Search

5 questions to ask when deciding whether to delay filing your taxes - MarketWatch

jarangoyange.blogspot.com

Tax season is about to start, which means it’s time to…hold off on filing?

The Internal Revenue Service starts accepting income tax returns on Friday, against the backdrop of Capitol Hill negotiations on a $1.9 trillion stimulus package geared at families and businesses struggling under the pandemic’s economic toll.

So just as people are getting ready to submit their returns, the potential for new waivers on portions of income tax, more generous tax credits and a third batch of stimulus checks might make some people wait to see what any legislative deal means for them, according to some financial planners and tax experts.

The same dynamic, however, is making other people charge ahead with their returns because the possible changes are just that — possibilities they can’t bank on when they can’t stand having taxes hanging over them or they need their refund money now.

“Last year was panic. This year is uncertainty,” said Joanne Burke, a Vienna, Va.-based accountant and financial planner who owns Birch Street Financial Advisors.
When the COVID-19 pandemic collided with tax season last year, the Treasury Department pushed the filing deadline to July 15. This year, it’s back to the usual April 15 deadline and the IRS isn’t planning to push it back.

Burke teed up straightforward returns for her college-age kids and some of her clients’ kids. Come Feb. 12, she’ll submit the four returns so they can get stimulus check money they missed in 2020 because they were previously listed as dependents.

But approximately 35 of Burke’s other returns are paused as she waits for IRS guidance and Virginia state legislature votes on the tax treatment of forgivable business loans that the federal government extended under the first stimulus’ Paycheck Protection Program.

If someone has an “easier, simpler” return that won’t be affected by potential changes, Burke sees “no reason to wait.”

But if there are potential twists and turns in store, a taxpayer “may want to let the dust settle,” said Burke, adding she prefers to “get it right the first time, versus go back and amend” a return.

The wait-and-see approach could be a prudent strategy, but it’s also a luxury highlighting America’s divide between options for the rich and poor.

Tax refunds, coupled with additional tax credits, can be a lifeline to low-income families in the best of times. But COVID-19’s economic fallout has been particularly punishing for low-income households.

“Most of my clients don’t have a choice,” said Christine Speidel, a law professor at Villanova University who directs the school’s Federal Tax Clinic. “It’s pretty common for lower income folks to count on their refunds. … The financial pressure to file early is augmented by the stimulus payments” they might be claiming after missing or not fully receiving payment in 2020, Speidel said.

Experts differ on how to proceed.

“My best advice for everyone is to be patient. I know it’s not easy, as I like to file early most years myself, so I get it,” said financial planner Rockie Ziegler, founder of RP Zeigler Investment Services in Peoria, Ill. He’s had neighbors, friends and clients quizzing him on what to do. “With that said, the 2020 tax year is just so fluid, and changes seem to be coming every other day. I think it’s wise to just wait until the tax dust settles a bit before filing.”

But Marianne Nolte, founder and CEO of Imagine Financial Services in San Diego, Calif., said, “It is a poor planning strategy to wait and risk the pressure of a last minute rush in hopes that changes will occur.”

Either way, here are the open questions and pending legislation for taxpayers to consider.

What does this mean for my chance at another stimulus check?

The first two rounds of stimulus checks gave full payment to individuals who made up to $75,000 and to married couples filing jointly who made up to $150,000. $112,500 was the income maximum for people who filed as head of household on their taxes.

A centerpiece in the Biden rescue package is a third round of direct checks, this time for $1,400. But the president is reportedly open to negotiating on the income thresholds for full payment. Sen. Joe Manchin, a Democrat from West Virginia and key vote, backs limits of $50,000 for individuals and $100,000 for married couples. Other Democrats oppose more narrow income limits.

One potential plan would base payments on the income stated on a household’s 2020 return or its 2019 return, according to the Washington Post.

With tighter eligibility rules, a higher-income household could get the first two checks and miss the third — that is, if the IRS received a 2020 return that was larger than the 2019 return.

David Creekmore, president of Lifetime Financial in Takoma Park, Md., was aware of this possible scenario when he recently urged one client not to send in her return yet.

Filing as head of household, the client changed to a better-paying job in 2020, Creekmore explained. “She really wanted to get it off her chest. It’s not uncommon for people to feel like taxation is a stressful process,” said Creekmore, who thinks he persuaded her to pause.

Creekmore doesn’t have a set rule on waiting or going — except that if someone’s needlessly racking up debt and getting financially pinched in the hope for more money, that’s the wrong approach.

Other people may need to move fast for a third check. This includes people who’ve separated from their spouse, particularly an abusive one, said Speidel.

When the IRS released the first checks, they looked at the bank accounts and addresses listed on either the 2018 or 2019 returns. But in some abusive relationships, the abuser was the one controlling these accounts and they effectively blocked domestic violence survivors from their share of the stimulus money.

As people try to financially disentangle themselves from an ex-partner, Speidel said they will “want to race to file early” so they can get their bank account and their new address on record with the IRS, ahead of any new stimulus check.

Will I be getting a tax break on unemployment benefits?

Unemployment benefits count as taxable income, but a new proposed bill would change the rules. The Democrat-backed bill would exempt the first $10,200 of jobless benefits from federal income tax.

The economy lost 20.8 million jobs in April alone and by December was still missing approximately 10 million jobs that existed before the pandemic. Workers received an average $24,000 in federal and state unemployment benefits, according to one employment expert.

Dan Herron, principal of Better Business Financial Services in San Luis Obispo, Calif., has one client who received roughly $30,000 in jobless benefits. If lawmakers “were able to waive $10,000 of that, that would an improvement from a tax standpoint.”

A client like this can wait to see what happens, but that means waiting on a refund too. Or, Herron said, they can file now and later amend a return if the bill becomes law. But Herron is upfront: an amended return will cost clients more money for his services, potentially a couple hundred dollars — and that price could hurt for someone who’s getting back on their feet after a jobless stretch.

(Herron isn’t alone in charging extra to file an amended return. Taxpayers shouldn’t assume any tax preparer will submit a revised version for free, according to the personal finance website Nerdwallet.)

Amendments to taxable income are not a quick fix, Herron said. That’s because the revisions can put taxpayers in new tax brackets and enhance, or reduce, certain credit payouts. “There’s a lot of things that could be in play,” he said.

Herron will press ahead with simple returns that aren’t affected by any pandemic-related tax provisions, but he’ll hold off a bit on complex ones for businesses. When it comes to unemployment recipients, “that’s a difficult one,” and he leaves it to the client and what their gut tells them.

How about open questions in the Paycheck Protection Program?

State tax codes can mirror the federal tax code, but they don’t have to. That’s turning into a potential hang-up for some businesses that received forgivable business loans under the Paycheck Protection Program (PPP).

For example, federal tax laws allow businesses to use the business expense deduction when they used PPP money for expenses. Congress confirmed that point when it passed the $900 billion rescue package in late December.

Right now, it’s a question whether the state of Virginia will allow for the same expense deduction, Burke noted.

The same question goes for California’s tax laws and one bill wants to align the state and federal rules, Herron said. So he’s waiting for more clarity instead of drawing up two different federal and state returns and then potentially needing to redo the state return.

Meanwhile, some business owners stew and take it out on people like Herron.
“People writing legislation in California aren’t getting yelled at. It’s us. A lot of it stems from frustration,” he said.

More money for people with kids?

Democrats unveiled a big boost to the Child Tax Credit, which now has a $2,000 maximum. They want a $3,600 payout for children under 6 and $3,000 for children up to age 17 during 2021. That follows a proposal from Republican Sen. Mitt Romney which would send up to $1,250/month to families raising young kids.

Both proposals authorize direct payments like mini-stimulus checks, but the stimulus check similarities don’t end there.

The Democratic plan treats parts of the enhanced Child Tax Credit differently. Legislative details show individuals making under $75,000 and married couples making under $150,000 will get full advantage of the supplemental $1,000 or $1,600 per child, on top of the $2,000 sum.

Then the extra money phases out the more money a household makes, going no lower than the $2,000 payout. From there, existing income eligibility rules apply: phase-outs for the credit start at $200,000 for individuals and $400,000 for couples.

The size of the payments are based on either the 2019 or 2020 tax return, according to the Democratic plan.

If immediate tax benefits for child care costs are a goal, remember the Child Tax Credit is one part of the tax code that’s geared at families with kids. For example, the Child and Dependent Care Credit will pay up to $3,000 for one child and a $6,000 maximum for more than one child. People can claim the credit when paying for child care that lets them go to work or go job hunting.

Can tax software handle changes mid-season?

Leibel Sternbach, founder of Yields4U in Melville, N.Y. is advising clients to stick with their normal filing routine. They can always amend if laws change, he noted.

Besides, Sternbach added, filers need to factor in potential lags before tax software reflects the most up-to-date provisions.

Earlier this week, Ken Corbin, commissioner of the IRS’s Wage and Investment Division, spoke with reporters and said the tax software industry can be “very agile” when it comes to mid-season changes. Several years ago, there were February changes to the tax code while the season was underway. The IRS needed to create forms and instructions on the revisions and the software companies needed to integrate those changes in their products; the process took around four to six weeks, Corbin estimated.

There’s no set timetable because some changes can be more complicated than others. “We try to work in tandem with the industy to make sure we can do them as quickly as possible,” Corbin said.

Lisa Greene-Lewis, a certified public accountant and tax expert for TurboTax, said the massive tax software and preparation company can nimbly handle any code revisions. “We’ve been through tax changes before, for various reasons in season, and we are able to get those updated quickly,” she said. For example, TurboTax has already incorporated new tax rules established under the $900 billion rescue package enacted in late December.

To file now, or not? “I would say proceed,” Greene-Lewis said. “We don’t know what’s going to happen.”

H&R Block, another national tax preparation company, did not immediately respond to a request for comment.

Let's block ads! (Why?)



"wait" - Google News
February 12, 2021 at 06:01PM
https://ift.tt/2NiQKJR

5 questions to ask when deciding whether to delay filing your taxes - MarketWatch
"wait" - Google News
https://ift.tt/35qAU4J
https://ift.tt/2Ssyayj

Bagikan Berita Ini

0 Response to "5 questions to ask when deciding whether to delay filing your taxes - MarketWatch"

Post a Comment


Powered by Blogger.