Tax Stimulus Checks – Q & A

    As COVID-19 continues to impact the United States, the federal government is taking action to ease the burden on taxpayers. Most recently, the U.S. Senate and the House of Representatives passed a massive stimulus package and the Coronavirus Aid, Relief, and Economic Security or CARES act was subsequently signed into law by the President (You can access the Senate bill at this link—–> THE SENATE and the House version at this link—–> THE HOUSE).

    A key feature of this stimulus package is individual ‘stimulus checks’ (To avoid any confusion, the IRS refers to these ‘stimulus checks’ as ‘Economic Impact Payments’).

    As with anything that is tax-related, there’s a little bit of confusion. To help you sort it out, here are a few questions and answers:

    Who qualifies for the stimulus payments? The payments go to almost any adult with a Social Security number, as long as they aren’t dependents of someone else. Those adults will get the payments for the children in their household.

    When will I get my check? Checks are supposed to be produced “as rapidly as possible”. Treasury Secretary Steve Mnuchin has hinted they will come in April, but it’s been suggested that it could take up to two months. One thing that is true: if you use direct deposit, you’ll get your money faster.

    (UPDATE: The Treasury Department and officials from the IRS have told the House Ways and Means Committee that the initial wave of payments will go out the week of April 13. The payments will be automatically deposited into the same bank account reflected on the 2019 or 2018 tax return filed.

    Taxpayers who will be in the first wave will have already had their direct deposit information on file with the IRS from their 2018 or 2019 tax returns. Paper checks will then start going out in May to people who don’t have direct deposit information on file with the IRS. About 5 million checks will be sent weekly, and it could take up to 20 weeks to distribute all of them. People with the lowest incomes will get their checks first.

    In the coming weeks, the U.S. Treasury  plans to develop a web-based portal that will allow individuals who have not recently submitted banking information to the IRS to do so enabling them to receive payments immediately as opposed to waiting for a check to arrive in the mail.

    In addition the IRS anticipates creating a “Where’s my Economic Impact Payment?” tracker, similar to the “Where’s my refund?” system.)

    How big will my check be? So, there are three dollar figures to be aware of in terms of the stimulus payments: $1,200 will be given to individual taxpayers, $2,400 will go to married couples filing jointly and taxpayers will receive an additional $500 per qualifying child (listed on the taxpayer’s tax return) under the age of 17.

    Are there income limits on checks? The amount of the checks would start to phaseout for those adjusted gross income more than $75,000 ($150,000 for joint returns and $112,500 for heads of household). Take note that this is adjusted gross income (AGI), not taxable income – so this will be income before your standard or itemized deductions. FYI, you’ll find your AGI number on line 8(b) of your form 1040.

    Wait a minute, how does a phaseout work? I am glad you asked. A phaseout means that the benefit goes down as income goes up. In this case, for every $100 of income above those thresholds, your check will drop by $5. So, if you are a single filer and your AGI is $75,100, your check will be $1,195 ($1,200 – $5). If you are a single filer and your AGI is $85,000, your check will be $700 ($1,200 – $500). This also means that your stimulus check will be phased out completely (meaning that you’ll get nothing) once your AGI reaches $99,000 as a single filer, $198,000 as a married couple filing jointly, or $136,500 for heads of household.

    What about limits on children? There are no limits on the number of children that qualify. The definition of child will be the same as for the child tax credit.

    Do children born in 2020 get the payment? Parents of children born this year won’t get a payment for that child now.

    However, assuming the parents qualify based on their 2020 income, they would get $500 added to their tax refund or subtracted from their income-tax bill when they file their 2020 tax returns in early 2021.

    Will I need a Social Security Number to get a check? Yes. Or as an alternative (where applicable), an adoption taxpayer identification number (ATIN). This also holds true for spouses and children.

    So how does this work? Do I need to file anything to get my check? Technically, the checks are advances of refundable credits. The Treasury will advance your check based on your most recently filed tax return (i.e., your 2018 or 2019 tax return). If you haven’t filed a tax return, and your income is from Social Security benefits (or Railroad Retirement benefits), the bill allows the Treasury to use the information on your 2019 Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement . After some initial confusion, this was confirmed by the Treasury. You can see what the Treasury said here and you can see the statement put out by the IRS here.

    Okay, I don’t understand. What the heck is a refundable tax credit? A refundable credit means that you can take advantage of the credit even if you do not owe any tax. Unlike with a nonrefundable credit, if you don’t have any tax liability, the “extra” credit is not lost but is instead refunded to you.

    In this case, the stimulus check acts like a refund that you get in advance based on your 2020 income. That’s confusing because you don’t know yet how much you’re going to earn in 2020, but that is why the IRS is using earlier tax returns. But this advance payment on the credit does not affect your “normal” tax refund for 2020: you won’t lose out on your expected tax refund for 2020 with the stimulus check

    What if I don’t get the right amount? When you file your 2020 tax return, the IRS will compare numbers. If you should have gotten a check and didn’t, or if you should have gotten more than you did because the IRS didn’t know something important (like you had a child in 2020), you should get more money.

    So taxpayers who ultimately qualify for a higher stimulus check amount than they receive this year (for example: a person whose income drops from $100,000 to $70,000) would get the rest through a larger tax refund or smaller tax payment in early 2021.

    On the other hand, if the numbers on your 2020 tax return suggest that you got more than you should because of your income, you should not have to pay it back. As it stands at this point, if your 2020 income is higher than the thresholds mentioned above and you received the stimulus check, you will not need to pay back any part of the payment. Don’t worry: most taxpayers should get just the right amount.

    Is my check taxable? NO! This is not taxable income.

    What if I am expecting a refund for the 2019 tax year? Your 2019 refund will not be affected by the stimulus check.

    How will I get my check? Direct deposit, if you’re lucky. The IRS will deposit your payment directly into the same banking account you used for direct deposit on your last filed return.

    But what if the IRS doesn’t have my direct deposit information? According to the IRS, the Treasury plans to develop has developed a web-based portal for individuals to provide their banking information to the IRS online so that individuals can receive their payments more quickly rather than waiting for a paper check. It’s not up yet but, per the IRS, it slated to be up and running by Mid-April. UPDATE (4/15/2020): That web-based portal is now up and running folks. So you can now enter your bank information to receive, by direct deposit, your ‘Economic Impact Payment’ (i.e.,stimulus payment). You will find it on the web-portal in the ‘Filers: Get Your Payment’ section. For your convenience you can access that web-portal right here.

    UPDATE (4/12/2020): This feature will be unavailable if the Economic Impact Payment has already been > scheduled <  for mail delivery.

    What if I’ve moved? Under the law, the Treasury must send notice of the payment by mail to your last known address. The notice will include how the payment was made and the amount of the payment. The notice will also include a phone number for the appropriate point of contact at the Internal Revenue Service (IRS) if you didn’t receive the payment. You can help make sure that it goes to the right place by updating your address after a move. Usually, you’d do that on your tax return, but you can also submit a federal form 8822, Change of Address (downloads as a PDF). It generally takes four to six weeks to process a change of address.

    What if I haven’t filed for 2018 and 2019? Do it soon, even if you have a simple, zero return. And don’t forget to include your direct deposit banking information on your return.

    But what if I am not required to file a tax return? If you don’t file a tax return due to low income and you do not receive Social Security or Railroad Retirement benefits you can use the new “Non-Filers: Enter Your Payment Info Here” application at the IRS website to provide simple information so that you can receive your stimulus check.

    You will be able to find that website right here.

    What about retired folks? Retired seniors are eligible so long as they meet the other criteria (Social Security numbers, Income thresholds, etc.). As I noted above, if you depend on Social Security (or Railroad Retirement) but normally don’t file a tax return, the Treasury will rely on your SSA-1099 form (or its equivalent the RRB-1099 ) to figure and send your check.

    What about those on government benefits? And those with no income? Yes, eligible folks include those with no income, as well as those whose income comes entirely from non-taxable means-tested benefit programs, such as SSI benefits. I’ve seen a lot of confusion about this; it’s because one of the original proposals limited the checks to those who earned income. This is no longer the case.

    Will I still get the check if I owe the IRS some money? Yes. If your refund would normally be seized to pay a tax debt, that shouldn’t happen here. SHOULDN’T. Assuming it works as planned.

    I will say, though, that while the IRS has not officially provided guidance (i.e., direction) on this matter the Senate Finance Committee stated that the bill turns off nearly all ‘administrative offsets’ that ordinarily may reduce tax refunds for taxpayers who have past tax debts, or who are behind on other payments to federal or state governments, including student loan payments. The only ‘administrative offset’ that will be enforced applies to those who have past due child support obligations that the states have reported to the Treasury Department.

    What if my check is normally seized for child support? Child support is an exception to the “we won’t offset your check” rule. Under the law, your check can be seized for child support arrears.

    This is a done deal, right? Yes. It passed in the Senate and the House. The President has signed it.

    So no changes? Right? I didn’t say that. There could be additional guidance from the IRS. I’ll let you know by updating this blog.

    Not that I don’t trust you, but where can I find this in writing? You can read the Congressional Record, which notes the discussion about the checks, the vote, and the text right —-> here. (downloads as a PDF). The IRS has confirmed some of this information and will eventually post more information on its website right —-> here, but for now, there is just a banner.

    UPDATE (4/12/2020): The IRS is reporting that, for security reasons, it plans to mail a letter about the Economic Impact Payment (i.e., the stimulus check) to the taxpayer’s last known address within 15 days after the payment is paid. The letter will provide information on how the payment was made and how to report any failure to receive the payment. If a taxpayer is not sure that they are receiving a legitimate letter from the IRS, the IRS is urging taxpayers to visit IRS.gov first to protect against scam artists.

    EVERYONE PLEASE, PLEASE, PLEASE STAY WELL and STAY HEALTHY!

    BRUCE

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    Bruce – Your Host at The Tax Nook

    Our Firm’s Website: SolidTaxSolutions.com

    The Government Shutdown and the IRS! UPDATE: 1/8/2019

    Hello again everyone! Since writing my prior article concerning the effect on the IRS resulting from the ‘government shutdown’ (BTW, you can read that article by clicking here) the IRS late yesterday (Monday, January 7th) has finally announced that they will begin processing tax returns on January 28th (a Monday). Hence that will be the start of ‘Tax Season’.

    As usual, the filing deadline will be April 15th (a Monday) for most people. Taxpayers in Maine, Massachusetts and the District of Columbia will be the exception with the filing deadline to be April 17th due to local holidays.

    The IRS plans to release details on it operational plans in the coming days, but did report that a significant portion of its furloughed employees will be recalled.

    Finally, the Treasury Department and the Office of Management and Budget (OMB) have agreed that the IRS can issue tax refunds during a prolonged government shutdown. However, as a reminder, the IRS cannot issue refunds to those claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) before mid-February.

    Stay Tuned!


    Bruce @

    Solid Tax Solutions (SolidTaxSolutions.com)

    (845) 344-1040

    ☛We are open year round: Government shutdown or no Government shutdown!☚

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    Bruce – Your Host at The Tax Nook

    Our Firm’s Website: SolidTaxSolutions.com

    Other Social Media Outlets: Facebook.com/SolidTaxSolutions.

    Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).


    The IRS Gives Insight into Entertainment Expenses (Hint: Can You Say Bye-Bye?)

    Hello everyone! Over the past several months I have been heavily asked questions by various business people about how the new tax laws (officially named the Tax Cuts and Jobs Act) will effect their businesses and specifically about business entertainment and its deductibility for taxes.

    So, I thought that it would be helpful to address how business entertaining will be handled, for tax purposes, in tax years 2018 and beyond (or until Congress makes changes to the ‘new’ tax law effecting business entertaining).

    Take note, that if you would like to learn more about the new tax law (or would like a refresher) I have written five articles giving a more in-depth look at the new tax law. You can read Part 1 here.

    So, the rules surrounding business meals and entertainment have been complex for some time. It’s not so much what’s deductible and what isn’t, it’s the record keeping associated with the meals that is challenged most often by the IRS. You can only deduct 50% of the cost of most business meals and, in the past, entertainment. (There are some limited exceptions to the 50% rule for business meals).

    The Tax Cuts and Jobs Act (TCJA), passed in 2017, generally disallows a deduction for expenses with respect to entertainment, amusement, or recreation. Entertainment has been defined to be any activity which is of a type generally considered to constitute entertainment, amusement, or recreation such as entertaining at night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, or sporting events. The term “entertainment” may include an activity, the cost of which is claimed as a business expense by the taxpayer, which satisfies the personal, living, or family needs of any individual, such as providing food and beverages, a hotel suite, or an automobile to a business customer or the customer’s family. The term “entertainment” does not include activities which, although satisfying personal, living, or family needs of an individual, are clearly not regarded as constituting entertainment, such as (a) supper money provided by an employer to an employee working overtime, (b) a hotel room maintained by an employer for lodging of employees while in business travel status, or (c) an automobile used in the active conduct of trade or business even though also used for routine personal purposes such as commuting to and from work (but other rules apply in this situation).

    Unfortunately, the TCJA didn’t specifically address the deductibility of expenditures for business meals. It seemed clear that meals out-of-town on a business trip or at a business convention were still deducible (subject to the 50% rule). But the question of whether or not taking a client to lunch was still deductible was unanswered because that can be construed as entertainment. The IRS has just issued some guidance, in the form of Notice 2018-76 (which you can read right here) in explaining its position on the issue. The notice also announced the IRS intends to publish proposed regulations which will discuss the deductibility of certain business meals. Until the proposed regulations are effective, taxpayers may rely on Notice 2018-76 for guidance.

    Under prior law, entertainment expenses such as a ball game, theater tickets, etc. would be deductible only if the taxpayer could show the item was directly related to the active conduct of the taxpayer’s trade or business (“directly related” exception) or in the case of an item directly preceding or following a substantial and bona fide business discussion (including business meetings at a convention or otherwise), that the item was associated with the active conduct of the taxpayer’s trade or business (“business discussion” exception).
    Example–The directly related exception applies if you take a client out to lunch or dinner and discuss business during the meal. However, the IRS does make a distinction between a meal at a restaurant and a meal at a facility that wouldn’t be conducive to a business discussion. For example, having dinner at a pub with entertainment. (But that might qualify under the second exception).

    Example–The business discussion exception applies if you have a bona fide business meeting and thereafter take the client for a quiet business meal. For example, you drop in on a client to show him new services your company offers. You’re discussing business from three in the afternoon to five. You take the client out for a business meal, but don’t discuss any business at dinner.

    The new law doesn’t change the definition of entertainment. The IRS has noted that the legislative history of the TCJA clarifies that taxpayers generally may continue to generally deduct 50 percent of the food and beverage expenses associated with their trade or business. The IRS intends to publish proposed regulations clarifying when business meal expenses are nondeductible entertainment expenses and when they are 50 percent deductible expenses. Until the proposed regulations are effective, taxpayers may rely on the guidance in Notice 2018-76.

    Taxpayers may deduct 50 percent of an otherwise allowable business meal if:

    1. The expense is an ordinary and necessary expense, paid or incurred during the taxable year in carrying on a trade or business;
    2. The expenses is not lavish or extravagant under the circumstances;
    3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of such food or beverages;
    4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
    5. In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.

    Notice 2018-76 also says that the entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.

    Requirements 1, 2, 3, and 4 above are not totally new. But, because of the overall new restrictions on entertainment, they may get closer scrutiny. The third item, requiring the taxpayer or an employee to be present is unlikely to cause a problem. But, you should be aware that you can’t just tell a customer to take his or her spouse with them to a local restaurant and put it on your tab and still get a 50 percent deduction.
    Example–Bob invites Michael and Joseph, both customers of Bob’s company to a round of golf. After the game Bob buys lunch for the three of them at the golf club. The cost of the round of golf including any associated fees is entertainment and not deductible. The cost of lunch for the three, assuming all the other requirements are met, is deductible, subject to the 50 percent rule.

    Example–Cindy invites Peter and Paul, both vendors for Cindy’s company to a football game. The company maintains a suite at the stadium and food and drinks are part of the cost of the suite. Since the food and drinks are not separately stated, none of the expense is deductible. If the food and drinks were separately billed, they would be 50% deductible.

    While the notice answers some of the big questions, there are many nuances that it doesn’t. Many may be addressed in forthcoming regulations. The fact that entertainment is no longer deductible will affect trips on the company aircraft, deductions at country clubs, etc. The IRS may concentrate on finding any such disguised deductions when auditing 2018 and later year returns. Heavier scrutiny of meals could also be an expected consequence.

    ———–>Give Solid Tax Solutions (SolidTaxSolutions.com) a call at (845) 344-1040 to discuss the new tax rules and how it will affect you.

    Bruce

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    Bruce – Your Host at The Tax Nook

    Our Firm’s Website: SolidTaxSolutions.com

    Other Social Media Outlets: Facebook.com/SolidTaxSolutions.

    Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).

    Can the IRS Take Your Home and Sell It When an Offer-In-Compromise is in Effect???

    In a somewhat recent court case on appeal —>United States v. Brabant-Scribner, No. 17-2825 (8th Cir. Aug. 17, 2018) the Eighth Circuit affirmed the decision of the district court allowing the sale of taxpayer’s home and affirmatively determining that an offer in compromise request filed by the taxpayer has no impact on the ability of the court to grant the request by the IRS to sell the home or on the IRS’ ability to sell the home once the court granted its approval. In reaching this conclusion the Eighth Circuit analyzed the exemptions to levy in Internal Revenue Code section 6334 and the relief those provisions do and do not provide.

    The taxpayer, in this case, owes the IRS over $500,000. The opinion does not discuss the actions by the taxpayer to pay or resolve her liability prior to the action by the IRS to sell her house. I imagine that the IRS considered her a “won’t pay” taxpayer. Before seeking to sell her home, the IRS had seized and sold her boat and levied on her bank accounts.

    The 1998 Restructuring and Reform Act added Internal Revenue Code section 6334(e)(1)(A) to require that prior to seizing a taxpayer’s principal residence the IRS must obtain the approval of a federal district court judge or magistrate in writing. Before the passage of this provision, the IRS could seize a taxpayer’s home with the same amount of prior approval needed to seize any other asset owned by the taxpayer. No approval was necessary to seize any asset of the taxpayer. Prior to 1998 collection due process did not exist. Prior to 1998 the 10 deadly sins did not exist one of which calls for the dismissal of an IRS employee who makes an inappropriate seizure. So, the landscape regarding seizures, and especially personal residence seizures, changed dramatically after 1998. However, the amount of litigation regarding seizure of personal residences is low and the Brabant-Scribner case offers a window on one aspect of this process.

    As the IRS initiated the process of seizing her personal residence by obtaining the appropriate court approval, the taxpayer filed an offer in compromise. She filed an effective tax administration offer of $1,000 but the amount and sincerity of her offer do not really matter to the legal outcome of this case. The timing and the amount of the offer may have influenced the thinking of the judges and made them more inclined to dismiss her argument but her possibly bad faith effort to stop the approval and execution of the sale should not have affected the outcome here.

    To convince the court to allow the sale of a personal residence, the IRS must show compliance with all legal and procedural requirements, show that the debt remains unpaid and show that “no reasonable alternative” for collection of the debt exists. The taxpayer argued that her offer was a reasonable alternative. However, the court spends three paragraphs explaining that an offer does not matter in this situation. The relevant language in the applicable regulation is “reasonable alternative for collection of the taxpayer’s debt.” The court explains that the word “for” holds the key to the outcome.

    “For” refers to an alternative to the sale of the personal residence such as an installment agreement or the offer of funds from another source to satisfy the debt. An offer in compromise is not an alternative for collection but an alternative “to” collection.

    Having determined that the words of the Treasury Regulation point toward a resolution other than an offer as providing the necessary alternative, the court looks at the remainder of the Treasury Regulation for further support of its conclusion. It points to the provision in Treasury Regulation 301.6334-1(d)(2) which provides that the taxpayer has a right to object after the IRS makes its initial showing and “will be granted a hearing to rebut the Government’s prima facie case if the taxpayer … rais[es] a genuine issue of material fact demonstrating … other assets from which the liability can be satisfied.” This regulation, like the one providing an alternative “for” collection, looks not to relief from payment of the liability but a source for making payment. It does not provide the offer in compromise as a basis for relief. Based on this the court concludes that “nothing requires the district court to ensure that the IRS has fully considered a taxpayer’s compromise offer before approving a levy on a taxpayer’s home.”

    Since the IRS properly made its case for seizing and selling the home and the taxpayer did not rebut that case, the Eighth Circuit affirms the decision of the district court to approve the sale. The decision provides clear guidance for district courts faced with the request by the IRS to seize and sell a personal residence. Personal residence seizures by the IRS remain rare at this point. Taxpayers faced with such a seizure, almost always taxpayers the IRS characterizes as “won’t pay” taxpayers, will find it difficult to stop the seizure and sale based on this decision. I do not think this decision will motivate the IRS to increase the number of personal residence seizures but it will make it a little easier to accomplish when it decides to go this route.

    If you are having problems with the IRS, Solid Tax Solutions can help you.

    We are only a ☎ phone call away at ☛ (845) 344-1040.

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    Bruce – Your Host at The Tax Nook

    Our Firm’s Website: SolidTaxSolutions.com

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    Twitter: Twitter.com/@SolidTax1040 (BTW, We Follow-Back).