Author Archives: Taxman

SC Tax Consequences of Federal Student Loan Debt Forgiveness

September 1, 2022

South Carolina Tax Treatment. South Carolina adopts Internal Revenue Code Section 108. During the 2022 Legislative Session, South Carolina conformed to the Internal Revenue Code as of December 31, 2021,2 including conformity to the amendment to Internal Revenue Code Section 108(f)(5), as amended by Section 9675 of the federal American Rescue Plan Act of 2021.

Since South Carolina adopts Internal Revenue Code Section 108, to the extent a student loan described in Internal Revenue Code Section 108(f) is forgiven for federal income tax purposes and excluded from federal taxable income, then the amount is also excluded from South Carolina taxable income.

For federal income tax purposes, the receipt of a loan is not a taxable event. Forgiveness of a loan is often treated as taxable income under Internal Revenue Code Section 61, “Gross Income Defined,” and Internal Revenue Code Section 108, “Income from Discharge of Indebtedness.”
Federal Tax Treatment of Student Loan Debt Forgiveness and Temporary Provisions. Internal Revenue Code Section 108(f) relates to student loans.

The federal American Rescue Plan of 20211 (enacted by Congress on March 11, 2021), Section 9675, “Modification of Treatment of Student Loan Forgiveness,” amended Internal Revenue Code Section 108(f)(5) to temporarily add special rules for the discharge of student loans in 2021 through 2025.

South Carolina Individual Income Tax rebates are on the way

August 10, 2022
The South Carolina Department of Revenue (SCDOR) will issue close to one billion dollars in state tax rebates before the end of the year but only to those who have filed their 2021 SC Individual Income Tax returns by October 17, 2022, the filing extension deadline.
State lawmakers approved the rebates in June as they finalized the state budget. This rebate is based on your tax liability up to a certain amount. However, that amount cannot be determined until after October 17, when all eligible returns have been filed.
Keep reading to learn more about the coming rebates, including how much money you can expect and how to determine your eligibility. We also recommend that you bookmark our rebate homepage, which will be updated regularly with the latest information.
It’s easy to determine if you’re eligible to receive a rebate:
● You must have filed an SC Individual Income Tax return (SC1040) for tax year 2021 by October 17, 2022.
● You must have owed state Income Tax for tax year 2021, what tax professionals call tax liability. Specifically, that is the Income Tax you owe minus any credits.
● You can be a South Carolina resident, part-year resident, or nonresident.
The following groups are not eligible to receive a rebate:
● Those who have not filed an SC Individual Income Tax return by October 17, 2022.
● Taxpayers who have no state Individual Income Tax liability for the 2021 tax year.
You can calculate the rebate amount you can expect by looking at your 2021 Individual Income Tax return (SC1040):
● On your 2021 SC1040, add your refundable credits, lines 21 and 22. Now subtract those credits, if any, from line 15.That’s line 15 – (line 21 + line 22)
● If that amount is less than the rebate cap set by the SCDOR after October 17, you will receive that amount.
● If it is greater than or equal to the cap, you will receive the cap amount.
● While the legislation sets a minimum cap of $700, the actual amount will be set by the SCDOR after October 17. That’s the deadline for extension filers and when we’ll know how many taxpayers are eligible for a rebate.
● Taxpayers do not need to send their self-calculation or any additional information to the SCDOR to receive their rebate.
For most taxpayers, the SCDOR will issue rebates in much the same way we issued refunds this year.
● If you received a refund by direct deposit, the SCDOR will use the same bank account to issue your rebate by direct deposit.
● If your bank account has changed since receiving your 2021 direct deposit refund, notify us by November 1. Download and complete the SC5000 and email it to SCRebate@dor.sc.gov. You will receive your rebate as a paper check.
Paper checks will be issued if:
● You received your 2021 refund by debit card or paper check.
● You had a balance due and did not receive a refund.
● You received your 2021 refund using a tax preparer’s account.
Be sure your address on file with the SCDOR is current.
● If you need to change your address, notify us of your new address by November 1. Download and complete the SC5000 and email it to SCRebate@dor.sc.gov.

Tips to help taxpayers choose a reputable tax return preparer

December 14, 2021

As taxpayers get ready to file their 2022 tax return, they may be considering hiring a tax return preparer. The IRS reminds taxpayers to choose a tax return preparer wisely. This is important because taxpayers are responsible for all the information on their return, no matter who prepares it for them.
There are different kinds of tax preparers, and a taxpayer’s needs will help determine which kind of preparer is best for them. With that in mind, here are some quick tips to help people choose a preparer.

When choosing a tax professional, taxpayers should:

  • Check the IRS Directory of Preparers. While it is not a complete listing of tax return preparers, it does include those who are enrolled agents, CPAs and attorneys, as well as those who participate in the Annual Filing Season Program.
  • Check the preparer’s history with the Better Business Bureau. Taxpayers can verify an enrolled agent’s status on IRS.gov.
  • Ask about fees. Taxpayers should avoid tax return preparers who base their fees on a percentage of the refund or who offer to deposit all or part of their refund into their financial accounts.
  • Be wary of tax return preparers who claim they can get larger refunds than others.
  • Ask if they plan to use e-file.
  • Make sure the preparer is available. People should consider whether the individual or firm will be around for months or years after filing the return. Taxpayers should do this because they might need the preparer to answer questions about the preparation of the tax return.
  • Ensure the preparer signs and includes their preparer tax identification number. Paid tax return preparers must have a PTIN to prepare tax returns.
  • Check the person’s credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in tax matters. Other tax return preparers who participate in the IRS Annual Filing Season Program have limited practice rights to represent taxpayers during audits of returns they prepared.

Understanding taxpayer rights: The right to retain representation

November 27, 2021

Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation. This is one of the fundamental rights of all taxpayers as outlined in the Taxpayer Bill of Rights.

Here’s what the right to retain representation means to taxpayers:

• Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS.
• Taxpayers who are heading to an interview with the IRS may select someone to represent them.
• Taxpayers who retain representation don’t have to attend with their representative unless the IRS formally summons them to appear.
• In most situations, the IRS must suspend an interview if the taxpayer requests to consult with a representative, such as an attorney, certified public accountant or enrolled agent.
• Any attorney, CPA, enrolled agent, enrolled actuary or other person permitted to represent a taxpayer before the IRS, who’s not disbarred or suspended from practice before the IRS, may submit a written power of attorney to represent a taxpayer before the IRS.
• Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they can’t afford representation. They can find a LITC near them by visiting the Low Income Taxpayer Clinics page on IRS.gov or by calling the IRS toll-free at 800-829-3676.

Low Income Taxpayer Clinics are independent from the IRS and the Taxpayer Advocate Service. These clinics may charge a small fee to represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs can represent taxpayers in audits, appeals and tax collection disputes before the IRS and in court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language.

Should you find yourself in need of representation in a tax matter before the IRS, please give Tax On Wheels, LLC a call 803 732-4288. We offer a free initial consultation to assess your needs. We will offer you a recommendation on your next step, whether that be hiring us or an attorney or doing things yourself.  Remember, if you are engaged in illegal activity such as tax evasion, you will need to contact an attorney first. Your attorney can then hire Tax On Wheels, LLC for support with tax matters using a Kovel letter which will allow us to maintain attorney client privilege.

More Information:
Publication 1, Your Rights as a Taxpayer
Publication 4134, Low Income Taxpayer Clinic List
Taxpayer Advocate Service

IRS guidance on temporary 100% food & beverage deduction

November 16, 2021

WASHINGTON – The Internal Revenue Service today issued Notice 2021-63 to make clear how the temporary 100% business deduction for food or beverages from restaurants applies to taxpayers properly applying the rules of Revenue Procedure 2019-48 for using per diem rates.

Previously, the IRS issued Notice 2021-25 providing guidance under the Taxpayer Certainty and Disaster Relief Act of 2020, which added a temporary exception to the 50% limit on the amount that businesses may deduct for food or beverages. The temporary exception allows a 100% deduction for food or beverages from restaurants, as long as the expense is paid or incurred in 2021 or 2022.

For a taxpayer properly applying the rules of Revenue Procedure 2019-48, Notice 2021-63 provides a special rule that allows the taxpayer to treat the full meal portion of a per diem rate or allowance as being attributable to food or beverages from a restaurant beginning Jan. 1, 2021, through Dec. 31, 2022.

Taxpayers should refer to section 6.05 of Revenue Procedure 2019-48 to determine the meal portion of a per diem rate or allowance paid or incurred.

More information for businesses seeking coronavirus-related tax relief can be found at IRS.gov.

Feel free to call Tax On Wheels, LLC at 803 732-4288 if we can assist you with this or any other tax issue.

Teachers can deduct classroom expenses including COVID-19 items

November 16, 2021

Fall is here and another school year is in full swing. Many teachers are already dipping into their own pockets to buy classroom supplies that will help set their students up for success. Doing this all year long can add up fast. Fortunately, eligible educators may be able to offset qualified expenses they paid in 2021 when they file their tax return in 2022.

Educators who work in schools may qualify to deduct up to $250 of unreimbursed expenses. That amount goes up to $500 if two qualified educators are married and file a joint return. However, neither spouse can deduct more than $250 of their qualified expenses when they file their federal tax return.

Taxpayers qualify for this deduction if they:

  • Teach any grade from kindergarten through twelfth grade.
  • Are a teacher, instructor, counselor, principal or aide.
  • Work at least 900 hours during the school year.
  • Work in a school that provides elementary or secondary education.

Qualified expenses include:

  • Professional development courses.
  • Books.
  • Supplies.
  • Computer equipment including related software and services.
  • Supplementary materials.
  • Athletic supplies only for health and physical education
  • Personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of coronavirus.

Expenses for COVID-19 protective items. These items include, but are not limited to:

  • Face masks.
  • Disinfectant for use against COVID-19.
  • Hand soap.
  • Hand sanitizer.
  • Disposable gloves.
  • Tape, paint or chalk to guide social distancing.
  • Physical barriers, such as clear plexiglass.
  • Air purifiers.
  • Other items recommended by the Centers for Disease Control and Prevention to be used for the prevention of the spread of COVID-19.

This deduction is for unreimbursed expenses paid or incurred during the tax year. Taxpayers should keep records, such as receipts, and other documents that support the deduction with other tax documents. Eligible taxpayers will  claim the deduction on Form 1040Form 1040-SR, or Form 1040-NR.

 

More information:
Topic No. 458, Educator Expense Deduction
Steps to Take Now to Get a Jump on Taxes

You may contact Tax On Wheels, LLC at 803 732-4288 if we may be of assistance to you with this or any other tax matter.

IRS awards new contracts to private collection agencies

September 22, 2021

WASHINGTON — The Internal Revenue Service has awarded new contracts to three private-sector collection agencies for collection of overdue tax debts. The new contracts begin Thursday following today’s expiration of the old contracts; taxpayers may be contacted by one of three groups.

Beginning Thursday, Sept. 23, 2021, taxpayers with unpaid tax bills may be contacted by one of the following three agencies:

Three agencies

Notification by IRS and the private collection agencies
The IRS will always notify a taxpayer before transferring their account to a private collection agency (PCA).

  • First, the IRS will send a letter to the taxpayer and their tax representative informing them that their account was assigned to a PCA and giving the name and contact information for the PCA. This mailing will include a copy of Publication 4518, What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency (.pdf).
  • Following IRS notification, the PCA will send its own letter to the taxpayer and their representative confirming the account transfer. To protect the taxpayer’s privacy and security, both the IRS letter and the PCA’s letter will contain information that will help taxpayers identify the tax amount owed and assure taxpayers that future collection agency calls they may receive are legitimate.

How it works
The private collectors will identify themselves as contractors collecting taxes on behalf of the IRS. Employees of these collection agencies must follow the provisions of the Fair Debt Collection Practices Act, and like IRS employees, must be courteous and must respect taxpayer rights.

Private firms are not authorized to take enforcement actions against taxpayers. Only IRS employees can take these actions, such as filing a notice of Federal Tax Lien or issuing a levy.

Payment options
The private firms are authorized to discuss payment options, including setting up payment agreements with taxpayers. But as with cases assigned to IRS employees, any tax payment must be made directly to the IRS. A payment should never be sent to the private firm or anyone besides the IRS or the U.S. Treasury. Checks should only be made payable to the United States Treasury. To find out more about available payment options, visit IRS.gov/Payments.

More information
The IRS established the Private Debt Collection program in 2016, as authorized under federal law, and contracted with several agencies to collect certain unpaid tax debts on the government’s behalf. To learn more about the private debt collection program, visit the Private Debt Collection page on IRS.gov. Additional information can be found at the following links:

Please feel free to contact Tax On Wheels, LLC for assistance if you find yourself owing money to the IRS or any state taxing authority; we can be reached at 803 732-4288.

Understanding the tax responsibilities for starting a business

September 13, 2021

Small business owners have a variety of tax responsibilities. The IRS knows that understanding and meeting tax obligations is vital to the success of all businesses, especially a new one. IRS.gov has the resources and information to help people through the process of starting a new business.

Here are some tips for new entrepreneurs:

Choose a business structure.
The form of business determines which income tax return a business taxpayer needs to file. The most common business structures are:

  • Sole proprietorship: An unincorporated business owned by an individual. There’s no distinction between the taxpayer and their business.
  • Partnership: An unincorporated business with ownership shared between two or more people.
  • Corporation: Also known as a C corporation. It’s a separate entity owned by shareholders.
  • S Corporation: A corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders.
  • Limited Liability Company: A business structure allowed by state statute.

Choose a tax year.
A tax year is an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either:

  • Calendar year: 12 consecutive months beginning January 1 and ending December 31.
  • Fiscal year: 12 consecutive months ending on the last day of any month except December.

Apply for an employer identification number.
An EIN is also called a federal tax identification number. It’s used to identify a business. Most businesses need one of these numbers. It’s important for a business with an EIN to keep the business mailing address, location and responsible party up to date. IRS regulations require EIN holders to report changes in the responsible party within 60 days. They do this by completing Form 8822-B, Change of Address or Responsible Party and mailing it to the address on the form.

Have all employees complete these forms:

Pay business taxes.
The form of business determines what taxes must be paid and how to pay them.

Visit state’s website.
Prospective business owners should visit their state’s website for info about state requirements.

Please feel free to call Tax On Wheels, LLC at 803 732-4288 if you would like to discuss your business tax filing obligations

IRS to let Child Tax Credit recipients update banking information

July 1, 2021

WASHINGTON — The Internal Revenue Service today upgraded a key online tool to enable families to quickly and easily update their bank account information so they can receive their monthly Child Tax Credit payment.

The bank account update feature was added to the Child Tax Credit Update Portal, available only on IRS.gov. Any updates made by Aug. 2 will apply to the Aug. 13 payment and all subsequent monthly payments for the rest of 2021.

Families will receive their July 15 payment by direct deposit in the bank account currently on file with the IRS. Those who are not enrolled for direct deposit will receive a check. The IRS encourages people without current bank account information to use the tool to update their information so they can get the payments sooner.

The IRS also urges people to be on the lookout for scams related to the Child Tax Credit. People who need to update their bank account information should go directly to the IRS.gov site and not click on links received by email, text or phone.

How to update direct deposit information

First, families should use the Child Tax Credit Update Portal to confirm their eligibility for the payments. If eligible, the tool will also indicate whether they are enrolled to receive their payments by direct deposit.

If so, it will list the full bank routing number and the last four digits of their account number. This is the account that will receive their July 15 payment, and if they don’t change the account, all future payments will go there as well.

Next, if they choose, they can change the bank account receiving the payment starting with the Aug. 13 payment. They can do that by updating the routing number and account number and indicating whether it is a savings or checking account. Note that only one account number is permitted for each recipient—that is, the entire payment must be direct deposited in only one account.

How to switch from paper check to direct deposit

If the Update Portal shows that a family is eligible to receive payments but not enrolled to receive direct deposits, they will receive a check each month. If they want to switch to receiving their payments by direct deposit, they can use the tool to add their bank account information. They do that by entering their bank routing number and account number and indicating whether it is a savings or checking account.

The IRS urges any family receiving checks to consider switching to direct deposit. With direct deposit, families can access their money more quickly. Direct deposit removes the time, worry and expense of cashing a check. In addition, direct deposit eliminates the chance of a lost, stolen or undelivered check.

Families can stop payments anytime

Even after payments begin, families can stop all future monthly payments if they choose. They do that by using the unenroll feature in the Child Tax Credit Update Portal. Eligible families who make this choice will still receive the rest of their Child Tax Credit as a lump sum when they file their 2021 federal income tax return next year.

To stop all payments starting in August and the rest of 2021, they must unenroll by Aug. 2, 2021.

For more information about the unenrollment process, including a schedule of deadlines for each monthly payment, see Topic J  of the Child Tax Credit FAQs on IRS.gov.

Who should unenroll?

Instead of receiving these advance payments, some families may prefer to wait until the end of the year and receive the entire credit as a refund when they file their 2021 return. The Child Tax Credit Update Portal enables these families to quickly and easily do that.

The unenroll feature can also be helpful to any family that no longer qualifies for the Child Tax Credit or believes they will not qualify when they file their 2021 return. This could happen if, for example:

  • Their income in 2021 is too high to qualify them for the credit.
  • Someone else (an ex-spouse or another family member, for example) qualifies to claim their child or children as dependents in 2021.
  • Their main home was outside of the United States for more than half of 2021.

What is the Child Tax Credit Update Portal?

The Child Tax Credit Update Portal is a secure, password-protected tool, available to any eligible family with internet access and a smart phone or computer. It is designed to enable them to manage their Child Tax Credit accounts.  Right now, this includes updating their bank account information with the IRS or unenrolling from monthly payments. Soon, it will allow people to check on the status of their payments. Later this year, the tool will also enable them to make other status updates and be available in Spanish.

To access the Child Tax Credit Update Portal, a person must first verify their identity. If a person has an existing IRS username or an ID.me account with a verified identity, they can use those accounts to easily sign in. People without an existing account will be asked to verify their identity with a form of photo identification using ID.me, a trusted third party for the IRS. Identity verification is an important safeguard and will protect the user’s account from identity theft.

Anyone who lacks internet access or otherwise cannot use the online tool may unenroll by contacting the IRS at the phone number included in the outreach letter they received from the IRS.

Who is getting a monthly payment?

In general, monthly payments will go to eligible families who:

  • Filed either a 2019 or 2020 federal income tax return.
  • Used the Non-Filers tool on IRS.gov in 2020 to register for an Economic Impact Payment.
  • Registered for the advance Child Tax Credit this year using the new Non-Filer Sign-Up Tool on IRS.gov.

An eligible family who took any of these steps does not need to do anything else to get their payments.

Normally, the IRS will calculate the advance payment based on the 2020 income tax return. If that return is not available, either because it has not yet been filed or it has not yet been processed, the IRS is instead determining the payment using the 2019 tax return.

Eligible families will receive advance payments, either by direct deposit or check. Each payment will be up to $300 per month for each child under age 6 and up to $250 per month for each child ages 6 through 17. The IRS will issue advance Child Tax Credit payments on these dates: July 15, Aug. 13, Sept. 15, Oct. 15, Nov. 15 and Dec. 15.

Tax returns processed by June 28 will be reflected in the first batch of monthly payments scheduled for July 15.

Taxpayers will receive several letters

Taxpayers will also receive several letters related to the Child Tax Credit. In the next few weeks, letters are going to eligible families who filed either a 2019 or 2020 federal income tax return or who used the Non-Filers tool on IRS.gov to register for an Economic Impact Payment. The letters will confirm their eligibility, the amount of payments they’ll receive and that the payments begin July 15. Families who receive these letters do not need to take any further action. The personalized letters follow up on the Advance Child Tax Credit Outreach Letter, sent in early- and mid-June, to every family who appeared to qualify for the advance payments.

Child Tax Credit 2021

The IRS has created a special Advance Child Tax Credit 2021 page, designed to provide the most up-to-date information about the credit and the advance payments. It’s at IRS.gov/childtaxcredit2021.

Among other things, it provides direct links to the Child Tax Credit Update Portal, as well as two other online tools −the Non-filer Sign-up Tool and the Child Tax Credit Eligibility Assistant, a set of frequently asked questions and other useful resources.

Child Tax Credit changes

The American Rescue Plan raised the maximum Child Tax Credit in 2021 to $3,600 for children under the age of 6 and to $3,000 per child for children ages 6 through 17. Before 2021, the credit was worth up to $2,000 per eligible child.

The new maximum credit is available to taxpayers with a modified adjusted gross income (AGI) of:

  • $75,000 or less for singles,
  • $112,500 or less for heads of household and
  • $150,000 or less for married couples filing a joint return and qualified widows and widowers.

For most people, modified AGI is the amount shown on Line 11 of their 2020 Form 1040 or 1040-SR. Above these income thresholds, the extra amount above the original $2,000 credit — either $1,000 or $1,600 per child — is reduced by $50 for every $1,000 in modified AGI. In addition, the credit is fully refundable for 2021. This means that eligible families can get it, even if they owe no federal income tax. Before this year, the refundable portion was limited to $1,400 per child.

For the most up-to-date information on the Child Tax Credit and advance payments, visit Advance Child Tax Credit Payments in 2021.

As always, Tax On Wheels, LLC is help you with this or any other tax related issue; feel free to call us at 803 732-4288 if we may be of assistance to you.

The American Rescue Plan has retroactive tax benefits

May 25, 2021

The IRS reminds taxpayers who still haven’t filed, that several provisions of the American Rescue Plan affect their 2020 tax returns.  

One provision excludes up to $10,200 in unemployment compensation from income. Another provision benefits many people who purchased subsidized health coverage through either federal or state Health Insurance Marketplaces. The law also includes a third round of Economic Impact Payments, currently going out to eligible Americans, that are generally equal to $1,400 per person for most people. The IRS will automatically provide these benefits to eligible filers.

Most taxpayers who have already filed their 2020 returns should not file amended returns, file refund claims, or contact the IRS about obtaining these newly enacted tax benefits.  These actions will not speed up a future refund. In fact, they could even slow down an existing refund claim.

Some unemployment compensation not taxed for many
For tax year 2020 only, the first $10,200 of unemployment compensation is not taxable for most households. This tax benefit is available only to those whose modified adjusted gross income is below $150,000 during 2020. The same income cap applies to all filing statuses.

This means that those eligible who haven’t yet filed a 2020 return can exclude the first $10,200 of total unemployment compensation received from their income and pay tax only on the difference. For couples, the $10,200 exclusion applies to each spouse. Taxpayers can visit IRS.gov for details.

For any eligible taxpayer who has already filed a tax return and reported their total unemployment compensation as income, the IRS is automatically adjusting their return and providing them this tax benefit. Refunds, based on this adjustment, are being issued in May and will continue through the summer. Refund amounts will vary and not all adjustments will result in a refund.

Repayment of excess advance premium tax credit suspended
Taxpayers who purchased health insurance through a federal or state Health Insurance Marketplace for insurance in 2020 don’t need to repay their 2020 excess advance payments of the premium tax credit and will need to attach Form 8962, Premium Tax Credit, when they file their 2020 return only to claim an additional credit. They may use Form 8962 to figure the amount of the premium tax credit  they qualify for based on their 2020 tax information and reconcile it with any advance premium tax credit that was paid for them through the Marketplace. If the PTC based on their 2020 tax information is more than the APTC, they can claim a net premium tax credit on Form 8962 and must file Form 8962 when they file their 2020 tax return.

However, if the APTC was more than their allowable PTC based on their 2020 tax information, known as the excess APTC, the new law suspends the requirement to repay excess APTC for 2020. This means that taxpayers with excess APTC for 2020 do not need to report the excess APTC or file Form 8962.

Taxpayers who have already filed should not file an amended tax return. The IRS will automatically reduce the repayment amount to zero for anyone who already reported excess APTC for 2020. In addition, the agency will automatically reimburse anyone who has already repaid their 2020 excess APTC when they filed.

You may contact Tax On Wheels, LLC at 803 732-4288 if we can assist you with this or any other tax matter.