federal employment tax deposits in anticipation of the credit.  They can also request an advance of the employee retention credit for any amounts not covered by the reduction in deposits. The advanced payments will be issued by paper check to employers.

Need more information on how to apply? Click here

This week’s article – From IRS.gov – Click Here

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.

Correction/Update to an earlier Tax Tip of the Week regarding municipal income taxes.  A local Income Tax Administrator was kind enough to send the below information to us as follows:

“H.B. 197 sets aside 718.011 of the Ohio Revised Code, stating:

…during the period of the emergency declared by Executive Order 2020-01D, issued on March 9, 2020, and for thirty days after the conclusion of that period, any day on which an employee performs personal services at a location, including the employee’s home, to which the employee is required to report for employment duties because of the declaration shall be deemed to be a day performing personal services at the employee’s principal place of work.

That said, employees who were sent home to work during the pandemic are still considered to be working at their principal place of work and not their city of residence.  That’s why employees should not have had a change in their municipal withholding from pre-pandemic times.  There are those that question the constitutionality of the executive order, so I’m sure that the State or others will address this at a later time.  Unfortunately, due to ORC Section 718, municipalities cannot pass legislation to override H.B. 197 or any section of 718.”

– until next week.

-Mark

Working Remotely? Watch Out for Unintended Tax Consequences! July 1, 2020

Posted by bradstreetblogger in : COVID, COVID-19, tax changes, Tax Planning Tips, Tax Rules, Tax Tip, Taxes, Taxes, Uncategorized , add a comment

  Typically, you are taxed by the location of your physical presence (this is changing now to some degree to better deal with the complexities of the internet).  For example, Ohio cities tax you first where you work and then next where you live.  That is to say that you won’t owe any city tax for your residence city if your workplace is located in a city whose tax rate is equal to or higher than the city where you live.  This is true only if your resident city allows a full tax credit for the city taxes paid where you work and its tax rate is equal to or less than your work city.  Not too long ago, almost all cities allowed a full credit for the tax paid to the city where you are employed.  But this full tax offset is becoming more of a rarity the last few years as city budgets continue to become more and more strained. These deficit situations for state and local governments won’t become any better with the current pandemic placing even greater demands on city finances. Take a look at this roster management system many businesses are using to manage their finances.

    For all intents and purposes, your state income tax model differs little from that of the cities.  It is not unlikely to find yourself double taxed by cities AND states.

    Now having attempted to make a long story short and leaving out the numerous tax exceptions for the general tax rules for cities and states as mentioned above; and, all the while assuming you have a good handle on how your state and local taxes should currently be filed, let’s throw you a curve ball.  Let’s presume you are now working from home.  And, your home is in a different city or even a different state than where you work.  What if you are working half the week at home and the rest of the week at work?  All of a sudden, a tax nightmare has developed.  

    I wish I had the silver bullet to answer my own questions.  Perhaps, the cities and states will pass legislation to overcome these added complexities resulting from the pandemic.  But I doubt it.  In the meantime, we better become accustomed to even more tax correspondence from cities and states.  None of them are going to roll-over in their efforts to collect all the monies that they can.  It is always a mystery to me why they would spend megabucks and create huge amounts of ill will in the community all in an effort to collect a nominal amount of taxes.  But some things never change.

This week’s Author – Mark Bradstreet

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.  

– until next week.

Tax Tip of the Week | America’s Richest 400 Families Now Pay a Lower Tax Rate Than the Middle Class March 11, 2020

Posted by bradstreetblogger in : 2019 Taxes, Tax Planning Tips, Tax Tip, Taxes, Uncategorized , add a comment

March 11, 2020

Good or bad?  Only time will tell.
       -Mark Bradstreet

The U.S. tax system is supposed to be progressive, meaning that wealthier households pay a larger share of their income to the taxman than the middle class and the poor. Yet after the Tax Cuts and Jobs Act of 2017, that’s no longer the case: For the first time in a century, America’s 400 richest families now pay lower taxes than people in the middle class. 

That’s according to an analysis of tax data by two prominent economists, Emmanuel Saez and Gabriel Zucman of the University of California at Berkeley, that is a centerpiece of their book, “The Triumph of Injustice,” published on October 15, 2019. Saez and Zucman, who have worked with the noted French economist Thomas Piketty to produce seminal research on inequality, also advised Senator Elizabeth Warren on the Democratic presidential candidate’s plan to impose a wealth tax on ultra-rich families. 

The tipping point came last year when the Tax Cuts and Jobs Act, which was signed into law by President Donald Trump at the end of 2017, took effect. While Mr. Trump vowed that middle-class families would be helped by the tax overhaul, experts say most working-class families saw only a minimal benefit, while the wealthiest citizens got the lion’s share of breaks. In fact, Saez and Zucman argue, the Tax Cuts and Jobs Act turned the tax system on its head.

“In 2018, for the first time in the last hundred years, the top 400 richest Americans have paid lower tax rates than the working class,” they write. “This looks like the tax system of a plutocracy.”

Factoring in all federal, state and local taxes, those ultra-wealthy households pay a total rate of about 23% — that compares with 24.2% for the bottom half of households, which includes many in the middle class. The richest families also pay a lower rate than those in the upper middle class and even those in the top 1%, who pay closer to 30% of their income in taxes.

Why do the super-rich pay lower taxes?

Zucman and Saez, who base their analysis on income tax returns, tax audits and other data, argue that in recent decades the tax system has tilted in favor of the highest earners, with the most recent push coming from the Tax Cuts and Jobs Act. 

“In 1970, the richest Americans paid, all taxes included, more than 50% of their income in taxes, twice as much as working-class individuals,” the book notes. “In 2018, following the Trump tax reform, and for the first time in the last hundred years, billionaires have paid less than steel workers, schoolteachers and retirees.” 

Today, the tax rates enjoyed by the richest Americans are at levels last seen in the early part of the 20th century, when the U.S. government was a fraction of its current size. In 1910, many popular programs credited with keeping millions of Americans out of poverty didn’t exist, including Social Security and Medicare. 

The rich pay lower tax rates than the middle class because most of their income doesn’t come from wages, unlike most workers. Instead, the bulk of billionaires’ income stems from capital, such as investments like stocks and bonds, which enjoy a lower tax rate than income. It’s the same reason why Warren Buffett famously said his tax rate was lower than his secretary’s.

The 2017 tax law amplified that trend, according to the new analysis. The tax rate for corporations was slashed to 21% from from 35%. And business income for many taxpayers now enjoys a 20% deduction, thanks to the new tax code, which places more income out of the IRS’ reach.

“The only category of income that does not benefit from any exemption, deduction, reduced rate or any other favor is wages,” Zucman and Saez write. “At any income level, wage earners are thus more heavily taxed than people who derive income from property.”

In effect, they add, capital income “is becoming tax-free.”

Why it matters

Although advocates of low taxes argue that slashing rates on the rich and corporations boosts economic growth, there’s little evidence for that. Instead, the U.S. is facing a number of risks by shifting to a more regressive tax system, the authors say.

For one, the federal government is losing out on a massive amount of tax revenue by slashing levies on the rich. Secondly, that lost revenue must be found elsewhere, which means the middle class and poor are likely to be stuck footing the bill. 

But the most important reason, according to Zucman and Saez, is that the U.S. tax system is creating what they call an “inequality spiral.” In other words, the rich are getting richer — that allows them to shape public policies to extract further tax breaks and other benefits, boosting their wealth and political clout.

Of course, tax codes can change, which means the U.S. isn’t doomed to sink more deeply into the quagmire of inequality, Zucman and Saez write. For instance, the economists propose a new national income tax that would tax all income — whether from labor, capital or other sources — as a supplement to the existing income tax. They also favor a wealth tax.

The latter, similar to proposals from both Warren and Senator Bernie Sanders, would tax annual wealth at 2% for those above $50 million and 3.5% above $1 billion. 

“A wealth tax will never replace the income tax,” they note. “Its goal is more limited: to ensure that the ultra-wealthy do not pay less than the rest of the population.”

Credit given to – Aimee Picchi

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.  

Today’s author – Mark Bradstreet

–until next week.