2021 IRS Letters to Save

by

Think it’s junk mail? Think again! If you received Advance Child Tax Credit (CTC) payments or a third Economic Impact Payment (EIP or “stimulus check”) in 2021, the IRS will be sending you some very important letters. Here’s why you need to keep them to help you file your 2021 federal taxes.

Letter 6419: “2021 Advance CTC”

The IRS started issuing information letters to Advance CTC recipients in late December, 2021 and will continue into January. This letter, which includes the total amount paid in 2021 and the number of qualifying children used to calculate payments, can help you reconcile and receive all the 2021 Advance CTC payments you’re eligible for.

If you received Advance CTC payments, this letter will help you compare what you received in 2021 with the amount you can properly claim on your 2021 tax return.

You can also check the amount of your payments by using the CTC Update Portal available on IRS.gov.

Note: Eligible families who did not receive any advance child tax credit payments can claim the full amount of the child tax credit on their 2021 federal tax return. This includes families who don’t normally need to file a tax return.

Letter 6475: “Your Third Economic Impact Payment”

Recipients of the third round of the Economic Impact Payments will begin receiving information letters at the end of January. This letter only applies to the third round of stimulus payments, which were issued March through December of 2021.

This third round of payments, including “plus-up” payments, were advance payments of the 2021 recovery rebate credit that would be claimed on a 2021 tax return.

If you received a third stimulus check, this letter will help you determine if you are entitled to and should claim the recovery rebate credit on your 2021 tax returns when you file in 2022.

Note: If you think you are missing stimulus payments, visit IRS.gov to determine your eligibility and whether you need to claim a recovery rebate credit for 2020 or 2021. This includes people who don’t normally need to file a tax return.

If you get these – or ANY – letters from the IRS, keep them! Do not throw them away. Bring them with you to our office when you come to file your 2021 taxes.

Appointments are filling quickly! Schedule an appointment with one of our tax pros today to file your 2021 return.

For more information about the 2021 advance child tax credit, Economic Impact Payments, and other COVID-19-related tax relief, contact us today or visit IRS.gov.

5 Steps to Secure Your IRS-Approved Tax Professional in 2022

by

Tis the season for family, festivities, and… tax planning?

Generally speaking, no one wants to think about paying taxes during this most wonderful time of the year, but it’s an ideal time to begin the process of hiring a tax professional. If you’re in the market for a professional to help you put together your 2021 return, you’re in luck.

The IRS recommends five important actions to take during the vetting process, detailed below. Our team of tax pros at Bingman Associates is in full agreement with these five steps, and we want you to try them out this coming year—even if you try them out on us!

1. Get your documents in order.

No matter who prepares your taxes, the IRS will hold you responsible for the information included on your return. Get your information organized so that you have everything ready for the initial conversation.

2. Do your research.

Make sure you’re hiring a legitimate professional. The IRS has a database where you can locate enrolled agents, CPAs, and attorneys who hold professional credentials currently recognized by the IRS. You can also check the status of an enrolled agent with the IRS by using the information found here. Finally, check with the Better Business Bureau to verify the professional’s reputation.

3. Ask lots of questions.

  • Is the professional planning to base their fee on a percentage of the refund or offering to deposit all or part of your refund into their financial account? If they answer yes, move on. This is not how legitimate tax professionals should operate.
  • Does the professional claim they can get you a larger refund than others? Don’t buy it. The facts and calculations for your return should be the same across the board. Any professional should be able to input your data and come up with a similar refund amount, unless they are willing to be dishonest. You don’t want a dishonest tax professional, no matter how appealing a larger refund might sound. During an audit, you’d be the one suffering the consequences if your tax professional misrepresented your data.
  • Be sure to ask the tax professional if they plan to e-file your return.

4. Don’t rush your decision.

You’ll want to start this process early. Trust me, you don’t want to feel pressure of choosing a professional at the last minute. You’ll also want to be sure that the professional is available for questions now and will be there for you in the future. There may come a time that you’ll need them to answer questions about your return, and you want to find a professional who will show up when you need them.

5. Double check their credentials.

Remember that only attorneys, CPAs, and enrolled agents can represent you in front of the IRS in tax matters. Other tax return professionals who participate in the IRS Annual Filing Season Program will have limited practice rights to represent you during any audit of a return they prepared.

If you’re still not sure what to look for in a great tax professional, contact our office today!

You’ve Got Mail: How To Appeal an IRS Decision

by

Are you aware that there’s a Taxpayer Bill of Rights for the United States of America?

Yes, there’s a Bill of Rights specifically for you if you pay taxes.

Are you also aware that every taxpayer in the United States has the right to appeal an IRS decision?

Yes, that’s one of the ten rights listed on the Taxpayer Bill of Rights.

Appealing an IRS decision can seem intimidating, but it doesn’t have to be if you know your rights.

When you file an appeal, it goes to The IRS Independent Office of Appeals. This office is separate from the IRS office that initially reviewed your case. Generally, they don’t even discuss your case with the IRS because that could compromise the independent nature of the Appeals Office.

Tips for Appealing an IRS Decision

Keep these simple tips in mind as you begin the process of appealing a decision in an independent forum:

  • Respond quickly. The IRS will first send you a letter called “a statutory notice of deficiency” proposing additional tax. If you receive a notice like this, you must respond quickly. The petition must be filed with the United States Tax Court to dispute the adjustment before the tax is due to be paid.

  • Know your rights. The Taxpayer Bill of Rights makes it clear that you get a fair and impartial administrative appeal of almost all the IRS decisions, with a few exceptions.

  • Get it in writing. Your rights also include the right to receive a written response regarding a decision from the IRS Office of Appeals.

  • Do your homework. For more information on what to do if you find you must appeal an IRS decision, you can refer to Publication 5, “Your Appeal Rights and How To Prepare a Protest If You Don’t Agree.”

  • Be ready for action. Keep in mind that you’re able to file a refund suit in a United States district court or the United States Court of Federal Claims if:
    • You’ve fully paid the tax and the IRS has denied your tax refund claim,
    • No action is taken on the refund claim within six months, or
    • It’s been less than two years since the IRS mailed you a notice denying the refund.

If you get a letter from the IRS, contact our office immediately. We’re here to help you through this process.

Is it the IRS or a SCAM?

by

Scammers are working a lot of overtime these days. We’ve seen them attempting to mimic the IRS, Social Security, and Medicare through social media messages, text messages, and even letters in the mail.

Until last year, we would tell our clients, “The IRS only sends letters.” However, now these criminals are sending scam letters along with their texts and high-pressure phone calls.

Read carefully to learn how to make sure you never fall for one of these schemes.

  1. Never engage over the phone with anyone who claims to be from the IRS unless you called the IRS first. Hang up the phone immediately, no matter how many times they call you back. The IRS does not make calls to ask for money or personal information.
  2. Never engage over social media with anyone who claims to be from the IRS. Mark the message as spam, report the sender, then hit “delete.” The IRS does not have social media officers.
  3. Never respond to a text message from a source claiming to be the IRS, even if they have some information about you. The IRS does not use “chat bots,” nor do they send out text messages.
  4. Never respond to a letter from the IRS until you’ve had it checked by a professional to verify that it is accurate and not a fake. You can also go on the IRS website to view your account, make a payment, or view your balance.

That said, your first contact from the IRS will always come in the form of a letter or notice. Just because it might be a scam, please don’t throw it away until you’re certain.

Generally, the legitimate letters will only inform you about a change to your account, ask you for more information, or let you know a payment is due.

Here’s what not to do with a letter from the IRS:

  • Do not ignore it. Each notice is going to give you information about a specific issue and will have instructions on what you should do to address that issue.
  • Do not throw it away. Keep all notices and letters from the IRS in your file with your tax returns. In general, the IRS suggests that you keep records for three years from the date you filed your tax return.
  • Do not panic. Most of the time, all you need to do is read the letter carefully, then take the appropriate action. The steps you need to take will be outlined in the letter.
  • Do not reply- unless you’re specifically instructed to do so. If you’re instructed to send a payment, simply send a payment as your reply. IRS.gov has information about payment options.

Once a tax professional has reviewed your letter to make sure it’s authentic, here’s what you should do:

  • Do take action right away. Contact our office immediately. Once you have our verification, take action. These notices may be about changes to your account, taxes owed, a payment request or a specific issue on a tax return. Responding quickly could minimize additional interest and penalty charges.
  • Do remember there is usually no need to call the IRS. If you absolutely must contact the IRS by phone, use the number in the upper right-hand corner of the notice. Make sure you have a copy of your tax return and the original letter when you make the call. But please, do not call a number on an IRS letter until you’ve had it reviewed by a professional. If you call a fake number, you will be pulled into a high-pressure scam and may never realize it!

Remember, the IRS sends letters to help you stay up to date with your tax account.

If you find yourself looking at a letter from the IRS, Social Security, or Medicare, please reach out and we will review it for you.

3 Questions to Ask Before Buying a Car

by

Spring is peak season for purchasing a new vehicle. And when it comes time to make those big purchases, many people are enticed by lender promises and marketing schemes. 

Before you even think about financing your next ride, stop. Take a moment and ask yourself these three critical questions, or those whopping monthly payments might bring on bigtime buyer’s remorse. 

Is the full amount of the loan less than half of your annual income?

As a general rule, you never want the full amount of debt on your vehicles to be more than half of your annual income. If it is, that means you have too much money tied up in things that are going down in value. Crunch the numbers and be honest about your household finances and needs—and make sure you’re looking at vehicles you can actually afford.

Can you pay off the vehicle loan quickly? 

Are you willing to do the hard work involved in making loan pay-off a priority in your life? Before you make the purchase, consider how it will impact your budget to make that monthly payment. Could you bump up your payments and pay off the loan more quickly? Is there an early pay-off penalty? Make sure you understand every aspect of the loan and have room for it in your budget before you sign on the dotted line.

Can you wait to make the purchase?

Before you set your heart on leaving the dealership in a shiny new vehicle, take a step back and ask yourself if there is any way you can put aside cash and wait to make the purchase outright. What would it look like to have a car with no monthly payments? Or, could you save up a bigger down payment and decrease your monthly payment or loan payoff time? Taking the time to explore your options could mean more money in your pocket now and later since you’ll save on interest and fees. No matter what the dealer says, you are not in a hurry. 

Keep in mind, cash is king. 

If you can create space in your budget for a monthly loan payment, guess what? You could also pay yourself a car payment every month and save to pay cash for your next vehicle! 

Yes, you may have to make some sacrifices and get creative so that your current vehicle situation continues to work for you. But, with a little planning, you can make a big purchase without the added price of interest.

If you’re still not sure how to make your next big purchase strategically, see how we can help today!

Where’s Your Stimulus Check Going?

by

Last week, the IRS started distributing the latest round of stimulus checks in an effort to help people and families who have been financially impacted by the Coronavirus pandemic. 

The reality is, not everyone who receives these checks has experienced covid-related financial hardship. If you’re not making up for lost income with yours, you may be wondering, “What should I do with this stimulus check?”

Before you blow it on a shopping spree or plan a lavish vacation, here are a few smart money moves you may want to consider first:

  • Pay down your debt. Use your stimulus money to reduce what you owe on credit cards, car payments, or even your mortgage. Less debt means fewer payments. And that means you get to keep more of the money you work so hard to earn and put it to work for you.  
  • Fund a Traditional or Roth IRA. You’ve probably heard the tax filing deadline has been pushed back to May 17. What you may not know is that you can also make 2020 contributions to IRAs and HSAs up to that new filing deadline. Even if you’ve already filed your 2020 returns, you may still qualify to fund a Roth IRA or HSA. 
  • Save for a rainy day. You may be walking on sunshine financially right now. But one thing is sure—sooner or later, it will rain! Unexpected expenses pop up, and it never hurts to be prepared. Use your stimulus check to kick off or contribute to an emergency fund of 3-6 months’ worth of expenses for a sturdy umbrella of protection. 
  • Help fund college for your kids. Coverdale ESAs and 529 Plans are just a handful of ways you can put money away for your child’s college education. Using that stimulus as an investment in your child’s future career and life will be money well-spent! 

If you’d like advice on any of these stimulus check strategies, we’re here to help! Our team is happy to advise you on your best next steps.

Possible Stimulus Related Tax Delays

by

Latest round of Covid relief comes with 2020 tax implications. 

On March 11, 2021, President Biden signed into law a Covid relief bill called the American Rescue Plan. This bill authorized a third round of stimulus payments in the amount of $1,400 for each taxpayer and their dependents under certain income limits.

What you may not have heard is that the American Rescue Plan could impact your 2020 tax return—if you received unemployment last year. The bill made your first $10,200 of unemployment compensation NOT TAXABLE for 2020 if your household income was less than $150,000. 

If you already filed your 2020 taxes and you received unemployment, be prepared—you will likely need an amended return. This may delay your tax return, as it will for many of our clients. 

If you received unemployment but you haven’t filed your taxes yet, great—just be sure your tax preparer is aware of your situation and whether this legislation applies to you. When in doubt, ask! 

We are still waiting on guidance from the IRS related to this new legislation and how it impacts tax filing. We will continue to monitor changes and updates, and you can count on us to keep you in the loop.

Great News for Your Pandemic-Related Distribution

by

Did the Coronavirus pandemic cause you to take a distribution from a retirement plan? If so, we have good news. You have the option to recontribute those funds within three years of the distribution date. 

According to the IRS, you have the ability to recontribute all or part of certain coronavirus-related distributions to an eligible retirement plan (including an IRA) within three years. This time period begins on the day after the date you received the distribution.

Here’s how it works.

Repayments will be treated as though they were eligible direct rollovers. You’ll be able to re-pay the total amount and it will be handled like you repaid it in a direct trustee-to-trustee transfer. 

In investment terms, this simply means that the re-payment will be viewed as if it were seamlessly moving from one retirement account to another. This will keep you from owing federal income tax on the distribution. Also, amounts repaid aren’t subject to any contribution or rollover limits. 

On top of that, you can claim a refund for any income taxes you paid on amounts previously included in income as long as they were repaid within the three-year time limit. 

For example, if you took a $20,000 qualified distribution in 2020, that will be considered income for 2020 and you will pay income taxes on that amount. However, if you repay the $20,000 in 2021 (or within 3 years of receiving the funds), you can amend your 2020 tax return to remove that $20,000 of income.

Note: Only coronavirus-related distributions that are eligible for tax-free rollover treatment under Section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16) may be recontributed.

Your workplace retirement plan administrator will accept your certification that you satisfy the conditions to qualify for this type of recontribution from a coronavirus-related distribution unless they have actual knowledge to the contrary. 

For example, any coronavirus-related distribution from a workplace retirement plan or IRA paid to a qualified individual as a beneficiary of an employee or IRA owner – other than the surviving spouse of the employee or IRA owner – is not eligible to be repaid.

Normally, hardship distributions are not eligible rollover distributions. That’s why this new repayment option is such great news. If your hardship distribution meets requirements to be a coronavirus-related distribution, you can recontribute it. 

This is only one of several new provisions related to coronavirus distributions—your tax professional can help you determine if any of the provisions pertain to you. 

Important: If you decide to recontribute any distribution, please notify your tax preparer. There are no year-end tax forms issued that would alert your tax preparer that the distribution was repaid. 

Have questions? We can help!

Retirement or College Savings: Which comes first?

by

Helping your child pay for their college education is a wonderful goal. And since most kids head off to school before their parents head into retirement, you might think your kid’s college savings should take priority over your own retirement savings.

But if you’re paying into a 529 plan or IRA for your kid without fully funding your 401K, 403B, IRAs or other retirement accounts first? You might want to think again. Here’s why.

Retirement is certain.

Barring unforeseen tragedy, everyone—including you—will need to retire at some point. Paying for housing, food, medical care, and other expenses during that retirement is a necessity. Starting early and staying consistent with retirement savings will put time and compound interest on your side.

But if you skimp on retirement savings to fund your kid’s college, you may be asking them for a handout in your later years. 

College is a luxury.  

What’s more, while retirement is inevitable, not every child will go to college—at least not in the ways you might expect. There are plenty of ways to cover the costs of higher education. There are scholarships, grants, part-time jobs, and more.

The best way to help your child save for college is to help them choose a school or training program that’s not only ideal, but affordable. Our team can help you find more ways to keep costs at a minimum.

If you’re a parent who is struggling to save for your child’s college education, don’t worry. Some parents might not be able to put a dime toward their child’s degree, and that doesn’t make them bad parents.

With some hard work and financial savvy, your child can still go to college and stay debt free! But the only one who will be able to fully fund your retirement is you. That makes retirement savings your first priority.

Need help finding the best retirement savings options for your future? See how we can help today!