IRS Joins International Organizations in Fighting Charity Fraud During Special Awareness Week


The Charity Fraud Awareness Week was created to bring awareness to increasing risk of fraud and cybercrime. The pandemic has aided the rise of cybercrimes that affect charities and their supporters and beneficiaries. 

It is estimated that charities lose about five percent of their revenue each year due to cybercrime. In addition to crimes directly targeted at charities, a growing concern is criminals creating fake charities and scamming individuals into donating. The most common form is scammers requesting donations for disaster relief efforts over the phone. A good tip is to always legitimize the charity before giving money. 

In order to verify charities, this Tax Exempt Organization search tool on IRS.gov can help:

https://www.irs.gov/charities-non-profits/tax-exempt-organization-search 

As taxpayers, making sure that the charity we want to donate to is verified tremendously reduces the risk of being a victim of cybercrime and scamming. 

The UK-based organization that leads the Charity Fraud Awareness Week has created a beneficial website to help partners, charities and other tax-exempt organizations and nonprofits find the following information: 

  • Details about the awareness week
  • Free resources
  • A fraud pledge for organizations
  • A listing of webinars and other events held as part of the week 

Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions. 

Source: https://www.irs.gov/newsroom/irs-joins-international-organizations-in-fighting-charity-fraud-during-special-awareness-week 

  • Zoey Greenwood

What should I do when receiving a notice or letter from the IRS?


There are multiple reasons why the IRS will send a notice or letter. Some of those reasons include: 

  • IRS identifies some issue on your federal returns or account 
  • Request of explanation about changes on return or account 
  • Missing information or more information required 
  • Request of payment 

 

IRS letters or notices tend to be confusing for taxpayers, but knowing the options to resolve the issue can be very helpful because most of these issues can be solved without making calls, reaching out for assistance or visiting an IRS office. 

 

  1. To solve the problem, it is important to determine the reason for the notice or letter sent. This notice will include details as well as instructions on how to handle the issue. The IRS provides useful resources to help understand the IRS notice or letter here: https://www.irs.gov/individuals/understanding-your-irs-notice-or-letter. 

 

  1. Whether you need to reply or not will all depend on the issue. If the taxpayer agrees with the information or change, then there is no need to reply. However, if the issue is related to a balance due, then the taxpayer needs to act immediately. Acting as soon as possible when taxpayers disagree with the change or action taken by the IRS is crucial to avoid penalties and interest. Avoid delaying the process because it might cause more problems down the line. 

 

  1. If the notice or letter includes a date pay attention to it to minimize penalties or additional interest due to the failure of replying on time. Responding on or before the specific dates will prevent any actions taken against you or your account. 

 

  1. Follow instructions on how and where to reply. This information should be included in the letter, and most of the time, responses will be via fax or mail. 

 

  1. If the taxpayer still needs assistance, the notice or letter might include contact information such as the IRS phone number, but if a specific employee is working on the case, their number might appear on the notice or letter. Try to use the contact information on your notice or letter to resolve the problem promptly. 

 

  1. For further help taxpayers can get help from their tax preparer, or other tax professionals and if they can’t afford it the Low Income Taxpayer Clinic (LITC) will be able to help low income individuals. For further information please visit: https://www.taxpayeradvocate.irs.gov/aboutus/low-income-taxpayer-clinics-litc/ to find the closest location. 

The LITC provides help to the low-income taxpayer as well as people for whom English is their second language. 

 

Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions. 

 

-Elizabeth Gonzalez Padilla

 

Source: https://www.taxpayeradvocate.irs.gov/news/tas-tax-tip-i-got-a-notice-or-letter-from-theirs-nowwhat-do-i-do/

Non-traditional families may qualify for advance child tax credit payments COVID TAX TIP 2021


Many families with a diverse background could potentially get advanced payments for the 2021 child tax credit, and with this, the IRS recommends that grandparents, foster parents or people caring for siblings or other relatives to check their potential eligibility. For 2021, $3,000 can be claimed per qualifying child between ages 6 and 17 and $3,600 for qualifying children under age 6.

A qualifying child can be a filer’s son or daughter, stepchild, eligible foster child, siblings (including step and half), a descendant of any of the previous (grandchild, niece, nephew).

Most families with a qualifying child may receive these credit payments, also if the individual or the spouse is married filing jointly, and they must have had their main home in one of the 50 states or DC for more than half the year.

If your child qualifies for the following as well, then the filer can receive this credit in advance:

  1. Individual does not turn 18 before January 1, 2021, and the child does not make more than half of his/her support during 2021.
  2. The individual lives with the taxpayer for more than half of 2021.
  3. The individual is properly claimed as a dependent.
  4. The individual does not file a joint return with the individual’s spouse for tax year 2021 or files it only to claim a refund of withheld income tax or estimated tax paid.
  5. The individual is a U.S citizen, U.S. national or U.S. resident alien.

If families do not receive this advanced child tax credit, they will most likely get the credit when they file their tax return, and the amount will just not be advanced.

Source: https://www.irs.gov/newsroom/non-traditional-families-may-qualify-for-advance-child-tax-credit-payments

Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.

~Ashleigh Cindrich

Reminder for Tax-Payers Who Filed an Extension!


Given the unforeseen difficulties that 2020 presented for a myriad of Americans and individuals abroad, a great deal of citizens elected to extend the filing process for their taxes. Those who chose to extend for six months have a deadline coming up on October 15th with the Internal Revenue Service (IRS) Free File program available for taxpayers filing 2020 returns. 

 

Websites like TurboTax and H&R Block are helpful, but they often charge premiums or fees for filers who have nontraditional sources of revenue like 1099s or self-employment income. Nonetheless, leading tax preparation software experts partner with the IRS to provide some of these services. It should be noted that those intending to use the Free File services can only employ them for current year tax returns. There are two means to file your return using the free file systems:

 

  1. If a taxpayer has an adjusted gross income (AGI) of $72,000 or less, he or she qualifies for the IRS Free File on any of the partner sites provided.
  2. If a taxpayer has an AGI greater than $72,000, there is a Free File Fillable Forms option that provides electronic federal tax forms that can be completed and submitted online free of charge. This option does require knowledge of how to prepare a tax return and is less hands-on than the former. 

 

In order to access these services, begin by locating IRS.gov:

  1. The homepage will have a link entitled, “File Your Taxes for Free”
  2. Under “Pick an option based on your income,” select the amount that applies to you
  3. Research the relevant links and which option is most helpful to you 

 

Source: https://www.irs.gov/newsroom/irs-free-file-program-available-through-oct-15

 

Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.

 

~Tia Bentivegna

Clarity on Cancellation of Debt


Student loan forgiveness has long been a discussion in political circles and current events, but what does it actually mean for both borrowers and taxpayers? President Biden has cancelled roughly $10 billion in student loans over the past eight months; nonetheless, there are still 45 million student loan borrowers who collectively owe $1.7 trillion. There are several key components that go into forgiveness that borrowers and taxpayers should be aware of.

For starters, the current student debt in the United States has reached an unchartered level at $1.73 trillion—over eight times the gross domestic product of the country of Greece. Ninety percent of these borrowed funds comprise the Federal Loan Portfolio, and of these, only certain occupations qualify for forgiveness at present, like teachers, government service, military service and AmeriCorps. Expanding into forgiveness for a wider range of borrowers could, as a result, affect a wider range of taxpayers and citizens as a whole. A recent CNBC analysis created a hypothetical example of $10,000 being forgiven. If a student had said amount forgiven under the current plan, that $10,000 would be added to taxable income under the “Cancellation of Debt (COD)” income. The taxpayer would receive a Form 1099-C for their records and for tax filing purposes for that fiscal year. Say, for instance, the taxpayer was in the 20 percent tax bracket. In that scenario, $10,000 of added income would amount to $2,000 owed in taxes. President Biden’s forgiveness program, the American Rescue Plan, aims to eliminate this burden by making debt cancellation’s tax-free.

Cancellation of debt may seem like a positive outcome for borrowers; however, it can become complicated when there are tax liabilities linked to the cancellation, and there is not a program in place that declares a cancellation as tax-free. The Cal Poly LITC witnessed one such complication this past academic year when a client requested the clinic’s services after receiving a Notice of Deficiency in January of 2021. The client—a single mother living in Visalia, CA—owed $24,614 in student loan debt, but her alma mater had shut down and had her remaining debt cancelled in 2018. Failing to receive a 1099-C documenting the elimination of debt, the client moved forward not understanding the tax implication of her forgiveness and garnering a deficiency of $4,175 to the IRS.

When there is not a plan in place as President Biden’s current American Rescue Plan that declares debt cancellations as tax-free, a taxpayer may not know anything different and neglect to include these funds as income in the corresponding tax year. In the case of the LITC client, she should have been exempted from including the cancellation as income because she was already insolvent and not claiming all of the credits to which she was entitled, such as the Child Tax Credit. After petitioning to the United States Tax Court on her behalf, it was ruled that she was insolvent at the time of the cancellation and therefore did not owe the over $4,000 in taxes.

Ultimately, there are quite a few layers of rules and responsibilities when it comes to debt cancellation and the expectations placed on our policy makers should be clarity and consistency in terms of tax liability. Those borrowing funds for higher education do so with the intent to pay them back, but if they are lucky enough to qualify for a cancellation or reduction in the amount

they owe, the corresponding tax obligations should be made known with a proper 1099-C and/or a notice explaining their cancellation as tax-free.

Sources: https://www.investopedia.com/terms/s/student-loan-forgiveness.asp https://www.cnbc.com/select/biden-student-loan-forgiveness-and-taxes/

Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.

~Tia Bentivegna

Summer Activities Affecting Your Tax Situation


1. Tying the Knot 

As mentioned in an earlier blog post for the summer, getting married is an exciting time and a time for quite a few changes! It is important to report any name changes to the Social Security Administration and address changes to the United States Postal Service as soon as possible after the nuptials. 

2. Summer Camps

If you have children and send them to any summer day camps, you may be eligible to put the costs towards the Child & Dependent Care Credit. There are not many restrictions on the type of camp that a child attends, such as a traditional outdoor summer camp or one specializing in computers or a sport, like soccer for instance. Additionally, any expenses incurred such as driving the child back and forth from the camp is allowable for the credit. 

3. Internships & Part-Time Work

Most companies automatically withhold taxes from employee paychecks, even when you’re a part-time employee or intern for the summer. No matter the amount you made, always remember to file a return for the following year reporting any income earned in order to ensure your refund is received from any taxes withheld. It is unlikely that you will have made enough to owe any money, but refunds are quite common. 

4. Gig Economy Work

An activity increasing in popularity is gig economy work, such as being a rideshare driver or food deliverer. Most, if not all, individuals are independent contractors who are responsible for reporting their own taxes and paying any potential taxes that would have been withheld if they were a traditional employee. Therefore, a good rule of thumb is to save roughly 30 percent of your income from this work for income taxes. After all, it is better to have more than necessary than to scramble come the 2022 tax season! 

 

Source: https://www.irs.gov/newsroom/things-people-do-during-the-summer-that-might-affect-their-tax-return-next-year

Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.

~Tia Bentivegna

The “Dirty Dozen” Driving Tax Scams in 2021


Most people have been cautioned to be aware of phishing emails and potential scams from hackers looking to steal bank information, Social Security numbers and the like. Recently, the Internal Revenue Service (IRS) has been experiencing a wave of increased scams with the pandemic and, as a result, created a list of the “Dirty Dozen” tax scams to warn not only individuals but larger businesses and financial institutions as well. Each scam falls into one of four categories: (1) pandemic-related scams, (2) personal information cons, (3) ruses focused on unsuspecting victims and (4) schemes that persuade taxpayers into unscrupulous actions.

An example of a pandemic-related scam may involve the Economic Impact Payments (EIPs) and theft of the payment to individuals who truly need it. The aforementioned email or phone call phishing or “vishing” and ransomware are examples of personal information cons. Fraudulent charities or impersonation of seniors or immigrants to receive their respective benefits is a case involving unsuspecting victims. Lastly, Offer in Compromise, or OIC, mills are schemes pushing taxpayers to unscrupulous activities.

         Below is a detailed summary of the “Dirty Dozen” the IRS is announcing to taxpayers:

  1. Text messages, phone calls or emails requesting bank information or encouraging the recipient to click on a link should be deleted without opening any attachments or URLs. Monitor your paper mail as mailbox theft has witnessed a rise and report any suspected losses to Postal Inspectors.
  2. The IRS will never initiate contact with you other than through the mail, so be alert to text messages, phone calls or emails requesting personal information relating to your stimulus check. Look out for your 1099-G and any unemployment compensation that you requested but did not receive as scammers are using personal information to take the benefits meant for taxpayers.
  3. Computers can be lucrative hosts for hackers with ransomware, so any offers for programs claiming to prevent malware can be ways for hackers to block your own access to the computer.
  4. Fake charities can be set up by scammers to receive payments for such causes as natural disasters and often use phone calls to prey on unsuspecting victims.
  5. Hackers will also impersonate the IRS to get information from immigrants with limited English proficiency or senior citizens to get access to payments or Social Security and retirement benefits.
  6. “Pennies on the dollar” is a way scammers lure taxpayers who are using an OIC to settle their tax debts.
  7. Ghost preparers are tax preparers who do not sign the returns they prepare and often require payments made in cash and fail to provide a receipt. They may also invent income to qualify the client for tax credits the scammers intend to take, claim fake deductions to increase the refund and even direct the refunds directly into their own bank account.
  8. Identity-related fraud, employer-employee collusion fraud, misrepresentation of income fraud, fictitious employer-employee fraud and insider fraud are all ways that scammers take advantage of an individual’s unemployment insurance and should be a major concern for those intending to receive financial assistance.
  9. Syndicated conservation easements involve the manipulation of tax law to inflate appraisals of undeveloped land and partnerships to game the system and create unwarranted, heightened tax deductions.
  10. Abusive micro-captive arrangements trap individuals or businesses into unreasonable premiums for insurance while claiming unrealistic coverage.
  11. There can be abusive use of the United States-Malta tax treaty, allowing scammers access to Maltese pension plans with no tax consequences when the plan sells the assets put into it and sends the proceeds to the scammer—who should be the taxpayer.
  12. Improper claims of business credits or installment sales are other examples of fraud performed by hackers either claiming too high of business credits in the former or creating a shelter to receive the installment sales in the latter.

Each of these scams are detrimental to the taxpayer and can lead to lasting effects on their records if not properly eliminated. Because of this, it is paramount that individuals remain hyper-vigilant and alert to anything that they believe to be remotely suspicious involving their personal and/or financial information. If you believe you have been a victim of any of these activities or similar ones, please contact our office at litc@calpoly.edu.

Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.

Source: https://www.irs.gov/newsroom/irs-announces-dirty-dozen-tax-scams-for-2021

  • Tia Bentivegna

Tax Implications of “I Do”


“It’s wedding season, kid!” said Jeremy Grey, Vince Vaughn’s iconic character from the film, Wedding Crashers. With wedding season comes a myriad of adjustments for the bride and groom. A major change is the couple’s tax situation. For one, if the newlyweds elect to change their last names by combining or hyphening their surnames or if one of them chooses to take the other’s name, the first item on their post nuptials to-do list should be to report the name change to the Social Security Administration (SSA) as the name on the tax return must match the name on file at the SSA. If there is a lack of consistency, there could be delay in the tax refund or general processing of the tax return. Form SS-5, Application for a Social Security Card, is available online at the SSA’s website, SSA.gov, and the taxpayer can also call 1(800)772-1213 or visit a local SSA office to complete this form; it will update one’s name on all legal documents. In addition to the SSA office, the couple should update their address—if it changes—and inform the IRS and U.S. Postal Service; this can be accomplished by completing Form 8822, Change of Address. 

Once married, it is likely that the couple’s tax statuses will change from “Single” to “Married Filing Jointly.” They have the option to file “Married Filing Separately”; however, the MFJ status tends to offer more favorable returns for taxpayers. Because of these changes, couples will likely have to change their withholdings, and this can be achieved with a new Form W-4, Employee’s Withholding Allowance, within 10 days. Publication 505, Tax Withholding and Estimated Tax, offers helpful information for couples, especially those whose tax bracket likely changes if both spouses work. 

Lastly, be very aware of scams that could arise, and remember that the IRS will never initiate contact through online mediums like email, social media or text messages and phone calls. Their primary method of communication is mail. 

 Source: https://www.irs.gov/newsroom/heres-how-saying-i-do-can-affect-a-couples-tax-situation

-Tia Bentivegna

Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.

$1.3 Billion in Tax Refunds for Americans Who Didn’t file in 2017


Some of that money could belong to you if you did not file in 2017. However, the IRS grants all taxpayers a 3-year window to claim their refunds. This means that taxpayers have until May 17th to file their 2017 taxes and claim their refund.

How to claim the refund you may be entitled to:

  1. Check if you have filed your 2017 taxes. 
    1. For most tax preparing programs you’re able to go back and check which tax years you filed for. If you file manually, then check back to see which tax years you filed.
  2. File your own 2017 tax return
    1. While this sounds intimidating, it’s very simple to do. The  IRS allows Individuals earning less than $72,000 to file for free here. Once you file your 2017 taxes, make sure to file your 2020 taxes. 
  3. By when?
    1. Taxpayers have until May 17th to file. If the taxpayer is entitled to a refund from 2017 and does not file, the money goes to the U.S Treasury. 
  4. How much money am I likely to get?
    1. While we cannot tell you the exact number you’re entitled to, the IRS estimated the average return for a Californian citizen to be $833. Additionally, many low-income and moderate-income workers may be eligible for the Earned Income Tax Credit (EITC). The credit was worth as much as $6,318 to some taxpayers. 

 

An additional $833 would go a long way in these trying times. It takes as little as 5 minutes to check if you’re up to date with taxes. 

(Source: https://www.irs.gov/newsroom/irs-has-refunds-totaling-1-point-3-billion-for-people-who-have-not-filed-a-2017-federal-income-tax-return)

 – Peter Kaseeh

Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.

Electronic Options on the IRS Website are Available 24/7


As the tax deadline approaches, the IRS urges taxpayers to continue to use their electronic options to expedite the tax return process, as well as payments. Since the tax deadline has been extended to May 17th, taxpayers should use the IRS website: E-file Options | Internal Revenue Service (irs.gov) to file electronically as soon as they have the correct information to do so. This website offers services that will making filing simpler.

Services that will make filing easier

  1. Stay updated on tax information by using the IRS.gov website instead of calling.
    • It is more efficient to obtain information by going online to check the latest news such as Economic Impact Payments and tax refund status.
  2. Prepare and file taxes electronically by using IRS Free File. This service is created for taxpayers with an income of $72,000 or less in the year 2020. Individuals with an income of more than $72,000 can use Free File Fillable Forms.
    • This option allows taxpayers to electronically prepare their tax returns by offering name-brand tax software.
  3. Find help on typically asked tax questions by using the Interactive Tax Assistant.
    • This tool is capable of answering specific questions to an individual’s circumstances.
  4. Get more time to file taxes by requesting an automatic extension.
    • The IRS is fully aware of individuals who need more time to file their tax returns. It is estimated that 16 million taxpayers will receive an automatic extension, especially for Americans who are serving in combat, living abroad, and disaster victims.
    • Although some individuals have an automatic extension, anyone can request an extension.
    • Use Form 4868 to request an extension. In order to receive the extension, taxpayers will need to estimate their tax liability on the form.

(Sources:

https://www.irs.gov/newsroom/electronic-options-on-irsgov-are-available-24-7-save-time-online-for-filing-information-and-help https://content.govdelivery.com/accounts/USIRS/bulletins/2d6d632?reqfrom=share)

 

-Raymond Yan

Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.

Tax Deadline for Individuals Extended from April 15, 2021 to May 17, 2021


The pandemic has created economic hardship for many, and the IRS wants to help taxpayers through these unprecedented circumstances. Individual taxpayers now have until May 17, rather than April 15, to file and pay federal income taxes for the 2020 tax year. Those who pay self-employment tax are also included in this extension. The deadline for individuals to contribute to both regular and Roth IRAs has been extended to May 17th as well.

This May 17 extension does not apply to estimated tax payments. Estimated tax payments, or taxes you expect to owe after subtracting expected credits and withholdings, are still due April 15. 

The IRS encourages taxpayers to still file as soon as possible in order to expedite the refund process for those who are eligible. Those who e-file their tax returns will likely receive their refund within 21 days of filing.

 Individual taxpayers do not need to take additional action to qualify for this extended deadline, as it is automatic. For those who need an extension beyond May 17, they can request a filing extension to as late as October 15 via form 4868.  However, this extra extension beyond May 17 does NOT grant an extension to pay taxes due, it just extends the deadline to file. Taxpayers must still pay their federal income tax due by May 17 to avoid any interest and penalties.

The state of California also extended the deadline to file and pay to May 17. However, other state filing and payment deadlines may differ. Taxpayers should check their individual state guidelines for more information.

(Source: https://www.irs.gov/newsroom/tax-day-for-individuals-extended-to-may-17-treasury-irs-extend-filing-and-payment-deadline)

-Maggie Haas

Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.

How the Third Stimulus Check is Different From Earlier Checks


The third Economic Impact Payment is different from the first and second payment in many ways listed below:

1. It is an advance payment of the 2021 Recovery Rebate Credit

Eligible people who did not claim a first and second EIP or got less than the full amount may be eligible to claim the 2020 Recovery Rebate Credit. However, they must file a 2020 tax return.

2. It is a larger amount for most eligible people

Eligible individuals who filed a joint tax return will receive up to $2,800, and all other eligible individuals will receive up to $1,400. Those with qualifying dependents on their tax return will receive up to $1,400 per qualifying dependent.

3. More people qualify as dependents

One of the main differences between the third EIP and the first and second is that the third payment is not restricted to children under 17. Eligible families will get a payment for all qualifying dependents claimed on their return. This may include older relatives like college students, adults with disabilities, parents, and grandparents.

4. Income phase-out amounts are different

Taxpayers will not receive the third payment if their Adjusted Gross Income exceeds:

  • $160,000, if married and filing a joint return or if filing as a qualifying widow or widower.
  • $120,000, if filing as head of household.
  • $80,000 for eligible individuals using other filing statuses, such as single filers and married people filing separate returns

This means that some people won’t be eligible for the third payment, even if they received first or second EIPs or are eligible for a 2020 Recovery Rebate Credit.

5. Some people are eligible for a Supplemental Payment

The amount of the third payment is based on the taxpayer’s latest processed tax return from either 2020 or 2019. If the third payment is based on the 2019 return and is less than the full amount, the taxpayer may qualify for a supplemental payment. After their 2020 return is processed, the IRS will automatically re-evaluate their eligibility using their 2020 information. If they’re entitled to a larger payment, the IRS will issue a supplemental payment for the additional amount.

(Source: https://www.irs.gov/newsroom/heres-how-the-third-economic-impact-payment-is-different-from-earlier-payments)

-Allison Yu

Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.

Winter Quarter Clinic Success Story


The Cal Poly LITC is starting this month off strong with a success story for one of our clients. Fourth year student Tonya Tong is nearing the closing of a case in a couple of weeks, and she was able to help out one of our community members in a highly stressful situation.

Tonya is from the Bay Area, CA, and majoring in Business Administration with a double concentration in Accounting and Information Systems. She chose to work in the LITC for her senior project because she had heard that working at the clinic was a good experience and was interested in giving back to the local SLO community.

At the LITC she was given this client to continue working on her case. Previously the LITC had filed a petition in Tax Court challenging the IRS’ characterization of the family support she received from her husband during their separation as taxable income. The client was a single mother, who argued that the alleged “alimony” was in fact child support, and therefore should not be included in her gross income for the year. Tonya was able to attend the settlement conference with an IRS Appeals Officer in which Pro Bono attorney Eddy Quijano successfully argued that the child support should not be included in the client’s income thus erasing her total liability.

Tonya’s first impression of the client was an urgency to help her resolve this issue, because the client was simply trying to live her life, work, and take care her of her child. Throughout the 2 weeks Tonya worked on the case, she remained hopeful that the LITC would be able to resolve her case. Tonya is pleased with how the case turned out, and the client is grateful, as the appeals officer’s decision allows her to move forward without this liability hanging over her.

We hope this will be the first of many success stories to come as this year progresses at the Cal Poly LITC!

Source: https://www.hg.org/legal-articles/explaining-the-difference-in-alimony-and-child-support-29414

-Maria Jose Altube Briseno Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.

Reasons Why You Should File a 2020 Tax Return


Most people with gross income of $12,400 or more are required to file a federal tax return. Even though some people with a lower income may not need to file, they should still consider filing for a possible federal income tax refund.

How to Decide Whether to File a Tax Return

Usually, income, filing status, and age determine whether a taxpayer needs to file a tax return. However, there are other reasons one is required to file and certain rules that apply if a taxpayer is claimed as a dependent or is self-employed. The Interactive Tax Assistant link below can help you determine if you need to file a return for your specific situation.

https://www.irs.gov/help/ita/do-i-need-to-file-a-tax-return

If you answer yes to any of the following questions, you might be due a refund. However, a tax return must be filed to receive your money.

  • Did an employer withhold federal income tax from your pay?
  • Did you make estimated tax payments?
  • Did you overpay taxes in 2019 and have your refund applied to 2020 taxes?

Special Reasons to File

  • Those eligible for an Economic Impact Payment and did not get the payments or the full amount, must file a tax return to claim the recovery rebate credit. This applies even if they are not normally required to file.
  • Those eligible for the earned income tax credit must file a tax return to receive the credit.
  • Those who pay certain higher education expenses may qualify for an education credit even if they do not owe any taxes.

April 15th is the deadline to file 2020 tax returns.

(Source: https://www.irs.gov/newsroom/here-are-reasons-taxpayers-should-file-a-2020-federal-tax-return-and-why-e-file-is-best)

Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.

Advice on Choosing a Reputable Tax Preparer 


Taxpayers are responsible for all information on their income tax return, so it is important to choose a tax return preparer wisely. Listed below are some tips to remember when picking a tax preparer. 

  1. Check the preparer’s qualifications. Taxpayers can use the link below to find a tax return preparer with specific qualifications. https://irs.treasury.gov/rpo/rpo.jsf
  2.  Check the preparer’s history. Taxpayers should check the license status for credentialed preparers and also for disciplinary actions. Taxpayers may ask Better Business Bureau and additional organizations such as Enrolled Agents, State Board of Accountancy, and State Bar Association for information about the preparer. 
  3. Ask about service fees. Taxpayers should avoid preparers who base fees on the percentage of the refund.
  4. Provide records and receipts. A good preparer will ask to see a taxpayer’s records and receipts. 
  5. Make sure the preparer signs the return and includes their PTIN. All paid taxpayers have a Preparer Tax Identification Number (PTIN). They must sign the return and include their PTIN on the return they file. 

 

(Source:https://www.irs.gov/newsroom/tips-to-help-people-choose-a-reputable-tax-preparer

 

-Katie Morita 

Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.

2021 Tax Filing Season begins February 12, 2021


On Friday, February 12, 2021, the Internal Revenue Service will begin accepting and processing 2020 tax year returns. The IRS is urging taxpayers to file electronically with direct deposit to speed up refunds. The IRS expects that 90% of taxpayers will receive their refund within 21 days of when they file electronically with direct deposits if there are no issues with their tax return.  

 

Tips for taxpayers to make filing easier

  • The taxpayer should file electronically and use direct deposit for the quickest refunds.
  • Check IRS.gov for the latest tax information, including the latest on Economic Impact Payments. 
  • Most people who received Economic Impact Payments automatically or anyone who received the maximum amount do not need to include any information about their payments when they file. People who didn’t receive a payment or only received a partial payment may be eligible to claim the Recovery Rebate Credit when they file their 2020 tax return 

 

Key Filing Dates

  • February 12. IRS begins 2021 tax season. Individual tax returns will be accepted and processing begins.
  • February 22. Projected date for the IRS.gov Where’s My Refund tool being updated for those claiming EITC and ACTC, also referred to as PATH Act returns. 
  • First week of March. Tax refunds begin reaching those claiming EITC and ACTC (PATH Act returns) for those who file electronically with direct deposit and there are no issues with their tax returns.
  • April 15. Deadline for filing 2020 tax returns.
  • October 15. Deadline to file for those requesting an extension on their 2020 tax returns

 

File for Free using Free File  

Free File will allow you to prepare and file your federal individual income tax return for free using tax-preparation- and filing software. 

  • https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free

 

(Source: https://www.irs.gov/newsroom/2021-tax-filing-season-begins-feb-12-irs-outlines-steps-to-speed-refunds-during-pandemic

 

-Katie Morita 

Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.

Happy Earned Income Tax Credit Awareness Day!


January 29th, 2021 marks the 15th annual “EITC Awareness Day” by the Internal Revenue Service and partners across the nation. It’s one of the largest refundable federal income tax credits and most people aren’t even aware that they qualify! The average amount received was about $2,500 for each return in the past. Due to the COVID-related Tax Relief Act of 2020, taxpayers can use their 2019 earned income to figure their 2020 EITC if their 2019 earned income was more than their 2020 earned income. To qualify for EITC, people must have earned income, so this option may help workers who earned less in 2020, or received unemployment income instead of their regular wages, get bigger tax credits and larger refunds in the coming year.

For this year’s EITC eligibility requirements, you must be earning less than $57,000 annually along with other criteria. Please use the IRS’ own EITC Assistant Tool linked below to determine your eligibility.

  1. The amount of credit you get if you are eligible depends on:
    Filing status
  2. Earned income and adjusted gross income
  3. Number of qualifying children (if you have any)
  4. Your age – cannot qualify without a child unless you are between 25-65 years old

To get the EITC, workers must file a tax return and claim the credit. Eligible taxpayers are urged to claim the credit even if your earnings were below the income requirement to file a tax return.

To use the EITC Assistant Tool, please visit: https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/use-the-eitc-assistant

For more information on credit limits and qualifications, please visit: irs.gov/eitc

(Source: https://www.irs.gov/newsroom/eitc-awareness-day-critical-tax-credit-provides-a-significant-refund-boost-to-millions)

-Allison Yu

Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.

How President Joe Biden’s Economic Plan May Affect You


On January 20th, 2021, Joe Biden was inaugurated as President of the United States. Before his election, he announced his tax plan which would enact a number of policies aimed at leveling income inequality. Though there is currently no guarantee that his policies will be enacted, here are some of the policies that he has proposed.

  • Higher Tax Rates for High-Income Earners. Biden plans to raise taxes for high-income owners in order to close the wage gap. The proposed tax increases would lift federal revenue by almost $2 trillion over 10 years, thus decreasing the federal budget deficit. Taxes will be increased for individuals making more than $400,000 a year.
  • A 12.4% Social Security payroll tax will be imposed and tax benefits of itemized deductions will be limited to 28% of the value.
  • In addition, the top income tax rate for high-income filers would be restored to 39.6%, reversing the rate of 37% set by the Trump Administration.
  • Tax Breaks for Families. Biden also plans to expand credits for families caring for children and elderly relatives, first-time homebuyers, and purchasers of electric vehicles. However, according to TheBalance.com, these changes would add to the federal deficit by decreasing federal revenue by about $350 billion over the next decade.
  • The Child Tax Credit for 2021 will be expanded up to $3,000 per child 6 to 17 years old and up to and $3,600 for children under 6 years old.
  • The Child and Dependent Care Tax Credit will be raised from a maximum of $3,000 to up to $16,000 per family with multiple dependents.
  • The First-Time Homebuyers’ Tax Credit would be re-established and provide up to $15,000 for taxpayers purchasing their first house.
  • Tax credits will be provided for those caring for the elderly, along with increased tax credits for long-term care insurance.
  • Families, along with others, could also take advantage of the restored electric vehicle tax credit.
  • Tax Breaks for Lower- and Middle-Income Taxpayers. Biden’s goal is to make retirement plans more accessible for Americans who do not currently have access to one.

He proposes to equalize the tax benefits of retirement plans for all Americans by providing a refundable tax credit instead of a deduction. The tax credit would automatically be deposited into the taxpayer’s retirement account as a 26% matching contribution for each $1 contributed. He hopes this would encourage low and middle-income earners to save more for retirement. Besides retirement, Biden recognizes the burden of housing costs on lower-income Americans. His administration is proposing a new renter’s tax credit that reduces rent and utilities to 30% of income for individuals and families. This tax credit is specialized for individuals who may make too much to qualify for a Section 8 voucher but still struggle to pay their rent.
(Source: https://www.thebalance.com/biden-s-tax-plan-5095241)

-Allison Yu

Note: This information cannot take the place of advice from a lawyer. Each case is different and needs individual legal advice. You should contact the LITC or a private attorney if you need representation on a tax matter or if you have questions.

LITC Welcomes the New Year with New Students for Winter Quarter


The LITC wishes you a Happy New Year! Though the LITC is still operating virtually, we have exciting news to start off our year. Along with our director, Lisa Sperow, and one returning team leader, the LITC is welcoming thirteen new students and three new team leaders to the team! January 8th marked the end of the first week of the quarter and our new students have already completed half of their virtual bootcamp where they learn how to assist clients for the next few months.

Like the previous fall quarter, the bootcamp is delivered through Zoom and students gain a solid foundation in tax controversies and terminology through cases and seminars hosted by Lisa Sperow. Before enrolling in the LITC course, these students must be qualifying Accounting senior students and have completed the prerequisite course, BUS 320, Federal Income Taxation for Individuals. In BUS 320, students learn about the IRS Form 1040 and how to compute tax amounts for the average American individual. It is crucial to understand the federal taxation process to work in the LITC, where students are given exposure to real tax controversies.

This winter will be the second quarter that the LITC operates in a hybrid format with some students working in the clinic and some working remotely. Last quarter was the first time the clinic served both clients and students through electronic means. Client interaction and communication have always remained a priority and it was important to not let pandemic restrictions deter that. However, with the careful organization and adaptability of all LITC students and leaders, the clinic was able to smoothly adjust to handling all clients through emails, zoom, and phone calls. The steady success was all due to the hard-working individuals last quarter and is the reason why the clinic is optimistic and hopeful that this quarter can yield similar results.

The students will receive their client cases next week and will begin working on their cases during the week of January 19th to January 22nd. With a new set of students and team leaders, the clinic is excited to get back to work solving clients’ controversies while forming new connections along the way. If you have any questions about getting involved with the LITC do not hesitate to reach out by phone or email.