Individual Tax Committee Articles

• Reminder for Charitable Contributions for Non-Itemized Returns +

  December 7, 2020
  
  Deborah Kurtzke
  DK Tax and Accounting, Inc.
  
  R-2020-264, November 25, 2020
  
  WASHINGTON — The Internal Revenue Service today reminded taxpayers of a special new provision that will allow more people to easily deduct up to $300 in donations to qualifying charities this year.
  
  Following special tax law changes made earlier this year, cash donations of up to $300 made before December 31, 2020, are now deductible when people file their taxes in 2021.
  
  "Our nation's charities are struggling to help those suffering from COVID-19, and many deserving organizations can use all the help they can get," said IRS Commissioner Chuck Rettig. "The IRS reminds people there's a new provision that allows for up to $300 in cash donations to qualifying organizations to be deducted from income. We encourage people to explore this option to help deserving tax-exempt organizations – and the people and causes they serve."
  
  The Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted last spring, includes several temporary tax changes helping charities, including the special $300 deduction designed especially for people who choose to take the standard deduction, rather than itemizing their deductions.
  
  Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify for this new tax deduction. In tax-year 2018, the most recent year for which complete figures are available, more than 134 million taxpayers claimed the standard deduction, just over 87% of all filers.
  
  Under this new change, individual taxpayers can claim an "above-the-line" deduction of up to $300 for cash donations made to charity during 2020. This means the deduction lowers both adjusted gross income and taxable income – translating into tax savings for those making donations to qualifying tax-exempt organizations.
  
  Before making a donation, the IRS reminds people they can check the special Tax Exempt Organization Search (TEOS) tool on IRS.gov to make sure the organization is eligible for tax-deductible donations.
  
  
  

  Disclaimer: This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax or legal advice or is performing any legal, accounting or other professional service. If accounting, tax or legal advice or other expert assistance is required, the services of a competent professional person should be sought.

• New Form 1099 NEC for Non-Employee Compensation +

  December 7, 2020
  
  Deborah Kurtzke
  DK Tax and Accounting, Inc.
  
  Prior to 2020, if you were a freelancer or your small business hired contracted work, you either issued or received a 1099-MISC.
  
  Now, the IRS has introduced the new Form 1099-NEC, a new form just for reporting independent contractor income (officially known as “non-employee compensation”). If you work with contractors or do contracting work as someone who’s self-employed, here’s everything you need to know.
  
  What is Form 1099-NEC?
  The 1099-NEC (download here) is a new form specifically for reporting non-employee compensation—currently defined as payments to individuals not on payroll on a contract basis to complete a project or assignment. This would include all independent contractors, gig workers, or self-employed individuals who previously had their payments reported in box 7 of a 1099-MISC form.
  
  

   Disclaimer: This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax or legal advice or is performing any legal, accounting or other professional service. If accounting, tax or legal advice or other expert assistance is required, the services of a competent professional person should be sought.

  
  

• CARES ACT 2020 Individual Recap +

  September 9, 2020
  
  David Kipp
  
  The CARES ACT Individual Tax Recap:
  
  - Economic Impact payment can be claimed on the 2020 tax return if a taxpayer did not qualify based on their 2018 or 2019 tax return but qualifies based on 2020. If a child was born in 2020 for taxpayer can claim the additional $500 on the 2020 Tax Return
  
  - Waiver of 10% Early Withdrawal Penalty if the withdrawal is due to having COVID-19, spouse or dependent having COVID-19 or adverse financial consequences due to COVID-19. (Can be taken as normal income from 2020-2022 or can be paid back over the same period to avoid tax on the withdrawal). 
  
  - RMDs are waived for 2020
  
  - $300 deduction for Charitable Contributions in 2020 if taxpayer does not itemize and can deduct up to 100% of AGI for taxpayers that itemize deductions in 2020
  
  - Employees can exclude up to $5,250 for student loan repayments made by an employer between March 17, 2020 to December 31, 2020
  
  
  Disclaimer: This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax or legal advice or is performing any legal, accounting or other professional service. If accounting, tax or legal advice or other expert assistance is required, the services of a competent professional person should be sought.
  

   

• 2020 Required Minimum Distributions Update +

  September 9, 2020
  
  Charlene Rhinehart
  Wealthy Women Daily
  
  
  Due to the CARES act that was passed in March 2020, RMDs for IRAs, 401(k)s, 457(b)s, 403(b)s and other types of retirement plans have been temporarily waived. 
  
  This waiver also includes the first required minimum distribution which may have been delayed from 2019 to April 1, 2020. 
  
  In Notice 2020-51 Guidance on Waiver of 2020 Required Minimum Distributions, the IRS allows the repayment of amounts that were previously withdrawn or distributed in 2020 since these required distributions are no longer required at this time. This repayment of waived IRA RMDs can occur through August 31, 2020 without regard to the normal 60-day limitation for rollovers. 
  
  
  Disclaimer: This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax or legal advice or is performing any legal, accounting or other professional service. If accounting, tax or legal advice or other expert assistance is required, the services of a competent professional person should be sought.
  

• IRS Automatically Waives Estimated Tax Penalty for Eligible 2018 Tax Filers +

  August 21, 2019
  
  By:  Deborah Kurtzke
          [email protected]
    
  
  Over the next few months, the IRS will mail copies of notices, CP 21, granting this relief to affected taxpayers. Any eligible taxpayer who already paid the penalty, will also receive a refund check, about three weeks after their CP21 notice, regardless if they requested penalty relief. The agency emphasized that eligible taxpayers who have already filed a 2018 return, do not need to request penalty relief, contact the IRS or take any other action to receive this relief.
  
  waiving the estimated tax penalty
  
  
  Disclaimer: This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax or legal advice or is performing any legal, accounting or other professional service. If accounting, tax or legal advice or other expert assistance is required, the services of a competent professional person should be sought.
  

• "Back Door Roth Conversions" now explicitly legal +

  February 22, 2019
  
  By:  Kathy Howe-Hrach
  
  Thanks to a footnote in the Tax Cuts and Jobs Act of 2017, Congress has now officially “blessed” the back door Roth conversion.
  High income taxpayers with AGIs above the Roth contribution limits are not able to make direct contributions to a Roth.  Instead those taxpayers can contribute to a Roth IRA through a nondeductible IRA contribution followed immediately by a tax-free Roth conversion.   
  
  Under the Tax Increase Prevention and Reconciliation Act of 2005, taxpayers were permitted to make conversions of nondeductible IRA contributions into Roth IRAs starting in 2010.  However, because of the IRS step doctrine, there were concerns about the legality of the backdoor Roth IRA.  The step doctrine states that you cannot take multiple legal steps that when put together make an illegal action.  Some workarounds involved waiting a period of time between making the nondeductible IRA contribution and then doing the Roth conversion after a random period had passed.  
  
  The backdoor Roth IRA strategy employed by high-income individuals is now considered legal by Congress.
  
  One caveat:  aggregation rules under IRC Section 408(d)(2) apply so if the taxpayer owns multiple IRAs, the pre-tax IRAs are aggregated with the non-deductible IRA and the end result would be that only a portion of the non-deductible IRA contributions can actually be converted.
  
  Disclaimer: This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax or legal advice or is performing any legal, accounting or other professional service. If accounting, tax or legal advice or other expert assistance is required, the services of a competent professional person should be sought.
  

   

• Waiving the Underpayment Penalty for 2018 for Some Taxpayers +

  February 22, 2019
  
  By:  Barbara A. Brown, CPA
  
  For those individuals who by January 15, 2019, paid in at least 85% of their 2018 federal income tax bill through payroll withholding, quarterly estimated income tax payments, or a combination of both, a slight change in the IRS rules for only this filing season may help avoid an underpayment penalty.  Eligible taxpayers must meet certain conditions described on the 85% Exception Worksheet of Form 2210 Instructions. Those who qualify will need to compete Form 2210 to request the waiver by checking Box A in Part II, writing "85% Waiver" next to that box, and filing page 1 of Form 2210 with either a paper or electronic return.
  
  Background:
  Section 6654(a) of the tax code imposes the penalty for failure to make a sufficient and timely payment of estimated income tax.  Under Section 6654 (d)(1)(B), the required annual payment is generally the lesser of:
  1. 90% of the tax shown on the return for the taxable year or
  2. 100% of the tax shown on the return for the preceding taxable year (110% applies here when adjusted gross income exceeds $150,000 for the calendar year.).
  
  Various concerns were raised about under-withholding in 2018 due to the massive tax law changes of the Tax Cuts and Jobs Act of 2017.  While the IRS took steps to re-educate the public about income tax withholding during 2018, this may not have been enough.  
    
  Section 6654(e)(3)(A) allows a waiver in certain cases:
  In general, no addition to tax shall be imposed under subsection (a) with respect to any underpayment to the extent the Secretary determines that by reason of casualty, disaster, or other unusual circumstances the imposition of such addition to tax would be against equity and good conscience.
  
  In response to concerns, the Treasury Department released Notice 2019-11 Relief from Addition to Tax for Underpayment of Estimated Income Tax by an Individual on January 16. 
  
  Going Forward:
  Taxpayers are still being urged to re-check their federal income tax withholding for 2019.  The following list from the IRS, although not all-inclusive, describes those especially prone to withholding under-/over-ages:  two-income families; people working more than one job or working only part-year; people with children who claim child-related credits; people with  dependents age 17 or older; people who previously itemized; people with higher incomes; and people with more complex returns.
  
  Resources include the IRS Withholding Calculator as well as in Publication 505, Tax Withholding and Estimated Tax, Form W-4 (2019) Employee’s Withholding Allowance Certificate  and Form 1040-ES (2019) Estimated Tax for Individuals.
  
   Disclaimer: This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax or legal advice or is performing any legal, accounting or other professional service. If accounting, tax or legal advice or other expert assistance is required, the services of a competent professional person should be sought.