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tax returns

IRS extends Oct. 15 and other upcoming deadlines, provides other tax relief for victims of Tropical Storm Imelda

WASHINGTON – Victims of Tropical Storm Imelda in parts of Texas, including the Houston area, have until Jan. 31, 2020, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today.

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance. Currently this includes Chambers, Harris, Jefferson, Liberty, Montgomery and Orange counties in Texas, but taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

The tax relief postpones various tax filing and payment deadlines that occurred starting on Sept. 17, 2019. As a result, affected individuals and businesses will have until Jan. 31, 2020, to file returns and pay any taxes that were originally due during this period. This means individuals who had a valid extension to file their 2018 return due to run out on Oct. 15, 2019, will now have until Jan. 31, 2020, to file. The IRS noted, however, that because tax payments related to these 2018 returns were due on April 15, 2019, those payments are not eligible for this relief.

The Jan. 31, 2020 deadline also applies to quarterly estimated income tax payments due on Jan. 15, 2020, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2019. It also applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on Nov. 15, 2019. Businesses with extensions also have the additional time including, among others, calendar-year corporations whose 2018 extensions run out on Oct. 15, 2019.    

In addition, penalties on payroll and excise tax deposits due on or after Sept. 17, 2019, and before Oct. 2, 2019, will be abated as long as the deposits are made by Oct. 2, 2019.

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2019 return normally filed next year), or the return for the prior year (2018). Be sure to write the FEMA declaration number − 4466 for Texas − on any return claiming a loss. See Publication 547 for details.

The tax relief is part of a coordinated federal response to the damage caused by severe storms and flooding and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.
 

Social Security benefits to get a 1.6% boost in 2020

Social Security benefits to get a 1.6% boost in 2020

It’s official: Your Social Security checks will get a modest increase next year.

The Social Security Administration announced Thursday that the cost-of-living adjustment for 2020 will be 1.6%.

That number is less than what retirees have received in recent years. In 2019, they got a 2.8% bump, while in 2018 the increase was 2%.

Still, it’s better than zero, which retirees saw in 2010, 2011 and 2016.

Social Security cost-of-living adjustments have averaged 1.4% in the past decade.

To calculate the change, the Social Security Administration uses the Consumer Price Index for Urban Wage Earners and Clerical Workers, CPI-W, from the Bureau of Labor Statistics.

The 2020 increase is in line with an estimate released last month by the Senior Citizens League, a nonpartisan senior group.

Medicare premiums

The next announcement for retirees to watch for is Medicare Part B premiums for next year.

Estimates from Medicare trustees peg that at $144.30, up from $135.50 in 2019.

If those estimates are correct, individuals who receive the lowest Social Security benefit amounts — $550 or less – would be protected by a rule called the hold harmless provision, according to the Senior Citizens League.

Medicare Part B premiums (which cover doctor’s visits among other things) are typically automatically deducted from Social Security benefit checks.


The hold harmless provision prevents Part B premium increases from being larger than any Social Security benefit increases. About 70% of beneficiaries are covered, according to the Senior Citizens League.

But there are some exceptions, said Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League. For example, a low-earning spouse in a high-earning couple might not be covered, she said.

High-wage earners who do not fall under the hold harmless provision could see a small excess Medicare premium, said Joe Elsasser, founder and president of Covisum, a provider of Social Security claiming software.

Taxes

While Social Security checks get a 1.6% boost, the tax rates on retirees’ income will stay the same.

If you earn at least $25,000 individually or $32,000 as a couple filing jointly, your Social Security benefits could be subject to taxes.

One way to plan for that is to increase your voluntary withholding with the Social Security Administration.

But a more effective way might be to increase withholdings from other sources of income, Elsasser said.

“If they only have Social Security, that’s going to be tax free,” Elsasser said. “It’s the other income that creates the tax on Social Security benefits.”

Buying power

Since 2000, Social Security benefits have lost 33% of their buying power, according to the Senior Citizens League.

That has led some advocates to call for changes to the way the COLA is calculated. Democratic proposals in Congress and by presidential candidates, specifically Sens. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt., would use the Consumer Price Index for the Elderly, or CPI-E, which tracks seniors’ spending habits.

Another potential measure, the Chained Consumer Price Index for All Urban Consumers, which measures the average change of consumer goods and services over time, could also be used, Elsasser said.

More from Personal Finance:
Bill could extend Social Security solvency for rest of century
The best age besides 70 to claim Social Security benefits
Fixing Social Security might cost less than a cup of coffee

One important aspect about Social Security’s annual COLA is that it affects more than just beneficiaries, said David Freitag, financial planning consultant and Social Security expert at MassMutual.

For example, the adjustment will affect the amount of individual wages subject to Social Security payroll taxes. Right now it’s capped at $132,900. That will go up to $137,700 in 2020.

What’s more, the cost for workers to earn a Social Security credit will go up, Freitag noted.

In 2019, you receive one credit for each $1,360 of earnings. In 2020, you that will go up to $1,410.

You now need to have at least 40 total credits to qualify for retirement benefits. (A credit is how the Social Security Administration measures your eligibility for benefits. There is a maximum of four credits per year.)

“It’s a bigger deal than just a benefit increase,” Freitag said. “It touches more people than just retirees.”

What we might learn from Trump’s tax returns — if they’re released

What we might learn from Trump’s tax returns — if they’re released

President Donald Trump’s personal and corporate tax returns could give the public an inside look at his finances — depending on which forms are released.

A federal judge on Monday dismissed Trump’s lawsuit to block the release of his tax returns to Manhattan District Attorney Cyrus Vance Jr.

The DA is investigating the Trump Organization and had served a subpoena seeking eight years of tax returns.

The U.S. Court of Appeals for the 2nd Circuit granted a temporary stay of enforcement of the subpoena, giving the president a reprieve.

If those documents are made public, they could provide insight into the sources of Trump’s income — depending on which forms are released.

Just be warned, the tax forms themselves won’t tell you everything about a filer’s finances.

Think of the Form 1040 as an important piece of the puzzle in a taxpayer’s financial condition. Combined with other documents, including a statement of net worth, it can provide a more complete picture of that person’s bottom line.

“What you can see from the individual Form 1040 are the types and sources of income, including whether the taxpayer has capital gains or dividend income,” said Joshua D. Blank, professor of law at the University of California, Irvine.

“What you can’t see is wealth,” he said. “We tax people based on annual income and not total wealth.”

The first two pages of a Form 1040 are a summary of the taxable sources of income a filer is required to report.

The attached schedules are what can shed light on the sources of income and the deductions a taxpayer takes.

Deductions reduce taxable income based on your federal income tax bracket.

Schedule A is the document taxpayers must fill out to calculate their itemized deductions, including any deductible medical expenses and state and local taxes paid.

Take note: Starting in the 2018 tax year, the deduction for state and local taxes paid was capped at $10,000 for individual filers, so there’s a limit to the extent Trump — or anyone with a personal residence in a high-tax state like New York — could write off those property and income taxes.

Keep a close eye on the “gifts to charity” portion of Schedule A. Donations that are more than $500 must be spelled out on Form 8283, the noncash charitable contribution form.

Taxpayers must describe the donated property and provide a summary of its appraised fair market value, including art, real estate, cars and more.

Whether your real estate empire is racking up losses or you’re getting income through a web of pass-through entities, Schedule E will have the details on residential, vacation and commercial property.

Trump himself uses many limited liability companies to manage different aspects of his businesses.

Line 3 spells out rents received for the property.

“You can get an idea of business income, as you’d see that coming in through companies and pass-through entities, partnerships and LLCs,” said Jeffrey Levine, CPA and CEO of BluePrint Wealth Alliance.

Keep a close eye on depreciation, which you can find on line 18. Depreciation is a tax deduction you can take each year to recover the cost of your real estate as you use it.

While Schedule E might share the name of a pass-through entity that’s providing income to the taxpayer, it may be difficult to learn the details of who ultimately owns it, said Christy Bastian, CPA and president of FVL Consultants.

“You can sometimes follow through and trace entities,” Bastian said. “You’re looking for clues, but it doesn’t mean that every return will have it.”

Similarly, members of a partnership aren’t always easy to identify, Blank said.

Whether you’re tracking down someone’s interest received from a bank account or ordinary dividends paid, you’ll need to find Schedule B.

On this form, you’ll see where some of these interest- and dividend-paying investments are held, but you won’t get any details on what exactly the taxpayer has invested in.

What if you sold an asset? Schedule D will tell you more about the gains and losses stemming from the sale.

Filers would fill out Form 8948, and make note of their purchase and sales dates, as well as the cost basis, to correctly fill out this schedule. It can act as a window into the taxpayer’s trading activity.

“You can see if there are a lot of stock transactions,” said Bastian.