Tax Balance Payment Options

Believe it or not, the IRS is still opening mail and processing tax returns that stacked up during the COVID-19 pandemic. Another IRS task that backed up over the last year is sending notices to taxpayers who have outstanding tax balances. If an IRS notice arrives in your mailbox, don’t panic. Open it right away, read it carefully, and verify the contents with your tax records. 

Even if the notice is due to an IRS mistake, you need to respond to get your tax records corrected. But what if the notice is accurate and you do owe taxes to the IRS? How can you pay?

The IRS offers several payment options, depending on your situation:

  1. Pay Now – Paying the full balance online is free if you can have the balance due debited from the bank account of your choice. Paying by credit card is an option but the fees are high, so make sure that you read the fine print first before making your decision. https://www.irs.gov/payments/online-payment-agreement-application
  1. Short Term Payment Plan – If you can pay the amount due in 120 days or less and the total amount due is less than $100,000, this could be the best option for you. No set-up fee is charged, and you can pay via direct debit from the bank account of your choice. https://www.irs.gov/payments/online-payment-agreement-application 
  1. Installment Agreement – If you need more than 120 days to pay, this option requires a set-up fee of between $31 and $225. Installment Agreements may require some financial information from you, depending on the amount due. https://www.irs.gov/payments/payment-plans-installment-agreements#costs
  1. Offer in Compromise – The IRS wants to collect all taxes due but does not want to create a financial burden on taxpayers. An Offer in Compromise allows you to settle your tax debt for less than the full amount owed if paying your full tax liability would create a financial hardship. See if you qualify at https://www.irs.gov/payments/offer-in-compromise.
Other considerations to keep in mind are:
  • Payment plan applications are generally easier to get approved for lower tax liabilities due than for large balances. 
  • The application process differs based on the tax liability outstanding. For example, applications for $10,000 or less are automatically approved as a guaranteed Installment Agreement. Amounts over $50,000 require a more thorough review to determine if assets can be liquidated to pay the taxes due.

The IRS has been catching up with its pandemic backlog, including sending out notices to taxpayers who have outstanding tax balances. If an IRS notice arrives in your mailbox, check it against your records. Really owe what it says? Remember that the IRS offers several payment options, depending on your situation.

Tax Assistance Without the Wait

If you’ve ever called the IRS with a tax question, you know how challenging it can be. A recent report from the Taxpayer Advocate, an independent entity within the IRS, indicates that those challenges are not going to get better any time soon. Tax return processing delays and taxpayer call answer rates have gone from pretty darned bad in the pre-pandemic years to absolutely abominable now. 

For example, at the end of the 2021 tax filing season, the IRS had a backlog of about 35 million tax returns. Pre-pandemic, at the close of the 2019 tax filing season, the IRS had a backlog of 7.4 million returns awaiting manual review. And trying to call the IRS is ridiculous! During the 2021 filing season, only nine percent of the 167 million calls received by the IRS were answered, but only after waiting on hold for an average of 20 minutes.

To help taxpayers get information without the wait, the IRS has updated its website and added features for taxpayers to get answers to general tax questions and to access taxpayer information. These three updates make it quicker and easier to get answers to your tax questions:

  1. The home page of the IRS website, www.irs.gov, has links to most of the information that taxpayers are looking for, from checking the status of your refund to learning about the latest Stimulus Payment. You can easily file your federal taxes for free, access forms and instructions, and find answers to your tax questions.
  1. The entire IRS website is available in multiple languages – Spanish, simplified and traditional Mandarin Chinese, Korean, Vietnamese, Russian, and Haitian Creole. Just navigate to www.irs.gov and use the drop-down at the top of the screen to adjust to your desired language.
  1. The IRS Online Account is an online portal that allows individual taxpayers to access their tax account information, including tax balances and payment history; set up payment plans for outstanding balances; and get copies of their tax transcripts. Access the portal and initiate your account at IRS.gov/View Your Account Information.

The IRS is working hard to make it easier for taxpayers to get answers to general tax questions, as well as for specific information about their tax balances and payments. Getting information online is common these days, so it makes sense for the IRS to take advantage of the opportunity to shift some of what would be telephone inquiries to the web. 

So, the next time you have a tax question, you don’t have to wait on hold. Just go to www.irs.gov and get your questions answered more quickly than your call would be answered by an IRS representative.

IRS “Dirty Dozen” Top Tax Scams for 2021

In late June, the IRS announced its Dirty Dozen Top Tax Scams for 2021. Unfortunately, the top scams don’t change much from year to year. That’s why the IRS works hard annually to communicate the different illegal schemes perpetrated by scammers against millions of people. 

This year, the IRS began its “Dirty Dozen” list for 2021 with a warning to tax professionals, taxpayers, and financial institutions to be on the lookout for scams that fall into four categories:

  1. Pandemic-related scams
  • EIP or Refund Theft: Refund fraud and theft remain an ongoing threat. Criminals this year also turned their attention to stealing Economic Impact Payments (EIP) provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. 
  • Unemployment Fraud: Taxpayers who lost their jobs because of the pandemic were eligible to receive unemployment benefits. Unclaimed unemployment benefits claimed by scammers using stolen personal information is reported as taxable income to the taxpayer, not the scammer.
  1. Personal information cons
  • Phishing: Don’t click on links claiming to be from the IRS because it could be a fake email looking to steal personal information. Be wary of any emails with embedded links − they may be nothing more than scams to steal confidential financial information.
  • Ransomware: Ransomware is malware that infects a victim’s computer, network or server and looks for and locks critical or sensitive data with its own encryption. In some cases, entire computer networks can be adversely impacted until the ransom is paid.
  1. Ruses focusing on unsuspecting victims 
  • Senior Fraud: Seniors are more likely to be targeted by scammers than other people. They are also becoming more comfortable with evolving technologies, such as social media. Unfortunately, that gives scammers another means of taking advantage.
  • Threatening Impersonator Phone Calls: A common scam is a bogus threatening phone call from a criminal claiming to be with the IRS. The scammer attempts to instill fear and urgency in the potential victim.
  1. Schemes that persuade taxpayers into unscrupulous actions 
  • Unscrupulous Return Preparers: Most tax professionals provide honest, high-quality service, but dishonest preparers pop up every filing season. They commit fraud, harming innocent taxpayers, or talk taxpayers into doing illegal things, like inflating deductions.
  • Offer in Compromise Mills: Misleading tax debt resolution companies can exaggerate the chance to settle tax debts for “pennies on the dollar” through an Offer in Compromise (OIC) for a hefty fee. Turns out, an OIC is only available to a small number of qualified taxpayers.

Don’t get caught by one of the IRS “Dirty Dozen” top tax scams. Read about how to protect yourself here –  https://www.irs.gov/newsroom/irs-wraps-up-its-2021-dirty-dozen-scams-list-with-warning-about-promoted-abusive-arrangements.

Understanding Nonprofit Financials

Nonprofit Board responsibilities encompass many areas, including financial oversight to fulfill the stewardship role known as “Fiduciary Responsibility.” Understanding fiduciary responsibility is critically important because nonprofits collect and spend other people’s donated money. Failing to act with due care in the best interest of the nonprofit has serious consequences, such as loss of public trust. Lost trust equals lost donations.

One fiduciary activity is monitoring the nonprofit’s financial performance to ensure that funding requirements are met to support the mission. Board members, usually those serving on the Finance Committee, must receive complete periodic financial statements to oversee financial performance in relation to the budget, financial ratios, etc. 

Even if the Finance Committee is made up of experienced financial professionals, they may not have experience with reading nonprofit financials, which are presented differently than “regular” financials. Getting all committee members up to speed on reading nonprofit financials is no small task. Many nonprofits need help. 

Well, I have some good news for Nonprofit Boards to fulfill their fiduciary responsibility – two options for help with Understanding Nonprofit Financials:

  1. The Arlington Chamber of Commerce is hosting a virtual event, Nonprofit Forum: Understanding Your Nonprofit Organization’s Financial Health on Tuesday, July 20, from 11:00 a.m. to12:30 p.m. This educational event includes a dive deep into the details of financial statements, such as statements of financial position and cash flows to help nonprofit Boards understand and place value in these financial reports. Follow this link for details and registration – https://web.arlingtonchamber.org/events/Nonprofit-Forum-Understanding-Your-Nonprofit-Organizations-Financial-Health-3623/details
  1. BoardSource is an organization that provides resources for nonprofit governance and management, including financial oversight. Some resources are free, and others require paid membership. Check out their resources for Nonprofit Boards at https://boardsource.org/board-support/, including a free white paper describing how Boards can identify “yellow” and “red” flags in their financial statements. https://boardsource.org/financial-statement-flags/ 

Nonprofit Board responsibilities include financial oversight and fulfilling fiduciary responsibility. Understanding nonprofit financials, which are presented differently than “normal” financials, is critically important to making appropriate financial decisions and ensuring donated funds are used in support of the mission. Even experienced financial professionals serving on nonprofit Boards need help. Good news for them that BoardSource and the Arlington Chamber of Commerce have resources to help them understand their nonprofit financials.

Advanced Child Tax Credit Starts July 15th

The Advance Child Tax Credit, part of the $1.9 trillion American Rescue Plan, starts on July 15th .
Eligible families will receive monthly payments of up to $300 per qualifying child from July
through the end of 2021 to help them bridge the financial gap caused by the COVID-19
pandemic. Advance Child Tax Credit payments are based on tax credits that would ordinarily be
received next year when income tax returns are filed for 2021.

Taxpayers who filed a tax return for 2019 or 2020 should receive their first Advance Child Tax
Credit payment on or around July 15th . Taxpayers who provided bank information with their filed
federal income tax return should see the payment direct deposited into their bank account. If the
IRS does not have bank information on file, the taxpayer will receive the payment in a check mailed to the address it has on file.

What about people whose income for 2019 and 2020 wasn’t high enough to have to file an income tax return? The IRS established an online Non-filer Sign-up tool to help them register for the monthly Advance Child Tax Credit payments by providing required information about
themselves, their qualifying children aged 18 and under, and their bank information so the IRS
can deposit the payments into their checking or savings account.
Eligible families need to know these facts about the Advance Child Tax Credit:

  1. The Child Tax Credit increase and Advance Payments are in effect for 2021 only, unless
    extended by new law.
  2. The Child Tax Credit is increased from $2,000 to $3,000 per eligible child, for children
    who are age 6 and older, and to $3,600 per eligible child for children under the age of 6.
  3. The age for qualifying children is increased from children under age 17 to children under
    age 18, thereby increasing the number of eligible children.
  4. The Child Tax Credit is fully refundable, meaning that eligible taxpayers could receive a
    tax refund that exceeds her or his tax federal withholding.
  5. Income limitations for the Child Tax Credit remain at $200,000 for single taxpayers and
    $400,000 for married filing joint. The Additional Child Tax Credit is phased out by $50
    for every $1,000 of modified adjusted gross income above the threshold.
  6. Any eligible Child Tax Credit not paid in advance from July to December 2021 will be
    received after the taxpayer files her or his 2021 federal income tax return.
    The Advance Child Tax Credit gives eligible families up to $300 a month per qualifying
    child through the end of 2021 to help them bridge the financial gap caused by COVID-19.
    Want to know more? The IRS recently posted FAQs at https://www.irs.gov/credits-
    deductions/2021-child-tax-credit-and-advance-child-tax-credit-payments-topic-d-calculation-
    of-advance-child-tax-credit-payments.

Mid-Year Business Finance Check-up

Can you believe that we’re coming up on the mid-point of 2021? Time sure flies when you’re running your own business! It’s a real challenge to take a pause to do a “check-up” on your business to make sure it’s financially healthy. Mid-year is the perfect time for a business finance check-up to see if that financial health is tip-top! 

Think about it…your physical health and your business’s financial health are remarkably similar. A sudden loss of income or an unexpected expense can stop your business cold, just like a medical crisis can stop your body from functioning. A check-up can detect serious problems that you cannot see or feel, many of which are preventable if you take a pause for a finance check-up. 

At minimum, a mid-year business finance check-up should cover these three areas:

  1. Compare Actual Results to Plans

Financial performance should be compared to your planned budget to determine how actual events compare to what you thought would happen. Focus on variances in income and expense categories that most significantly impact achieving your business goals. If the budget or plan was not met, figure out why. Did conditions change?  Were assumptions realistic? Focus on “why” to refine future budgets and plans.

  1. Cash Flow

Project your business cash inflows and outflows for at least three months, working up to six months or more when you get more comfortable with the process. Determine whether expected income will cover expected (and some unexpected) expenses using information on-hand about payments receivable and payable, scheduled payments, like payroll and rent, and bank account balances. Be realistic about payment timing and amounts.

  1. Expense Control

Spending control is the most important and most difficult part of running a business. Demands to fund day-to-day operations, in addition to investing in technology and infrastructure, are constant. Prioritize essential expenses and ensure that other planned expenses are within established parameters. Carefully assess the need for any unplanned expenses to ensure that they contribute to meeting your business objectives.

Your physical health and your business’s financial health are remarkably similar. Both need a periodic check-up to detect an unforeseen problem that can stop your body or your business cold. Taking a pause for a business financial check-up is challenging, but necessary. Now, at the mid-point of 2021, is the perfect time for a business finance check-up to make sure that its financial health is in tip-top shape!

Are Social Security Benefits Taxable?

Most workers have heard about Social Security their entire lives and laughed, “Ha! I’ll never see those benefits!” Then, suddenly, those workers are approaching retirement age and thinking about when that “free money” is going to start. But is it free money? Sure, it’s free, in the sense that you don’t need to work to get it. However, a portion of those Social Security benefits could cost you because they are taxable.

If Social Security is going to be your only income in 2021, your benefits will probably not be taxable. If you receive income other than Social Security, such as wages, interest, dividends, capital gains, or net business income, you must do a few calculations to determine whether any of your Social Security benefits are subject to federal tax.

Here’s a quick way to find out if a portion of your Social Security benefits are taxable:

  1. Determine the total Social Security benefits that you will receive in 2021.
  1. Multiply the total benefits by 50%.
  1. Add the 50% of your Social Security benefits received during 2021to all your other income received in 2021, including tax-exempt interest. 
  1. If you’re married and file a joint return, you and your spouse must combine your incomes and Social Security benefits when figuring the taxable portion of your benefits, even if your spouse didn’t receive any Social Security benefits.
  1. Compare the total from #3 to the Base Amount for your tax filing status:
  • $25,000 – For single, head of household, qualifying widow or widower with a dependent child or married filing separately and lived apart from their spouse for all of 2021
  • $32,000 – For married filing jointly
  • $0 – For couples married filing separately and lived with your spouse at any time during 2021
  1. If the total from #3 is higher than the Base Amount, a portion of the Social Security benefits above the Base Amount is taxable, up to 85% of the benefits. The higher your income, the higher the percentage of Social Security benefits subject to federal tax.

If you are approaching retirement age and thinking about your “free money” from Social Security, you need to check on whether it really is free. A portion of those Social Security benefits could be subject to federal tax, depending on your other income and your Base Amount.

Have questions? The IRS has answers for you at https://www.irs.gov/faqs/social-security-income.

Clarify Expectations with Written Agreements

Most businesses and nonprofits simply can’t afford to employ all the professional expertise they need to help them navigate issues around complex topics, like finance and human resources. Mistakes related to HR, finance or legal can be expensive. To avoid expensive mistakes, organizations get their professional services from a third party, or outsourced, provider.

Outsourcing for professional expertise can help tackle issues, or it can backfire and become an issue itself. This can happen when expectations for the services to be provided are not clearly understood by the organization and the professional. Assumptions about what words or terms mean and omitting specifics or requirements are the ingredients for a disaster recipe. The best way to prevent this sort of disaster from happening to your business or nonprofit is with a clear, written service agreement that both the organization and the outsourced provider can understand and follow.

A written service agreement clarifies expectations in four important areas:

  • Objective and Scope

Specify the results or accomplishments that the provider should achieve on the organization’s behalf and what the organization expects to get when the work is completed. For example, an agreement for an IT professional to install and maintain a new system would describe, among other things, the end state after the system is installed, tested, and released for implementation, as well as any ongoing maintenance.

  • Time Frame 

Specify delivery dates and how often your organization needs the services provided. Clarify any unusual needs you have, such as nights or weekends, to avoid misunderstandings that will prevent the organization from meeting its customers’ expectations. How would it look if a business or nonprofit couldn’t get timely financial statements to manage the organization’s performance? Highlight timing and frequency to make sure the needs are clear.

  • Quality

Describe the industry requirements, conditions, or format that are essential for the services to achieve the organization’s objective. Does the training class need to be two-hours long, taught by a credentialed instructor, and meet specific learning objectives? Are processes required to comply with any laws or regulations? Don’t presume that the provider will know all the organization’s specific needs. Put them in writing.

  • Cost and Payment

Last, but certainly not least, be clear about the total cost and when payment is expected. Specify what is included in the total cost and how that cost is calculated. For example, does the consultant cost an hourly rate plus expenses, or will she absorb those expenses? Are progress payments required based on meeting specific milestones? Accountability is easier to manage when performance expectations are stipulated are clearly documented in a service agreement.

All organizations need help with professional services that they cannot afford to hire full time. A clear service agreement can help prevent wasting time, effort, and money because the provider or the organization did not understand the scope, timing or requirements involved. A written service agreement is the single best way for organizations to clarify expectations and get the help that they need.