Professional Tax Planning Guide - Intuit · 2020-06-01 · Table of Contents Intuit Professional Tax Planning Guide Page 4 New retirement plan rules for 2020 and beyond As 2019 was

Professional Tax Planning Guide2020

PLEASE NOTE: Regulations change constantly, and while we encourage you to use this document to help inform you with decision making and planning, it’s important for

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Dear Tax Professional,

Thank you for your interest in Intuit ProSeries Tax. To help you plan for a successful yearand to say thank you, please enjoy this copy of the 2020 ProSeries Professional Tax Planning Guide.

What’s inside:

• New tax law changes for tax year 2020

• Key deadlines to help with tax compliance and planning

• Recommended to-do lists

• Specialized tips for important client life events and more

Your work relies on your expertise, and this guide will provide you with a supplemental framework to help you stay informed, save time on planning ahead, and align your team for efficiency and success.

Thank you again for your interest in Intuit ProSeries Tax. If you have any questions, please contact one of our tax consultants at 1-844-534-2390

Sincerely,

Kevin ReinardProduct Specialist

Table of contents

New retirement plan rules for 2020 and beyond 4

Key tax facts for 2020 6

June 2020 7

Why your clients need a mid-year withholding checkup 8

July 2020 9

Kiddie tax reset for 2020 10

August 2020 11

Four key facts about Section 529 plans 12

September 2020 14

Facing the FAFSA 15

October 2020 16

One more shot at a lower medical expense deduction floor 17

November 2020 18

The case of the extra paycheck 19

December 2020 20

How do your tax preparation fees stack up? 21

January 2021 22

Is your taxpayer data secure? 23

February 2021 25

Tax tips on tax homes 26

March 2021 28

What to tell clients who can't pay 29

April 2021 31

What you can — and can’t — do with your client information 32

May 2021 34

Contact us 35

Intuit Professional Tax Planning Guide Page 4Table of Contents

New retirement plan rules for 2020 and beyond

As 2019 was winding to a close, Congress passed and the President signed an omnibus spending package that includes new tax law changes. The centerpiece of the new tax legislation is the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, which represents the first significant legislation affecting retirement plans in more than a decade.

KEY POINT: Unlike many tax laws that provide for lengthy transition periods, major provisions of the SECURE Act kick in right away, starting in 2020.

While a comprehensive analysis of this important new legislation could fill volumes, here’s a rundown of major provisions affecting employers and employees.

For employersMEPs and PEPs. Multiple Employer Plans (MEPs) allow smaller businesses to team up to provide a defined contribution plan such as a 401(k) plan to their combined group of employees. By combining employees and assets into a single plan, a MEP can produce cost savings similar to those enjoyed by large employer plans. Under current rules, however, employers participating in a MEP must have a commonality of interest—such as belonging to the same industry. The SECURE Act creates a new type of “open MEP”—called a pooled employer plan (PEP)—that can cover employers with no relationship other than participation in the plan. PEPs will be permitted for plan years beginning after 2020. The SECURE Act also cuts the risks for employers participating in MEPs by providing relief from the so-called “one bad apple” rule that could result in disqualification of the entire plan because of a violation by one participating employer.

Tax credits. Employers that sponsor a 401(k) plan or a SIMPLE IRA plan for employees can automatically enroll eligible employees in the plan unless the employees opt out. The SECURE Act creates a new tax credit for employers that establish new 401(k) or SIMPLE IRA plans that include automatic enrollment or that convert an existing plan to an automatic enrollment design. The amount of the credit is $500 per year for each of the three tax years beginning with the first year the employer adopts an automatic enrollment feature.

The new tax credit applies for tax years beginning after 2019, so employers can begin to cash in on the credit this year. For new plans, the credit applies in addition to the small employer pension plan startup credit for small employers that adopt a new qualified retirement plan. Moreover, for tax years beginning after 2019, the maximum amount of that credit is increased from $500 to as much as $5,000 per year for three years.

KEY POINT: The SECURE Act also extends the deadline for adopting a new plan for a tax year. Under prior law, a plan had to be adopted by the last day of the tax year to be treated as in effect for the year. The new law provides that a plan clan be adopted for a tax year up until the due date (including extensions) for the tax return for the year. This change applies for plans adopted for tax years after 2019. So calendar employers have until the due date of the 2020 return to set up a new plan and cash in on tax credits and other plan benefits.

For employeesPart-timer participation. Under current rules, employer-sponsored 401(k) plans can exclude an employee from participation if he or she has not worked for the employer for at least 1,000 hours in a 12-month period. Effective for plan years beginning after 2020, the new law requires employers to allow long-term part-timers to make elective deferrals to a 401(k) plan if they have worked at least 500 hours in three consecutive 12-month periods. The law does not require the employer to make matching or other employer contributions for long-term part-timers [IRC §§401(k)(2)(D);(k)(15)] .

KEY POINT: This law change technically applies for plan years beginning after 2020. However, eligible part-timers should not expect to enroll in their employers’ 401(k) plans starting next year. For purposes of counting hours under the 500-hour rule, only service performed after 2020 is required to be taken into account. So the earliest part-time employees could be eligible is Jan. 1, 2024.

Lifetime income disclosure. Under current rules, a defined contribution plan must provide benefit statements to employees on an annual or more frequent basis showing the amount of participants’ account balance. The SECURE


Act will also require a defined contribution plan to provide the participant with an estimate of his or her lifetime income stream based on the account balance. Employees won’t see this information on the account statements right away, however. The requirement will apply to benefit statements provided more than 12 months after the Department of Labor issues final regulations and other guidance.

Plan withdrawals. A distribution from a qualified plan or individual retirement account (IRA) before age 59½ is generally included in income and subject to a 10% early withdrawal penalty. However, the tax law carves out a number of exceptions to the penalty tax—for example, for distributions from an IRA (but not a qualified plan) for certain higher education expenses or for a first-time home purchase. The SECURE Act carves out a new exception for withdrawals for birth or adoption expenses. Effective starting in 2020, a withdrawal by an individual of up to $5,000 is penalty free if made during the one-year period beginning on the date which a child of the participant is born or legally adopted.

Required distributions. Under longstanding rules, an IRA owner has been required to begin taking required minimum distributions (RMDs) by April 1 following the calendar year in which he or she turned 70½. For a participant in a qualified plan (other than a 5% owner), RMDs were generally required to begin by April 1 following the later of the calendar year in which the participant turned 70½ or retired. RMDs for 5% owners were subject to the same rules as IRAs.

Under the SECURE Act, the trigger for beginning RMDs is moved to age 72. So, for an IRA (or a 5% owner under a qualified plan), no RMD is required until April 1 of the year following the calendar year in which the owner reaches age 72. Similarly for a non-5% owner participant under a qualified plan, no RMD is required until April 1 of the year following the calendar year in which the participant reaches age 72 or retires.

The law change is effective for RMDs required to be made after 2019 with respect to individuals who attain age 70½ after that date. So, for example, an IRA owner who was born in February who turns age 70½ in August 2020 will not have to begin taking distributions by April 2021 as scheduled. Instead, no distributions will be required until April of 2023, the calendar year following the year in which the IRA owner turns age 72 (2022).

IRA contributions. Under longstanding rules, contributions to a traditional IRA were not allowed once the IRA owner attained age 70½. Starting in 2020, the SECURE Act allows an individual of any age to make contributions to a traditional IRA, as long as the individual has compensation income from wages or self-employment.


STANDARD DEDUCTION

Married filing jointly/surviving spouse $24,800

Single $12,400

Head of household $18,650

Married filing separately $12,400

Dependent taxpayers $1,100

ADDITIONAL STANDARD DEDUCTION 65+ or blind 65+ and blind

Married/surviving spouse $1,300 $2,600

Unmarried $1,650 $3,300

QUALIFYING RELATIVE DEPENDENT

Gross income limit $4,300

ADOPTION CREDIT

Max. credit $14,300

Phaseout range $214,520—$254,520

EDUCATION CREDITS

American Opportunity—max. credit $2,500

Phaseout threshold—joint filers $160,000–$180,000

Phaseout threshold—all other filers $80,000–$90,000

Lifetime Learning—max. credit $2,000

Phaseout threshold—joint filers $118,000—$138,000

Phaseout threshold—all other filers $59,000—$69,000

EDUCATOR EXPENSE DEDUCTION

Max. deduction $250

EDUCATION SAVINGS BOND EXCLUSION

Phaseout range—joint filers $123,550—$153,500

Phaseout range—all other filers $82,350—$97,350

STUDENT LOAN INTEREST DEDUCTION

Phaseout range—joint filers $140,000—$170,000

Phaseout range—all other filers $70,000—$85,000

LONG-TERM CARE INSURANCE DEDUCTION

Age at close of year Premiums eligible for medical expense deduction

40 or younger $430

Older than 40 but not more than 50 $810

Older than 50 but not more than 60 $1,630

Older than 60 but not more than 70 $4,350

Older than 70 $5,430

HEALTH SAVINGS ACCOUNTS Self-only Family

HDHP deductible $1,400 $2,800

Out-of-pocket expense cap $6,900 $13,800

Max. contribution $3,550 $7,100

MEDICAL SAVINGS ACCOUNTS Self-only Family

HDHP deductible $2,350–$3,500 $4,750–$7,100

Out-of-pocket expense cap $4,750 $8,650

HEALTH FLEXIBLE SPENDING ACCOUNTS

Max. salary reduction contribution $2,750

Key tax facts for 2020

QUALIFIED SMALL EMPLOYER HEALTH REIMBURSEMENT ARRANGEMENTS

Type of coverage Self only Family

Max. payments/reimbursements $5,250 $10,600

TRANSPORTATION FRINGE BENEFITS

Vanpool/transit pass monthly exclusion $270

Qualified parking monthly exclusion $270

CAPITAL GAINS TAX RATES

Type of return Joint return/surviving spouse

Head of household Single

Max. zero rate amount $80,000 $53,600 $40,000

Max. 15% rate amount $496,600 $469,050 $441,450

INDIVIDUAL RETIREMENT ACCOUNT DEDUCTION

Max. deduction $6,000

Catch-up contribution age 50 or older $1,000

Phaseout range—joint filers $104,000–$124,000

Phaseout range—single/head of household $65,000–$75,000

Phaseout range—married filing separately $0–$10,000

Phaseout range—joint filer/active participant spouse $196,000–$206,000

ROTH IRA CONTRIBUTION

Max. contribution $6,000

Catch-up contribution age 50 or older $1,000

Phaseout range—joint filers $196,000–$206,000

Phaseout range—single/head of household $124,000–$139,000

Phaseout range—married filing separately $0–$10,000

RETIREMENT SAVINGS CONTRIBUTION CREDIT

Credit percentage 50% 20% 10%

AGI limit—joint filers $0–$39,000 $39,001–$42,500 $42,501–$65,000

AGI limit—head of household

$0–$29,250 $29,251–$31,875 $31,876–$48,750

AGI limit—other filers $0–$19,500 $19,501–$21,250 $21,251–$32,500

SOCIAL SECURITY TAXES

Max. net taxable self-employment earnings $137,700

“Nanny tax” threshold $2,200

FOREIGN INCOME

Foreign earned income exclusion $107,600

ANNUAL EXCLUSION FOR GIFTS

Gift tax exclusion $15,000

Exclusion for gifts to a non-citizen spouse $155,000

MILEAGE ALLOWANCES

Standard business mileage allowance 57.5¢

Medical and moving allowance 17¢

Charitable mileage allowance 14¢

Key compliance dates

Table of Contents Intuit Professional Tax Planning Guide Page 7

June 2020

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Wednesday, June 3Semiweekly depositors deposit FICA and withheld income tax on wages paid on May 27-29.

Friday, June 5Semiweekly depositors deposit FICA and withheld income tax on wages paid on May 30-June 2.

Wednesday, June 10Tipped employees who received $20 or more in tips during May report them to the employer on Form 4070 (in Publication 1244, Employee’s Daily Record of Tips and Report to Employer).

Semiweekly depositors deposit FICA and withheld income tax on wages paid on June 3-5.

Friday, June 12Semiweekly depositors deposit FICA and withheld income tax on wages paid on June 6-9.

Monday, June 15Monthly depositors deposit FICA and withheld income tax for May.

Individuals and calendar-year corporations pay second installment of 2020 estimated tax.

Individuals outside the U.S. file Form 1040 for 2019. For automatic four-month extension, file Form 4868.

Wednesday, June 17Semiweekly depositors deposit FICA and withheld income tax on wages paid June 10-12.

Friday, June 19Semiweekly depositors deposit FICA and withheld income tax on wages paid June 13-16.

Wednesday, June 24Semiweekly depositors deposit FICA and withheld income tax on wages paid June 17-19.

Friday, June 26Semiweekly depositors deposit FICA and withheld income tax on wages paid June 20-23.

� File returns or extensions for taxpayers abroad.

� Review tax law changes for 2020.

� Schedule much-needed R&R.

To-do list

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Why your clients need a mid-year withholding checkup

It’s always a good idea for employees to check their withholding throughout the year. Changes in a client’s personal situation — marriage, divorce, a new baby, a spouse’s return to work — can trigger a change in the client’s tax picture that calls for an upward or downward adjustment in the amount of withholding that’s needed to cover their final tax bill for the year. However, a tax withholding checkup is more important than ever this year, even if a client’s tax situation has not changed.

Since the passage of the 2017 Tax Cuts and Jobs Act, income tax withholding has been challenging for employees, employers and the IRS. That law threw a number of monkey wrenches into the income tax withholding system, including changes in income tax rates, elimination or reduction of itemized deductions and, most notably, the disappearance of personal exemptions, the linchpin of the withholding calculations. And despite the IRS’s efforts to jerry-rig an outdated withholding system, the results have not been stellar.

When they filed their 2018 tax returns in 2019, many employees discovered that the amounts withheld from their paychecks did not produce the tax refunds they were expecting or, worse yet, resulted in unexpected tax bills. Overall, the IRS estimates it sent about 113.4 million refund checks for 2018 to taxpayers in 2019 — down from more than 116 million sent the previous year before the new tax law took effect. And chances are, this year’s filings of 2019 returns will be off the mark as well.

New-for-2020 Form W-4At long last, the IRS released a new-for-2020 Form W-4. The form has been renamed the Employee’s Withholding Certificate, instead of the Employee’s Withholding Allowance Certificate, in acknowledgement of the fact that withholding is no longer pegged to allowances based on the personal exemption amount.

In conjunction with the new Form W-4, the IRS has created a new Publication 15-T, Income Tax Withholding Methods, that contains the tables needed to figure withholding. Serving as a supplement to the traditional Publication 15, Employer’s Tax Guide (Circular E), Publication 15-T for 2020 no longer includes withholding tables.

The revised form is mandatory for all new employees hired in 2020 and for employees who want to adjust their

withholding going forward. However, current employees with a Form W-4 on record are not required to complete the new 2020 Form W-4.

KEY POINT: Even if a new-for-2020 Form W-4 is not required, you may want to recommend that clients take another crack at the form — especially if their withholding was off the mark in the last couple of years. Publication 15-T contains tables for calculating withholding based on Forms W-4 from 2019 or earlier years. However, those tables may not produce the most accurate results.

On the formIn the simplest case, an employee using the new Form W-4 will only need to enter his or her personal information and filing status and sign the bottom. Withholding from the employee’s gross wages will be based on the standard deduction and income tax rates for the employee’s filing status, with no other adjustments. Of course, taxes are rarely that simple. Therefore, the form includes entries and worksheets to account for multiple jobs, to reflect tax credits for dependents, and to make adjustments for other income. However, here again, the form and worksheets may not produce the most accurate results.

Moreover, the IRS acknowledges that some entries required on the 2020 form may raise privacy concerns for employees — in particular, sharing information about multiple jobs, a spouse’s earnings or investment income with the employer.

Off the formTo address these concerns, the IRS directs employees off the form to the IRS’s online Tax Withholding Estimator. Based on an employee’s inputs, the Estimator provides specific recommendations on how to fill out Form W-4.

Refund optionDespite the oft-repeated mantra that getting a tax refund is like making an interest-free loan to Uncle Sam, many employees still want that check in the mail come tax time. For those employees, the Tax Withholding Estimator features a customized refund slider that allows users to choose the refund amount they prefer from a range of different refund amounts. The exact refund range shown is customized based on the tax information entered by the employee.

http://www.irs.gov/individuals/tax-withholding-estimator



July 2020

Wednesday, July 1Semiweekly depositors deposit FICA and withheld income tax on wages paid on June 24-26.

Monday, July 6Semiweekly depositors deposit FICA and withheld income tax on wages paid on June 27-30.

Wednesday, July 8Semiweekly depositors deposit FICA and withheld income tax on wages paid on July1-3

Friday, July 10Tipped employees who received $20 or more in tips during June report them to the employer on Form 4070.

Semiweekly depositors deposit FICA and withheld income tax on wages paid on July 4-7.

Wednesday, July 15Monthly depositors deposit FICA and withheld income tax for June.


Friday, July 17Semiweekly depositors deposit FICA and withheld income tax on wages paid on July 11-14.

Wednesday, July 22Semiweekly depositors deposit FICA and withheld income tax on wages paid on July 15-17.

Friday, July 24Semiweekly depositors deposit FICA and withheld income tax on wages paid on July 18-21.

Wednesday, July 29Semiweekly depositors deposit FICA and withheld income tax on wages paid on July 22-24.

Friday, July 31File Form 941 for the second quarter of 2020 (if tax deposited in full and on time, file by Aug. 12).

File 2018 Form 5500 or 5500-EZ for calendar-year retirement and benefit plans.

Friday, July 31, continued


Deposit FUTA tax owed through June if more than $500.

� Alert clients to 2020 mid-year tax planning opportunities.

� Schedule Continuing Professional Education for 2020.

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Kiddie tax resets for 2020

The so-called “kiddie tax” is designed to prevent parents or other relatives from shifting investment income to a child in a lower tax bracket. Since its enactment as part of the Tax Reform Act of 1986, the kiddie tax rules traditionally tied the tax on a child’s unearned income to the tax rates of the child’s parents. However, a law change made by the 2017 Tax Cuts and Jobs Act uncoupled the kiddie tax from the parents’ rates. Instead, effective for tax years beginning after 2017 and before 2026, the law change provides that the tax on a child’s unearned income was to be figured using the tax brackets for estates and trusts (with some modifications).

Since the tax rates for estates and trusts increase more steeply than the individual income tax rates, this change could result in an increase on the kiddie tax for some families.

Kiddie tax reset overviewEffective for tax years beginning after 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act repeals the law change made by the Tax Cuts and Jobs Act.

As under prior law, the kiddie tax applies to a child’s net unearned income if the child (1) is under age 19 or is a full-time student under age 24, (2) has at least one living parent, (3) has unearned income above a threshold amount ($2,200 for 2020), and (4) doesn’t file a joint return with a spouse for the year. In the case of a child over age 17, the kiddie tax applies only if the child’s earned income does not exceed one-half of his or her support.

Under the kiddie tax, a child is taxed at normal tax rates on earned income plus unearned income up to the threshold amount. Thus, for 2020, the normal tax rates apply to a child’s earned income plus $2,200 of unearned income. A child’s net unearned income (above the amount taxed at the child’s rate) is taxed to the child at his or her parents’ tax rate (assuming that rate is higher than the child’s rate).

Specifically, the child’s tax on net unearned income is the amount of the child’s share of the “allocable parental tax.” For this purpose, the allocable parental tax is the excess of (1) the tax that would be imposed on the parents’ taxable income if that income included the net unearned income of all the parents’ children subject to the kiddie tax over (2) the tax that would be imposed on the parents’ taxable income without regard to the kiddie tax. The child’s share is the amount of tax that bears the same ratio to the total allocable parental tax as the child’s net unearned income bears to the total unearned income of all of the parents’ children subject to the kiddie tax.

Under rules that were untouched by the Tax Cuts and Jobs Act, a parent can sidestep the kiddie tax by reporting a child’s income directly on the parent’s return. This election can be made if:

• The child’s income is only from interest and dividends (including capital gains distributions);

• The child’s gross income for the year is more than the minimum standard deduction for dependents ($1,100 for 2020);

• The child’s gross income is less than 10 times the minimum standard deduction ($11,000 for 2020);

• No estimated tax payments were made for the child and the child’s income was not subject to backup withholding.

If a parent makes the election, by filing Form 8814, the child is treated as having no gross income for the year and is not required to file a return. The child’s gross income in excess of twice the standard deduction amount ($2,200 for 2020) is included in the parent’s gross income. The parent’s tax is calculated on the parent’s taxable income including the additional income of the child. However, the parent must also pay an additional tax equal to 10% of the lesser of the dependent standard deduction amount ($110 for 2020) or the excess of the child’s income over the standard deduction amount.

Optional reset for 2018 and 2019Repeal of the Tax Cuts and Jobs Act change technically applies for 2020 and later tax years. However, a special rule allows taxpayers to retroactively elect to apply the reset kiddie tax rules for 2018 and 2019. The law specifically provides that a taxpayer may make the election “at such time and in such manner as the Secretary of the Treasury (or the Secretary’s designee) may provide....” However, at the time of writing this article, the IRS has not yet spelled out rules for making the election.

KEY POINT: Given the potentially higher kiddie tax under the estate and trust rates, some of your clients may have opted to simply include kiddie tax income on their own returns. It is unclear whether the optional reset for 2018 and 2019 will allow those clients to retroactively apply the restored kiddie tax rules — or whether the reset is limited to those clients who separately calculated the kiddie tax.



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Wednesday, Aug. 5Semiweekly depositors deposit FICA and withheld income tax on wages paid on July 29-31.

Friday, Aug. 7Semiweekly depositors deposit FICA and withheld income tax on wages paid on Aug. 1-4.

Monday, Aug. 10Tipped employees who received $20 or more in tips during July report them to the employer on Form 4070.

File Form 941 for the second quarter of 2020 if tax deposited in full and on time.

Wednesday, Aug. 12Semiweekly depositors deposit FICA and withheld income tax on wages paid on Aug. 5-7.


Monday, Aug. 17Monthly depositors deposit FICA and withheld income tax for July.





� Remind clients of Sept. 15 estimated tax payment for individuals and calendar-year corporations.

� Remind calendar-year S corporations and partnerships with returns on extension of Sept. 15 filing deadline.

� Alert clients who are parents of first-year college students of the American Opportunity tax credit.

To-do list


Four key facts about Section 529 plans

As students head back to the classroom this month, education is on the minds of parents across the country. And one key concern of parents — whether a child is just starting kindergarten or is off to high school — is how to fund the rising cost of college.

A Section 529 plan allows savings to be accumulated for a designated beneficiary’s higher education on a tax-favored basis. Contributions to a Section 529 plan are not deductible. However, earnings are not taxable while they remain in the account. In addition, amounts withdrawn from the account (including earnings) are not taxable to the extent they are used to pay qualifying education expenses of the designated beneficiary. Many states offer favorable tax treatments for contributions to their state-owned Section 529 plan.

Chances are many of your clients have set up Section 529 plans for their offspring. According to recent statistics, there were 14 million 529 accounts in existence as of June 2019, and that number is growing each year. However, chances are also that your clients may not be aware of all the ins and outs of 529 plans.

Here are four key facts about Section 529 plans that your clients may not know.

1. Section 529 plans can pay for more than tuition.Clearly, saving for college tuition bills is first and foremost in your clients’ minds when setting up a Section 529 plan. However, although Section 529 plans are formally known as Qualified Tuition Programs (QTPs), qualified expenses that can be paid on a tax-favored basis are not limited to tuition costs. Funds in a 529 plan can be withdrawn tax-free to pay for other college expenses, including fees and the cost of books, supplies and equipment required for college enrollment. Eligible expenses also include the costs of computers and peripheral equipment, software or internet access, provided they will be used primarily by the account beneficiary while enrolled at an eligible educational institution. A 529 plan can also be used to cover room and board costs for a student enrolled at least half time.

2. Section 529 plans are not just for college.Under a new rule enacted by the 2017 Tax Cuts and Jobs Act, Section 529 plans are no longer just for college savings.

Parents can now use 529 plans to save for the costs of private elementary or secondary school tuition. Effective for distributions made after 2017, qualified Section 529 plan expenses include up to $10,000 per year for a student’s tuition at an elementary or secondary public, private or religious school.

And thanks to law changes made by the recently enacted SECURE Act, distributions made after Dec. 31, 2018, can be used to cover costs associated with registered apprenticeships and up to $10,000 of qualified student loan repayments (principal or interest). The $10,000 limit on loan repayments applies on a per-student basis. However, the law permits funds in a 529 plan to be used for student loan payments on behalf of a sibling of the designated account beneficiary.

3. Section 529 savings count for financial aid calculations.Under the federal financial aid rules, both parents’ and students’ assets are counted in calculating the Expected Family Contribution (EFC) toward a student’s college costs — that is the amount the family can expect to pay for a year of college before any financial aid kicks in. Under the formula, a student’s assets count more toward the EFC than do the parents’ assets. A student’s assets are counted at a flat


20% rate. By contrast, a portion of the parents’ assets are sheltered by an asset protection allowance based on the age of the older parent. Moreover, parental assets above the allowance are counted at a rate of only 5.64%.

The good news is that funds in a Section 529 plan are treated as parents’ assets, regardless of whether the student or the parents own the account. Thus, only 5.64% of 529 plans funds are taken into account in calculating the EFC.

COMPARE: Many of your clients may take a first-come, first-served approach to savings. When faced with a choice between making retirement plan and 529 plan contributions, parents may opt for the latter. After all, the bill for a child’s college tuition is likely to come due long before retirement. However, parents should bear in mind that funds in a qualified retirement plan are not counted as assets on applications for federal financial aid — although any current-year contributions or withdrawals are counted.

4. Section 529 plans are not just for parents.Grandparents and other relatives can set up a Section 529 plan for a child, while maintaining ownership and control over the account. While contributions to a Section 529 plan are made with after-tax dollars, the funds grow and compound tax-free while in the account — and, of course, distributions are potentially tax-free if used for the account beneficiary’s qualified education expenses. On the other hand, if a grandparent requires funds for his or her own needs, a 529 plan is revocable. The account owner will owe tax and a 10% penalty, and may be subject to state income tax — but only on the earnings portion of the account.

One potential source of 529 plan contributions for grandparents are the required minimum distributions (RMDs) they must take from a qualified retirement plan. The recently enacted SECURE Act has pushed back the age for RMDs from 70½ to 72. Nonetheless, some grandparents are faced with the prospect of taking retirement plan distributions that they don’t need. Since these distributions have already been taxed, funneling the money into a 529 plan for a grandchild will allow for further tax-free growth.

For federal financial aid purposes, funds in a 529 plan owned by a grandparent or other relative are not reported as either the parents’ or students’ assets and aren’t subject to financial aid calculations until withdrawn and given to the student.

On the other hand, distributions from the plan for the child’s college costs are counted as part of the child’s income for the year of the distribution. However, taking a last-out approach to such distributions — for example, waiting until the child’s last year of college to tap grandparent-owned 529 funds — can minimize the impact on financial aid.

CAUTION: Colleges have their own rules for figuring financial aid. While some follow the federal formula, others may ask about 529 plans held by grandparents or other relatives when awarding scholarships or grants.



September 2020

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Friday, Sept. 4Semiweekly depositors deposit FICA and withheld income tax on wages paid on Aug. 29-Sept. 1.

Thursday, Sept. 10Tipped employees who received $20 or more in tips during August report them to the employer on Form 4070.

Semiweekly depositors deposit FICA and withheld income tax on wages paid on Sept. 2-4.

Friday, Sept. 11Semiweekly depositors deposit FICA and withheld income tax on wages paid on Sept. 5-8.

Tuesday, Sept. 15Monthly depositors deposit FICA and withheld income tax for August.

Individuals and calendar-year corporations pay third installment of 2020 estimated tax.

Calendar-year S corporations file 2019 income tax return (Form 1120S) if automatic extension was obtained.

Partnerships file 2019 Form 1065 if automatic extension was obtained.

Wednesday, Sept. 16Semiweekly depositors deposit FICA and withheld income tax on wages paid on Sept. 9-11.




� Schedule appointments with individual clients for year-end tax planning sessions.

� Remind individual clients and C corporations of extended Oct. 15 filing deadline for 2019 returns.

To-do list



Facing the FAFSA

College application season is underway. As high school seniors agonize over those all-important college essays, parents across the country are facing their own paperwork challenge: the Free Application for Federal Student Aid (FAFSA).

KEY POINT: The FAFSA application is not just for families that expect to qualify for federal assistance. It’s also used to apply for state aid, and colleges and universities typically require the FAFSA to apply for institutional student aid.

Taxes and the FAFSAThe FAFSA requires a plethora of information from the prospective college student — and from his or her parents if the student is a dependent.

KEY POINT: Dependent student status is not the same as dependency status for tax purposes. For the 2021–2022 academic year, a prospective student will be considered a dependent if he or she was born on or after Jan. 1, 1998, unless certain exceptions apply (e.g., the child is married, will be working toward a master’s or doctorate degree, is currently serving in the military, etc.).

Assuming a child is a dependent student, the FAFSA requires identifying and financial information from both the student and the parent. This information includes information on savings, investments and untaxed income, as well as all-important tax data.

Tax data change In the past, the FAFSA form required information from the immediately prior tax year. However, for the 2021–2022 FAFSA, parents and students will need to enter tax data from their 2019 returns. This switch to reporting tax information from an earlier tax year makes it easier for parents and students to complete the form since the required returns will have already been filed. In fact, tax information can be input directly into the FAFSA form using a handy IRS tool.

The IRS Data Retrieval Tool (DRT) can import tax information into the online FAFSA form directly from the tax returns on file with the IRS. The imported information will not show up on the FAFSA form; instead, “Transferred from the IRS” will appear in the appropriate fields.

The Department of Education (DOE) cautions, however, that not everyone can use the data retrieval tool. This may be

the case, for example, if either parents or students did not file a 2019 return because their income was below the filing threshold or filed an amended return for 2019.

Automatic inputting of tax information also won’t work if the marital status of a student’s parents has changed since the 2019 return was filed. The DOE offers these instructions:

• If parents filed a joint tax return for 2019 but are no longer married, only tax return information for the custodial parent should be reported on the FAFSA. Tax information for the other parent must be subtracted before filling out the FAFSA.

• If the custodial parent did not file a joint return for 2019 but is married when the FAFSA is filled out, tax information for the parent’s new spouse must be added to correctly complete the form.

• If parents filed a joint return for 2019 but the custodial parent is married to a different person when the FAFSA is filled out, tax information for the former spouse must be subtracted and tax information for the current spouse must be added to complete the form.

• If the custodial parent became widowed since filing a joint 2019 return, tax information for the deceased spouse must be subtracted to complete the form.

The DOE cautions that filers cannot use more recent tax information when filling out the FAFSA form. So, parents and students filling out the 2021–2022 FAFSA cannot use information from their 2020 tax returns — even if their financial situations have changed since 2019. The DOE says that filers who have experienced a reduction in income since the 2019 tax year should complete the FAFSA with the required 2019 information, and then contact each of the schools to which the student is applying to explain and document the change in income.

You can help your clients in these situations to calculate the necessary tax data and to prepare any explanations and documentary information.



October 2020

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Wednesday, Oct. 7Semiweekly depositors deposit FICA and withheld income tax on wages paid on Sept. 30-Oct. 2.

Friday, Oct. 9Semiweekly depositors deposit FICA and withheld income tax on wages paid on Oct. 3-6.

Tuesday, Oct. 13Tipped employees who received $20 or more in tips during September report them to the employer on Form 4070.

Thursday, Oct. 15Individuals file 2019 income tax return if automatic six-month extension was obtained.

Monthly depositors deposit FICA and withheld income tax for September.

Semiweekly depositors deposit FICA and withheld income tax on wages paid on Oct. 7-9.


Wednesday, Oct. 21Semiweekly depositors deposit FICA and withheld income tax on wages paid on Oct. 14-16.


Wednesday, Oct. 28Semiweekly depositors deposit FICA and withheld income tax on wages paid on Oct. 21-23.


Note: Because Oct. 31 falls on a Saturday, end-of-month filings are pushed to Monday, Nov. 2. Please see November tax calendar.

� Conduct year-end tax planning sessions with individual clients.

� Remind individual clients to use flexible spending account funds before year end unless plan provides post-year-end grace period or carryover.

� File returns for individual clients who obtained automatic six-month extensions.

� Renew Preparer Tax Identification Number (PTIN) for 2021.

To-do list


One more shot at a lower medical expense deduction floor

Medical expense deductions have been an up-and-down proposition in recent years.

Ups and downsUnder longstanding tax law rules, out-of-pocket medical expenses were deductible to the extent they exceeded 7.5% of a taxpayer’s adjusted gross income (AGI). Starting in 2012, a tax law change raised the deduction floor to 10% of AGI for most taxpayers, although the 7.5% floor continued to apply through 2016 if either the taxpayer or the taxpayer’s spouse had reached age 65 before the end of the tax year. The deduction floor was scheduled to rise to 10% of AGI for all taxpayers for 2017, but another law change reinstated the 7.5% floor for 2017 and 2018 only. The deduction floor was again scheduled to increase to 10% in 2019, but along came another change.

NEW LAW CHANGE: Legislation enacted as part of the 2020 budget legislation resets the deduction floor to 7.5% for 2019 and 2020 only. The medical expense deduction floor is once again scheduled to increase to 10% for 2021. While 2019 was pretty much a done deal by the time the legislation was enacted in December, there’s still time for one more shot at the lower medical expense deduction floor for 2020.

Consider a bunching strategyClients whose medical expenses for 2020 are at or near the 7.5%-of-AGI mark may be able to nail down a deduction by accelerating planned medical procedures or purchases that are scheduled for 2021. What’s more, clients whose expenses for 2020 already exceed the 7.5% deduction floor may also want to accelerate planned expenses, especially if it’s unclear whether expenses for 2021 will exceed the expected 10%-of-AGI floor.

Shifting strategies may include scheduling upcoming medical or dental checkups, buying new eyeglasses or stocking up on contact lenses, and paying off unpaid medical bills before year end. Even if cash is tight, an expense paid by check or credit card this year counts toward the 2020 deduction even if the check is not cashed or the credit card bill does not arrive until 2021.

CAUTION: Accelerating medical expenses or payments only makes sense if a client will itemize deductions for 2020 — and that may not be the case, even for clients who have routinely itemized in the past. The increased standard deduction

amounts that came with the Tax Cuts and Jobs Act of 2017, coupled with the limitations on deductions for state and local taxes and mortgage interest, may cause allowable itemized deductions to drop below the standard deduction for some clients.

Overlooked medical expenses Clients who will benefit from a medical expense deduction for 2020 should also be sure they claim all the deductible expenses they are entitled to for the year. Here’s a checklist of some not uncommon but commonly overlooked medical expense deductions.

• Transportation

• Lodging

• Eyeglasses and contact lenses

• Hearing aids

• Weight-loss programs

• Laser vision correction surgery

• Alcohol- or drug-abuse treatment

• Stop-smoking programs

• Birth control pills

• Pregnancy test kits

• Durable medical equipment (e.g., walkers or wheelchairs)

• Home improvements (e.g., stair ramps or bathroom support bars)

• Diagnostic devices (e.g., diabetes test kits or blood pressure monitors)

Clients should bear in mind also that premiums for medical or dental coverage, contact lens insurance, prescription drug coverage, Medicare (Parts B, C and D) and long-term care insurance (subject to dollar limits) count as deductible medical expenses.



November 2020

Monday, Nov. 2Employers file Form 941 for the third quarter of 2020 (if tax was deposited in full and on time, file by Nov. 10).

Deposit FUTA tax owed through September if more than $500.

Wednesday, Nov. 4Semiweekly depositors deposit FICA and withheld income tax on wages paid on Oct. 28-30.

Friday, Nov. 6Semiweekly depositors deposit FICA and withheld income tax on wages paid on Oct. 31-Nov. 3.

Tuesday, Nov. 10File Form 941 for the third quarter of 2020 if tax for the quarter was deposited in full and on time.

Tipped employees who received $20 or more in tips during October report them to the employer on Form 4070.

Thursday, Nov. 12Semiweekly depositors deposit FICA and withheld income tax on wages paid on Nov. 4-6.

Monday, Nov. 16Monthly depositors deposit FICA and withheld income tax for October.

Semiweekly depositors deposit FICA and withheld income tax on wages paid on Nov. 7-10.

Wednesday, Nov. 18Semiweekly depositors deposit FICA and withheld income tax on wages paid on Nov. 11-13.

Friday, Nov. 20Semiweekly depositors deposit FICA and withheld income tax on wages paid on Nov. 14-17.

Wednesday, Nov. 25Semiweekly depositors deposit FICA and withheld income tax on wages paid on Nov. 18-20.

Monday, Nov. 30Semiweekly depositors deposit FICA and withheld income tax on wages paid on Nov. 21-24.

� Remind individual clients whose withholding status will change in 2021 to submit new W-4 forms to their employers.

� Remind individual clients who may have underpaid estimated taxes to increase withholding from salary and wages to make up for shortfall.

� Renew PTIN.

� Register online to use IRS e-services. Preparers who anticipate filing 11 or more 1040, 1040A, 1040EZ and 1041 returns during the year must file electronically.

� Set up tax preparation software and test e-filing. Download IRS e-file logo and order IRS e-file marketing materials. See the EFTPS Tool Kit.

To-do list

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The case of the extra paycheck

It happens every 11 or 12 years — and 2020 is one of those years. Depending on which day of the week paychecks are handed out, employees who are paid on a weekly or biweekly basis may be receiving an extra check this month.

The 27th paycheckWith a biweekly payroll, an employee normally receives 26 paychecks each year. That cycle assumes there are 364 days in the year (26 x 14 days = 364 days). However, there are actually 365 days in a year, and 366 in a leap year. And those extra days eventually catch up with the pay cycle, resulting in an extra 27th payday in a single year.

For example, if an employee is paid on Wednesdays, the first payday of 2020 fell on Jan. 1, and the 26th pay date will fall on Dec. 16 — with an extra 27th paycheck due on Dec. 30. Similarly, for an employee paid on Thursdays, the first payday was Jan. 2 and the final 27th payday will be Dec. 31. For Friday payrolls, 2020 will be a normal 26-payday year — but the 27th paycheck will show up in 2021, with the first paycheck due on Jan. 1 and the 27th on Dec. 31.

For hourly employees whose wages are calculated on a paycheck-by-paycheck basis, the 27th paycheck presents no problems. But for salaried workers whose annual pay is prorated over the number of paydays in the year, it’s a different story. According to numerous surveys, the majority of employers (more than 80%) take a pay-as-usual approach to the 27th paycheck. For example, if an employee’s annual salary is $52,000, his or her gross pay comes to $2,000 per paycheck in a normal 26-paycheck year. So with a pay-as-usual approach, the employee will receive an extra 27th paycheck based on $2,000 of gross pay.

On the other hand, employers — especially those who have not planned ahead — may be tempted to simply skip the 27th paycheck for salaried employees. However, that approach may run afoul of federal or state wage-hour laws, and it is not likely to sit well with employees who will have a four-week gap between paychecks at year end.

The 53rd paycheckFor weekly payrolls, there is a similar phenomenon, but it shows up more frequently every five or six years — and, again, 2020 is one of those years. For 2020, employees who are paid weekly on Wednesdays or Thursdays will have 53 weekly paydays instead of the normal 52. For Friday payrolls, there will be 53 paydays in 2021.

A 53rd weekly paycheck raises issues similar to the 27th paycheck for biweekly payrolls. But that extra paycheck is not as likely to catch employers off guard since it is not as uncommon. Moreover, weekly payrolls are most typical in industries with hourly workers. By contrast, biweekly payrolls are the most common pay frequency for private employers, especially in industries with salaried employees.

Check those payroll deductionsBoth employees and employers should double-check to make sure that the extra paycheck doesn’t produce extra payroll deductions. For example, if an employee’s annual salary is at or near the Social Security wage base of $137,700 for 2020, a 27th or 53rd paycheck may push those earnings over the top. Therefore, the amount of employer and employee Social Security taxes on the final paycheck will need to be adjusted. The extra payday will also impact payroll deductions for benefits like health coverage, retirement plan contributions, flexible spending accounts and the like.

On the other hand, tax withholding can continue as usual. According to the IRS, “Adjustments aren't required when there will be more than the usual number of pay periods, for example, 27 biweekly pay dates instead of 26” [IRS Publication 15, 2019 Employer’s Tax Guide (Circular E), p. 44].



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Employees whose withholding status will change in 2021 should submit a new Form W-4 to the employer. The new form should be submitted as early as possible to guarantee implementation of the withholding change in January.

Wednesday, Dec. 2Semiweekly depositors deposit FICA and withheld income tax on wages paid on Nov. 25-27.

Friday, Dec. 4Semiweekly depositors deposit FICA and withheld income tax on wages paid on Nov. 28-Dec. 1.

Wednesday, Dec. 9Semiweekly depositors deposit FICA and withheld income tax on wages paid on Dec. 2-4.

Thursday, Dec. 10Tipped employees who received $20 or more in tips during November report them to the employer on Form 4070.

Friday, Dec. 11Semiweekly depositors deposit FICA and withheld income tax on wages paid on Dec. 5-8.

Tuesday. Dec. 15Calendar-year corporations pay fourth installment of 2020 estimated tax.

Monthly depositors deposit FICA and withheld income tax for November.


Friday, Dec. 18Semiweekly depositors deposit FICA and withheld income tax on wages paid on Dec. 12-15.


Monday, Dec. 28Semiweekly depositors deposit FICA and withheld income tax on wages paid on Dec. 19-22.

� Establish tax return preparation procedures.

� Develop tax preparation docket sheet.

� Analyze tax season staffing needs.

� Prepare tax season work assignments.

� Prepare tax preparation packets for clients.

� Review new tax developments.

� Remind individual clients of Jan. 15 due date for final 2020 estimated tax payment.

� Remind business clients of Jan. 31 due date for filing Forms W-2 and 1099-MISC.

To-do list



How do your tax preparation fees stack up?

Tax professionals use a variety of different methods to set prices, including per-item, per-form, or per-hour rates. For example, a practitioner might charge —

• A set fee for each tax form or schedule,

• A minimum fee plus an amount based on the complexity of the client's return,

• A fee based on the subjective value of the tax preparation service,

• An hourly rate for time spent preparing the tax return, or

• A set fee for each item of data.

Whether you use one of these methods, a combination of methods or some other approach to setting your fees, it’s a good idea to conduct an annual review in advance of tax return season to ensure that you are not shortchanging yourself. Your fee structure should factor in your cost plus a reasonable profit margin. On the other hand, you’ll want to make sure you are not charging more than the market will bear.

While not definitive, comparative data on what other tax pros are charging can be a useful guideline for assessing your fee structure. For example, the 2018–2019 Income and Fees Survey from the National Society of Accountants (NSA) provides some insight into the fees charged by tax professionals for various tax preparation services.

Tax preparation national averagesThe NSA study reports the following national averages for Form 1040 income tax returns and a corresponding state return:

• $188 for a Form 1040 without itemized deductions

• $294 for an itemized Form 1040 with Schedule A

• $481 for an itemized Form 1040 with Schedule A and Schedule C reporting business income

Geography countsThe location of your tax practice will have a bearing on the fees you can charge. For example, the NSA study found significant regional differences in the average fee for a Form 1040 with Schedule A and a state return — as well as variations within each region — with the highest fees reported on the east and west coasts.

• In the West, average fees ranged from $285 in the Mountain states (AZ, CO, ID, MT, NV, NM, UT, WY) to $339 in the Pacific region (AK, CA, HI, OR, WA).

• In the Midwest, average fees ranged from $137 in Western North Central states (IA, KS, MN, MO, NE, ND, SD) to $212 in the more Eastern North Central states (IL, IN, MI, OH, WI).

• In the Northeast, fees ranged from $246 in New England (CT, ME, MA, NH, RI, VT) to $314 in the Middle Atlantic states (NJ, NY, PA).

• In the South, fees varied from $211 in the West South Central states (AR, LA, OK, TX) to $230 in the East South Central states (AL, KY, MS, TN) and $259 in the South Atlantic region (DE, DC, FL, GA, MD, NC, SC, VA, WV).

Delinquent or disorganized clientsIt is not uncommon for preparers to charge a higher fee to clients who submit their return paperwork at the eleventh hour or who submit a jumbled mess. The NSA study found that 72% of preparers increase their fees by an average of $132.88 for disorganized or incomplete paperwork.



January 2021

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Monday, Jan. 4Semiweekly depositors deposit FICA and withheld income tax on wages paid on Dec. 26-29.

Wednesday, Jan. 6Semiweekly depositors deposit FICA and withheld income tax on wages paid on Dec. 30-Jan. 1.

Friday, Jan. 8Semiweekly depositors deposit FICA and withheld income tax on wages paid on Jan. 2-5.

Monday, Jan. 11Tipped employees who received $20 or more in tips during December report them to their employers on Form 4070.

Wednesday, Jan. 13Semiweekly depositors deposit FICA and withheld income tax on wages paid on Jan. 6-8.

Friday, Jan. 15Monthly depositors deposit FICA and withheld income tax for December.

Individuals pay final installment of 2020 estimated tax.

Semiweekly depositors deposit FICA and withheld income tax on wages paid on Jan. 9-12.

Thursday, Jan. 21Semiweekly depositors deposit FICA and withheld income tax on wages paid on Jan. 13-15.


Wednesday, Jan. 27Semiweekly depositors deposit FICA and withheld income tax on wages paid on Jan. 20-22.


Note: Because Jan. 31 falls on a Sunday, end-of-month filings are pushed to Monday, Feb. 1. Please see the February tax calendar.

� Send tax preparation packets and tax data organizers to individual clients.

� Alert individual clients to the option of filing the 2020 return by Jan. 31 in lieu of making final 2020 estimated tax payment.

� Remind business clients of information reporting requirements.

To-do list

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Is your taxpayer data secure?

As you rush to prepare for the 2020 tax filing season, build in some time to review your plan for securing your clients’ data — and put it in writing.

It’s the lawUnder federal law, you must comply with data safeguard rules set by the Federal Trade Commission (FTC). The FTC’s authority stems from the Financial Services Modernization Act of 1999 (a.k.a. Gramm-Leach-Bliley Act), which authorized the Commission to set information safeguard requirements for “financial institutions,” which it defines broadly to include professional tax preparers.

The FTC Safeguards Rule requires tax preparers to implement and maintain a comprehensive written data security plan. As part of the plan, a preparer must:

• Designate one or more employees to coordinate an information security program;

• Identify and assess risks to client data and evaluate the effectiveness of current safeguards for controlling these risks;

• Design and implement a safeguards program, which is regularly monitored and tested;

• Select service providers that also have appropriate safeguards, and contractually require them to maintain those safeguards; and

• Evaluate and adjust the safeguards program to reflect changes in business or operations, or the results of security testing and monitoring.

The FTC says the Safeguard Rules are designed to be flexible. Tax professionals should implement safeguards appropriate to their own circumstances.

Safeguards rule checklistA comprehensive data security plan requires an in-depth review of your current office procedures. According to the FTC, the required information security plan must be appropriate to the size and complexity of your business, the nature and scope of your business activities, and the sensitivity of the client information it handles. Here’s a checklist of operational areas to review and potential action steps.

Employee management and training

• Check references or do background checks before hiring employees who will have access to taxpayer data.

• Ask every new employee to sign an agreement to follow your company’s confidentiality and security standards for handling taxpayer data.

• Limit access to taxpayer data to employees who have a need to know.

• Train employees to take basic steps to maintain the security of taxpayer data, including locking rooms and file cabinets where records are kept; not sharing or posting passwords in work areas; encrypting client data when it is transmitted electronically; and reporting suspicious attempts to obtain client data.

• Impose disciplinary measures for security policy violations.

• Prevent terminated employees from accessing customer information by immediately deactivating their passwords and user names and taking other appropriate measures.


Client records

• Store physical records in a room or cabinet that is locked when unattended.

• Keep computers or servers containing client data in physically secure areas.

• Require employees to use strong passwords to access client data and to change them regularly.

• Avoid storing sensitive client data on a computer with an internet connection if possible.

• Maintain secure backup records and store archived data offline in a physically secure area.

• Maintain a careful inventory of your company’s computers and any other equipment on which customer information may be stored.

• Take steps to ensure the secure transmission of customer information.

• Dispose of client information in a secure way — shred papers containing customer information so that the information cannot be read or reconstructed, and destroy or erase data when disposing of computers and electronic media.

Systems and software

• Use anti-virus and anti-spyware software that updates automatically.

• Maintain up-to-date firewalls, particularly if you use a broadband internet connection or allow employees to connect to your network from home or other off-site locations.

• Keep logs of activity on your network and monitor them for signs of unauthorized access to client data.

• Take steps to preserve the security, confidentiality and integrity of client data in the event of a breach.

Reporting a data breachTax practitioners should report data losses or thefts immediately to the IRS so that appropriate precautions can be made to protect clients from fraudulent returns being filed in their names. A breach should be reported to the IRS Stakeholder Liaison for your area.

All states currently have breach notification laws requiring reporting to the state and to individuals affected by a data breach. You can contact states in which you prepare state returns and email the Federation of Tax Administrators at [email protected] to get information on how to report victim information to the states.

In addition, tax practitioners should contact federal, state and local law enforcement as appropriate to report a breach.

http://www.irs.gov/businesses/small-businesses-self-employed/stakeholder-liaison-local-contacts

http://www.irs.gov/businesses/small-businesses-self-employed/stakeholder-liaison-local-contacts



February 2021

Monday, Feb. 1Employers file Form 941 for the fourth quarter of 2020 (if tax

deposited in full and on time, file by Feb. 10).

Qualifying small employers file annual Form 944 for 2020 (in lieu

of quarterly Form 941s).

Employers file Form 940 for 2020 (if tax was deposited in full and

on time, file by Feb. 10).

Furnish copies of Form W-2 for 2020 to employees.

Employers file Copy A of all Forms W-2 issued for 2020 with the

Social Security Administration (SSA). Paper Forms W-2 should be

accompanied by a Form W-3.

Furnish information returns to payees for payments made in 2020.

File information returns with the IRS for nonemployee

compensation paid in 2020.

Individuals file individual income tax return for 2020 in lieu of Jan.

15 estimated tax payment.

File Form 945 for 2020 to report income tax withheld on non-

payroll items.

Wednesday, Feb. 3Semiweekly depositors deposit FICA and withheld income tax on

wages paid on Jan. 27-29.

Friday, Feb. 5Semiweekly depositors deposit FICA and withheld income tax on

wages paid on Jan. 30-Feb. 2.

Wednesday, Feb. 10Employers file Form 941 for the fourth quarter of 2020 if tax for

the quarter was deposited in full and on time.

Tipped employees who received $20 or more in tips during

January report them to the employer on Form 4070.

Employers file Form 940 for 2020 if tax for the year was deposited

in full and on time.

Semiweekly depositors deposit FICA and withheld income tax on

wages paid on Feb. 3–5.


wages paid on Feb. 6-9.

Tuesday, Feb. 16Claims for 2020 exemption from income tax withholding expire;

employers must begin withholding tax unless employee has

submitted a new W-4 to continue exemption for 2021.

Monthly depositors deposit FICA and withheld income tax for January.

Thursday, Feb. 18Semiweekly depositors deposit FICA and withheld income tax on




Wednesday, Feb. 24Semiweekly depositors deposit FICA and withheld income tax on

wages paid on Feb. 17-19.



Note: Because Feb. 28 falls on a Sunday, end-of-month filings are

pushed to Monday, March 1. Please see the March tax calendar.

� Remind individual clients who haven't returned tax preparation packets or scheduled appointments.

� Review pros and cons of S corporation election with eligible corporate clients.

� Remind partnerships of March 15 filing deadline.

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Tax tips on tax homes

According to news reports, President Trump has filed paperwork to change his tax home from New York State to Florida. And, not surprisingly, the reason for the change appears to be taxes. New York has one of the highest state and local income taxes of any state, while Trump’s chosen state of Florida has no income tax.

For an individual like Trump with residences in more than one state, the individual’s tax home — or domicile—determines how the individual’s income will be taxed. For example, an individual whose tax home is in New York is subject to state income taxes on all of his or her income no matter the source. By contrast, if the individual’s tax home is in another state, only income derived from New York sources — wages earned in New York or rental income from a New York building — is within the reach of New York tax collectors. Moreover, if the individual’s tax home is in a low- or no-tax state, the remainder of the individual’s income will be taxed at a lower rate or escape state income tax entirely.

Not surprisingly, tax auditors can be skeptical when a change of domicile removes thousands of dollars of income from the tax rolls. Therefore, an individual with multiple residences should be prepared to prove that the change is on the up and up.

Intent is key. State laws vary, but as a general rule, an individual’s tax home is the state that he or she intends to be his or her permanent home. For individuals who cut all ties with one state and move to a new state, proving that intent is not a significant issue. But for snowbirds and others who have residences in more than one state, proving intent may be more involved.

Declaration of domicile. Some states — Florida included — allow new residents to officially designate the state as their tax home by filing a declaration of domicile. In late 2019, for example, Trump and his wife each filed a declaration with the State of Florida to move their permanent residence from Trump Tower in New York City to their Mar-a-Lago estate in Palm Beach.

However, when it comes to designating a tax home, saying so doesn’t make it so.

183-day rule. Despite a declaration of domicile, many states — particularly high-tax states like New York and New Jersey — will treat an individual as a statutory resident if he or she maintains a home in the state and spends at least half the year in the state. That is, an individual will be deemed to be a state resident if he or she spends more than 183 days in the state during the year.

KEY POINT: Many snowbirds who split their time between homes in northern states and winter homes in sunnier (and low- or no-tax) states assume the reverse is also true: If they spend more than 183 days in the winter home, that’s enough to establish the winter home as their official tax home. However, presence in a state will not automatically prove intent to establish that state as an official tax home.


Proving intent. Nonetheless, there are some things an individual can do to establish a new state as an official tax home. Here’s checklist of key action steps:

• Register to vote

• Obtain a state driver’s license

• Register cars and other property, such as boats and motor vehicles

• Change car insurance to the new state

• File state taxes (if any) as a “Resident”

• Change mailing address

• Establish bank accounts in the new state

• Change addresses for credit cards, etc.

• Update wills and other legal documents to reflect the new domicile

• Join local organizations and religious groups

Consistency is key. Conversely, individuals should take steps to cut the ties that bind them to the prior tax home — by cancelling voter registrations and state driver’s licenses, filing taxes as a “Nonresident,” closing bank accounts, etc.

Special tax home rules. Interestingly, while there is no special tax home rule for the President, special rules do apply to members of Congress. Federal law prevents a state or political subdivision from treating a member of Congress as a resident for income tax purposes just because the member maintains an abode in the state for the purpose of attending sessions of Congress [4 U.S.C. §113].

Special rules also apply to members of the military. As a general rule, military personnel are subject to tax in the home of record — that is the state where they resided at the time of enlistment. Under federal law, a state is prohibited from taxing military income of nonresident service members who are stationed in the state. Note, however, that this prohibition only applies to military income — income from a civilian job can be taxed by the state of residence. Similarly, a military spouse’s earned income can’t be taxed by a state if the military spouse is living and working in the state solely to be with his or her service member spouse. Instead, the military spouse may remain a resident of his or her original state for tax purposes or may elect to use the same residence as the service member.



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9Monday, March 1Large food and beverage establishment employers file Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips; use Form 8027-T if reporting for more than one establishment. Electronic filers, see March 31.

File information returns (other than returns for nonemployee compensation) with the IRS for payments made in 2020. Returns for nonemployee compensation were required to be filed by Jan. 31. Electronic filers have until March 31.

Wednesday, March 3Semiweekly depositors deposit FICA and withheld income tax on wages paid on Feb. 24-26.

Friday, March 5Semiweekly depositors deposit FICA and withheld income tax on wages paid on Feb. 27-March 2.

Wednesday, March 10Tipped employees who received $20 or more in tips during February report them to the employer on Form 4070.

Semiweekly depositors deposit FICA and withheld income tax on wages paid on March 3-5.

Friday, March 12Semiweekly depositors deposit FICA and withheld income tax on wages paid on March 6-9.

Monday, March 15Monthly depositors deposit FICA and withheld income tax for February.

Calendar-year S corporations file 2020 income tax return on Form 1120S; alternatively, file for an automatic six-month extension.

Calendar-year partnerships file 2020 information return (Form 1065); alternatively, file for an automatic six-month extension (Form 7004).

Wednesday, March 17Semiweekly depositors deposit FICA and withheld income tax on wages paid on March 10-12.


Wednesday, March 24Semiweekly depositors deposit FICA and withheld income tax on wages paid on March 17-19.


Tuesday, March 31File information returns (other than returns for nonemployee compensation) if filing electronically.

Large food and beverage establishments file Form 8027 if filing electronically.

Semiweekly depositors deposit FICA and withheld income tax on wages paid on March 24-26.

March 2021

� File extensions for individuals who have not met deadline for return preparation.

� Remind individual clients of April 15 estimated tax payment.

� File extensions for S corporations or partnerships that will not meet the March 15 filing deadline.

To-do list


What to tell clients who can't pay

You do your best to make sure your clients do not get any unpleasant surprises when you hand them their completed tax returns. You remind them of the requirement to prepay their taxes through withholding or estimated tax installments — and to adjust those prepayments if circumstances change during the year. Nonetheless, there will always be clients who owe tax when they file their returns. Moreover, many of these clients may not have the funds available to pay up when the tax bill comes due.

What not to do. Impress upon your clients that they should not hold off on filing their returns until they can come up with the money to pay the tax due in full. If a return is not filed on time, the client will be hit with failure to file penalties in addition to penalties and interest on the unpaid tax bill.

What to do. Advise clients to pay as much as they can as soon as they can to minimize late payment penalties and interest — even if that means liquidating investments or borrowing money. While a client may balk at cashing out savings or borrowing to pay a tax bill, the interest charged on borrowings may be lower than the combined penalties and interest owed to the IRS on late payments. In addition, clients may want to consider borrowing from a 401(k) plan or life insurance, if available. While the interest payments are not tax deductible, the client is essentially borrowing from him or herself since the payments on the loan replenish the account or life insurance value.

A client who needs time to cash in assets or arrange for a loan can apply for a short-term extension of 60 to 120 days. The IRS does not charge a fee for a short-term extension, but penalties and interest continue to accrue on the unpaid tax.

Installment payment agreements other options are not available, a client can request an installment payment agreement from the IRS. Here again, interest and penalties continue to accrue until the tax is paid in full. In addition, the IRS charges a one-time user fee for setting up an installment agreement. Form 9465, Installment Agreement Request, is generally used to set up an installment agreement. However, clients with a balance due of no more than $50,000 can apply online for a payment agreement instead of filing Form 9465.

Generally, the fee for an installment agreement is $225, but the fee can be as low as $31 if the agreement is set up online and the client agrees to pay by direct debit from a bank account. The fee is $107 if the agreement is not set up online but payments are made by direct debit, or $149 if the agreement is set up online but payments are not made by direct debit. A reduced fee of $43 may apply for lower-income individuals, and the IRS may waive or reimburse the fee if certain conditions are met.

If the tax due plus penalties and interest is $50,000 or less, an individual client can arrange for a streamlined installment payment agreement. The maximum term for streamlined installment agreements is 72 months, and the minimum monthly payment is $25. If the total amount due is greater than $25,000, but not more than $50,000, the client must agree to a direct debit agreement to qualify without submitting a financial statement. If the client does not agree to make the payments by direct debit, the client must complete Form 433-F, Collection Information Statement.

Streamlined agreements are available to small businesses with $25,000 or less in unpaid liabilities. These agreements give a business 24 months to pay by direct debit.


The IRS generally will not take enforced collection actions, such as levying on a client’s wages or bank accounts, when an installment agreement is being considered, while an agreement is in effect, for 30 days after a request is rejected, or during the period the IRS evaluates appeal of a rejected or terminated agreement.

Extension for undue hardshipForm 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship, can be filed to extend the time for paying tax. However, the IRS’s concept of hardship may not match your client’s. The form instructions make it clear that undue hardship means more than an inconvenience. The client must show that he or she will have a substantial financial loss — such as selling property at a sacrifice price — if the tax is paid when due.

If granted, a hardship extension will generally not last for more than six months. Interest on the tax due will run until the tax is paid. Moreover, penalties may be imposed if the tax is not paid within the extension period.

Offers in compromiseA client who is struggling to make ends meet may qualify for an offer in compromise (OIC), an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Absent special circumstances, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement.

In most cases, the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer’s ability to pay and includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts and other property. The RCP also includes anticipated future income, less certain amounts allowed for basic living expenses. A streamlined OIC program, involving fewer requests for financial information and greater flexibility in determining ability to pay, may be available for taxpayers with annual incomes up to $100,000 and tax liabilities of less than $50,000.



April 2021

Friday, April 2Semiweekly depositors deposit FICA and withheld income tax on wages paid on March 27–30.

Wednesday, April 7Semiweekly depositors deposit FICA and withheld income tax on wages paid on March 31–April 2.

Friday, April 9Semiweekly depositors deposit FICA and withheld income tax on wages paid on April 3–6.

Monday, April 12Tipped employees who received $20 or more in tips during March report them to the employer on Form 4070.

Wednesday, April 14Semiweekly depositors deposit FICA and withheld income tax on wages paid on April 7–9.

Thursday, April 15Individuals file 2020 returns (Form 1040, Form 1040A or Form 1040EZ); alternatively, file for an automatic six-month extension (Form 4868).

Calendar-year C corporations file 2020 returns on Form 1120; alternatively, file for an automatic six-month extension.

Individuals and calendar-year corporations pay first installment of 2021 estimated tax.

Monthly depositors deposit FICA and withheld income tax for March.

Monday, April 19Semiweekly depositors deposit FICA and withheld income tax on wages paid on April 10–13.


Friday, April 23Semiweekly depositors deposit FICA and withheld income tax on wages paid on April 17–20.


Friday, April 30Employers file Form 941 for the first quarter of 2021 (if tax for the quarter was deposited in full and on time, file by May 11).

Employers deposit federal unemployment tax owed through March if more than $500.

Semiweekly depositors deposit FICA and withheld income tax on wages paid on April 24–27.

� File extensions for individual clients who will not meet April 15 filing deadline.

� Conduct reviews of clients’ prior year returns to determine need for amended returns.

� File extensions for corporate clients who will not meet April 15 filing deadline.

To-do list

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What you can — and can’t — do with your client information

One of your best sources of new business may be no farther away than your client files. Your current tax return clients have made that all-important decision to do business with you. Therefore, you have already negotiated one of the biggest hurdles in the selling cycle: gaining the client’s trust and confidence. You also have files full of information about your existing clients that are key to clinching a deal. You know who makes the decisions and how those decisions are made. You know what services you are currently providing to the client — and you have valuable information about the client’s financial and business affairs that can help you identify additional services that are appropriate for the client. And, of course, you know whether the client can afford — and will actually pay for — those additional services.

Before you start culling through your client files for likely prospects, make sure you understand what you can — and can’t — do with information gathered from your clients while preparing their returns. The tax law places strict limits on the use and disclosure of tax return information by tax practitioners. And the penalties for violations are severe. The IRS can impose a civil penalty of $250 for each unauthorized use, up to a maximum penalty of $10,000 in any calendar year. In addition, it is a misdemeanor — punishable by a fine of not more than $1,000, imprisonment of not more than one year, or both — for a return preparer to knowingly or recklessly use a client’s tax return information for any purpose other than return preparation, except as permitted under the Code and IRS regulations. Higher penalties apply in the case of use or disclosure that results in identity theft.

IRS regulations spell out how you can use information from your tax returns to build your business.

Client listsA tax return practitioner may compile and maintain a list of tax return clients containing only the following information: client names, mailing addresses, email addresses, phone numbers, taxpayer entity classification (e.g., individual or type of business entity) and income tax return form number. In crafting the regulations, the IRS specifically rejected suggestions that information allowed in a client list be expanded to include such things as tax schedules filed, the number and age of dependents, the date clients file and whether they file with a balance due.

Use of client lists. The information on your client lists may be used only to provide tax or general business and economic information for educational purposes or to solicit additional tax return preparation services. The lists may not be used to solicit any product or service other than tax return preparation. The IRS expressly rejected suggestions that permitted uses for client lists include solicitation of accounting, bookkeeping or payroll services.

The restrictions on use of client lists extend to client newsletters. For example, using client lists to send a newsletter that summarizes recent case law or describes current legal developments is on the up and up. However, the IRS cautions that practitioners should carefully consider the specific content of newsletter articles on a case-by-case basis. If a practitioner plans to solicit non-tax return preparation services in a newsletter, consent must be obtained from clients.

Example. Aaron Andrews runs a tax preparation business in Southeast Pennsylvania and prepares returns for clients in Pennsylvania, New Jersey, Maryland and Delaware. Andrews provides quarterly state income tax information updates to his clients by email or regular mail. To make sure clients receive only relevant updates, Andrews directs his mailings to clients by zip code and income tax return form number. According to the IRS, Andrews can use the list information without his clients’ consent because he is providing tax information for educational or informational purposes and is targeting clients based solely on tax information that is authorized by the regulations (i.e., zip code, which is part of a client’s address, and tax form number).

Example. Beverly Burton uses her client list to send a monthly newsletter to all of her clients by email. When Burton hires a new employee, she puts an announcement in her newsletter with the employee’s photo, contact information, qualifications and job responsibilities. The IRS says use of her client list to send out the monthly newsletters does not require clients’ consent. Moreover, the new employee announcements will be considered permitted tax information for educational or informational purposes as long as the announcements do not contain solicitations for non-tax return business.


In a related revenue ruling, the IRS makes it clear that a tax practitioner can also disclose a client list to a third-party service provider that sends newsletters, bulletins or similar communications containing tax or general business and economic information to the preparer’s clients for educational purposes or for the purpose of soliciting additional tax return business for the preparer.

Client consent enables broader use of dataA tax practitioner can use client data for other purposes if he or she obtains the client’s consent. But here again, caution is in order. A client’s consent must be in writing, signed and dated by the client, and must disclose the specific tax return information to be used and the particular use being authorized. Conditioning the provision of tax return preparation services on the client’s consent to use or disclosure of tax return information will make the consent involuntary.

On the other hand, consent to use a client’s return information to recommend other services must be obtained before the return is prepared. The regulations specifically provide that a preparer may not request a taxpayer’s consent to disclose or use tax return information for soliciting business unrelated to tax return preparation after the tax return preparer provides a completed tax return for the taxpayer’s signature.



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Wednesday, May 5Semiweekly depositors deposit FICA and withheld income tax on wages paid on April 28–30.

Friday, May 7Semiweekly depositors deposit FICA and withheld income tax on wages paid on May 1–4.

Monday, May 10Tipped employees who received $20 or more in tips during April report them to the employer on Form 4070.

Employers file Form 941 for the first quarter of 2021 if tax for the quarter was deposited in full and on time.

Wednesday, May 12Semiweekly depositors deposit FICA and withheld income tax on wages paid on May 5–7.


Monday, May 17Monthly depositors deposit FICA and withheld income tax for April.





� Conduct post-season review.

� Evaluate tax software.

� Remind individual clients of June 15 estimated tax payment.

� Alert clients who need to file amended returns.

To-do list

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Documents

Professional Tax Planning Guide - Intuit · 2020-06-01 · Table of Contents Intuit Professional Tax Planning Guide Page 4 New retirement plan rules for 2020 and beyond As 2019 was