Member of Russell Bedford International, a global network of independent professional service firms.
Member of Russell Bedford International, a global network of independent professional service firms.
What you do with your pay stub often depends on how you get paid. If you have direct deposit, there’s a good chance that you don’t even look at your pay stub if you don’t receive paperwork from your employer. Or you receive a pay stub and shred it without a glance, confident that the money is in your bank account, and all is good in your world. But the fact that you’ve been paid doesn’t mean that the information on your pay stub isn’t important. It’s a good idea to take a closer look at the information that’s provided, and make sure you understand what it all means.
The most important reason to double-check your pay stub is to ensure that you’re being paid correctly and that the right amount of money is being withheld on your behalf by your employer. You know better than anybody what your income is supposed to be, and mistakes do happen, but you won’t know if you don’t check.
An issue that we see quite often is insufficient withholding taxes being taken out of your pay. This creates an unwelcome surprise at tax time, a matter that can be rectified sooner if you take action right away.
We’ve all seen how complicated federal taxes have become – with different levels of deductions, changing tax brackets, tax credit advances, and seemingly constant law changes. While the IRS recommends that you use calculators to estimate your taxes, we sometimes see errors with this methodology. Unfortunately, the best way to determine your tax burden is to prepare a mock return – taking into account all sources of income, expected deductions, and anticipated credits. Then compare that to your expected withholding.
If there is a shortfall, reach out to your Human Resources department and discuss changing your Form W4 to request more federal tax withholding. If it looks like you may receive a big refund, first, double-check your work. Then, perhaps adjust your withholding to have fewer taxes taken out to receive more take-home pay now.
Here in Illinois, we have a flat tax, so it is less likely errors will occur. However, you need to keep in mind other sources of income that may not have tax withholding (such as investment income).
Beyond what you are paid, and the taxes withheld, have you reviewed your other deductions and benefits? Unfortunately, there is no one set format for pay stubs. In fact, some states don’t even require employers to provide their employees with the specifics of where their money is going each pay period. For those who do receive paper records of their withholding amounts and more, here’s what you’re likely to find, and what it means.
Your payroll records have a wealth of information about your pay, taxes, and benefits that have implications come tax time. If you’d like us to perform an interim review of your tax situation, please contact Cray Kaiser today.
If you are considering purchasing an electric vehicle and expect to receive a federal tax credit for your purchase, do your homework first. There is a phaseout based on a manufacturer’s sales of electric vehicles that impacts the credit available to the purchaser.
Many popular manufacturers have been phased out of the credit, including Tesla and General Motors.
The credit phase out for manufacturers begins in the second calendar quarter following the sale of its 200,000th plug-in electric drive motor vehicle for use in the U.S. The applicable percentage phase-out is:
While the credit for many popular models is phasing out or has phased out already, some manufacturers are just beginning to offer electric vehicles. There are also new electric vehicle manufacturers entering the market, so you still have choices for an electric vehicle that qualifies for a tax credit.
Here are some things you should be aware of before making your decision to purchase an electric vehicle.
The credit is not a flat $7,500; it is made up of two elements, a $2,500 per vehicle credit plus an additional $417 for each kilowatt hour of capacity in excess of 5-kilowatt hours, not to exceed $5,000, resulting in an overall credit of up to $7,500.
The amount of credit available for any qualifying vehicle, listed by the manufacturer, is available on the IRS website. Although most salespeople will know the amount of credit that is available for the vehicle you are considering, you may run into an overzealous one that might mislead you. So, it is good practice to double check for yourself on the IRS Website.
The following requirements must be met to qualify for the credit.
Credit for Multiple Vehicles – The credit is a per vehicle credit. Therefore, if you purchase multiple plug-in electric drive motor vehicles you can claim the credit for each vehicle.
Off-Road Vehicles and Golf Carts – Vehicles manufactured primarily for off-road use, such as for use on a golf course, do not qualify for the credit.
Allocation Between Business and Personal Use – If you use a qualified plug-in electric drive motor vehicle both personally and, in your business, the credit is divided (allocated) between personal use and business use and creates two separate credits, with the tax treatment of the two being quite different.
For both the personal and business credit, the basis of the vehicle is reduced dollar for dollar by the amount of the credit. For a taxpayer claiming just the personal credit, this only becomes an issue when the vehicle is subsequently sold since when determining the gain or loss on the sale, the cost of the vehicle is reduced by the amount of any credit claimed. If the sale of a personal vehicle results in a loss, no loss is deductible, but if there’s a gain, the gain is taxable. This has rarely been an issue since vehicles were seldom subsequently sold for a profit. However, recently the used car market has been turned on its head, with many used cars selling for as much or more than the original cost, which could result in a taxable capital gain for the seller. For a vehicle used for business, the credit reduces the depreciable basis of the vehicle. No credit is allowed for any portion of a business vehicle expensed under Sec 179.
If a taxpayer uses a vehicle for business, they can choose between deducting actual expenses such as fuel, repairs, insurance, etc., or deducting a standard amount for each business mile driven. The standard mileage rate is determined periodically by the IRS using average costs of operating a vehicle. The IRS does not distinguish between fuel-powered cars and electric cars, and both are allowed to use the same standard amount, even though the rate includes fuel costs. The business mileage rate for 2022 is 58.5 cents per mile, up from 56 cents per mile in 2021.
President Biden’s Build Back Better Act included a new round of electric vehicle credits. But that Act appears to be dead in the water and whether Congress will authorize those credits in a separate bill is yet to be seen.
If you have questions contact Cray Kaiser. We can help determine how much benefit you will derive from the plug-in electric drive motor vehicle credit based upon your specific use of the vehicle, whether it is personal, business or a combination of the two.
Effective July 1, 2022, certain taxing jurisdictions in Illinois have imposed a local sales tax or changed their local sales tax rate on general merchandise sales. The following taxes are affected:
To be in compliance with the new tax rates, you must adjust your point of sale and/or accounting system to ensure that you will collect and pay the correct sales tax effective July 1, 2022. You may need to contact your software vendor to confirm that they will correct their systems to the appropriate tax rate. Remember that even if you under-collect tax, the tax is still due. That means it will be your responsibility to pay the difference.
To verify your new combined sales tax rate (state and local tax) use the Tax Rate Finder at mytax.illinois.gov and select rates for July 2022.
The sales tax rate change does not affect anyone collecting sales tax in the city of Chicago. However, it does affect some cities in Cook County, Kane County and other jurisdictions. To see a full list of all the cities impacted and the new rates, please click here.
These rate changes do not impact what is and is not subject to sales tax. As a reminder, most sales are subject to both the state sales tax and the locally imposed sales tax.
Note that some jurisdictions may impose and administer taxes not collected by the Illinois Department of Revenue. Contact your municipal or county clerk’s office for more information.
If you have any questions regarding the sales tax rate change, please don’t hesitate to contact Cray Kaiser today.
According to the Social Security Administration, as of 2019, 16% of Americans were age 65 or older. Each day approximately 10,000 baby boomers reach the age of 65, with all boomers reaching 65 by 2030. Boomers aren’t the only reason the nation’s overall population is aging – people are living longer due in part to better health care (even though deaths from COVID-19 have lowered life expectancy projections).
With aging comes a greater likelihood of injury. The Centers for Disease Control has stated that falls are the leading cause of injuries among people age 65 and older, and nearly 30% of older adults reported falling at least once in the preceding 12 months. To help minimize falls and accommodate age-related infirmities, many people are adding grab bars in showers, modifying stairways, widening hallways to accommodate a wheelchair, and other projects to make the home safer and more accessible for older occupants. If you are planning to make these type of home improvements, you may be eligible to claim the costs as a medical expense for income tax purposes.
Generally, the costs of home improvements are not deductible except to offset home gain when the home is sold. However, a medical expense deduction may be claimed when the primary purpose of the home modification is a medical reason. The tax law says that deductible medical expenses are those paid for the “diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body.”
So, if you are making the modification to accommodate a medical condition or need of you, your spouse, or a dependent, then the cost of the modification may be deductible as a medical expense, but only to the extent that it exceeds any resulting increase in the property’s value.
Example: A doctor recommends that his patient with severe arthritis have daily hydrotherapy, and so the individual has a hot tub installed at a cost of $21,000. The individual then hires a certified home appraiser to determine how much the hot tub addition increased the home’s value. The appraiser concludes the increase is $20,000. The individual’s medical deduction for the year the hot tub is installed will be limited to $1,000 ($21,000 – $20,000). The other $20,000 of expenses will increase the home’s basis, meaning that it will add to the home’s cost and will offset the sales price when the home is sold.
Even though a prescription from a doctor isn’t required for most medically related home modifications, the taxpayer, if questioned by the IRS, needs to be able to demonstrate how the expenditure relates to their medical care or that of a spouse or dependent. Having a letter from the individual’s doctor that explains the type of modifications that would be medically beneficial would help to prove a medical need.
Not all improvements result in an increased home value. In fact, some modifications, such as lowering cabinets for an occupant confined to a wheelchair, may decrease the home’s resale value.
The IRS has identified certain improvements that don’t usually increase a home’s value but for which the full cost can be included as a medical expense. These improvements include, but are not limited to, the following items:
Only reasonable costs to accommodate a home for a disabled condition or for an elderly individual are considered medical care costs. Additional costs for personal preferences, such as for architectural or aesthetic reasons, are not medical expenses (but could be additions to the home’s tax basis).
Unfortunately, the total of all medical expenses can be deducted only to the extent that they exceed 7.5% of the taxpayer’s adjusted gross income (AGI) and only if the taxpayer itemizes deductions. With the current high value of the standard deductions, fewer than 15% of taxpayers are expected to itemize their deductions through 2025. So even if a medically needed home improvement is made and qualifies to be deducted, only a small percentage of taxpayers will end up with a tax benefit because of the expenditure.
All is not lost, though. To the extent that the taxpayer doesn’t claim the expense as an itemized deduction, the improvement costs, including those that might not meet the medically necessary standard, can be added to the home’s purchase cost to determine the home’s tax basis. Thus, when the home is sold, the capital gain from the sale will be lower.
Either to substantiate the currently deductible improvements or with a future home sale in mind, taxpayers should keep records of the home improvements they make, including receipts.
If you would like to discuss the tax deductibility of an improvement you are making to your home for medical purposes, please call the Cray Kaiser tax experts at (630) 953-4900.
The IRS has always required U.S. citizens to report all income from whatever source derived. Understanding that individuals with side businesses may not have reported all their income, the IRS is seeking to crack down on taxpayers who may be underreporting their income, whether it be on purpose or because of a misunderstanding of the rules.
For several years now, the IRS has required payments made to merchants through various marketplaces, payment processors (credit and debit cards), and third-party settlement organizations to be reported on Form 1099-K. The IRS then compares the 1099-K amounts to the amount reported on the individual’s or business’s tax return and follows up by correspondence or by audit if there appears to be an underreporting of income.
Before 2022, the filing threshold for 1099-Ks was reportable payment transactions during a calendar year of more than $20,000, and more than 200 transactions in that same year. Thus, entrepreneurs with a small business selling merchandise on the Internet directly or through Amazon, E-Bay or other online platforms may not have received a 1099-K in the past.
That will all change beginning in January 2023 when reporting begins for 2022 transactions. The American Rescue Plan Act included a provision to reduce the reporting threshold to $600 effective in 2022. So, which businesses are likely to receive 1099-Ks that have not in the past?
The 1099-K only reports gross income, and the cost of the products sold and other business expenses can be deducted to determine a merchant’s net taxable profit. Those renting vacation homes can deduct depreciation, utilities, repairs, and other expenses, while those providing services can deduct certain travel and other expenses. The net profits are subject to income tax and are generally subject to self-employment tax, including rentals where significant personal services are performed.
Because of the new 1099-K reporting, an uptick in the small business tax filings is anticipated. Keeping records of expenses becomes critical to reducing the gross income reported to the IRS. Please contact Cray Kaiser at (630) 953-4900 if you’d like to discuss how these rules may impact you.
Suppose you are fortunate enough to have an estate large enough to be subject to the estate tax upon your death. You might be considering ways to give some of your wealth to your family and loved ones now, thereby reducing the estate tax when you pass on. This tax strategy is important to consider over the next few years. The estate tax is set to revert back to about half of the current lifetime gift and estate tax exclusion beginning in 2026.
Frequently, taxpayers think that gifts of cash, securities, or other assets they give to other individuals are tax-deductible; in turn, the gift recipient thinks they have to pay income tax on the gift received. Nothing can be further from the truth. To fully understand the ramifications of gifting, one must realize that gift tax laws are related to estate tax laws. Uncle Sam does not want you to give away your wealth before you pass away to avoid the estate tax. For individuals who die in 2022, federal law allows $12.06 million (lifetime estate tax exclusion) to pass to heirs estate-tax free. Any excess amount is subject to an estate tax as high as 40%.
Amounts you gift above the annual gift tax exclusion amount prior to your death reduce the lifetime estate tax exclusion and will therefore subject more of your estate to taxation.
Example: Jeff gives his daughter $100,000 in 2022. This is $84,000 more than the $16,000 annual gift tax exclusion. Jeff will need to file a gift tax return reporting the gift. The $84,000 excess (and any additional excess amounts from other years) will reduce his estate tax exclusion, whatever amount it may be, in the year he dies.
The law does provide exceptions where gifts can be made without reducing the lifetime exclusion, including the following:
If the gift giver is married and both spouses agree, gifts to recipients made during a calendar year can be split between the husband and wife, even if only one of them gifted the cash or property. By using this technique, a married couple can give $32,000 in 2022 to each recipient under the annual limitation discussed previously.
High-Wealth Individuals – If you are a high-wealth individual who would like to pass on as much to your heirs as possible while living, without reducing the lifetime exemption, you could directly pay your future heirs’ medical expenses and education expenses in addition to annual gifts of cash or property of up to $16,000 (2022). You may want to do this even if you are not a high-net-worth individual, to avoid filing a gift tax return.
Education Expenses – When you pay the qualified post-secondary education tuition for another individual, it does not mean (as is usually the case for medical expenses) that someone cannot benefit taxwise. Tax law says that whoever claims the student as a dependent is entitled to the American Opportunity Credit or Lifetime Learning Credit for higher education expenses if they otherwise qualify.
Gifts of Appreciated Property – Consider replacing your cash gifts with gifts of appreciated property, such as stock for which you have a “paper gain.” When you gift an appreciated asset, the potential gain on the asset transfers to the recipient. This works for individuals, except for children subject to the kiddie tax, which requires the child’s income to be taxed at the parent’s tax rate if it is higher than the child’s rate. It also works great for contributions to charitable organizations. Although not subject to the gift tax rules, not only does an appreciated asset gifted to a charity get you out of reporting any gain from the appreciation, but you also get a charitable tax deduction equal to the fair market value (FMV) of the asset. The deduction for these gifts is generally limited to 30% of your adjusted gross income (AGI), but the excess carries over for up to five years of future returns.
Remember that to utilize this year’s annual exclusion amount, the gift must be transferred to your designated recipient by December 31. Exclusion amounts not used this year do not carry over to next year. So it’s never too early to start your 2022 gifting.
In addition to the strategies above, you can use more complex gifting strategies involving various trust techniques to minimize future estate tax and take advantage of the current more significant exemption. If you need assistance with planning your gifting strategies, please call Cray Kaiser at 630-953-4900.
The competitive short-term rental marketplace has made taxpayers consider renting their home, rooms or even their backyard! Online sites Airbnb, Vrbo, HomeAway and Craigslist all help facilitate renting property and space. Most offer varying degrees of services and all will charge a fee to access their marketplace. However, whatever method you use to rent your property, room or other space will result in thorny issues on your tax return.
The tax treatment varies based on how long you rent the property during the year as well as the type of activity it is considered in the eyes of the IRS. Once considered a taxable activity, there are two ways your activity can be classified as a traditional passive rental (renting a home) or as a service (renting a home along with your time to provide additional services).
First, the good news.
If you rent your property for less than 14 days and live in the property for more than 15 days in a year, there is no income tax reporting requirement. This is also loosely referred to as the “Augusta” rule, named for members of Augusta National that rent their properties during The Masters weekend for top dollar.
If, however, you rent out your property for more than 14 days, you need to consider what is provided with the rental, which in turn will determine how it is reported on your tax return.
Traditionally, most rentals are viewed as passive activities that are reported on Schedule E. Think of this as renting your property in the mountains during ski season. The renter would be responsible for simple upkeep. You only provide the property to the renter. In this case, the income will be reported on Schedule E. You will be able to deduct expenses related to this rental, such as cleaning, commissions, and repairs (these are direct expenses). Expenses such as mortgages, real estate taxes and depreciation (considered indirect expenses) must be prorated based on the period the property was rented versus used personally. The net income of this activity will be subject to your marginal tax rate and any losses will be offset against other passive income or carried forward if no other passive income exists.
If you provide services in conjunction with the rental, such as daily cleanings, offering breakfast, or other activities that would make it akin to operating a hotel, the rental would be considered a business and reported on Schedule C. The IRS considers the type of service; if the services rendered are substantial to the occupants, then it would be considered more of a business instead of passively renting the property. As in the above example, you still will be allowed the expenses to reduce your income, but the net income would be subject to self-employment (SE) tax. The SE tax is 15.3%, which is broken down as 12.4% for Social Security and 2.9% for Medicare. Keep in mind that this is in addition to regular income taxes, but you will be able to take one-half of the SE tax as a deduction to reduce your net profit. If you have a net loss from this activity, then you will be able to offset it against your other income, whether passive or not.
The IRS assesses short-term rentals based on the facts and circumstances of each case. As each case is unique and one size doesn’t fit all, Cray Kaiser can help you determine the classification along with structuring it favorably for tax purposes. Please contact us today at 630-953-4900.
CPA | Senior
Over the last few years, the Internal Revenue Service has been engaged in a virtual currency compliance campaign to address tax noncompliance related to cryptocurrency use. The IRS’ efforts include outreach to taxpayers through education, audits of taxpayers’ returns and even criminal investigations.
Included by Congress in the Infrastructure Investment and Jobs Act (IIJA) of 2021, cryptocurrency exchanges will be subject to information reporting requirements like those stockbrokers have to follow when a taxpayer sells securities and other assets. These new rules generally apply to digital asset transactions starting in 2023. The first reporting forms related to cryptocurrency transactions will be issued to the IRS and crypto investors in January 2024.
You will start to notice that many if not all, crypto exchanges will request taxpayer-identification numbers (usually a Social Security number), similar to the current application process when opening a bank or brokerage account.
Property transactions, such as the sale of securities, are reported on Form 1099-B. To date, the IRS has not finalized how crypto transactions will be reported, whether on the current version of the 1099-B or a new form that will be created for this purpose. However, like with securities, crypto will be treated as property and sales proceeds, acquisition dates, sale dates, tax basis for the sale, and the character of the gain or loss will be disclosed to you and the IRS. It will be necessary to report the disposition of cryptocurrency when it is sold for cash, used to buy something or traded for another cryptocurrency. But just transferring the currency from an online wallet to an exchange, or vice versa is not a disposition and, therefore, not taxable.
Of course, not every transfer transaction is a sale or exchange. An example would be transferring cryptocurrency from a wallet at Crypto Exchange #1 to the taxpayer’s wallet in Crypto Exchange #2. In this case, Crypto Exchange #1 will be required to provide relevant digital asset information to Crypto Exchange #2. Such a transaction is not a reportable sale or exchange. Similar to when a taxpayer switches stockbrokers, the prior exchange must provide the new exchange with the basis, and purchase dates, just as a stockbroker must when the brokerage firms are changed.
Please note that the above will potentially apply to non-fungible tokens (NFTs) that are using blockchain technology for one-of-a-kind assets like digital artwork. The IRS considers these digital assets.
Starting with the 2020 return, the IRS began asking if you engaged in any transaction with digital currencies. By signing the return, you are attesting under penalties of perjury to filing a true, correct, and complete return. Going forward, as crypto exchanges report digital transactions with the IRS, the IRS will match information received against your tax return to verify that you are reporting these accurately.
Currently, when a business receives $10,000 or more in a cash transaction, the business is required to report the transaction on IRS Form 8300, including the ID of the person from whom the cash was received. Under the IIJA rules, businesses will be required to treat digital assets like cash for purposes of this reporting requirement. The $10,000 may occur in a single transaction or a series of related transactions.
If you have questions about crypto transactions, NFTs or reporting, please call Cray Kaiser at (630) 953-4900 or contact us here.
Individuals with disabilities and parents of children with disabilities may qualify for a number of tax credits and other tax benefits. Listed below are several tax credits and other available benefits if you or someone listed on your federal tax return has a disability.
Since a change in the law more than 35 years ago, taxpayers (or spouses when filing a joint return) who are legally blind have been eligible for a standard deduction add-on. Thus, for 2021, if a taxpayer is filing jointly with a blind spouse, they can add $1,350 to their standard deduction of $25,100; if both spouses are blind, the add-on doubles to $2,700. For other filing statuses, the additional amount is $1,700. In addition, while being age 65 or older isn’t a disability, it should be noted that there is an “elderly” add-on to the standard deduction of $1,350 or $1,700, depending on filing status. These add-ons apply only to the taxpayer and spouse, not to dependents.
Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income are excluded from gross income (i.e., they are not taxable). Amounts received for Social Security disability are treated the same as regular Social Security benefits, which means that up to 85% of the benefits could be taxable, depending on the amount of the recipient’s (and spouse’s, if filing jointly) other income.
Individuals with a physical or mental disability may deduct impairment-related expenses paid to allow them to work.
Impairment-related work expenses are ordinary, necessary business expenses for attendant care services at the individual’s place of work as well as other expenses in the workplace that are necessary for the individual to be able to work.
The EITC is available to taxpayers with disabilities and the parents of a child with a disability, even when the child’s age would normally prevent the child from being a qualifying child. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability who have no qualifying children may qualify for the EITC.
Taxpayers who pay someone to come to their home and care for their dependent or spouse with a disability may be entitled to claim this credit. For children, this credit is usually limited to the care expenses paid only until age 13, but there is no age limit if the child cannot care for himself/herself.
Qualified ABLE programs provide a way for individuals and families to contribute and save to support individuals with disabilities in maintaining their health, independence, and quality of life.
Federal law authorizes states to establish and operate ABLE programs. Under these programs, an ABLE account may be set up for any eligible state resident – someone who became severely disabled before turning 26 – who would generally be the only person who could take distributions from the account. ABLE accounts are very similar in function to Sec. 529 plans. The primary purpose of ABLE accounts is to shelter assets from the means testing required by government benefit programs.
Individuals can contribute to ABLE accounts, subject to per-account gift tax limitations (maximum $16,000 for 2022, up from $15,000, which it has been for several years). For years 2018 through 2025, working individuals who are beneficiaries of ABLE accounts can contribute limited additional amounts to their ABLE accounts, and these contributions can be eligible for the nonrefundable saver’s credit.
Distributions to the individual with a disability are tax-free if the funds are used for qualified expenses of the disabled individual.
For more information on the benefits available to disabled taxpayers or dependents, call the experts at Cray Kaiser (630) 953-4900.
The past few tax seasons have been riddled with new tax laws, pandemic logistic and staffing issues, and extended turnaround times by the IRS for processing returns. Although progress has been made, we anticipate another season of backlog for the IRS. This article talks about the issues at play and a best practice for getting your returns filed timely and accurately.
This could be another rough tax season for the IRS and taxpayers. Although this year’s filing season opened January 24, 2022 (the first day the IRS will accept and start processing 2021 returns), the Service still has a backlog of prior year returns to process and is plagued by staff shortages due to the pandemic and reduced funding in the last few years. Even though the majority of 2020 returns were filed electronically, many of those returns still required manual review, resulting in significant delays in the IRS issuing refunds. This was the case with millions of 2020 returns of taxpayers who received unemployment compensation and had filed before Congress passed a law that retroactively exempted up to $10,200 of 2020 unemployment income per filer (that provision has not been extended to 2021). Human review was also required for a significant number of returns on which the Recovery Rebate Credit had to be reconciled with the Economic Impact Payments #1 and #2.
Similar issues are likely to affect 2021 returns, especially those where taxpayers received Advance Child Tax Credit (ACTC) payments and/or Economic Impact Payment #3, both of which must be reconciled on the 2021 return. Thus, to avoid return processing delays it is important to include the correct amounts received when doing the reconciliation. In January, the IRS began issuing Letters 6419 (for the ACTC) and 6475 (for EIP #3) to taxpayers; these letters provide the information needed for making the reconciliation calculations. Be sure you provide these letters to your tax return preparer. Having an accurate tax return can avoid processing delays, refund delays and later IRS notices.
Despite reduced staffing and the continuing pandemic, the IRS projects that for this tax season they’ll process electronically filed returns and pay refunds that are designated to be direct deposited in the taxpayer’s bank account within 21 days of receiving the return. While this turnaround time can’t be guaranteed, the earlier you file, the better the chance that you’ll see your refund within that time frame. If the IRS systems detect a possible error, missing information, or there is suspected identity theft or fraud, the IRS may need to correspond with the taxpayer, requiring special handling by an IRS employee. In that case, it may take the IRS more than the normal 21 days to issue any related refund. Sometimes the IRS can correct the return without corresponding, in these instances the IRS will send an explanation to the taxpayer.
To stop the filing of fraudulent returns, the IRS is prohibited by law from issuing a refund from a return where the Earned Income Tax Credit or Advance Child Tax Credit is claimed until mid-February. However, that doesn’t prevent taxpayers from filing their returns before then.
Taxpayers generally will not need to wait for their 2020 return to be fully processed to file their 2021 tax returns and can file when they are ready. So, if you filed your 2020 return, but the IRS has still not processed it, don’t let that stop you from preparing and filing your 2021 return.
The best advice is don’t procrastinate in filing your return, even though the IRS may be bogged down.
In addition to return processing woes, the IRS has had customer service problems, specifically the lack of enough IRS representatives to answer the phone in response to taxpayers’ questions. Last tax season, because of Covid-19-related tax changes and staffing challenges, more than 145 million calls were received by the IRS phone system between January 1 and May 17, more than four times the number of calls in an average year. Alas, the Service was able to answer only about 10% of those calls, and callers who were lucky enough to have their calls answered generally had extremely long wait times before actually being able to speak with an IRS employee.
The IRS encourages taxpayers to go to the IRS.gov website to search for answers to their tax questions instead of calling the Service, but that often isn’t an adequate substitute for talking personally to a knowledgeable individual. Those who have their returns prepared by a tax pro have the benefit of being able to contact their tax professional with tax questions instead of being frustrated trying to reach or deal with the IRS. Given how understaffed the IRS is, it is more important than ever for taxpayers to have their returns professionally prepared.
If you are an existing Cray Kaiser client and have questions, please give our office a call at (630) 953-4900. If you have forwarded this on to a potential client who has been having troubles preparing their own tax return and would like professional preparation, we are also here to assist them.
