Archives for November 2020

With Covid-19 crisis still looming over us, not just the physical health but the financial health of many is also in jeopardy. It is an ideal environment for those with ill intent to rob you of your sensitive information and/or your money under the guise of receiving the economic impact payment (EIP).

New Text Scam

IRS warns of a new text scam created by thieves to trick you in disclosing bank account information under the guise of receiving the $1200 economic impact payment. Neither the IRS nor any state agency will text you asking for bank information so that an EIP deposit can be made.

These thieves are trying to trick people with a text message that states “You have received a direct deposit of $1200 from Covid-19 Treasury Fund. Further action is required to accept this payment into your account”. The text includes a link to a fake phishing web address which appears as if coming from a reliable source.

Report the Scam to the IRS

If you happen to get such a scam text message, please take a screen shot of the text message and email it to IRS at phishing@irs.gov along with some additional information like:

• Number that received the text message
• Number that appeared on caller ID as received
• Date/Time/Time zone you received the message.

Remember IRS or states do not send unsolicited texts or emails.
The IRS and states do not threaten people with jail or lawsuits over the phone. The IRS or states do not demand tax payments on gift cards.

IP PIN

One additional layer of protection against tax identity theft is to voluntarily apply for an Identity Protection PIN (IP PIN).

The IRS allots you an IP PIN only after you pass a rigorous identity verification process validating your identity. This IP PIN is valid for one year and hence you must obtained it each year. To get an IP PIN you can use the online tool ‘Get IP PIN’ available on IRS website starting January 2021. Alternatively you can also file a paper application for IP PIN.

Don’t forget to keep the IP PIN you get in a safe location until its time to prepare your tax return.

If you need help with your tax return preparation, give us a call or schedule an appointment online.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

Autumn is not just for pumpkin spiced everything, but also a perfect time to review your tax withholdings and tax payments for the year to avoid any surprises when filing next year.

With a few adjustments in your estimated tax payments and/or withholdings you can avoid surprise tax bills. Here are a few things you may consider that will affect your 2020 taxes before you make any adjustments:

Life Changes Such As Marriage

As a married couple you are now required to file a joint return. Filing a joint return usually turns out to be beneficial for a married couple. However, if you and your spouse are both working, it might put you into a higher tax bracket and would require you to make changes to your tax withholdings.

Working in the Gig Economy

Do you make any money working in the Gig economy? To name a few: drive a car for booked rides, run errands, sell goods online, rent out property or part of it. You must consider any income earned from the gig economy even if it is from part time, temporary or side work not reported on an informational return form like 1099 miscellaneous, W2 or other income statement.

Disasters Such As Wildfires and Hurricanes

If you have suffered any loss attributable to a federally declared disaster, you can be eligible to claim a casualty loss. You may want to consider the impact of this loss on your income and thereby on your taxes before paying your estimated taxes for the last quarter of 2020.

Job Loss

With the COVID-19 pandemic a lot of people lost their jobs. It can be frustrating and stressful. The last thing you want to think about, is taxes. But if you received severance pay and/or payment for accumulated sick time or vacation time, it might result in a high tax bill.

Unemployment Compensation

If you filed for unemployment benefits and received unemployment compensation, remember, it is taxable. You can either have tax withheld from the benefits or choose not to and make enough estimated tax payments.

COVID-19 Deferral of Employment Tax

There is some relief available for 2020, due to the COVID-19 pandemic. The CARES Act allows deferrals of some of the payroll tax payments. These are available to both employers and to self-employed individuals, including partners in a partnership. Click here to see more information about the employment tax deferral options.

If you need help navigating all these changes, give us a call.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

Starting with the 2021 tax filing season, if you have a business taxed as a partnership, you will have to report the partners’ capital accounts on a tax basis of accounting.

Form 1065 Instructions Early Draft Released

About a week ago, IRS released an early draft of the 2020 form 1065 instructions. This draft provides information about the new reporting requirement.

Under the tax basis method, partnerships report partners’ contributions, distributions, their share of partnership net income or loss, and other increases or decreases using tax basis principles. Until now, other methods were allowed, such as: generally accepted accounting principles, contractual method, regulatory method and others.

If your business already used the tax basis of accounting to report the partners’ capital accounts on schedule K1, you will continue to report them in the same manner as before.

However, businesses taxed as partnerships, that in 2019 did not prepare Schedules K1 under the tax capital method, will need to recalculate the 2019 ending capital account balances. You can use several methods to do this:

• The Modified Outside Basis Method,
• The Modified Previously Taxed Capital Method,
• The Section 704(b) Method.

Because this might be difficult to implement, IRS announced it intends to provide penalty relief, but only for tax year 2020, for any errors in reporting the beginning capital account balances on Schedules K1. The relief applies if the business takes ordinary and prudent business care in following the 1065 form instructions to calculate and report the beginning partners’ capital account balances. IRS will issue a notice soon with details about this penalty relief for the 2020 tax year.

IRS Will Release the Final Version in December

A final version of the 1065 instructions will be released in December. In the mean time IRS is accepting comments to this draft. You have 30 days from the date of the draft release, which was October 22, 2020 to submit your comments.
The rules of tax basis of accounting can be difficult. And transitioning from a different basis of accounting can be confusing. If you need help with the preparation of your business’ tax return, give us a call.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.