25 Days Until Tax Season Countdown

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25. IF YOU GOT MARRIED THIS YEAR…and want to take your husband’s last name, be sure to make the change with the Social Security Administration. If you don’t do this, you risk your tax return refund being delayed!

IF YOU MOVED THIS YEAR…and need to change your address with the IRS, there are a few ways you can do that! You can simply enter the new address on your 2020 tax return, file Form 8822, or you can write a letter to the IRS.

For more, visit the following links:
https://www.irs.gov/news…/name-change-how-it-impacts-taxes
https://www.irs.gov/taxtopics/tc157

24. DO YOU KNOW WHAT FORM 1099-NEC IS? Form 1099-NEC is a new form the IRS is rolling out for the 2021 filing season. This form replaces Box 7 (non-employee compensation) on the Form 1099-MISC. This form will be used for businesses to enter total payments greater than $600 made to non-employees during 2020, usually for services they provided, a few exceptions may apply. Recipients will use this form when they file their tax return.

23. IF YOU HAVE BEEN WORKING FROM HOME DURING THE PANDEMIC…and have spent money out of your pocket to pay for a new printer, paper, a second screen, or any other home office expenses, unfortunately, there is no longer a tax deduction to offset any of those costs. The Tax Cut and Jobs Act of 2017 eliminated the deduction from the Schedule A for unreimbursed employee expenses. However, if the expenses you’ve incurred are significant, I would suggest speaking to your employer about being reimbursed. This would be tax-free to you (if you have receipts) and would be a tax deduction for your employer.

IF YOU ARE AN (ELIGIBLE) EDUCATOR…and have spent money on your classroom for supplies, even though you are an employee, you are able to deduct $250 without itemizing your deductions, but remember to keep your receipts!

For more info, click the following link:https://www.irs.gov/publications/p529https://www.irs.gov/…/what-teachers-should-know-about….

22. DO YOU CONTRIBUTE TO A RETIREMENT SAVINGS ACCOUNT? If you do, did you know that there is a credit just for saving for retirement? It’s called a Saver’s Credit and eligible taxpayers can get a credit up to $1,000. To be eligible you must be 18+, not a dependent/student, and for MFJ your AGI must be under $65,000 (S $32,500) for 2020.

REMEMBER…a tax credit goes directly against your tax liability, which is much better than a tax deduction! This credit is non-refundable, which means you would not receive a refund for the amount greater than the amount you owe.

For more info, visit the following link: https://www.irs.gov/…/retirement-savings-contributions…

21. WHAT SHOULD I DO IF I RECEIVE A LETTER FROM THE IRS? Sometimes notices from the IRS are for informational purposes only so do not panic, but do not ignore the notice either because it could require action on your part. Read over the letter carefully and determine the intent of the letter.

A few common reasons you might receive a notice: a change in the tax you owe, penalty/interest if you filed late or didn’t file at all, forgetting to include information on your return that was reported to the IRS, or for simple math errors.

If you ever receive one and aren’t sure what the letter means, then contact me and I’d be glad to help you.

20. CAN I DEDUCT EXPENSES FROM MY HOBBY? Another change from the Tax Cut and Jobs Act is that expenses from hobby income can no longer be deducted, however, the IRS is glad to tax your hobby income!

19. WHAT IS MY EFFECTIVE TAX RATE? You may have heard of the phrase “effective tax rate” but you might not be sure what it means. Your effective tax rate is your total tax owed divided by your total taxable income. This rate is typically a little different than one of the rates in the tax bracket table. 

18. WHAT IS AGI? “Adjusted Gross Income (AGI) is defined as gross income minus adjustments to income. Gross income includes your wages, dividends, capital gains, business income, retirement distributions as well as other income. Adjustments to Income include such items as Educator expenses, Student loan interest, Alimony payments or contributions to a retirement account. Your AGI will never be more than your Gross Total Income on you return and in some cases may be lower.”

Source: https://www.irs.gov/…/definition-of-adjusted-gross-income

17. I TOOK SOME COLLEGE CLASSES THIS YEAR, IS THERE A CREDIT FOR THAT? There are two education credits, The American Opportunity Tax Credit and Lifetime Learning Credit. Below are details about each of the credits.

American Opportunity Tax Credit
-first 4 years of higher edu.
-max. credit $2,500/student
-end goal should be a degree/certificate
-min. enrolled 1 academic period
-max. 4 years to claim credit

Lifetime Learning Credit
-can be for edu. after 4 years
-max. credit $2,000/return
-end goal should be degree/certfication/cont. edu.
-min. enrolled 1 academic period
-unlimited years to claim credit

**if your educational expenses were paid for with scholarships/grants/529 account then those expenses DO NOT count toward the calculation of these credits BUT if you paid for educational expenses with student loan funds then those expenses WILL count toward the credit calculation.

Sources: https://www.irs.gov/credits-deductions/individuals/llc and https://www.irs.gov/credits-deductions/individuals/aotc

16. I DON’T UNDERSTAND THE TAX BRACKETS. You’re not alone! Just looking at the tax brackets can be daunting!

MYTH: All of your taxable income is taxed at one rate based on what bracket your income falls into. This is false. Below is an example of how the tax brackets work using the 2020 single tax bracket.

EXAMPLE
Taxable Income=75,000

Tax Rate Bracket-Single Status
0-9,875 10%
9,876-40,125 12%
40,126-85,525 22%

Tax Calculation
9,875 (9,875-0) @ 10% = 987.50
30,249 (40,125-9,876) @ 12% = 3,629.88
34,876 (75,000-30,249-9,875) taxed @ 22% = 7672.72

Total Tax 12,290.10

Effective Tax Rate (from my post a few days ago)
12,290.10/75,000 ~ 16% 

15. I DIDN’T FILE OR PAY MY TAXES LAST YEAR, WHAT PENALTIES WILL I HAVE TO PAY? You can receive a penalty for not filing and not paying. The calculation that the IRS uses can be tricky to understand so I will only explain the basics in this post.

Not filing-minimum $435 for returns due after Jan. 1, 2020 if the return is > 60 days past due or the amount of the tax owed if it’s less than $435. If you owe more than the minimum or you filed within 30 days of due date, then the penalty is 5% of unpaid tax charged each month up to 5 months. May be reduced if you did not file AND you did not pay.

Not paying tax-generally is 0.5% of tax not paid. Interest accrues on the tax owed and is compounded DAILY! The interest rate is typically the federal short term rate PLUS 3%.

This is why it is so IMPORTANT to file AND pay your taxes ON TIME.

Sources: https://www.irs.gov/…/important-facts-about-filing-late… and https://www.irs.gov/taxtopics/tc653

14. WHAT DEDUCTIONS DO I NEED TO ITEMIZE? Most people, but not all, benefit from taking the standard deduction instead of itemizing. Usually, to benefit from itemizing the total must be greater than the standard deduction based on your filing status. Below is a listing of the most common items used to itemize.

-Medical & Dental Expenses: must be > 7.5% of your AGI (ex. 75,000 AGI x .075=5,625) Insurance premiums paid pre-tax for a plan through your employer does NOT count
-Property Tax Paid
-Sales Tax Paid: this number can be calculated from a table or you can use sales tax from large items like vehicles, boats, furniture, jewelry, etc.
-Mortgage Interest Paid
-**Charitable Contributions: cash or check or donated items. (Must have documentation)

**Remember that this year you are able to claim $300 deduction for charitable contributions EVEN IF you do not itemize! 

13. I RECEIVED INTEREST ON MY 2019 TAX REFUND, WILL IT BE TAXABLE? Many taxpayers received interest on their 2019 refund if they received it after April 15 since tax day was changed to July 15. The IRS states that the average interest paid was $18 and they will issue a 1099-INT for amounts over $10. Please watch for this statement as it will be needed to prepare your 2020 return.

Source: https://www.irs.gov/…/coronavirus-tax-relief-2019-tax…

12. I STARTED A BUSINESS, BUT I’M NOT SURE HOW TO KEEP UP WITH MY INCOME AND EXPENSES? There are many options you can choose from to keep your records. Choosing a method depends on how big your business is, what type of business it is, and what you’re most comfortable doing. Below are a few ideas 

1. Electronic System-QuickBooks is my recommendation but there are many software companies to review. Most have a app that you can download to your iPad or phone which allows for easy access while on the go. QB also offers receipt capture which stores a copy of a receipt with each expense.

2. Spreadsheet-Microsoft Excel is probably #1 but there may be other alternatives. Excel has many templates and features that can helpful.

3. Paper-columnar paper (or a regular notebook) and a pencil. It doesn’t get simpler than that.

For methods 2/3 you will need a form of storage for receipts, sales invoices, etc. I have seen tote boxes, file folders, cardboard boxes, and accordion folders be used.

It doesn’t matter which method you choose, just be sure it works for you and you are maintaining your records well. 

11. CAN I DEDUCT MY TAX PREP FEE? This is a question I get asked a lot. For most, the answer is no. This is another change from the TCJA which eliminates tax prep expense deduction from schedule A for individuals. IF you own your own business then you CAN deduct the portion of the fee used to file any taxes related to your business. 

10. BREAKING NEWS!! STIMULUS ROUND 2

Last night the Senate and the House passed a bill containing a second stimulus payment. Below is a summary of the criteria. This bill was over 5,000 pages so be watching for more details as they come available.

$600/person (half of the stimulus this spring)
To receive full amount (based on 2019):
MFJ income <150k
Single income <75k

Dependents under 17: $600 each
Dependents 17+: no stimulus money

Ex. A married couple with two kids under 17 should receive $2400

It is estimated that payments could start rolling out as early as next week.

**subject to President Trump’s signature 

9. WHAT SHOULD I DO WITH MY TAX REFUND? A majority of taxpayers receive a tax refund each ranging from a few dollars to thousands. There are many ways you can use that refund and I have listed a few below.

1. Save for a rainy day
2. Give to a charity
3. Take a vacation
4. Buy a car
5. Put towards a college fund
6. Purchase land
7. Invest in stocks
8. Pay on debt
9. Add to retirement funds
10. Start a business 

8. Christmas Eve Tax Humor

4. DO YOU HAVE A WEBSITE I CAN VISIT TO LEARN MORE? Yes! My website is elamtaxandaccounting.wordpress.com. You can visit to learn more about general tax info, fill out tax forms, and you can upload tax documents. New posts are uploaded periodically.

3. WHAT SERVICES DO YOU PROVIDE AND HOW MUCH ARE YOUR FEES? Individual and small business tax preparation are my main services that I provide. I also perform monthly accounting services for small businesses including overall transaction and reports review, filing monthly sales tax, and more. My fees for tax preparation are a flat minimum fee plus a hourly billing rate. Accounting services are billed at a hourly rate. I do offer discounts for first responders, military, dependents, and college students.

2. HOW CAN I GET MY TAX DOCUMENTS TO YOU? There are a few ways to get your tax information to me. See infographic below.

1. OFFICIALLY ONE DAY UNTIL TAX SEASON. IT’S TIME FOR A GIVEAWAY. Giveaway will be posted to Facebook on December 31, 2020 at 12PM and will end on January 1, 2021 at 5PM. Giveaway will include a t-shirt, cup w/ straw, magnetic calendar, and a $25 Amazon gift card.