IRS NOTICES
(MAY BE IN ERROR)
Sometimes, letters and balance-due notices are sent erroneously from IRS and state taxation agencies to clients. Probably the most widespread recent example is that, beginning in February, 260,000 taxpayers have received notices that they had not filed 2019 tax returns when they had. We have also seen instances of balance due notices arriving even though taxpayers have already mailed checks, or we have amended the return.
These issues are largely due to delays in processing of tax returns, and a continued backlog in mail processing at IRS, particularly for prior-year issues. If you receive a letter from IRS that you believe to be inaccurate or that doesn't seem to make sense, it could very will be in error--but we will help you be certain.
If we have a signed Power of Attorney Form 2848 from you, we get copies of any notices you receive; we will investigate the issue and let you know if any action needs to be taken. If we do not have a POA from you, or if you receive a notice from a state taxing authority that you would like help with, please forward it securely to the office.
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If you are considering putting a rental on the market for the first time, whether it's a second home, an AirBnB in your basement, or any other property, be aware that any rent you receive needs to be reported as income, including cancellation fees, goods or services in lieu of rent, and certain expenses if the tenant pays them for you. Some other considerations that new and experienced landlords should keep in mind:
- A security deposit is not considered income as long as you plan to return it. As soon as you know you will be keeping it, it becomes taxable income in that year.
- Keep track of expenses that we can deduct for the property, like mortgage interest, property taxes, maintenance and repairs, and advertising--I can provide a complete list for you.
- If you rent out your home, or a room, for 14 days or less per year, IRS does not need you to treat it as a rental, and in fact that income is not taxable. If you hit 15 days of renting, though, we do need to report the rental. For any vacation/short-term renting situations, please keep track of how many days you and your family use the property, and how many days it is rented out.
- For short term rentals like vacation homes and AirBnBs, also keep in mind that your locality (city or county) will likely have an entirely separate reporting system, treating your rental like a hotel, meaning the income is subject to additional taxes.
- If you are providing substantial services to short-term renters, as in a bed & breakfast, we may need to treat it as an active Schedule C business and not just a passive rental--different taxes apply.
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I have been hearing from several clients that have not received their 2020 tax refunds, even though we filed returns weeks or months ago. IRS confirms that it currently has a backlog of over 35 million 2020 tax returns, in addition to many pending prior year issues (see left). The delays are due to additional responsibilities the agency has had in handing out stimulus checks, its own COVID-related staffing issues, and the late legislation for 2020 returns which meant many returns required extra review.
We electronically file returns whenever possible, as this at least avoids mail-related delays and gives us immediate verification that your returns are accepted. Paying your balances online rather than mailing a check can offer similar advantages. On the IRS payment portal, you can pay current and prior year taxes due as well as estimates for next year. Most state tax department websites also offer an option to pay online. Read these sites carefully, especially if you are paying via debit or credit card rather than direct withdrawal: bank fees may apply.
Although I would like to, I cannot do anything to speed up the processing of your return or get any special information on your status. IRS is not even answering their tax practitioner hotline some days. Anyone can check the status of their own refunds using the IRS Where's My Refund website. However, you might only receive a vague response from this automated service; this does not necessarily mean there is any issue with your return. Unfortunately, in most cases we will just have to wait. |
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