Per the IRS, “Remember – unemployment compensation is taxable. Millions of Americans received unemployment compensation last year, and it’s fully taxable in 2021. The American Rescue Plan Act of 2021 allowed an exclusion of unemployment compensation of up to $10,200 for 2020 only.”
This means, that if you received unemployment, you will need to provide your 1099-G statement to your tax preparer. Unfortunately, sometimes, these forms aren’t automatically sent to the recipient in the mail, so the recipient has to access their states website to download the form. Below, please find links to all 50 states unemployment websites.
1.) underpay your tax, leaving you open to IRS penalties, or 2.) overpay your tax, meaning you gave a gift to the government.
However, if you made an error on your tax return, don’t worry; there’s good news: you can undo your mistake! Here’s even better news: there are two special ways to fix your incorrect tax return that will save you from paying more to the IRS than you would otherwise. We’ll tell you all about them in this article. —there are two easy ways to fix it:
A superseding return
A qualified amended return
A superseding return is an amended or corrected return filed on or before the original or extended due date. The IRS considers the changes on a superseding return to be part of your original return.
A qualified amended return is an amended return that you file after the due date of the return (including extensions) and before the earliest of several events, but most likely when the IRS contacts you with respect to an examination of the return. If you file a qualified amended return, you avoid the 20 percent accuracy-related penalty on that mistake.
Superseding Return Example
You file a joint Form 1040 tax return electronically on February 21, 2022, for tax year 2021, but you later decide you want to file a separate return. Since the joint-filing election is irrevocable, on or before April 15, 2022 (which is the unextended due date for your 2021 Form 1040), you must file a superseding return to undo the joint election.
IRS electronic filing rules for amended returns do not permit you to file this superseding return electronically, because you are changing your filing status (from married, filing jointly, to married, filing separately). That being said, your only other option is to use “snail mail.” Using a paper return via snail mail, you’ll submit either:
1.) A second original Form 1040 return using the married-filing-separately filing status, or 2.) An amended Form 1040X showing the change from joint to separate filing status. Be sure to write “SUPERSEDING RETURN – IRM 184.108.40.206.10” in red at the top of page 1 of either Form 1040 or Form 1040X.
Qualified Amended Return Example
You realize your return preparer left a $30,000 IRA distribution off your 2019 tax return. Ouch! Let’s assume you are in the 32 percent tax bracket and had no federal income tax withholding on the distribution: you owe an additional $9,600 in federal income tax on your 2019 tax return due to this distribution.
If you file an amended return before the IRS contacts you about the missing income, then it’s a qualified amended return, and you avoid $1,920 (20percent of $9,600) in audit penalties.
If you don’t file the amended return, and if the IRS contacts you about the missing income, the IRS will propose the $1,920 penalty. You may be able to request penalty relief, but you’ll have to make your case, and the facts may or may not be on your side.
In both circumstances, you’ll also pay interest on the $9,600 back to July 15, 2020 (the COVID-19-postponed 2019 Form 1040 due date). Of course, the earlier you pay the tax, the less interest you’ll accrue. You’ll pay less interest with a qualified amended return because you’re paying the tax sooner.
Congress let many tax provisions expire on December 31, 2017, making them dead for your already- filed 2018 tax returns.
In what has become much too common practice, Congress resurrected the dead provisions retroactively to January 1, 2018. That’s good news. The bad news is that we have to amend your tax returns in our Chicago south loop tax preparation office to make this work for you.
And you can relax when filing your 2019 and 2020 tax returns, because lawmakers extended the “extender” tax laws for both years. Thus, no worries until 2021—and even longer for a few extenders that received special treatment.
Back from the Dead
The big five tax breaks that most likely impact your Form 1040 are as follows:
Exclusion from income for cancellation of acquisition debt on your principal residence (up to $2 million)
Deduction for mortgage insurance premiums as residence interest
7.5 percent floor to deduct medical expenses (instead of 10 percent)
Above-the-line tuition and fees deduction
Nonbusiness energy property credit for energy-efficient improvements to your residence
Congress extended these five tax breaks retroactively to January 1, 2018. They now expire on December 31, 2020, so you’re good for both 2019 and 2020. or click here to call us 1-855-743-5765.
Other Provisions Revived
Congress also extended the following tax breaks retroactively to January 1, 2018, and they now expire on December 31, 2020 (unless otherwise noted):
As you probably know, establishing a home office for your Schedule C or corporate business creates valuable tax deductions.
But it’s not available only for your proprietorship,partnership, or corporate business. If you have rental properties, you can establish a home office to manage your rental properties and deduct the cost on your Schedule E. or click here to call us 1-855-743-5765.
Rentals as a Business
The first hurdle is that your rental activities have to qualify as a “trade or business” under the tax law.
Luckily for you, that’s relatively simple—you’ll need regular and continuous involvement with your rental activities to meet this requirement.
Whether or not your rental activities are a trade or business depends on the facts and circumstances of your particular situation, and tax court cases give us guidance on that.
Your second hurdle is setting aside space in your home that qualifies for the home-office deduction.
For this to work, you need to use that space in your residence regularly and exclusively as the principal place of business for your rental activities. or click here to call us 1-855-743-5765.
This sounds hard, and it was hard—before lawmakers changed the rules to include, as a principal place of business, the space you use for administrative or management activities, provided there is no other fixed location where you conduct substantial administrative or management activities.
Establishing a rental property home office does two things to your household expenses:
Turns non-deductible household expenses into tax deductions.
Moves household expenses normally deductible on Schedule A to your rental properties on Schedule E.
The latter is especially important after passage of the Tax Cuts and Jobs Act
put a $10,000 limit on your Schedule A state and local tax deductions, and
lowered the amount of your mortgage on which you deduct mortgage interest from $1 million to $750,000.
Without a qualifying home office, your mileage from home to your first business stop and then from your last business stop back home is non-deductible commuting mileage.
But here is what happens with the rental property’s principal office in your home:
You have no commuting mileage from your home to and from your rentals, if the rentals are in the area of your tax home (say, within 50 miles).
You establish your rental property tax home, and if your rentals are outside the area of your tax home, then the mileage from your home to and from the rentals is deductible business mileage because you are traveling outside the area of your tax home.
Real Estate Professional
If you qualify as a real estate professional under the tax law, then you can deduct 100 percent of your rental losses in the year you incur them.
But there’s a big hurdle to the tax law classification as a real estate professional. You must show that you spend
more than 50 percent of your personal service work time in real property trades or businesses in which you materially participate, and
more than 750 hours of service during the tax year in real property trades or business in which you materially participate.
Having a rental property home office that qualifies as a tax-code-defined principal place of business makes it easier to qualify as a real estate professional, because your time spent on deductible travel to and from your rental properties counts toward the time requirements.
Claiming Your Deduction
The Schedule E instructions not only fail to provide any explanation about where to put your home-office deduction, but they also do not even mention a home office.
But the instructions do say that you can deduct ordinary and necessary business expenses, and the home office meets that rule. Also, as established in Curphey (a precedent-setting case), the home office is allowable as an expense against income from a rental business.
Has the IRS sent you a collections letter? How serious is that letter? Can you stroll to the phones, or do you need to break and run to the phones and call for help?
Listed below are the most common IRS collection letters that one may receive when they have tax debt. I’ve listed them in order from stroll to the phones (low detection on the IRS radar) to break and run to the phone lines & get help (requires immediate action).
CP14 – Casually stroll (No sense of real urgency).
CP501 – Put a little pep in your step (Take notice).
CP503 – Speed walk (Decide to do something).
CP504 – Start Jogging (things are getting very serious).
Letter 1058/LT11 – (Final Levy Notice)—Run like you’re trying to lose weight. —act now or lose your collection due process rights (your right to a hearing and a stop of collection).
CP90/CP91 – Run like you’re trying to lose weight. Another form of Final Notice of Intent to Levy.
CP71 – 10 Day Final Notice of Intent to Levy. RUN LIKE YOU’RE BEING CHASED IN A HORROR MOVIE. Act now, you are out of time.