Wednesday, January 20, 2021

Late IRS Start Date

 The IRS will not begin accepting tax returns until Feb 12th.

This does not mean you can't e-file, just that the 6 to 21 day refund clock won't start until 2/12 if you file early.

https://www.irs.gov/newsroom/2021-tax-filing-season-begins-feb-12-irs-outlines-steps-to-speed-refunds-during-pandemic

Thursday, December 31, 2020

2020 Military State Tax Guide

 State Guidelines for Military (2020 values)


I have a LOT more good information for you in The Short Cheap Tax Book for the Military.

The information here is subject to change as states update their information.  I will update at least weekly until mid January, so please check back just before you file.  The primary purpose of this is discussing the taxation of active duty pay, but I have mentioned retired pay for some states when I found the answer easily, but just because I don't mention pensions doesn't really tell you anything.

States with changes for 2020: None

Military Spouses Residency Relief Act (MSRRA)
Most states have begun to treat this in a similar manner to each other. In general, the spouse of a service member has two choices for state of residency: the state they are stationed in, or the military member's state of residency. In order to claim the military members state, they must have established a domicile in that state at some time before moving to the current state. For those qualified to make the election to claim the military members state, it is important to weigh the benefits properly, for example, a spouse who works in SC married to a military resident of MI might assume that since MI does not tax the military member that they should choose this state. This would be wrong because MI will tax the non-military income of the spouse. SC is far more generous to the spouse of a service member stationed in SC. Expert assistance may be required making this determination. It can also be difficult to get the current state to stop withholding from the spouses wages. Each state Dept of Revenue has different procedures for handling this.

MAJOR UPDATE: Starting in 2018, spouses do NOT have to establish residency in order to claim the service member's state of residency!

An added twist to this is that some states, like Maine, New Jersey and New York, have a way for residents not living in the state to claim non-residency for tax purposes.  Our best minds conclude that this would allow a military spouse claiming one of these states as their state of residency could claim non-resident status and not have to pay taxes to the state.  This has not been fought or litigated to my knowledge, so it would be wise to be aware that some states might fight it.  My advice is always to go the aggressive route, but see what the difference is going the other way, and be prepared if the state fights this later.  I personally set aside the excess refund for three years, and then spend it :)

Residency
A military member normally retains residency in the state they resided in when they joined the military unless action is taken to change this. The W-2 can generally be relied upon as to the state of residence of the military member. The states in which a service member are stationed will not tax the members military income unless they are residents. They will tax any income earned from other employment or business activities conducted in the state by the member and their spouses (subject to the MSRRA discussed above.) The discussions below talk about the taxation of military income for residents of the respective state.

Filing Requirements:
Not having to file discussed below assumes there is no withholding from the given state. A member may file even if not required and should do so if they have withholding from the given state so they can get the money back. If a member would not be required to file except for the existence of withholding, they should adjust their state withholding through MyPay so no taxes are withheld from that state. They may also consider stopping withholding even if they are required to file, for states that do not tax their income (MI for example.) Many people do not file required tax returns when there is no refund or balance due. This could result in a letter from the state requesting a return but rarely any penalties – but there can be!

Death Benefits:
Many states exclude death benefits and military pay for service members killed in a combat zone or while on active duty. The specifics are not discussed here. Survivors of service members killed on active duty can obtain assistance for this from CACO personnel.

States with Blue names either require a tax return or other document to be filed by military residents, or a tax return should be prepared to determine if any refundable benefits are available from that state. 

Alabama:
Alabama treats military residents the same as all other residents.  Alabama does not tax military retirement.

Alaska:
Alaska does not have an income tax. Alaska Permanent Funds Dividends are taxable on the Federal Return.

Arizona:
Arizona does not tax active duty military pay, and does not require filing if the only AZ source income is active duty pay.

Arkansas:
Beginning in 2014, Arkansas no longer taxes active duty military pay.  A tax return is still required.

California:
California does not tax military pay of CA residents stationed outside of the state of CA. They do tax military income of their residents when stationed in CA. They also treat military spouses generously, similar to SC. Form 540NR is used to account for this. You write “MPA” to the left of column A for non-resident military income and enter the military income in column B but exclude it from column E. California has been sending letters to military members who meet the requirements for not having to file a tax return claiming they are required to file them. These letters are wrong and easy to respond to. CA should know they are wrong but I guess they are desperate for money. Don't fall for it. There is a place for military to respond on the back of the response form. RESPOND!

Colorado:
Beginning in 2016, CO will not tax active military income of military members with a home of record of Colorado IF AND ONLY IF, their home of record was Colorado when they joined, they changed to another state during service, and then changed back to CO.  Otherwise, Colorado taxes military residents the same as other residents unless the member was stationed outside the US for >305 days in the year. Colorado taxes military retirement the same as other retirement, with a partial exemption that starts at age 55 and gets slightly bigger at age 65.

Connecticut:
Connecticut allows resident military personnel stationed outside of CT to be treated as non-residents for tax purposes. This can be confusing but the point is that they are still a resident, just not treated that way for tax purposes. In order to be treated as a non-resident they must meet all three of the following requirements: 1) Not maintain a permanent place of abode in CT for the entire year (a parents house is not a permanent place of abode.) 2) Maintain a permanent place of abode outside of CT for the entire year. 3) Spend no more than 30 days in CT for any reason during the year. If they meet these requirements they can file as a non-resident and exclude any military wages from gross income and need not file unless they have other CT source income.
Starting in 2015, military pensions are not taxed by CT.

Delaware:
DE taxes military residents the same as all other residents. Delaware has a small military retirement pay exemption that gets bigger at age 65.

Washington DC:
DC taxes resident military personnel the same as all other residents.

Florida:
Florida does not have an income tax.

Georgia:
GA taxes military residents the same as all other residents however Reserves or National Guard called to active duty for more than 90 days may be able to take a credit against their individual income tax based on their income from the National Guard or Reserves.

Hawaii:
Hawaii taxes military residents the same as all other residents except that they do not tax the first $6076 of reserve pay or HI national guard pay. Military retirement pay is not taxed in HI.

Idaho:
ID residents stationed in ID pay taxes on all military income; however, if the member was on active duty >120 days and stationed outside of Idaho they can exclude any military income earned while stationed outside of ID. If they are stationed outside of Idaho the entire year they do not need to file an ID tax return, however Idaho has a Grocery Credit that a military member is eligible for that is refundable so it is possible to get a refund from Idaho even though their was no tax withheld.  This makes Idaho one of the States that a military member should file even when not required to. Retirement is tax free when over 65 (and possibly younger under certain conditions).

Illinois:
IL does not tax military pay; however, the member must file a tax return if they file a Federal return. Military members with children who get Federal Earned Income Credit may get up to 18% of the Federal amount even if they have no taxes due to IL (this number varies year to year). Illinois does not tax military retirement.

Indiana:
Indiana taxes military income but allows a deduction of the first $5,000 of military income for the taxpayer and/or the spouse ($10,000 for military couple.) If a military member changes state of residency to another state they must submit the DD Form 2058 with the tax return for the year they changed state of residency.  If you were active military and you and your spouse did not live in Indiana the entire year you do not owe county tax.  Use "00" as your county.  If your spouse remained in Indiana you BOTH owe county tax to the county he/she lives in.  Don't try to take the real estate tax deduction on property that's not in Indiana. Indiana has a small deduction for military retirement.

Iowa:
IA does not tax military income and military income is not used in determining filing requirements (if the only significant sources of income are military income, a tax return is not required.) Starting in 2014, Iowa no longer taxes military retirement.

Kansas:
Kansas taxes military income but allows a deduction for recruitment, sign-up and retention bonuses paid that are included in Federal taxable income (if the bonus was tax free to federal do not deduct it from KS. Kansas starts with Federal AGI so it is already excluded.)  The subtraction is made on Adjustments line A21. Kansas does not tax military retirement pay.

Kentucky:
KY does not tax military income and does not require a tax return if the only KY source income is military pay.

Louisiana:
Louisiana requires a tax return from military personnel the same as any other resident; however, LA gives an exclusion of up to $30000 of military pay if the person has been on active duty outside of Louisiana for at least 120 days during the tax year. The subtraction is taken as a Schedule E subtraction, Code 10E, by entering military pay up to $30000 on the schedule. Louisiana has a small retirement pay exclusion.

Maine:
Maine allows resident military personnel stationed outside of ME to be treated as non-residents for tax purposes. This can be confusing but the point is that they are still a resident, just not treated that way for tax purposes. In order to be treated as a non-resident they must meet all three of the following requirements: 1) Not maintain a permanent place of abode in ME for the entire year (a parents house is not a permanent place of abode.) 2) Maintain a permanent place of abode outside of ME for the entire year. 3) Spend no more than 30 days in ME for any reason during the year. If they meet these requirements they can file as a non-resident and exclude any military wages from gross income and need not file unless they have other ME source income. Maine calls this the General Safe Harbor Rule.  Maine no longer taxes military pensions as of 2016 but only that received by the service member. Ex-spouses receiving retirement pay based on the service member's time served must pay taxes on it.

Maryland:
Maryland taxes military residents just like other residents; however, they allow a subtraction for up to $15,000 of military pay earned outside of the U.S. (Military Overseas Income.) The deduction phases out dollar for dollar as ALL military income goes above $15,000 and there is no exclusion if the total military income exceeds $30,000. The subtraction is taken on Form 502SU and the Military Overseas Income Worksheet is used to calculate the deduction.  MD has county taxes you cannot avoid.  If you are stationed outside of MD and married to a non MD spouse, software makes it very difficult to allocate things properly.  You can exclude the non-MD income, but also need to pro-rate the deductions based on income - good luck with this - MD will catch you if you don't do it.

Massachusetts:
There are no special tax benefits for military, however, the Massachusetts Dept of Veterans Affairs will give a one time payment of $500 to any resident after they served at least 6 months active duty in the military. They also have a $1000 benefit for personnel who serve in Iraq or Afghanistan.
http://www.mass.gov/veterans/benefits-and-services/bonus/bonuses-only/
Massachusetts does not tax military retirement.

Michigan:
Michigan requires military members to file a tax return; however, they subtract active duty pay from income (Schedule 1, Line 11). Military members with children who receive Earned Income Credit on their Federal return may collect 6% of the federal amount, even if they pay no taxes to MI. (This was 20% for 2011 and prior years.)  Michigan does not tax military retirement.

Minnesota:
Minnesota subtracts Active Duty Military pay from income of MN residents. If Gross Income on Federal return other than military is less than $10,000, no MN return is required.
Minnesota pays $120 per month a military resident spends in a combat zone. This is paid separately from the tax return and is claimed on Minnesota form M99

Mississippi:
Mississippi taxes military residents the same as other residents except that they do not tax National Guard and Reserve pay up to $15000. Mississippi does not tax military retirement.

Missouri:
MO allows resident military personnel stationed outside of MO to be treated as non-residents for tax purposes. This can be confusing but the point is that they are still a resident, just not treated that way for tax purposes. In order to be treated as a non-resident they must meet all three of the following requirements: 1) Not maintain a permanent place of abode in MO for the entire year (a parent's house is not a permanent place of abode.) 2) Maintain a permanent place of abode outside of MO for the entire year. 3) Spend no more than 30 days in MO for any reason during the year. If they meet these requirements they can file as a non-resident and exclude any military wages from gross income and need not file unless they have other MO source income. If your spouse works but claims MO as your state of residency through the MSRRA their income is taxable to MO and must file a tax return if they earn more than $1200. As of 2014, Missouri exempts 75% of military retirement income from tax and starting in 2016 all military retirement income will be tax exempt.  Starting in 2016, MO is allowing you to subtract your military pay, so you don't have to file as a non resident.

Montana
Montana requires military residents to file a tax return but exempts active military pay from taxation on Schedule 2, Line 8. Verification of active duty status must be attached to the return.  National Guard pay is tax exempt.

Nebraska:
Nebraska taxes military residents just like other residents. Nebraska has implemented an incredibly complicated option to exclude certain amounts of military retirement income for some years.  It's too stupid to attempt to explain, but if you are retiring or retired from the military in Nebraska you should read this immediately:
http://www.revenue.nebraska.gov/info/military_benefits.html 

Nevada:
Nevada does not have an income tax.

New Hampshire:
NH does not have an income tax but they do tax interest and dividends. Generally, these would need to exceed $2400 for an individual and $4800 for a couple.  New Hampshire has a $100 bonus for military members who get the Global War on Terrorism Medal. Not sure about expiration, but details are at: https://www.nh.gov/nhveterans/benefits/bonuses.htm

New Jersey:
NJ allows resident military personnel stationed outside of NJ to be treated as non-residents for tax purposes. This can be confusing but the point is that they are still a resident, just not treated that way for tax purposes. In order to be treated as a non-resident they must meet all three of the following requirements: 1) Not maintain a permanent place of abode in NJ for the entire year (a parent's house is not a permanent place of abode.) 2) Maintain a permanent place of abode outside of NJ for the entire year. 3) Spend no more than 30 days in NJ for any reason during the year. If they meet these requirements they can file as a non-resident and exclude any military wages from gross income and need not file unless they have other NJ source income.(NJ does not consider barracks maintaining a permanent place of abode outside NJ)
New Jersey just passed a $3,000 exemption for honorably discharged Veterans which applies to tax years 2016 and beyond.

New Mexico:
New Mexico does not tax active duty military pay however; NM residents are required to file a NM return if they were required to file a Federal return.

New York:
NY allows resident military personnel stationed outside of NY to be treated as non-residents for tax purposes. This can be confusing but the point is that they are still a resident, just not treated that way for tax purposes. In order to be treated as a non-resident they must meet all three of the following requirements: 1) Not maintain a permanent place of abode in NY for the entire year (a parents house is not a permanent place of abode.) 2) Maintain a permanent place of abode outside of NY for the entire year. 3) Spend no more than 30 days in NY for any reason during the year. If they meet these requirements they can file as a non-resident and exclude any military wages from gross income and need not file unless they have other NY source income. NY specifically excludes barracks as an abode outside of NY for the purpose of this rule. Also, if a NY return is required to be filed to get back state taxes withheld and this exemption results in zero income (as it usually does) the return may have to be mailed in vice electronically filed.  NY does not tax military pensions.

North Carolina:
NC taxes military residents the same as other residents.

North Dakota:
ND taxes military residents the same as other residents, however, National Guard and reserve members called to active duty can exclude their active duty pay form ND income.

Ohio:
Ohio does not tax military pay of OH residents stationed outside of the state of OH. They do tax military income of their residents when stationed in OH. Ohio does not tax military retirement pay.  Ohio will give up to $1500 for military service ($500 for any service, $1000 for certain countries and $1500 for combat zones). Details here: https://veteransbonus.ohio.gov/odvs_web/

Oklahoma:
Oklahoma allows military members to exclude active duty pay. This exclusion is accomplished using Schedule 511-C. Military members are required to file an OK tax return if they were required to file a federal return.

Oregon:
Oregon allows a subtraction of all military pay earned while stationed outside of OR and up to $6000 earned while stationed in Oregon (Subtraction Code 319). OR also allows military residents to be treated as non residence if they spent less than 31 days in OR, did not have an abode in OR and had a permanent abode outside OR the entire year.

Pennsylvania:
Pennsylvania does not tax Active Duty Military Income of residents stationed outside of PA and does not require a tax return; however, they do require the service member to mail or fax a copy of their orders stationing them outside of PA and their W-2. If filing a tax return a copy of the orders must be included when mailing the return, or sent separately to the address below.
PA DEPT OF REVENUE
NO PAYMENT OR NO REFUND
2 REVENUE PLACE
HARRISBURG PA 17129-0002
May also be faxed to: (717) 772-4193
Starting in 2016, PA exempts military pay from LOCAL taxes, regardless of where you are stationed.

Rhode Island:
Rhode Island taxes military residents the same as other residents.

South Carolina:
SC taxes military residents just like regular residents except that it does not tax reservist drill pay. SC is very generous to the spouses of military (residents of another state) in that they allow you to exclude the active duty income of the non-resident military member from the calculation of what percentage of deductions to allocate to the spouse. This generally results in 100% of the deductions against only the spouses SC income. It is very difficult to get tax software to handle this correctly. Line 1 of the SCNR should have no active duty military income in the Federal column. SC is phasing in a larger deduction for military retirees.

South Dakota:
SD does not have an income tax. SD will pay military members $500 for service after 9/11/2001. Details here: https://vetaffairs.sd.gov/benefits/State/Veterans%20Bonus.aspx

Tennessee:
TN does not have an income tax but they do tax interest and dividends. Generally, these would need to exceed $1250 for an individual and $2500 for a couple.

Texas:
Texas does not have an income tax.

Utah:
Utah taxes resident service members the same as other residents.

Vermont:
Vermont does not tax military pay of VT residents stationed outside of the state of VT. They do tax military income of their residents when stationed in VT. Military pay is subtracted on line 32. A tax return is not required if the only income is military pay while stationed outside VT. 

Virginia:
Virginia taxes military residents just like other residents except that they give a subtraction of basic military pay of up to $15000. The subtraction phases out dollar for dollar as income goes from $15000 to $30000 and is completely gone at $30000 of income. (If a military member made less than $15000, it would all be subtracted. If they made $20000, they get to subtract $10000.) The subtraction code is 38.

Washington:
Washington does not have an income tax.

West Virginia:
West Virginia taxes military residents unless they spent less than 30 days in WV. In this case they file as a non-resident. WV does not tax military income of reserves or national guard called to active duty by Executive Order of the President.  Starting in 2017, West Virginia no longer taxes Military Retirement pay. WV gives a bonus of $400 for military service ($600 for combat zones). Details here: https://veterans.wv.gov/Pages/VeteransBonus.aspx

Wisconsin:
Wisconsin taxes military residents the same as other residents except that they do not tax military pay of reserves or national guard called to active duty. Rent paid by the military member in a state other than WI is allowed to be used for the School Property Tax Credit (not military housing.) If a military member is stationed outside the United States, they may take a credit of up to $300 for pay received while stationed outside the U.S.  Wisconsin does not tax military retirement.

Wyoming:
WY does not have an income tax.

Feel free to send questions to Kirk at taxadvisor@email.com

I am available to prepare taxes via mail, e-mail, fax and online approval. No fees are charged until the return is complete and you are 100% satisfied. If the fees are too high, refund too low, or we determine that a cheaper filing method is appropriate, I will return all materials and charge no fees.

I will check any individual tax return from 2017, 2018, 2019 or 2020 for free. If I find an error, I will offer to fix it for a fee if desired

I have made every effort to ensure the above information is 100% accurate, but I am human and the various governments love to change the rules. If you think something is wrong please inform me via e-mail at taxadvisor@email.com

Wednesday, December 30, 2020

Master Index of Posts



I've compiled a Master List of my posts for easy reference. Not every post is included, and I have changed the order to put the most important or timely ones on top, and to group some based on categories (Military, Obamacare, Tax Software). I will try to keep this updated and just below the latest post. Please let me know in the comments if I screw up a link :) Some of the posts are OLD so be careful assuming the information is current.

If you have a Kindle, you can get a copy of my entertaining and useful book, The Short, Cheap Tax Book for Everyone for only 99 cents!

For the new tax law, there's the Coronavirus book - the one on the right side of this page.

If you like the blog, buy my other books: Kirk Taylor, EA Author Page

COVID-19 Pandemic Posts:

Tax Changes in the $600 Stimulus COVID Relief Bill
Another Round of Stimulus Checks (Late 2020)
If You are Self Employed and Could Not Work
Updating Direct Deposit Information for Your Stimulus Check
BIG Coronavirus Post
Getting a Stimulus Check When Not Required to File
Remote Tax preparation in the Age of Coronavirus
Lots of Links!
Coronavirus Stimulus Checks Details
TWENTY Weeks for Mailed Stimulus Checks
Coronavirus COVID-19 and Getting Your Taxes Done

Important or Time Sensitive Posts

Did You Pay an Obamacare Penalty in th Past? There's Hope
Single and 0 No Longer Exist - The New W-4
Late 2019 Changes affecting 2018 Returns
Late 2019 Changes affecting Disaster Areas
The Rest of the Late 2019 Tax Changes (some big ones here)
October Tax Checkup
The $10,000 Question for Students and Parents
My Advice on IRA's
2018 Social Security Warning!
Wants and Needs and Kids
Emergency Fund Advice
Solar Credits and Solar Sales
The Dreaded CP2000 Letter from the IRS
The IRS did NOT Call You!
I Got an E-mail from the IRS!
I Want to Lower my Taxes!
10 Simple Pieces of Tax Advice
10 Things Everybody Should Do
Check Your Withholding

Trump/GOP Tax Law

Post 2018 Tax Season Thoughts on the New Law
Quick Thoughts on the New Tax Law (Post 2017 Tax Season Edition)
2018 Tax Bill Changes
What the New Tax Law Didn't Change (2018)

South Carolina

SC Gas Tax Credit Advice
SC Military Retirement Change (2016)
Obamacare in SC - Something's Fishy

Military

Military Spouses Residency Relief Act 2018 Change
Military Spouses Residency Relief Act Details and Matrix
Retiring from the Military? Tax Warnings!
Reenlistment Bonus, Social Security, Compensation Repayment and Taxes 
2020 Military State by State Tax Guide
2019 Military State by State Tax Guide
2018 Military State Tax Guide
2017 Military State Tax Guide
2016 Military State Tax Guide
2017 Boomer Deduction Worksheet
2016 Boomer Deduction Worksheet
2015 Military State Tax Guide
2015 Boomer Deduction Worksheet

Tax Software

TurboTax Admits That Easy Is Better Than Accurate
Tax Preparation Software Sucks - An Open Letter to H&R Block

Business Guides

Sole Proprietorships are Bad
Avon, Pampered Chef, Party Lites, Amway, etc. MLM Tax Guide
UBER Driver Tax Guide
Tax Guide for Contractors - or - 1099MISC WTF?
Real Estate Agent Tax Guide
Rental Property Guide for Homeowners
Rental Property Sale Worksheet

General Posts

Getting Married? One Piece of Important Tax Advice.
The Dreaded CP2000 Letter from the IRS
Investing and Taxes - A Primer
How Much does it Cost to File Taxes?
Reenlistment Bonus, Social Security, Compensation Repayment and Taxes
Open a Roth IRA Today! And Not For the Reason You Think
Foreign Earned Income Exclusion Warnings - Update
Charity Made Simple
How Fast Can I Get my Refund?
Make Estimated Tax Payments the Easy Way
Depreciation Recapture - an inaccurate description
Don't Touch that 401K or IRA!!
What do you do with that Big Tax Refund?
It's Okay to Get a Big Refund - Really...
Common Tax Return Errors - Updated
Common Tax Return Errors
Mortgage Tax Credit Information
Lesson from the Government Shutdown - Emergency Fund
Don't Pay Capital Gains Taxes if You Don't Have To!
I got a 1099C - Now What?
Cancelled Debt and Insolvency
The IRS, email and privacy...
IRS Checking Facebook?
>$250 Donation Acknowledgement
Drop Box Donations - US Marines
Tax Scams
Taxes and Divorce
Random Thought about Books
Taking Care of the Client
Warning - Tax Resolution Scams
Foreign Earned Income Exclusion - WARNINGS!
IRS.GOV Website Update

Affordable Care Act (Obamacare) Posts

The Affordable Care Act (Obamacare) and People with Health Insurance
Affordable Care Act (Obamacare) for the 2014 Tax Filing Season
Obamacare, Affordable Care Act and Married Filing Separately - Warning
Affordable Care Act, Obamacare update and advice
Healthcare Law, Obamacare, Affordable Care Act Info
Weird Obamacare Strategies and Incentives - 1
Weird Obamacare Incentives and Strategies - 2
Weird Obamacare Incentives and Strategies - 3
Weird Obamacare Incentives and Strategies - 4
Weird Obamacare Strategies and Incentives - 5
Weird Obamacare Strategies and Incentives - 6

The $600 Stimulus Bill Tax Changes

The New Stimulus Check:

The amounts for this are $600 for each adult individual (meaning a married couple filing jointly gets $1200) as well as dependents age 16 or under as of 2019. The rules are almost exactly the same as the previous checks, which are covered in great detail in older posts on the subject. Here I am going to cover things in a lot less detail, highlighting the major differences.

First, if the place your first stimulus went is still active, the new stimulus should go there, and you don’t need to take any action. If it is not still open, you can update it at irs.gov using the big “Get My Economic Impact Payment” button. The button doesn’t do much right now since they are still programming for the new payment, but it should be soon.

Payments are based on 2019 tax returns, social security or VA disability information for non-filers, or information you provided for the previous $1200 payments. They are tax free advances on your 2020 taxes and will be recalculated when you file your 2020 tax return, and any additional money you are due will be provided then, but no repayment is due if you would have been entitled to less.

I highly recommend e-filing a 2020 tax return, using direct deposit if possible, to make sure you get everything you are entitled to, and to keep your information with the IRS as up to date as possible. Who knows, they may want to send more money! I think this is one of the enduring tax lessons from the pandemic – file a tax return even when not required.

The income limitations for the new stimulus payments were slightly modified from the previous ones. The phaseout starts at the same point, but the payments go down faster as your income goes up. Phaseout starts at $75,000 for Single and Married Filing Separate (MFS) filers, $112,500 for Head of Household (HH), and $150,000 for Married Filing Joint and Qualified Widowers (MFJ/QW). If your income is below those numbers, you should get a full payment. Single and MFS filers get nothing once income hits $87,000 and MFJ/QW filers get nothing when income hits $174,000. HH goes away at $124,000.

The Rest of the Tax Changes (from the latest bill):

This is a broad overview of the rule changes.

1. Charity: You can deduct up to $300 in cash contributions to charity on 2020 even if you don’t normally itemize. Cash means cash/check/credit but not donation of things or time. There is a penalty of 20% of taxes for cheating on this. For 2021 the limit is $600 and the penalty 50%. You can also donate up to 100% of your Adjusted Gross Income in cash to charities in 2020 and 2021 (old limit was 50% and 60% depending on the year) 

2. Retirement Plans: The period for 401k and IRA exemption from the 10% penalty on withdrawals from these plans due to COVID was extended to 60 days after 12/27/2020 (2/25/2021 if my math is correct). This applies to up to $100,000 in withdrawals due to COVID and the rules allowing stretching taxes for three years or repaying within 3 years apply to these withdrawals. Basically, you can take money out, up to $100,000 due to needing it for COVID caused problems all the way out to late February of 2021, though you can’t pull $100,000 in 2020 AND 2021. The $100,000 limit applies to ALL Coronavirus distributions.

3. Disaster Losses: The changes to deducting disaster losses above $500 due to COVID was also extended for 60 days after December 27th, 2020. This suspended the 10% of income rule that meant that a disaster had to be ENORMOUS before it made a difference on your taxes.

4. Business Meal Deduction: I have heard this one called the “3 Martini Lunch Rule”. For 2021 and 2022, the 50% limit on meal deduction for businesses was raised to 100%. Simply put, a business owner can deduct 100% of business-related meals including those with clients.

5. Education Credits: The Tuition and Fees Deduction will be in effect for 2020, but not after. The Lifetime Learning Credit and American Opportunity Credit will have their income limits matched (The LLC limit raised to equal the AOC limit) starting in 2021.

6. Sick and Family Leave: The qualifying period for employers to claim credits for paying employees while they are out sick or taking care of family due to COVID was extended to 3/31/2021. This applies to self-employed taxpayers who are out sick or shutdown and the law allows them to calculate based on 2019 or 2020 income whichever is better.

7. Payroll Tax Holiday: For those who took advantage of not having to pay Social Security Tax in the last quarter of 2020, the payback period has been extended for all of 2021, vice just the first few months. This means paybacks will be smaller, but last longer. This mostly applies to military and some Federal employees, though some civilian employers might have allowed opting in.

8. Paycheck Protection Program: More money was made available and eligible employers can come for more money if they meet certain requirements. The law was clarified to explicitly state that even if the loan is forgiven, expenses paid by loan proceeds remain deductible if allowed by current tax law.

9. Earned Income Tax Credit (and child credits): You can use 2019 income vice 2020 income if it gets better results. This applies to EITC, Child Tax Credit and Additional Child Tax Credit. You use 2019 income for calculating all of them or none of them. You can’t pick and choose.

10. Educator Expense: The $250 deduction for teachers paying for classroom supplies includes costs for protective equipment and other COVID related supplies such as masks or disinfectants.   

11. Flexible Spending Accounts: Normally these accounts, which are usually used for childcare and health care, must be used before the end of the calendar year or the money is lost. Employers have several options for relief in this case, including allowing rollover of money to be used in 2021. Also, money for childcare normally has to be used only for children under the age of 13. This age limit was raised to under 14 for 2021 only.

Changes to Expiring Tax Provisions:

Mortgage Insurance Premiums remain deductible into 2021

Principle Residence Cancelled Debt Exclusion was extended through 2025, but the amount allowed to be excluded was reduced to $750,000 ($375,000 if MFS) starting in 2022.

The Non-Business Energy Efficient Credit was extended to 2021.

Exclusion of employer paid student loans of up to $5250 per year was extended through 2025.

The Solar Credit phaseout was modified and slightly extended. The percentage used for calculating the credit is 26% in 2021 and 2022, and 22% in 2023. The credit is not currently available for 2024 and later.

The increase in the percentage above which medical expenses were deductible was permanently changed back to 7.5%. It was supposed to go up to 10% with the passage of the Affordable Care Act but has been pushed of repeatedly and is now finally dead.

Monday, December 21, 2020

Another Round of Stimulus Checks...

Details are sketchy, but it looks like $600 checks per individual are coming, with $600 for dependents under 17 vice the $500 from before.

Probably will be sent out in a similar manner to the last set, and if you ultimately got the old ones, especially via direct deposit, you should be good for this set.

They should be coming very soon, as early as next week (just after Christmas).

Outstanding questions abound. For me, I am wondering if these will be an advance on 2020 taxes like the old ones, or an advance on 2021. The information is probably out there, but I'm going to give it a day or two to get settled before I really dig in to it.

Monday, December 14, 2020

If You are Self Employed and Couldn't Work due to Coronavirus

Photo by Kelly Sikkema
If you are unable to work or engage in your business as a result of quarantines, shutdowns, getting sick, school/daycare closings or various other reasons, you might be entitled to one or both of credits for sick leave or family leave. These credits are for employers to recoup payments they make to their employees who are unable to work for the above reasons. But, if you would have been entitled to these credits as an employee doing what you do, you qualify for them as the employer of yourself. In this case the government pays you for being unable to work for yourself. 

Exactly how to define what makes the work you do qualifying as an employee is a bit nebulous, but it seems like a fairly liberal interpretation is appropriate, so I would go into conversations with you tax guy assuming you might qualify, and have the information required for them to calculate the credit rather than waiting to find out if you qualify. There were ways to get this money in advance, by reducing estimated payments, but it’s pretty much too late for that to be effective, though you can reduce your Estimated Payment due on January 15th to account for the amount of credit you are entitled to. Either way, you claim the credit on your 2020 tax return and it reduces your balance due or increases your refund. 

This sucker gets complicated, so I’m going to start with a link to the IRS FAQ on the subject: 

https://www.irs.gov/newsroom/special-issues-for-employees#specific-provisions-related-self-employed-individuals 

I’m going to try my best to simplify how these work, but you absolutely need professional help to get these right. After discussing the various credits, I’m going to list the information you want to have available for when you file taxes. 

Qualified Sick Leave Wages Credit: 

1. You get up to 10 days worth of this credit.

2. If YOU are unable to work or telework because the government shut you down, ordered a quarantine, a doctor quarantined you due to being exposed, you had symptoms and were waiting for a diagnosis, or you actually had the disease you are entitled to $511 per day or 100% of your average daily earnings, whichever is lower, for each day you could not work.

3. If you cannot work because you are caring for SOMEONE ELSE due to conditions similar to the above, or due to the closing of a school, daycare or other facility, or your daycare provider is unable to work, you are entitled to $200 per day or 67% of your average daily earnings, whichever is lower, for each day you could not work.

4. Average daily earnings are your net earnings from your business divided by 260. You get this number when you prepare your taxes as the bottom line on Schedule C.

5. If you received sick wages as an employee with a regular job, you have to reduce these credits by the amount of wages you were paid while not working (no double dipping).

6. This credit is not counted as income, even though it technically replaces income.

 Qualified Family Leave Wages Credit: 

1. This is VERY similar to the situation described in 3 above, but basically takes over where the 10 days above end.

2. You get 50 days worth of this credit.

3. You get this credit for any day you would have been qualified for Family Leave wages due to COVID if you were an employee (basically the situation described in 3 above). You are entitled to $200 per day or 67% of your average daily earnings, whichever is lower, for each day you could not work.

4. Average daily earnings are your net earnings from your business divided by 260. You get this number when you prepare your taxes as the bottom line on Schedule C.

5. If you received family leave wages as an employee with a regular job, you have to reduce these credits by the amount of wages you were paid while not working (no double dipping).

6. This credit is not counted as income, even though it technically replaces income. 

Information you should provide to your tax dude: 

1. Proof, as best you can get, of the situations discussed above. This could be doctor’s notes, notices from schools or daycare facilities, quarantine or shutdown notices, COVID test results, copies of government statements regarding allowed working conditions, or even newspaper articles reporting on work rules and quarantines.

2. The number of days you were unable to work due to YOU being affected by quarantines, shutdowns etc. as previously discussed.

3. The number of days you were unable to work due to caring for someone else as a result of quarantines, closures etc. as discussed previously.

4. The detailed reasons you were unable to work or make money for the days discussed above.

Wednesday, April 15, 2020

Getting a Stimulus Check When You Didn't Direct deposit a Refund in 2019 (or 2018)

The IRS "Get Your Payment" app is live: Access by clicking HERE

UPDATE (5/12): The IRS says people have until noon on 5/13 to update direct deposit information. I assume this applies to people who filed a while ago and that recent filers will have more time.

You use this app if you filed a 2018 or 2019 tax return, but did not have a REFUND direct deposited into your account. If you OWED...this is the app for you.

You can also use the app to get a status of your payment, even if you expect it to be deposited normally.

The non-filer app is on the same page, use that one if you didn't file a 2018 or 2019 return, and you don't get Social Security (unless you get Social Security and have dependents or a spouse who do not).

To use the app, you click on the blue "Get My Payment" button.
Enter the primary taxpayer's SSN, birthday (I included the slashes and it worked) and the address from the last tax return filed. Make sure the address matches the return exactly - specifically - make sure to abbreviate or not abbreviate Rd, Street, etc as it appears on the return.
This will give you the status of your payment and tell you if the IRS needs direct deposit information. It doesn't appear that you can UPDATE direct deposit information if it has changed.
To provide direct deposit information, you enter the Adjusted Gross Income from your 2019 return (or 2018 if 2019 not filed), indicate if it was a refund or balance due on that return, and provide the amount of the refund or balance due. You enter your routing and account number twice, and then the IRS confirms that your deposit information has been updated.

Not sure how long it takes to get the deposit after this...