by | Jun 16, 2022 | Tax Tips and News
Due to rising gasoline prices, the Internal Revenue Service has taken the rare step of increasing its optional standard mileage rates for the last six months of the 2022 tax year. These rates are significant since taxpayers use them to calculate the deductible costs of operating a vehicle for business purposes.
Typically, the IRS tweaks mileage rates for the upcoming tax year in the fall. However, record fuel prices pushed the agency to act now for the current year. The last time the IRS made a midyear adjustment was 2011.
What are the new mileage rates for 2022?
The IRS issued Announcement 2022-13 to make the new rates official, setting forth the associated legal language, guidance, and limitations for the new rates. Here is a short breakdown from the agency:
- The standard mileage rate for business travel will be 62.5 cents per mile
- The new rate for deductible medical or moving expenses (available for active-duty members of the military) will be 22 cents per mile
- The 14 cents per mile rate for charitable organizations remains unchanged as it is set by statute
- These new rates become effective July 1, 2022
Moving expenses are only available to active-duty service members “pursuant to a military order and incident to a permanent change of station” (Announcement 2022-13). Taxpayers who traveled prior to this update—from January 1 to June 30, 2022—should use Notice 2022-03 to calculate their mileage rates.
What are the limits on who can claim a deduction?
Announcement 2022-13 states that the Tax Cuts and Jobs Act (TCJA) passed in 2017 limits which taxpayers are eligible to claim a deduction. The TCJA suspends all miscellaneous itemized deductions that are tied to the 2% of adjusted gross income floor until 2026, including unreimbursed employee travel expenses.
So, how do reservists, some state or local government officials, and some performance artists get to claim the mileage rate whereas other taxpayers do not? They are paid on a fee basis, and the IRS considers the deduction in these cases to be an adjustment to income.
What is the big picture?
Fuel costs are, no doubt, a significant factor for determining mileage rates, but other factors also play a part, such as depreciation, insurance, and other costs. Taxpayers can use the optional business standard mileage rate to help calculate the deductible costs of operating a vehicle for business purposes, instead of keeping track of the actual cost.
In addition, the federal government and some businesses use the rate to reimburse employees for their mileage. The IRS notes that taxpayers always have the option to use their vehicle’s actual costs rather than the optional standard mileage rates.
We can help you stay up to date!
Here are just a few recent IRS updates we covered:
Sources: IRS increases mileage rate for remainder of 2022; Announcement 2022-13
– Story provided by TaxingSubjects.com
by | Jun 7, 2022 | Tax Tips and News
The Internal Revenue Service continues to add functionality to its online tools, now putting more muscle behind its Where’s My Refund? feature. Used more than 776 million times in 2021, it is one of the agency’s most popular online offerings—and it can reduce client questions about refund status.
“Previously, Where’s My Refund? only displayed the status of the most recently filed tax return within the past two tax years,” the IRS explains. Now, users can view information for any of the last three tax years on their status report.
While this additional information will undoubtedly be more convenient for taxpayers with Internet access, it also marks a reduction in phone service that available to callers. The agency notes that those who call the refund hotline will only receive information related to their 2021 return.
Punctuating this shift, the IRS says, “There’s no need to call the IRS to check on refund status unless it has been more than 21 days since the return was filed or the tool says the IRS can provide more information.”
How do taxpayers access Where’s My Refund?
Where’s My Refund? is accessed through IRS.gov or IRS2Go, the agency’s mobile app. The identification verification process requires their Social Security Number or ITIN, filing status for the requested tax year, and amount of the refund they’re checking on, using the original filed return.
The IRS says validated online users of Where’s My Refund? can get the status of a refund within:
- 24 hours after e-filing a tax year 2021 return
- Three or four days after e-filing a tax year 2019 or 2020 return
- Four weeks after mailing a return
For details on a taxpayer’s adjusted gross income, a balance due, or other account information, taxpayers should check their Online Account.
Speeding up 2021 returns
IRS Commissioner Chuck Rettig says the upgrade to Where’s My Refund? can help speed up the processing of TY 2021 returns—especially for taxpayers who chose to request an extension of time to file.
“We encourage those who expect a refund, but requested an extension, to file as soon as they’re ready. We process returns on a first-in basis, so the sooner the better,” said Rettig. “There’s really no reason to wait until October 17 if filers have the relevant information to file now.”
Rettig reminds that electronic filing is available 24 hour per day and his agency is actively taking in returns, processing and issuing refunds.
More improvements to come
If taxpayers are happy with this latest round of upgrades, Rettig said, more improvements are in the works.
“The IRS is committed to identifying opportunities to make improvements in real time for taxpayers and the tax professional community,” said Rettig. “This enhancement to Where’s My Refund? is just one of many.”
Source: IRS updates feature on Where’s My Refund?
– Story provided by TaxingSubjects.com
by | May 28, 2022 | Tax Tips and News
Organizations seeking tax-exempt status with the Internal Revenue Service should know that there is more to the process than merely signing on the dotted line. The process for being declared tax-exempt under Section 501(c)(3) of the Internal Revenue Code can vary based on the applicant organization’s specific situation.
First and foremost, it has to be organized and operated for one of the following purposes defined by the IRS:
- Charitable, religious, educational, scientific, or literary purposes
- Testing for public safety
- Fostering national or international amateur sports competition
- Preventing cruelty to children or animals
Application for 501(c)(3) status is made using a Form 1023-series application.
The Process
The circumstances around the organization determine how simple or complex the process will be. The IRS has created a step-by-step application process guide—but the agency also recently highlighted additional information that can help.
Before filling out the application, candidate organizations should apply for a nine-digit Employer Identification Number (EIN)—even if they don’t have any employees. EINs are issued by the IRS to identify companies and tax-exempt organizations when they file and report taxes, and every 501(c)(3) application requires this number.
To apply for an Employer Identification Number, organizations can simply apply online through the IRS website. Once the Form 1023-series application has been filled out, it must be sent to the IRS electronically using Pay.gov online.
Keep in mind, however, that not every organization seeking tax-exempt status has to apply for 501(c)(3) exemption. Churches (including integrated auxiliaries) and public charities with yearly gross receipts of no more than $5,000 are already considered tax-exempt.
Time and Other Considerations
Just when a candidate organization is deemed tax exempt depends on its Form 1023. “If they submit this form within 27 months after the month they legally formed, the effective date of their organization’s exempt status is the legal date of its formation,” the IRS explains. “If an organization doesn’t submit this form within those 27 months, the effective date of its exempt status is the date it files Form 1023.”
Once an organization has been approved as a tax-exempt entity by the IRS, it is considered a private foundation unless the group can meet the standards to be considered as a public charity. Approval for 501(c)(3) status also brings a responsibility to those in the new tax-exempt organization. As such, charitable organizations have to make certain documents available to the public for their inspection.
Among these public documents are the organization’s application for exemption and its annual information tax returns for the past three years. Publication 557, Tax Exempt Status for Your Organization has more information on public inspection requirements.
Additional information, including help for applying organizations, is available from the IRS website:
Source: Things organizations should know about applying for tax-exempt status
– Story provided by TaxingSubjects.com
by | May 26, 2022 | Tax Tips and News
The Internal Revenue Service has once again revised the frequently asked questions (FAQs) for the 2021 Child Tax Credit (CTC) and Advance Child Tax Credit (ACTC). These revisions take into account several changes, including the end of filing season for the 2021 tax year.
The American Rescue Plan expanded the Child Tax Credit to include advance estimated payments during the last half of 2021. While filing season has concluded, some taxpayers can still file a late return to take advantage of the credit.
This new issue of FAQs covers eight topics, including:
- Topic A: General Information: Updated questions 1, 2, 3, 4, 5, 8, 9, 10, 11, 13, 14, 15, 16
- Topic E: Advance Payment Process of the Child Tax Credit: Updated questions 2, 3
- Topic F: Updating Your Child Tax Credit Information During 2021: Removed questions 1, 2 and updated 3,4
- Topic G: Receiving Advance Child Tax Credit Payments: Updated questions 1, 6, 7, 9, 10, 11
- Topic H: Reconciling Your Advance Child Tax Credit Payments on Your 2021 Tax Return: Updated questions 1, 2, 9 and removed 10
- Topic J: Unenrolling from Advance Payments: Updated question 1 and removed 2, 3, 4, 5, 6, 7
- Topic K: Verifying Your Identity to View your Payments 2021 Child Tax Credit: Updated 2, 3, 5, 6 and removed 7
- Topic L: Commonly Asked Shared-Custody Questions: Updated 1 and 2
Complete details for each of the updated topics and questions are available on the IRS website in Fact Sheet 2022-29. The 22-page fact sheet instructs that those with questions should consult the FAQs rather than call IRS assistance lines, as IRS operators do not have any additional information.
The agency also makes it clear that any frequently asked questions are meant to communicate information quickly to the general public, rather than to state official IRS policy or tax law. FAQs, the IRS says, should not be the basis for any arguments or positions before formal legal bodies, such as the Tax Court.
Details of the IRS stance on reliance on FAQs can be found here.
Sources: IRS revises 2021 Child Tax Credit and Advance Child Tax Credit frequently asked questions; Fact Sheet 2022-29
– Story provided by TaxingSubjects.com
by | May 24, 2022 | Tax Tips and News
The Internal Revenue Service is increasing the interest rates it can charge taxpayers for under- or overpayments, starting July 1. This follows the trend of interest rates for consumer loans and other financial transactions.
The Internal Revenue Code dictates that IRS’ interest rates be calculated on a quarterly basis. The rates are split between corporate tax payers and non-corporate tax payers.
What are the new rates?
The IRS says the new rates will be 5% for overpayments (if the taxpayer is a corporation, the rate is 4%); corporate overpayments exceeding $10,000 draw a 2.5% rate; underpayments get a 5% rate; and large-corporate underpayments will add 7%.
In most cases, the underpayment rate for a corporation will be the federal short-term rate plus three percentage points. For corporate overpayments, the rate is the federal short-term rate plus two percentage points.
If the taxpayer is a large corporation, the underpayment rate swells to the federal short-term rate plus five percentage points. If a large corporation makes an overpayment that is more than $10,000 for the taxable period, its overpayment rate will be calculated as the federal short-term rate plus one-half (0.5) of a percentage point.
The new third-quarter rates are calculated using the federal short-term rate that took effect May 1 and are based on daily compounding.
The full schedule of interest rates is listed in Revenue Ruling 2022-11, which officially announces the new rates in Internal Revenue Bulletin 2022-23, dated June 6, 2022.
Source: IRS interest rates increase for the third quarter of 2022
– Story provided by TaxingSubjects.com
by | May 17, 2022 | Tax Tips and News
It’s a tight job market out there, and many employers are struggling to recruit and retain qualified employees to maintain operations. While tax pros can’t provide employees for their clients’ businesses, they can explain tax benefits like the Work Opportunity Tax Credit (WOTC). This credit is designed to reward employers who hire long-term unemployment recipients or those who face employment challenges.
Exploring the Work Opportunity Tax Credit
The Work Opportunity Tax Credit isn’t new. Dating back to 1996, it encourages employers to hire individuals whose circumstances have historically presented barriers to employment by providing a credit for wages paid to qualified workers who start their position on or before Dec. 31, 2025.
The IRS identifies 10 groups who could qualify for the WOTC:
- Temporary Assistance for Needy Families (TANF) recipients
- Unemployed veterans, including disabled veterans
- Formerly incarcerated individuals
- Designated community residents living in Empowerment Zones or Rural Renewal Counties
- Vocational rehabilitation referrals
- Summer youth employees living in Empowerment Zones
- Supplemental Nutrition Assistance Program (SNAP) recipients
- Supplemental Security Income (SSI) recipients
- Long-term family assistance recipients
- Long-term unemployment recipients
To qualify as one of these 10 targeted groups, candidates must meet certain criteria. For example, long-term unemployment recipients are generally defined as those who have been out of work “for at least 27 consecutive weeks and received state or federal unemployment benefits during part or all of that time.”
How do employers determine if a hire qualifies for the WOTC?
To qualify for the WOTC, employers must complete Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit with the job applicant on or before the day they make an offer of employment. Then, they must submit the form to their state workforce agency (SWA)—not the IRS—within 28 days after the eligible worker started the position.
The WOTC is claimed on Form 3800, General Business Credit, but it’s calculated based on the wages paid to new eligible workers during their first year on the job on Form 5884, Work Opportunity Credit. It’s important to note that this credit can only be claimed once for each new employee—rehires do not qualify.
Can tax-exempt organizations claim the WOTC?
Tax-exempt organizations cannot claim the WOTC for most new hires, with the exception of qualified veterans. Instead of Form 3800, tax exempt organizations instead use Form 5884-C, Work Opportunity Credit for Qualified Tax Exempt Organizations Hiring Qualified Veterans.
For more information, see the LB&I and SB/SE Joint Directive on the WOTC issued by the IRS to help employers who have been impacted by extended delays in the Work Opportunity Tax Credit certification process.
Source: IR-2022-104
– Story provided by TaxingSubjects.com
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