There is no question that 2020 has been a difficult year for all of us, but the good news is that there are only thirty-one days left. Of course, we have much to be thankful for, and hopefully the upcoming holidays will give us many reasons to celebrate. In keeping with the holiday spirit, here are twelve things the IRS wants you to know. Sadly, the IRS did not provide a catchy tune to go with the announcements.

Stimulus Payment (Economic Impact Payment)

If you did not receive a stimulus payment in 2020, you may still be able to receive a Recovery Rebate Credit when you file your income tax return for 2020 next year. The eligibility criteria for the credit is the same as that for the stimulus payment, but the criteria will be applied to your 2020 income, not your 2018 or 2019 income. The credit can also be claimed if you received a stimulus payment, but it was not the correct amount. For example, you can claim the credit for a child born during 2020 if eligibility criteria are met. The maximum amount of the recovery rebate credit is the same as the stimulus payment. You can find out more about eligibility criteria and the amount of the credit here:  https://magdaabdogomezlaw.com/impact-recent-legislation-taxes/

Non-Deductibility of Expenses paid with PPP Loans

A taxpayer who received a PPP loan and paid/accrued otherwise deductible eligible expenses may not deduct those expenses in the taxable year in which the expenses were paid/accrued if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the PPP loan on the basis of the expenses it paid/accrued. The expenses may not be deducted even if the taxpayer has not submitted an application for forgiveness of the PPP loan by the end of such taxable year. Revenue Ruling 2020-27

Safe Harbor Provisions for Deducting Expenses paid with PPP Loans

A taxpayer who received a PPP loan in 2020 and: (1) paid/incurred eligible expenses in 2020 for which no deduction was permitted because the taxpayer reasonably expected the PPP loan to be forgiven based on the expenses paid/incurred, (2) the taxpayer applied for PPP loan forgiveness in 2020 or intends to apply for PPP loan forgiveness in a subsequent year and (3) is either notified by the lender in a subsequent year that PPP loan forgiveness is denied, or in a subsequent year the taxpayer irrevocably decides not to seek loan forgiveness for the PPP loan, may be able to deduct expenses paid in 2020 with PPP loan proceeds in an original or amended 2020 or subsequent year return, if certain requirements are met. The deductions cannot exceed the amount of the PPP loan. In order to claim the deductions under the safe harbor provisions a statement must be attached to the return. For specifics regarding the procedures and the required statement please follow this link: https://www.irs.gov/pub/irs-drop/rp-20-51.pdf

W-2 for Deferred Social Security

On August 8 the President signed a memorandum directing the Secretary of the Treasury to defer the withholding, deposit, and payment of the withheld portion of social security taxes and railroad retirement taxes. See https://magdaabdogomezlaw.com/irs-guidance-issued-presidential-order-regarding-tax-withholding/  The IRS has issued instructions stating that only the amount of social security taxes actually withheld from employees is to be reported on the employee’s Form W-2. The social security tax which was deferred to 2021 will have to be reported on Form W-2c in 2021. For additional information see: https://www.irs.gov/forms-pubs/form-w-2-reporting-of-employee-social-security-tax-deferred-under-notice-2020-65

Tax Benefits for Hiring Certain Workers

Ready to hire a new employee? Your business may qualify for a work opportunity tax credit if you hire an individual from certain targeted groups. There are ten specific groups which qualify for the credit. The groups include veterans, SSI recipients, SNAP recipients, youths and ex-felons. An employer must obtain certification that an individual is a member of the targeted group before the employer may be eligible to claim the credit. There are limits to the amount of the credit. You can find out more about the credit here: https://www.irs.gov/businesses/small-businesses-self-employed/work-opportunity-tax-credit#targeted

Employer Tax Credit Errors

The IRS is warning of common mistakes employers are making on employment tax returns (Form 941) when claiming tax credits. These mistakes include: (1) reporting the advance payment credit requested on the Form 941 even though the credit was not actually received; only credits actually received should be reported on Form 941, and (2) incorrectly reconciling the advance payment of the credit requested and received; this reconciliation must be reported on Form 941.

Failure to properly report an advance payment credit on Form 941 may result in a tax delinquency notice from the IRS. The taxpayer would then have to file an amended Form 941-X in order to properly report the advance payment and claim the credit.

IRA Contribution Limits

The IRS has announced the income ranges for 2021 for determining eligibility to make deductible contributions to IRAs, and Roth IRAs, and for claiming the saver’s credit.  You can obtain this information by following this link: https://www.irs.gov/newsroom/new-income-ranges-for-ira-eligibility-in-2021

Changes to Business Transcripts

A tax transcript is a summary of a tax return and is used by lenders and others for income verification purposes. Two years ago, the IRS began masking sensitive data on individual transcripts in order to protect individuals from identity theft. Effective December 13 the IRS will begin doing the same for business tax transcripts.

As a result of the changes the only visible identifying information will be: the last four digits of the employer identification number, the last four digits of any account or telephone number, the first four character of a business name, and the first characters of an address (including spaces). All money amounts will be visible.

Collection of Tax Liabilities

The IRS has implemented certain changes designed to help taxpayers who have been impacted by COVID settle tax debts owed. These changes include: granting additional time to pay taxes, flexibility for taxpayers who cannot meet the payment terms of previously accepted settlements, automatically adding new balances to existing payment agreements for individuals and out of business entities in order to prevent a default of the payment agreements, allowing payment agreements without taxpayer’s financial information, and entering into payment agreements without the filing of a federal tax lien. The taxpayer must qualify to obtain any of this relief.

Electronic Filing and Signatures

Many of us are familiar with electronically filing and signing our federal income tax return. The IRS also accepts employment, information, partnerships, corporations, estates and trusts, and exempt organization returns electronically. On August 17, 2020 the IRS began accepting electronically filed amended income tax return for the year 2019. However, other than these few returns all other returns and documents are filed with the IRS on paper, bearing original signatures and sent to the IRS by mail. COVID and the inability to meet in person for reasons of personal safety have started a change at the IRS.

On August 28, 2020 the IRS announced that certain returns that could not be filed electronically could “temporarily” bear digital signatures if mailed by December 31, 2020. See https://www.irs.gov/newsroom/irs-approves-temporary-use-of-e-signatures-for-certain-forms The IRS Advisory Council has recommended in its 2020 report issued in November 2020 that all tax forms be digitized and submitted electronically. See https://www.irs.gov/pub/irs-pdf/p5316.pdf

In its latest announcement (11/19/20), the IRS has said that beginning in January 2021, it will be launching a secure platform which will enable tax practitioners to submit powers of attorney and tax information authorization forms electronically bearing electronic signatures. By next summer the IRS hopes to launch a Tax Pro account which will make submitting powers of attorney an electronic process from beginning to end. I can’t wait!

Bar Codes

We have had bar codes on everything for so long we do not pay attention to them anymore. The IRS has now implemented the technology on two of the notices it sends out to taxpayers. The bar codes will enable taxpayers to use their phone to scan the code and go directly to the IRS website. The IRS hopes that this will provide the taxpayer the information needed to resolve their tax liability without having to call the IRS. The IRS is considering adding the bar codes to other balance due notices.

Tax Season

Enjoy the holiday season while you can. Tax season is just around the corner. Although the IRS has not yet announced the official start to the 2021 filing season you can expect an announcement in the first week of January which is only five weeks away!