Posts Tagged ‘2021.Tax.Season’

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2021 Tax Season to Begin on Friday, February 12th

Friday, January 15th, 2021

I have been asked by several clients when they can efile their 2020 tax returns. In most years, tax filing begins in late January. But not this year:

The Internal Revenue Service announced that the nation’s tax season will start on Friday, Feb. 12, 2021, when the tax agency will begin accepting and processing 2020 tax year returns.

The Feb. 12 start date for individual tax return filers allows the IRS time to do additional programming and testing of IRS systems following the Dec. 27 tax law changes that provided a second round of Economic Impact Payments and other benefits.

The IRS is delaying the start of tax filing because of changes to the Tax Code made with the December 27, 2020 tax law changes.

Today happens to be the date that IRS “Free File” begins. However, returns prepared using Free File will not be transmitted to the IRS until February 12th.

As of today, the deadline for filing individual tax returns remains Thursday, April 15th.

UPDATE: A friend reminds me that just because tax returns cannot be filed until February 12th does not mean you should wait on (a) sending return information to your tax professionals and (b) starting work on your 2020 tax returns. Do not wait!!! This is not going to be a fun Tax Season for tax professionals. Get your return paperwork to your tax professionals ASAP. Most tax professionals encourage you to send your tax documents (i.e. 1099s, W-2s, etc.) as you receive them–so do so!

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It’s Time to Generate 2020 1099s

Wednesday, January 6th, 2021

It’s time for businesses to send out their annual information returns. These are the Form 1099s that are sent to to vendors when required. Let’s look first at who does not have to receive 1099s:

  • Corporations (except attorneys)
  • Entities you purchased tangible goods from
  • Entities you purchased less than $600 from (except royalties; the limit there is $10)
  • Where you would normally have to send a 1099 but you made payment by a credit or debit card

Otherwise, you need to send a Form 1099 to the vendor. The best way to check whether or not you need to send a 1099 to a vendor is to know this before you pay a vendor’s invoice. I tell my clients that they should have each vendor complete a Form W-9 before they pay the vendor. You can then enter the vendor’s taxpayer identification number into your accounting software (along with whether or not the vendor is exempt from 1099 reporting) on an ongoing basis.

This year will be the first year we’ll be using the new Form 1099-NEC to report nonemployee compensation instead of reporting this on Form 1099-MISC. Form 1099-NECs have a filing deadline of February 1, 2021 (for reporting 2020 nonemployee compensation). Form 1099-MISCs are used for all other 1099 reporting except interest, dividends, capital gains, etc. Payments of rent, royalties, advertising, crop insurance proceeds, substitute payments in lieu of dividends, attorney proceeds, other income (including gambling winnings not reporteable on a Form W-2G), and nonqualified deferred compensation are just some of the items reported on a Form 1099-MISC.

Remember that besides the 1099 sent to the vendor, a copy goes to the IRS. If you file by paper, you likely do not have to file Form 1099-MISC with your state tax agency (that’s definitely the case in California). However, if you file 1099s electronically with the IRS you most likely will also need to file them electronically with your state tax agency (again, that’s definitely the case in California). It’s a case where paper filing might be easier than electronic filing.

IMPORTANT: The IRS is not sending Form 1099-NECs to state tax agencies. Thus, if you have a state filing requirement for your Forms 1099-NEC, you must separately file this with your state tax agency.

If you wish to file paper 1099s, you must order the forms from the IRS. The forms cannot be downloaded off the Internet. Make sure you also order Form 1096 from the IRS. This is a cover page used when submitting information returns (such as 1099s) to the IRS. WARNING: It is taking the IRS months to fill these orders. We ordered our paper 1099s in October; we have yet to receive them. It is likely too late to order them from the IRS and meet the February 1st deadline. Most tax professionals have software that can file 1099s directly with the IRS and state tax agencies; there are also services you can find that will do this for you.

Note also that sole proprietors fall under the same rules for sending out 1099s. Let’s say you’re a professional gambler, and you have a poker coach that you paid $650 to last year. You must send him or her a Form 1099-NEC. Poker players who “swap” shares or have backers also fall under the 1099 filing requirement (issuing form 1099-MISC).

Remember, the deadline for submitting 1099-NECs for “Nonemployee Compensation” (e.g. independent contractors) to the IRS is now at the end of January (though we get an extra day this year, because the 31st falls on a weekend): Those 1099s must be filed by Monday, February 1st.

Here are the deadlines for 2020 information returns:

  • Monday, February 1st: Deadline for mailing most 1099s to recipients (postmark deadline);
  • Monday, February 1st: Deadline for submitting 1099-NECs for Nonemployee Compensation to IRS;
  • Monday, March 1st: Deadline for filing other paper 1099s with the IRS (postmark deadline);
  • Monday, March 15th: Deadline for mailing and filing Form 1042-S; and
  • Thursday, April 1st: Deadline for filing other 1099s electronically with the IRS.

Remember, if you are going to mail 1099s to the IRS send them certified mail, return receipt requested so that you have proof of the filing.

Also note that most 1099s must be mailed to recipients. Mail means the postal service, not email. The main exception to this is if the recipient has agreed in writing to receiving the 1099 electronically. I consider this the IRS’s means of trying to keep the Post Office in business.

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Tax Professionals: IRS Considering Extending 2021 Tax Season

Sunday, December 6th, 2020

Last week, a client of mine who filed in late March (by paper because her return could not be electronically filed) finally received her refund. The return was processed in mid-November (per the IRS transcript). The IRS is doing its best with Covid, but they remain ridiculously behind. It’s certain the IRS will not process all timely paper-filed 2019 returns by the end of this year. Indeed, I saw that a Revenue Agent told a fellow E.A. that the IRS has “at least 2.5 million unopened pieces of mail.”

Another fellow Enrolled Agent attended (virtually) the IRS Stakeholder Liaison IMRS meeting last week. That’s a meeting where the Stakeholder Liaisons–IRS employees tasked with assisting tax professionals–track and respondsto significant national and local issues and concerns on IRS policies and procedures. During that call the IRS discussed extending the 2021 tax season by extending the filing deadlines for various 2020 tax returns.

The IRS has various concerns:

  1. 1099s and W-2s may be delayed.
  2. The IRS may not be caught up by the beginning of the 2021 Tax Season.
  3. A 2-week quarantine by an employee would be difficult to overcome.
  4. Many tax professionals will be working from home.
  5. Clients will expect less contact with tax professionals which likely will increase the time needed to prepare returns.

The IRS is requesting that tax professionals contact their local stakeholder liaison express their opinion.

I will be pondering this over the next week as I have both pro and con opinions regarding extending the 2021 Tax Season. And I still have two timely returns to get completed for the 2020 Tax Season (two individuals residing outside the United States who took second extensions)!

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Wait

Tuesday, November 24th, 2020

I sometimes listen to music while working. I have a ~900 song playlist I cycle through, and today White Lion’s Wait came on. (White Lion was a hair band–if you watch the linked video, you will see why.) And it seemed an entirely apropos title to this post: a post where we’re dealing with PPP loan forgiveness.

Earlier this year many businesses applied for Paycheck Protection Plan (PPP) loans. These seemed like a great deal for struggling businesses: Use them for payroll or certain other expenses (rent, utilities, etc.) and the loan would be forgiven. It was money from the US government to help small businesses make their way through Covid.

Congress’s intent (at least according to Senators Grassley and Wyden) was that businesses would be able to receive the loan, have the loan forgiven (assuming the expenditures were used as noted above), and the loan would not be considered income. The IRS, though, had another idea. Sure, the loan isn’t income; however, the expenses would not be deductible: the IRS noting that per Section 265 of the Tax Code if you have nontaxable income, expenses used in production of that income are not deductible. Senators Grassley and Wyden complained earlier this summer when the IRS first announced this. The IRS double-downed on this, releasing Revenue Ruling 2020-27 and Revenue Procedure 2020-51 confirming the IRS’s initial position. Senators Grassley and Wyden complained again.

A few tax professionals have argued the IRS got this wrong. Unfortunately, a literal reading of the Tax Code verifies what’s in Section 265 of the Tax Code. That said, Congress can override this. They could, for example, write a new law stating that PPP loans that are forgiven do not cause the expenses used in production of that income to be taxable. Indeed, there is legislation pending in Congress to do just that. Whether such legislation passes is another question though. The legislation does have bipartisan support, so there is a good chance it passes either in the “lame duck” session or early next year.

So what should someone do who received a PPP loan? Generally, they should wait to request forgiveness. (An exception is a sole proprietorship who used the funds for replacement of the owner’s ‘pay’. Because such pay isn’t taxable, there are no expenses which would be non-deductible.) Generally, you have ten months from the end of the PPP covered period to request forgiveness. We’re likely to have clarity on this sooner rather than later (I’m hopeful we’ll know by February), so if you can wait do so.

Indeed, given the rules and procedures the IRS came up with in Revenue Ruling 2020-27 and Revenue Procedure 2020-51 it’s a good idea to know what the exact forgiveness is before filing your 2020 return…and that could be five months after applying for forgiveness. As always, it’s better to extend than amend. Yes, there are going to be quite a few extensions filed by PPP loan recipients in 2021.

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