by | Dec 15, 2020 | Tax Tips and News
The Internal Revenue Service has issued Notice 2020-86, addressing certain parts of the SECURE Act that affect safe harbor plans—including safe harbor 401(k) plans and some 403(b) plans.
The SECURE Act—also known as the Setting Every Community Up for Retirement Enhancement Act—was passed into law in 2019.
Not all 401(k) plans qualify
A safe harbor 401(k) plan is similar to a traditional 401(k) plan but is structured so that compliance testing can be avoided.
Among other things, a safe harbor 401(k) plan has to provide for employer contributions that are fully vested when they’re made. These contributions can be employer matching contributions, limited to employees who defer, or employer contributions made on behalf of all eligible employees, regardless of whether they make elective deferrals.
Notice 2020-86 is written in a question-answer format that aims to help small business and other employers who maintain safe harbor plans comply with the SECURE Act.
The automatic elective deferral cap has increased
In general terms, the new law increases the maximum automatic elective deferral under an automatic enrollment safe harbor plan from 10% to 15%. It also eliminates certain safe harbor notice requirements for plans providing non-elective contributions and adds new provisions for the retroactive adoption of safe harbor status of those plans.
The notice impacts certain safe harbor 401(k) and 401(m) plans – including 403(b) plans that apply the 401(m) safe harbor.
The IRS says the notice is intended to help taxpayers by providing guidance on particular issues while regulations are being developed to fully implement the SECURE Act provisions.
For more information, check IRS.gov.
Source: IR-2020-273
– Story provided by TaxingSubjects.com
by | Dec 11, 2020 | Tax Tips and News
Final regulations have been issued on the deduction for qualified transportation fringe and commuting expense.
The new regulations were issued by the Internal Revenue Service and the Treasury Department to bring the tax code into line with changes made by the Tax Cuts and Jobs Act (TCJA).
The legislation that was passed into law in 2017 generally disallows deductions for qualified transportation fringe (QTF) expenses. It also does not permit deductions for certain expenses of transportation and commuting between an employee’s residence and place of employment.
The final regulations address the disallowance of the deduction for expenses as they relate to an employee of the taxpayer, and includes guidance and methods to calculate the amount of QTF parking expenses that is non-deductible.
The final regulations also spell out the disallowance of the deduction for expenses of transportation and commuting between an employee’s residence and their place of employment.
More information on the implementation of the Tax Cuts and Jobs Act can be found on the Tax Reform page of IRS.gov.
Some taxpayers notified they need to act on Qualified Opportunity Funds
The IRS is sending letters to some taxpayers, saying they need to do a little more work if they intend to self-certify as a Qualified Opportunity Fund, or QOF.
Taxpayers who attached or indicated they attached a Form 8996 to their return may get Letter 6250, Self-Certifying as Qualified Opportunity Fund. The letter lets them know that if they intended to self-certify as a QOF they may need to take additional action to meet the annual self-certification requirement.
In order to correct a 2018 self-certification as a QOF, a taxpayer should file an amended return or an administrative adjustment request (AAR).
If an entity receiving the letter fails to self-certify as a QOF, the IRS may refer the tax account for examination. Investors who made an election to defer tax on eligible gains invested in the entity could also be subject to examination for an invalid election.
In addition, taxpayers may get Letter 6251, Reporting Qualified Opportunity Fund Investments. This letter notifies taxpayers they may not have properly followed the instructions for Form 8949, Sales and Other Dispositions of Capital Assets, or don’t appear to have an eligible gain that would enable them to make a valid deferral election for gains invested in a QOF.
Taxpayers who intended to make a valid deferral election can file an amended return or an AAR.
Taxpayers who receive a letter but fail to act will lead the IRS to conclude the recipient may not have a qualifying investment in a QOF, and the account could be referred for examination. This in turn could result in the recipient owing taxes, interest and penalties on gains that were not properly deferred.
For more information, visit the Opportunity Zones page on IRS.gov.
Sources: IR-2020-274; IR-2020-275
– Story provided by TaxingSubjects.com
by | Dec 10, 2020 | Tax Tips and News
The tax-filing season will be upon us before we know it, so the Internal Revenue Service is urging taxpayers to take actions now to help ensure they can file timely and accurate returns in 2021.
Things to consider
The IRS says there are some areas that taxpayers should give extra attention before filing. These topics include credits, deductions and refunds:
Recovery Rebate Credit/Economic Impact Payment. Taxpayers who received an Economic Impact Payment, should keep Notice 1444, Your Economic Impact Payment, with their 2020 tax records. They may be eligible to claim the Recovery Rebate Credit on their tax year 2020 federal income tax return if:
- they didn’t receive an Economic Impact Payment, or
- their Economic Impact Payment was less than $1,200 ($2,400 if married filing jointly for 2019 or 2018), plus $500 for each qualifying child they had in 2020.
If a taxpayer didn’t receive the full amount of the Economic Impact Payment for which they were eligible, they may be able to claim the Recovery Rebate Credit when they file in 2021. Individuals don’t need to complete information about the Recovery Rebate Credit on tax year 2020 Form 1040 or 1040-SR when filing in 2021, unless they’re eligible to claim an additional credit amount.
Interest on refunds is taxable. Taxpayers who got a federal tax refund in 2020 may have been paid interest. Refund interest payments are taxable and must be reported on federal income tax returns. In January 2021, the IRS will send Form 1099-INT to anyone who received interest totaling $10 or more.
Charitable deduction changes. New this year, taxpayers who don’t itemize deductions may be able to take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations. For more information, read Publication 526, Charitable Contributions.
Refunds. The IRS always cautions taxpayers and tax pros alike that they shouldn’t rely on getting a refund by a certain date, especially when making big purchases or paying bills. Some returns might require additional review and so processing might take longer.
For example, the IRS and its partners in the tax industry continue to strengthen the security review process in an effort to help protect against identity theft and refund fraud.
Just like last year, refunds for returns claiming the Earned Income Tax Credit or Additional Child Tax Credit cannot be issued before the middle of February. This applies to the entire refund – including the portion not associated with these credits.
Get more information on steps taxpayers can take ahead of filing season at a special web page on IRS.gov. Other helpful resources include Publication 5348, Get Ready to File, and Publication 5349, Year-Round Tax Planning is for Everyone.
Source: IR-2020-272
– Story provided by TaxingSubjects.com
by | Dec 9, 2020 | Tax Tips and News
While it seems our world is on the edge of big changes for the coming year, the IRS is keeping some things status-quo for now. The Internal Revenue Service says interest rates will be the same for the calendar quarter that starts Jan. 1, 2021.
Those rates will be:
- 3% for overpayments (2% in the case of a corporation);
- 5% for the portion of a corporate overpayment exceeding $10,000;
- 3% for underpayments; and
- 5% for large corporate underpayments.
The Internal Revenue Code mandates the rate of interest to be determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.
In most cases, the corporate underpayment rate is the federal short-term rate plus 3 percentage points. The overpayment rate is the federal short-term rate plus 2 percentage points.
The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points.
The rate on the portion of a corporate overpayment of tax that exceeds $10,000 for a taxable period is the federal short-term rate plus one-half (.05) of a percentage point.
These new interest rates are calculated from the federal short-term rate that was determined during October 2020 that took effect Nov. 1, 2020, based on daily compounding.
Revenue Ruling 2020-28, announcing the interest rates, will appear in Internal Revenue Bulletin 2020-52 when it is posted later this month.
Source: IR-2020-270
– Story provided by TaxingSubjects.com
by | Dec 8, 2020 | Tax Tips and News
The Internal Revenue Service is giving employers a friendly nudge to remind them that their Forms W-2 and other wage statements have to be filed by Feb. 1, 2021, to avoid penalties.
Making the deadline will also help the IRS prevent fraud.
A 2015 law made Jan. 31 the permanent deadline to file copies of Form W-2, Wage and Tax Statements, and Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration.
The calendar for the upcoming tax season, however, shows Jan. 31 is a Sunday, pushing the due date to the next business day: Monday, Feb. 1.
Certain Forms 1099-MISC, Miscellaneous Income and Forms 1099-NEC, Non-Employee Compensation, are also normally due to taxpayers by Jan. 31. However, this tax season that too has been pushed back to the next business day on Feb. 1.
Various other due dates related to Form 1099-MISC, including due dates to the IRS, can be found in the instructions on IRS.gov.
The normal January filing date for wage statements means the IRS can more easily detect refund fraud, with more time to verify the income that taxpayers report on their tax returns. Employers can help support that process—and avoid penalties—by filing the forms on time and without errors.
Start early for the best results
Good preparation now can help businesses avoid problems later. For example, employers can get an early start verifying or updating employee information such as names, addresses and Social Security numbers or individual Taxpayer Identification Numbers.
In addition, company administrators should ensure their firm’s account information is current and active with the Social Security Administration before January, and should order paper Forms W-2 early if needed.
Automatic extensions of time to file Forms W-2 are not available.
The IRS will only grant extensions for very specific reasons. The instructions for Form 8809, Application for Time to File Information Returns have details.
For more information, read the instructions for Forms W-2 and W-3 and the Information Return Penalties page on IRS.gov.
Source: IR-2020-269
– Story provided by TaxingSubjects.com
by | Dec 5, 2020 | Tax Tips and News
The Internal Revenue Service and its Security Summit partners are warning tax professionals that cybercriminals are targeting them with new ways to get taxpayer information.
The alert says thieves are readying scams that capitalize on tax professionals working from home due to the pandemic.
The Security Summit, comprised of IRS officials, state tax agency representatives and leaders in the national tax industry, closed out its weeklong National Tax Security Awareness Week by issuing this new warning. The annual security event aims to heighten awareness about identity theft and data security measures among taxpayers, businesses and tax practitioners.
“When the Security Summit formed five years ago to fight identity thieves it was clear that the IRS, the state and industry could not be successful without the help of taxpayers and tax professionals. Everyone has a role to play in protecting sensitive financial data,” said IRS Commissioner Chuck Rettig. “We’ve made tremendous progress in the past five years, but we still have work to do. The coronavirus and the increase in teleworking creates new ways for these sophisticated cybercriminals to scam people out of their money or their sensitive tax and financial information.”
As the IRS and Security Summit partners took steps to strengthen defenses against cybercriminals, the identity thieves were turning their focus from individual taxpayers to tax professionals, targeting their offices and data systems.
Data thefts from tax pros can provide a wealth of valuable information to thieves trying to file fraudulent tax returns.
Security Summit partners remind all tax professionals to review their security measures. IRS Publication 4557, Safeguarding Taxpayer Data, provides tax pros with a starting point for basic steps to protect clients.
Also available is the “Taxes – Security – Together” Checklist created by the Security Summit to help tax practitioners identify the basic steps they should take. As more tax pros work from home or from remote locations because of COVID-19, these measures are even more critical for securing tax data.
Don’t forget the “Security Six!”
Easy steps that can make a big difference, both for tax pros and taxpayers:
- Use anti-virus software and set it for automatic updates to keep your systems secure. This includes all digital products, computers and mobile phones.
- Use firewalls. Firewalls help shield computers from outside attacks but cannot protect systems in cases where users accidentally download malware, for example, from phishing email scams.
- Use multi-factor authentication to protect all online accounts, especially tax products, cloud software providers, email providers and social media.
- Back up sensitive files, especially client data, to secure external sources, such as external hard drive or cloud storage.
- Encrypt data. Tax professionals should consider drive encryption products for full-drive encryption. This will encrypt all data.
- Use a Virtual Private Network (VPN) product. As more practitioners work remotely during the pandemic, a VPN is critical for secure connections.
Use multi-factor authentication
In 2021, all online tax preparation products for tax professionals will include an option to use multi-factor authentication. All tax pros are being urged to use this option.
Remember, however, that cheap over-the-counter, hard-disk products may not include an option to use multi-factor authentication.
Of the numerous data thefts reported to the IRS from tax professional offices this year, most could have been avoided had the practitioner used multi-factor authentication to protect tax software accounts.
Using Google Play or the Apple Store, practitioners can download readily available authentication apps to their smartphones. These apps will generate a security code. Codes also can be sent to the practitioner’s email or text but the IRS notes those are not as secure as the authentication apps. Go online and search for “Authentication apps” to learn more.
Use VPNs to protect remote worksites
A virtual private network, or VPN, sets up a secure, encrypted tunnel to transmit data between a remote user and the company network via the internet. As teleworking or working from home continues during the pandemic, VPNs are critical to protecting and securing internet connections.
Offices that fail to use VPNs can open themselves up to risks of remote takeovers by cyber-thieves, giving criminals access to the tax pro’s entire office network simply by accessing an employee’s remote internet connection.
Practitioners shouldn’t be shy about seeking out professional technical help in this area. Seek out cybersecurity experts whenever possible.
Tax pros can also search for “Best VPNs” to find a legitimate vendor, or major technology sites often provide lists of top services. Remember, never click on a “pop-up” ad that’s marketing a security product. Those generally are scams.
Defending against phishing scams
Phishing emails generally have an urgent message, such as “your account password expired.” They direct you to an official-looking link or attachment. But the link could take you to a fake website made to appear like a trusted source, where it requests your username and password. Or, the attachment may contain malware that secretly downloads software tracking keystrokes and allowing thieves to eventually steal all the tax pro’s passwords.
The Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA) recently issued a warning to all organizations to educate employees, especially those who are teleworking, about increased activity related to phishing scams.
The IRS often sees thieves posing as potential clients, trying to trick tax pros into opening an embedded link or attachment. Scams involving COVID-19 and the Economic Impact Payments also have been common.
It’s the law: Write your security plan!
The IRS and Security Summit strongly remind tax professionals that federal law requires tax practitioners to have a written information security plan. The Federal Trade Commission has enforcement authority—by federal law—over this provision.
Tax pros can learn more about the FTC’s “Safeguards Rule” from IRS Publication 4557.
In addition to the required information security plan, tax professionals should also consider drawing up an emergency response plan should they suffer a breach and data theft. Such a plan can save valuable time, providing contact information for the IRS Stakeholder Liaisons who are the first point of contact for data theft reporting to the IRS and the states.
IRS Publication 5293, Data Security Resource Guide for Tax Professionals, provides a wealth of data theft information available on IRS.gov, including the reporting process.
For more information on the partners of the Security Summit and other steps to secure tax information, check out IRS.gov/securitysummit.
(If you’re looking for a sample written information security plan, download the Drake Software Tax Office Security Plan.)
Source: IR-2020-271
– Story provided by TaxingSubjects.com
Holland and Associates