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- IRS releases new guidance on Earned Income Tax Credit
The Internal Revenue Service posted a set of answers Wednesday to frequently asked questions on the Earned Income Tax Credit. The new EITC FAQ page aims to provide information to eligible taxpayers on how to properly claim the credit when they prepare and file their 2021 tax return. The EITC helps low- to moderate-income workers and families by giving them tax credits to either decrease the amount of taxes they owe or offering an added payment to increase a tax refund. The amount of the credit can change depending on whether the taxpayer has children, dependents, is disabled, or meets other criteria. The new FAQs spell out what the EITC is, how it was expanded for 2021, which taxpayers are eligible, and how to claim it. For 2021, more workers without qualifying children can qualify for the EITC because the maximum credit has nearly tripled for eligible taxpayers and, for the first time, it’s available to younger workers and now has no age limit cap. For 2021, the EITC is generally available to filers without qualifying children who are at least 19 years old with earned income below $21,430, or $27,380 for spouses filing a joint return. The maximum EITC for filers with no qualifying children is $1,502. Another change for 2021 allows individuals to calculate the EITC using their 2019 earned income if it was higher than their 2021 earned income. In some cases, this option will give them a larger credit. The 17 new FAQs include: What Is the Earned Income Tax Credit? What is earned income? What are the earned income limits for taxpayers without qualifying children? How old must I be to claim the Earned Income Tax Credit if I do not have qualifying children? Do I need to have a Social Security number (SSN) to be eligible to claim the Earned Income Tax Credit? Do my qualifying children need to have SSNs in order for me to claim the Earned Income Tax Credit? What are the age requirements for claiming the Earned Income Tax Credit if I have a qualifying child? What are the earned income limits for individuals with a qualifying child? Will any refund that I receive because I claimed the Earned Income Tax Credit affect my government benefits? What is the maximum amount of the Earned Income Tax Credit for 2021 for eligible taxpayers without qualifying children? Is there a limit on the amount of investment income I can earn and remain eligible for the Earned Income Tax Credit? If I am not filing a joint return with my spouse, can I claim the Earned Income Tax Credit? Who is considered a qualified homeless youth for purposes of the Earned Income Tax Credit? Who is considered a qualified former foster youth for purposes of the Earned Income Tax Credit? Can I elect to use my 2019 earned income to figure my Earned Income Tax Credit for 2021? Can a student claim the Earned Income Tax Credit for 2021? What is a specified student for purposes of the Earned Income Tax Credit? Proactivity leads to success, so please email or call us if you have questions. SOURCE
- What does the March 1 tax deadline really mean for a Farmer?
March 1 is approaching and if you’re a farmer, you likely believe March 1 is your deadline to have your taxes filed and paid. In some instances that is true, but there are many factors to consider. Unlike other business owners, farmers do not have to make quarterly estimated tax payments. This is for good reason as farm income can be highly variable from year to year making it difficult to estimate what the current year tax may be. Because of this exemption from quarterly payments, farmers historically have had to file their taxes and pay by March 1. A farmer only has a March 1 deadline if they are a “qualified farmer” in the eyes of the IRS and owed tax in the prior year. A “qualified farmer” is someone who has 2/3rd of their gross income from farming. The March 1 deadline does not apply if the following circumstances apply: The farm showed a loss in the prior year and did not owe tax. You and your spouse have tax withholding payments from W-2 jobs that cover your current year tax. Tax credits offset your current year tax liability. A farmer can extend their deadline to the normal tax deadline of April 15 by making one estimated tax payment by January 15. This payment is the lessor of prior year’s tax payment or 2/3rds of the estimated current year tax. The best way to determine the amount of what this payment should be is to work with your trusted ELO advisor. Farming is a very capital-intensive industry where the cost of capital should be considered when making decisions. The decision of when to pay tax is no different. Depending on where the farmer’s current year tax amount lies, it may make the most sense to make a January 15th estimated payment or even to not worry about the March 1 deadline at all. The IRS is currently charging 3% interest on “late” tax payments. A farmer’s line of credit interest rate is likely higher than that making it make economic sense to not worry about the March 1 deadline. Let’s take a look at an example to illustrate: The farm had a tax liability in the prior year of $10,000. The farm had a good year, and the current year tax liability is estimated to be $50,000. Let’s assume the farm’s line of credit interest rate is 4.5%. If the farm pays the $50,000 by March 1, the interest cost of that payment (net of tax) to April 15 is $216. The IRS’s interest will only be $74 for waiting until April 15 to file and pay the tax. In this example, the farm should not worry about the March 1 deadline. The business side of farming continually is becoming more complicated. The list of information requested from your CPA seems to grow every year. Many times, farmers don’t have all their information until mid-February and in some instances not until March. Because of the growing complexity, it is becoming more and more difficult to get the tax return completed by March 1. Extending your tax deadline might not only make economic sense but it may relieve some stress with completing the tax return. MEET THE AUTHOR ADAM BORMANN, CPA AN AGRIBUSINESS PROFESSIONAL WITH ELO CPAS & ADVISORS, A LEADING SOUTHEASTERN SOUTH DAKOTA ACCOUNTING AND CONSULTING FIRM WITH OFFICES IN SIOUX FALLS, MITCHELL, YANKTON, HURON, CHAMBERLAIN AND MILLER. Learn More | Contact
- New bill would change tax rules for cryptocurrency purchases
A group of lawmakers teamed up Thursday to introduce bipartisan legislation that aims to create a workable structure for taxing purchases made with cryptocurrency. The bill, dubbed the Virtual Currency Tax Fairness Act, was introduced by Rep. Suzan DelBene, D-Washington, and David Schweikert, R-Arizona, and is cosponsored by Rep. Darren Soto, D-Florida, and Tom Emmer, R-Minnesota. The legislation would exempt personal transactions made with virtual currency when the gains are $200 or less. The bill’s introduction comes at a time when many taxpayers are struggling to account for their cryptocurrency transactions at tax time, with a line at the top of the Form 1040 asking them if at any time of the year they received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency. The IRS has also made it more of a priority in recent years to pursue holders of cryptocurrency such as bitcoin for tax evasion, issuing John Doe summonses to popular cryptocurrency exchanges like Coinbase and Kraken asking for the identities of their users. Currently, any gains from virtual currency have to be reported as taxable income regardless of the size or purpose of the transaction, even if it’s just to buy a cup of coffee. Individuals are required to calculate and report any changes in the currency’s value against the U.S. dollar from the time they purchased the currency until it is used in a transaction, making the everyday use of virtual currency more difficult. “Antiquated regulations around virtual currency do not take into account its potential for use in our daily lives, instead treating it more like a stock or ETF,” DelBene said in a statement Thursday. “However, virtual currency has evolved rapidly in the past few years, with more opportunities to use it in our everyday lives. The U.S. must stay on top of these changes and ensure that our Tax Code evolves with our use of virtual currency. This commonsense bill cuts the red tape and opens the door to further innovations, ultimately growing our digital economy.” The use of digital currencies has grown in popularity, even though the values of some popular cryptocurrencies have experienced steep declines in recent months. An example of complexity Separately, a cryptocurrency investor is challenging the IRS on its stance, refusing a tax refund after a dispute over so-called “staking rewards,” a way of earning passive income from cryptocurrency that’s offered as an incentive to participants. The case could indicate a change in the way the IRS may look at such transactions. The case involves Tezos, a form of blockchain technology that uses the cryptocurrency Tez, and uses a technology called “baking” to sign and publish blocks on the tezos blockchain. Joshua Jarrett, a Tezos “baker,” sued the federal government in 2020 over the taxation of the staking rewards, arguing the IRS had improperly classified them as income instead of created property, which is taxed at the point of sale, not creation. Jarrett announced Thursday that the IRS had recently offered him a refund on the taxes he had paid on the staking rewards, which could signal a possible change in policy for the IRS. But he wants the IRS to clarify its stance and issue a definitive ruling. “[In] December 2021 I received a letter saying the government wanted to grant me a refund — in other words, a year and a half into this process, the government didn’t want to defend the position that the tokens I created through staking were taxable income,” Jarrett said in a statement Thursday. “At first glance, this seemed like great news. But until the case receives an official ruling from a court, there will be nothing to prevent the IRS from challenging me again on this issue. I need a better answer. So I refused the government’s offer to pay me a refund.” SOURCE
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