IRS: MO Storm & Flooding Victims Now Eligible for Tax Relief

Storm victims in parts of Missouri now have until November 15, 2022, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today.

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual or public assistance. Currently, individuals and households that reside or have a business in the Independent City of St. Louis, as well as St. Charles, Montgomery and St. Louis counties in Missouri, qualify for tax relief. The same relief will be available to any other locality added later by FEMA.

The tax relief postpones various tax filing and payment deadlines that occurred starting on July 25, 2022. As a result, affected individuals and businesses will have until November 15, 2022, to file returns and pay any taxes that were originally due during this period.

This means individuals who had a valid extension to file their 2021 return due to run out on October 17, 2022, will now have until November 15, 2022, to file. The IRS noted, however, that because tax payments related to these 2021 returns were due on April 18, 2022, those payments are not eligible for this relief.

The November 15, 2022 deadline also applies to quarterly estimated income tax payments due on September 15, 2022, and the quarterly payroll and excise tax returns normally due on August 1 and October. 31, 2022. Businesses with an original or extended due date also have the additional time including, among others, calendar-year partnerships and S corporations whose 2021 extensions run out on September 15, 2022 and calendar-year corporations whose 2021 extensions run out on October 17, 2022.

In addition, penalties on payroll and excise tax deposits due on or after July 25, 2022 and before August 9, 2022, will be abated as long as the deposits were made by August 9, 2022.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area.

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2022 return normally filed next year), or the return for the prior year (2021).

The Missouri Department of Revenue also announced that it will grant the same tax extensions as the IRS to assist Missouri individuals and businesses impact by the recent flooding.  Taxpayers requesting an extension should note the following on their returns when filed: “July 2022 flood extension.”

Note that if you have other state returns to file or payments to make, those deadlines have not been extended.

 

If you have any questions regarding this extension, please give us a call. We’re always here to help!

2022 State of Illinois Tax Rebates

Under the Illinois Family Relief Plan, one-time individual income and property tax rebates will be issued to taxpayers who meet certain requirements. Those who are eligible will receive one of both rebates, which are expected to begin being issued the week of September 12.

As always, if you have any questions, please contact your trusted Scheffel Boyle CPA.

You may also go to Illinois.gov for FAQs and additional resources regarding these 2022 tax rebates.

After filing your taxes, what records can you toss?

If you’ve filed your 2021 tax return, you may want to do some spring cleaning, starting with tax related paper clutter. Paring down is good. Just be careful to hold onto essential records that may be needed in the event of an IRS audit. Some documents may be needed to help you collect a future refund or assist with filing your return next year. Before you start tossing or shredding documents, read the rules to learn what must be kept — for how long — and what can be safely discarded.

The General Rules

At a minimum, you should keep tax records for as long as the IRS can audit your tax return or assess additional taxes. That’s usually three years after you file your return. This means you potentially can get rid of most records related to tax returns for 2018 and earlier years. However, the statute of limitations extends to six years for taxpayers who understate their adjusted gross income by more than 25%. What constitutes an understatement may go beyond simply not reporting items of income. So, to be safe, a general rule of thumb is to save tax records for six years from filing.

Keep Some Records Longer

You need to hang onto some tax-related records beyond the statute of limitations. For example:

  • Keep the tax returns themselves indefinitely, so you can prove to the IRS that you did file a legitimate return. (If you didn’t file a return or if you filed a fraudulent return, there’s no statute of limitations.)
  • Retain W-2 forms until you begin receiving Social Security benefits. That may seem long, but if questions arise regarding your work record or earnings for a particular year, you’ll need your W-2 forms to help provide the documentation needed.
  • Keep records related to real estate or investments for as long as you own the assets, plus at least three years after you sell them and report the sales on your tax return (or six years if you want extra protection).
  • Hang onto records associated with retirement accounts until you’ve depleted the accounts and reported the last withdrawal on your tax return, plus three (or six) years.
  • Retain records that support figures affecting multiple years, such as carryovers of charitable deductions or casualty losses. These need to be saved until they no longer have effect, plus seven years.

If you have any questions, please feel free to contact your trusted Scheffel Boyle team member. We are always here to help!

Second Quarter Tax Calendar

April 18 — Last day to file (or extend) your 2021 personal return and pay any tax that is due.

  • First quarter 2022 estimated tax payments for individuals, trusts and calendar-year corporations are due.
  • 2021 returns are due for trusts and calendar-year estates and C corporations.
  • FinCEN Form 114 (“Report of Foreign Bank and Financial Accounts”) is due — but an automatic extension applies to October 15.
  • Any final contribution you plan to make to an IRA or Education Savings Account for 2021 is due.
  • SEP and profit-sharing plan contributions are also due today if your return is not being extended.

May 2 — Employers must file Form 941 (“Employer’s Federal Quarterly Tax Return”) for the first quarter (May 10 if all taxes are deposited in full and on time). Also, employers must deposit FUTA taxes owed through March if the liability is more than $500.

May 16

  • Calendar-year exempt organizations must file (or extend) their 2021 Forms 990, 990- EZ or 990-PF returns.
  • IRS and State of Illinois extension of individual and business tax returns due for the following counties: Bond, Cass, Coles, Effingham, Fayette, Jersey, Macoupin, Madison, Menard, Montgomery, Morgan, Moultrie, Pike, and Shelby.

June 15 — Second quarter 2022 estimated tax payments are due for individuals, calendar-year corporations, estates and trusts.

 

If you have any questions, please feel free to contact your trusted Scheffel Boyle team member. We are always here to help!

First Quarter Tax Calendar

January 31 — File 2021 Forms W-2 (“Wage and Tax Statement”) with the Social Security Administration and provide copies to employees.

  • File 2021 Forms 1099-NEC (“Nonemployee Compensation”) (paper or electronic) reporting nonemployee compensation payments to the IRS and provide copies to recipients, along with a related Form 1096 (“Annual Summary and Transmittal of U.S. Information Returns”) to the IRS.
  • Most employers must file Form 941 (“Employer’s Quarterly Federal Tax Return”) to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2021. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. Employers who have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944 (“Employer’s Annual Federal Tax Return”).
  • File Form 940* (“Employer’s Annual Federal Unemployment [FUTA] Tax Return”) for 2021. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.
  • File Form 943* (“Employer’s Annual Federal Tax Return for Agricultural Employees”) to report Social Security, Medicare and withheld income taxes for 2021. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.
  • File Form 945* (“Annual Return of Withheld Federal Income Tax”) for 2021 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on pensions, annuities, IRAs, etc. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.

February 28 — File 2021 Form 1099-MISC (“Miscellaneous Income”) reporting certain payments to certain persons and provide copies to recipients, along with a related Form 1096 (“Annual Summary and Transmittal of U.S. Information Returns”) to the IRS.

March 15* — 2021 tax returns must be filed or extended for calendar-year partnerships and S corporations. If the return isn’t extended, this is also the last day for those types of entities to make 2021 contributions to pension and profit-sharing plans.

 

*Reminder: Due to the devastating storms that took place on December 10, 2021 in the area, both the IRS & the State of Illinois have made an extension of business tax returns to May 16, 2022, for the following counties: Bond, Cass, Coles, Effingham, Fayette, Jersey, Macoupin, Madison, Menard, Montgomery, Morgan, Moultrie, Pike, and Shelby.

 

If you have any questions, please feel free to contact your trusted Scheffel Boyle team member. We are always here to help!

Possible Tax Refund Delays this Season

Last week, National Taxpayer Advocate Erin Collins gave her annual tax filing season report to Congress on the 2021 tax year.

With 77% of individual taxpayers receiving tax refunds last year alone, tens of millions of taxpayers saw delays in processing their tax returns. According to both the IRS and the Treasury Department, similar or even worse delays are expected to happen this year as well due to staffing shortages stemming from the COVID-19 pandemic and budget cuts, along with new tax relief measures.

Since last tax season, the IRS is still dealing with millions of unprocessed tax returns, particularly the ones that arrived on paper. Collins said before Congress, “Paper is the IRS’s Kryptonite, and the agency is still buried in it.”

With many taxpayers still waiting for their refunds from nine months ago, Collins’ report indicates that the IRS still has backlogs of 6 million unprocessed original individual returns (Forms 1040), 2.3 million unprocessed amended individual returns (Forms 1040-X), more than 2 million unprocessed employer’s quarterly tax returns (Forms 941 and 941-X), and about 5 million pieces of taxpayer correspondence.

While electronically filed returns are considered far better than paper returns, there have been millions of them suspended during processing due to discrepancies between the amounts reflected on IRS records and amounts claimed on the returns. Also, when a taxpayer disagreed with an error notice, their response went into the IRS’s paper processing backlog, further delaying the refund.

Collins’ report also stated that the two types of IRS help, “Where’s My Refund?” app and telephone service haven’t provided all the answers. The app doesn’t give information on unprocessed returns, and it doesn’t explain any status delays, the reasons for the delays, where returns stand in the processing pipeline, or what actions taxpayers should take, if any. For their telephone service, only about 11% of the 282 million calls were answered, having an average wait time of at least 23 minutes. From this, most callers could not obtain answers to their tax law questions, get help with account problems, or speak with a customer service representative about a compliance notice.

 

If you have any questions, please feel free to contact your trusted Scheffel Boyle team member. We will continue to monitor this as the 2021 filing season progresses. We are always here to help!

Two Important IRS Letters to be Sent this Month

If you were eligible for the third stimulus check or the advanced child tax credit payments in 2021, you need to be on the lookout for two letters from the IRS. They will be arriving by the end of January 2022.

 

2021 Economic Impact Payment (Third Stimulus Check)

People who received the third stimulus check will receive Letter 6475 from the IRS.

This will help them determine what the taxpayer received and if they qualify for the Recovery Rebate Credit on their 2021 tax returns.

“Letter 6475 only applies to the third round of Economic Impact Payments that was issued starting in March 2021 and continued through December 2021,” the IRS said on its website.

 

Advance Child Tax Credit Payment

Families who received advance child tax credit payments in 2021 will receive Letter 6419 from the IRS.

This letter will tell eligible families how much of the credit they have received so far and the number of qualifying children that was used to calculate that amount. From this, the taxpayer will be able to determine out how much of a tax credit to claim on their tax returns this year.

Monthly payments that were sent to millions of families with eligible children from July to December only accounted for half of the credit. Now, those who got the money need to show what they received to make sure they get any remaining credit on their 2021 tax return if applicable.

If taxpayers don’t receive the letter, they can also go to the IRS CTC Update Portal to see how much they’ve received.

As of right now, the monthly advance child tax credit payments are not set to continue in 2022.

If you receive these letters, please hold on to them and provide them to your tax preparer with your other 2021 tax documents.

 

 

If you have any questions, please feel free to contact your trusted Scheffel Boyle team member. We are always here to help!

Tax Deadline Extension & IL Pass-Through Entity Tax to Avoid SALT Limit

Tax Deadline Extension

On December 20, 2021, the IRS announced an extension of the tax deadline to May 16, 2022, for taxpayers in certain counties. This includes the filing of individual and business tax returns along with their estimated tax payments. This relief is being granted to taxpayers affected by the devastating storms that took place on December 10 in many parts of Illinois. This relief is currently available for the following counties: Bond, Cass, Coles, Effingham, Fayette, Jersey, Macoupin, Madison, Menard, Montgomery, Morgan, Moultrie, Pike, and Shelby. The original filing deadline for 2021 individual tax returns was April 18, 2022. The original due date for business tax returns was March 15, 2022, and April 18, 2022. The due date is now May 16, 2022, for both individual and business returns to be filed by taxpayers with an IRS address of record in the above counties. This also means taxpayers in the affected counties will have until May 16, 2022, to make 2021 IRA contributions. The quarterly income tax payments originally due on January 18, 2022, and April 18, 2022, are now also due on May 16, 2022. Also, farmers who choose to forgo making estimated tax payments and normally file their returns by March 1, 2022, will now have until May 16, 2022, to file their 2021 tax return and pay any tax due.

The IRS automatically provides this filing and penalty relief to anyone with an IRS address of record located in the counties listed above. There is no need to contact anyone to get this relief.

 

Illinois Pass-Through Entity Tax to Avoid SALT Limit

In 2017, the Tax Cuts and Job Act limited state and local income taxes paid by individuals, whether from pass-through entity income or other income to a SALT (State and Local Tax) cap of $10,000. Several states, including Illinois, enacted a pass-through tax to be paid at the entity level and credited at the individual level as a workaround to the federal SALT limit. The IRS recently released guidance approving these state workarounds.

An election is made by the partnership or S corporation for the Illinois pass-through entity (PTE) tax and estimated payments are required. An election may be made each year and is irrevocable for the year made. If you decide to elect the PTE tax, the partnership or S corporation is not required to withhold income tax on the partners that do not reside in the state of the partnership or S corporation. This allows a partner or shareholder to deduct Illinois tax on the business income in full on the federal return. This will benefit taxpayers who itemize and are subject to the $10,000 SALT limit and those who do not itemize.

Until further guidance is issued, we are recommending that the IL pass-through entity tax be paid on or before 12/31/21 in order to claim a deduction on the partner’s or shareholder’s tax return.  This payment may be made using a payment voucher or through MyTax Illinois.

Shareholders of the S corporation and partners of the Partnership are allowed a refundable credit for the PTE tax paid by the pass-through entity. Those partners and shareholders must add their distributive share of the PTE tax back to their Illinois income. The tax liability at the partner level will then equal the PTE tax paid at the entity level.

 

Our team will continue to monitor the status of these and any other tax laws that change. Please contact your trusted Scheffel Boyle team member with questions. We are always here to help!

Biden Administration’s Tax Blueprint

TREASURY’S GREEN BOOK PROVIDES DETAILS ON ADMINISTRATION’S TAX BLUEPRINT

 

The Treasury Department on May 28 released its general explanation of tax proposals included in the Biden administration’s fiscal year 2022 budget submission to Congress. Commonly known as the “Green Book,” the 114-page document provides more details regarding the administration’s tax proposals that had been previewed in the American Jobs Plan and the American Families Plan.

The Green Book lays out the administration’s priorities in paying for proposed spending plans. We want to emphasize that this is not tax law. These are simply proposals for how the administration would like to pay for certain items.

A look at some of the administration’s tax proposals follows.

Individual Income Tax Rate
The top marginal individual income tax rate would increase from 37% to 39.6%. For taxable year 2022, the rate would apply to taxable income over $509,300 for married individuals filing jointly ($254,650 for married individuals filing separately), $481,000 for head of household filers, and $452,700 for single filers.  The proposed increase would be effective for taxable years beginning after December 31, 2021.

Capital Gain and Qualified Dividend Income

Long-term capital gains and qualified dividend income of taxpayers with adjusted gross income of more than $1 million would be taxed at ordinary income tax rates to the extent that the taxpayer’s income exceeds $1 million ($500,000 for married individuals filing separately). If the proposal for raising the ordinary income tax rate to 39.6 % becomes law, then the maximum tax rate of capital gains would be 43.4% (39.6% plus net investment income tax rate of 3.8%). The proposed effective date would be for gains required to be recognized after the date of announcement, which is understood to be April 28, 2021, the date of President Biden’s first address to a joint session of Congress during which he introduced the American Families Plan.

Transfers of Appreciated Property

Taxpayers transferring appreciated property during certain events would realize a capital gain based on the property’s fair market value at the time of the transfer. The proposal generally would be effective January 1, 2022. Recognition events include:

  • Gifts
  • Death
  • Transfers of in-kind property to trusts (other than wholly revocable trusts)
  • Distributions of in-kind property from a trust (other than to the grantor owner of a revocable trust or to a spouse of the grantor, as long as the distribution is not in discharge of an obligation of the deemed grantor owner)
  • Terminations of revocable grantor trusts – at death or during life
  • Transfers of in-kind property to partnerships or other non-corporate entities
  • Distributions of in-kind property from partnerships or other non-corporate entities
  • Holdings of trusts, partnerships or other non-corporate entities, when the property has not had a recognition event within the prior 90 years, measured as of January 1, 1940. The first recognition event under this 90-year rule would occur December 31, 2030.

The “deemed” gain would be taxable income to the donor or to the decedent. The amount of gain would be measured by the amount that the fair market value of the appreciated property exceeds the basis on the date of the gift or upon the date of death, whichever is applicable. The use of capital losses and carry-forwards from transfers at death would be permitted on the decedent’s final income tax return.

The proposal allows for some exclusions. Transfers by a decedent to a U.S. spouse would not be a taxable event, and the surviving spouse would receive the decedent’s carryover basis. The surviving spouse would recognize the gain upon disposition or death. Transfers to charity would not generate a taxable capital gain. Transfers to a split interest trust, such as a charitable remainder trust, would generate a gain with an exclusion allowed for the charity’s share of the gain. Transfers of tangible personal property, such as household furnishings and personal effects (excluding collectibles), are excluded. The exclusion for small business stock would still apply.

The proposal would allow a $1 million per person exclusion from recognition of gain on properties transferred by gift or held at death. Any unused exemption by a deceased spouse will port to the surviving spouse making the exclusion effectively $2 million per couple. Generally, the cost basis to the transferee will be the fair market value of the property transferred. A donee receiving property that qualified for the $1 million exclusion of the donor will have a carryover basis.

Payment of the tax on the appreciation of certain family owned and operated businesses would not be due until the business was sold or ceases to be family owned and operated. The capital gains tax on appreciated property transferred at death will be eligible for a 15-year fixed rate payment plan. However, publicly traded financial assets will not be eligible for the payment plan. Furthermore, family businesses electing the deferral will not be eligible for the payment plan. Transfers to S corporations and C corporations do not appear to generate gain, assuming those transfers qualify for the deferral provisions of Section 351.

Gain from Like-Kind Exchanges

Gains in excess of $500,000 ($1 million for married individuals filing jointly) from like-kind exchanges of real estate would be taxed in the year the property is transferred. Deferral of gain only up to $500,000 for each taxpayer ($1 million for married individuals filing jointly), each year, from like-kind exchanges of real estate would be allowed. The proposed effective date would be for exchanges completed in taxable years beginning after December 31, 2021.

Prospects of Tax Legislation

Although the White House, House of Representatives and Senate are each in Democratic hands, the path to enacting tax legislation remains unclear.

Some of these proposed changes are time sensitive and would require action in 2021.  This means taxpayers will need to begin planning to be positioned to act quickly if/when these proposals become law.

Our team will continue to monitor the status of these and any other tax laws that change. Please contact your trusted Scheffel Boyle team member with questions. We are always here to help!

Appreciating the Helpful Balance of Bonds

Stock market swings may bring fortune or fear, so investors shouldn’t forget about the helpful balance of bonds. Perhaps the most “user friendly” is a U.S. government savings bond. Buying one means you’re essentially lending the federal government money at a certain interest rate in exchange for a future return. U.S. savings bonds don’t offer as high a yield as other investment instruments, but they’re highly stable. Interest on U.S. government bonds is taxable on federal income tax returns, but it’s often exempt on state and local returns.

Another government investment option is a Treasury bill. These are short-term government securities with maturities ranging from a few days to 52 weeks. For a more long-term option, look into Treasury notes. These government securities are generally issued with maturities of two, three, five, seven and 10 years and pay interest every six months.

If you’re looking to preserve capital while generating some tax-free income, consider a tax-exempt state or municipal bond. Here you lend money to a more localized government entity in exchange for regular payments. Keep in mind that interest may be taxable on state and local returns.

There are corporate bonds as well. These generally offer a higher yield than their federal or municipal counterparts, but there’s greater risk in terms of price fluctuation because of market interest rate changes and even default by the issuer. Plus, you’ll need to anticipate the tax implications. Interest from corporate bonds is subject to federal and state income tax. Plus, as with other types of bonds, you could incur capital gains if you sell the bond at a profit before it matures.