Ez1040 Tax Service

09/05/2024

IRS Online Account and Identity Protection PINs protect against identity thieves and scammers

IRS Identity Protection PINs, or IP PINs, are a vital tool to protect taxpayers from identity thieves. The IRS encourages taxpayers to get an IP PIN and establish their IRS Online Account. These tools help guard against fraudsters trying to steal personal and financial information.

Important things to know about an IP PIN
• It's a six-digit number known only to the taxpayer and the IRS.
• The program is voluntary, though it’s strongly encouraged.
• In cases of proven identity theft, taxpayers will be assigned an IP PIN.
• The IP PIN should be entered on the electronic tax return when prompted by the software product or on a paper return next to the signature line.

• Only taxpayers who can verify their identity can get an IP PIN.
• Tax professionals cannot get an IP PIN on behalf of their clients.
• Each IP PIN is valid for one year. When it expires, a new one is generated for security reasons.
• Some participants will receive their IP PIN in the mail. Others will have to log in to the Get an IP PIN tool to get their IP PIN.
• Taxpayers already enrolled in the program can log in to the Get an IP PIN tool to see their current IP PIN.
• Taxpayers with an IP PIN must use it when filing any federal tax returns during the year, including prior year tax returns or amended returns.
• IP PIN users should share their number only with the IRS and their tax preparation provider.
• The IRS will never call, email or text the taxpayer to request their IP PIN.
How to request an IP PIN

After a taxpayer verifies their identity, the Get an IP PIN tool lets people with a Social Security number or individual taxpayer identification number to request an IP PIN online. Taxpayers should review the identity verification requirements before they use the Get An IP PIN tool.

Tax professionals should advise clients affected by identity theft to request an IP PIN. Even if a thief has already filed a fraudulent tax return, an IP PIN could prevent the taxpayer from being a repeat victim of tax-related identity theft.

Taxpayers who can't validate their identity online can still get an IP PIN
Taxpayers who can't validate their identity online and whose income is below a certain threshold can file Form 15227 (EN-SP), Application for an Identity Protection Personal Identification Number. The 2024 threshold is $79,000 for individuals or $158,000 for married couples filing joint returns.

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08/29/2023

Not All Powers Are the Same: Using a Durable Power of Attorney rather than a Form 2848 in Tax Matters

Normally, a taxpayer must sign an IRS Form 2848, Power of Attorney and Declaration of Representative, to allow someone to represent them in a tax matter with the IRS -- the representative must also have certain professional credentials. In some cases, however, a taxpayer is unable to complete and sign a Form 2848 because they become physically or mentally incompetent. What can you do to prepare for the day when you or someone you know may be in that situation? Plan ahead! In many cases, you may be able to use a “durable power of attorney” -- often used for estate planning or other purposes -- to overcome a legally incompetent taxpayer’s inability to complete a Form 2848.

Durable powers of attorney created for estate planning or other purposes give your designated agent or “attorney-in-fact” authority to make healthcare and financial decisions. The word “durable” means the power of attorney has staying power and will remain in effect if you later become incompetent. Needless to say, the durable power of attorney must be created before you become physically or mentally incompetent. For a durable power of attorney to work for federal tax matters, however, specific information required under the Internal Revenue Code and regulations needs to be included. The requirements related to use of durable power of attorneys in federal tax matters are stated in Reg. 601.503(b), which can be found in Publication 216, click below.

If care isn’t taken in preparing the durable power of attorney, it may not be sufficient to authorize your agent to act for you in tax matters for the IRS. In that case, your agent may also have to be designated a guardian or similar fiduciary, which is typically done by a state court and can be a lengthy process. Once your agent is designated a guardian or similar fiduciary, they would then have to file an additional form (Form 56) with the IRS that informs the IRS of the fiduciary relationship.

08/29/2023

Educator Expense Deduction helps teachers cut classroom costs

Teachers often buy classroom supplies with their own money. The Educator Expense Deduction helps them get some of that money back. Eligible teachers and administrators can deduct part of the cost of technology, supplies and training from their taxes. They can claim this deduction only for expenses that weren't reimbursed by their employer, a grant or other sources.

Who is an eligible educator

The taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal or aide. They must also work at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.
Things to know about this deduction

Educators can deduct up to $300 of trade or business expenses that weren't reimbursed. If two married educators are filing a joint return, the limit rises to $600. These taxpayers can’t deduct more than $300 each.

Qualified expenses are amounts the taxpayer paid themselves during the tax year.

Here are some of the expenses an educator can deduct

• Professional development course fees.
• Books and supplies.
• COVID-19 protective items to stop the spread of the disease in the classroom.
• Computer equipment, including related software and services.
• Other equipment and materials used in the classroom.

06/29/2023

Tax planning doesn’t stop after a taxpayer files a tax return
Just because a taxpayer filed a tax return doesn’t mean they should forget taxes until next year. What a taxpayer does now may affect the tax they owe or the refund they may receive next year.

Here are some simple year-round tax planning pointers for all taxpayers.

Organize tax records. Create a system that keeps all important information together. Taxpayers can use a software program for electronic recordkeeping or store paper documents in clearly labeled folders. They should add tax records to their files as they receive them. Organized records will make tax return preparation easier and may help taxpayers discover overlooked deductions or credits.

Identify filing status. A taxpayer’s filing status is used to determine their filing requirements, standard deduction, eligibility for certain credits and the correct amount of tax they should pay. If more than one filing status applies to a taxpayer, they can get help choosing the best one for their tax situation with Interactive Tax Assistant,

What Is My Filing Status? Changes in family life — marriage, divorce, birth and death — may affect a person’s tax situation, including filing status and eligibility for certain tax credits and deductions.

Understand adjusted gross income (AGI). AGI and tax rate are important factors in figuring taxes. AGI is the taxpayer’s income from all sources minus any adjustments and deductions. Generally, the higher a taxpayer’s AGI, the higher their tax rate and the more tax they pay. Tax planning can include making changes during the year that lower a taxpayer’s AGI.

Check withholding. Since federal taxes operate on a pay-as-you-go basis, taxpayers need to pay most of their tax as they earn income. Taxpayers should check that they’re withholding enough from their pay to cover their taxes owed, especially if their personal or financial situations change during the year. To check withholding, taxpayers can use the IRS Withholding Estimator. If they want to change their tax withholding, taxpayers should provide their employer with an updated Form W-4. Changing withholding and having more withheld may lower their AGI and affect their tax bill or expected refund.

Make address and name changes. Notify the United States Postal Service, employers and the IRS of any address change. To officially change a mailing address with the IRS, taxpayers must complete Form 8822, Change of Address, and mail it to the correct address for their area. For detailed instructions, see page 2 of the form. Report any name change to the Social Security Administration. Making these changes as soon as possible will help make filing their tax return easier.

Save for retirement. Saving for retirement can also lower a taxpayer’s AGI. Contributing money to a retirement plan at work and to a traditional IRA also reduces taxable income.

06/27/2023

Info to help gig economy workers stay on top of their tax responsibilities

The gig economy - also called sharing economy or access economy - is a popular way for people to earn income by providing on-demand work, goods or services.

Some people take up gig work on a part-time basis, and for others the job is done full-time. Income from gig work – such as driving a car for booked rides, selling goods online, renting out property or providing other on-demand work – is taxable and must be reported as income on the worker's tax return.

Gig work is taxable

• Earnings from gig economy work are taxable regardless of whether an individual receives information returns. Due to reporting requirements. PDF, gig economy workers may get a Form 1099-K if their income exceeds $600.

• Earnings from gig work include payments by credit card, cash, property, goods or virtual currency.

• Gig workers may be required to make quarterly estimated tax payments.

• If gig workers are self-employed, they must pay all Social Security and Medicare taxes on their income from the gig activity.
Proper worker classification

It’s important that the taxpayer is correctly classified while they provide gig economy services. Gig workers may be classified as independent contractors by digital platforms that match workers’ services with customer needs.

• This means the business, or the platform, must determine whether the individual providing the services is an employee or independent contractor.

• Taxpayers should review the worker classification information on IRS.gov to see how they should be classified.

• Independent contractors may be able to deduct business expenses depending on tax limits and rules. It’s important for taxpayers to keep records of their business expenses.

Paying the right amount of taxes throughout the year

• Good recordkeeping is important to navigate tax rules successfully and avoid mistakes when doing gig work.

• An employer typically withholds income taxes from their employees' pay to help cover income taxes their employees owe.

• Gig economy workers who aren't considered employees have two ways to cover their income taxes:

o If they have another job as an employee, submit a new Form W-4 to their employer to have more income taxes withheld from their paycheck.

o Make quarterly estimated tax payments to help pay their income taxes throughout the year, including self-employment tax.

02/13/2023

The EITC is a major tax benefit for millions of low- and moderate-income workers

The EITC helps workers who earned $59,187 or less when they file their tax return. Unfortunately, many people risk missing out on the credit because they don't know they’re eligible — especially people who had a major life change and may qualify for the first time this year.

Other workers at risk for overlooking the EITC include those:
• Living in non-traditional homes, such as a grandparent raising a grandchild.

• Whose earnings declined or whose marital or parental status changed.

• Without children.
• With limited English skills.
• Who are veterans.
• Living in rural areas.
• Who are Native Americans.
• With earnings below the filing requirement.

The EITC is a tax credit for certain people who work and have low to moderate income. A tax credit usually reduces tax owed and may also result in a refund.

How to claim the EITC

To get the EITC, qualified workers must file a tax return and claim the credit. Eligible taxpayers should file a tax return to claim the credit even if their earnings were below the income requirement to file.

Most EITC refunds deposited by late February
Although the IRS began accepting 2022 returns on Jan. 23, 2023, the IRS can’t issue a refund that includes the EITC before mid-February. This is due to the 2015 PATH Act, which provides this additional time to safeguard against fraudulent refunds.

01/12/2023

Tax tips for gig economy entrepreneurs and workers

In recent years, the gig economy has changed how people do business and provide services. Taxpayers must report their gig economy earnings on a tax return – whether they earned that money through a part-time, temporary or side gig. The IRS’ Gig Economy Tax Center provides information and resources to help this group of entrepreneurs and workers understand and meet their federal tax obligations.

Here are key things for individuals involved in the gig economy to remember as they get ready to file in 2023.

Gig economy income is taxable

• Taxpayers must report all income on their tax return unless excluded by law, whether they receive an information return such as a 1099 or not.

• Individuals involved in the gig economy may also be required to make quarterly estimated tax payments to pay income tax and self-employment tax, which includes Social Security and Medicare taxes. The last estimated tax payment for 2022 is due Jan. 17, 2023.
Workers report income according to their worker classification
Gig economy workers who perform services, such as driving a car for booked rides, running errands and other on demand work, must be correctly classified. Classification helps the taxpayer determine how to properly report their income.

• If they are employees, they report their wages from the Form W-2, Wage and Tax Statement.

• If they are an independent contractor, they report their income on a Schedule C, Form 1040, Profit or Loss from Business - Sole Proprietorship.

The business or the platform determines whether the individual providing the services is an employee or independent contractor. The business owners can use the worker classification page on IRS.gov for guidance on properly classifying employees and independent contractors.

Expenses related to gig economy income may be deductible
Individuals involved in the gig economy may be able to deduct expenses related to their gig income, depending on tax limits and rules.

• Taxpayers may be able to lower the amount of tax they owe by deducting certain expenses.

• It is important for taxpayers to keep records of their business expenses.

Pay the right amount of taxes throughout the year
An employer typically withholds income taxes from their employees' pay to help cover taxes their employees owe.
Individuals involved in the gig economy have two ways to cover their taxes due:

• If they have another job where they are considered an employee, they can submit a new Form W-4, Employee's Withholding Certificate to their employer to have more taxes withheld from their paycheck to cover the tax owed from their gig economy activity.

• They can make quarterly estimated tax payments throughout the year.

11/30/2022

Good recordkeeping year-round helps taxpayers avoid tax time frustration

Wading through a pile of statements, receipts and other financial documents when it’s time to prepare a tax return can be frustrating for people who haven’t managed their records. By knowing what they need to keep and how long to keep it, people can develop a good recordkeeping system year-round and make filing their return easier.

Good recordkeeping can also help taxpayers understand their situation when they receive letters or notices from the IRS.

Good records help:

• Identify sources of income. Taxpayers may receive money or property from a variety of sources. The records can identify the sources of income and help separate business from non-business income and taxable from nontaxable income.

• Keep track of expenses. Taxpayers can use records to identify expenses for which they can claim a deduction. This will help determine whether to itemize deductions at filing. It may also help them discover potentially overlooked deductions or credits.

• Prepare tax returns. Good records help taxpayers file their tax return quickly and accurately. Throughout the year, they should add tax records to their files as they receive them to make preparing a tax return easier.

• Support items reported on tax returns. Well-organized records make it easier to prepare a tax return and help provide answers if the return is selected for examination or if the taxpayer receives an IRS notice.

In general, taxpayers should keep records for three years from the date they filed the tax return. Taxpayers should develop a system that keeps all their important information together. They can use a software program for electronic recordkeeping. They could also store paper documents in labeled folders.
Records to keep include:

• Tax-related records. This includes wage and earning statements from all employers or payers including payment apps or cards, such as Form W-2, 1099-K, 1099-Misc, 1099-NEC. Other records include interest and dividend statements from banks, certain government payments like unemployment compensation, other income documents and records of virtual currency transactions. Taxpayers should also keep receipts, canceled checks, and other documents that support income, a deduction, or a credit reported on their tax return.

• IRS letters, notices and prior year tax returns. Taxpayers should keep copies of prior year tax returns and notices or letters they receive from the IRS. These include adjustment notices when an action takes place occurs on the taxpayer's account.

• Property records. Taxpayers should also keep records relating to property they dispose of or sell. They must keep these records to figure their basis for computing gain or loss.

• Business income and expenses. Business taxpayers should find a bookkeeping method that clearly and accurately reflects their gross income and expenses. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later.

• Health insurance. Taxpayers should keep records of their own and their family members' health care insurance coverage. If they're claiming the premium tax credit, they'll need information about any advance credit payments received through the Health Insurance Marketplace and the premiums they paid.

11/10/2022

Everyone should know the facts about how the IRS communicates with taxpayers

Knowledge is a taxpayer’s first line of defense against scammers who pretend to be from the IRS with the goal of stealing personal information.

Here are some facts about how the IRS communicates with taxpayers:

• The IRS doesn't normally initiate contact with taxpayers by email. Do not reply to an email from someone who claims to be from the IRS because the IRS email address could be spoofed or fake. Emails from IRS employees will end in IRS.gov.

• The agency does not send text messages or contact people through social media. Fraudsters will impersonate legitimate government agents and agencies on social media and try to initiate contact with taxpayers.

• When the IRS needs to contact a taxpayer, the first contact is normally by letter delivered by the U.S. Postal Service. Debt relief firms send unsolicited tax debt relief offers through the mail. Fraudsters will often claim they already notified the taxpayer by U.S. Mail.
• Depending on the situation, IRS employees may first call or visit with a taxpayer. In some instances, the IRS sends a letter or written notice to a taxpayer in advance, but not always. Taxpayers can search IRS notices by visiting Understanding Your IRS Notice or Letter. However, not all IRS notices are searchable on that site and just because someone references an IRS notice in email, phone call, text, or social media, does not mean the request is legitimate.

• IRS revenue agents or tax compliance officers may call a taxpayer or tax professional after mailing a notice to confirm an appointment or to discuss items for a scheduled audit. The IRS encourages taxpayers to review, How to Know it's Really the IRS Calling or Knocking on Your Door: Collection.

• Private debt collectors can call taxpayers for the collection of certain outstanding inactive tax liabilities, but only after the taxpayer and their representative have received written notice. Private debt collection should not be confused with debt relief firms who will call, send lien notices via U.S. Mail, or email taxpayers with debt relief offers. Taxpayers should contact the IRS regarding filing back taxes properly.

• IRS revenue officers and agents routinely make unannounced visits to a taxpayer's home or place of business to discuss taxes owed, delinquent tax returns or a business falling behind on payroll tax deposits. IRS revenue officers will request payment of taxes owed by the taxpayer. However, taxpayers should remember that payment will never be requested to a source other than the U.S. Treasury.

• When visited by someone from the IRS, the taxpayers should always ask for credentials. IRS representatives can always provide two forms of official credentials: a pocket commission and a Personal Identity Verification Credential

10/27/2022

Grandparents and others with eligible dependents shouldn’t miss out on the 2021 child tax credit

Grandparents, foster parents or people caring for siblings or other relatives should check their eligibility to receive the 2021 child tax credit. People who claim at least one child as their dependent may not realize they could be eligible to benefit from the child tax credit.

Eligible taxpayers who received advance child tax credit payments last year should file a 2021 tax return to receive the second half of the credit. Eligible taxpayers who did not receive advance child tax credit payments last year can claim the full credit by filing a 2021 tax return.

People should review the eligibility rules to make sure they still qualify for the credit. The Interactive Tax Assistant can help people who aren’t sure. Taxpayers who haven’t qualified in the past should also check because they may now be able to claim the credit. The only way to receive the credit is to file a 2021 federal tax return.
What is the child tax credit expansion?

The child tax credit expansion increased the amount of money families can receive per child and expanded who can receive the payments. The credit increased from $2,000 to $3,600 per child for children under the age of six, from $2,000 to $3,000 for children over the age of 6 and raised the age limit from 16 to 17 years old.
The child tax credit expansion applies to tax year 2021 only.
Who qualifies for the child tax credit?

Taxpayers can claim the credit for each qualifying child who has a Social Security number that is valid for employment in the United States and issued by the Social Security Administration before the due date of their tax return. This includes the filing extension if the taxpayer requested the extension by the tax return’s original due date.

To be a qualifying child for the 2021 tax year, the child must fit certain criteria.

What are the eligibility factors?

Individuals qualify for the full amount of the 2021 child tax credit for each qualifying child if they meet all eligibility factors and their annual income is not more than:

• $150,000 if they’re married and filing a joint return, or if they’re filing as a qualifying widow or widower.

• $112,500 if they’re filing as a head of household.

• $75,000 if they’re a single filer or are married and filing a separate return.

Parents and guardians with higher incomes may be eligible to claim a partial credit.