What You Need to Know About the 2021 Recovery Rebate Stimulus Payments

The President has officially signed the American Rescue Plan Act of 2021 into law. Within this new stimulus bill are a third round of a direct checks to eligible Americans, called “recovery rebates”—of up to $1,400 for every “eligible individual.”

Sounds great, right? Of course, the devil is in the details.

How Much Will You Receive?

Each eligible individual in your household should receive $1,400. Eligible individuals include:[1]

  1. You, as an individual taxpayer
  2. Your spouse (if you are filing a joint tax return)
  3. Any dependents you are claiming on your tax return, regardless of their age

For example: A married couple filing jointly and claiming three dependents on their tax return would be eligible for $1,400 x 5 = $7,000. This is the case even if the dependent is, say, an adult child in college, or a parent in assisted living.

The catch? Whether you receive a full, a partial, or no rebate depends on your Adjusted Gross Income (AGI) on your tax return:

If you are … You receive a full rebate if your AGI is … You receive a partial rebate if your AGI is … You won’t receive a rebate if your AGI is …
Single, or married filing separate Under $75,000 $75,000–$80,000 Over $80,000
Head of household Under $112,500 $112,500–$120,000 Over $120,000
Married, filing jointly  Under $150,000 $150,000–$160,000 Over $160,000

 

All this begs the question: Which AGI are we talking about? Technically, … Read the rest

The Ultimate Guide to IRS Offers in Compromise in 2021

Taxpayers who owe taxes to the Internal Revenue Service have a couple of recourses to handle their debt. While many benefit from installment agreements, taxpayers whose tax debts far exceed their incomes and ability to pay may not find these types of solutions feasible. Taxpayers who are unable to repay what they owe to the IRS might benefit from a different program called an Offer in Compromise.

What is an offer in compromise?

The IRS offer in compromise is a program through which the IRS allows taxpayers to settle their tax liabilities for less than what they owe. The authority to accept less than what is owed is granted by 26 U.S. Code § 7122. Under this statute, taxpayers may submit lump-sum offers in compromise to settle their tax debts through a lump-sum payment or periodic payment offers in compromise to settle their liabilities through a finite number of periodic payments. If a taxpayer submits an offer in compromise to the IRS for a lump-sum, he or she will be required to submit an initial payment with the offer. People who submit periodic payment offers in compromise must submit the amount of the initial periodic payment with their offers.

Under IRM 5.8.1, the IRS will accept an offer in compromise when it deems the tax liability to be otherwise uncollectible. It may also agree to an offer in compromise when there is doubt about the liability owed and … Read the rest

Highlights of the Latest COVID-19 Economic Stimulus Bill

On December 27, 2020, the President signed into law the House Amendments to the Senate Amendments to bill HR 133. The original HR 133 was a US-Mexico trade pact, but after months of political tinkering, amendments in both chambers, and having numerous other bills stuffed into it, became a 5,593 page monster of a bill. Tucked within it are the complete federal spending appropriations for Fiscal Year 2021, the latest COVID-19 economic stimulus effort, and numerous additional items.

Here are some of the highlights from this massive piece of legislation:

  • Federal unemployment benefits will be extended, with an extra $300 per week bonus benefit added on.
  • Individuals may be eligible for a direct payment of up to $600 per person, subject to income limitations.
  • A second round of PPP loans have been authorized for businesses that experienced a 25% or greater decline in any quarter of 2020 over the same quarter in 2019.
  • PPP loans under $150,000 will effectively be given rubber-stamp forgiveness via a 1-page application and self-certification of forgiveness eligibility.
  • Recipients of EIDL grants no longer need to subtract the grant amount from their PPP forgiveness amount.
  • Business expenses paid with PPP funds and EIDL grants are fully tax deductible, and forgiven PPP loans amounts and EIDL grants are not included as income.

There are many additional provisions in this lengthy bill, of course, but these highlights should give hope to many struggling individuals and small businesses. … Read the rest

Taxpayers Have a Right to Challenge IRS Positions

While getting ahold of the IRS right now might seem like an impossible challenge, the customer service issues caused by the COVID-19 pandemic don’t change the fundamental rights that all taxpayers have. Today, the IRS issued Tax Tip 2020-171, reminding taxpayers of their rights to challenge any position the IRS takes in regards to their tax matters. In addition, the IRS reminds Americans that they have the right to be heard. Again, it may not quite feel like it right now, with the increased difficulty in getting through to the IRS and actually be heard, but it is still a right that all taxpayers have.

As outlined in the Taxpayer Bill of Rights, taxpayers have the right to:

  • Raise objections.
  • Provide additional documentation in response to formal or proposed IRS actions.
  • Expect the IRS to consider their objections timely.
  • Have the IRS consider any supporting documentation promptly.
  • Receive a response if the IRS does not agree with their position.

With the current mail backlog running an estimated 3 million pieces of mail, and phone line hold times exceeding two hours on many days, it’s more difficult than ever for the IRS to meet the customer service expectations they’ve set, and that you expect. This issue is not falling on deaf ears at the Service, nor has it gone unnoticed by Congress. Over the past few months, the IRS has hired a few hundred new customer service agents, and has … Read the rest

Six Financial Best Practices for Year-End 2020

By any measure, 2020 has been an interesting year. Tens of millions of Americans have faced unemployment, and millions of small businesses have had to scale back operations, or even worse, close permanently. And right when things start to feel like they’ll return to normal, something else happens.

Thankfully, with multiple COVID-19 vaccines in the works, there’s hope the load will lighten in the new year, which is fast approaching. While we prepare for a fresh start, here are six financial best practices for year-end 2020 and beyond, none of which require any heavy lifting.

  1. Give as you’re able, get a little back. What the 2017 Tax Cuts and Jobs Act (TCJA) took from charitable giving, this year’s CARES Act partially gave back – at least for 2020.
  • A $300 “Gift”: Under the TCJA, it became much harder to realize itemized tax deductions beyond what the increased standard deductions already allow. But this year, the CARES Act lets you donate up to $300 to a qualified charity, and deduct it “above the line.” In other words, even if you’re taking a standard deduction, you can give a little extra, and receive an extra tax break back, without having to itemize your deductions.
  • Giving Large: If you are itemizing deductions, the CARES Act also temporarily suspends the usual “60% of your AGI” limit on qualified cash contributions. The exception does NOT apply to Donor Advised Fund contributions, and has a few
Read the rest

Real Estate Investment Analysis: Modeling Rental Property Depreciation

Real estate investors often misunderstand rental property depreciation. To help you better model this important tax benefit for your own real estate investments, and understand depreciation within the overall context of your real estate portfolio, we suggest using a real estate investment analysis software to help you.

Here’s how to model it with the Real Estate Financial Planner™ software in particular.

First, the user enters in some basic information about the property. Wave a magic wand over the info provided. Tada! The software calculates the yearly gross depreciation benefit. It does account for residential versus commercial properties (27.5 versus 39 years).

For example, for a $250,000 property with a land value of $50,000:

Value of Depreciable Building = Purchase Price - Land Value
$250,000 - $50,000 = $200,000

$200,000/27.5 Years = $7,273 Per Year

The software does take it one step further, though.

It asks the users to enter in their effective tax rate as well. Using the user input effective tax rate, the software estimates the actual tax benefit.

Gross Depreciation x Effective Tax Rate = Estimated Tax Benefit
$7,273 Per Year x 21.2% = $1,542

We call the $1,542 “Cash Flow from Depreciation”. The real estate investor can look at it as the extra cash flow this rental property provides.

We display this to the user as part of the Return in Dollars Quadrant™:

Side note: the depreciation benefit is the only benefit presented in after-tax dollars.

What … Read the rest

IRS announces Taxpayer Relief Initiative to help those financially impacted by COVID-19

The IRS is following up on their People First Initiative from summer 2020 with some new administrative program changes to make life a little easier for taxpayers that owe back taxes and are not in a position to immediately repay those tax debts. While these are not new programs, the IRS is attempting to make it easier for taxpayers to take advantage of the existing programs, by increasing access to relief.

Under this new initiative:

  • Taxpayers now have 180 days to pay tax debts on a short-term payment plan, up from 120 days.
  • For taxpayers already paying on a previously accepted Offer in Compromise, the IRS is now offering some flexibility on the payment terms of that accepted offer.
  • Individuals with an existing payment plan on a tax debt will automatically have new tax debt balances tacked on to their existing payment plan.
  • As per March 2020 changes to the Internal Revenue Manual, certain individuals with income tax debts less than $250,000 no longer need to submit financial documentation in order to obtain a payment plan. This option is only available via call center staff, not cases that are assigned to field agents.
  • For individuals that only owe 2019 tax debt, and owe less than $250,000, the IRS may agree to not file a Notice of Federal Tax Lien (NFTL) against the taxpayer.
  • IRS is now allowing some individuals with existing Direct Debit Installment Agreements to use the IRS website
Read the rest

Federal Economic Impact Payments – Frequently Asked Questions

In response to the COVID-19 pandemic, Congress recently passed legislation authorizing stimulus payments to most Americans. These payments, called Economic Impact Payments, are being processed by the Internal Revenue Service (IRS) at the current time. Many people have questions about these payments, so this FAQ has been assembled to help you find answers.

Is the Economic Impact Payment considered to be taxable income?

No, this payment is not considered “income” by the IRS and you will not need to pay income tax on it. This payment will not effect your refund, or increase the amount you owe when you file your 2020 tax return in 2021. This stimulus payment will also have no impact on your eligibility for other federal assistance programs that use income to determine eligibility.

How can people who receive a Form SSA-1099 or RRB-1099 check their payment status?

Taxpayers can use the IRS Get My Payment tool to check on the status of their stimulus payment. This will require you to verify your identity by answering a set of security questions.

If my bank account information has changed since the last time I filed a tax return, how do I update my direct deposit information?

The Get My Payment tool at irs.gov does not allow you to change your direct deposit information. This is a security precaution to prevent these payments from being stolen by changing this information.

If the IRS sends your payment using the … Read the rest

The Simple Truth About IRS Offer in Compromise Fees

Most tax resolution companies give you a quote for services based primarily on three things:

  1. How much you owe the IRS
  2. What kind of taxes you owe
  3. How much the sales person thinks you can afford to pay THEM

Here’s a dirty little secret of the tax resolution industry that nobody else will tell you: The actual WORK required to resolve a case has very, very little to do with how much you owe or what kind of tax it is, and obviously nothing to do with how much of a fee you can pay for representation.

What makes a tax resolution case more complex has much, much more to do with other factors, such as:

  • the existence of other creditors
  • the status of your assets
  • whether or not there are existing levies or wage garnishments
  • how long you’ve been accruing a tax liability
  • your past efforts (or lack thereof) to resolve the issue
  • your ability to file missing returns quickly
  • whether or not your accounting is up to date
  • whether or not you are able to “stop the bleeding” and become current with present day filing and payment requirements (this is actually the single biggest factor)

Most companies have a minimum fee quote for doing an Offer in Compromise for you, and it’s generally higher than for doing a payment plan, because the OIC process takes 6 to 12 months from start to finish. Most reputable firms will charge … Read the rest

10 Tips to Help You Choose a Tax Return Preparer

Many people look for help from professionals when it’s time to file their tax return. If you use a paid tax preparer to file your federal income tax return this year, the IRS urges you to choose that preparer carefully. Even if someone else prepares your return, you are legally responsible for what is on it.

Here are ten tips to keep in mind when choosing a tax return preparer.

1. Check the preparer’s qualifications. All paid tax return preparers are required to have a Preparer Tax Identification Number. In addition to making sure they have a PTIN, ask if the preparer belongs to a professional organization and attends continuing education classes. The IRS maintains a database of tax return preparers here that you can check. In addition, here on TaxFirms.com, we have maintain a directory of tax professionals whose licensure has been verified. At the very least, choose a preparer that participates in the IRS Annual Filing Season Program.

2. Check on the preparer’s history. Check with the Better Business Bureau to see if the preparer has a questionable history. Also check for any disciplinary actions and for the status of their licenses. For Certified Public Accountants, check with the state boards of accountancy, including looking up the CPA in CPAVerify. For attorneys, check with the state bar associations. For Enrolled Agents, check with the IRS directly.

3. Ask about service fees. Avoid preparers who base their … Read the rest