The IRS announced today a new way to access the IRS online services. Starting today accessing the IRS online account, obtaining transcripts online, updating child tax credit information, obtaining an installment agreement or obtaining an IP PIN is a lot more user friendly and a lot more secure.

IRS is using ID.me

IRS is outsourcing the identity verification process to a well known technology provider, ID.me. ID.me is a Virginia based technology company that provides services to multiple government agencies and health care providers. This will make the process of accessing the IRS online services a lot simpler. And, in addition, if you encounter any issues with the identity verification process, you can get help a lot easier. ID.me comes with increased help desk assistance.

Tax Professional Applications Will Also Use ID.me

Tax professionals will benefit from this change as well. IRS will use ID.me to allow access to the “Tax Pro Account”. As well as for submitting Forms 2448 and 8821.

How Will your Identity Be Verified?

ID.me will request that you provide them with an identity document, like a driver’s license, state ID or passport and for a selfie that you can take with a computer webcam or a smartphone.

When Do You Need to Make the Change?

If you already have an IRS username, you may continue to use it until summer 2022, but you will be prompted to create and ID.me account as soon as possible. If you need help with this process the IRS provided a help site, ID.me IRS Help Site.

It is good to see these improvements to the way IRS provides online services, in the context of so many cases of identity theft. 

Remember to always protect your information. We recommend all our clients to try to take as many steps as possible to protect their identity, such as: obtaining an IRS IP PIN, freezing your credit score with the 3 credit bureau agencies, using secure portals for exchanging sensitive documentation, avoiding emailing sensitive information.

If you need help with your federal or state taxes, give us a call or schedule an appointment.

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

Identity theft is a serious threat, not just to you, but to your businesses as well. Partnerships, trusts, estates, non-profit organizations and all other entities that are EIN (Employer Identification Number) holders are vulnerable.

If you encounter some of the issues below, this might be a signs of tax related identity theft:

• You get an IRS rejection notice when trying to file the business federal extension stating an extension for your EIN has already been filed
• You can’t e-file the federal tax return because the return was already filed with the same EIN
• Your IRS tax transcript does not match anything you submitted
• You receive a notice from the State that an employee applied for unemployment, although you did not lay off any employees recently.

It is important for you to be alert and take strong security measures to protect your business and its data. Communicating any business information changes to the IRS and your State is one such step you can take towards protection against identity theft.

Update Business Information With The IRS

The business is required to report any change in the responsible parties and/or address with the IRS within 60 days of change. You can update your business information using Form 8822 B-Change of Mailing Address or Responsible Party:

https://www.irs.gov/pub/irs-pdf/f8822b.pdf

Update Business Information With The State

You also want to make sure that you business information is current with the state.

Make sure the registered agent information is up to date with the Secretary of State. In Texas, you can update this information using Form 401:

https://www.sos.state.tx.us/corp/forms/401_boc.pdf

One other institution you want to have current information with, is the State Comptroller. Use the following link to update the business information with the Texas State Comptroller:

https://comptroller.texas.gov/web-forms/manage-account/change-address/

If you need help with your federal or state taxes, give us a call or schedule an appointment.

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

As digitization continues to be more common than ever, IRS launched a new feature for the IRS Online Account to improve and facilitate better services for taxpayers.

How the IRS Processed Power Of Attorney Forms In The Past

Until recently taxpayers could not connect online with their tax professional for approving the power of attorney or tax information authorization. The taxpayers and the tax professionals had to physically sign Form 2848 – Power of attorney and/or Form 8821 – Tax information authorization. Then the tax professionals had to submit the form(s) to the IRS either through their e-Services account or fax it to the IRS to get the requested information.

We Can Now Submit The IRS Power Of Attorney Form Online

This new IRS feature reduces the time in which your tax professional can get access to the requested information from weeks to a couple of days.

You, the individual taxpayer will now be able to connect with your tax professional by opening an online account on the IRS website. You can click here to access the IRS website and start creating your IRS Online Account. Your identity as a taxpayer will be verified during the login process and would then enable you to see in your online account the authorizations requested by your tax professional. You can verify and approve these authorization requests by simply checking a box as your signature for approval.

This IRS online account would not only let you access your tax records, but you will also be able to make a payment, check the status of your economic stimulus payments and see key information from your recent tax return.

There Are Instances When You Cannot Submit Online the IRS Power Of Attorney Form

Unfortunately, for those of you who cannot validate their identities for opening an online account, you will not be able to take advantage of this newly introduced feature.

The same applies for businesses or other entities. This online process is only available for individual taxpayers.

If you need help with your taxes, give us a call or schedule an appointment.

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

Child Tax Credit Changes

We all are still seeing the looming effects of Covid19 pandemic on our economy. Some help is on the way through the avenue of the advance child tax credit payments authorized by the American Rescue Plan Act. The Act made some important changes to the child tax credit:

• it increased the maximum credit allowed from $2000 to $3,600 for children ages 5 and under at the end of 2021 and $3,000 for children ages 6 through 17 at the end of 2021.

• the credit will now be fully refundable, which means, you can get the amount of credit as a refund even if you do not owe any income taxes.

Child Tax Credit Advance Payments Starting July 15th

One other change that came about is that now you don’t have to wait until 2021 tax filing to claim some of the child tax credit available to you. Half of it is now available in form of advance monthly payments. The IRS will start making these payments on July 15^th 2021.

But there are some requirements to qualify for these advances. To see if you are eligible, please click here.

Unenrollment

You do not have to do anything to enroll in this monthly payment, however if do not wish to receive the advance child tax credit payments, you need to opt out. Some of the reasons for wanting to opt out of the advance child tax credit payments, can be:

• you expect to owe taxes on your 2021 tax return,
• you want to save the credit amount for some considerable expenses you foresee for next year,
• maybe due to a divorce, you expect to have a lower number of dependents.

The unenrolling is a one time action. You do not have to unenroll for each month, neither can you reenroll back to receive the advance payments. It is an individual action, hence you and your spouse, if filing jointly, both have an independent right to decide and enroll or unenroll individually. If your spouse unenrolls and you do not, you will get half of the joint payment you were supposed to receive with your spouse.

You can find more information about the advance child tax credit payments on the IRS website.

If you need help with your taxes, give us a call or schedule an appointment.

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

When your C corporation has a profitable year, do you take more salary or pay yourself a year-end bonus? Since you are pivotal to your company’s success, paying yourself more in the good years only makes sense. Increasing or decreasing your compensation from year to year based on company performance can also help manage your company’s cash flow — and the amount of income taxes it has to pay.

Tax Impact

A C corporation may deduct compensation as a business expense if it is reasonable in amount. Distributing profits as salaries and bonuses can help minimize taxable corporate income, although you and other recipients will be taxed individually on the compensation you receive.

You may decide that paying additional compensation is preferable to paying out profits as dividends. Unlike compensation, dividends are not deductible. Result: The government taxes corporate profits twice — once at the corporate level and again to the shareholders who receive the dividends.

A Word of Caution

If the amount of compensation paid to you and other shareholder-employees is deemed to be unreasonable, the IRS could challenge your company’s deduction for the expense . The IRS may reclassify the “excessive” amounts as nondeductible dividends.

To potentially reduce the chances of problems with the IRS, consider these strategies:

• Divide the profits and pay out a portion as bonuses. Leave enough money in the company to generate some amount of taxable income.
• When setting bonuses, avoid using ownership percentages to determine the amounts shareholders will receive. This method suggests the payment of dividends.
• Adopt and follow a formal compensation plan for executives that includes bonus payments based on meeting specified financial goals.
• Earmark a portion of company profits for dividends. Individual shareholders will generally pay federal income tax on qualified dividends at a maximum rate of 20%. This rate is significantly lower than the maximum rate on compensation and other ordinary income.
  If the corporation pays dividends be aware of the requirement to file forms 1099-DIV.

Give us a call or schedule an appointment to see how we can help you.

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

Every year brings some degree of change regarding filing income taxes. While 2020 taxes are a done deal, it’s never too early to begin thinking about the next tax year. To help you be prepared for next year’s filing, here are some of the ways 2021 income taxes will be different.

Standard Deduction Increase

Standard deductions reduce the amount of your income that is subject to federal tax. Most taxpayers do not have enough deductions to itemize, so they take the standard deduction. Annual adjustments for inflation cause the standard deduction to increase slightly each tax year. For 2021 income taxes, here are the standard deductions and the amount of the increase from the prior year.

• Married filing jointly $25,100, up $300
• Single and married filing separately $12,550, up $150
• Head of household $18,800, up $150

While itemizing is more work, if your itemized deductions exceed the standard deduction allowance for your tax filing category, itemizing makes sense.

Higher Tax Brackets

You already know the more money you earn, the more you pay in taxes. How much you earn, your income, along with your filing status, determines your tax bracket. There are seven tax brackets with the top tax rate being 37 percent for taxable income over $518,400. Brackets are adjusted annually to account for inflation. For 2021 income taxes, tax bracket thresholds were increased by about 1 percent over 2020 levels.

Capital gains

When you sell an investment like real estate, stocks, or bonds, for more than you paid, the net profit you make is taxed as either short- or long-term capital gains. If you held your investment for less than one year, you pay short-term capital gains. For investments held more than one year and one day, the capital gains tax on the profit you made is long-term. Short-term capital gains are taxed like regular income. However, long-term capital gains are taxed at different rates (0 – 20 percent) depending on taxable income and marital status.

For example, if you’re single and your income is below $40,400 in 2021, you fall into the 0 percent capital gains tax bracket. However, if you’re single and earn between $40,401 and $445,850, you move into the 15 percent bracket. Above that, it’s the 20 percent bracket for you.

The 0 percent bracket is approximately double for married couples ($80,800), but above that, brackets are close to the single filer brackets (15 percent up to $501,600 and 20 percent above that).

Individual Tax Credits

Tax credits lower your overall tax bill. There are quite a few credits to consider, but the most popular ones are the earned income tax credit, the saver’s tax credit, and the lifetime learning tax credit.

Earned income credit is for low- and middle-income taxpayers and is based on income, filing status, and number of children, although taxpayers without children can qualify. For 2021 income taxes, the earned income credit ranges are up very slightly over 2020 and range from $543 to $6,728. Some criteria for the credit are having at least $1 of earned income, investment income must be $3,650 or less. Other stipulations apply, so check with your tax preparer to see if you qualify.

Saver’s credit is also designed for low- and middle-income taxpayers and is to encourage retirement contributions. Taxpayer adjusted gross income (AGI) must be less than $33,000 in 2021 (up slightly from $32,500 in 2020) to qualify for the credit for single or married filing separately. Married filing jointly AGI must be less than $66,000 in 2021 (up from $65,000 in 2020).

Lifetime learning credit is for taxpayers who incur education expenses during the year. There was little change in this credit for 2021 income taxes. Married filing jointly income limits increased $1,000 (from $118,000 to $119,000 for full credit and from $138,000 to $139,000 for partial credit). Other filing statuses will see no change for 2021.

Alternative Minimum Tax

The AMT exemption amount for 2021 is $73,600 for singles and $114,600 for married couples filing jointly. This is a change from 2020 when the exemption amount was $72,900 and $113,400 for married couples filing jointly.

Fringe Benefits, Medical Savings Accounts, and Estates

Most employee fringe benefits allowances for 2021 will continue at their 2020 levels; however, changes occur in health savings account (HSA) contributions, which increase by $50 for single and $100 for families from 2020.

The maximum out-of-pocket amounts for high-deductible health plans (HDHP) increases by $100 for single and $200 for families.

The federal estate tax targets the amount of wealth you can pass along when you die. It is no concern unless your estate is worth more than $11.7 million when you die. That figure is up from $11.58 million in 2020.

Retirement Plans

Contributions for 401(k) plans will not change from 2020 top off amount of $19,500 with a $6,500 catch-up contribution allowed for individuals 50 or older. Maximum contributions from all sources (employer and employee) rise by $1,000.

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Of course, these are an overview of changes for the 2021 tax year. You can find out more information on the IRS website www.irs.gov.

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.