Author Archives: c22511910

A COVID-Related Development for 2020 Individual Tax Returns

At Maicher CPA Pllc, we provide a full range of tax services to help clients reduce taxes.  There is an important COVID-related development along with other developments affecting 2020 individual tax returns.

  1.   The IRS has extended the deadline for filing 2020 individual federal income tax returns to May 17, 2021.  This extension includes tax payments as well.  However, be aware that:
  • This extension does not apply to corporations or trusts.
  • This extension does not apply to first-quarter 2021 estimate payments for income.
  • For those owed refunds, refunds are only issued when you file your return.
  • Individuals do not need to file a form for this automatic extension.
  • Minnesota has similarly extended the deadline for individual returns and payments, but extension by other states require confirmation.    
  • Lastly, if you need an extension to file, you will need to file IRS Form 4668 by no later than May 17, 2021 to receive an automatic six-month extension but this filing extension does not extend your payment due date.  
  1. Income tax brackets increased in 2020 to account for inflation as follows:

  1. For 2020, the long-term capital gains rates for individuals are as follows:  (a) for unmarried individuals with taxable income of over $40,000, the rate is 15% and 20% for taxable income of over $441,450; (b) for married individuals filing joint returns, the rate is 15% for taxable income of over $80,000 and 20% for taxable income over $496,600; and (c) for heads of households, the rate is 15% for taxable income of over $53,600 and 20% for taxable income for over $496,050.  

Take-away:  Tax rules are in flux but the tax professionals at Maicher stays on top of these changes.   Call Maicher today for an appointment for your 2020 tax return.       

 

Sources:

IRS Publication – “Tax Day for individuals extended to May 17: Treasury, IRS extend filing and payment deadline.” (March 18, 2021).

IRS Publication (Topic No. 409) – “Capital Gains and Losses.”  (March 12, 2021).

IRS Publication – “IRS Provides Tax Inflation Adjustments for Tax Year 2020.”  (December 17, 2020).

Important Ways to Minimize Your Income Tax

At Maicher CPA Pllc, we provide a full range of tax services to help clients reduce taxes.  There are some key rules concerning deductions for the 2020 tax year which can save individual taxpayers big dollars.  Maicher guides you as to what deductions are best in your own situation and then will prepare and file your returns to claim them.   

What are some key rules for deductions on your 2020 Minnesota income tax return?

1. Standard Deductions.  In 2020, the standard deductions for the respective types of filers are as follows: 

  • Single: $12,400
  • Married Filing Joint, or Qualifying Widow(er): $24,800
  • Married Filing Separately: $12,400
  • Head of Household: $18,650

2. Itemized Deductions in General.  If the value of expenses that you can deduct is more than your standard deduction (see above), then you should consider itemizing your deductions on you Minnesota return.  Since tax year 2018, you may claim the Minnesota standard deduction or itemize deductions on your Minnesota return.   It is also important note that you may claim itemized deductions on your state return, even if you claimed the standard deduction on your federal income tax return.

3. Specific Itemized Deductions.   For tax year 2020, Minnesota enacted its own allowable itemized deductions.  Common itemized deductions include:

  • Medical and dental expenses with limits increasing based on the taxpayer’s age
  • Certain real estate taxes on non-business real estate and with other conditions
  • Certain amounts of home mortgage interest and tied to how interest deductions are reflected on your Federal return and further subject to the date of the underlying loan
  • Unreimbursed employee business expenses 
  • Charitable contributions

These itemized deductions are claimed by filing Schedule M1SA (Minnesota Itemized Deductions).  Be alert to unused deductions from past tax years due to their exceeding deductions because you may be able to apply them to your 2020 return.    

Take-away:  Do not miss important deductions on your 2020 Minnesota return.  Maicher is highly skilled in this area so call us today for an appointment.     

 

Sources:

2020 Schedule M1SA, Minnesota Itemized Deductions – Minnesota Department of Revenue Publication.

“Minnesota Itemized Deductions,” Minnesota Department of Revenue Publication (December 21, 2020 Update).

What Is Meant by the “Marginal Tax Rate?”

Maicher CPA Pllc provides a full range of tax preparation services to help businesses and individuals succeed.   There are some key tax terms everyone should know.  “Marginal Tax Rate” is one of them because it will help you to properly adjust your withholding taxes, or your tax estimates if you’re self- employed.

What Is Marginal Tax Rate?

Marginal tax rate is the tax rate incurred on each additional dollar of income. The marginal tax rate for an individual will increase as income rises. This method of taxation taxes people based upon their earnings, with low-income earners being taxed at a lower rate than higher income earners.  Under a marginal tax rate, taxpayers are usually divided into tax brackets or ranges, which determine the rate applied to the taxpayer’s taxable income — which means income after deductions and exemptions.  As income increases, what is earned will be taxed at a higher rate than the first dollar earned. 

What Are the Marginal Rates for the 2021 Tax Year?

For tax year 2021, the top tax rate remains 37% for individual single taxpayers with incomes greater than $523,600 ($628,300 for married couples filing jointly). The other rates are:

  • 35%, for incomes over $209,425 ($418,850 for married couples filing jointly)
  • 32% for incomes over $164,925 ($329,850 for married couples filing jointly)
  • 24% for incomes over $86,375 ($172,750 for married couples filing jointly)
  • 22% for incomes over $40,525 ($81,050 for married couples filing jointly)
  • 12% for incomes over $9,950 ($19,900 for married couples filing jointly).

The lowest rate is 10% for incomes of single individuals with incomes of $9,950 or less ($19,900 for married couples filing jointly).  

Takeaway:  Knowing your marginal rates helps you make better decisions about the amount of withholding taxes and estimated payments applicable to you.  At Maicher, we provide pro-active and effective tax return services to individuals and businesses.   Contact us today for an appointment to discuss your marginal rate and its impact on your tax planning.  

 

Sources:

IRS Publication – “IRS Provides Tax Inflation Adjustments for Tax Year 2021,” (Last Reviewed/Updated: 26-Oct-2020)

“Your First Look At 2021 Tax Rates: Projected Brackets, Standard Deductions & More,” Forbes (September 11, 2020)

 

How Identity Theft Threatens Your Tax Refunds

At Maicher CPA Pllc, we provide comprehensive tax services to help individuals and businesses reduce taxes and promptly receive tax refunds.  However, every year, the IRS pays out billions in refunds to identity thieves who file fake returns, including 3 million such returns for 2019.  Theft victims will wait several months for claim resolution – and the receipt of refunds. 

What is the scam?  How to minimize the risk of being victimized?  What to do if you are?  

Identity thieves steal social security numbers to file false tax returns to divert refund checks – usually early in the tax season to beat legitimate filings.  

Strategies for countering identity theft?

  • Opt-in for multi-factor authentication on all accounts and for your online tax application, use your username, password and a third item like a phone number.
  • Provide your social security number and other financial information only after verifying the requester and be extra cautious about telephone inquiries.    
  • Regularly check credit reports for suspicious activity.   
  • And remember the obvious: filing your taxes early often prevents identity theft because the IRS allows only one tax return per social security number per year.

Maicher urges clients to be alert to these signs of tax identity theft, among others: 

  • An IRS inquiry about a tax return which you didn’t file.
  • Inability to e-file your tax return (which signals prior use of a social security number).
  • Receipt of a tax transcript you didn’t request.
  • An IRS notice about the creation or activity of an online account you didn’t create.   

What if you are a victim of identity theft? 

  • Respond immediately to any IRS notice by calling the number provided.
  • If your e-filed return is rejected because of a duplicate filing under your Social Security number, or if the IRS instructs you to do so, complete IRS Form 14039.
  • Visit IdentityTheft.gov for steps to protect yourself and your financial accounts.

Take-away:  Taxpayer identity theft strikes millions of victims but filing tax returns early is a powerful precaution.  Call Maicher today so we can get started on your return.     

 

Sources:
“How to Protect Yourself From The ‘Dirty Dozen’ Tax Scams,” Forbes (July 16, 2020).
TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION – “Results of the 2019 Filing Season January 22, 2020” (3 million fake returns were reported through April of 2019).
“IRS Launches Identity Theft Central – Focuses on Needs Of Taxpayers, Tax Professionals and Businesses,” (February 3, 2020).
“What the IRS Isn’t Telling You About Identity Theft,” – USA Today (January 30, 2016).

MONEY SAVING TIPS FOR 2020 TAX PREPARATION

At  Maicher CPA Pllc, we help clients reduce taxes.   The end of the 2020 tax year is upon us   Want to minimize taxable income, maximize deductions, avoid amended tax returns, and speed up a refund?  Here are some useful tips: 

  1. Make Sure Your W-2s and 1099s Are Accurate.   By the end of January, most W-2/1099s should be delivered to employees and contractors.  These documents can have inaccuracies like overstated wages or inflated payments which will increase your tax liability.   Review these reports upon receipt so the payroll/payable department can make corrections long before your return is due in April.   Reminder:  1099s are also issued by investment firms and the same need for prompt review for errors applies.
     
  2. Gather/Review Documents for Common Deductible Expenses. Be sure to keep documents showing your payment of mortgage interest.  For 2020, couples filing jointly may deduct interest payments on $750,000 of qualified home loans.  However, if your mortgage arose before December 15, 2017, you can deduct the interest paid on a qualifying loan amount up to $1 million.   Concerning IRAs in 2020, taxpayers under 50 may contribute $6,000 per person and those 50 and over may contribute $7,000.  Proof of these payments include documents showing the contribution such as cancelled checks or mortgage/brokerage statements.

  3. Charitable Donations. Deductions apply for qualifying charitable donations.   Provide accurate receipts to your accountant to ensure deductions are taken and defend against ay IRS challenges down the road.

  4. Children Born in 2020. New additions to your family in 2020?  Provide your accountant at Maicher with the social security number of such children as proof for tax credits.

  5. Business Receipts.   If you purchased items required to perform your job and your employer did not reimburse the expense, then the item is generally deductible. For the self-employed, many items used to conduct your business may be deductible as well.  Examples of such items include, among others: computers, office furniture, marketing/advertising expenses and business mileage (57.5 cents/mile in 2020).

Take-away:  Prompt and diligent attention to the above issues will give you the best chance of not overpaying taxes in 2020.  Call Maicher today to schedule a meeting to discuss other possible ways to reduce your 2020 taxes and the preparation of your returns.  

 

Sources:

IRS Publication: Standard Mileage Rates (December 3, 2020).

IRS Publication: IRA FAQs (November 12, 2020).

“4 Tax Deductions That Are Amazing For Homeowners,” Forbes (May 17, 2020).

“How To Maximize Your Mortgage Interest Deduction,” Forbes (June 25, 2020).

Beware of the Tax Aspects of Some Key COVID-19 Programs

Maicher CPA Pllc provides tax preparation services to help businesses and individuals succeed.  COVID-19 has spawned several government programs to relieve financial hardship.  While these programs have been essential for those hit worse by the pandemic, these programs each have their own unique tax consequences.  Maicher’s professionals are staying on top of these developments and can help guide you in reducing unpleasant surprises come tax time. 

What are some of the key programs and their tax consequences? 

  1. The Paycheck Protection Program (PPP).  The PPP is an SBA-backed loan intended to provide cash flow assistance for businesses struggling with the impact of COVID for at least eight weeks.  Depending on the circumstances, the loan is forgivable provided it’s used for business expenses, and predominantly wages.  But beware: while there is no tax on the forgiven loan, the IRS has concluded (at least for now) that a business expense is not deductible if it’s counted toward the forgiveness of the loan.   This means you will lose out on some deductions which would have otherwise reduced taxable income.
  2. The Economic Injury Disaster Loan (EIDL).   EIDL is an SBA loan to address the hardships of businesses due to COVID.  The loan program also includes a straight-out grant (rather than a loan) of up to $10,000.  Since it is a grant, the IRS will likely consider it taxable income.  However, the IRS has not definitively decided this issue and it remains somewhat in flux. 
  3. Stimulus Payments.  Good news here!   According to the IRS: stimulus payments are not subject to taxation, stimulus payments do not reduce tax refunds and they will not impact the taxes paid next year.
  4. Unemployment Benefits.  Unfortunately, unemployment benefits get different tax treatment than stimulus payments.  In short, unemployment benefits are subject to state and federal taxes (though free from Medicare and social security taxes).  You can file a form to have taxes deducted from each benefit payment. If you don’t elect this option, then making estimated payments during the year will likely cut expenses at tax filing.   

Conclusion:   COVID-19 and its relief programs are raising new tax issues, which are still somewhat in flux.  Maicher is well-informed of these evolving issues and can help you minimize taxes and reduce unpleasant surprises at tax time.  Contact Maicher today for an appointment to review your 2020 tax plan.

 

Sources:
“11 Tax Tips For The Unemployed During The COVID-19 Pandemic,” Forbes (August 28, 2020).
IRS Publication – “Tax Benefits for Education: Information Center,” (June 5, 2020).
“Tax-Filing Tips for College Students,” US News & World Report (June 4, 2020).
IRS Publication (Topic No. 456) – “Student Loan Interest Deduction,” (May 28, 2020).

Tax Tips for Students Who Work

Maicher CPA Pllc provides tax preparation services to help businesses and individuals of all ages to succeed.   Many young people have gone back to school and for many of them it also means working to pay those tuition bills.  Despite some common misconceptions, students who generate income have certain tax obligations which need to be addressed.

Students should keep the following pointers in mind:

  1. Withholding and Filing a Tax Return. If you are an employee, your employer withholds tax from your paychecks.   You do not need to file a tax return if your income is less than $12,200.00 but you may still wish to file a return in case you are entitled to a refund because your employer over-withheld.
  2. Self-Employment. Even if you are not an “employee,” earnings doing work for others is taxable.   Record your income and expenses related to your work. You may be able to deduct those costs from your income to reduce your taxes.
  3. Tax Credits. During the first four years of college, you may be entitled to the “American Opportunity Tax Credit, commonly called the AOTC – provided your parents don’t claim you as a dependent on their tax return.   If this $2,500 refundable tax credit brings your taxes owed to zero, you can have up to $1,000 refunded to you. Graduate students may be eligible for even larger tax credits.
  4. Student Loan Interest.  Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntarily pre-paid interest payments. You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year.

Conclusion:   Even students have certain tax issues to consider.  At Maicher CPA Pllc, our tax professionals have provided effective and ethical tax return preparation services for decades to businesses, individuals – and their families.  Contact us today for an appointment.

 

Sources:
IRS Publication – “Tax Benefits for Education: Information Center,” (June 5, 2020).
“Tax-Filing Tips for College Students,” US News & World Report (June 4, 2020).
IRS Publication (Topic No. 456) – “Student Loan Interest Deduction,” (May 28, 2020).

Is Your Tax Return Late?  File As Soon As Possible!

Save Dollars and Worry By Filing As Soon As Possible.

late tax return filing cpa minnesota

Our experienced tax professionals at Maicher CPA Pllc provide tax services to help you succeed.   Failure to timely file federal tax returns can result in interest, penalty fees, and even potential criminal prosecution.  Similar consequences often apply to late-filed state tax returns.   

Here are some helpful tips concerning late federal tax returns:   

  1. Even if you can’t pay the tax, file the return.   Delayed filing is a bad strategy because it can trigger a “failure to file” penalty of 5% for each month the return is late.  Delayed filings also cause the loss of refunds, loss carryforwards, tax credits as well as the receipt of certain government benefits like the recent federal stimulus payments.   Delays also stop the clock running on the statute of limitations for audits, which generally go back three years (though sometimes six years) from the filing date.  
  2. The IRS may abate penalties for a good cause.   Why did you file late?   Illness?  Fire?   Or for some other compelling reason?  Maicher’s experienced tax preparers have the expertise to effectively prepare IRS Form 843, which is otherwise known as the “Claim for Refund and Request for Abatement.”   If the reason for the late filing is good enough, this approach saves big dollars. 
  3. Lastly, use a seasoned tax preparer, like the ones at Maicher, to counsel you on your late filing strategy and to prepare your return to save money and needless grief.      

Conclusion:   July 15 has passed and if you missed the filing deadline, do not compound the problem with needless interest, penalty charges, and other negative consequences.   Make an appointment today to meet with one of Maicher’s tax professionals to get your return done so you can put the worries and expenses behind you.   

Sources:
IRS Publication: “Audits,” (July 31, 2020).
IRS Publication: “Topic No. 653 IRS Notices and Bills, Penalties, and Interest Charges,” (July 1, 2020).
IRS Publication: “About Form 843, Claim for Refund and Request for Abatement,” (July 1, 2020).
“Tax Return Extensions: 8 Key Things To Know In 2020,” Forbes (July 8, 2020).

Independent Financial Audits – Critically Important to Your Business

independent business audit minnesotaWhen was your last independent financial audit?  Why are such audits important to your business? The experienced accountants and other professionals at Maicher CPA Pllc provide a full range of audit services to help your business succeed.

What are independent financial audits?  

First, the word “independent” generally means an audit done by a party (e.g. certified public accountant) who is external to your business (i.e. does not have ownership in or an operational role in your business, among other conditions).   Second, “financial audits” are objective evaluations of your company’s financial reports and financial reporting processes to ensure accuracy.  An audit usually involves four phases: (a) plan and design of the audit approach, (b) performing a test of controls and substantive test of transactions, (c) performing analytical procedures and tests of details of balance, and (d) completing the audit and issuing an audit report.  In general, these steps require the auditor to: examine source documents, obtain third party confirmations, conduct physical inspections, and test internal controls, among other things.  

Why are independent audits so important?

First, the audit aims to ensure that your business is tax compliant with respect to IRS rules and regulations.  An independent auditing firm can evaluate your business without the fear of repercussions if it discovers a deficiency.   On the other hand, an internal auditor (e.g. your in-house bookkeeper) may face personal blame for a deficiency and therefore be inclined to sweep a problem under the rug which almost always compounds it.   Second, an independent audit provides added credibility to your financial statements enhancing your ability to obtain loans and investment capital. Third, certain types of customers, including governmental agencies, may require an independent audit in order to do business with you.  Fourth, to the extent your company has a 401(k) plan and other benefit/retirement plans, an independent audit may be required. Fifth, your internal documents, including buy-sell agreements and other succession documents, often use independent audits to calculate stock values. Sixth, independent audits help guard against fraud, embezzlement and other misappropriation committed by company insiders who can be very skilled in covering-up wrongdoing. 

If you are a business owner, there are probably several reasons why you would benefit from a professionally prepared, independent audit.  Call Maicher CPA at 612-839-1483 to discuss your audit needs.   

 

Sources:
“3 Times Your Business Should Call In The Experts For Audits,” Forbes (April 20, 2019).
“Looking To Borrow? You May Need An Audit, Review Or Compilation,” Forbes  (Nov 26, 2016). 

MONEY SAVING TIPS FOR TAX RETURNS

At Maicher CPA Pllc, our tax preparation professionals are committed to minimizing your taxable income and preparing tax returns which reduce the risk of audits.   There are several proactive things you can do as a client to promote these objectives:  

  1. Review Your W-2s and 1099s.   W-2/1099s reports are usually received by employees/contractors by the end of January.  Review these reports because sometimes they overstate/understate income or otherwise misreport withholdings.  In the event of an error, promptly contact your employer to correct the error.   
  2. Retain Proof of Common Deductible Expenses.  Common deductions with applicable 2019 dollar limits include:  (a) home mortgage interest (i.e. the interest on a loan used to buy, build or improve your home) applies to loans of up to $750,000 for married taxpayers filing jointly and $375,000 for married taxpayers filing separately, (b) IRA contributions up to $6,000 ($7,000 for age 50 or older), and (c)  state/local taxes up to a combined total of $10,000 ($5,000 for married taxpayers filing separately). To make sure these deductions aren’t missed, keep documents showing the contribution such as canceled checks and/or account statements. 
  3. Dependent Children.  In 2019, the child tax credit is $2,000 per qualifying child and is refundable up to $1,400.  Be sure to provide us with the social security number of all dependent children.
  4. Charitable Donations.  You may deduct certain qualifying charitable donations.   Be sure to provide us with the related receipts, canceled checks, and similar documentation.
  5. Business Expenses.   If you purchased an item needed for your job and your employer does not reimburse you for that expense, the item may be deductible.  Further, if you are self-employed, many items used to conduct your business may also be deductibles such as computers, office furniture, marketing/advertising expenses, and mileage (58 cents/mi.).  Keep receipts and related documents concerning the above purchases. 

Maicher CPA Pllc prepares tax returns focused on minimizing your tax liabilities.   As the July 15 tax due date rapidly approaches, call us to prepare your return, or perhaps to file your extension request.