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File your 2020 Taxes Even if You Can't Pay
May 14, 2021
Don’t let the fear of paying owed taxes stop you from filing your 2020 tax return. Tax Day is Monday, May 17, and it’s important to timely file your tax return even if you can’t afford to pay the full amount of taxes due.
Here are some options for taxpayers unable to pay in full when they file their tax returns:
File an extension. If you’re not ready to file by the May 17 deadline, you can get an extension through Oct. 15, 2021. However, an extension to file is not an extension to pay. You’ll still need to figure out the amount of tax you owe and pay by May 17 to avoid penalties. It’s best to pay as much as you can before the deadline. Contact Hoffmaster CPA if you need help filing Form 4868 to get an extension or you can use the Internal Revenue Service’s (IRS) Free File to file electronically.
Apply for an online installment agreement. If accepted by the IRS, an online installment agreement enables taxpayers to make payments in monthly installments. You can also call the IRS to discuss other tax payment relief options, such as short-term payment extensions, temporary delay of collection efforts and determine if you’re eligible to submit an ‘offer in compromise’ to settle your federal income tax debt for less than what you owe.
NOTE: It is currently very difficult to speak with a live person at the IRS using its toll-free phone number. As of April 10, IRS employees have answered only 2 percent of calls to its customer service number at 1-800-829-1040. Approximately one out of 50 calls have reached a live operator and the average hold wait time is 20 minutes.
Consider asking for a penalty waiver under IRS’s first-time abatement policy. Individuals who pay or arrange to pay the tax due and have been tax-compliant for the last three years, can ask to waive the late filing or late payment penalties. You must request the waiver as the abatement isn’t provided automatically.
Contact Anthony Hoffmaster, CPA, CES, MST, with questions regarding personal and business tax filing and payment deadlines.
Proposed Tax Changes of the American Families Plan
May 14, 2021
The American Families Plan, introduced in late April by President Biden, prioritizes education, childcare and paid leave for workers. It is expected that this plan will evolve and change over time, but here are some of the tax changes currently being proposed.
One major tax relief proposal is to extend the expanded child tax credit that was first enacted in the American Rescue Plan Act (ARPA), through 2025. The ARPA increased the $2,000-per-child credit to $3000 ($3600 for children under the age of six). Children 17 years old and younger qualify, the credit is fully refundable and the IRS is expected to begin paying half of the credit to qualifying families monthly from July to December. Currently, the expansions apply only for 2021.
Proposed tax hikes are expected to fund the programs in the American Families Plan.
Raise the income tax rate from 37% to 39.6% on wealthy individuals earning incomes more than $452,700 ($509,300 for joint filers).
Long-term capital gains tax on millionaires would increase from 20% to 39.6% with an added 3.8% surtax on net investment income, making the rate 43.4%. The tax increase will affect taxpayers reporting at least $1 million in income.
Increased tax on inherited assets upon death. Unrealized gains in assets owned by an individual would be subject to federal income tax upon death. However, there are some exceptions: Gains totaling less than $1 million ($2 million for a couple), property donated to charity, and family-owned businesses and farms (if ran by heirs). If you have a capital gain from the sale of your main home, the existing $250,000 (or $500,000 for joint returns) exclusion is expected to remain. It’s not clear how transfers to spouses or trusts will be treated.
Cap the deferral from like-kind exchanges of real property at $500,000.
Expand the 3.8% surtax on investment income to cover other types of income. This proposed change will give more money to the IRS for audits of wealthy individuals, large corporations, pass-throughs and others. Additionally, it will require financial institutions to report more information to the IRS.
One tax deduction not currently addressed in the American Families Plan is lifting the cap on the State and Local Tax (SALT) deduction for 2021. In 2017, the tax reform law capped the deduction for SALT claimed on Schedule A at $10,000.
However, the SALT deductions are a priority for some legislators in Congress, and lawmakers from high-tax states, have pushed to repeal this limit. It’s expected that Biden Administration officials will address the SALT cap in the future.