New Jersey Tax

How Many Returns Are Unprocessed by the IRS?

Can you guess how many tax returns are unprocessed by the IRS as of the middle of March?

The number is 7 million unprocessed individual returns. It is taking the IRS more than 21 days to issue any related refunds and in some cases it can take 90 to 120 days. If there are any issues related to items such as the Recovery Rebate Credit or Child Tax Credit, the IRS will send taxpayers an explanation. You can also view the Where’s My Refund tool at the irs.gov website.

 

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Challenges at the IRS

The IRS is facing many challenges that have carried over from last year. According to the IRS, its workforce has shrunk by 17% from 2010, while its workload, as measured by the number of individual return filings, has increased by 19 percent. What are some issues and what can you do for this tax filing season?

  • Avoid filing anything by paper when possible. The backlog at the IRS is in the millions. Even returns that were e-filed last year were suspended during processing, which was mostly due to Recovery Rebate Credit discrepancies.
  • Use the ‘Where’s My Refund?” tools at irs.gov. However, this does not provide information on unprocessed returns or explain delays. Also, contacting the IRS for your refund status will probably be a waste of time. Supposedly, they will not be able to explain more than the “Where’s My Refund?” tool.
  • Telephone service was the worst it has ever been and only about 11% of calls were answered. If you need to contact the IRS, then try various days and times. Mondays are not a good day.
  • Make sure to provide all of your information to your tax preparer to avoid any discrepancies between IRS records and your tax return.
  • If you received advance Child Tax Credits, the IRS encourages you to go to your online account with the IRS to obtain the amount because Letter 6419 that was sent out may not be accurate. If you report an inaccurate amount, then this will cause a delay with processing your tax return.

 

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Tax Deadline & Updates

You may have heard that the IRS extended the individual tax deadline by one month to May 17th, but there are important updates to know as follows:

  1. The deadline to file corporate taxes has not been extended and is still April 15th
  2. States are expected to extend their deadline, but we’ll have to wait and see
  3. Tax payments for the year 2020 are now due on May 17th
  4. The extension does not apply to first quarter 2021 estimated tax payments, which are still due on April 15th

 

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Possible Extensions

There have been major challenges with being able to file tax returns, especially business returns, which are due soon on March 15th for s-corporations and partnerships. This relates to new tax laws, loan forgiveness, and delays with states approving tax forms and software. Additionally, New Jersey has new complexities with its new BAIT (Business Alternative Income Tax) forms.

We may have to file extensions for your business and possibly individual returns due to these delays.

 

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IRS Delays Tax Season Plus Important Deadline Reminders

With all of the last minute tax law changes the IRS needs more time to program their systems. Here are important filing dates:

February 12th: IRS begins 2021 tax season. Individual tax returns begin being accepted and processing begins.

February 22nd: Projected date for the IRS.gov Where’s My Refund tool being updated for those claiming EITC and ACTC, also referred to as PATH Act returns.

First week of March: Tax refunds begin reaching those claiming EITC and ACTC (PATH Act returns) for those who file electronically with direct deposit and there are no issues with their tax returns.

March 15th: Deadline for filing S-corp and partnership returns

April 15th. Deadline for filing individual and corporate tax returns.

May 15th. Deadline for filing exempt organization returns.

September 15th. Deadline for filing extended S-corp and partnership returns

October 15th. Deadline for filing extended individual and corporate returns

 

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Don’t Do This

There is one financial transaction that I strongly discourage clients from doing and here’s why . . .

Do not withdraw from your retirement accounts early! Here are the reasons why I hear most people want to withdraw from their retirement accounts:

  1. Purchase a house
  2. Pay for expenses while unemployed
  3. As a temporary loan, with the intentions of replacing the money
  4. To pay for unforeseen expenses
  5. You need the money for (fill in the blanks)

The main reason to not do this is because it is one of the major reasons for tax problems. Aside from early withdrawal penalties, additional income taxes are accessed  on the balance, withholdings are not usually taken or not enough, and you may end up increasing your income, which sometimes pushes you into an even higher tax bracket. Once you add up all of the penalties and taxes, then the amount withdrawn can disappear by half for some.

What are some other options as you are most likely withdrawing your retirement funds because you desperately need the money and do not have a cash cushion? If you are employed, you may be able to obtain a retirement plan loan from your employer, which is not a taxable event. Alternatively, you might be able to borrow the money from your home’s equity. In some cases, you may be able to delay what you need the money for if not needed for emergency purposes.

Over the long-term, this is why I stress slowly building up a cash emergency fund. Yes, it’s boring and unexciting, but you will be glad you did when the time comes.

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5 Risks to be Aware of that Will Hurt Your Finances

There are ups and downs in life, good times and bad, and everything in between. Unfortunately, some events can hurt your finances in a significant way and may even be beyond your control. What are some of these risks to be aware of and what can you control?

Health Issues

As we become older, there are more chances of having a serious health issue. What is not commonly thought of is that family members, such as spouses, elderly parents, and children can develop health issues, both physical and mental. We have a responsibility to take care of our family, and the time spent will take time away from our job or business, which will eventually lower our earnings. While you cannot control the health of others, you can take charge of your own health and that of your children by living a healthy lifestyle.

Addictions

Do not think that you are immune to addictions. Aside from alcohol, illegal drugs, and gambling addictions, there are other destructive addictions that will ruin your finances such as prescription drugs, video games, and pornography/sex. The statistics on who has these addictions, how they start, age groups, and the impact on your brain are alarming. Be aware of these addictions and do your best to stop them before they start.

Divorce

Aside from paying legal fees, there are statistics that show that divorced women experience a prolonged loss of earnings and lower standard of living after divorce, even though various studies show that approximately 70% of women initiate divorce. Surprisingly, statistics show that a man’s earnings increase significantly after divorce. Focus on a healthy marriage and your finances will be stronger, plus some studies show that divorce does not lead to a better life.

High Income then Low Income

Inconsistent income patterns can hurt your finances in multiple ways. The first is that if your income is very high in one year, then your spending will probably increase, and once your income drops, your spending will probably not drop as quickly, if at all. Second, if you have a very good year in your business and don’t set aside a reserve for taxes, then you won’t have the money to pay your tax bill, especially if your income is lower in the following year. I have seen this situation happen repeatedly.

Expense Creep

Expenses have a way of increasing faster than your income and are hard to lower once they do. A good rule is to increase your savings in the same proportion as your income, and do not incur additional debt. This way, it does not really matter what you spend, and yes, I really did say that, because mathematically it does not matter. It’s putting first things first.

 

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COVID-19 Updates: I Received my PPP Loan, Now What?

If you received your PPP loan, what should you do now?

The main purpose of the PPP loan is to keep your employees on payroll and the proceeds should be used for:

  • Payroll costs, including payment of state and local taxes based upon compensation
  • Group healthcare benefits and retirement
  • Interest on mortgage obligations
  • Rent
  • Utilities (electricity, gas, water, telephone, or internet)

How to obtain forgiveness

  • Your loan forgiveness will be reduced if you decrease your full-time employee headcount during the covered loan period.
  • Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
  • You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
  • 75% of the proceeds must be used towards payroll costs
  • The period to use the proceeds is the eight week period after receiving the loan

The act excludes from payroll costs the compensation of individual employees that make an annual salary of $100,000. Also, the whole point of this loan is to help pay your employees for two months plus other critical expenses during this time period.

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COVID-19 Tax and Financial Updates 04-17-2020

Tax Updates

  • Some taxpayers have started to receive their Economic Impact Payments
  • The CARES Act also provided retroactive tax law changes, such as allowing improvements to nonresidential buildings to be eligible for bonus depreciation (the ability to be expensed 100% in one year), while reducing the number of years of depreciation from 39 to 15 years
  • Business losses from 2018, 2019, and 2020 are eligible to be carried back up to five years and losses carried to 2019 and 2020 can now offset 100% of taxable income versus 80% previously

Paycheck Protection Program Info

  • The PPP loans have reached their maximum in less than two weeks, and now we have to wait to see if there will be an increase to the limitation.
  • So far, not one client has informed me that they received funds from the PPP

Adapting to the Situation

  • We hear stories from our clients and others who are making changes to their businesses to help adapt and survive through this financially. Some changes include:
    • Virtually serving clients and customers, when possible
    • Creating new services that are in demand now
    • Selling products online versus traditional retail
  • It also appears that there is a renewed sense of putting things in perspective, focusing on what is important, not living just to work, and a general sense of community. I like those changes.

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COVID-19 Tax and Financial Updates 04-10-2020

Here are the latest updates and some reminders:

Tax Updates

  • Tax deadlines: both New Jersey and New York have finally extended the tax deadline from April 15th to July 15th.
  • If you have an existing installment agreement with the IRS, payments due between April 1 and July 15, 2020 are suspended.
  • CARES Act economic impact payments: payments will begin this month and you do not have to take any action if you filed a return for 2018 or 2019.

Paycheck Protection Program Info

  • Sole proprietors, independent contractors, and self-employed persons can start applying for this loan starting today
  • The banks are completely overwhelmed with loan applications and some have temporarily stopped taking new applications, especially if your business does not have an existing relationship with the bank
  • The information required consists mainly of prior year’s payroll filings, loan applications, etc.
  • The program will be available until June 30, 2020
  • We are not sure how long it will take to receive funding, but if you have received funding, then please let us know

Existing SBA Loans

  • The SBA will automatically pay the principal, interest, and fees of current 7(a), 504, and microloans for a period of six months.
  • The SBA will also automatically pay the principal, interest, and fees of new 7(a), 504, and microloans issued prior to September 27, 2020.

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