This edition we are talking about Medical, IRA, IRS Private Collectors, Estimated Tax Penalty and new IRS News!
As always our tax plan for business owners or investors bundles this knowledge and MUCH more into account to create your individualized tax plan to be used for YEARS. Feel free to text, email, or call us to see how a tax plan could benefit you.
As a reminder expenses towards COVID-19 at home testing, personal protective equipment (face masks, hand sanitizers, and wipes) are considered medical expenses. These expenses can be used if you use the itemization deduction and the expenses exceed 7.5% of your adjusted gross income (AGI). These expenses also qualify for those who have a Flexible Spending Arrangement (FSA) or Health Savings Account (HSA).
Traditional IRA withdrawals before the age of 59 ½ are typically subject to the federal 10% penalty (additional per state). There are however exceptions that allow you to withdraw the funds penalty free. To name a few: higher education cost (tuition, textbooks, supplies, computers, etc.), medical expenses, death, disability, unemployed health insurance, first-time homebuyer, divorce, and a few more.
IRS Hires Private Collectors
The IRS has hired private companies starting in 2017 to collect inactive tax receivables. Do not be scammed. Before being contacted by one of the IRS designated private companies they should have mailed two letters – one from the IRS and the other from the private company – and these companies can ONLY discuss payment options. They cannot take enforcement measures.
These companies are CBE, ConServe, and Coast Professional
Estimated Tax Penalty
This penalty is imposed if you do not pay estimated tax payments throughout the year and owe the IRS more than $1,000 once your tax return is filed. To avoid an estimated tax penalty you must pay at least 90% of your current year’s tax liability or 100% of the prior years’ tax liability (110% if AGI is above $150,000). A great way to avoid this penalty is to reach out to us for a tax projection between July and December.
- 2021 has been a record-setting year for IRS system math errors. Roughly 9 million individuals between 1/1/21 – 7/1/21 received a letter and increases to their refund due to this. This is compared to only 628,997 math errors for the same period in the previous year
- Millions of individuals still await refunds from timely filed 2020 tax returns. As of Sept. 18th 2021, 7.8 million individual returns are still being processed, and 2.8 million amended tax returns. The good news is the IRS is making progress but the bad news is there is nothing we can do to speed up the process or even get an update
- So far in 2021 only 9% of callers have reached a live customer service rep and the IRS has received a record 200 million calls
- Independent contractors or “gig” drivers with bad records are losing deductions. A recent tax court case nixed a large deduction from an Uber driver that lacked proof of his deductions.