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AOTC Tuition Credit Offers Tax Savings for Students or Parents – Did You Know?
If you, your spouse or any of your dependents are currently enrolled in a higher education program, or were enrolled for a previous academic period in 2020, you may qualify for the American Opportunity Tax Credit (AOTC). The AOTC program allows eligible taxpayers to claim a credit for tuition costs and certain school fees.
To qualify for the credit, a student must be taking post-secondary classes at an eligible higher learning institution, in pursuit of a degree or other recognized certification or credential. In addition, students must meet ALL of the following eligibility requirements:
- They are or were enrolled at least half time for at least one academic period (as defined by the school) in 2020.
- They had not completed their first four years of higher education as of January 1, 2020.
- Neither the AOTC nor its predecessor, the Hope credit, has been claimed more than four times total for the student, including the current year.
- The student and the person claiming the credit (if different from the student) must have a valid taxpayer identification number (TIN) before the due date for the tax return.
Additional eligibility criteria may apply to both the student and the educational institution. To claim the full credit, taxpayers must have a modified adjusted gross income (MAGI) of $80,000 or less for individuals, or $160,000 or less for couples filing jointly. A reduced credit may be available for individual taxpayers with a MAGI between $80,000 and $90,000 (between $160,000 and $180,000 for joint filers). Those with higher incomes may not claim the credit.
The maximum allowed credit per eligible student is $2,500, up to $1,000 of which may be refundable. You may claim the credit for multiple students in your household if they all meet the eligibility standards. For students who do not qualify, you may still be able to claim either the Lifetime Learning Credit or an above-the-line income deduction for tuition and fees. A tax professional can help you determine which credits and/or deductions provide the greatest tax benefit for you.
Educator Expense Deduction – Did You Know?
If you are a teacher, principal, counselor, or classroom aide who works at least 900 hours a year in a state-accredited school (grades K-12), you may qualify for the Educator Expense Deduction. This IRS rule allows you to deduct up to $250 on your tax forms ($500 for joint filers who are both educators, but not more than $250 each) for classroom supplies that you purchase at your own expense.
Allowed expenses include traditional school supplies like rulers and markers, computer equipment and software, along with specialty items like athletic gear for physical education classes. A qualified tax advisor can help you determine which of your expenses qualify for the deduction.
You may not have to itemize deductions in order to claim the Educator Expense Deduction, but the IRS does require that you have written evidence for every expense. During this hectic back-to-school period when classroom expenses are most likely to occur, it is important to remember to save your receipts.
Unemployment Benefits Are Taxable Income – Did You Know?
Due to the economic impact of the COVID-19 (coronavirus) pandemic, individuals may have had to file for Unemployment Insurance (UI) benefits for the first time. These benefits include the federal Pandemic Unemployment Assistance (PUA) program created under the CARES Act, which provides an additional $600 per week to many UI benefits recipients. For individuals receiving UI payments in 2020, it is important to understand the tax treatment of those benefits.
Both state and federal unemployment benefits payments are generally taxed as ordinary income by the IRS. As is the case with most regular income sources, recipients of these benefits are required to make tax payments throughout the year. One way that taxpayers can meet this requirement is to request that tax be withheld from their UI payments, which can be done in most states by filing Form W-4V with the state's unemployment benefits office.
If no tax is withheld from their UI payments, taxpayers may need to make quarterly estimated tax payments in order to avoid a large tax bill next spring, which could include penalties and interest charges. A tax professional can help UI payment recipients determine whether estimated payments are needed, and how much to pay. The estimated tax payment deadline for the first two quarters of 2020 was July 15, but if an individual missed that deadline, penalties can still be minimized by making a payment as soon as possible.
Even if tax is withheld from UI payments, the amount withheld may be incorrect if a person's benefit amount differs from their salary while working. To avoid an unpleasant tax surprise next spring, taxpayers can use the IRS Withholding Estimator tool (link below) to calculate the appropriate withholding amount, and file an updated Form W-4V to request additional withholding if necessary. UI benefits recipients should also do a second checkup with the Withholding Estimator after returning to work, to ensure that their paycheck withholding is accurate going forward.
IRS Withholding Estimator tool: https://www.irs.gov/individuals/tax-withholding-estimator
Quarterly Estimated Tax Payments - Reminder
If you are making quarterly estimated tax payments to the IRS, the due date for the June 1 - August 31 quarter of the year is September 15.
For payments made using IRS Direct Pay, you can make payments until 8PM EST, and for payments using a credit or debit card, payments can be made up to midnight on the due date.
If the due date for making an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be considered on time if you make it on the next day that's not a Saturday, Sunday, or legal holiday.
2019 Refund Interest Payments - Did You Know?
Over 13 million taxpayers who have received or will receive federal income tax refunds for 2019 will also receive an interest payment from the IRS. The 2019 filing and payment deadline change from April 15 to July 15, 2020 due to COVID-19 (coronavirus) was classified as a disaster-related postponement. Therefore, the federal tax code requires the IRS to pay interest starting from April 15 on refunds issued to taxpayers who filed their 2019 returns by July 15.
These interest payments will average about $18, and will usually be issued separately from tax refunds. If you provided the IRS with banking information and received your refund by direct deposit, any interest payment you are owed will most likely be automatically deposited to the same account. However, some taxpayers will receive a check in the mail, which can be identified as a refund interest payment by the notation "INT Amount" on the official U.S. Treasury check.
Unlike IRS tax refunds themselves, these interest payments are generally taxable and must be reported on the recipient's 2020 federal tax return. Anyone who receives an interest payment of $10 or more will receive Form 1099-INT from the IRS in January. Only individual taxpayers and joint filers are eligible to receive these interest payments, not businesses. Note also that the IRS is not required to pay interest on refunds that were issued before the original April 15 filing deadline.
RMD Repayment or Rollover Deadline - Did You Know?
The deadline to return or rollover a Required Minimum Distribution (RMD) for IRA owners, beneficiaries or workplace retirement plan participants is coming up on Monday, August 31.
The CARES Act allows most taxpayers with an eligible retirement account, such as a 401(k), 403(b) or traditional IRA, to skip their required minimum distributions (RMDs) for 2020 without penalty. Individuals who received the RMD, including those who turned 70½ in 2019, have the option to return the distribution to their account or other qualified plan. They may also have the option of rolling over to another IRA or qualified retirement plan by August 31, 2020 to avoid taxes on the RMD. Please note that the suspension of the RMD does not apply to qualified defined benefit plans.
A tax and financial professional can help you determine the best strategy for handling your 2020 retirement account RMDs.
Charitable Cash Contribution Limits for 2020 – Did You Know?
As part of the U.S. Treasury's ongoing COVID-19 (coronavirus) relief programs for taxpayers, the IRS has made temporary changes to the rules for deducting charitable contributions on federal tax returns.
Normally, taxpayers who itemize deductions on Schedule A can deduct cash charitable contributions up to a specified limit, usually 60% of their adjusted gross income (AGI). For 2020, however, qualified contributions may be deducted up to 100% of the taxpayer's AGI. (For corporations, the 2020 deduction limit is 25% of taxable income.) Furthermore, qualified contributions above this raised limit may be carried over as a deduction for the next tax year.
To qualify for this limit suspension, a contribution must satisfy ALL of these requirements:
- It is a cash contribution (that is, a direct contribution of money, not other property)
- It is made to a qualifying charitable organization
- It is made during calendar year 2020.
Note that non-cash property contributions made in 2020 do not qualify for this limit suspension. However, these contributions may still be deducted up to the normal limits (typically 50% of AGI minus the amount of any deducted cash contributions). A tax professional can help you determine if any of your 2020 charitable contributions qualify for the deduction limit suspension, and how to claim your full deduction if so.
The IRS also has a tool available for checking exempt organizations: https://www.irs.gov/charities-non-profits/search-for-charities.
I've sent my state reps an email to vote for Conformity with the Federal tax laws. It's already too complicated as is! Some things need to be streamlined so that there are not numerous differences between Fed tax calcs and VA tax calcs.
votervoice.net When the Virginia General Assembly reconvenes Aug. 18, 2020, the VSCPA is calling on you to urge the administration and the General Assembly to address conformity with tax provisions in the Coronavirus...
Filing Extensions and Minimizing Penalties – Did You Know?
Taxpayers who requested an automatic extension to file their 2019 federal income tax returns may file anytime up until October 15, 2020. Remember, however, that an automatic IRS extension is only an extension to file tax returns, NOT an extension to pay any tax owed. Taxes not paid by the July 15, 2020 payment deadline may be subject to late penalties and interest charges.
Therefore, taxpayers who have not yet sent an IRS payment that was due on July 15, including 2019 income tax and first- and second-quarter estimated tax payments for 2020, should submit a payment to the IRS as soon as possible to minimize penalties. Electronic payments may be made using the IRS online payment portal (link below). The IRS urges those who cannot pay what they owe at this time to pay whatever amount they can, and then apply for an installment plan to pay off the remaining balance.
Those who did not file a 2019 federal return or automatic extension request by July 15 may face a Failure to File penalty in addition to late fees and interest. It is therefore especially important for these taxpayers to take action as soon as possible. A tax professional can help anyone trying to meet federal tax filing and payment requirements to submit the appropriate forms and applications to the IRS, and start getting back on track.
IRS Online Payment Portal: https://www.irs.gov/payments
IRS Installment Payments after July 15 - Did You Know
As part of the federal government's COVID-19 (coronavirus) relief programs, the U.S. Treasury allowed many taxpayers with an IRS installment payment agreement, or a pending or accepted Offer-in-Compromise (OIC), to suspend payments between April 1 and July 15, 2020. The IRS recently confirmed that to avoid penalties, affected taxpayers must resume making required payments by their first due date on or after July 15, or contact the IRS if they cannot do so.
The IRS guidance includes the following key points:
- If you currently have an installment agreement with the IRS and had your bank stop making automatic payments due to the pandemic, you should tell your bank to restart these payments by your first payment due date after July 15. If you are unable to make your payments due to coronavirus-related hardships, you may call the phone number on your IRS notice to discuss options. You may also avoid long phone wait times by submitting an online application (see link below) to revise your agreement.
- If you have a pending OIC and suspended your payments, simply resume making scheduled payments by July 15. If your offer is accepted, the IRS will update the agreement to allow you to make any missed payments at the end of the offer period.
- If you suspended payments on a previously approved OIC, the IRS requires that you not only resume making payments on July 15, but also make up any skipped payments by that due date. If you are unable to make up your missed payments at this time, call the phone number on your IRS notice to discuss your options.
- If your IRS tax debt was referred to a private collection agency before April 1, 2020 but you suspended payments between April 1 and July 15, you will need to restart payments to the collection agency. You should also contact your collection agency representative to find out if it is appropriate to update or restructure your payment agreement based on your current circumstances.
Remember also that although the IRS did not impose penalties for skipped payments during the April 1 - July 15 grace period, interest charges may still have accrued on the tax debt. Most importantly, if you are unable to make any required federal tax payment, contact the IRS as soon as possible to discuss your situation. When dealing with the IRS, it is always best to be proactive.
Apply for or revise an installment payment agreement:
Where's My Refund? - Did You Know
You can use the IRS 'Where's my Refund' (https://www.irs.gov/refunds) tool to check the status of your refund. The 'Where's my Refund' tool is updated once daily, usually overnight. Your status is generally available within 24 hours upon the IRS receiving your e-filed return.
If you have filed a paper return, the IRS is currently experiencing processing delays for paper filed returns due to limited staffing, but will process them in the order received.
Multiple IRS Deadlines Fall on July 15 – Important Reminders
The U.S. Treasury's COVID-19 (coronavirus) pandemic relief efforts included postponing many IRS deadlines to July 15, 2020. As a result, numerous federal tax forms and payments are due this week. The most important July 15 IRS deadlines to keep in mind include:
2019 INDIVIDUAL FEDERAL TAX RETURN FILING: U.S. resident individual and joint tax filers, along with U.S. citizens and resident aliens living abroad or on military duty, must file 2019 Form 1040 or 1040-SR and pay any tax due. If you cannot file your return by the deadline, request an automatic filing extension to October 15 by submitting Form 4868. However, if you expect to owe tax, estimate the amount and pay it by July 15 to avoid late payment penalties. (Military personnel in combat zones may be entitled to filing extensions beyond October 15.)
FIRST TWO 2020 QUARTERLY ESTIMATED TAX PAYMENTS: If you earn income and either do not pay federal taxes through paycheck withholding or do not expect your withholding to cover your 2020 tax obligations, you may need to make quarterly estimated tax payments. In particular, this requirement applies to many self-employed taxpayers and “gig economy” workers. Your first two quarterly estimated payments for 2020 (payments for Quarter 1 and Quarter 2) are due on July 15.
DEADLINE FOR 2019 IRA AND HSA CONTRIBUTIONS: You may be able to treat contributions made by July 15 to your IRA or health savings account (HSA) as 2019 contributions, provided you have not reached your 2019 contribution limit.
2019 FEDERAL TAX AND 2020 ESTIMATED TAX DEADLINES FOR CORPORATIONS: Corporations must file their 2019 federal income tax returns and pay any tax due, and also make their first two 2020 estimated income tax payments, by July 15.
The IRS urges taxpayers who cannot pay the tax they owe to file by the July 15 deadline and pay what they can. By making a payment in any amount now and setting up a payment plan, you may be able to significantly reduce penalties and interest charges.
Christina Villeneuve, CPA has been helping her clients implement tax saving strategies for over 30 years. Her practice specializes in tax planning and tax preparation for high net worth individuals as well as representation before the IRS and state tax authorities when the need arises.
Over the years, Christina has worked with thousands of clients and strives to give her clients the highest level of customer service and personal touch which has resulted in a very loyal client base. Although she has worked with many small business customers spanning a variety of industries [retail, construction, medical, commercial real estate, and publishing to name a few], her highest satisfaction comes from her individual  client base, strategically working together to minimize their tax liability.
American Institute of Certified Public Accountants
Virginia Society of CPA's
National Association of Tax Professionals
National Society of Tax Professionals
Northern Chapter of the VSCPA's
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