pixel
COVID-19
American Rescue Plan
COVID-19
NATP
Preparer Regulation
Tax Act
Tax Law
Tax Preparation
Tax Professional
Tax Season
Tax Education
American Rescue Plan
COVID-19
NATP
Preparer Regulation
Tax Act
Tax Law
Tax Preparation
Tax Professional
Tax Season
Tax Education
Tax Season Updates events begin in person on Oct. 25By: National Association of Tax Professionals
July 29, 2021

We don’t have to tell you that the latest tax season was, shall we say, tumultuous. Between last-minute tax law change and COVID-19 safety practices, it’s been a lot. We know you’re short on time and patience, which is why we created an event to get you the updates you need to do your job and apply updated federal tax code to your clients’ unique situations.

There are Tax Season Updates in 100+ cities throughout the U.S., which means you’ll easily be able to find an event close to you. If you’d prefer, we’re also offering this event virtually, if that’s your preferred learning style. (Premium members can attend the virtual event for free!)

These events, formerly known as our 1040 Updates, are designed to help you understand the complexities of tax law to help you serve your clients with the excellence they deserve. Taught by a team of instructors using hands-on learning tools, this two-day workshop provides detailed, in-depth information on the most recent legislation and IRS updates. You’ll earn 16 CPE by the end.

Each event will include information and analyze provisions of the Consolidated Appropriations Act, 2021, and the American Rescue Plan Act, and how these provisions affect your clients. We’ll also teach you to determine the tax treatment of different sources of income, apply inflation-adjusted amounts to 2021 individual returns, and analyze the change in tax rules for certain credits and deductions, including the expanded child tax credit and the third economic impact payment, including plus-up payments.

Plus, you’ll get an on-demand webinar in January covering any last-minute tax law changes, a quick reference desk card, a multi-page tax law quick reference guide with flowcharts, an e-book with handouts from each session and a certificate of completion to proudly display to set yourself apart from your competition.

The first live in-person events begin Oct. 25, 2021, in Lakewood, Colorado; Bay City, Michigan; Memphis, Tennessee; Perrysburg, Ohio; Liverpool, New York; and Bismark, North Dakota; so be sure to register soon!

Read more
COVID-19
Deduction
Estimated Tax
Federal Tax Research
Forms
Tax Act
Tax Credit
Tax Law
Tax Professional
Tax Season
COVID-19
Deduction
Estimated Tax
Federal Tax Research
Forms
Tax Act
Tax Credit
Tax Law
Tax Professional
Tax Season
You make the callBy: NATP Research
June 24, 2021

Question: Mariana and Luis regularly contribute $600 cash annually to their favorite charity and ask you if they may take the above-the-line deduction for the $600 on their 2020 tax return for which they file MFJ. What do you tell them?

Answer: No, they may not claim all $600. For 2020, Mariana and Luis are allowed to deduct up to $300 of cash qualified charitable contributions as a deduction before AGI if they claimed the standard deduction [§62(a)(22)]. For 2020, whether filing as single or MFJ, the amount is still only $300, not $600. For 2021, a similar provision would allow a deduction of up to $600 for MFJ filers as a deduction from AGI [§§ 170(p) and 63(b)(4)]. To verify their favorite charity is a qualified organization to receive deductible contributions, use the IRS Tax Exempt Organization Search tool. The Coronavirus Aid, Relief, and Economic Security Act changed the law for 2020 charitable contributions, and for 2021 the Consolidated Appropriations Act, 2021 changed the law.

Read more
American Rescue Plan
COVID-19
Deduction
Earned Income Credit (EIC)
Estimated Tax
Forms
IRS
NATP
Payment Processing
Tax Act
Tax Credit
Tax Law
Tax Professional
Tax Season
Unemployment
American Rescue Plan
COVID-19
Deduction
Earned Income Credit (EIC)
Estimated Tax
Forms
IRS
NATP
Payment Processing
Tax Act
Tax Credit
Tax Law
Tax Professional
Tax Season
Unemployment
Free post-tax season webinars for all tax pros By: National Association of Tax Professionals
June 14, 2021

Taxpayers, and by association their tax professionals, may face two major issues this post-tax season: IRS refund adjustments and estimated tax payments for the 2022 tax season.

The IRS is currently recalculating taxes on unemployment benefits for 2020 based on recent tax law passed during the 2021 tax season. The IRS began issuing refunds the week of May 14 to eligible taxpayers who paid taxes on 2020 unemployment compensation that was later excluded from taxable income due to the American Rescue Plan. Tax pros should confirm these recalculations were done correctly for their clients. In some instances, if a client did not originally claim the earned income credit or other credits, but is now eligible, an amended return will need to be filed.

The IRS will send taxpayers a notice explaining the corrections, which they should expect within 30 days of when the correction is made. Taxpayers should keep any notices they receive for their records. Taxpayers should review their return after receiving their IRS notice(s).

Corrections to any earned income credit (EIC) without qualifying children and the recovery rebate credit are being made automatically as part of this process. However, some taxpayers may be eligible for certain income-based tax credits not claimed on their original return, such as the EIC for their qualifying children. If so, they should file an amended tax return if the revised adjusted gross income amount makes them eligible for additional benefits.

Additionally, making estimated tax payments throughout the year prior to filing their return can help taxpayers reduce that end-of-season sticker shock some face when they realize they owe a significant amount of money (and avoid penalties and interest). Many taxpayers may be required to make estimated tax payments if their income is drastically different from prior years.

To help tax professionals with this post-tax season information, the National Association of Tax Professionals (NATP) is offering two completely free webinars that will detail these topics and help tax professionals determine what they can and should be doing now to help their clients.

Filing Form 1040-X After IRS Calculations — As the IRS recalculates taxes on unemployment benefits, it’s important for you to confirm that it was done correctly. For example, if your client did not originally claim the earned income credit or other credits, but is now eligible, you’ll need to file an amended return.

Calculating Estimated Tax Payments — With the economy opening back up, your client’s income may look drastically different from last year. There are tools available to you to help calculate estimated tax payments and minimize penalty abatement for your clients. We also discuss the new proposed legislation, Tax Deadline Simplification Act.

To learn more and register, visit natptax.com/help.

These webinars are available to anyone interested, not just NATP members.

Read more
Corporation
COVID-19
Estimated Tax
Families First Coronavirus Response Act
Federal Tax Research
Forms
Paid Family and Sick Leave Credits
Schedule C
Tax act
Tax Credit
Tax Law
Corporation
COVID-19
Estimated Tax
Families First Coronavirus Response Act
Federal Tax Research
Forms
Paid Family and Sick Leave Credits
Schedule C
Tax act
Tax Credit
Tax Law
You make the callBy: NATP Research
June 3, 2021

Question: Cesar is a plumber, with a Schedule C business. On May 6, 2020, his son, Cesar Jr., who is 10 years old was diagnosed with coronavirus by a test approved by the Centers for Disease Control and Prevention. Cesar was told by his doctor to quarantine since he was exposed and to care for his child until further notice. Cesar was unable to work for 60 days since he was taking care of his child. Cesar’s tax preparer is reading about Form 7202 and is wondering, does Cesar qualify for the sick leave credit for certain self-employed individuals?

Answer: Yes. Cesar can claim the refundable credit for the applicable days on his 2020 tax return. He can do so by filing Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, which is attached to his Form 1040.

The credit is limited to the lesser of 100% of average daily self-employment income or $511 per day ($5,110 in total) if the self-employed individual is:

  1. Subject to a federal, state, or local quarantine or isolation order related to COVID-19
  2. Advised by a health care provider to self-quarantine due to concerns related to COVID-19; or
  3. Experiencing symptoms of COVID-19 and seeking a medical diagnosis

The qualified sick leave equivalent amount is limited to 67% of average daily self-employment income or $200 per day ($2,000 in total) if the self-employed individual is:

  1. Caring for an individual who is subject to a federal, state, or local quarantine or isolation order related to COVID-19, or who has been advised by a health care provider to self-quarantine due to concerns related to COVID-19
  2. Caring for a child whose school or place of care is closed, or childcare provider is unavailable due to COVID-19 precautions; or
  3. Experiencing a substantially similar condition specified by the government
Read more
American Rescue Plan
Child Tax Credit
Corporation
COVID-19
Deduction
Dependents
Earned Income Credit (EIC)
E-file
Employee Retention Credit
Enrolled Agent
Estate
Estimated Tax
Extension
Families First Coronavirus Response Act
Forms
IRA
IRS
News
Paid Family and Sick Leave Credits
Partnership
Payment Processing
Retirement
Social Security
Stimulus checks
Tax act
Tax Credit
Tax Extensions
Tax Law
Tax Office
Tax Planning
Tax Preparation
Tax Professional
Tax Season
American Rescue Plan
Child Tax Credit
Corporation
COVID-19
Deduction
Dependents
Earned Income Credit (EIC)
E-file
Employee Retention Credit
Enrolled Agent
Estate
Estimated Tax
Extension
Families First Coronavirus Response Act
Forms
IRA
IRS
News
Paid Family and Sick Leave Credits
Partnership
Payment Processing
Retirement
Social Security
Stimulus checks
Tax act
Tax Credit
Tax Extensions
Tax Law
Tax Office
Tax Planning
Tax Preparation
Tax Professional
Tax Season
Summary of the American Families Plan and other recent proposalsBy: National Association of Tax Professionals
May 25, 2021

On April 28, 2021, President Biden announced the American Families Plan (AFP). The AFP was released “as an investment in our kids, our families, and our economic future.”

The plan includes $1.8 trillion in investments and tax credits for American families and children over 10 years. It also includes about $1 trillion in investments and $800 billion in tax cuts for American families and workers. Alongside the American Families Plan, the president will propose a set of measures to ensure, according to the plan, “that the wealthiest Americans pay their share in taxes,” while ensuring that no one making $400,000 per year or less will see their taxes go up.

The AFP gives our individual clients access to community college, preschool, affordable child care and paid leave. Proposals within the AFP also impact our business clients, specifically in the area of like-kind exchanges and estate planning.

As of this writing, the AFP is currently a proposal and not federal tax law. This blog will highlight the proposed tax provisions of the AFP. There are additional non-tax-related proposals presented in the AFP that can be read in the White House’s fact sheet.

Extension of tax cuts

The AFP proposes extending the key tax cuts in the American Rescue Plan (ARP):

  • Child tax credit (CTC)
    • CTC enhancement will be extended through 2025
      • CTC will be expanded from $2,000 per child to $3,000 per child for children age six years and older, and $3,600 per child for children under age six
    • AFP will make the CTC permanently fully refundable
    • AFP will deliver regular payments of the credit
  • Earned income credit (EIC)
    • EIC will be permanently expanded to include childless workers
  • Child and dependent care tax credit (CDCTC)
    • CDCTC will be made permanent
    • Families will receive a tax credit for as much as half of their spending on qualified childcare for children under age 13, up to a total of $4,000 for one child or $8,000 for two or more children
    • A 50% reimbursement will be available to families making less than $125,000 a year, while families making between $125,000 and $400,000 will receive a partial credit
    • The credit can be used for expenses ranging from full-time care to after school care and summer care
  • Expanded health insurance tax credits
    • Makes permanent premium reductions for taxpayers who purchase health insurance coverage on their own

As a side note, the IRS, on May 10, 2021, released guidance (IR 2021-105) on the taxability of dependent care assistance programs for 2021 and 2022. Due to the pandemic, many people were unable to use the money they had set aside in their 2020 and 2021 dependent assistance programs.

Notice 2021-26 clarifies for taxpayers that if these dependent care benefits would have been excluded from income if used during taxable year 2020 (or 2021, if applicable), these benefits will remain excludible from gross income and are not considered wages of the employee for 2021 and 2022.

Ordinary rates

  • Restores the top tax federal bracket to 39.6%
  • Top marginal rate would be 43.4% (39.6% + 3.8%) when including the 3.8 % net investment income tax (NIIT) (excluding any state income tax)

Capital gains

  • For households over $1 million, capital gains rates would increase from 20% to 39.6%
  • Factoring in the NIIT, capital gains rates for those over $1 million would also be 43.4%

NIIT

  • The proposal states: “High-income workers and investors generally pay a 3.8% Medicare tax on their earnings, but the application is inconsistent across taxpayers due to holes in the law. The ARP would apply the taxes consistently to those making over $400,000, ensuring that all high-income Americans pay the same Medicare taxes.”

The language in the proposal is somewhat vague. It would seem NIIT would be extended to all income (for example, non-investment income, flow-through income) above the threshold, and the NIIT would be called the Medicare Tax. This would mean the NIIT applies to the sale of business assets.

Limiting step-up basis at death

  • Ends stepped up basis for gains in excess of $1 million ($2 million per couple)
  • No tax would be due for a gift to charity
  • Proposal includes an exception for family-owned businesses and farms that are given to heirs that continue to run the business

The proposal states: “The president’s plan will close this loophole, ending the practice of “stepping-up” the basis for gains in excess of $1 million ($2.5 million per couple when combined with existing real estate exemptions) and making sure the gains are taxed if the property is not donated to charity.” It does not address what would happen at death.

Some are reporting this to mean, at death of a taxpayer, the taxpayer’s assets are treated as sold, and gain in excess of the $1 million/$2 million threshold would be subject to tax. Until legislation is finalized, we will not know if this is an accurate assessment.

The gain from the sale of a primary residence would also be excluded. This would mean a married couple could exclude $2.5 million ($1 million + $1 million + $500,000) in gain from taxation at death, assuming the exemption is portable.

Limited like-kind exchange tax deferral

  • Ends §1031 tax-free like-kind exchanges for real estate gains in excess of $500,000

Once again, there are limited details on the mechanics of how this would work. How is the $500,000 treated, and is it deferred? Is it subject to NIIT (remember under the AFP, all income over $400,000 is subject to NIIT)? Deferred from NITT?

Limitation of excess business losses [§461(l)]

  • Makes permanent the limitation on excess losses
    • Currently, business losses in excess of $250,000 ($500,000 MFJ), that are indexed for inflation and not deductible, become net operating losses (NOL) [§461(l)]
      • §461(l) expires in 2026

End of capital gain treatment for carried interests

  • Gives the IRS the authority to regulate paid tax preparers
    • Asks Congress to pass bipartisan legislation to give the IRS the authority to regulate

Per the proposal, “As preparers play a crucial role in tax administration and will be key to helping many taxpayers claim the newly-expanded credits, IRS oversight of tax preparers is needed.”

The end result of paid tax preparer regulation may be a great thing for those in practice looking to expand their operations or add staff. More regulation may result in more business opportunities, as it is anticipated some preparers will be leaving the industry and some taxpayers who are currently self-preparing may seek the advice of professionals due to increased complexity.

Other proposals

Other proposals are out there as well. Below are some you may be hearing about on the news or from your clients. We will provide a high-level discussion to create awareness, so you are able to address client concerns, if they do arise.

The House Ways and Means Chairman Richard Neal introduced the Building the Economy for Families Act on April 27, 2021 (a day prior to President Biden’s plan).

This proposal contains many of the same ideas as the AFP. Below are highlights of the proposed tax impacts:

CTC:

  • §24 of the IRC would be amended to include changes to the CTC
  • Fully refundable; amount increases to $3,000 per child ($3,600 under age 6)
  • ARP changes would be permanent

EIC:

  • Makes permanent the temporary expansion the eligibility and the amount of the earned income credit for taxpayers with no qualifying children (childless EIC)
  • Reduces minimum age to claim the childless EIC from 25 to 19 (except for certain full-time students), and the upper age limit is eliminated
  • Amounts are indexed for inflation and will be indexed beginning in 2022

Introduced in late March 2021 by senators Elizabeth Warren, Chris Van Hollen, Cory Booker, Sheldon Whitehouse and Bernie Sanders, Sensible Taxation and Equity Promotion (STEP) Act is another proposal to end the stepped-up basis loophole.

Also introduced in late March 2021 by Sanders, the 99.5 Percent Act contains changes to the current federal estate and gift tax rules.

As of today, none of the above proposals are legislation. They are simply proposals. We do not know what, if anything, will become final legislation.

NATP is here to keep you informed of any new legislation and our hope is the above as provided you with some of the information necessary to address any client concerns as they arise.

Read more

Additional Articles

You make the callJuly 22, 2021
EA exam changes in 2021July 21, 2021
Accountants Professional Liability Coverage: Understanding What it is, and How and When to Report Claims July 21, 2021
Categories