New Online Option for Certain IRS Notices

Taxpayers who receive certain notices requiring them to send information to the IRS can now submit their documentation online through IRS.gov. This new secure step will allow taxpayers or their tax professionals to upload documents electronically rather than mailing them in, helping reduce time and effort in resolving tax issues.

Initially, the online correspondence feature will be available to the more than 500,000 taxpayers each year who receive one of nine IRS notices. These notices are primarily sent to individual tax filers claiming various tax benefits, such as the Earned Income Tax Credit for low- and moderate-income workers, the Child Tax Credit for families with dependents, the Premium Tax Credit for those who obtain health coverage through the Health Insurance Marketplace and members of the military claiming combat zone tax benefits. Of note, taxpayers receiving these notices can respond securely to IRS online, regardless of whether they have an IRS Online Account.

How the Document Upload Tool works

The prototype for the Document Upload Tool was developed by IRS information technology specialists in 2021. Since then, the IRS has been testing this feature on a limited number of exam-related notices, and 38% of the responses to these notices have used the agency’s secure electronic communications rather than traditional mail.

Language on the notice informs the taxpayer to “Send us your documents using the Documentation Upload Tool within 30 days from the date of this notice.” It includes the link and a unique access code.

  • The taxpayer can open the link in any browser and then input their unique code, first and last name, and Social Security, Individual Taxpayer Identification, or Employee Identification number.
  • The taxpayer can then securely upload scans, photos, or digital copies of documents (maximum of 15 MB per file, up to 40 files).
  • The taxpayer receives a confirmation that the IRS received their documents, and the IRS employee assigned to the case can manage the transmitted documents.

What Notices Qualify?

Taxpayers who receive one of the following notices with the link and access code can choose to upload their documents:

  • CP04, relating to combat zone status.
  • CP05A, information request related to a refund.
  • CP06 and CP06A, relating to the Premium Tax Credit.
  • CP08, relating to the Child Tax Credit.
  • CP09, relating to claiming the Earned Income Tax Credit.
  • CP75, relating to the EITC.
  • CP75a, relating to the EITC.
  • CP75d, relating to the EITC and other credits.

Future Expansion Planned

This capability is expected to expand to dozens of other notices in the coming months and years. In addition, the IRS will offer digital correspondence on various other taxpayer interactions. During live phone calls with taxpayers, IRS employees can grant upload access by providing the link and unique access code.

Secure Digital Correspondence Offers a Better Solution

For taxpayers and tax professionals working with the IRS, this new capability reduces the correspondence burden, ensures tax compliance, and improves the customer experience. For IRS employees, this reduces paper correspondence, decreases processing time, and speeds case resolution.

Questions? Please, don’t hesitate to contact the office.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

There’s Still Time To Make an IRA Contribution for 2022

If you haven’t contributed funds to an Individual Retirement Account (IRA) for tax year 2022 or put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 18, 2023, due date, not including extensions.

Be sure to tell the IRA trustee that the contribution is for 2022. Otherwise, the trustee may report the contribution as being for 2023 when they get your funds.

Generally, you can contribute up to $6,000 of your earnings for tax year 2022 (up to $7,000 if you are age 50 or older). You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot exceed these amounts.

Traditional IRA. You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer’s pension plan.

Roth IRA. You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.

The IRS announces the cost of living adjustments and limitations for retirement savings plans each year. Saving for retirement should be part of everyone’s financial plan, and it’s important to review your retirement goals every year to maximize savings. If you need help with your retirement plans, please call.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

Wheeler Collaborative Day, February 2023

On Thursday, February 9, the Wheeler team gathered at the San Jose office, as well as in virtual meetings, for the second of many Collaborative Days. After the first Collaborative Day in Fall of 2022, the positive feedback was overwhelming, so the tradition began. These events are opportunities for the local team to connect in person, spend dedicated time discussing important topics in an open environment, and top it off with fun teambuilding experiences!

On February 9, we first held a time of remembrance for Keith Plottel, his legacy, and his contributions to the firm and the greater tax community. Then we broke out into small groups rotating through a range of subjects, including:

  • Potential topics for future blog posts
  • Website improvements
  • Our vision for internal committees at Wheeler
  • Department specific needs, and
  • Improving collaboration with our remote team members

Thank you to all of our staff for jumping in and participating—we believe the best way to grow and improve is by hearing from everyone in the firm at all staff levels and working together to implement the best ideas.

After a full day of collaboration, the party moved to LVL Up in Campbell, a nostalgic arcade bar filled with over 25 classic arcade games and pinball machines.

California to conform to IRS October 16 deadline extension

The Governor’s office announced on March 2, 2023 that California is aligning with the recent announcement by the IRS and extending the tax filing deadline for Californians impacted by December and January winter storms to October 16, 2023. The state tax filing deadline will be automatically extended for taxpayers located in all California counties except the following:

  • Lassen
  • Modoc
  • Shasta

This relief applies to deadlines falling on or after January 8, 2023, and before October 16, 2023, including:

  • Individuals whose tax returns and payments were due on April 18, 2023
  • Quarterly estimated tax payments that were due January 17, 2023, April 18, 2023, June 15, 2023, and September 15, 2023
  • Business entities whose tax returns are normally due on March 15 and April 18
  • PTE Elective Tax payments due on June 15, 2023
  • Note that while the extension applies to payroll tax returns, it does not apply to employment and excise tax deposits.

If you have any questions about whether this applies to you, don’t hesitate to reach out.

San Jose: (408) 252-1800
Watsonville: (831) 726-8500

Governor’s Full Press Release
Full IRS Statement

IRS Extends May 15 tax deadline to Oct. 16 for disaster area taxpayers

The IRS announced on Friday, February 24, that disaster-area taxpayers in most of California and parts of Alabama and Georgia now have until Oct. 16, 2023, to file various federal individual and business tax returns and make tax payments. Previously, the deadline had been postponed to May 15 for these areas.

This includes:

  • Individual income tax returns, originally due on April 18
  • Various business returns, normally due on March 15 and April 18
  • Returns of tax-exempt organizations, normally due on May 15.

For the list of affected counties, and details regarding who automatically qualifies for relief, please review our post outlining the original May extension announcement.

The new October deadline announcement introduces additional important considerations:

  • IRA Contributions: Eligible taxpayers will have until Oct. 16 to make 2022 contributions to their IRAs and health savings accounts.
  • Farmers: Farmers who normally file by March 1 will have until Oct. 16, 2023, to file their 2022 return and pay any tax due.
  • Estimated Taxes: Estimated tax payments for the fourth quarter of 2022, originally due on Jan. 17, 2023, and 2023 estimated tax payments, normally due on April 18, June 15 and Sept. 15, are also extended. Taxpayers can choose to include these payment with the 2022 return they file on or before Oct. 16.
  • Payroll and Excise Taxes: The October deadline also applies to the quarterly payroll and excise tax returns normally due on Jan. 31, April 30, and July 31.

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time. Taxpayers in the affected areas do not need to file any extension paperwork, and they do not need to call the IRS to qualify for the extended time.

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

Note that the California FTB has not yet announced whether they will conform to the IRS guidance on this matter. We will continue to notify you as additional information is released.

The full IRS statement is available here: IRS: May 15 Deadline Extended to Oct. 16

How Filing Status Affects Your Tax Return

A taxpayer’s filing status defines the type of tax return form they should use when filing their taxes. Filing status can affect the amount of tax they owe, and it may even determine whether they need to file a tax return at all. As taxpayers get ready for the upcoming filing season, let’s take a closer look at how filing status affects a tax return.

Taxpayers can choose from five different filing statuses when filing their returns:

  • Single. Normally, this status is for taxpayers who are unmarried, divorced, or legally separated under a divorce or separate maintenance decree governed by state law.
  • Married filing jointly. A taxpayer can file a joint tax return with their spouse if a taxpayer is married. When a spouse passes away, the widowed spouse can usually file a joint return for that year.
  • Married filing separately. Married couples can choose to file separate tax returns. Doing so may result in less tax owed than filing a joint tax return.
  • Head of household. Unmarried taxpayers may be able to file using this status, but special rules apply. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person living in the home for half the year.
  • Qualifying widow(er) with dependent child. This status may apply to a taxpayer if their spouse died during one of the previous two years and they have a dependent child. Other conditions also apply.

When preparing and filing a tax return, filing status affects:

  • If the taxpayer is required to file a federal tax return
  • If they should file a return to receive a refund
  • Their standard deduction amount
  • If they can claim certain credits
  • The amount of tax they should pay

Filing status generally depends on the taxpayer’s marital status as of December 31 of the filing tax year (e.g., 2022). More than one filing status may apply in certain situations. If this is the case, taxpayers can usually choose the filing status that allows them to pay the least amount of tax.

Not sure which filing status you should use this year? Help is just a phone call away.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

Standard vs. Itemized Deductions

When completing a tax return, taxpayers have two options: take the standard deduction or itemize their deductions. Most taxpayers use the option that gives them the lowest overall tax. Due to all the tax law changes in recent years, including increases to the standard deduction, that means taking the standard deduction – but not always. Let’s look at a few details about these two options.

Standard deduction

The standard deduction amount increases slightly every year and varies by filing status. Factors that affect the standard deduction amount include the taxpayer’s filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don’t itemize deductions are entitled to a higher standard deduction.

Most filers who use Form 1040, U.S. Individual Income Tax Return, can find their standard deduction on the first page of the form. For most filers of Form 1040-SR, U.S. Tax Return for Seniors, the standard deduction is on page 4.

Not all taxpayers can take a standard deduction. Those taxpayers include:

  • A married individual filing as married filing separately whose spouse itemizes deductions – if one spouse itemizes on a separate return, both must itemize.
  • An individual who files a tax return for a period of less than 12 months. This situation is uncommon and could be due to a change in their annual accounting period.
  • An individual who was a nonresident alien or a dual-status alien during the year. However, nonresident aliens who are married to a U.S. citizen or resident alien can take the standard deduction in certain situations.

Itemized deductions

Taxpayers who choose to itemize deductions should file Schedule A, Form 1040, Itemized Deductions. Itemized deductions that taxpayers may claim include:

  • State and local income or sales taxes
  • Real estate and personal property taxes
  • Home mortgage interest
  • Mortgage insurance premiums on a home mortgage
  • Personal casualty and theft losses from a federally declared disaster
  • Gifts to a qualified charity
  • Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income

Some itemized deductions, such as the deduction for taxes, may be limited. Don’t hesitate to contact the office for more information on these limitations or any other questions.

Questions?

If you’re wondering which option is right for you, feel free to give us a call.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

Unemployment Tax Break Refunds Issued for 2020

Final corrections for taxpayers who overpaid their taxes on unemployment compensation received in 2020 have been completed by the IRS. Approximately 14 million returns were corrected, resulting in nearly 12 million refunds totaling $14.8 billion.

Background

The American Rescue Plan Act of 2021, which became law in March 2021, allowed taxpayers to exclude up to $10,200 in 2020 unemployment compensation from taxable income calculations (up to $10,200 for each spouse if married filing jointly). The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000.

To ease the burden on taxpayers, the IRS reviewed Forms 1040 and 1040-SR that were filed prior to the law’s enactment to identify taxpayers who had already reported unemployment compensation as income and were eligible for the correction. The IRS determined the correct taxable amount of unemployment compensation and tax.

Overpayments Refunded or Applied to Tax Due

With an average refund of $1,232, some taxpayers received refunds, while others had the overpayment applied to taxes due or other debts. In some cases, the exclusion only resulted in a reduction in their adjusted gross income. Letters were mailed to these taxpayers to inform them of the corrections. Taxpayers should keep that letter with their tax records.

Many of the adjustments included corrections to the:

  • Earned Income Tax Credit
  • Recovery Rebate Credit
  • Additional Child Tax Credit
  • American Opportunity Tax Credit
  • Premium Tax Credit
  • Advance Premium Tax Credit

Of note is that a taxpayer who is eligible for the unemployment compensation exclusion but whose account was not corrected by the IRS may need to file an amended 2020 tax return. Taxpayers who filed 2020 Forms 1040 and 1040-SR can file Form 1040-X, Amended U.S. Individual Income Tax Return, to claim the exclusion and any applicable non-refundable or refundable credits impacted by the exclusion. Taxpayers should not file an amended return if they previously filed one claiming the exclusion.

Taxpayers that need to file an amended tax return can view their 2020 tax records in their Online Account or request that a 2020 tax account transcript be mailed to them. Please call the office for more information about this topic, including eligibility requirements.

Questions?

If you have questions, we’re happy to assist.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

Small Business: Deducting Startup Costs

If you’ve recently started a business – or are thinking about starting a business – you should know that as an owner, all eligible costs incurred before you began operating the business are treated as capital expenditures. As such, they are part of the cost basis for the business.

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