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Taxpayer Bill of Rights
Now would be a good time to review the IRS's Taxpayer Bill of Rights



Income Tax Preparation Fees Are Up
A recent article in TaxProToday (as of July 2020) indicated that tax preparation fees have increased nationwide on average 26% over the last two years.

The average fee for 1040 returns range between $221 to $301 and with a Schedule C in the mix, the average fee was $400.



Proposed Biden Tax Plan Highlights
(the following information originated from an email from Patriot Tax Professionals)
  • President-elect Joe Biden, according to the tax plan he released before the election, would enact a number of policies that would raise taxes on individuals with income above $400,000, including raising individual income, capital gains, and payroll taxes. Biden would also raise taxes on corporations by raising the corporate income tax rate and imposing a corporate minimum book tax.
  • Biden’s plan would raise tax revenue by $3.3 trillion over the next decade on a conventional basis. When accounting for macroeconomic feedback effects, the plan would collect about $2.8 trillion the next decade. This is lower than originally estimated due to the revenue effects of the coronavirus pandemic and economic downturn and new tax credit proposals introduced by the Biden campaign.
  • According to the Tax Foundation’s General Equilibrium Model, the Biden tax plan would reduce GDP by 1.62 percent over the long term.
  • On a conventional basis, the Biden tax plan by 2030 would lead to about 7.7 percent less after-tax income for the top 1 percent of taxpayers and about a 1.9 percent decline in after-tax income for all taxpayers on average.

Details of Biden Tax Plan
Biden’s plan includes the following payroll tax, individual income tax, and estate and gift tax changes:
  • Imposes a 12.4 percent Old-Age, Survivors, and Disability Insurance (Social Security) payroll tax on income earned above $400,000, evenly split between employers and employees. This would create a “donut hole” in the current Social Security payroll tax, where wages between $137,700, the current wage cap, and $400,000 are not taxed.
  • Reverts the top individual income tax rate for taxable incomes above $400,000 from 37 percent under current law to the pre-Tax Cuts and Jobs Act level of 39.6 percent.
  • Taxes long-term capital gains and qualified dividends at the ordinary income tax rate of 39.6 percent on income above $1 million and eliminates step-up in basis for capital gains taxation.
  • Caps the tax benefit of itemized deductions to 28 percent of value for those earning more than $400,000, which means that taxpayers earning above that income threshold with tax rates higher than 28 percent would face limited itemized deductions.
  • Restores the Pease limitation on itemized deductions for taxable incomes above $400,000.
  • Phases out the qualified business income deduction (Section 199A) for filers with taxable income above $400,000.
  • Expands the Earned Income Tax Credit (EITC) for childless workers aged 65+; provides renewable-energy-related tax credits to individuals.
  • Expands the Child and Dependent Care Tax Credit (CDCTC) from a maximum of $3,000 in qualified expenses to $8,000 ($16,000 for multiple dependents) and increases the maximum reimbursement rate from 35 percent to 50 percent.
  • For 2021 and as long as economic conditions require, increases the Child Tax Credit (CTC) from a maximum value of $2,000 to $3,000 for children 17 or younger, while providing a $600 bonus credit for children under 6. The CTC would also be made fully refundable, removing the $2,500 reimbursement threshold and 15 percent phase-in rate.
  • Reestablishes the First-Time Homebuyers’ Tax Credit, which was originally created during the Great Recession to help the housing market. Biden’s homebuyers’ credit would provide up to $15,000 for first-time homebuyers.
  • Expands the estate and gift tax by restoring the rate and exemption to 2009 levels.
Biden’s plan also includes the following proposed business tax changes:
  • Increases the corporate income tax rate from 21 percent to 28 percent.
  • Creates a minimum tax on corporations with book profits of $100 million or higher. The minimum tax is structured as an alternative minimum tax—corporations will pay the greater of their regular corporate income tax or the 15 percent minimum tax while still allowing for net operating loss (NOL) and foreign tax credits.
  • Doubles the tax rate on Global Intangible Low Tax Income (GILTI) earned by foreign subsidiaries of US firms from 10.5 percent to 21 percent.
  • In addition to doubling the tax rate assessed on GILTI, Biden proposes to assess GILTI on a country-by-country basis and eliminate GILTI’s exemption for deemed returns under 10 percent of qualified business asset investment (QBAI).
  • Establishes a Manufacturing Communities Tax Credit to reduce the tax liability of businesses that experience workforce layoffs or a major government institution closure
  • Expands the New Markets Tax Credit and makes it permanent.
  • Offers tax credits to small business for adopting workplace retirement savings plans.
  • Expands several renewable-energy-related tax credits, including tax credits for carbon capture, use, and storage as well as credits for residential energy efficiency, and a restoration of the Energy Investment Tax Credit (ITC) and the Electric Vehicle Tax Credit. The Biden plan would also end tax subsidies for fossil fuels.
Other proposals not modeled due to a lack of detailed information include:
  • Imposing a new 10 percent surtax on corporations that “offshore manufacturing and service jobs to foreign nations in order to sell goods or provide services back to the American market.” This surtax would raise the effective corporate tax rate on this activity up to 30.8 percent.
  • Establishing an advanceable 10 percent “Made in America” tax credit for activities that restore production, revitalize existing closed or closing facilities, retool facilities to advance manufacturing employment, or expand manufacturing payroll.
  • Equalizing the tax benefits of traditional retirement accounts (such as 401(k)s and individual retirement accounts) by providing a refundable tax credit in place of traditional deductibility.
  • Eliminating certain real estate industry tax provisions.
  • Expanding the Affordable Care Act’s premium tax credit.
  • Creating a refundable renter’s tax credit capped at $5 billion per year, aimed at holding rent and utility payments at 30 percent of monthly income.
  • Increasing the generosity of the Low-Income Housing Tax Credit.

Effect of Biden’s Tax Plan on Gross National Product

Several of Biden’s tax proposals, such as imposing ordinary income tax rates on capital gains and dividends for those earning over $1 million and raising estate and gift taxes, would reduce both American economic output (GDP) and the incomes received by Americans. By estimating the plan’s effect on Gross National Production (GNP), we can examine how the plan would reduce American incomes.

Taxes levied on domestic saving may reduce the ownership of American investment by domestic residents. However, the U.S. economy is open to international investment, which means that domestic investment opportunities may instead be financed by foreign investors not subject to the increased tax burden. While increased international investment helps reduce the effect of the tax change on domestic output, it would also change the composition of that output’s ownership. In the case of international investment, returns to those investments would instead flow to foreign owners, rather than to Americans.

The result of this capital flow is a wedge between GDP (economic output) and GNP (American incomes). Biden’s tax plan would produce this wedge by raising taxes on domestic savers, resulting in lower American incomes and greater foreign ownership of domestic assets. This would also manifest in a shifted balance of trade, increasing the trade deficit, all else held equal.

The Tax Foundation’s General Equilibrium Model assumes that C corporations and the U.S. government can receive financing from abroad without changing interest rates, while the pass-through sector may not be able to fully use foreign capital inflows when tax rates change. This means the service price of capital may increase for the pass-through sector, producing lower investment and long-run economic output. In combination, this means the Biden taxes on U.S. savers reduces economic output for pass-through firms and shifts the ownership of C corporations away from domestic residents due to increased foreign financial inflows. All else being equal, this reduces long-run American incomes, and the increased foreign financial inflows drives up the value of the dollar, which increases the trade deficit, all else held equal.

According to the Tax Foundation’s General Equilibrium Model, the Biden tax plan would reduce long-run GNP by about 1.83%. The difference between the plan’s effect on GNP and GDP results from the flow of foreign investment into the U.S. that keeps U.S. economic output higher than GNP after taxes change.

Conclusion

President-elect Joe Biden, according to the tax plan he released before the election, would raise taxes on the labor income, investment income, and business income of those earning over $400,00. Among other changes, the plan imposes a “donut hole” payroll tax on earnings over $400,000, repeals the TCJA’s income tax cuts for taxpayers with taxable income above $400,000, and increases the corporate income tax rate to 28 percent.

Additionally, Biden has proposed a variety of new tax credits or expansions to existing credits to help increase after-tax incomes for low-earners. Biden’s on-shoring plan increases the taxation of foreign profits while providing credits to incentivize economic activity that is on-shored. Biden’s plan would shrink the long-run size of the economy by 1.62 percent due to higher marginal tax rates on labor and capital.

Biden’s tax plan would raise about $3.33 trillion over the next decade on a conventional basis, and $2.78 trillion after accounting for the reduction in the size of the U.S. economy. While taxpayers in the bottom four quintiles would see an increase in after-tax incomes in 2021 primarily due to the temporary CTC expansion, by 2030 the plan would lead to lower after-tax income for all income levels.



1099-NEC replaces 1099-MISC for Non-Employee Compensation

For many years, businesses reported non-employee compensation payments to contractors in box 7 of the 1099-MISC . Starting in 2020, this is changing; contract-labor payments will now go on the Form 1099-NEC.

Here is a copy of the 2020 1099-NEC form
https://www.irs.gov/pub/irs-pdf/f1099nec.pdf

HEre is a copy of the new 2020 1099-MISC form
https://www.irs.gov/pub/irs-pdf/f1099msc.pdf



TAX BRACKETS FOR TAX YEAR 2021

Single filers:
10%: Up to $9,950
12%: Income of $9,951 to $40,525
22%: Income of $40,526 to $86,375
24%: Income of $86,376 to $164,925
32%: Income of $164,926 to $209,425
35%: Income of $209,426 to $523,600
37%: Income over $523,600

Married, filing jointly:
10%: Up to $19,900
12%: Income of $19,901 to $81,050
22%: Income of $81,051 to $172,750
24%: Income of $172,751 to $329,850
32%: Income of $329,851 to $418,850
35%: Income of $418,851 to $628,300
37%: Income over $628,300

Married, filing separately:
10%: Up to $9,950
12%: Income of $9,951 to $40,525
22%: Income of $40,526 to $86,375
24%: Income of $86,376 to $164,925
32%: Income of $164,926 to $209,425
35%: Income of $209,426 to $314,150
37%: Income over $314,150

Heads of household:
10%: Up to $14,200
12%: Income of $14,201 to $54,200
22%: Income of $54,201 to $86,350
24%: Income of $86,351 to $164,900
32%: Income of $164,901 to $209,400
35%: Income of $209,401 to $523,600
37%: Income over $523,600



California Covid-19 Extra Unempoyment Payments
California recently started paying the extra $300 made available from Congress. If you are unemployed and marked that you lost your job related to Covid-19 (you might have to log into their online portal - https://www.edd.ca.gov/) then you should start receiving this extra amount soon.



Stimulus Checks

Where is my stimulus check?
If you've asked that question once, twice, three times or more in the last few weeks, you're not alone. If you haven't already received your stimulus check through direct deposit, you may have visited the IRS website to input your direct deposit information on the Get My Payment online portal. Some have successfully updated their information, while others have received a menuPayment Status Not Available" error or faced another roadblock in their quest to get a stimulus check faster. Here are the answers to frequently asked questions about this and other errors to help you navigate through this challenging time:

1. What exactly is the Get My Payment tool?
The Get My Payment tool is available on the IRS website for free and allows you to check your stimulus check payment status and update your personal information, including your direct deposit information if you want to receive your stimulus check in your bank account. While some haven't faced any issues updating their direct deposit information, others have received the Payment Status Not Available message, been locked out, had their web browser crash, and experienced a host of other frustrating technical glitches.

2. Why haven't I received my stimulus payment yet?

This is one of the most frequently asked questions. The first batch of stimulus check recipients provided their direct deposit information on their 2018 or 2019 federal tax return and received a tax refund. If you owe the IRS money or pay through an installment plan, for example, the IRS likely didn't send you a direct deposit check. If you want your stimulus check electronically, you should go to the Get My Payment tool to provide your direct deposit information.

3. I was supposed to get a direct deposit, but I didn't. What do I do?
Your best bet is to provide your direct deposit information through the Get My Payment tool. If you don't receive a direct deposit, it doesn't mean you won't receive a stimulus check. Assuming you qualify, you will receive a paper stimulus check.

4. How do I know that the IRS sent me a stimulus check?
The IRS will mail you a written notice 15 days after sending your stimulus payment. The letter describes the amount of your stimulus payment, how you were paid, and most importantly, how to contact the IRS regarding any issues with your stimulus check.

5. I've checked the Get My Payment tool for several days and keep getting the "Payment Status Not Available" message. Why does this keep happening?
It's frustrating to get the same message for several days. The IRS has said that it's updating the Get My Payment tool daily overnight. There are many reasons why you may receive the menu Payment Status Not Available" message. The two most likely reasons are: a) you may not qualify for a stimulus check; and b) the IRS is still processing your information. First, you can double check to verify that you qualify for a stimulus check.

6. What do you mean that the IRS is still updating my information? Don't they already have my information?
The IRS may be updating your information so that it can process your stimulus tax payment. For example, if you recently filed your 2018 or 2019 federal tax return, the IRS still may be processing your tax return. When you submit your tax return, the IRS doesn't automatically input your direct deposit information into the Get My Payment tool. Your tax return is processed first.

7. I receive Social Security benefits or disability benefits each month. The government already has my information. Why can't I access my stimulus check information on the Get My Payment tool?
If you receive Social Security, disability or veteran's benefits, for example, you will automatically receive a stimulus check. Currently, your information is not included on the Get My Payment tool. The federal government may have your information, but it's currently with a different part of the federal government such as the Social Security Administration, which is separate from the Treasury Department (which includes the IRS). 8. I have tried to enter my direct deposit information on the Get My Payment tool, but the system locked me out.
Unfortunately, this has happened to others too. There could be several reasons. Most likely, it's a security precaution. The IRS wasn't able to verify your identity, Social Security number, address or other personal information. Your best move is to try to access the Get My Payment tool the following day once the IRS updates its website.

9. My stimulus check was deposited to an old bank account, deposited in an incorrect bank account, or mailed to my old address. What do I do?
If this happened to you, you're not alone. The IRS will send you a letter within 15 days of sending your stimulus payment. The letter will include instructions on how to contact the IRS regarding this issue.

10. How do I contact the IRS to help with my stimulus check? I can't seem to reach anyone. Is there a special phone number?
Unfortunately, there is no special phone number at this time to contact the IRS about your stimulus check. The IRS has asked people not to call. Given the COVID-19 pandemic, the IRS says that services are limited as they process tax returns, issue tax refunds and send stimulus payments.

11. None of these issues apply to me. I just want my stimulus check.
Keep checking the Get My Payment tool. The IRS says its updating its website daily. The IRS also began sending paper stimulus checks this week. When will I get my stimulus check? The IRS expects to send stimulus checks according to this schedule. The IRS will send approximately 5 million paper checks per week, starting with the lowest adjusted gross income first. If you are a married/joint tax filer, your adjusted gross income is based on your combined income, not your individual income.