Edifi Tax & Consulting

Happy New Year to all!

The IRS has sent Letter 6419 to eligible families regarding the Advance Child Tax Credit Payments for tax year 2021. Please have this letter handy for your tax preparation services.

Taxes will start being processed on Jan 31, per the IRS.

Homeownership tax breaks aren't just available for single-family homes, either. As long as you're entering into a mortgage contract, you're eligible.

Types of deductions include:
Mortgage interest
Property tax deduction
Home office expenses
Renewable energy tax credits
Medically necessary home improvements
Property tax deduction
Home equity debt (if used to improve home)

The IRS just released the tool to opt out of monthly child tax credit payments.

Child Tax Credit Update Portal | Internal Revenue Service View your eligibility and unenroll from advance payments of the Child Tax Credit.

IRS is sending letters to more than 36 million families who may qualify for monthly Child Tax Credits. The payments are to start July 15!

The child tax credit can be confusing. Use the calculator in the link below👇🏻

Child tax credit calculator 2021: How much your family can get starting July 15 How much money will your household receive when the child tax credit payments start this summer? Let CNET help you crunch those numbers.

“IRS begins correcting tax returns for unemployment compensation income exclusion; periodic payments to be made May through Summer”

WASHINGTON – The Internal Revenue Service will begin issuing refunds this week to eligible taxpayers who paid taxes on 2020 unemployment compensation that the recently-enacted American Rescue Plan later excluded from taxable income.

The IRS identified over 10 million taxpayers who filed their tax returns prior to the American Rescue Plan of 2021 becoming law in March and is reviewing those tax returns to determine the correct taxable amount of unemployment compensation and tax. This could result in a refund, a reduced balance due or no change to tax (no refund due nor amount owed).

These corrections are being made automatically in a phased approach, easing the burden on taxpayers. The first phase is underway and includes the simplest returns. The next phase will include the more complex tax returns which the IRS anticipates will take through the end of summer to review and correct.

The first phase of adjustments is being made for single taxpayers who had the simplest tax returns, such as those filed by taxpayers who did not claim children or any refundable tax credits.

The IRS will issue refunds resulting from this effort by direct deposit for taxpayers who provided bank account information on their 2020 tax return. If valid bank account information is not available, the refund will be mailed as a paper check to the address of record. The IRS will continue to send refunds until all identified tax returns have been reviewed and adjusted.

These refunds are subject to normal offset rules, such as past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support or certain federal nontax debts (i.e., student loans). The IRS will send a separate notice to the taxpayer if the refund is offset to pay unpaid debts.

The IRS will send taxpayers a notice explaining the corrections, which they should expect within thirty days of when the correction is made. Taxpayers should keep any notices they receive for their records. Taxpayers should review their return after receiving their IRS notice(s).

Correction to any Earned Income Tax Credit (EITC) without qualifying children and the Recovery Rebate Credit are being made automatically as part of this process. However, some taxpayers may be eligible for certain income-based tax credits not claimed on their original return, such as the EITC for their qualifying children. If so, they should file an amended tax return if the revised adjusted gross income amount makes them eligible for additional benefits.

More complex corrections will begin upon the completion of the first phase and involves couples filing as married filing jointly.

Unemployment compensation is taxable income. The American Rescue Plan excludes $10,200 in 2020 unemployment compensation from income used to calculate the amount of taxes owed. The $10,200 per person exclusion applies to taxpayers, single or married filing jointly, with modified adjusted gross income of less than $150,000. The $10,200 is the amount of income exclusion, not the amount of the refund. Refund amounts will vary and not all adjustments will result in a refund.”

You have until May 17, 2021 to file the return or file an extension to file (Form 4868). If you've submitted an extension, you then have until by October 15, 2021 to file your return! If you owe the IRS and/or the state, penalties and interest will still accrue.

Remember, the Form 4868 is an extension to file, not an extension to pay.

Have a great day!

Last minute tax planning tip ⬇️⬇️

You have until May 17th to make contributions to (or max out) your IRA and HSA accounts for tax year 2020‼️

Time is ticking‼️

Did you know that you can look on the IRS website and find out if your tax professional has any IRS approved credentials? This isn’t new but many people aren’t aware of this tool. For example, I looked up myself (Loren Napier) on the IRS website (irs.gov) under:

➡️ Directory of Federal Tax Return Preparers with Credentials and Select Qualifications ⬅️

✅NOTE: If a person is listed and has any of these qualifications you should be good.

The IRS doesn’t require people to keep up with the tax changes but the individuals on this website voluntarily chose to keep up with the changes to provide a better level of service to their clients.

I entered the zip code, first 3 of the last name and look what popped up: ⬇️⬇️⬇️

There are many people claiming to know how to do taxes this season .... I encourage you to verify who these individuals are before giving them your personal information.

⚠️ Buyer beware

No matter who you choose to help with your taxes remember: You are responsible for all the information on your tax return.

If you’re audited, it is up to YOU to provide the supporting information to the taxing authorities, not your tax preparer.

5 Red Flags That Can Trigger an IRS Audit

1. Underreported Income - they have ways to track this

2. Overstating Tax Deductions - The IRS system roots out suspicious tax returns that have deductions that are too high for the reported income level compared with other similar returns.

3. High Income Earner - Those with higher incomes tend to have more complex returns.

4. Claiming Dependents - The IRS and most state governments track the child’s SSN, so beware of claiming dependents that don’t live with you.

5. Foreign Accounts and Income - Failing to report a foreign financial asset like a bank account, brokerage, or mutual fund may also bring the IRS knocking, especially if you hold foreign assets worth over $50,000 (for single filers)