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COVID-19 Stimulus Payments. READ THIS NOW!

The Coronavirus Aid, Relief, and Economic Security (CARES) Act recently signed into law provides a one-time payment, among other items, to individuals to help ease the economic strain caused by the coronavirus epidemic.

Here are the details of the stimulus payment initiative.

Who qualifies to receive a payment? A one-time payment of $1,200 will be sent to most adults. For every qualifying child under age 17, families will receive an additional $500. Retirees and people on disability are also eligible to receive a payment.

When will I get my payment? The IRS hopes to get the first batch of payments out the week of April 6. It may take up to a month for everyone to get their payment, assuming everything goes as planned.

How are payments being made? If you included your bank account and routing information on your 2019 tax return, you will receive your stimulus payment via direct deposit. If you haven’t filed your 2019 tax return, the IRS will use information from your 2018 tax return. If you did not include your bank account and routing information on either your 2019 or 2018 tax returns, the IRS will allow you to request direct deposit from a screen (under development) from their website. All others will receive their payment via a check in the mail.

Alert! Invalid bank information. If you have not filed your 2019 tax return AND the direct deposit information on your 2018 tax return is no longer valid (you have a new bank account or closed your old one), you will need to take action immediately! If you do nothing, the bank deposit will, hopefully, be rejected and you will receive your check in the mail. Expect a delay, however, as it may take some time to receive a check by mail. You can also try calling the IRS to update your information.

Will I get the entire amount? As with other government programs, there is an income phaseout. Here are the thresholds:

Single adults with income of $75,000 or less get the full $1,200. The $1,200 payment is reduced by $5 for every $100 in income above $75,000. Full income phaseout is $99,000.

Married couples with income of $150,000 or less get the full amount of $2,400. The payment is reduced by $5 for every $100, making the full payment phased out at $198,000.

Head of Household adults (normally single adults with children or other dependents) will receive the full $1,200 payment if they earn less than $112,500. Reduced amounts will go out to Head of Household adults who earn up to $136,500.

How will my income be calculated? Your 2019 tax return will be used to determine your income for purposes of whether you receive the full amount of the stimulus payment and how many qualifying children you have. If you haven’t filed your 2019 tax return, your 2018 tax return will be used.

Alert! File a tax return. If you have low income or someone who does not typically file a tax return, you may wish to do so. A simple tax filing is all that is needed to ensure you receive the stimulus payment. Eventually, instructions to do this will be available on

Senior Alert! Seniors who did not file a tax return in 2018 or 2019 will automatically receive the payment based upon forms 1099-SSA and RRB-1099s. (April 1, 2020 U.S. Treasury press release)

Alert! Don’t use my current situation. It may make sense to get your 2019 tax return in immediately. Figure out if phaseouts using last year’s information lowers your payment amount. If so, you may wish to file your 2019 now. So pull out last year’s return and take a look!

Are the payments taxable? No. These payments are not taxable.

Remember, this is only one of the many relief components in recently passed legislation. There are also unemployment benefits, small business benefits and much more to come.

New Law Requires Small Business to Provide Paid Leave- Families First Coronavirus Response Act provides worker benefits

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Tax Deadlines Move from April to July- What you need to know now!

The tax deadlines move from the April 15th tax deadline to July 15th, per U.S. Treasury Secretary Steven Mnuchin. These announcements were made on Tuesday, March 17, 2020 and Friday March 20, 2020 with payment and penalty delays confirmed by an IRS notice.

Here is what you need to know

  • While the filing deadline for individual income tax returns, Form 1040, is April 15, 2020 per IRS notice 2020-17, published this Wednesday, the Treasury Secretary announced moving Tax Day to July 15, 2020 on Friday March 20, 2020.*
  • Individuals who owe the IRS money will be able to defer up to $1 million in payments for 90 days without interest or penalties. The new effective payment due date is July 15, 2020.
  • Corporations who owe the IRS money will be able to defer up to $10 million in payments for the same 90 days without interest or penalties.
  • The delay also includes first quarter, 2020 estimated tax payments for individuals. These payments are now due on or before July 15, 2020. This estimated payment delay DOES NOT apply to corporations.

* Late Breaking Alert: At 9:30 CST, Friday March 20, 2020 Treasury Secretary, Steven Mnuchin tweeted the following: “At @realDonaldTrump’s direction, we are moving Tax Day from April 15 to July 15. All taxpayers and businesses will have this additional time to file and make payments without interest or penalties.” The IRS retweeted this message.

What it means for you

While the federal government grants you an additional 3 months to pay your 2019 taxes, you may wish to file an extension or still file your tax return by April 15. Here are some thoughts on different situations.

You anticipate a refund. For now, the IRS is still issuing refunds as normal. For e-filers, refunds are often sent in less than three weeks. If the IRS is forced to scale back its operations for safety reasons, your refund could be delayed.

A better solution: an extension. If you cannot complete your tax return by April 15, consider filing an extension, even with the Treasury Secretary’s announcement. This moves your filing deadline to October 15. In the case of an extension under these new rules, your tax return would be due on or before October 15, 2020, but your tax payment is now due on or before July 15, 2020.

What about the audit window? The IRS normally has three years to audit a tax return. The three-year window to audit a return typically starts on either the tax return due date or the filing date, whichever is later. If shortening the audit window is important to you, consider filing sooner versus later as it is not clear what these delays in filing will do to audit rights.

What will states do? States are rolling out their own guidelines for extensions. Some are waiting on the IRS, while others are acting independently. Since most states require copies of federal tax return information, be prepared to still file by April 15. Remember, even if you wait until later to file your federal return and pay your tax, you may have to file your state and/or local return sooner.

What if I get a penalty anyway? Affected taxpayers subject to penalties and additional tax despite this relief may seek a waiver of them.

Rest assured, as the rules and deadlines change, updates will be provided. In the meantime, please stay safe during this challenging time.

Kiddie Tax Rate Hike Rolled Back

Parents of young children will always have plenty to worry about. New tax legislation passed at the end of 2019 eliminates at least one of these worries. The new law repeals a provision that increased the tax a child had to pay on unearned income.

Best of all, these revised “kiddie tax” rules may be claimed retroactive to 2018, when the change initially took effect. It’s as if it never happened!

The kiddie tax rule

If a dependent child under age 19 or a full-time student under age 24 receives unearned income above an annual threshold, the amount of income above this threshold is generally subject to a higher tax. Unearned income includes income received from investments, dividends and interest income.

The annual threshold, which is indexed for inflation, is $2,200 on 2019 and 2020 tax returns.

Children’s unearned income above this $2,200 threshold was historically taxed at the parents’, usually higher, tax rate.

The (often painful) change

Through the 2017 tax year, a child’s unearned income avoided the parents’ top marginal rate of 37% as long as the parents’ taxable income didn’t exceed $500,000. In 2018, kids got ensnared in the 37% top tax rate after their own unearned income hit $12,500!

The result? Many kids paid significantly more taxes in 2018 because of the new kiddie tax rules.

What you need to know

New legislation now restores the old method of calculating the kiddie tax. The tax is once again based on the parents’ marginal tax rate. But more importantly, you can choose to have the fix apply to 2018 and 2019. While this change will be reflected in your 2019 tax return, you may need to review your 2018 tax return to see if it makes sense to file an amended return.

The good news is you have some time to make this decision while you focus on getting ready to file this year’s tax return.

Do I Really Need That #!*>x$! Tax Form 1095?- Stop holding up your tax filing

Tax Form 1095 has been nothing but a headache since its introduction. This federally mandated form adds complexity, creates taxpayer confusion, and cost billions of dollars to produce. The purpose of the form is simple: to relay proof of your health insurance coverage, but too many taxpayers are now delaying filing tax returns while waiting for this form.

Top line: STOP WAITING for the form to file your tax return! At least for most of you.


As part of the Affordable Care Act, Form 1095 was created to confirm whether you have qualified health insurance and for how many months you have coverage. The proof of coverage includes you, your spouse, and all your dependents covered by the plan for each month of the year. Form 1095 was very difficult to create and for the past number of years, the IRS has granted delays to health insurance providers issuing the form because of the complexity required to create it.

The form is used for two reasons:

  • To determine whether you will be fined for not having qualified health insurance.
  • To help determine your qualification to receive a health insurance Premium Tax Credit.

Current situation

  • The penalty for not having health insurance is no longer in force for the foreseeable future.
  • You need confirmation of health insurance if you purchase your policy through the Marketplace.* You will need the form to see if you qualify for the Premium Tax Credit and to reconcile advanced payments of this credit. The version of the form you receive in the mail will be Form 1095-A.
  • Health insurance providers are still required to provide you with the form.

What you need to know

Do not wait for this form: Remember, you no longer need Form 1095 to file your tax return if you do not have health insurance or you receive your health insurance through your employer.

Wait for the form if: You think you may qualify for the health insurance Premium Tax Credit and you purchase your health insurance through the Marketplace (Form 1095-A).

So for most taxpayers the answer is clear. Stop waiting for Form 1095 and proceed with tax filing for 2019.

* Marketplace. This refers to the Health Insurance Marketplace set up by the federal government and many states to offer individuals, families and small businesses health insurance options that comply with the 2010 Affordable Care Act.

Make the Most of Recent Retirement Rule Changes- Reap the benefits of new laws

Recent legislation makes changes to popular retirement savings plans like IRAs and 401(k)s. Here are the major changes and how you can benefit from the new rules.

You now have until age 72 before you MUST take withdrawals from your retirement accounts.

How to take advantage: Use these extra 18 months to create a plan to reduce the tax applied to your distributions. Who wouldn’t rather pay less of your retirement funds to the government!

There are no longer age limits for contributions to a traditional IRA.

How to take advantage: Consider taking a part-time job in retirement. Then you can choose to contribute to EITHER a Roth IRA or a traditional IRA.

No early withdrawal penalty to use up to $5,000 to pay for a recent birth or adoption.

How to take advantage: A new birth or adoption costs a lot! Consider using these funds to help cover some of the cost. While you will pay tax on the funds taken out of your IRA, you will not need to pay the 10% early withdrawal penalty. And even better, you can later reimburse your account without impacting your annual contribution limit.

Elimination of the stretch IRA-Beneficiaries now have 10 years to withdraw inherited funds.

How to take advantage for your estate: Not everyone is covered by this new restriction. Review your beneficiary designations to minimize the impact of this change.

How to take advantage if you inherit funds: If you inherit funds, you must now actively plan the withdrawals to minimize your potential tax hit!

Key business retirement plan changes

Many changes are also made to business retirement plan rules. Key among them are:

  • Qualified part-time employees may now participate in an employer’s 401(k) plan.
  • Your employer can now proactively increase your participation in their retirement plan.

How to take advantage: Talk to your employer. Find out if part-time workers may participate in their savings plan and double check the amount withheld from your paycheck to ensure you are comfortable with your level of participation.

The bottom line? Actively manage your retirement accounts! If you leave it to chance, your tax bill will inevitably be higher than necessary.

Elections. Elections. Elections.- Tax savings can be found in the elections you make!

Every year is an election year when it comes to making decisions on your annual income tax return. Here are four common examples that can create tax savings opportunities if you elect the correct option.

1. Tax filing status. Typically, filing a joint tax return instead of filing separately is beneficial to a married couple, but not always! For instance, if one spouse has a high amount of medical expenses and the other doesn’t, your total medical deduction may be greater filing separately due to the 7.5% of adjusted gross income (AGI) threshold before you can deduct these expenses.

2. Higher education expenses. Thanks to new legislation, many parents of college students again face a decision: Whether to take one of the two credits for higher education expenses or the tuition and fees deduction. The tuition and fees deduction, once expired, is now extended through 2020. To complicate matters, the credits and the deduction are all phased out based on different modified adjusted gross income (AGI) levels. Before you elect which tax benefit makes the most sense, you will need to evaluate all options.

3. Investment interest. Investment interest expenses can be deducted up to the amount of net investment income for the year. This income does not usually include capital gains, because of favorable tax treatment of this type of gain. However, you can elect to include capital gains to help you deduct your interest expense. You can even cherry-pick which capital gains to use for this deduction. If you take this election you forego the favorable tax rate for long-term gains.

4. Installment sales. If you sell real estate or other assets in installments over two or more years, the tax liability is spread over the years that payments are received. Thus, you may be able to postpone the tax due. This technique can reduce the total tax paid depending on your effective tax rate each year. However, you can also elect out of installment sale treatment by paying the entire tax in the year of the sale. You may wish to take this election if your income is lower in the year of the sale.

Thankfully there is help navigating these key tax elections. Simply call with any questions.

Should I Tap into my Retirement Funds?

Often if you are in dire need for money the most tempting area to look is your IRA, 401(k), and other qualified retirement accounts. These funds, set aside for your retirement, may seem to be the answer to your financial woes.

Should I take an early withdrawal?

Is it a good idea to tap into retirement account funds prior to reaching age 59½? Here are some things to consider:

  • The penalty. Retirement funds taken out for non-qualified use are not only subject to regular income tax, but are also subject to a 10% early withdrawal penalty.
  • Debt collectors love it. Debt collectors are commonly prohibited from access to your retirement accounts. So if you are using the funds to put off debt collectors, be aware that you may be using funds that might be protected if you became insolvent.
  • There is an opportunity cost. Currently the funds in your traditional IRA, 401(k), and similar retirement plans grow tax deferred. So a dollar today will compound until you withdraw the funds at retirement. This growth is lost with early withdrawals.
  • Not for your kids. It is usually not a good idea to use early withdrawals to help pay a child’s debt or school costs. There are better ways to help children financially than to pay the stiff penalty on your early withdrawal.

If you still need to make the early withdrawal

  • Withdraw “after-tax” contributions first. This can be Roth IRA contributions or other after-tax contributions. Why? Since these funds have already been taxed, there is often no additional tax burden or early withdrawal penalty.
  • Certain withdrawals from qualified plans are allowed. This includes hardship withdrawals for qualified medical expenses, qualified educational expenses, and up to $10,000 to purchase a first time home.
  • Consider taking out a loan from your employer-provided 401(k). You will then repay this loan to your retirement account with interest. But be careful, you are required to repay any outstanding balance when you leave your job.
  • Look into substantially equal payments. Look into taking the distributions as part of a series of substantially equal periodic payments over your life expectancy. If done right, this can help avoid the 10% early withdrawal penalty.

While it is never a great idea to tap into funds that are specifically set aside to make your retirement stress-free, if you must do so it is worth being thoughtful about how you go about the withdrawal.

The IRS Says “Gotcha!”- Late filing of S corporation and partnership returns can be costly

The last couple of years, the IRS has been penalizing late filers of S corporation and partnership tax returns. This despite the fact that late filing of the tax returns (Forms 1120S and 1065), due March 15th, often does not impact the receipt of the taxes due on April 15th. Those that are getting this penalty are often couples and other small firms who have formed these business entities to provide legal protection for their shareholders.

How much is the penalty?

The penalty is calculated based on each partial month the return is late times the number of shareholders or partners. The fine is $205 per shareholder or partner per month. So a return filed 17 days late with no tax due could cost a married couple with an S corporation $820 in penalties!

What you need to know

If you have an S corporation or other partnership, either file an extension or submit your tax return on time. Remember, an extension gives you six months to file and you do not owe the tax until the flow-through tax return due date (typically April 15th).

If you receive a penalty, challenge it. A well-worded request for reversal of the late filing penalty may be successful. Remember, the Treasury Department is still receiving the taxes owed to them on a timely basis.

Where's My Tax Return?- Common items that are often forgotten

Wondering why your tax return is not finished? Often the delay can come from one or two items that were overlooked and are needed to complete your tax return. Here are some of the most common:

Missing Statements. This includes all W-2s and 1099s including any related to gambling winnings, income, interest, and mutual funds.

Dependent conflict. You claim a dependent on your tax return, but your child claimed themselves as a dependent or an ex-spouse has already filed a tax return with the same dependent’s social security number.

Mismatched names. You recently got married, but did not change your name with the Social Security Administration.

Missing deduction documentation. Common among them are; charitable contribution recap, medical expense documents, child-care forms, property tax forms, home sales records, pension statements, and retirement forms.

Waiting for your review. You need to sign your tax return and/or return a signed Form 8879 saying your return is ready to file electronically.

Receiving documentation late. The closer to the April filing deadline your documents are received, the greater the potential back log of return processing. In tax return processing (and receiving a refund), the early bird not only gets the worm, it also gets the worm faster.

If a missing item is requested of you, the sooner you can provide the information the better. It always takes a bit more time to review your return after setting it aside for a missing item.