If you are confused about the child tax credit payment, keep reading as we are here to answer all your questions!

As a part of the democrats’ America Rescue Plan, the expanded 2021 Child Tax Credit payments were rolled out this week to nearly 35 million eligible families by the IRS. It is important to note that the changes are currently for the 2021 fiscal year only, but the expansion is included with the expectation that they might be extended. What this means for the families is that they will receive half of the credit as advance payment this year instead of monthly payments for the rest of 2021. In case the changes are extended, the whole credit would be received over 12 monthly installments. The families have the option to opt for receiving the whole credit in the following year instead. 

What is the amount of the credit?

The full amount of the credit and qualifications are as follows:

• For each child aged 5 or younger: up to $3,600
• For each child aged 6 to 17: up to  $3,000

These would be divided into 12 installments ($250 or $300) if the extension takes place.

Note that the age limit applies to the age of the child at the end of the fiscal year. So If your dependents are below the age of 6 on December 31, 2021, you are eligible to claim up to $3,600 per child as long as you meet the income requirements below.

Family upper-income qualification limits: 

• Single filer — AGI below $240,000
• Head of household — AGI below $240,000
• Couple filing jointly — AGI below $440,000

What could be the reason for not receiving payment even though you qualify?

If the IRS doesn’t have your account information in the system yet and you think you are eligible, register soon at their Child Tax Credit Update Portal (https://www.irs.gov/credits-deductions/child-tax-credit-update-portal). After doing so and also checking and fixing any errors while at it, you can expect the payment in the August rollout.  

Failure to file tax returns in 2019 or 2020 could lead to missing information update in the IRS databases; especially if you had childbirth during that duration. In that case, use the IRS non-filer portal to register for future payments.

If you are a tax filer and still didn’t receive the payment you’re eligible for, check the Update Portal if the payment is coming via mail – which may take a bit longer. People who didn’t set up their banking details before June 28 would most probably now get a paper check via mail. 

If none of the above is the case with you and still your payment is missing: you might need to file a payment trace to IRS. That would require you filling a 3911 form and mailing it to the IRS. This is only recommended when it’s been more than 5 days since the scheduled deposit date and/or four weeks since the payment check was mailed. 

Received a payment but you had unenrolled?

If you received the money despite opting out of it, chances are you didn’t do it in time. Opt-out needed to be done at least 3 days before the first Thursday of the month since it takes 7 days to process the request. Also, if spouses file jointly, both need to unenroll.

Received a payment but the portal says you are not eligible?

This could be a system error at the end of the IRS. In this case, you will have to send the payment back to them if you are sure you aren’t qualified for it. Failure to return it in time could cause you to pay back more money when you file your taxes in 2022. 

Do you have to pay child tax credit money back at some point?

You won’t have to pay it back If you’re eligible for the full amount of child tax credit money. But if circumstances cause a change in income or change in the number of dependents then you don’t qualify for the full amount. In such a case if you receive the full amount, you may need to pay back the extra money. 

The IRS uses a “payment protection”, which means if you do get overpaid but fall below a set income level, you won’t have to pay back the overpayment. But above that income level, of course, you will have to pay back some or all of the extra money. 

If all of this has overwhelmed you and you still need help, we can take care of all your tax-related issues. Reach out to us by writing at info@evolutiontaxcenter.com 

It’s been 2 months past the delayed tax filing deadline (May 17), for taxpayers to avoid getting penalized for late filing. But even though they intimidate the taxpayers to file by the deadline, the IRS as of yet has failed to meet deadlines of its own this year. 

In their defense, they’ve been forced to handle a larger number of returns by hand on top of the challenge of dealing with a shortage of staff and broken office equipment. 

The usual time for taxpayers to get their returns used to be within three weeks of submission previously. Whereas as this year they are lagging way behind with a whooping backlog of over 35 million pending individual and business tax returns, reported as of June end. Since the delay is unusual, the taxpayers could have planned to pay their debts/bills or cover other expenses from the refund money as they would do each year. This has started to cause an atmosphere of panic among people.

Reasons for the delay:

The IRS mainly puts the blame for the delay on the ongoing pandemic situation. They claim that the massive backlog has formed due to the “pandemic-related evacuation order”, which forbade the employees from working in the agency’s facilities. They were forced to work from home but the workforce faced challenges as certain tasks could not be carried out remotely. Various tasks such as receiving, sorting, and distributing mail, and processing paper tax returns – all required to be present on site.

Statistically, the IRS has reported a backlog of nearly 16.8 million paper returns that haven’t been dealt with; about 15.8 million returns that require extra attention; and some 2.7 million amended returns that require processing.

The other pandemic-related issue facing the agency is the shortage of manpower. As of March 2021, more than 4,400 processing positions were vacant, as reported by an inspector general. This accounts for a serious gap in the workforce and puts the existing ones under struggle. 

The last straw in all this chaos is added by the old and wrecked office equipment the facility possesses. It was estimated by the IRS management on 30 March that 42% of the machines used for processing tasks were either broken or entirely unusable. Basic devices like printers and copiers were out of ink, or their service contracts were expired and hence not fixed. All of these adding to the hindrances in the process of the returns.

What can you do?

You might be among these millions who are still awaiting processing; it’s best to keep in mind it could take longer than you expected and plan your urgent expenses accordingly.

Unfortunately, there isn’t much in control of the consumers that can be done to speed up the process. 

As advised by a national taxpayer advocate Erin M. Collins, in a recent report to Congress: “For taxpayers who can afford to wait, the best advice is to be patient and give the IRS time to work through its processing backlog”

The ones who made sure the files were error-free and complete have lesser chances of their files being flagged to be reviewed manually by the workers. 

Frustrating as it is, calling the IRS is not helpful as such either. The service on the phone lines is said to be the poorest service ever, according to the agency. Most of the callers don’t even reach a live agent to voice their issues. Only as few as 3% of the callers could get a hold of a live person during the last filing season. 

The only thing you could do is to monitor the IRS Where’s my refund tool available online (https://www.irs.gov/refunds) and hope that gives you an update on your refund process.

If you haven’t applied for your refund yet and need help in filing it, don’t worry! We make walking through the process a breeze. Write to us at info@evolutiontaxcenter.com today.

Hate doing your taxes? You’ll probably hate getting audited by the IRS a lot more.

Your taxes are worth spending extra time and attention on if you don’t want to risk an audit by the tax agency. With news that the Biden administration wants Congress to empower the IRS to audit more tax cheats, it is likely that IRS audits will only be increasing in frequency in the near future. And they can be a real pain.

We want to help you, so here are 13 things you need to pay extra attention to while filing your taxes, if applicable:

1. You earned a lot of money

If you earned a lot, or more than you typically do, that’s great but be aware that the IRS might examine your tax return more carefully than normal. The IRS tends to focus on higher income earners to optimize its limited tax examination funds. Make sure you file accurately if you’ve made some serious cash.

2. You claimed the EITC

If you’re not a high earner, you can still get extra attention from the IRS. Just claim the Earned Income Tax Credit! Although this tax break was created to assist lower- and middle-income earners, it can be a complicated tax break. This is especially true now, after the American Rescue Plan Act expanded the EITC.

As a result of its complexity, many people make mistakes when claiming this credit. This also makes it easier for some people to cheat. Therefore, the IRS is required to hold returns claiming the ITC. Make sure you get this one right!

3. You claimed a questionable dependent

Make sure your dependents meet all IRS requirements. Claiming a questionable dependent will definitely attract IRS attention. One typical issue we see with clients who want to claim dependents is when parents don’t file taxes together. Only ONE parent can claim a child as a dependent and take advantage of the associated tax breaks. This can get further complicated if an adult relative also lives with or supports the child.

4. You are self-employed

Self-employed taxpayers have a lot more leeway when it comes to potentially cheating on their taxes. And the IRS is aware of that. However, the IRS is limited as to what it can actually do in this case — mostly, the tax agency simply has to trust self-employed people. Some excessive deductions which seem fishy will still get you in trouble, though. Moreover, consistently reporting a loss that lowers or eliminates tax liability is also certain to attract unwanted IRS attention. Make sure to report income and expenses accurately if you’re self-employed and don’t want to go through an IRS audit.

5. You are a gig worker

Similar to self-employed workers, gig workers also face some tax troubles. Many are not used to dealing with 1099 income, especially those who turned to side hustles for the first time after the COVID-19 pandemic. (BTW, we’re hiring for a flexible role — check out our Careers page for details!) A tax filer is guaranteed to get a scary IRS notice about unreported income if they forget to include a Form 1099-NEC for jobs paying $600 or more. However, even if the amount is less or is in cash, it’s taxable income and the IRS does have ways of keeping track of it. So make sure you correctly report all employment and other income.

6. You claimed the home office deduction

We encourage our clients to claim this. Please visit our Home-Based Business Consulting page for details on this. This is a legitimate deduction, but it doesn’t mean the IRS won’t take a closer look at home office deductions. This is because of the coronavirus. With millions working from home in 2020 and beyond, it seems natural for these people to claim this deduction. However, as long as you’re an employee and NOT self-employed, you cannot claim it and this tax break does not apply to you!

7. You have rental real estate

Rental properties offer both added cash and better tax treatment. Under the Tax Cuts and Jobs Act (TCJA), rental owners typically enjoy lower ordinary income tax rates that apply to more inclusive income brackets. However, if your rental property generates a tax loss, the IRS may choose to examine your return more closely. If you have rental property, therefore, you should consider working with a tax expert who can help you answer any questions the IRS may pose about your real estate tax claims.

8. You have cryptocurrency activity

With crypto gaining more attention and a top-of-the-form placement for crypto transactions on the Form 1040, you can expect the IRS to look for details about cryptocurrency transactions in your filing. Make sure you report gains or losses related to any cryptocurrency accurately.

9. You have money in overseas accounts

If you have money in a foreign country, make sure it’s reported if required. Violating any rules regarding overseas holdings can result in steep penalties.

If you’re a U.S. citizen living here, you may need to report overseas assets on Form 8938 as part of your tax return. This is different from the FBAR reporting, which is NOT filed as part of your tax return. Look into the rules and ensure compliance with them. Remember that the IRS can find out about overseas accounts despite non-disclosure on your part, as foreign institutions are also required to disclose account holdings by U.S. citizens. You don’t want to put yourself in that situation!

10. You claim large itemized deductions

The TCJA increased the standard deduction amounts, which has resulted in less taxpayers itemizing. However, some taxpayers will find that itemizing is still the more profitable way to go for them. You are expected to deduct LEGALLY, though. Don’t pad any itemized expenses, like charitable donations or medical costs. If the write-off seems unusually large, you can attract unwanted IRS scrutiny.

11. You got tax help for healthcare

The Affordable Care Act (ACA) has been expanded under the latest COVID-relief law. It was already confusing, and it can be more so now, and it can pose an audit issue on top of that. If you get tax help for healthcare costs, pay attention to the premium tax credit (PTC) in particular. Most people get the PTC in advance and this has to be reconciled when filing tax returns. You’ll need to fill Form 1095-A for this. Skipping or miscalculating this will lead to paying an advance PTC amount and potentially, a penalty.

12. Your tax preparer is a fraud

Shady tax preparers go hand-in-hand with tax season. Inevitably, lots of tax preparers set up shop every filing season, looking to make some quick money. These preparers may genuinely not know what they’re doing, but more often than not, they’ll deliberately exaggerate tax entries, ask clients to sign blank forms, or do other such things. It’s important to find a well-established tax preparer so you don’t end up paying penalties to the IRS for someone else’s errors.

13. You did not e-file

Some people still choose to mail in their return. Although this is fine, mailing paper returns increases the odds of mathematical errors and typos. In addition, a paper return is then manually entered into software by IRS employees, which provides another opportunity for human errors. This also provides an IRS worker the chance to identify whether you’ve made a mistake, however. Make sure you check your tax return before filing it!

Although you shouldn’t be scared — after all, most taxpayers don’t set out to intentionally deceive the IRS — it doesn’t hurt to be careful and to have protection in case the IRS does decide to audit you.

If you work with a tax preparer, take the time to make sure you’ve chosen a reputable one! Choosing a tax preparer who offers additional audit protection or audit representation services is also a great idea! At Evolution Tax Center, we offer an Audit Protection Plan to all our tax clients to help them save any audit-related stress. We want to provide true peace of mind to our clients — both during and after tax season. 🙂

If you still haven’t filed this year’s return, what’re you waiting for? There are less than two weeks left! We have a very limited number of appointment slots available — grab one here.

Tax season is almost always challenging — there’s a reason people hate doing their taxes so much! But the last two years have been unusually difficult, all thanks to COVID-19. 

As with businesses across the world, the IRS too has had to make changes and cope with delayed deadlines, as well as health-related shutdowns, that have together created a backlog and processing problems for the agency.

Americans are now facing delayed tax refunds because the IRS is holding 29 million tax returns for manual processing, according to the National Taxpayer Advocate’s (NTA’s) office. Many of our clients have also faced unexpected delays. Typically, the agency gets returns out to people within 3 weeks of filing.

This year, however, the IRS is still dealing with a backlog of paper tax returns from 2019 that could not be processed in time because of the pandemic and subsequent office closures. These have to be processed by hand, which stresses already overworked taxpayers further. 

In addition, the pandemic has also caused an increase in workload by catalyzing new laws and changes that the IRS has to manage in addition to normal workload.

So why is the IRS holding so many returns to be handled by hand? 5.3 million 2019 and 2020 returns, thus far, have been submitted as paper forms. Of course, these HAVE to be manually entered into the IRS system. What about the rest though?

8 million returns are being personally inspected by the Error Resolution System (ERS) unit of the IRS. Many of these are Recovery Rebate Credit (RRC) claims. These claims were filed by people who either did not receive their stimulus payment at all or did not receive the complete payment. Other ERS filings are also being more closely inspected to verify income for taxpayers who used their 2019 income instead of money made in 2020 to claim credits.

Besides this, another 4.7 million returns are being inspected because of either errors or fraud identification issues. Additionally, 11 million business returns are also being manually processed by IRS staff.

As a tax preparation company, we currently have many clients who expect to receive refunds but have seen no signs of them yet. Worse, it is harder than ever to get through to the IRS this year. Tracking refunds is difficult and annoying, and it simply adds to taxpayers’ frustrations. 

According to the NTA, the IRS has received 300% more calls this tax season. For calls made to the IRS, it has been officially reported that the IRS has a “Level of Service” of only 5% — meaning very few calls actually get through! Once you DO make it through, however, it’s not all smooth sailing — taxpayers then report an average wait of 20 minutes.

For now, the best way to track refund status remains the IRS’ online tool: Where’s My Refund? The usefulness of this tool, however, remains limited.

It’s not ALL doom and gloom this season with the IRS, however. The agency has still managed to process more than 91 million 2020 1040 forms. It has also distributed more than 159 million economic impact payments, issued more than 68 million refunds, and made adjustments to its systems to handle unemployment changes and EIP balance dues almost automatically. 

As for the 29 million still waiting for the IRS to process their return? There’s really nothing to do but wait.

What about the ones who still haven’t filed their return? We understand — nobody wants to file their taxes. It’s one of the most stressful and annoying things to do. But we have your back! Let us take your tax-related stress away this year and handle it all for you — all you have to do is book a FREE appointment to get started: https://msgsndr.com/widget/booking/kIWnLZ6tnIKZ5fZ6akhN 

Don’t leave it too late — there are less than three weeks left before the May 17 deadline! 

Done with your taxes? It’s time to take care of the rest of your finances. Are you one of the millions of Americans stuck in debt? Let us help you take control of your life and your money. Schedule a free debt analysis with us today: https://www.evolutiontaxcenter.com/services/debt-elimination/

Student loan numbers in America today are staggering, and they’re still rising. More than 50% students now have to go into debt just to get through college, and collectively, they owe approximately $1.6 trillion, according to the Federal Reserve Bank of New York.

On top of this crippling debt, even bankruptcy doesn’t provide relief in typical circumstances. Debtors who file for personal bankruptcy often have a hard time including student loans for discharge, even though they can, according to Senator Elizabeth Warren, “cancel credit card debt, they can cancel medical debt, they can cancel excess debt on their car loan, they can cancel debt that exceeds the value of a home they might have, but it’s virtually impossible to cancel student loan debt… that’s fundamentally wrong.” 

Senator Elizabeth Warren goes on to say that student loans should be canceled in bankruptcy.

Previously, House Judiciary Committee Chairman Jerry Nadler (D-NY) and Warren introduced the ‘Consumer Bankruptcy Reform Act of 2020’. This proposes the replacement of the current system of chapter 7 and chapter 13 personal bankruptcies with just one: chapter 10. This would enable broader eligibility for discharging student loans in bankruptcy.

This doesn’t imply that Warren is no longer pushing for the cancellation of student loan to begin with, however. Warren has stressed that any bankruptcy reform should ideally include student debt loan forgiveness.

Warren also stresses that the federal government should not be throwing people into bankruptcy to deal with run-of-the-mill student loan debt. 

Both Warren and Senate Majority Leader Chuck Schumer (D-NY) have repeatedly urged President Biden to cancel $50,000 on federally-held student loan debt via executive action; this would bypass the need for legislation to be passed by Congress.

Meanwhile, the president has asked the education secretary, Miguel Cardona, to prepare a memo on the president’s legal authority before taking any action. However, student loan cancellation has faced a major drawback in court recently. The U.S. Court of Appeals for the Second Circuit issued a ruling that could make it even more difficult to discharge these loans in bankruptcy.

Although we might see student loans get cancelled entirely or discharged once bankruptcy is declared, that might not be an ideal solution for you. If you’re struggling with two of the largest consumer debts in America today — mortgages or student loans — or any other financial debt, getting expert financial help is a good idea. 

Tackle your debt and improve your financial position TODAY by setting up a free consultation with one of our experts here: https://www.evolutiontaxcenter.com/services/debt-elimination/ 

Not in debt? That’s great! Check out our other services here or set up a free appointment to file your taxes today: https://msgsndr.com/widget/booking/kIWnLZ6tnIKZ5fZ6akhN 

Everyone knows about the $1,400 stimulus checks by now, but there are more savings in the March stimulus law that can benefit you!

The bill covers FIVE ways for you to save on health care costs! We’re covering them below:

1. FREE COBRA insurance premiums through September

Normally, if you lose your job, you can buy insurance coverage through your former employer under the Consolidated Omnibus Budget Reconciliation Act (COBRA) program. For this, you still have to pay full price, which can obviously be costly. Now, however, the government will actually pay the entire COBRA premium from April 1 through September 30 for both laid-off employees and family members!

This does not apply to you if you have Medicare, if you chose to leave your job, or if you become eligible for a new employer-based health insurance somewhere else. 

The stimulus law requires employers to send a notice of eligibility to any former workers. In case you got laid off but did not receive this, you can contact your former employer to ensure you’re signed up for coverage.

2. Less expensive health insurance!

Thanks to the stimulus bill, you may now qualify for new, short-term health insurance subsidies to buy coverage on HealthCare.gov. If you buy your own insurance through the Affordable Care Act, you are likely eligible for a discount.

Essentially, the bill makes you eligible for more than you were earlier. If you already qualified, you can now receive more. If you weren’t previously eligible, you might be now.

For these new benefits, you will need to sign up for plans at HealthCare.gov or insurance marketplace websites. The changes will be retroactive to 1st January, 2021. What this means is that if you’re already on a medical plan through the ACA, you’ll get money back as a refund when you file your 2021 taxes. These new subsidies are funded by the American Rescue Act for two years.

3. Tax-deductible medical expenses

Congress has expanded tax-deductible medical expenses. Now, instead of capping expenses that exceed 10% of your adjusted gross income (AGI), you can deduct medical expenses that exceed 7.5% of your AGI. 

To find a full list of medical expenses you can deduct, check the IRS website.

4. Greater tax-free contributions

Good news for those with a health care FSA: The limit for tax-free contributions has increased by $50 to $2,750, as part of the IRS’s annual inflation adjustments. You can, therefore, contribute more without having to pay more taxes.

5. Health insurance through August this year

Normally, you need to wait for the six-week open enrollment each fall in order to sign up for health insurance. However, the American Rescue Plan Act moved this to mid-August.

Subsequently, several state marketplaces have done the same. So you can now go to HealthCare.gov or your state option and sign up for insurance if you need to, and can take advantage of the new subsidies and changes. This can help you save money by letting you sign up for a lower-cost plan sooner.

The average cost of health insurance in the US is nearly $500 per person per month in 2021. Associated costs can bump this up even more. We hope the tips in this article help you lower health insurance costs this year!

We provide help with other financial problems and stress-inducing tasks as well. 

Still haven’t paid your taxes? There’s less than a month left! Schedule a free appointment here: https://msgsndr.com/widget/booking/kIWnLZ6tnIKZ5fZ6akhN 

Done with your taxes already? Congratulations! Now let’s tackle your debt and improve your financial position: https://www.evolutiontaxcenter.com/services/debt-elimination/ 

A few days ago, the White House kicked off the fiscal year 2022 budget process. This constituted the sending of a letter to the House Appropriations Committee chairman and also issuing a press release on President Biden’s funding priorities.

The budget request includes 11 areas, which also gained attention during the presidential campaign. Education, medical research, housing, and civil rights are all part of this. 

The Treasury Secretary Janet Yellen also elaborated a bit on the areas under her department. She said that the Biden plan will also seek money to help seek a more equitable tax system.

What this means is basically that the Internal Revenue Service will be empowered to do its job better — and this means that it will also be better equipped to audit people who are evading taxes or misreporting anything. Audits will naturally increase, too.

The upcoming budget will include $13.2 billion for the IRS overall, up from $1.2 billion or 10.4% as compared to the budget for 2021.

To boost tax compliance and thereby increase revenue, the 2022 discretionary request also provides an additional increase of $417 million in funding for tax enforcement.

The IRS will therefore increase oversight of high-income and corporate tax returns to ensure compliance, Yellen confirmed.

In total, the 2022 discretionary request will increase IRS resources for tax enforcement by $900 million. If the Biden request goes through, the historically underfunded IRS will ramp up its lacking enforcement and audit efforts.

What does that mean for you, as a taxpayer? The IRS can audit you too, and the chances of that happening will increase even more now. Do you know what to do in case you’re targeted by an IRS Audit? We help our clients in such a situation too.

Dealing with the IRS can be a NIGHTMARE. Not only does the IRS make audits scarier than they need to be, the actual process of dealing with the audit even when you filed your taxes correctly is time-consuming and exhausting. Some tax preparation companies, like ours, take the burden off of clients and save them from very high hourly charges by providing protection plans and also prevent them from having to go through the ordeal of dealing with the IRS!

In addition to audits, however, the increase in budget will also help improve taxpayer service. Yellen said other requested FY22 funds should help the IRS provide new and improved online tools for taxpayers to contact the IRS easily and quickly, and enhance telephone and in-person taxpayer customer service, including outreach and assistance to underserved communities. This is welcome news, because contacting the IRS currently is a needlessly painful process.

We hope the IRS does end up getting a bigger budget so it can fulfil its duties in a better way.

With the IRS increasing audits, you’re likelier than ever before to be on the receiving end of a worrying notice from the tax authority. Get protected now and save yourself the stress, headaches, and thousands of dollars in a tax preparer’s hourly fees! We can help save you from the IRS in case of an unwarranted audit!

Check out our powerful Audit Protection Plan and Identity Protection here!

Still haven’t paid your taxes? There’s only one month left! Schedule a free appointment here: https://msgsndr.com/widget/booking/kIWnLZ6tnIKZ5fZ6akhN 

Done with your taxes already? Congratulations! Now let’s tackle your debt and improve your financial position: https://www.evolutiontaxcenter.com/services/debt-elimination/ 

Recently, five key things happened that could affect your small business.

Here they are:

1. The American Rescue Plan was signed into law

The ARP was signed into law by President Biden on March 11, 2021. Naturally, the stimulus checks and the unemployment benefits garnered the most attention. However, the law also includes various provisions for small businesses!

Small businesses have taken a hit due to COVID-19. Thankfully, this law now provides options for several grants and loans that you can now apply for! About $50 billion in funding has been allocated to assisting small businesses. This is in addition to the $600 billion previously allocated. 

Make sure you apply for a grant or loan if applicable!

2. Amazon workers are voting whether to unionize or not

Amazon workers at a warehouse in Alabama could decide the future of a $1.5 trillion tech giant and its employees worldwide. A vote among the workers is set to decide whether to unionize or not. Although it seems Amazon workers have voted against union at Alabama warehouse, this could have an impact on many businesses across the US, no matter what the size of the business is. For now, it’s worth keeping an eye on in terms of your own business.

3. Corporate income taxes might be changing

We’ve written about President Biden’s tax plans before. Essentially, the Biden administration and also some members of Congress have suggested changes to the corporate income tax that would repeal changes made by the Tax Cuts and Jobs Act (TCJA) in 2017. For now, these have not gone into effect, but as a small business, it is worth it to keep an eye on the latest developments. This change could affect your tax rate in the future.

4. The travel industry is recovering

The travel industry was hard hit by the pandemic. Now, with reports that 25% of Americans are fully vaccinated, there are signs that the industry is making a comeback. 

This will affect your business, probably positively, if your business is in any shape or form affected by travel and tourism, this is a positive sign that things could be returning to normal.

5. The Employee Retention Credit (ERC) and the Paycheck Protection Program (PPP) can both be used now

The Taxpayer Certainty and Disaster Tax Relief Act and the American Rescue Plan extended the ERC through to the end of the year and also increased the refundable and advanceable credit to $7,000 per employee. This is valid for two quarters each or up to $14,000. In addition, this legislation also resolved an issue which made it impossible for employers to take advantage of both the ERC and the PPP in 2021.

As a small business, you are now allowed to use both, with one limitation that funds from both these programs cannot be used on the same payroll period.

Do you have a small business? If you do, we hope you know we help small businesses with their taxes too! Check out our Corporate Tax Preparation page and book an appointment if you haven’t filed your taxes yet!

Thinking of launching a home-based business? It’s one of the most powerful things you can do to slash your tax bill by as much as $5,000! Write off over 150 business-related expenses, just like the Fortune 500 companies do. Let’s us show you how! Book a free consultation with us today to see how launching a home-based business can have a MASSIVE impact on your taxes and check out our Home-Based Business Consulting service page for more info!

As yet another impact of COVID-19, many student loan borrowers have put their bills on hold. While providing relief, this will also mean that they’ll miss out on the typical tax break for payments made to student loan interest.

If you have a federal student loan, or know someone else who does, know that you might not be able to claim a popular tax deduction this time around. Approximately 12M Americans benefit from this tax deduction and lower their tax deductibility. It allows up to $2,500 a year made in interest payments towards private or federal student loans to be subtracted from their gross income.

This student loan interest deduction also doesn’t require taxes to be itemized. However, income phase-outs do apply. Individual taxpayers making more than $85K and couples who earned more than $170K in 2020 do not qualify for this tax deduction.

Normally, you can save up to $550 by claiming the deduction on line 20 of Schedule 1. Your lender is required to report your interest payments to the IRS using the 1098-E, and provide you with a copy too.

Nothing about 2020 was normal though, and tax returns are no different.

Since March of last year, the government has allowed most federal student loan borrowers the chance to pause their monthly bills without interest accruing. In addition, President Joe Biden has extended that break to September.

So, if you didn’t make any actual payments, it follows that you can’t claim a tax deduction on it.

Even if you made payments during the pandemic, you probably still won’t be able to claim the full deduction because your payment will have contributed to the principal amount of your debt, and the tax break is only for interest.

 

Some people will still qualify, however. This new payment pause and subsequent waiving of interest did not begin for most students until March 13th last year. This means that you may have made payments from January to March 13th that can be deducted from the gross income.

Additionally, if you owe any student loans NOT eligible for the government’s break, you may have made interest payments that can be deducted. This includes the Federal Family Education Loan Program.

How this impacts you may vary. If you or someone you know with student loans struggled during the pandemic financially, the relief not to have to pay student loans will mean more than the loss of the tax break. For others, however, this will simply result in a tax break.

Have you filed your taxes for this year?

If not, do it now! Get started with professional advice by booking a FREE tax preparation appointment here: https://msgsndr.com/widget/booking/kIWnLZ6tnIKZ5fZ6akhN 

Already filed your taxes this year? 

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The president campaigned for it and now it’s time for him to make it happen: rolling back tax cuts for America’s rich.

The American Rescue Plan, signed by the president earlier in March, is the first of what the White House has called the two-part agenda on the economy. The next part of the plan is the Build Back Better plan, and associated with it is a plan to help pay for it.

Essentially, this is the opposite of the tax cut bill Republicans passed back in 2017. The past few months have been dedicated to discussing the COVID-19 pandemic and the economic fallout that has resulted. Some might have forgotten, therefore, that Biden’s campaign focused on a tax proposal that included bumping up the corporate tax rate, increasing taxes on households making $400,000 or more, and adjusting estate tax and capital gains taxes.

Now, these are back in the spotlight once more after the third stimulus checks have gotten out of the way. In response to a recent question about whether the president would be raising taxes, Biden answered with a yes. “Anybody making more than $400,000 will see a small to a significant tax increase,” he said, emphasizing that anyone making less than that won’t see any additional federal taxes at all.

From a political viewpoint, it’s not going to be easy. It’s not likely that Biden will get any Republicans to support a tax increase to fund an infrastructure bill, and moderate Democrats might feel the same way. Additionally, some moderate Democrats might not support increasing taxes while the economy recovers from a significant crisis, too.

Another point to note is that Biden isn’t the only one who decides important tax matters. Plenty of Democrats have ideas to revamp taxes too, prominent amongst them Sen. Elizabeth Warren (D-MA), who is a vocal proponent of a wealth tax.

Back in 2017, Republicans slashed taxes for rich people and corporations. Now, Biden wants to reverse that. The full details of Biden’s tax proposal aren’t clear yet. According to Bloomberg, however, much of what he will likely suggest is going to be in line with what he campaigned on.

During his campaign, Biden proposed bumping up the corporate tax rate from 21 to 28 percent (the Republican tax cuts previously brought it down from 35 to 21 percent). Biden also suggested increasing the income tax rate on families making more than $400,000. He proposed changing capital gains taxes for people making more than $1M, so that they’re taxed the same as income.

In addition, Biden proposed getting rid of taxing capital gains on a “stepped-up” basis after people die. A step-up in basis is the readjustment of the value of an appreciated asset for tax purposes upon inheritance, according to Investopedia. 

Furthermore, he ran on expanding the estate tax, rolling back deductions for pass-through entities such as S-corps and LLCs introduced as part of the GOP tax cuts, and increasing the minimum tax rate on foreign income paid by big MNCs.

The basic idea behind Biden’s tax approach is to make the system fairer. 

The Tax Policy Center estimated Biden’s plan would raise $2.1 trillion over the next 10 years. As Bloomberg has noted, the White House proposal could be smaller.

Treasury Secretary Janet Yellen has indicated plans on the international front to start work so a global minimum tax rate for multinational corporations can be established.

This would prevent countries from lowering their tax rates to attract business and investments, and getting caught up in a cycle of undercutting each other constantly. In her confirmation hearing for treasury secretary, Yellen said she wants to work with other Organization for Economic Cooperation and Development (OECD) countries to stop what has been a “destructive, global race to the bottom” on corporate taxes.

Sen. Wyden, chair of the Finance Committee, is also one to watch. He has proposed legislation on closing the carried loophole, which lets private equity and hedge fund managers pay lower taxes. In addition, he has also advocated for changing how derivatives are taxed and reforms to international taxes.

“If you’re a nurse taking care of COVID patients, you can’t defer paying your taxes. But if you’re a billionaire, you can defer, defer, defer, and then never pay any tax at all,” Wyden said in a powerful statement.

In addition, Sen. Warren is famously a longtime proponent of a wealth tax — this was also a prominent feature of her 2020 presidential campaign. And she has continued to prod the White House on that. Her proposal would put a 2% annual tax on households worth more than $50M and a 3% tax on households worth more than $1B.

Sen. Brian Schatz (D-HI) is reintroducing legislation to impose a financial transaction tax that would impose a small tax on stock market trades. This idea has gained more support since the recent GameStop saga.

The former treasury official, Mundaca, said, “When we talk about new and novel taxes like a financial transaction tax, like a wealth tax, those will be the subject of a lot of debate, because we don’t have a framework yet, and there will be effects to consider. Things like the estate tax, though, those are going to be front and center.” 

Other items may also be on the table, including even a tax cut for middle-class families. Many other Democrats are pushing to restore the state and local (SALT) deduction, capped at $10K in 2017. 

It’s likely that an infrastructure package, or whatever Biden’s recovery bill entails, will pass through reconciliation.

Biden’s recovery plan is still taking shape. The White House naturally wants to be strategic in how it goes forward. However, there are issues. For instance, the US economy is still struggling due to the COVID-19 pandemic and millions of people are still unemployed. Although the economy has been stimulated by the economic impact payments and the vaccines, the politics of this issue still aren’t too easy. 

Policymakers could perhaps phase in tax increases or ensure that these are not applied until unemployment hits a certain level. 

Although this is gaining a lot of attention for now, it will likely be weeks or even months before a full proposal takes shape to establish a more equitable tax system. Stay tuned for details as they are finalized!

Have you filed your taxes for this year?

If not, do it now! Get started with professional advice by booking a FREE tax preparation appointment here: https://msgsndr.com/widget/booking/kIWnLZ6tnIKZ5fZ6akhN 

Already filed your taxes this year? 

Congratulations! Now let’s get you out of debt! With our new and powerful debt elimination program, Evolution remains committed to enhancing your finances and helping you gain control over them in every way possible. 

Let us show how much interest we can save you and how to pay off all of your debt fast. Imagine paying off your mortgage in as little as 5-7 years, without refinancing. 🙂 

Reach out for a FREE debt analysis consultation today: https://www.evolutiontaxcenter.com/services/debt-elimination/ 

Please also don’t hesitate to reach out to us if you have any tax questions!