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IRS Tax Tips
Issue Number: Tax Tip 2022-68
Small business owners who want to learn about their tax obligations should watch the Small Business Virtual Tax Workshop. This online workshop is an easy way for new small business owners to dive in and for experienced small business owners to brush up on topics relevant to their business. It’s free and available 24/7.
People can watch the video lessons in any order. The topics include:
• Federal taxes and your new business
• Schedule C and other small business taxes
• Filing and paying taxes electronically
• Business use of your home
• Federal taxes when hiring employees or independent contractors
• Managing payroll to withhold the correct amount of taxes
• Tax deposits and filing a return to report payroll taxes
• Hiring people who live in the U.S. who aren’t citizens
Each lesson links to more specific topics within that lesson, like chapters in a book. Viewers can choose the lessons that apply to their small business. They can also pause and bookmark lessons so they can review information later.
In addition to English, the workshop is also available in Spanish, Chinese Traditional, Chinese Simplified, Korean, Russian, Vietnamese, and Haitian Creole. Transcripts and closed caption options are also available.
Business owners can watch the workshop at IRS.gov.
Share this tip on social media — #IRSTaxTip: Small business owners shouldn’t miss this free recorded workshop. https://go.usa.gov/xuPqf
Issue Number: IR-2021-251
IR-2021-251, Dec. 17, 2021
WASHINGTON — The Internal Revenue Service today issued the 2022 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2022, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
- 58.5 cents per mile driven for business use, up 2.5 cents from the rate for 2021,
- 18 cents per mile driven for medical, or moving purposes for qualified active-duty members of the Armed Forces, up 2 cents from the rate for 2021 and
- 14 cents per mile driven in service of charitable organizations; the rate is set by statute and remains unchanged from 2021.
The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, unless they are members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details see Moving Expenses for Members of the Armed Forces.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
Taxpayers can use the standard mileage rate but must opt to use it in the first year the car is available for business use. Then, in later years, they can choose either the standard mileage rate or actual expenses. Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.
Notice 22-03, contains the optional 2022 standard mileage rates, as well as the maximum automobile cost used to calculate the allowance under a fixed and variable rate (FAVR) plan. In addition, the notice provides the maximum fair market value of employer-provided automobiles first made available to employees for personal use in calendar year 2022 for which employers may use the fleet-average valuation rule in or the vehicle cents-per-mile valuation rule.
Issue Number: IR-2021-161
WASHINGTON – Calling it a key security issue, the Internal Revenue Service today urged those entities with Employer Identification Numbers (EINs) to update their applications if there has been a change in the responsible party or contact information.
IRS regulations require EIN holders to update responsible party information within 60 days of any change by filing Form 8822-B, Change of Address or Responsible Party – Business. It is critical that the IRS have accurate information in cases of identity theft or other fraud issues related to EINs or business accounts.
The data around the “responsible parties” for business-type entities is often outdated or incorrect, meaning that the IRS does not have accurate records of who to contact for identity theft issues. This means a time-consuming process to identify the point of contact so the IRS can inquire about a suspicious filing.
As a result, the IRS intends to step up its awareness efforts aimed at businesses, partnerships, trusts and estates, charities and other entities that are EIN holders. Starting in August, the IRS will begin sending letters to approximately 100,000 EIN holders where it appears the responsible party is outdated.
All EIN applications (mail, fax, electronic) must disclose the name and Taxpayer Identification Number (Social Security number, Individual Taxpayer Identification Number or EIN) of the true principal officer, general partner, grantor, owner or trustor.
The IRS defines the responsible party as the individual or entity who "controls, manages, or directs the applicant entity and the disposition of its funds and assets.”
Unless the applicant is a government entity, the responsible party must be an individual, not an entity. If there is more than one
responsible party, the entity may list whichever party the entity wants the IRS to recognize as the responsible party.
EINs are to be used strictly for tax administration purposes. Entities with EINs that are no longer in use should close their IRS tax accounts and follow steps outlined at Canceling an EIN – Closing Your Account.
Video – Five Things to Know about the Employer Identification Number
Issue Number: Tax Tip 2021-112
America’s taxpayers have specific rights when they interact with the IRS. These ten rights are known collectively as the Taxpayer Bill of Rights.
These rights cover a wide range of topics and issues and lay out what taxpayers can expect in the event they need to work with the IRS on a personal tax matter. This includes when a taxpayer is filing a return, paying taxes, responding to a letter, going through an audit or appealing an IRS decision.
Here are the rights outlined in the Taxpayer Bill of Rights
1. The Right to Be Informed
2. The Right to Quality Service
3. The Right to Pay No More than the Correct Amount of Tax
4. The Right to Challenge the IRS’s Position and Be Heard
5. The Right to Appeal an IRS Decision in an Independent Forum
6. The Right to Finality
7. The Right to Privacy
8. The Right to Confidentiality
9. The Right to Retain Representation
10. The Right to a Fair and Just Tax System
Share this tip on social media — #IRSTaxTip: Excise tax filers should give e-file a try https://go.usa.gov/xFKB2
Issue Number: Tax Tip 2021-111
The IRS encourages taxpayers who file federal excise taxes to file electronically. The following excise forms can be e-filed:
- Form 720, Quarterly Federal Excise Tax Return
• Form 2290, Heavy Highway Vehicle Use Tax
• Form 8849, Claim for Refund of Excise Taxes Return; Schedules 1, 2, 3, 5, 6 and 8 only
Advantages of excise e-file.
- E-filing excise tax returns is safe, secure, easy, and accurate.
• Form 720 e-file is convenient, plus taxpayers receive faster service and an acknowledgment from the IRS that the agency accepted their e-filed Form 720.
• Form 8849 e-file offers faster refunds than through paper filing. Form 8849 Schedules 1, 2, 3, 5, 6 and 8 may be e-filed.
• Form 2290 e-file provides taxpayers their Form 2290 Schedule 1 almost immediately after the IRS receives the e-filed form.
Excise tax e-file facts.
- Only providers who have passed the IRS Assurance Testing System requirements for software developers of electronic IRS Excise returns are listed on the excise tax e-file providers’ pages.
• IRS-approved excise tax e-file providers do charge a fee. This fee is not part of the excise tax payment.
• Filers must have an Employer Identification Number to e-file excise tax returns. Taxpayers who don’t already have an EIN can learn how to apply for one on IRS.gov.
• Service is available 24/7.
• Filers reporting 25 or more trucks on Form 2290 must e-file.
Paying the excise taxes completes the filing process, and there are multiple ways to pay any excise tax due, including electronic methods.
Excise Tax e-file for Forms 720, 2290 and 8849
Frequently Asked Questions – Form 8849, Claim for Refund of Excise Taxes
Frequently Asked Questions – Form 720, Quarterly Federal Excise Tax Return e-file
FAQs for Truckers Who e-file
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Issue Number: Tax Tip 2021-115
After a natural disaster, having access to personal financial, insurance, medical and other records can help people starting the recovery process quickly. There are a few things taxpayers can do to help protect their financial safety in a disaster situation.
Here are some financial preparedness tips.
Update emergency plans. A disaster can strike at any time. Personal and business situations are constantly evolving, so taxpayers should review their emergency plans annually.
Create electronic copies of documents. Taxpayers should keep documents in a safe place. This includes bank statements, tax returns and insurance policies. This is especially easy now since many financial institutions provide statements and documents electronically. If original documents are available only on paper, taxpayers can use a scanner and save them on a USB flash drive, CD or in the cloud.
Document valuables. Documenting valuables by taking pictures or videoing them before a disaster strikes makes it easier to claim insurance and tax benefits, if necessary. IRS.gov has a disaster loss workbook that can help taxpayers compile a room-by-room list of belongings.
Understand tax relief is available in disaster situations. Information on Disaster Assistance and Emergency Relief for Individuals and Businesses is available at IRS.gov. Taxpayers should also review the itemized deduction for casualty and theft losses. Net personal casualty and theft losses are deductible only to the extent they’re attributable to a federally declared disaster. Claims must include the FEMA code assigned to the disaster.
Taxpayers who live in a federally declared disaster, can visit Around the Nation on IRS.gov and click on their state to review the available disaster tax relief. Those who live in counties qualifying for disaster relief receive automatic filing and payment extensions for many currently due tax forms and don’t need to contact the agency to get relief. People with disaster-related questions can call the IRS at 866-562-5227 to speak with an IRS specialist trained to handle disaster issues. They can request copies of previously filed tax returns and attachments by filing Form 4506, order transcripts showing most line items through Get Transcript on IRS.gov or call 800-908-9946 for transcripts.
Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook
Publication 547, Casualties, Disasters, and Thefts
Publication 5307, Tax Reform: Basics for Individuals and Families Publication 583, Starting a Business and Keeping Records
Share this tip on social media — #IRSTaxTip: Financial safety: The often forgotten piece of disaster preparedness. https://go.usa.gov/xFRA2
Issue Number: Tax Tip 2021-116
The IRS and its Security Summit partners recently kicked off their annual summer campaign. This year’s theme, Boost Security Immunity: Fight Against Identity Theft, urges tax pros to step up their efforts to protect client data. An IP PIN is a valuable tool that can help in this effort and it is now available to anyone who can verify their identity.
An Identity Protection PIN is six-digit number eligible taxpayers get to help prevent their Social Security number or Individual Taxpayer Identification Number from being used to file fraudulent federal income tax returns. This number helps the IRS verify a taxpayer’s identity and accept their tax return. The Get An IP PIN tool enables anyone who has an SSN or ITIN to get an IP PIN after they verify their identity through a rigorous authentication process. Taxpayers should review the Secure Access requirements before they try to use the Get An IP PIN tool.
For security reasons, tax pros can’t get an IP PIN on behalf of clients.
Tax pros who experience data theft can help clients by urging them to get an IP PIN quickly. Even if a thief already filed a fraudulent return, an IP PIN would still offer protections for later years and prevent taxpayers from being repeat victims of tax-related identity theft.
More things taxpayers should know about the IP PIN:
- It’s a six-digit number known only to the taxpayer and the IRS.
- The opt-in program is voluntary.
- The IP PIN should be entered onto the electronic tax return when prompted by the software product or onto a paper return next to the signature line.
- The IP PIN is valid for one calendar year.
- For security reasons, enrolled participants get a new IP PIN each year
- Spouses and dependents are eligible for an IP PIN if they can verify their identities
- IP PIN users should never share their number with anyone but the IRS and their trusted tax preparation provider. The IRS will never call, email or text a request for the IP PIN.
Currently, taxpayers can get an IP PIN for 2021, which should be used when filing any federal tax returns during the year including prior year returns. New IP PINs will be available starting in January 2022.
Taxpayers who are unable to validate their identity online and have income of $72,000 or less, can file Form 15227, Application for an Identity Protection Personal Identification Number. The IRS will call the phone number the taxpayer provided on Form 15227 to validate the taxpayer’s identity. However, for security reasons, the IRS will assign an IP PIN for the next filing season and the taxpayer cannot use the IP PIN for the current filing season.
Taxpayers who cannot validate their identity online, or by the phone, or who are ineligible to file a Form 15227 can make an appointment at a Taxpayer Assistance Center. They will need to bring one current government-issued picture ID and another identification document to prove their identity. Once verified, the taxpayer will receive an IP PIN in the mail usually within three weeks.
Publication 5367 (EN-SP), IP PIN Opt-In Program for Taxpayers
Publication 4557, Safeguarding Taxpayer Data
Publication 5293, Data Security Resource Guide for Tax Professionals Small Business Information Security: The Fundamentals
Identity Theft Central
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Issue Number: Tax Tip 2021-118
Small business owners, self-employed people, and some wage earners should look into whether they should make estimated tax payments this year. Doing so can help them avoid an unexpected tax bill and possibly a penalty when they file next year.
Taxpayers who earn a paycheck usually have their employer withhold tax from their checks. This helps cover taxes the employee owes. On the other hand, some taxpayers earn income not subject to withholding. For small business owners and self-employed people, that usually means making quarterly estimated tax payments.
Here are some details about estimated tax payments:
- Generally, taxpayers need to make estimated tax payments if they expect to owe $1,000 or more when they file their 2021 tax return, after adjusting for any withholding.
- The IRS urges anyone in this situation to check their withholding using the Tax Withholding Estimator on IRS.gov. If the estimator suggests a change, the taxpayer can submit a new Form W-4 to their employer.
- Aside from business owners and self-employed individuals, people who need to make estimated payments also include sole proprietors, partners and S corporation shareholders. It also often includes people involved in the sharing economy.
- Corporations generally must make these payments if they expect to owe $500 or more on their 2021 tax return.
- Aside from income tax, taxpayers can pay other taxes through estimated tax payments. This includes self-employment tax and the alternative minimum tax.
- The final two deadlines for paying 2021 estimated payments are September 15, 2019 and January 15, 2022.
- Taxpayers can check out these forms for details on how to figure their payments:
- Taxpayers can visit IRS.gov to find options for paying estimated taxes. These include:
- Direct Pay from a bank account.
- Paying by credit or debit card or the Electronic Federal Tax Payment System.
- Anyone who pays too little tax through withholding, estimated tax payments, or a combination of the two may owe a penalty. In some cases, the penalty may apply if their estimated tax payments are late. The penalty may apply even if the taxpayer is due a refund.
Share this tip on social media — #IRSTaxTip: What taxpayers need to know about making 2021 estimated tax payments. https://go.usa.gov/xFRAb
Issue Number: Tax Tip 2021-124
If the IRS does call a taxpayer, it should not be a surprise because the agency will generally send a notice or letter first. Understanding how the IRS communicates can help taxpayers protect themselves from scammers who pretend to be from the IRS with the goal of stealing personal information.
Here are some facts about how the IRS communicates with taxpayers:
- The IRS doesn’t normally initiate contact with taxpayers by email. Do not reply to an email from someone who claims to be from the IRS because the IRS email address could be spoofed or fake. Emails from IRS employees will end in irs.gov.
- The agency does not send text messages or contact people through social media. Fraudsters will impersonate legitimate government agents and agencies on social media and try to initiate contact with taxpayers.
- When the IRS needs to contact a taxpayer, the first contact is normally by letter delivered by the U.S. Postal Service. Debt relief firms send unsolicited tax debt relief offers through the mail. Fraudsters will often claim they already notified the taxpayer by U.S. mail.
- Depending on the situation, IRS employees may first call or visit with a taxpayer. In some instances, the IRS sends a letter or written notice to a taxpayer in advance, but not always. Taxpayers can search IRS notices by visiting Understanding Your IRS Notice or Letter. However, not all IRS notices are searchable on that site and just because someone references an IRS notice in email, phone call, text, or social media, does not mean the request is legitimate.
- IRS revenue agents or tax compliance officers may call a taxpayer or tax professional after mailing a notice to confirm an appointment or to discuss items for a scheduled audit. The IRS encourages taxpayers to review, How to Know it’s Really the IRS Calling or Knocking on Your Door: Collection.
- Private debt collectors can call taxpayers for the collection of certain outstanding inactive tax liabilities, but only after the taxpayer and their representative have received written notice. Private debt collection should not be confused with debt relief firms who will call, send lien notices via U.S. mail, or email taxpayers with debt relief offers. Taxpayers should contact the IRS regarding filing back taxes properly.
- IRS revenue officers and agents routinely make unannounced visits to a taxpayer’s home or place of business to discuss taxes owed, delinquent tax returns or a business falling behind on payroll tax deposits. IRS revenue officers will request payment of taxes owed by the taxpayer. However, taxpayers should remember that payment will never be requested to a source other than the U.S. Treasury.
- When visited by someone from the IRS, the taxpayers should always ask for credentials. IRS representatives can always provide two forms of official credentials: a pocket commission and a Personal Identity Verification Credential.
IRS Taxpayers Bill of Rights
Secure tax payment options
Report phishing and online scams
Share this tip on social media — #IRSTaxTip: Important additional guidance for employers claiming the employee retention credit. https://go.usa.gov/xFATS
Issue Number: Tax Tip 2021-144
The credit for other dependents is a tax credit available to taxpayers for each of their qualifying dependents who can’t be claimed for the child tax credit. The maximum credit amount is $500 for each dependent who meets certain conditions. These include:
- Dependents who are age 17 or older.
- Dependents who have individual taxpayer identification numbers.
- Dependent parents or other qualifying relatives supported by the taxpayer.
- Dependents living with the taxpayer who aren’t related to the taxpayer.
The credit begins to phase out when the taxpayer’s income is more than $200,000. This phaseout begins for married couples filing a joint tax return at $400,000.
A taxpayer can claim this credit if:
- They claim the person as a dependent on the taxpayer’s return.
- They cannot use the dependent to claim the child tax credit or additional child tax credit.
- The dependent is a U.S. citizen, national or resident alien.
Taxpayers can use the worksheet in Publication 972, Child Tax Credit and Credit for Other Dependents. This worksheet will help them determine if they can claim the credit for other dependents.
Share this tip on social media — #IRSTaxTip: Taxpayers who aren’t eligible for the child tax credit should look into the credit for other dependents. https://go.usa.gov/xME8r
Issue Number: Tax Tip 2021-141
Taxpayers have the right to appeal an IRS decision in an independent forum. This is one of ten basic rights — known collectively as the Taxpayer Bill of Rights — that all taxpayers have when dealing with the IRS.
The IRS Independent Office of Appeals handles a taxpayer’s case must be separate from the IRS office that initially reviewed that case. Generally, this office will not discuss a case with the IRS to the extent that those communications appear to compromise the independence of Appeals.
Here are some points to remember about the right to appeal a decision in an independent forum:
- A statutory notice of deficiency is an IRS letter proposing additional tax. Taxpayers who receive this notice and who then timely file a petition with the United States Tax Court may dispute the proposed adjustment before they must pay the tax.
• Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties.
• Taxpayers have the right to receive a written response regarding a decision from the IRS Office of Appeals.
• When taxpayers don’t agree with the IRS’s decisions, they can refer to Publication 5, Your Appeal Rights and How To Prepare a Protest If You Don’t Agree, for details on how to appeal.
• Generally, taxpayers may file a refund suit in a United States district court or the United States Court of Federal Claims if:
o They have fully paid the tax and the IRS has denied their tax refund claim.
o No action is taken on the refund claim within six months.
o It’s been less than two years since the IRS mailed them a notice denying the refund
Issue Number: IR-2021-191
WASHINGTON — The Internal Revenue Service has awarded new contracts to three private-sector collection agencies for collection of overdue tax debts. The new contracts begin Thursday following today’s expiration of the old contracts.
Beginning Thursday, Sept. 23, 2021, taxpayers with unpaid tax bills may be contacted by one of the following three agencies:
Notification by IRS and the private collection agencies
The IRS will always notify a taxpayer before transferring their account to a private collection agency (PCA).
- First, the IRS will send a letter to the taxpayer and their tax representative informing them that their account was assigned to a PCA and giving the name and contact information for the PCA. This mailing will include a copy of Publication 4518, What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency (.pdf).
- Following IRS notification, the PCA will send its own letter to the taxpayer and their representative confirming the account transfer. To protect the taxpayer’s privacy and security, both the IRS letter and the PCA’s letter will contain information that will help taxpayers identify the tax amount owed and assure taxpayers that future collection agency calls they may receive are legitimate.
How it works
The private collectors will identify themselves as contractors collecting taxes on behalf of the IRS. Employees of these collection agencies must follow the provisions of the Fair Debt Collection Practices Act, and like IRS employees, must be courteous and must respect taxpayer rights.
Private firms are not authorized to take enforcement actions against taxpayers. Only IRS employees can take these actions, such as filing a notice of Federal Tax Lien or issuing a levy.
The private firms are authorized to discuss payment options, including setting up payment agreements with taxpayers. But as with cases assigned to IRS employees, any tax payment must be made directly to the IRS. A payment should never be sent to the private firm or anyone besides the IRS or the U.S. Treasury. Checks should only be made payable to the United States Treasury. To find out more about available payment options, visit IRS.gov/Payments.
The IRS established the Private Debt Collection program in 2016, as authorized under federal law, and contracted with several agencies to collect certain unpaid tax debts on the government’s behalf. To learn more about the private debt collection program, visit the Private Debt Collection page on IRS.gov. Additional information can be found at the following links:
- Questions and answers
- Get Transcript
- Private Collection of Overdue Taxes YouTube Video
- Publication 4518, What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency (.pdf).
- Understanding Your CP40 Notice
Issue Number: Tax Tip 2021-140
It is critical for business owners to correctly determine whether the individuals providing services are employees or independent contractors.
An employee is generally considered anyone who performs services, if the business can control what will be done and how it will be done. What matters is that the business has the right to control the details of how the worker’s services are performed. Independent contractors are normally people in an independent trade, business or profession in which they offer their services to the public. Doctors, dentists, veterinarians, lawyers, accountants, contractors, subcontractors, public stenographers or auctioneers are generally independent contractors.
Independent contractor vs. employee
Whether a worker is an independent contractor, or an employee depends on the relationship between the worker and the business. Generally, there are three categories to consider.
- Behavioral control − Does the company control or have the right to control what the worker does and how the worker does the job?
• Financial control − Does the business direct or control the financial and business aspects of the worker’s job. Are the business aspects of the worker’s job controlled by the payer? Things like how the worker is paid, are expenses reimbursed, who provides tools/supplies, etc.
• Relationship of the parties − Are there written contracts or employee type benefits such as pension plan, insurance, vacation pay? Will the relationship continue and is the work performed a key aspect of the business?
Misclassifying workers as independent contractors adversely affects employees because the employer’s share of taxes is not paid, and the employee’s share is not withheld. If a business misclassified an employee without a reasonable basis, the business can be held liable for employment taxes for that worker. Generally, an employer must withhold and pay income taxes, Social Security and Medicare taxes, as well as unemployment taxes. Workers who believe they have been improperly classified as independent contractors can use Form 8919, Uncollected Social Security and Medicare Tax on Wages to figure and report their share of uncollected Social Security and Medicare taxes due on their compensation.
Voluntary Classification Settlement Program
The Voluntary Classification Settlement Program is an optional program that provides taxpayers with an opportunity to reclassify their workers as employees for future employment tax purposes. This program offers partial relief from federal employment taxes for eligible taxpayers who agree to prospectively treat their workers as employees. Taxpayers must meet certain eligibility requirements and apply by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS.
Who is self-employed?
Generally, someone is self-employed if any of the following apply to them.
- They carry on a trade or business as a sole proprietor or an independent contractor.
• They are a member of a partnership that carries on a trade or business.
• They are otherwise in business for themselves, including a part-time business.
Self-employed individuals, including those who earn money from gig economy work, are generally required to file an tax return and make estimated quarterly tax payments. They also generally must pay self-employment tax which is Social Security and Medicare tax as well as income tax. These taxpayers qualify for the home office deduction if they use part of a home for business.
Issue Number: IR-2021-190
Expanded tax benefits help individuals and businesses give to charity during 2021; deductions up to $600 available for cash donations by non-itemizers
WASHINGTON – The Internal Revenue Service today explained how expanded tax benefits can help both individuals and businesses give to charity before the end of this year.
The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted last December, provides several provisions to help individuals and businesses who give to charity. The new law generally extends through the end of 2021 four temporary tax changes originally enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Here is a rundown of these changes.
Deduction for individuals who don’t itemize; cash donations up to $600 qualify
Ordinarily, individuals who elect to take the standard deduction cannot claim a deduction for their charitable contributions. The law now permits these individuals to claim a limited deduction on their 2021 federal income tax returns for cash contributions made to certain qualifying charitable organizations. Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify to claim a limited deduction for cash contributions.
These individuals, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions made to qualifying charities during 2021. The maximum deduction is increased to $600 for married individuals filing joint returns.
Cash contributions to most charitable organizations qualify. However, cash contributions made either to supporting organizations or to establish or maintain a donor advised fund do not qualify. Cash contributions carried forward from prior years do not qualify, nor do cash contributions to most private foundations and most cash contributions to charitable remainder trusts. In general, a donor-advised fund is a fund or account maintained by a charity in which a donor can, because of being a donor, advise the fund on how to distribute or invest amounts contributed by the donor and held in the fund. A supporting organization is a charity that carries out its exempt purposes by supporting other exempt organizations, usually other public charities. See Publication 526 for more information on the types of organizations that qualify.
Cash contributions include those made by check, credit card or debit card as well as amounts incurred by an individual for unreimbursed out-of-pocket expenses in connection with the individual’s volunteer services to a qualifying charitable organization. Cash contributions don’t include the value of volunteer services, securities, household items or other property.
100% limit on eligible cash contributions made by itemizers in 2021
Subject to certain limits, individuals who itemize may generally claim a deduction for charitable contributions made to qualifying charitable organizations. These limits typically range from 20% to 60% of adjusted gross income (AGI) and vary by the type of contribution and type of charitable organization. For example, a cash contribution made by an individual to a qualifying public charity is generally limited to 60% of the individual’s AGI. Excess contributions may be carried forward for up to five tax years.
The law now permits electing individuals to apply an increased limit (“Increased Individual Limit”), up to 100% of their AGI, for qualified contributions made during calendar-year 2021. Qualified contributions are contributions made in cash to qualifying charitable organizations.
As with the new limited deduction for nonitemizers, cash contributions to most charitable organizations qualify, but, cash contributions made either to supporting organizations or to establish or maintain a donor advised fund, do not. Nor do cash contributions to private foundations and most cash contributions to charitable remainder trusts
Unless an individual makes the election for any given qualified cash contribution, the usual percentage limit applies. Keep in mind that an individual’s other allowed charitable contribution deductions reduce the maximum amount allowed under this election. Eligible individuals must make their elections with their 2021 Form 1040 or Form 1040-SR.
Corporate limit increased to 25% of taxable income
The law now permits C corporations to apply an increased limit (Increased Corporate Limit) of 25% of taxable income for charitable contributions of cash they make to eligible charities during calendar-year 2021. Normally, the maximum allowable deduction is limited to 10% of a corporation’s taxable income.
Again, the Increased Corporate Limit does not automatically apply. C corporations must elect the Increased Corporate Limit on a contribution-by-contribution basis.
Increased limits on amounts deductible by businesses for certain donated food inventory
Businesses donating food inventory that are eligible for the existing enhanced deduction (for contributions for the care of the ill, needy and infants) may qualify for increased deduction limits. For contributions made in 2021, the limit for these contribution deductions is increased from 15% to 25%. For C corporations, the 25% limit is based on their taxable income. For other businesses, including sole proprietorships, partnerships, and S corporations, the limit is based on their aggregate net income for the year from all trades or businesses from which the contributions are made. A special method for computing the enhanced deduction continues to apply, as do food quality standards and other requirements.
Keep good records
The IRS reminds individuals and businesses that special recordkeeping rules apply to any taxpayer claiming a charitable contribution deduction. Usually, this includes obtaining an acknowledgment letter from the charity before filing a return and retaining a cancelled check or credit card receipt for contributions of cash. For donations of property, additional recordkeeping rules apply, and may include filing a Form 8283 and obtaining a qualified appraisal in some instances.
For details on how to apply the percentage limits and a description of the recordkeeping rules for substantiating gifts to charity, see Publication 526, Charitable Contributions, available on IRS.gov.
The IRS also encourages employers to help get the word out about the advanced payments of the Child Tax Credit because they have direct access to many employees and individuals who receive this credit. More information on the Advanced Child Tax Credit is available on IRS.gov.
Issue Number: Tax Tip 2021-136
Many Americans have been working from home due to the pandemic, but only certain people will qualify to claim the home office deduction. This deduction allows qualifying taxpayers to deduct certain home expenses on their tax return when they file their 2021 tax return next year.
Here are some things to help taxpayers understand the home office deduction and whether they can claim it:
- Employees are not eligible to claim the home office deduction.
- The home office deduction, reported on Form 8829, is available to both homeowners and renters.
- There are certain expenses taxpayers can deduct. They include mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent.
- Taxpayers must meet specific requirements to claim home expenses as a deduction. Even then, the deductible amount of these types of expenses may be limited.
- The term “home” for purposes of this deduction:
- Includes a house, apartment, condominium, mobile home, boat or similar property which provide basic living accommodations.
- A separate structure on the property such as an unattached garage, studio, barn or greenhouse.
- Any portion of a home used exclusively as a hotel, motel, inn or similar establishment does NOT qualify as a “home” and, therefore, does not qualify for a home office deduction.
- Generally, there are two basic requirements for the taxpayer’s home to qualify as a deduction:
- There must be exclusive use of a portion of the home for conducting business on a regular basis. For example, a taxpayer who uses an extra room to run their business can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business.
- The home must be the taxpayer’s principal place of business. A taxpayer can also meet this requirement if administrative or management activities are conducted at the home and there is no other location to perform these duties. Therefore, someone who conducts business outside of their home but also uses their home to conduct business may still qualify for a home office deduction.
- A portion of a home that is used exclusively for conducting business on a regular basis but not used as the principal place of business, will qualify for a home office deduction if either patients, clients or customers are met in the home or there is a separate structure that is used exclusively for conducting business on a regular basis.
- Taxpayers who qualify may choose one of two methods to calculate their home office expense deduction:
- Using the simplified method consisting of a rate of $5 per square foot for business use of the home which is limited to a maximum size of 300 square feet and a maximum deduction $1,500.
- Using the regular method whereby deductions for a home office are based on the percentage of the home devoted to business use. Any use a whole room or part of a room for conducting their business will involve figuring out the percentage of the home used for business activities to deduct indirect expenses. Direct expenses are deducted in full.
Publication 587, Business Use of Your Home, Including Use by Daycare Providers
Issue Number: Tax Tip 2021-181
The IRS recently launched an improved identity verification and sign-in process that enables more people to securely access and use IRS online tools and applications.
Taxpayers using the new mobile-friendly verification process can access several IRS online services including:
- Child Tax Credit Update Portal
- Online Account
- Get Transcript Online
- Get an Identity Protection PIN
- Online Payment Agreement
Additional applications will transition to the new process over the next year.
The new process reaches more people through the expanded use of identity documents and increased help desk assistance for taxpayers who encounter a problem when attempting to verify their identity online.
The IRS is using ID.me to provide verification services. The new process part of the IRS’s ongoing commitment to ensure that taxpayer information is only provided to the person who has a legal right to the data.
The IRS integrated this new account-creation process into some applications used by tax professionals, including those they use to request powers of attorney or tax information authorizations online using Tax Pro Account or to submit Forms 2848 and 8821 online.
Accessing IRS tools
Taxpayers will be asked to sign in with an ID.me account. If they already have IRS usernames, they can use their credentials from the old system to sign-in until summer 2022. However, they should create an ID.me account as soon as possible. Anyone with an existing ID.me account from the Child Tax Credit Update Portal, or from another government agency, can sign in with their existing credentials.
To verify their identity with ID.me, taxpayers must do two things:
- Provide a photo of a driver’s license, state ID or passport.
- Take a selfie using a smartphone or a computer with a webcam.
Once their identity is verified, they can securely access IRS online services.
Taxpayers who need help verifying their identity or submitting a support ticket should visit the ID.me IRS Help Site
IRS COVID Tax Tips
Issue Number: COVID Tax Tip 2021-117
The advance child tax credit allows qualifying families to receive early payments of the tax credit many people may claim on their 2021 tax return during the 2022 tax filing season. The IRS will disburse these advance payments monthly through December 2021. Here some details to help people better understand these payments.
Who is a qualifying child for the purposes of the advance child tax credit payment.
For tax year 2021, a qualifying child is an individual who does not turn 18 before January 1, 2022, and meets these requirements:
- The individual is the taxpayer’s son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister or a descendant such as a grandchild, niece, or nephew.
- The individual does not provide more than one-half of his or her own support during 2021.
- The individual lives with the taxpayer for more than one-half of tax year 2021. For exceptions to this requirement, see Publication 972, Child Tax Credit and Credit for Other Dependents.
- The individual is properly claimed as the taxpayer’s dependent. For more information about how to do this, see Publication 501, Dependents, Standard Deduction, and Filing Information.
- The individual does not file a joint return with the individual’s spouse for tax year 2021 or files it only to claim a refund of withheld income tax or estimated tax paid.
- The individual was a U.S. citizen, U.S. national, or U.S. resident alien. For more information on this condition, see Publication 519, S. Tax Guide for Aliens.
What should someone do if they don’t want to receive advance child tax credit payments?
Anyone who does not want to receive monthly advance child tax credit payments because they would rather claim the full credit when they file their 2021 tax return, or because they know they will not be eligible for the credit in 2021 can unenroll through the Child Tax Credit Update Portal. People can unenroll at any time, but deadlines apply each month for the update to take effect for the next payment.
For people married and filing jointly, they and their spouse must unenroll using the Child Tax Credit Update Portal. If only one person unenrolls, they will still receive half the normal payment. Similarly, if you are changing bank account information, both of you must make the update so both halves of your payment go to the new account.
Will receiving advance child tax credit payments affect other government benefits?
No. Advance child tax credit payments cannot be counted as income when determining if someone is eligible for benefits or assistance, or how much they can receive, under any federal, state or local program financed in whole or in part with federal funds. These programs cannot count advance child tax credit payments as a resource when determining eligibility for at least 12 months after payments are received.
Are advance child tax credit payments taxable?
No. These payments are not income and will not be reported as income on a taxpayer’s 2021 tax return. These payments are advance payments of a person’s tax year 2021 child tax credit.
However, the total amount of advance child tax credit payments someone receives is based on the IRS’s estimate of their 2021 child tax credit. Generally, the IRS uses information from previous tax returns to calculate a person’s estimate. If the total is greater than the child tax credit amount, they can claim on their 2021 tax return, they may have to repay the excess amount on their 2021 tax return. For example, if someone receives advance child tax credit payments for two qualifying children claimed on their 2020 tax return, but they no longer have qualifying children in 2021, the advance payments they received are added to their 2021 income tax unless they qualify for repayment protection.
Share this tip on social media — #IRSTaxTip: Common questions about the advance child tax credit payments. https://go.usa.gov/xFRzD
Issue Number: COVID Tax Tip 2021-119
Every year the IRS mails letters or notices to taxpayers for many different reasons. Typically, it’s about a specific issue with a taxpayer’s federal tax return or tax account. A notice may tell them about changes to their account or ask for more information. It could also tell them they need to make a payment. This year, people might have also received correspondence about Economic Impact Payments or an advance child tax credit outreach letter.
Here are some do’s and don’ts for anyone who receives mail from the IRS:
- Don’t ignore it. Most IRS letters and notices are about federal tax returns or tax accounts. Each notice deals with a specific issue and includes specific instructions on what to do
- Don’t throw it away. Taxpayers should keep notices or letters they receive from the IRS. These include adjustment notices when an action is taken on the taxpayer’s account, Economic Impact Payment notices, and letters about advance payments of the 2021 child tax credit.They may need to refer to these when filing their 2021 tax return in 2022. In general, the IRS suggests that taxpayers keep records for three years from the date they filed the tax return.
- Don’t panic. The IRS and its authorized private collection agencies do send letters by mail. Most of the time, all the taxpayer needs to do is read the letter carefully and take the appropriate action.
- Don’t reply unless instructed to do so. There is usually no need for a taxpayer to reply to a notice unless specifically instructed to do so. On the other hand, taxpayers who owe should reply with a payment. IRS.gov has information about payment options.
- Do take timely action. A notice may reference changes to a taxpayer’s account, taxes owed, a payment request or a specific issue on a tax return. Acting timely could minimize additional interest and penalty charges.
- Do review the information. If a letter is about a changed or corrected tax return, the taxpayer should review the information and compare it with the original return. If the taxpayer agrees, they should make notes about the corrections on their personal copy of the tax return and keep it for their records.
- Do respond to a disputed notice. If a taxpayer doesn’t agree with the IRS, they should mail a letter explaining why they dispute the notice. They should mail it to the address on the contact stub included with the notice. The taxpayer should include information and documents for the IRS to review when considering the dispute.
- Do remember there is usually no need to call the IRS. If a taxpayer must contact the IRS by phone, they should use the number in the upper right-hand corner of the notice. The taxpayer should have a copy of their tax return and letter when calling the agency.
- Do avoid scams. The IRS will never contact a taxpayer using social media or text message. The first contact from the IRS usually comes in the mail. Taxpayers who are unsure if they owe money to the IRS can view their tax account information on IRS.gov.
Understanding Your IRS Notice or Letter
Tax Topic 651, Notices – What to Do
Tax Topic 653, IRS Notices and Bills, Penalties, and Interest Charges
Tax Topic 654, Understanding Your CP75 or CP75A Notice Request for Supporting Documentation
Here’s why some people got more than one notice about their Economic Impact Payments
Share this tip on social media — #IRSTaxTip: What people should and should not do if they get mail from the IRS. https://go.usa.gov/xFVSu
Here is a video tax tip from the IRS:
Subscribe today: The IRS YouTube channels provide short, informative videos on various tax related topics in English, Spanish and ASL.
Here is a video tax tip from the IRS:
Subscribe today: The IRS YouTube channels provide short, informative videos on various tax related topics in English, Spanish and ASL.