Fall Finance News
Fall is upon us and with the change of seasons come cooler weather, earlier sunsets, and the challenges of the start of the school year during a continuing pandemic.
The October 15 filing deadline for taxpayers who requested an extension to file their 2019 tax return is quickly approaching. Taxpayers should remember they can file whenever they’re ready and don’t have to wait until Thursday, Oct 15. In addition, we have provided an early look at some of the proposed changes to next year’s Form 1040 Individual Income Tax Return.
The Oct. 15 deadline for extension filers is almost here
These tools, available at IRS.gov, offer useful information to help taxpayers:
IRS Free File and other electronic filing options. Taxpayers can file their tax return electronically for free through IRS Free File. Other electronic filing options include using a free tax return preparation site, commercial software or an authorized e-file provider.
Direct deposit for refunds. The fastest way for taxpayers to get their refund is to file electronically and use direct deposit. Refunds can be deposited in up to three accounts. Taxpayers can also use their refunds to purchase up to $5,000 in U.S. Series I Savings Bonds.
Online payment options. If an extension filer owes taxes, they should pay as much as possible by the Oct. 15 deadline to reduce interest and penalties. IRS Direct Pay allows individuals to securely pay from their checking or savings accounts. Visit IRS.gov for additional payment options.
Account information and tax records. Individual taxpayers can visit IRS.gov to manage their account. This includes viewing their balance and payment history, paying taxes and accessing tax records through Get Transcript.
Who qualifies for an extension to file beyond October 15th?
Military members serving in a combat zone or a contingency operation in support of the Armed Forces generally get more time to file.
People who have a valid extension and are in – or affected by – a federally-declared disaster may be allowed more time to file.
Taxpayers should keep a copy of their tax return and all supporting documents for at least three years.
Tax Year 2020: Changes to IRS Form 1040
The IRS recently released a draft of Form 1040, U.S. Individual Income Tax Return. Here is a look at some of the most significant changes proposed for tax year 2020 (returns filed in 2021). Please note: The information below is subject to change. The draft of Form 1040 should not be used to file your taxes.
Stimulus checks and the Recovery Rebate Credit
According to the draft, a new Line 30 has been added on page two of Form 1040 for the “Recovery Rebate Credit.” This is where taxpayers who did not get the payments or should have received larger payments (due to birth of child or changes in income) will enter the additional amount due. This amount will be treated as a refundable credit. The reconciliation of stimulus payments will be done on a worksheet contained in the Form 1040 Instruction, which has not yet been released.
CARES Act relief
The “Amount You Owe” section of the new 1040 now says, “Schedule H and Schedule SE filers, line 37 may not represent all of the taxes you owe for 2020.” This is because, under the CARES Act, employers can defer deposits and payments of the employer’s share of Social Security tax that would otherwise be required to be made between March 27, 2020 and December 31, 2020. This deferred amount will be reported in the Payments section of Form 1040, Schedule 3, Line 12e as a “Deferral for certain Schedule H or SE filers.”
For self-employed taxpayers, a third page is being added to the Schedule SE where the deferred portion of the self-employment tax will be calculated. Schedule H will also be redesigned to address the deferred portion of the social security tax deposits made by taxpayers who have household employees.
The new refundable credit for qualified sick and family leave will be entered on Schedule 3, Line 12b. The credit amount will be calculated on Form 7202, which the IRS has not released yet in draft form.
Above-the-line charitable contributions
For tax year 2020 only, charitable cash contributions up to $300 will be treated as above-the-line deductions (reported on Schedule A). The new Line 10b is for charitable contributions for taxpayers taking the standard deduction.
Reporting income tax withholding
Instead of a single line for federal income tax withholding, the new Form 1040 has three separate lines for withholdings: Line 25a is for Form W-2, Line 25b is for Form 1099, Line 25c is for other forms (see instructions). Line 25d is the total tax withholdings. This should make withholding reconciliation much easier for tax preparers to recognize.
The question about virtual currency first appeared in 2019 as a checkbox at the top of Schedule 1, Additional Income and Adjustments to Income. For tax year 2020, the question “At any time during 2020, did you receive, sell, exchange, or otherwise acquire any financial interest in any virtual currency?” has been moved just below the taxpayer’s name and address on the main Form 1040.
The IRS has taken the position that virtual currency is considered investment property, and any transaction involving the sale or exchange of virtual currency must be accounted for on the tax return just as a taxpayer would account for the sale of any other investment. This will most likely involve a reportable transaction on Form 8949.
WPR, CPA wishes everyone an enjoyable start to the fall season and continued health and success.