Cnjtax

Educational Tax Credit
Tax benefits exist in the form of credits and deductions for those paying for higher education. We encourage students and their families to take advantage of such benefits offered in an effort to reduce the cost burden of college. Please read below and explore the links provided for more information.

Please note: Not all students or expenses are eligible for education tax benefits

CREDITS
An education credit helps with the cost of higher education by reducing the amount of tax owed on a tax return. If the credit reduces the taxes owed to less than zero, students and families may get a tax refund. There are two education credits available: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit.

WHO CAN CLAIM AN EDUCATION CREDIT?
There are additional rules for each credit, but those seeking to claim them must meet all three of the following requirements for either credit:

Individual, their dependent or a third-party pays qualified education expenses for higher education.
An eligible student must be enrolled at an eligible educational institution.
The eligible student is the individual, their spouse or a dependent they list on their tax return.
If a student is eligible to claim the Lifetime Learning Credit and also eligible to claim the American Opportunity Tax Credit, individuals and families can choose to claim either credit, but not both.

The AOTC may not be claimed if a student was a nonresident alien for any part of the tax year unless they elect to be treated as a resident alien for federal tax purposes. For more information about AOTC and foreign students, visit American Opportunity Tax Credit - Information for Foreign Students.

DEDUCTIONS
Deductions reduce the amount of income that is subject to tax, thus generally reducing the amount of tax that must be paid. There are several education deductions available including those related to tuition and fees as well as student loan interest paid. For more information, visit the IRS Tax Benefits for Education Information Center.

1098-T FORM
A 1098-T is provided to undergraduate students by the beginning of February provided the student was enrolled at any time in the previous calendar year. Students not part of an undergraduate program, such as Continuing Education or Adult Education, do not receive a 1098-T.

https://www.irs.gov/newsroom/tax-season-rapidly-approaching-get-ready-now-to-file-2023-federal-income-tax-returns-in-early-2024

Tax season rapidly approaching: Get ready now to file 2023 federal income tax returns in early 2024 | Internal Revenue Service IR-2023-210, Nov. 13, 2023 — With the nation’s tax season rapidly approaching, the Internal Revenue Service reminds taxpayers there are important steps they can take now to help “get ready” to file their 2023 federal tax return.

https://www.heartlandalliance.org/chicago-resiliency-fund_
This program is open to College students as well!

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https://youtu.be/TpSZk-o8FyU

2023 IRS TAX REFUND UPDATE - New Refunds Approved, Tax Return Status, Path Act, Refund Holds, IRS On today’s IRS Tax refund update as we enter into week 3 of the current tax season, we will check in on the latest developments including the next batch of t...

When to expect EITC or Child Tax Credit refund in February? - Line Financial Blog During the 2023 tax season, if you claimed the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC), here's when you can expect to get your refund.

Scan for more tax related information and link to 1040.com

Important info for people considering making early withdraws from retirement funds

No matter how much people plan, unexpected events occur. Often, those events result in unplanned expenses. To cover these costs sometimes people, withdraw funds from their retirement savings early. While this may seem like an easy way to get cash quick, early withdrawals can come with heavy penalties and costly tax consequences. Here’s some important info for people to consider before they dip into their hard-earned retirement savings.

Workplace retirement plans: 401(k), 403(b) and 457(b)
These plans can distribute benefits only when certain events occur. The plan’s summary description should clearly state when a distribution can occur. It will also state if the plan allows hardship distributions, early withdrawals or loans.

Hardship distributions are withdrawals from a participant’s account made because of an immediate and heavy financial need and it’s limited to the amount necessary to satisfy that financial need. The need of the employee includes the need of the employee’s spouse or dependent.
Hardship distributions are includible in gross income unless they consist of designated Roth contributions.
Distributions before the participant turns 65, or the plan’s normal retirement age, if earlier, may result in an additional income tax of 10% of the amount withdrawn.
Repaying hardship distributions back to the plan or rolling it over to another plan or IRA isn’t permitted.
Borrowers repay loans from these plans back to the retirement account. Borrowers should review the limits on loan amounts and other requirements. Taxes on this money don’t occur if the loan meets the rules and repayment happens on schedule.

Required minimum distributions
Taxpayers must make required minimum distributions each year beginning with the year the taxpayer turns 72, 70 ½ if the taxpayer turned 70 ½ in 2019. People calculate the RMD by dividing the IRA account balance as of December 31 of the prior year by the applicable distribution period or life expectancy. RMDs are waived for 2020 due to COVID-19 relief provisions. Required minimum distributions are not required for Roth IRA.

IRAs and IRA-based plans
Individuals can take distributions from their IRA, SEP-IRA or SIMPLE-IRA at any time. Taxpayers do not need to show a hardship to take a distribution – they can just contact the financial institution managing the account.

Early distributions occur when individuals withdraw money from an Individual Retirement Account or retirement plan before age 59½.These retirement plan distributions are subject to income tax. Individuals must also pay an additional 10% early withdrawal tax unless an exception to the early distribution tax applies. Regardless of age, the account holder must file a Form 1040 Individual Income Tax Return showing the amount of the withdrawal and complete and attach a Form 5329, Additional Taxes on Qualified Plans, Including IRAs, and Other Tax-Favored Accounts, to the tax return. These are requirements for early withdrawals and regular distributions.

Coronavirus-related distributions and loans
The CARES Act made it easier to access savings in IRAs and workplace retirement plans for those affected by the coronavirus. Certain distributions made from Jan. 1, 2020, through Dec. 30, 2020, from IRAs or workplace retirement plans to qualified individuals may be treated as coronavirus-related distributions.

These distributions aren’t subject to the 10% additional tax on early distributions, including the 25% additional tax on certain SIMPLE IRA distributions.
Repayment to an IRA or workplace retirement plan can occur within three years.
Taxpayers can include Coronavirus-related distributions in income over 3 years, one-third each year, or if elected, in the year of the distribution.

Divorce-related distributions
Early distributions taken from a traditional IRA to satisfy a divorce requirements or court order are subject to regular income tax requirements and the 10% additional tax unless there is a qualifying exception

https://www.irs.gov/publications/p530

Publication 530 (2021), Tax Information for Homeowners | Internal Revenue Service Publication 530 - Introductory Material Reminders Introduction Comments and suggestions. Getting answers to your tax questions. Getting tax forms, instructions, and publications. Ordering tax forms, instructions, and publications. Useful Items - You may want to see: Publication 530 - Main Contents W...

https://www.irs.gov/newsroom/taxpayers-should-be-sure-to-have-all-their-info-before-going-to-a-tax-pro

Taxpayers should be sure to have all their info before going to a tax pro | Internal Revenue Service COVID Tax Tip 2022-125, August 16, 2022 — Taxpayers using a professional tax preparer should make sure they have all their information readily available before their appointment. Collecting their information and getting copies of any missing documents before taxpayers sit down to prepare their ret...

Worker Classification 101: employee or independent contractor

A business might pay an independent contractor and an employee for the same or similar work, but there are key legal differences between the two. It is critical for business owners to correctly determine whether the people providing services are employees or independent contractors.

Here’s some information to help business owners avoid problems that can result from misclassifying workers.

An employee is generally considered anyone who performs services, if the business can control what will be done and how it will be done. What matters is that the business has the right to control the details of how the worker's services are performed. Independent contractors are normally people in an independent trade, business or profession in which they offer their services to the public.

Independent contractor vs. employee
Whether a worker is an independent contractor, or an employee depends on the relationship between the worker and the business. Generally, there are three categories to consider.

Behavioral control − Does the company control or have the right to control what the worker does and how the worker does the job?
Financial control − Does the business direct or control the financial and business aspects of the worker's job. Are the business aspects of the worker's job controlled by the payer? Things like how the worker is paid, are expenses reimbursed, who provides tools/supplies, etc.
Relationship of the parties − Are there written contracts or employee type benefits such as pension plan, insurance, vacation pay? Will the relationship continue and is the work performed a key aspect of the business?
Misclassified worker
Misclassifying workers as independent contractors adversely affects employees because the employer's share of taxes is not paid, and the employee's share is not withheld. If a business misclassified an employee, the business can be held liable for employment taxes for that worker. Generally, an employer must withhold and pay income taxes, Social Security and Medicare taxes, as well as unemployment taxes. Workers who believe they have been improperly classified as independent contractors generally must receive a determination of worker status from the IRS. Then they can use Form 8919, Uncollected Social Security and Medicare Tax on Wages to figure and report their share of uncollected social security and Medicare taxes due on their compensation.

Voluntary Classification Settlement Program
The Voluntary Classification Settlement Program is an optional program that provides businesses with an opportunity to reclassify their workers as employees for future employment tax purposes. This program offers partial relief from federal employment taxes for eligible businesses who agree to prospectively treat their workers as employees. Businesses must meet certain eligibility requirements and apply by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS

Who is self-employed?
Generally, someone is self-employed if any of the following apply to them.

They carry on a trade or business as a sole proprietor or an independent contractor.
They are a member of a partnership that carries on a trade or business.
They are otherwise in business for themselves, including a part-time business.
Self-employed individuals, including those who earn money from gig economy work, are generally required to file an tax return and make estimated quarterly tax payments. They also generally must pay self-employment tax which is social security and Medicare tax as well as income tax. These taxpayers may qualify for the home office deduction if they use part of a home for business.

https://www2.illinois.gov/epa/topics/ceja/Pages/Electric-Vehicle-Rebates.aspx

Electric Vehicle Rebate Program - Climate and Equitable Jobs Act Anyone, 4 months of age and older, is eligible to receive the COVID-19 vaccine. Find your nearest vaccination location at vaccines.gov.

https://www.irs.gov/newsroom/how-to-pay-your-taxes-youtube-video-text-script

How to Pay Your Taxes - YouTube video text script | Internal Revenue Service YouTube video about How to Pay Your Taxes

Taxpayers should include financial safety in their disaster preparedness plans

After a natural disaster, personal financial, insurance, medical and other records can be vital to starting the recovery process. Here are some things taxpayers can do to help protect their financial safety in a disaster situation.

Update emergency plans.
A disaster can strike at any time. Personal and business situations are constantly evolving, so taxpayers should review their emergency plans annually.

Create electronic copies of documents.
Taxpayers should keep documents in a safe place. This includes bank statements, tax returns and insurance policies. This is especially easy now since many financial institutions provide statements and documents electronically. If original documents are available only on paper, taxpayers can use a scanner and save them on a USB flash drive, or in the cloud.

Document valuables.
Documenting valuables by taking pictures or videoing them before a disaster strikes makes it easier to claim insurance and tax benefits, if necessary. IRS.gov has a disaster loss workbook that can help taxpayers compile a room-by-room list of belongings.

Understand tax relief is available in disaster situations.
Information on Disaster Assistance and Emergency Relief for Individuals and Businesses is available at IRS.gov. Taxpayers should also review Publication 547, Casualties, Disasters, and Thefts.

Taxpayers who live in a federally declared disaster area, can visit Around the Nation on IRS.gov and click on their state to review the available disaster tax relief. Those who live in counties qualifying for disaster relief receive automatic filing and payment extensions for many currently due tax forms and don't need to contact the agency to get relief.

People with disaster-related questions can call the IRS at 866-562-5227 to speak with an IRS specialist trained to handle disaster issues. They can request copies of previously filed tax returns and attachments by filing Form 4506, order transcripts showing most line items through Get Transcript on IRS.gov or call 800-908-9946 for transcripts.

If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523, Selling Your Home provides rules and worksheets. Topic No. 409 covers general capital gain and loss information.

Qualifying for the Exclusion
In general, to qualify for the Section 121 exclusion, you must meet both the ownership test and the use test. You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale. Generally, you're not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home. Refer to Publication 523 for the complete eligibility requirements, limitations on the exclusion amount, and exceptions to the two-year rule.

Reporting the Sale
If you receive an informational income-reporting document such as Form 1099-S, Proceeds From Real Estate Transactions, you must report the sale of the home even if the gain from the sale is excludable. Additionally, you must report the sale of the home if you can't exclude all of your capital gain from income. Use Schedule D (Form 1040), Capital Gains and Losses and Form 8949, Sales and Other Dispositions of Capital Assets when required to report the home sale. Refer to Publication 523 for the rules on reporting your sale on your income tax return.

Suspension of the Five-Year Test Period
If you or your spouse are on qualified official extended duty in the Uniformed Services, the Foreign Service or the intelligence community, you may elect to suspend the five-year test period for up to 10 years. An individual is on qualified official extended duty if for more than 90 days or for an indefinite period, the individual is:

At a duty station that's at least 50 miles from his or her main home, or
Residing under government orders in government housing.
Refer to Publication 523 for more information about this special rule to suspend the 5-year test.

Installment Sales
If you sold your home under a contract that provides for all or part of the selling price to be paid in a later year, you made an installment sale. If you have an installment sale, report the sale under the installment method unless you elect out. Even if you use the installment method to defer some of the gain, the exclusion of gain under Section 121 remains available. Refer to Publication 537, Installment Sales, Form 6252, Installment Sale Income, and Topic No. 705, Installment Sales, for more information on installment sales.

School is out for the summer, but tax planning is year-round

Now that the April filing deadline has passed, most people are spending more time thinking about summer vacations than taxes. However, summer is a great time to review withholding and see if summer plans will affect next year’s tax return. Below are some common summertime tax situations and tips to help taxpayers figure out if they apply to their tax situation.

Getting married
Newlyweds should report any name change to the Social Security Administration. They should also report an address change to the United States Postal Service, their employers and the IRS. To report a change of address for federal tax purposes, taxpayers must complete Form 8822, Change of Address and submit it to the IRS. This will help make sure they receive the documents they will need to file their taxes.

Sending kids to summer day camp
Unlike overnight camps, the cost of summer day camp may count towards the child and dependent care credit.

Working part-time
While summertime and part-time workers may not earn enough to owe federal income tax, they should remember to file a return. They'll need to file early next year to get a refund for taxes withheld from their checks this year.

Gig economy work
Taxpayers may earn summer income by providing on-demand work, services or goods, often through a digital platform like an app or website. Examples include ride sharing, delivery services and other activities. Those who do are encouraged to visit the Gig Economy Tax Center at IRS.gov to learn more about how participating in the gig economy can affect their taxes.

Normally, employees receive a Form W-2, Wage and Tax Statement, from their employer to account for the summer's work. They'll use this to prepare their tax return. They should receive the W-2 by January 31 next year. Employees will get a W-2 even if they no longer work for the summertime employer.

Summertime workers can avoid higher tax bills and lost benefits if they know their correct status. Employers will determine whether the people who work for them are employees or independent contractors. Independent contractors aren't subject to withholding, making them responsible for paying their own income taxes plus Social Security and Medicare taxes.

Remember to file their tax return if they got an extension
People who requested an extension to October 17 or missed the April deadline should be sure to file their return. Many taxpayers can prepare and e-file tax returns for free with IRS Free File. MilTax online software is also available for the members of military and certain veterans, regardless of income. This software is offered through the Department of Defense. Eligible taxpayers can use MilTax to prepare and electronically file their federal tax returns and up to three state returns, for free.

Adjust withholding now to avoid tax surprises next year
Taxpayers can avoid a tax surprise next filing season by reviewing their withholding now. Life events like marriage, divorce, having a child, or a change in income can all affect taxes. The IRS Tax Withholding Estimator on IRS.gov helps employees assess their income tax, credits, adjustments and deductions and determine whether they need to change their withholding by submitting a new Form W-4, Employee's Withholding Allowance Certificate. Taxpayers should remember that, if needed, they should submit their new W-4 to their employer, not the IRS.

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm

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The first PATH Act Funding starts in a few days. Are you ready?

PATH Act Funding Starts
February 22
We are ready to process billions of dollars through our systems, with the vast majority being on Tuesday, February 22.

The PATH Act mandates that the IRS cannot issue tax refunds on returns with Earned Income Tax Credit or Additional Child Tax Credit until mid-February. These refunds are historically released over a few days. The first such day is this Tuesday, February 22nd, and billions of dollars of these refunds will be processing in this short period of time. We expect a second PATH payment within the following week.

It's now easier to contact Cnjtax.

Repairs and Improvements on rental properties..

https://www.nolo.com/legal-encyclopedia/repairs-vs-improvements-how-tax-deductions-differ-landlords.html

https://www.usatoday.com/story/news/2022/02/09/irs-backlog-tax-refund-delays-tax-pros-want-relief/6729677001/

IRS is 'buried' in paper backlog, creating tax season anxiety so high that even tax pros want relief Tax professionals prepare for high stress levels after many individuals and small business owners faced lengthy refund delays in the past two years.

If you claim or ACTC, the law requires to hold the tax refund for a period to review. Barring other issues, the first of these refunds should be available by the first week of March. See http://irs.gov/refundtiming

When to Expect Your Refund if You Claimed the Earned Income Tax Credit or Additional Child Tax Credit | Internal Revenue Service Find out when to expect your refund if you claim the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC).

https://www.ssa.gov/benefits/retirement/planner/taxes.html

Benefits Planner | Income Taxes And Your Social Security Benefit | SSA This Social Security planner page explains when you may have to pay income taxes on your Social Security benefits.

Chicago Women In Trades Launches Free Pre-Apprenticeship Program To Get More Women In The Industry There's still time to register for a virtual information and application session at 10:30 a.m. Thursday. Classes for the the free program begin Feb. 14.

Contributions to IRAs made later in life benefit less from the tax-sheltered compounding simply because of a domino effect: with a shorter time horizon, the investment gains are less, and so are the taxes due upon them. That's not to say that older adults, even those past age 65, shouldn't run any additional savings through an IRA, though--just that the benefits may be limited if your plan is to put the money in at 65 and take it out at 70.

To use a simple example, let's say a 65-year-old woman who's retired from her full-time occupation decides to pick up some part-time work and is able to save $6,000 a year in a Roth IRA for five years. Assuming she earns a 4% annualized return on her money, she'd have $32,500 five years later. Her $2,500 in investment gains (the amount over and above her $30,000 in contributions) would be tax-free, and she wouldn't have to pay any income or capital gains taxes during that five-year holding period, either.

By contrast, if she steered the same amount into a taxable account, she'd have to pay taxes on any income and capital gains that her holdings kick off during her holding period, and she'd also owe capital gains taxes when she withdraws the money. She'd receive a step-up in her cost basis to account for the income and capital gains distributions she already paid taxes on, but the fact that she’s having to pay those taxes each year means that she has less money working for her during her holding period. Assuming a modest tax-cost ratio of 0.25% (taking her return down to 3.75% from 4%) and a 15% capital gains rate at the time of withdrawal, her take-home return would be about a bit less than $32,000, $500 less than the Roth.

That's a pretty small differential, for sure--an inevitable outgrowth of the fact that IRA contributions are limited to $7,000 for 2019 ($6,500 for 2018) as well as her short holding period and modest return. But the advantage of funneling her contributions through the IRA grow if she's able to keep the money in the account longer, as she can do with a Roth IRA, provided she doesn't need the money. (Roths, in contrast with traditional IRAs, don't carry required minimum distributions.) If she leaves the money in the account until age 80 and continued to earn 4% on her dough, she'd be able to take a $48,106 tax-free withdrawal from the Roth--even though she only put in $30,000 in those first five years. Meanwhile, her taxable account would amount to $44,086 on an after-tax basis. Again, that's not a huge differential, but $4,000 is $4,000. If her ultimate plan is to not spend the money and instead leave the money undisturbed even longer--or pass it to her heirs--the advantage of the Roth IRA would grow even more.

No RMDs--and the ability to stretch out the holding period--is the key reason that people who can make IRA contributions in the post-retirement, pre-RMD period should prioritize Roth rather than traditional contributions. A person approaching 70 1/2 wouldn't get a lot of bang from traditional IRA contributions because required minimum distributions from the IRA account would soon commence. (Of course, there may be extenuating circumstances that would call for prioritizing a traditional IRA contribution over Roth later in life; check with your financial or tax advisor to be sure.)

Repayment of excess advance credit payments
The FAQs also discuss the circumstances under which some taxpayers may have to repay excess advance child tax credit payments, such as in a shared-custody arrangement, when a taxpayer with a qualifying child on the taxpayer's 2020 return is not claiming a child on the taxpayer's 2021 return but received the advance credit payments (FAQ L2).

More commonly, a taxpayer may have received advance credit payments based on income from a 2020 return that was lower than the taxpayer received in 2021 and thus may have a lower-than-expected child tax credit for 2021 or be required to repay it (FAQ F4).

In other cases, a taxpayer may have been eligible for advance credit payments or higher payments but did not receive them, as when a child is claimed on the 2021 return but not on the taxpayer's 2020 return and not reported to the IRS during 2021, such as via the IRS's Child Tax Credit Update Portal (FAQ F3).

Other FAQs address situations in which a taxpayer may not be required to repay the full or a partial amount of excess advance credit payments (FAQs H3 through H7).

https://cnj.tax/

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https://www.drakesoftware.com/content/taxpayer-advocate-highlights-2021-delays-for-processing-and-refunds/?kme=TS&km_subcategory=TSDRAKE

Taxpayer Advocate Highlights 2021 Delays for Processing and Refunds “The most challenging year taxpayers and tax professionals have ever experienced." With that short sentence, National Taxpayer Advocate Erin Collins sums up her assessment of the calendar year 2021 and its effect on the Internal Revenue Service.

An overview of the credit for other dependents

Taxpayers with dependents who don't qualify for the child tax credit may be able to claim the credit for other dependents. This is a non-refundable credit. It can reduce or, in some cases, eliminate a tax bill but, the IRS cannot refund the taxpayer any portion of the credit that may be left over.

Here’s more information to help taxpayers determine if they’re eligible to claim it on their 2021 tax return.

The maximum credit amount is $500 for each dependent who meets certain conditions. These include:

Dependents who are age 17 or older.
Dependents who have individual taxpayer identification numbers.
Dependent parents or other qualifying relatives supported by the taxpayer.
Dependents living with the taxpayer who aren't related to the taxpayer.
The credit begins to phase out when the taxpayer's income is more than $200,000. This phaseout begins for married couples filing a joint tax return at $400,000.

A taxpayer can claim this credit if:

They claim the person as a dependent on the taxpayer's return.
They cannot use the dependent to claim the child tax credit or additional child tax credit.
The dependent is a U.S. citizen, national or resident alien.
Taxpayers can claim the credit for other dependents in addition to the child and dependent care credit and the earned income credit. They can use the IRS Interactive Tax Assistant, Does My Child/Dependent Qualify for the Child Tax Credit or the Credit for Other Dependents?, to help determine if they are eligible to claim the credit.