A Letter to Our Clients – December 2022

Winter Update
First and foremost, we want to say thank you for trusting us with your tax filings and other financial matters for another year! 2020 has been a different year for all of us in many ways and we want to acknowledge you as our clients for another successful year of tax compliance and consulting. Every year, we receive many referrals from you to help your friends and family with their taxes and we appreciate your extended confidence in our work.

Secondly, we have been busy preparing for next year’s tax season and wanted to let everyone know that scheduling is now available online for 2021 tax appointments. We look forward to seeing everyone again this year, but also wanted to let everyone know that we have expanded our ability for contactless tax appointments by either uploading your documents on our secure portal, dropping them off at the office, or mailing them to us. We can then prepare your tax return and go over it with you remotely. Feel free to call us if you have any questions about filing or scheduling.

Lastly, below is a link to some year-end tax tips. We will continue to send out these updates as tax laws and/or deadlines change. With a new president in the Executive Branch we may see some changes in 2021…stay tuned.

Tax Preparation Appointments
We are currently scheduling 2021 Tax Preparation appointments. You are welcome to schedule an appointment online using the link below.

COVID-19 Protocol

As a reminder from our last newsletter, our office has implemented additional policies and procedures to help protect against the spread of bacteria and germs.

Our customers’ and staffs’ health, safety, and well-being are a top priority at Lake Stevens Tax Service. Now, more than ever, we are committed to maintaining a safe environment for everyone who walks through our doors.

Making Taxes Painless Since 1981

Most importantly, a special thanks to you… our client!  We honor your trust in having us take care of your needs and will strive to achieve everything you desire in a qualified tax preparation service.  As always, we are grateful for your business and enjoy working with you.

Thank you!

Tax season 2022: 3 changes you need to know about before filing your taxes

Some key items to keep in mind include updates to child tax credit payments and charitable contributions.

It’s almost time to file your federal tax return and there are a handful of changes you need to know about, including steps you need to take regarding child tax credit payments.
It’s almost time to file your federal tax return and there are a handful of changes you need to know about, including steps you need to take regarding child tax credit payments.
The deadline to file your 2021 taxes is April 18, 2022, but the Internal Revenue Service encourages people to file early to avoid processing delays.
Here’s are some key items to keep in mind:
Child tax credit payments
Families who received advance payments this year will need to keep an eye out for Letter 6419 from the IRS. It’s already being sent out, according to the IRS.
The letter includes the total amount of advance child tax credit payments taxpayers received in 2021.
The IRS says, eligible families who didn’t get monthly advance payments in 2021 can still get a lump-sum payment by claiming the child tax credit when they file a 2021 federal income tax return next year.
This includes families who don’t normally need to file a return.
Stimulus payments and Recovery Rebate Credit
If you didn’t qualify for the third economic impact payment – commonly referred to as a “stimulus check” – or didn’t get the full amount, you could be eligible for the Recovery Rebate Credit.
You’ll need to file a 2021 tax return, even if you don’t usually file, to claim the credit.
The IRS will send Letter 6475 in early 2022, which contains the total amount of the third stimulus payment.
Charitable contributions
Taxpayers who don’t itemize deductions may qualify to take a deduction of up to $600 for married couples filing joint returns and up to $300 for all other filers for any cash contributions made in 2021 to qualifying organizations.
For the latest updates from the IRS, visit the IRS website and search for the IRS Tax Tips page.

How Long To Keep Tax Records: Can You Ever Throw Them Away?

Once you’ve submitted your tax return to the Internal Revenue Service each year, the last thing you probably want to think about is how to store your tax records. But making these arrangements is essential to protect yourself in the event of a future IRS audit.

Monthly Money: How to Unenroll From Monthly Child Tax Credit Payments
Read More: What Are the 2020-2021 Federal Tax Brackets and Tax Rates?

The general rule is to keep your tax records for three years, but there are several important exceptions for when you might need to keep your tax records for a longer period as a taxpayer. Read on to learn how long to keep your tax records and when you can safely dispose of them.

Determining Expiration of the Statute of Limitations

Typically, the statute of limitations for the IRS to audit your tax return is generally three years. For an income tax return, the period of limitations is three years. But the IRS says it’s wise to keep your tax returns even longer. For example, if the IRS audits you, you’ll have the documents you need to protect yourself from an audit. The statute of limitations starts running on the later of the due date for your tax return or the date on which you file your taxes.

Special Tax Items

You’ll need to keep your records for seven years if you claim a deduction of worthless securities or bad debts. For example, if you lent a friend $10,000 under a promissory note and the friend went bankrupt, keep records to prove that it was a legitimate debt discharged in bankruptcy that was never paid.

Another special tax item is employment taxes. Keep records for employment taxes for four years from the later of the date the tax is due or the date you pay the tax.

Learn: 30 Ways To Prevent a Tax Audit

Records Related To Property

When your tax return includes information related to property, keep those records until the statute of limitations — typically three years — runs out for the year in which you sell or otherwise dispose of the property.

For example, if you bought a car in 2010, use it as part of your business and then sell it in 2020, you should keep all of those car-related tax records until the statute of limitations expires for your 2020 tax return.

In addition, keep your old property records until the statute runs out on the tax year you dispose of the new property if you exchange the property for another property to which you transfer your cost basis.

For example, say you use a 1031 exchange to sell a rental property and invest the proceeds tax-free into a new rental property. Your basis in the new property is dependent on your basis in the old rental property. As a result, keep the old rental property records until the statute runs on the tax year that you sell the replacement property.

Deductions: All the Tax Write-Offs You Don’t Know About

Other Circumstances for Extended Statutes of Limitations

In some circumstances, the statute of limitations is longer than three years. For example, if you don’t report income that you’re required to report, and it exceeds 25% of the income shown on that year’s tax return, the IRS has six years to audit your return.

In addition, not filing or filing a fraudulent tax return allows the IRS to audit you indefinitely. So keep any tax records for those years permanently.

How To Store Documents

You can keep your tax documents in a fireproof safe or a bank’s safe deposit box. But to conserve space, consider scanning all of your tax-related documents and saving them to an external hard drive or on a cloud service. As long as you can reproduce the documents and they are legible, the IRS accepts electronic copies.

See which receipts to keep for doing your taxes.

Millions of unemployment tax refunds in July: IRS timeline, tax transcripts and more

The IRS just issued 4 million more refunds on 2020 unemployment compensation. Here’s what to know about who qualifies, when to expect your money and how to check online.

money-bank-bills-coins-dollars-1071
The average IRS refund for taxpayers who paid too much tax on unemployment compensation is $1,265. Angela Lang/CNET

Tax refunds for those who overpaid on last year’s unemployment benefits don’t seem to be coming soon enough. But that extra IRS money might be in your bank account or your mailbox. In a recent announcement by the IRS, the tax agency confirmed another batch of refunds to nearly 4 million people — direct deposits were made July 14, and paper checks started going out soon after. Yet many taxpayers waiting on their money still feel in the dark and express their angst through online platforms. 

Here’s how it works: The American Rescue Plan in March that made the first $10,200 of 2020 jobless benefits — or $20,400 for married couples filing jointly — nontaxable income. Roughly 13 million taxpayers were potentially eligible for an adjustment and a refund because they overpaid when they filed their taxes before the bill was passed. The refund average is $1,265, the IRS said, but you could get more or less, depending on your income and other factors. 

An IRS TREAS 310 banking transaction code could mean your tax return was adjusted and your refund deposited. (By the way, if you’re a parent it may also mean you got your first child tax credit payment this week.) Keep reading if you want to know how to access your tax transcript for clues about your refund status. For other unemployment news, see which states are ending the $300 weekly bonus payments. We can also tell you how your child tax credit could affect your taxes in 2022. We’ve updated this story.

Ten facts about IRS refunds on unemployment benefits

In late May, the IRS started sending refunds to taxpayers who received jobless benefits in 2020 and paid taxes on that money before the American Rescue Plan went into effect. That law waived taxes on up to $10,200 in unemployment insurance benefits for individuals earning less than $150,000 a year.

The first batch of these supplemental refunds went to those with the least complicated returns (single taxpayers with no dependents), and batches are supposed to continue throughout the summer for more complicated returns. According to an igotmyrefund.com forum and another discussion platform on Twitter, some taxpayers who filed as head of household or as married with dependents started receiving their IRS money in early July. Others seem to be getting updates on their transcript with dates of July 14 or July 26. 

On July 13, the IRS said it’s sending out 4 million more payments via direct deposit and paper check. 

Here’s a quick recap of what we know:

How to find your tax transcript to see your unemployment refund

The IRS says eligible individuals should’ve received Form 1099-G from their state unemployment agency showing in Box 1 the total unemployment compensation paid in 2020. (If you didn’t, you should request one online.) Some states may issue separate forms depending on the jobless benefits — for example, if you received federal pandemic unemployment assistance, or PUA. 

One method to know if a refund has been issued is to wait for the letter that the IRS is sending taxpayers whose returns are corrected. Those letters, issued within 30 days of the adjustment, will tell you if it resulted in a refund or if it was used to offset debt. The IRS says not to call the agency. 

You can try the IRS online tracker applications, aka the Where’s My Refund tool and the Amended Return Status tool, but they may not provide information on the status of your unemployment tax refund. 

An immediate way to see if the IRS processed your refund (and for how much) is by viewing your tax records online. You can also request a copy of your transcript by mail or through the IRS’ automated phone service by calling 1-800-908-9946. 

Here’s how to check your tax transcript online:

1. Visit IRS.gov and log in to your account. If you haven’t opened an account with the IRS, this will take some time as you’ll have to take multiple steps to confirm your identity.

2. Once logged into your account, you’ll see the Account Home page. Click View Tax Records.

3. On the next page, click the Get Transcript button.

4. Here you’ll see a drop-down menu asking the reason you need a transcript. Select Federal Tax and leave the Customer File Number field empty. Click the Go button.

5. The following page will show a Return Transcript, Records of Account Transcript, Account Transcript and Wage & Income Transcript for the last four years. You’ll want the 2020 Account Transcript. 

6. This will open a PDF of your transcript: Focus on the Transactions section. What you’re looking for is an entry listed as Refund issued, and it should have a date in late May or June. 

If you don’t have that, it likely means

What we’re waiting to hear about unemployment refunds

The IRS has only provided limited information on its website about taxes and unemployment compensation. We’re still unclear on the exact timeline for payments (they’re a bit sporadic), which banks get direct deposits earlier or how to contact the IRS if there’s a problem with your tax break refund. 

Also, since some states fully tax unemployment benefits and others don’t, you might have to do some digging to see if the unemployment tax break will apply to your state income taxes. This chart by the tax preparation service H&R Block could give some clues, along with this state-by-state guide by Kiplinger. 

Here’s how to track your tax return status and refund online and what we know about contacting the IRS for stimulus check problems. For more on stimulus payments and relief aid, here is information about the child tax credit for up to $3,600 per child and details on who qualifies.

IRS Adding Thousands of Auditors as It Prepares to Ramp Up Enforcement

he Internal Revenue Service is already staffing up, hiring thousands of new auditors in preparation for a tax-enforcement push that’s a key financing element of President Biden’s infrastructure plan.

IRS officials said at a tax conference Friday that they are adding about 2,000 new employees, including 1,300 auditors, to the agency’s small business division and more than 500 workers to the criminal investigations divisions, Bloomberg’s Laura Davison and Genevieve Douglas report.

“The figures represent a significant hiring increase from recent years, when the agency has struggled to replace auditors who retired or left the federal government,” they write. “The additional staff could put the IRS in position to greatly expand audit capacity quickly if Congress is able to pass a bipartisan infrastructure investment plan, which includes $40 billion for the agency over a decade and is expected to generate $100 billion in net new tax revenue.”https://d-3191461766191356085.ampproject.net/2106120107000/frame.html

Even without the infrastructure package, the IRS appears to be poised for a funding boost, as 2022 spending plans being considered by Congress call for a $1.7 billion budget increase to $13.6 billion.

IRS Announces it Will Automatically Correct Tax Returns for Unemployment Tax Breaks

The IRS recently announced that it will start to automatically correct tax returns for those that filed for unemployment in 2020 and also qualify for the $10,200 tax break, Forbes reported.

The tax break is part of the American Rescue Plan stimulus relief bill which President Joe Biden signed into law as of March 11.

Typically, these kinds of unemployment benefits are fully taxed by the IRS and are reported on your federal tax return. As a result of the relief bill, these benefits are not subject to tax.

If you received unemployment benefits in 2020, you likely received a 1099-G form from your state unemployment insurance agency officially stating how much money you received in 2020 and how much you paid in taxes.

This form needs to be filed along with our taxes. Some states will do it for you, but you need to confirm that it’s done.

Doing so could potentially save you thousands of dollars. Forbes stated that if you qualify for the $10,200 tax break, are single and are in the 22% tax bracket, you could qualify for a tax savings of $2,244. If you are married and each spouse qualifies for the break, you could save up to $4,488.

Since the bill was signed into law in March, millions of Americans had filed their taxes without knowledge of the tax break. The IRS has also identified 10 million individuals who filed before the relief was available and announced that they will automatically adjust their returns for them. This is a little under half of the 23 million Americans who filed for unemployment insurance during the Covid-19 crisis.

The IRS added that there is no need for taxpayers to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and “deductions not already included on the original tax return.”

More From GOBankingRates

This article originally appeared on GOBankingRates.com: IRS Announces it Will Automatically Correct Tax Returns for Unemployment Tax Breaks

Tax refunds and stimulus checks delayed by identity fraud crossfire

KEY POINTS

Samuel Corum/Bloomberg via Getty Images

Jeff Lavigne plans to use a tax refund this year for long-delayed medical help.

Yet his refund, almost $2,700, has been in limbo since mid-March, when Lavigne filed his tax return, records show.

The IRS flagged the return for potential identity theft — as it did for nearly 2 million Americans last year.

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The money has been withheld until Lavigne can verify his identity. The process has proven difficult — phone lines are clogged and online authentication is unavailable.

Lavigne, 42, has chronic back pain that makes work difficult over sustained periods. The former restaurant manager doesn’t have a full-time job or health insurance. An extra $2,700, which includes pandemic stimulus funds, would help pay for monthly premiums and let him visit a specialist.

“I started making plans in my head, in terms of getting the help I need,” said Lavigne, who lives in a suburb of Dallas. “I’m trying to take one step at a time, and this is step one.”

Delayed tax refunds

It’s unclear how many taxpayers’ refunds have been delayed during the 2021 filing season. But it’s an issue for a growing number of Americans.

The IRS flagged 5.2 million tax refunds for fraud last year, a nearly 50% increase over 2019, according to the Taxpayer Advocate Service, an independent organization within the IRS.

Of those, about 1.9 million were flagged for identity screening. (The rest were earmarked for income verification.)

Basically, the IRS wants to ensure a crook isn’t using a taxpayer’s identity to claim a tax refund. The agency mails letters (either a 5071C or 6331C letter) to taxpayers if it suspects foul play. The IRS can’t process a tax return or issue a refund until the person responds.

However, most flagged returns aren’t fraudulent. In 2019, 63% of the refunds vetted for identity theft turned out to be legitimate, according to the Taxpayer Advocate Service.Ultimately they might get their money but they’re not getting their money now.Nina OlsonEXECUTIVE DIRECTOR AND FOUNDER OF THE CENTER FOR TAXPAYER RIGHTS

While the IRS ultimately issues the money (with interest) in these cases, taxpayers sometime wait months. About 18% of refunds flagged for identity verification took longer than 120 days to arrive, according to the Taxpayer Advocate Service. (Most take less than 21 days for online filers or six weeks for mailed returns, the IRS said.)

Refund delays were among the top 10 most serious taxpayer problems in 2020, the Taxpayer Advocate Service said.

Dan Herron, a certified financial planner and accountant, waited almost a year for a tax refund after filing his return in 2019, which got flagged for possible identity fraud.

“It was a pretty lengthy, drawn-out process,” said Herron, a principal of Elemental Wealth Advisors in San Luis Obispo, California.

“I wish [the IRS] had something more streamlined,” he added. “They’re so archaic in the way they do things.”

Delays were likely exacerbated by the Covid pandemic since the IRS had to temporarily suspend some of its in-person operations, according to Nina Olson, executive director and founder of the Center for Taxpayer Rights.

And the wait may cost taxpayers more than usual this year. The IRS is using 2020 tax returns to determine eligibility for pandemic stimulus checks and advanced payments of the child tax credit, which will be paid monthly starting in mid-July.

The agency uses information (such as annual income) on a 2019 return if a 2020 return hasn’t been processed. But that may lead to reduced payments — or no payments — depending on a taxpayer’s situation.

“Ultimately they might get their money but they’re not getting their money now,” Olson said.

‘Insufficient resources’

Taxpayer advocates don’t dispute that stopping thieves from ripping off individuals and the government is a worthwhile goal.

“Identity theft has been on this upward curve since 2005,” Olson said. “It’s a huge issue.

“And thieves are getting smarter.”

The IRS fraud measures protected $3.5 billion in revenue in 2019, according to the agency. (About $2.5 billion was due to identity theft filters.)

And 98% of tax returns claiming a refund aren’t ensnared by the process, the agency said.

“We understand the concerns of how refund delays can impact taxpayers, and we continue to collaborate with internal and external partners to refine and automate refund fraud filters where appropriate,” the IRS said in response to a Taxpayer Advocate Service report to Congress last year.

Without proper validation, the IRS risks issuing improper refunds, the agency said.

However, IRS systems, staffing and processes are combining to delay too large a share of refunds, taxpayer advocates said.

For example, many people are given the option of verifying their identities online using an IRS website. To do so, they must first go through an authentication process called “Secure Access.” But less than half succeeded in 2020, according to the Taxpayer Advocate Service.

Such taxpayers must then interface with an IRS agent, over the phone or at a field office, for a resolution. Right now, the IRS doesn’t have enough staff to manage the volume efficiently, Olson said.

IRS technology also doesn’t leverage machine-learning — meaning the system can’t adapt automatically if it’s tripping up too many legitimate taxpayers, she added. It requires a manual fix.The IRS has had insufficient resources to meet enforcement and administrative challenges and to deliver customer service to taxpayers.Mark MazurDEPUTY ASSISTANT SECRETARY FOR TAX POLICY AT THE TREASURY DEPARTMENT

“You are setting a goal to stop fraud, but not setting a goal to minimize false positives,” Olson said of the IRS. “And good systems do both.”

While fraud letters request a response within 30 days, the IRS will continue to work with taxpayers regardless of the amount of days that have passed, according to the IRS.

The IRS budget — which largely covers personnel — has fallen by 20% in real terms over the last decade, Mark Mazur, deputy assistant secretary for tax policy at the Treasury Department, said Thursday during a House of Representatives hearing.

“The IRS has had insufficient resources to meet enforcement and administrative challenges and to deliver customer service to taxpayers,” Mazur said.

Technology upgrades would also improve service, by letting taxpayers communicate with the IRS in a “clear, timely manner,” he added.

A stroke of luck

Lavigne had been thwarted at each juncture by the time CNBC initially spoke to him on Tuesday.

He was unable to verify his identity online and couldn’t reach a phone representative due to a high volume of calls into the agency. He hadn’t been able to schedule an appointment at a local branch.

Lavigne wasn’t even sure he could physically attend an in-person meeting — traveling for long stretches is prohibitive due to his spine problems, he said.

However, Lavigne’s luck changed on Thursday. He was able to reach someone by phone at the local office in Farmers Branch, Texas. After an hour and a half, a representative completed the identity verification over the phone, Lavigne said.  

“She explained there is a very long list of filters in place to reduce ID theft and nobody can know how it exactly works so that thieves cannot create a way to work around that,” he recalled of their discussion.

Now, the funds will take up to nine weeks to arrive.

“She said I am definitely good to go now,” Lavigne said. “But if I do not receive my check or another letter between now and the end of the nine weeks, which is sometime in August, [she said] to call back.”