As we near year end, it’s time to take a final look at your tax situation while you still have time to take actions that can change your tax liability for the 2020 tax year.
In this post, I’ll speak to a number of issues that could impact your tax standing, but nothing here should be construed as specific tax advice for your unique situation. Call our office if you have any questions.
Accounting for Your Stimulus Check
High on our list of issues for the 2020 tax year will be the Internal Revenue Service’s treatment of the government stimulus payments consumers received this year in response to the COVID-19 pandemic. You may have heard these payments referred to as “advanced refunds,” which can be confusing.
The CARES Act legislation has instructed the IRS to treat 2020 government stimulus checks as fully refundable tax credits for 2020. This means that these payments will not increase the taxpayer’s liability. It also means that these payments must be reported when you file your 2020 income tax return.
The opportunity for some will come in the form of unreceived stimulus checks when they actually would have qualified to receive one. In this case, the tax credit can be recovered by claiming it when they file their 2020 tax returns.
For more information about determining whether you qualify for a stimulus check, contact our office.
New IRS Identity Pin Program
While the social security number (SSN) was originally intended to provide a unique identifier for every US taxpayer, the IRS will roll out a new number in January designed to make it harder for fraudsters to use stolen SSNs to file fraudulent tax returns.
The IRS Identity Protection PIN is an opt-in program that will be expanded to all taxpayers in January. The 6-digit number will be assigned to eligible taxpayers and used by Secure Access to authenticate a person’s identity.
The IRS has warned taxpayers to never reveal their IP PIN and made it clear that the IRS will never call to request this number. They will call, however, to have an IRS employee call in an initial attempt to verify a person’s identity before issuing the special number.
You can also make an appointment at a Taxpayer Assistance Center to sign up for your IP PIN. Just bring two forms of photo identification.
Dealing with a Very Busy Agency
It seems like we are often encouraging our clients to get their paperwork done early, but this year that is especially important.
COVID-19 put incredible stress on our system and while the government’s work to get millions of stimulus checks out to American citizens in a timely manner reduced the severity of what could have been a national disaster, it wasn’t a perfect process.
While the dust hasn’t completely cleared yet, it is likely that the government sent checks to taxpayers who were not qualified to receive them, or even still alive. Cleaning this up has put the IRS behind and it’s likely that timelines will be extended as they work through this.
It could get more complicated if the government passes another stimulus measure before the end of the year. There is already a bill working its way through Congress to this effect.
All of this is to say that this is not the year to put off filing your income taxes. Reach out to your tax advisor soon to determine your standing and whether a transaction before year’s end could reduce your tax liability. If you are a current client, don’t delay in reaching out to us. If you are seeking a new advisor, please call our office soon to ensure that we have time to review your situation before the year is over.