Navigating Stimulus Payments and the Recovery Rebate Credit

Navigating Stimulus Payments and the Recovery Rebate Credit

Determining The Economic Impact Payments Received

 

With many taxpayers receiving both economic impact payments starting in April 2020 and then again in December 2020, taxpayers and practitioners are understandably confused about whether they’re entitled to the Recovery Rebate Credit on the 2020 Form 1040, line 30.

In order to determine whether a taxpayer is eligible for the Recovery Rebate Credit, taxpayers and practitioners must know the amount of economic impact payments received in/around April 2020 and again beginning in January 2021.

If the client retained IRS Notice 1444 for the first economic impact payment and Notice 1444-B for the second, they would show the amounts received, making this very simple.  However, since most taxpayers did not retain these notices, practitioners must use some other method to determine the amounts received.

These other methods could be asking the client to look for the amount of direct deposits or checks deposited or the practitioner can compute the amount of the economic impact payment that the IRS should have sent based on the client’s prior year return.

The IRS has also indicated that taxpayers who create an individual online account can now view the amount of economic impact payments sent to them by the IRS.  This online account can be created by the taxpayer, not by the tax preparer.  It should take about 15 minutes to create an account due to the identity verification required.  To find out more about setting up an account you can go to https://www.irs.gov/payments/view-your-tax-account

Note: The IRS has indicated in its frequently asked questions that it will not compute the recovery rebate credit for taxpayers who do not put anything on line 30 of Form 1040, but it will correct this credit if it is computed incorrectly.  The IRS frequently asked questions are available at: https://www.irs.gov/coronavirus/economic-impact-payment-information-center

Source: M + O = CPE

Tax Tips For The 2021 Filing Season

Tax Tips For The 2021 Filing Season

Tax Tips For The 2021 Filing Season

If 2020 wasn’t confusing and scary enough, now accountants have to deal with the aftermath of all the changes and programs implemented due to Covid-19, in order to prepare their clients tax returns.   As the dust has settled on the changes to various bills, it’s now time to make sense of it all and make sure you and your clients are taking advantage of, and complying with, all these changes.

So with that in mind here are a few things you might want to consider:

 

Employee Retention Credit

The Consolidated Appropriations Act of 2021 states that a company that received a PPP loan can now claim an ERC.  The only exception is for wages paid with the proceeds of a PPP loan that was forgiven.

 

Second draw PPP loans

A second round of PPP loans with the same general terms as the first loan is something for business owners to consider.

 

Unemployment benefits taxability

While many more taxpayers may have received unemployment benefits than in the past, it’s important to make sure they’ve received or downloaded their 1099-G forms.  If taxes weren’t withheld, those taxes will need to be paid with their 2020 returns.

 

Recovery Rebate Credit

While most taxpayers received the special one-time benefit in the form of an Economic Stimulus Payment, there are still those who did not receive the maximum amount.  This offers the opportunity for the taxpayer to take advantage of the recovery rebate credit on their 2020 return.

 

NOL 5-year carryback

Depending on the taxpayer’s financial situation and the possibility of higher tax rates ahead, the 5-year carryback of NOLs might be better off waived and carried forward from 2020.

 

Discharge of indebtedness on principal residence

Although there is a phase out based on a taxpayer’s adjusted gross income, the exclusion from income for the discharge of indebtedness on a principal residence is important to consider.  This exclusion has also been extended through 2025.

 

RMDs

While required minimum distributions are important to discuss with retired taxpayers, the stimulus package passed in early 2020 suspended the RMDs for all of 2020.  Therefore a lack of 1099-R forms should still be considered.

 

Withdrawals from retirement accounts

For those taxpayers who took early withdrawals from their retirement accounts for coronavirus-related issues and don’t intend to repay it within 3 years, then one-third of the tax should be paid with their 2020 return.

 

Earned Income Tax Credit and Child Tax Credit

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 has provided temporary relief for taxpayers eligible for the EITC and CTC.  According to the IRS, If your earned income was higher in 2019 than in 2020, you can use the 2019 amount to figure your EITC for 2020.

 

Mortgage insurance premiums

The mortgage insurance premium deduction is still available through tax year 2020, however, starting in 2021 the deduction will not be available unless this deduction is extended by Congress.

 

Charitable deduction for non-itemizers

The CARES act allows eligible taxpayers who do not itemize deductions to deduct $300 of qualified charitable contributions as an “above the line” deduction for tax years beginning in 2020.  For those taxpayers affected by SALT, this offers a little extra help. Meal expenses
In order to help the hard-hit restaurant industry, starting in 2021 through the end of 2022, business meals are 100% deductible if the meals are from a restaurant.

 

Source: Accounting Today

 

6 Trends in Accounting In the Coming Year

6 Trends in Accounting In the Coming Year

6 Trends in Accounting In the Coming Year

Watch Out for These 6 Trends in Accounting In the Coming Year

With all the challenges brought about by COVID-19, we are all still adapting to this new normal. However, with all those major changes, there are some bright sides. And we can look forward to the opportunities created through change.

That being said, here are 6 trends for 2021 to watch and take advantage of. The good part, is that these trends are not necessarily new, so you may already be familiar with them. Yet, with all the workplace changes this past year, these trends will likely grow in importance due to organizations steps to maintain some order in all the chaos.

So here are the 6 trends to take advantage of:

 

  • An increasing amount of automation; 
  • Remote work becoming the norm for finance teams; 
  • Environmental, social and governance reporting growing in importance; 
  • Finance professionals being held accountable for enterprise risk management; 
  • Diversity, equity and inclusion becoming more of a competitive differentiator, in addition to being the right thing to do; and, 
  • Increasing demand for upskilling and continuing education for professionals.

 

We all saw how quickly everyones work life balance shifted with the onset of COVD-19. In the wake of everything, we’ve seen remote work rapidly grow as a way to cope. Some offices have gone as far moving to entirely remote businesses, while others have maintained more of a hybrid model allowing both in office and at home work. These changes have lead to difficulties in quite a few areas. Implementing technology, facing climate, and diverse work places has been one of those challenges.

Staying with the times is important for organizations. In order to survive they require the automation and team cooperation tools, while making sure employees understand the protocols in place. CFOs and their organizations are required to maintain, and even continue to build, their balance sheets and their teams. All of these necessities are dependent on the company investing in the future, and meeting those investment goals which of course include accounting.

As more companies try to demonstrate how they are responding to climate change and social issues in response to investor demands for greater accountability, we’ve seen ESG reporting grow in popularity. With some of the standard-setters in this area, like the Sustainability Accounting Standards Board and the International Integrated Reporting Council, merging together into a single organization that will be called the Value Reporting Foundation, Thomson sees value there. “There were so many organizations overlapping and overstepping each other, so that could bring some more clarity and consolidation to this,” said Thomson. “IMA has been calling for that for quite a long time.”

Accountants will also be dealing with enterprise risk management, along with ESG issues, as they cope with challenges like the impact of COVID-19 and other disasters on their organizations. This risk management helps organizations be more anticipatory of disasters going forward. While no one could have predicted the massive impact COVID-19 would have on the world, businesses can still take some proactive steps, such as building continuity plans, disaster recovery, and remote work policies.

More than ever, organizations are looking to expand their diversity, equity, and inclusion. These are extremely important characteristics that are essential for relevance. Along those lines, with the exponential growth of technology, we are seeing (and will continue to see) more of the lower-end jobs be automated away. But just like COVID, there are opportunities that arise from this change. We have to make sure to retrain, upskill, and diversify workers. All this actually provides leverage with the trend of automation and remote work in the ever changing market.

Looking forward to 2021, I hope we all can see opportunity and growth in the year ahead. Now is the time for the accounting profession to really grow and show its strength and resilience even through the most unexpected of events.

 

Source: Accounting Today