Taxes

New Jersey Tax Breaks

Shoreline scene with an old rusty anchor on wet sand. 3d illustration.

There are several positive tax changes that NJ has implemented this year regarding education, child tax credits, and property tax relief.

Education: A deduction of up to $10,000 of NJBest contributions, and a deduction of up to $2,500 of principal and interest paid on student loans if your gross income is $200,000 or less. You can also deduct up to $10,000 of tuition to a New Jersey institution of higher education.

Child Tax Credits: A refundable child tax credit of up to $500 for each dependent child aged 5 or younger. Your taxable income has to be $80,000 or less.

Child and Dependent Care Credit: Similar to the Federal credit and the New Jersey credit is a percentage of your federal child and dependent care credit. Your New Jersey taxable income must be $150,000 or less.

Property Tax Relief: You are eligible for the ANCHOR benefit if your NJ gross income was $250,000 or less during the year 2019. The application can be completed online and you should have received it in the mail. The deadline to file is December 30, 2022.

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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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How Does the Recovery Rebate Credit Work?

The recovery rebate is a credit for taxpayers who either did not receive or received less than the full amount of their Economic Impact Payments. Here’s how it works for the 2021 tax year:

Economic Impact Payments and plus-up payments were issued during 2021 from March through December. If you received the full amount of the third Economic Impact Payment, then you do not need to include any information about this when you file your return.

However, if you didn’t qualify for the payment or received less than the full amount, then you can claim this as a credit on your 2021 tax return.

If you are missing any of the first and second stimulus payments, then you will need to claim this as a credit on your 2020 tax return.

 

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Your Refund Will Be Delayed Unless . . .

Your refund may be delayed if you don’t report this properly on your tax return this year:

Unfortunately, some of the information sent to you may not be accurate. You need to do this instead:

  • If you have children, then go to irs.gov/account to retrieve information regarding the Advance Child Tax Credit. Even if you received a letter, the letter may not be correct.
  • Use the information from Letter 6475, which shows the amount of the third economic. If you do not have the third economic payment letter, then you can retrieve this online as well. Make sure to retrieve one for your spouse if you are married.

 

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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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Are You Ready to Complete Your PPP Loan Forgiveness Application?

Did 24 weeks pass after you received your PPP funds? If so, then now is the time to complete your PPP loan forgiveness application. Here are a few tips from the SBA:

  1. There are several different forms to use, including SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or a lender equivalent. To quickly determine which form you should use, take a look if you meet the main criteria for each.
    1. SBA Form 3508EZ is generally for sole proprietors without any employees
    2. SBA Form 3508S is generally used if your loan was $50,000 or less
    3. SBA Form 3508 is used if you do not meet the criteria to use the other forms
  2. Information you may/will need:
    1. Bank statements
    2. Payroll service provider reports
    3. Payroll tax filings filed during the covered period
    4. Payment receipts or cancelled checks to document health insurance, retirement plan expenses, mortgage payments, rent payments, and utility payments
    5. Copies of lender account statements, lease agreements, and invoices
  3. Submit the forgiveness application, along with supporting documentation
  4. Follow-up with your lender. I’m not really sure how long it will take, but I assume that it depends upon your lender, application volume, form used, how you prepared the application, and the amount of the loan.

If you need help completing your application, then let me know.

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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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