IRS Provides Tax Relief for Victims of Hurricane Ida

Hurricane Ida, which began on August 26, barreled through the state of Louisiana and has left millions without power and much of Louisiana in a state of disaster. If you were impacted by Hurricane Ida we want you to know TurboTax is here for you, and we want to keep you up to date with important tax relief information that may help you in this time of need.

The Federal Emergency Management Agency (FEMA) declared the recent events as a disaster and the IRS announced that victims of the hurricane that occurred in Louisiana now have until January 3, 2022 to file various individual and business tax returns and make certain tax payments. Currently, this includes the entire state of Louisiana, but taxpayers in Ida-impacted localities designated by FEMA in neighboring states will automatically receive the same filing and payment relief.

What are the extended tax and payment deadlines for victims of Hurricane Ida?

The tax relief postpones various tax filing and payment deadlines that occurred starting on August 26, 2021. As a result, affected individuals and businesses will have until January 3, 2022 to file returns and pay any taxes that were originally due during this period. These include:

Your resource on tax filing
Tax season is here! Check out the Tax Center on AOL Finance for all the tips and tools you need to maximize your return.
  • 2020 Individual and Business Returns with Valid Extensions: Individuals that had a valid extension to file their 2020 return due to run out on October 15, 2021 will now have until January 3, 2022 to file. Businesses with extensions also have until January 3, 2022 including, among others, calendar-year corporations whose 2020 extensions run out on October 15, 2021. The IRS noted that because tax payments related to 2020 returns were due on May 17, 2021, those payments are not eligible for an extension.
  • 2020 Quarterly Estimated Tax Payments: 2021 quarterly estimated tax payments with a deadline of September 15, 2021 have been extended until January 3, 2022.
  • Quarterly Payroll and Excise Tax Returns: Quarterly payroll and excise tax returns that are normally due on November 1, 2021, are also extended until January 3, 2022. In addition, penalties on payroll and excise tax deposits due on or after August 26 and before September 10 will be abated as long as the deposits were made by September 10, 2021.

Calendar-year tax-exempt organizations, operating on a calendar-year basis that have a valid 2020 tax return extension due to run out on November 15, 2021 also qualify for the extra time.

What do I need to do to claim the tax extension?

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Taxpayers do not need to contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

The current list of eligible localities is always available on the disaster relief page on IRS.gov.

Do surrounding areas outside of Louisiana qualify for an extension?

The IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers, assisting the relief activities, who are affiliated with a recognized government or philanthropic organization.

How can I claim a casualty and property loss on my taxes if impacted?

Individuals or businesses who suffered uninsured or unreimbursed disaster-related casualty losses can choose to claim them on either the tax return for the year the loss occurred (in this instance, the 2021 return filed in 2022), or the loss can be deducted on the tax return for the prior year (2020). Individuals may also deduct personal property losses that are not covered by insurance or other reimbursements. Be sure to write the FEMA declaration number – 4611 − for Hurricane Ida in Louisiana on any return claiming a loss.

The tax relief is part of a coordinated federal response to the damage caused by the harsh storms and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

If you are not a victim, but you are looking to help those in need, this is a great opportunity to donate or volunteer your time to legitimate 501(c)(3) not-for-profit charities who are providing relief efforts for storm victims.

Check back with the TurboTax blog for more updates on disaster relief. For more tax tips in 5 minutes or less, subscribe to the Turbo Tips podcast on Apple Podcasts, Spotify and iHeartRadio

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Source: IRS Provides Tax Relief for Victims of Hurricane Ida

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Why Tax Refunds Are Taking Longer Than Usual

Tax refunds typically arrive within 21 days of when you file your individual tax return. One reason it may take longer: if you made a mistake calculating your recovery rebate credit.

Wondering where your tax refund is? In its Covid-19 operations update, the Internal Revenue Service has added an explanation for why in many cases it’s taking longer than the typical 21 days to process tax refunds for individual taxpayers. We’re talking about tax returns filed for the 2020 tax year during the 2021 tax season that opened in February and runs through May 17.

May 17? That’s right. 2020 individual tax returns are due on Monday, May 17—instead of the typical April 15th due date. The delayed due date is because of the many ways the coronavirus pandemic has upended people’s lives and their tax pictures. Note: Quarterly estimated taxes for the 2021 tax year are still due on April 15th, 2021.

As of April 2, the IRS had received 93.2 million returns, had processed 83.7 million returns, and had issued 62.3 million tax refunds, averaging $2,893 each, according to the latest 2021 filing season statistics.

So why are refunds taking longer than usual? For one thing, the IRS is still wading through the backlog of prior year tax returns. As of March 26, there were 2 million individual tax returns received prior to 2021 in the pipeline. That’s down from 2.6 million as of March 5.

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IRS Tax Return 2021: When You Will Get Your Tax Refund 2021? Where is Your Tax Refund 2021? How to Track Your Refund IRS My Refund Status. Tax Refund Dates. Updated New Deadline. IRS Where is My Refund? : https://www.irs.gov/refunds IRS Get Refund Status – https://sa.www4.irs.gov/irfof/lang/en… VITA – https://irs.treasury.gov/freetaxprep/ California covers topics like: Stimulus Checks, Medicare, Food Stamps (SNAP), Social Security, Unemployment, Rental Assistance , Health Insurance, Tax updates, Student Loan Forgiveness, and Paycheck Protection Program. These stimulus packages come from bills like the CARES act, the recent government spending bill, and potential plans like the American Relief plan, that is being proposed by President Biden. We hope that you find our videos helpful, useful and interesting.

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There are two other main reasons 2020 returns are stuck in the unprocessed pile. For taxpayers who used their 2019 income to figure the Earned Income Tax Credit and/the Advance Child Tax Credit, an IRS employee has to validate the return. The second reason is many returns are requiring a correction to the Recovery Rebate Credit amount claimed on the return.

Neither of these two cases requires the IRS to correspond with taxpayers, but the “special handling” means that it’s taking the IRS more than 21 days to issue any related refund. If a correction is made on the return, the IRS will send an explanation letter.

The IRS has a whole Q&A page set up for questions related to 2020 Recovery Rebate Credit corrections after 2020 tax returns are filed. Taxpayers who were eligible but didn’t get the Round 1 or Round 2 stimulus payments (from the March 2020 CARES Act and the year-end 2020 spending package) could claim those payments on their 2020 tax return as a recovery rebate credit.

If you were eligible for the recovery rebate credit but didn’t claim it, you need to file an amended return. If you entered an incorrect amount for the credit on your return, you should NOT file an amended return, the IRS says. The IRS will calculate the correct amount, make the correction to your tax return, and continue processing it.

Some of the reasons the IRS is changing credit amounts include: the taxpayer was claimed as a dependent on another taxpayer’s return, there was an issue with Social Security numbers or taxpayer identification numbers, a child exceeds the age limit (17), or your adjusted gross income was too high.

For the quickest refund, e-file your return and choose direct deposit. To check the status of your refund, use the IRS Where’s My Refund? tool.

Further reading:

Plus-Up Stimulus Payments Start Arriving In Taxpayer Bank Accounts

Tax Refund Scammers Target College Students

Follow me on Twitter or LinkedIn.

I cover personal finance, with a focus on retirement planning, trusts and estates strategies, and taxwise charitable giving. I’ve written for Forbes since 1997. Follow me on Twitter: @ashleaebeling and contact me by email: ashleaebeling — at — gmail — dot — com

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How To Claim Work Expenses On Your 2021 Taxes

The pandemic has turned many corporate employees into remote workers for the foreseeable future as well as driving layoffs and furloughs. People have had to navigate working from home — and the expenses that came with it if a workspace wasn’t already set up. For now, the most well-known employment-related tax deduction — for home office expenses — is reserved for those who are both self-employed and have a dedicated home space for working.

Read more: Tax return deadline 2021: How to estimate refund, claim stimulus money and more

“We know that there has been an increase in the number of people working from home due to the coronavirus,” Lisa Greene-Lewis, CPA, and tax expert with TurboTax said last year. “In general, only those who are self-employed can take deductions for expenses related to working from home.”

Still, there are a handful of other work-related expenses that both corporate employees and the self-employed may be eligible to claim on their taxes. And it’s worth noting that tax laws change from year to year — and it’s quite possible that the IRS will unveil a host of new tax deductions related to COVID-19, and its impact on remote working, some time between now and next April.

For now, here’s a list of the work expenses and deductions that you can presently claim.

Read more: Tax scams can still target you after you’ve filed your taxes. What to know and do

How to claim work expenses on your taxes: Choose a deduction

Before you start going through every line item of every receipt, you may want to save yourself the trouble and figure out which you’ll take: the standard deduction or the itemized deduction.

Standard deduction: The standard deduction is an all-encompassing flat rate, no questions asked. For tax year 2020, the flat rate is $12,400 for single filers and those married filing separately. The rate is $24,800 for married filing jointly. Taking this route is much easier than itemizing.

Itemized deduction: If you want to claim work expenses, medical payments, charitable contributions or other expenses, you’ll use the itemized deduction. It’s more time-consuming than the standardized deduction — and you’ll need proof of the expenses you wish to deduct.

If you’re going to claim and itemize your work expenses, you’ll need to complete Schedule A of Form 1040. You need to have sufficient proof for each itemized expense, which means tracking down receipts. If your standard deduction is greater than the sum of your itemized deductions, save yourself the trouble and take the flat-rate.

Common tax deductions to claim

Before you start adding up all the line-items, make sure you know what’s covered and what isn’t. Here are some of the most common deductions for folks working from home.

1. Home office deduction

Greene-Lewis says that although the home office deduction may be the largest deduction for self-employed people, many are hesitant to take it. The most significant requirement is that the space be reserved for and dedicated entirely to your work.

Read more: Why you can’t claim the home office tax deduction — even after working from home for a year

“Can you deduct a home office if you work at your kitchen table?” she says. “Unfortunately, no. You not only have to be self-employed — but have a dedicated space in your home that is exclusively related to your business. You can’t deduct the space at your kitchen table if your family also eats dinner there.”

If you have a dedicated workspace at home, you can use the IRS regular method or simplified option, though you can’t use a combination of them in a single tax year. Some things that qualify for home office deductions:

  • Insurance: You can deduct a percentage of your home insurance that covers the business space in your home.
  • Utilities: Expenses for utilities, like electricity and gas, can be deducted — but only the percentage used in your home office.
  • Depreciation: If you own your home, you can deduct the cost of wear and tear on the portion used exclusively for business.

All of these calculations are based on the percentage of your home that you use for business. To find the percentage, compare the size of space you use for business to that of your entire home, and then apply the percentage to the specific expenses. For instance, if your home is 1,800 square feet total, and your home office measures 300 square feet, your home office deductions could be applied at a rate of 16%.

Greene-Lewis says that if you take the simplified option, you can deduct $5 per square foot, up to 300 square feet, or $1,500 total. This would be an alternative to calculating the various individual home expenses.

2. Travel

Regular commutes from your home to work are considered non-deductible personal expenses. If you have to commute between multiple locations or travel for work, however, some of those costs may be deductible. Flights, hotel rooms, rental cars, meals and tips for service are all considered travel expenses. If a passport is required for your travel, you can claim that as well.

In the past, mileage accrued while driving your own car for business travel was an expense you could claim on your taxes — but the Tax Cuts and Jobs Act eliminated that for employees. The self-employed and business owners, however, are still eligible for this deduction.

Read more: Best tax software for 2020: TurboTax, H&R Block, Jackson Hewitt and more compared

3. Work uniform

If you have to buy clothes that you only wear for work, you can write off the cost. You can also claim expenses incurred for dry cleaning or laundering work clothes. The deduction cannot exceed 2% of your adjusted gross income.

4. Continuing education and certifications

In some fields, you can claim the enrollment cost of any required continuing education courses, classes or certifications. You can also deduct professional organization dues and fees — as long as the organization isn’t political. And if you’re a lawyer, you can deduct the price of membership for your state bar or any other similar organization.

If you’re a teacher, the Teacher Education Deduction lets you claim up to $250 of out-of-pocket costs related to teaching supplies. And Green-Lewis says if you and your partner are both teachers, you both can claim the deduction.

Read more: The truth about paying taxes on unemployment checks

5. Supplies

If you own your own business, you can deduct the cost of some business supplies. And the deduction threshold is generous.

“Self-employed business owners can deduct up to $1,020,000 for qualified business equipment like computers, printers and office furniture,” Greene-Lewis says.

Dori Zinn headshot

 

By:

 

Source: How to claim work expenses on your 2021 taxes – CNET

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Understanding The Research & Development Tax Credit – What Small Businesses Need To Know

Three women and two men in a business meeting.

It’s tax season, let the sales pitches begin! Tax return preparation companies and do-it-yourself software providers are hard at work convincing individual taxpayers that their services and products are the way to maximize a tax refund or pay the lowest amount of tax. And, judging by what I’m seeing on social media, companies that specialize in the Credit for Increasing Research Activities (also known as the R&D tax credit) are also selling hard, looking for businesses who may qualify for this credit—especially startups.

They are casting an extremely wide net. While it’s true that the R&D credit is often overlooked by small businesses and their return preparers, it’s not as easy to qualify for the credit as some of these companies want small business owners to believe. Buyer beware.

For sole proprietorships, partnerships, and S-corporations the R&D credit is claimed by filing Form 6765 with the business return (Schedule C of a Form 1040, Form 1065, or Form 1120-S, respectively). Qualifying small businesses can elect an up to $250,000 payroll tax credit instead of an income tax credit.

I’m not going to get into the mechanics of taking the credits here but it is easy to see how this election could benefit a startup in the early stages with payroll expenses and the associated taxes but not much income to be taxed. Nevertheless, the mere fact that a business is new or has a new product does not automatically make expenses qualified research expenses for the purposes of this credit.

Section 174 of the Internal Revenue Code allows a taxpayer to treat “research or experimental expenditures” as expenses instead of having to amortize them over 60 months. The R&D credit uses the same definition of research or experimental expenditures as IRC Section 174. Qualified research expenses are defined in Treasury Regulation 1.174-2. The expenditures must be “incurred in connection with the taxpayer’s trade or business” and must “represent research and development costs in the experimental or the laboratory sense.”

The regulation goes on to state that “expenditures represent research and development costs in the experimental or laboratory sense if they are for activities intended to discover information that would eliminate uncertainty concerning the development or improvement of a product.” Additionally, qualification depends on the “nature of the activity to which the expenditures relate, not the nature of the product or improvement being developed.” It is on these semantic rocks that many tax credit ships have foundered.

In Connection With The Taxpayer’s Trade or Business

For an expenditure to be incurred in connection with a trade or business, the business must be a functioning business. Deductions exist for startup expenses for businesses but those should not be confused with the R&D credit.

Research activities conducted before a business is a business may be legitimate (and deductible) startup expenses but they do not qualify for the R&D credit. In other words, you must start your startup and then do the research, not develop the product and build the business around it in order for research expenditures to be considered qualifying expenses for the R&D credit.

The Experimental Or The Laboratory Sense

To qualify, research and development expenditures must be paid to eliminate uncertainty concerning the development or improvement of a product. This concept is perhaps best described as traditional trial and error using the scientific method. The idea of evaluating alternatives is important as is systematic testing of various alternatives. Testing and debugging an existing product is not enough to qualify for the credit. Neither is evaluating a set of alternatives or features for a given product.

For example, research to determine which set of code objects are necessary to implement a given software solution would not qualify. Quality control and assurance testing is also specifically excluded. A taxpayer must be evaluating alternatives to create a new product or improve an existing product. Additionally, the improvement must be related to the product’s performance and not simply a matter of cosmetics, taste, or fashion. Perhaps the best example of qualifying expenses would be those incurred to develop and test prototypes of a new product.

What about software and app development? What indeed. Determining whether software development costs are qualified research expenditures requires special analysis. Expenses incurred to develop software for internal use are specifically excluded from qualification. In Accounting Standard Codification (ASC) 730, the IRS Large Business & International unit indicated that internal use software includes software “used to provide a service or produce a product that the customer neither acquires nor gains any right to future use of.”

That is, the expenses incurred to develop a customized user experience for your website’s shopping cart will not qualify where expenses incurred to develop and test a new game for a gaming company to sell, most likely would—at least up to the point that “technological feasibility is established” (again, according to ASC 730).

The Nature Of The Activities Not The Nature Of The Product

For expenditures to qualify substantially all (substantially all has been defined as 80%) of the research activities must relate to a process of experimentation for a new or improved product. Corn Island Shipyard, Inc. recently found this out the hard way when the U.S. Tax Court ruled that the 80% requirement was not satisfied “simply because at least 80% of the product’s elements differ from those of the products the taxpayer previously developed.”

The ruling in Little Sandy Coal Company, Inc., v. Commissioner of Internal Revenue (T.C. Memo 2021-15) held that the “substantially all” test applied to activities, not to physical components of the product being developed or improved. In other words, even though the company’s two products (a ship and a dry dock) were 80% different from the company’s other products, because the research activities involved in developing the two new products did not comprise 80% of the research and development activities the expenses did not qualify for the credit.

Developing the two new products only required a small amount of actual experimentation to create a substantially different product. And, for the purposes of this credit, it’s the activities that count, not the product.

The R&D credit can be an excellent benefit for small companies, especially those who are developing new products or product lines. Nevertheless, the rules for claiming the credit are complex and nuanced. Correctly claiming the credit may be beyond the skills of many tax professionals who serve small companies. If you think your company may qualify for the credit it can be a good idea to work with a company that specializes in qualifying companies and determining qualifying expenses.

Those companies should be willing to work with your tax professional (and vice versa). Startup owners should, however, proceed with caution when it comes to firms with big marketing budgets and great sales pitches that promise to qualify them for this credit without knowing anything about the company or its products. There be (tax) dragons.

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I own Tax Therapy, LLC, in Albuquerque, New Mexico. I am an Enrolled Agent and non-attorney practitioner admitted to the bar of the U.S. Tax Court. I work as a tax general practitioner preparing returns for individuals and (really) small businesses as well as representing individuals before the IRS and, occasionally, the U.S. Tax Court. My passion is translating “taxspeak” into English for taxpayers and tax practitioners. I write to dispel myths with facts and to explain “the fine print” behind seemingly simple tax concepts. I cover individual tax issues and IRS developments with a focus on items of interest to taxpayers and retail tax practitioners. Follow me on Twitter @taxtherapist505

Source: Understanding The Research & Development Tax Credit – What Small Businesses Need To Know

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An Accelerated Future For Tax Leaders

COVID-19 forced many companies to unexpectedly make fundamental shifts to their business models over a very short time period. Each of their pivots—from a transition to online transactions to new supply chain models, fulfillment approaches, or finance arrangements—has downstream tax implications. This, in turn, increases the complexity and workload for tax departments.

As the pandemic continues and businesses adjust to the new normal, we are seeing some common themes emerge. First, most business leaders are accelerating existing plans around digital transformation, particularly related to cloud. Second, many are re-evaluating their operating models. Some are choosing to refocus internal efforts on core competencies, cutting resources and budgets for enabling areas to reduce costs. This trend extends to tax departments.

These colliding factors are creating a paradox for tax leaders: At a time of increased complexity and need, they have fewer resources to meet the demands. Yet, this dynamic also presents opportunities to accelerate change and transform in fundamental new ways. Those that are nimble will have a greater ability to thrive.

Accelerating Digital

Unsurprisingly, business leaders increasingly recognize that their existing technologies, processes, and data-management approaches are dated. Newer technologies and capabilities offer better, faster, and cheaper ways of doing things. One area in which we are seeing a significant acceleration is cloud-based enterprise resource planning (ERP) solutions.

As businesses move to cloud-based ERPs in virtually every organization, it’s important to consider that tax is the greatest consumer of enterprise data. Almost every business process has a tax implication. If you are a CEO, CFO, or CIO, one of your top priorities should be ensuring that your tax department leaders have a seat at the table when developing your digital transformation road map.

Done right, the shift to cloud-based ERP systems should save money, reduce complexity, and enable better risk management. By providing a common data source, recorded in a standard language and syntax, cloud-based ERPs should eliminate most of the heavy lifting and data mining that most tax functions perform manually today. This increases confidence in the data and frees up people to focus on analytics, scenario-planning, and strategic advice to the business.

Agile Operating Models

Tax leaders today are confronted by the high cost of digital transformation, talent gaps in expertise and capacity (which may have increased due to cost cutting measures), and the ongoing economic uncertainty intensified by COVID-19. While it is becoming evident the old ways of working will no longer suffice, there is also an increasing recognition that in many industries, the capital investment required to transform the tax department won’t be coming any time soon. Out of necessity, many have begun to rethink their operating models. They are increasingly seeing co-sourcing and outsourcing as a way to access innovative technology solutions, expertise, and capacity at a lower cost.

The good news is there is a spectrum of operating models—from maintaining an in-house model for all activities, to a model in which some activities are completed partially or fully by a third party, to a completely outsourced model in which a provider “operates” the entire function.

While co-sourcing and outsourcing may be more familiar, the “operate” model represents a more fundamental shift. Companies no longer pay to maintain their own systems, similar to a subscription model that allows access to the capabilities, skills, and resources of a third party for a set fee. Technology companies shifted to this managed service model years ago when they introduced licensing. Consider the example of Microsoft Office: Organizations buy a license to get access to a suite of Microsoft’s tools, but Microsoft maintains the software on their behalf.

In the tax function, when considering cosourcing or outsourcing, activities are evaluated on two dimensions: value to the company and need for institutional knowledge. Work that is low value and routine, where the output needs to be high quality and efficient, are strong candidates for co-sourcing or outsourcing. This may include compliance activities and data management tasks, or work that is highly specialized but ad hoc and does not require significant institutional knowledge to complete, such as transfer pricing documentation or tax controversy matters. 

Accelerating The Future

Resilient tax leaders recognize the complexities emerging from the pandemic amid so many other global forces, from the changing implications of globalization, the rise of Asia, the reduction of the shared economy, and the screeching halt on international travel due to closed borders. With so much in flux, the tax function becomes even more critical in building efficient and sustainable organizations over the long-term. To do so, tax leaders must assess their current models and consider the continuum of options to most effectively run their departments.

This massively disruptive event, which hindered businesses’ ability to serve clients and customers in the same way they did in the past, is also proving to be an important catalyst for change. It has dislodged longstanding inertia behind how, where, and when work gets done. The impossible is now possible. The once unthinkable is now open for consideration. Opportunities abound. How will you use the momentum and mindset shift to accelerate the future of your tax organization?

Philip Mills

Philip Mills

Based in London, Philip Mills is the Global Tax & Legal leader at Deloitte. Prior to this, he led the Global Business Tax practice for two years and the UK Business Tax practice for seven years, amongst other roles. Philip also leads the Global Tax & Legal Executive and is a member of the Global Executive Committee. He has a Physics Bachelor of Science degree from Liverpool University, is a member of the Institute of Chartered Accountants in England and Wales and is a member of the Institute of Tax.

For nearly 20 years, Philip focused on M&A tax, particularly on Private Equity, Real Estate and Hedge Funds. He has worked on some of the more significant, large and complex European transactions in recent years as well as supporting the Fund advisers. Most recently, he took on advisory roles to some of Deloitte’s largest multinational corporate clients.

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