by | Jan 7, 2022 | Tax Tips and News
Their lifeline comes in the form of a quarterly estimated tax payment, as long as it’s made for the fourth quarter of 2021 and gets to the IRS by Tuesday, January 18.
The IRS sees income taxes as a pay-as-you-go proposition, meaning Americans need to pay most of their tax as their income comes in.
Most taxpayers pay their tax in the form of withholding from their paychecks, pension payments and other government payments—including Social Security benefits, or unemployment compensation.
Investors and self-employed taxpayers, however, make quarterly estimated tax payments to the IRS over the course of the year. Other taxpayers also find this method works for them.
Some taxpayers actually use a combination of the two methods to help avoid a big unexpected tax bill when they file, avoiding a penalty at the same time.
Don’t wait to pay
What’s important isn’t just how much is paid to the IRS, but when. If a taxpayer failed to make estimated tax payments earlier in the year, they stand to decrease—and maybe even eliminate—a possible penalty by making a payment early in the year. That’s because the penalty calculation considers the date the payment was made.
Making a payment now, rather than waiting until the April filing deadline, often helps avoid those penalties.
When should taxpayers make estimated payments?
If a taxpayer owed tax when they filed their 2020 return and didn’t increase withholding for 2021, they could find themselves in the same mess come April.
Those who may fall into this trap include taxpayers who used to itemize but now take the standard deduction, those in two-wage-earner households, employees with non-wage income, and taxpayers with complex tax situations.
What’s more, taxpayers who got advance payments of the Child Tax Credit but don’t actually qualify for it could also have a tax-time surprise waiting for them. Making a quarterly estimated tax payment for the fourth quarter of 2021 could be a way out.
What else should taxpayers consider?
The IRS says there are some important points to consider when it comes to income and paying enough in taxes:
- Most income is taxable. Besides wages, interest and other investment income, which also includes income related to virtual currencies, refund interest and income from the gig economy are taxable.
- Unemployment compensation is fully taxable in 2021. The American Rescue Plan Act of 2021 allowed an exclusion of unemployment compensation of up to $10,200 for 2020 only. Often, this means that an estimated tax payment should be made, especially if no federal income tax was withheld from these payments.
- Various financial transactions, especially late in the year, can often have an unexpected tax impact. Examples include year-end and holiday bonuses, stock dividends, capital gain distributions from mutual funds, and stocks, bonds, virtual currency, real estate or other property sold at a profit.
Still unsure whether estimated tax payments are needed? The IRS website has a Tax Withholding Estimator that can help taxpayers decide if they need to make an estimated tax payment.
Another resource can be the estimated tax Form 1040-ES, which has a worksheet packaged with the form.
Taxpayers with a more complex income picture, such as dividend or capital gain income, or who owe alternative minimum tax or self-employment tax should consult Publication 505, Tax Withholding and Estimated Tax, for its worksheets, examples and other details.
How do taxpayers make a payment?
The IRS says its Direct Pay tool is the fastest and easiest method to make an electronic estimated tax payment. Taxpayers can use the tool to schedule a payment in advance of the January deadline.
Taxpayers can also use their IRS Online Account to make an estimated tax payment. Once logged in, users can also see their payment history as well as any pending or recent payments.
These methods are free to use—the IRS doesn’t charge a fee for the service. One other benefit for paying electronically: the payments are credited promptly once they’re made.
For more information on all the payment options available, visit IRS.gov/payments on the IRS website.
Source: IR-2022-03
– Story provided by TaxingSubjects.com
by | Jan 5, 2022 | Tax Tips and News
No doubt about it: The future for the IRS is electronic.
The agency is putting more and more formerly paper-only functions on its electronic platform, speeding up transmission and improving service as a result.
Form 1024, Application for Recognition of Exemption under Section 501(a) or Section 521 of the Internal Revenue Code, is the latest function to transition into the electronic world.
Previously, the only way non-profit organizations could use Form 1024 to apply for tax-exempt status was by submitting the paper form.
That is now changing.
As of January 3, submissions of Form 1024 must now be done online at PAY.gov.
However, the IRS is also offering a 90-day grace period that also allows paper submissions of Form 1024 (Rev. 01-2018) and letter applications. But once that passes, filing will be electronic-only.
“Electronic filing makes it easier to complete an application for tax-exempt status while reducing errors,” said Sunita Lough, Commissioner of the IRS Tax Exempt and Government Entities division. “Electronic filing also shortens IRS processing time so applicants won’t wait as long for a response.”
The electronic revised Form 1024 can also be used by organizations to request a determination under Section 521 instead of using Form 1028, Application for Recognition of Exemption Under Section 521 of the Internal Revenue Code.
The IRS says there are other changes, depending on which sections of code are used to claim exemption.
Electronic transmission of Form 1024, however, doesn’t mean that submitting the form is any cheaper. The required user fee is still $600 for 2022, payable through PAY.gov when the form is submitted.
The site accepts payments directly from a bank account as well as debit and credit cards.
For more information on how to apply for tax-exempt status, check out Revenue Procedure 2022-8 and Applying for Tax-Exempt Status on IRS.gov.
Source: IR-2022-2
– Story provided by TaxingSubjects.com
by | Jan 4, 2022 | Tax Tips and News
Victims of the New Year wildfires in Colorado now have one less thing to worry about. The Internal Revenue Service has given individual and business taxpayers affected by the disaster until May 16 to file and pay an array of federal taxes.
The fires started December 30, wiping out hundreds of homes in Boulder County. At present, the Federal Emergency Management Agency (FEMA) has declared all of Boulder County a federal disaster area, allowing any residents and businesses within the county to qualify for the IRS relief measures.
If FEMA expands the disaster declaration to cover more counties or locations, those new areas would automatically be included in the IRS relief provisions. A current list of eligible locations can be found on the disaster relief page of the IRS website.
More time to file and pay
The IRS relief delays various tax deadlines for filing and payment that would otherwise have occurred between December 30 and May 16. Individual taxpayers and businesses within the disaster area now have until May 16 to file their returns and pay any taxes that would have been due during the postponement period.
The new May 16 deadline applies to:
- 2021 individual income tax returns that would have been due otherwise on April 18;
- 2021 business returns that would have been due in March and April;
- Quarterly estimated income tax payments otherwise due on January 31 and May 2 (taxpayers can skip the fourth-quarter estimated tax payment normally due on January 18, and simply include it with the 2021 return when they file—or send it in to the IRS before May 16).
For a complete list of the tax returns, payments and other tax-related items that qualify for the IRS relief, see the Disaster Assistance and Emergency Relief for Individuals and Businesses page on IRS.gov.
Relief measures are automatic
The extended deadlines and other relief measures are applied automatically to those taxpayers inside the federally declared disaster area. Taxpayers do not need to contact the IRS to qualify for the relief.
That said, if a taxpayer within the disaster area gets a notice of late filing or late payment from the IRS with a due date within the December 30-May 16 time frame, the taxpayer should call the number printed on the notice to have the penalty abated.
Taxpayers with uninsured or unreimbursed losses due to the fires can choose to make the claim either on the return for the year the loss occurred, or on the return for the previous year. The IRS reminds filers to write the FEMA declaration number 4634DR on returns that claim such a loss.
Publication 547 has details on claiming disaster-related losses.
Source: IR-2022-01
– Story provided by TaxingSubjects.com
by | Dec 31, 2021 | Tax Tips and News
Taxpayers who took advantage of some tax-relief measures during the dark days of the COVID-19 pandemic are being reminded that’s it’s now time to pay up.
For some taxpayers, the part of their 2020 Social Security tax bill they were able to delay to 2022 will be due for payment January 3.
COVID relief measures in 2020 gave employers and self-employed taxpayers the option to delay paying the employer’s share of their Social Security tax—which is normally 6.2% of their wages. Half of that is now due January 3, and the other half on Jan. 3, 2023.
Most of the taxpayers affected by the January 3 deadline have already gotten notices from the Internal Revenue Service, reminding them of the impending deadline.
Be warned, however, that the IRS says the new deadline will apply even if an affected employer or individual didn’t get the IRS notice; the payment is still due on time.
Separate COVID relief legislation allowed employers to choose whether to skip withholding Social Security taxes from eligible employees; instead, they could withhold tax this year and pay those amounts to the IRS.
Find details on What employers need to know about repayment of deferred payroll taxes on the IRS website.
How to repay
One of the easiest and quickest ways to make the payment is through the Electronic Federal Tax Payment System (EFTPS). This system allows payment by credit or debit cards, checks, or even money orders. Remember that these payments cannot be combined with any other payment in order for them to be credited properly.
Here’s how to use the EFTPS to make a deferral payment:
- Go to the Tax Type Selection screen;
- Select Deferred Social Security Tax;
- Change the on-screen date to the correct tax period (usually, the calendar quarter in 2020 for which tax was deferred).
If there are problems, check out the EFTPS website at EFTPS.gov, or call 800.555.4477 or 800.733.4829.
Another method to pay deferred tax is through Direct Pay, which is a service only available on the IRS website, IRS.gov.
To use Direct Pay, select “balance due” as the reason for payment. Select “installment agreement” if paying with a debit or credit card. Finally, apply the payment to the 2020 tax year, where the payment was deferred.
Source: IR-2021-256
– Story provided by TaxingSubjects.com
by | Dec 30, 2021 | Tax Tips and News
If taxpayers get a letter from the Internal Revenue Service relating to either the Advance Child Tax Credit or Economic Impact Payments, they need to file the letters for safekeeping.
Those taxpayers will need the letters when they file their 2021 income taxes next year. The IRS is urging letter recipients to hold onto the letters because their information can help reduce errors and speed up processing of their returns.
Letters will be mailed soon
They IRS says it will mail out Letter 6419, 2021 Advance CTC, starting this month and continuing into January. The letter includes the total advance Child Tax Credit payments the taxpayer received in 2021 and the number of qualifying children the taxpayer used to figure their advance payments.
Here’s why it’s important that taxpayers retain these letters: families who got the advance payments will have to use this information when they file their 2021 returns in order to claim the remaining half of the credit.
The return will basically have them compare the advance payments they received with the remaining amount of the credit they’re still eligible to get. Using the letter makes preparing tax returns easier. It also speeds things up at the IRS.
Taxpayers who got the advance payments can also use the CTC Update Portal on the IRS website to check the amount of their payments.
Families who are eligible for the credit but didn’t get the advance payments can still claim the full amount of the credit on their 2021 tax return—even if they don’t normally need to file.
EIP recipients to get their own letters
Taxpayers should start getting Letter 6475, Your Third Economic Impact Payment, in late January.
This letter goes out to those who received the third Economic Impact Payment (EIP), to help them determine if they qualify for any remaining Recovery Rebate Credit on their 2021 tax return.
The third EIP was an advance payment of the Recovery Rebate Credit that would be claimed on the 2021 tax return.
Most eligible individuals have already gotten their payments, but those who are still missing stimulus payments need to look over the IRS letter to determine if they’re eligible and if the need to claim the credit for either the 2020 or 2021 tax years.
Note that Letter 6475 will also go out to recipients of “plus-up” payments, which were extra payments the IRS sent out to certain taxpayers. “Plus-up” recipients received a third EIP based on:
- A 2019 income tax return; or
- Information from the Social Security Administration, Railroad Retirement Board, or Veterans’ Administration; or
- A 2020 income tax return that showed the taxpayer was eligible for a larger amount.
These EIP letters—like the letters for the Child Tax Credit—should be retained for use when the payment recipients file their 2021 income tax returns.
Visit the IRS website for more information on the advance Child Tax Credit, Economic Impact Payments or other COVID-19-related tax relief.
Source: IR-2021-255
– Story provided by TaxingSubjects.com
by | Dec 28, 2021 | Tax Tips and News
In November 2021, Drake Software and Right Networks collaborated on a three-part series highlighting different software solutions available to tax professionals.
In part one, we learned about the different ways tax practices run software.
Part two covered how cloud application hosting handles data security.
And in part three, Drake Software taught us how cloud application hosting facilitates remote work.
Now, we will answer the question: If I have been using Drake Software without the cloud, why do I need to host now? Here are three reasons:
- To secure Drake Tax and Drake Accounting data.
- To get one step closer to the FTC’s “The Safeguards Rule” compliance.
- To enable hybrid-remote, fully remote, and on-site work.
1: To Secure Drake Tax and Drake Accounting Data
Roman Kepczyk, Right Networks’ director of firm technology strategy, recently attended The CPA Practice Advisor Ensuring Success event. This annual sit-down of some of the industry’s thought leaders focused on one topic this year: firm security.
Unfortunately, it was the thought leaders’ consensus that firms haven’t taken cybersecurity threats seriously enough. Cyber attacks can happen to anyone, at any time, and firms handling taxpayer data are at greater risk—because hacking into one firm is like hacking into thousands of bank accounts at once.
There are various reasons behind why firms aren’t prioritizing security, but often it’s because firms don’t believe that they’re enough of a target (they are) or they don’t have enough resources to implement safeguards (they do).
Here are a few ways hosting Drake Tax and Drake Accounting software data in the Right Networks Cloud makes your firm more secure:
- Tier-4 data centers store data. Multiple tier-4 data centers across the US create an end-to-end redundant data infrastructure. (Tier-4 data centers are the most advanced type of data center, and the standard used by global banks.)
- Nightly 90-day rolling backups protect data from accidental loss or deletion. Accidentally delete the previous day’s work? Give our support agents a call and we’ll restore it for you.
- 24/7/365 intrusion detection systems help monitor for suspicious activities. Ever go on vacation and get a call from your bank about suspicious card activity? Our security experts are constantly monitoring for any potential threats and will notify you about any suspicious cloud activity.
Learn more about Right Network’s built-in security measures for hosted Drake Software.
2: One Step Closer to FTC Safeguards Rule Compliance
The FTC understands the proverbial goldmine target that’s on firms’ backs and has put together a list of requirements that every financial institution must follow. Failure to comply with the FTC Safeguards Rule can result in fines and cause irreparable damage to your firm’s reputation.
According to the FTC, the first step to being compliant with The Safeguards Rule is “developing a written information security plan.” And “as part of its plan, each company must … select service providers that can maintain appropriate safeguards.” *
That brings us back to the reason why we’re here: How cloud hosting (and specifically Right Networks cloud hosting for Drake Software) safeguards client data, helping firms get that much closer to FTC compliance.
Here are a few ways Right Networks cloud hosting builds in security safeguards to protect any hosted apps, software, and data (above and beyond what other providers may offer):
- Multi-factor authentication powered by Duo: Passwords can be cracked. Multi-factor authentication uses a combination of 1) something you know, 2) something you have and 3) something you are to verify that it’s really you before it will allow access to your cloud portal. All Drake Tax and Drake Accounting cloud hosting customers get Duo included in their package, for no extra charge.
- Employee security: Our employees are all 100 percent US-based. What does this have to do with security? If employees are US-based, data is, too. So, in support cases, you can rest assured that the individual supporting you isn’t remoting in from a country with sketchy-at-best data privacy regulations.
*There’s a lot more to complying with The Safeguards Rule; learn what it takes to get into compliance by visiting FTC.gov.
3: To Enable Hybrid-Remote, Fully Remote, and On-Site Work
The Right Networks Cloud was around long before remote work became the norm, and it has a lot more to offer than just enabling secure remote access. However, it did become that much more popular in March of 2020 precisely because of its ability to facilitate an easier, safer way to work remotely.
“It has made working remotely not only possible but just like I’m in the office! Throughout COVID there have been many changes, but I have been able to work normally, efficiently, and consistently with this system. There isn’t a learning curve; it just works!” Jennifer M., Full Charge Bookkeeper
We don’t know what next year, or even next month, will bring. We don’t know if teams will be required to go back home to work; we can’t predict how clients will want to meet. We do know this: Tax season is nearly upon us. And every business must be prepared to work from anywhere—the office, home, client sites—full stop.
Maintaining business continuity is key. And with Drake Software hosted in the cloud, teams can maintain business continuity by:
- Being able to work from anywhere, from any device
- Keeping pre-determined processes and workflows
- Inviting clients to collaborate in-cloud, saving you from trips to client offices (or worse: snail-mailing confidential information)
- Saving time on non-tax related tasks, such as backing up files or installing applications (we do that for you!)
Learn how cloud hosting enables business continuity for teams.
Who is Right Networks?
Right Networks is a company dedicated to serving the accounting industry. Our mission is to provide our accounting and tax firms with the tools they need to make every workday more efficient and secure.
– Story provided by TaxingSubjects.com
Arnold & Company, LLC