IRS Tax Tip: Some things to know about crowdfunding and taxes

Tax Tip 2022-120, August 8, 2022

Crowdfunding is a popular way to raise money online. People often use crowdfunding to fundraise for a business, for charity, or for gifts. It’s important to know that money raised through crowdfunding may be taxable.

Some money raised through crowdfunding may be considered a gift.

Under federal tax law, gross income includes all income from any source, unless it’s excluded from gross income by law. In most cases, gifts aren’t included in the gross income of the person receiving the gift. Here’s what people involved in crowdfunding should know:

  • If a crowdfunding organizer is raising money on behalf of others, the money may not be included in the organizer’s gross income, as long as the organizer gives the money to the person for whom they organized the crowdfunding campaign.
  • If people donate to a crowdfunding campaign out of generosity and without expecting anything in return, the donations are gifts. Therefore, they will not be included in the gross income of the person for whom the campaign was organized.
  • However, not all contributions to crowdfunding campaigns are gifts and may be taxable.
  • When employers give to crowdfunding campaigns for an employee, those contributions are generally included in the employee’s gross income.

Taxpayers may want to consult a trusted tax pro for information and advice regarding how to treat amounts received from crowdfunding campaigns.

People may receive Form 1099-K for money raised through crowdfunding.

The crowdfunding website or its payment processor must file Form 1099-K, Payment Card and Third Party Network Transactions with the IRS if:

  • The amount raised is more than $600
  • Contributors to the crowdfunding campaign receive goods or services for their contributions.

If a Form 1099-K is filed, the crowdfunding organizer or the beneficiary of the fundraiser will receive a copy, depending on who received the funding directly from the crowdfunding website.

Receiving a Form 1099-K doesn’t automatically mean the amount shown is taxable. However, if the taxpayer doesn’t include the distributions from the form on their tax return, the IRS may contact the recipient for more information. The recipient may need to explain why the crowdfunding distributions weren’t reported.

Recordkeeping for money raised through crowdfunding.

People who run crowdfunding campaigns or receive money from one should keep careful records about the campaign and the disposition of funds for at least three years.

IRS Tax Tips: Taxpayers should check their federal withholding to decide if they need to give their employer a new W-4

IRS Tax Tip 2022-85, June 2, 2022

The IRS encourages all taxpayers to review their federal withholding at least once a year to make sure they’re not having too little or too much tax withheld.

Taxpayers whose employers withhold federal income tax from their paycheck can use the IRS Tax Withholding Estimator to help decide if they should make a change to their withholding. This online tool guides users, step-by-step through the process of checking their withholding, and provides recommendations to help aim for the withholding amount that’s right for them.

Taxpayers should check with their employer to update their withholding or submit a new Form W-4, Employee’s Withholding Certificate.

Adjustments to withholding

Individuals should generally increase withholding if they hold more than one job at a time or have income from sources not subject to withholding. If they don’t make any changes, they will likely owe additional tax and possibly penalties when filing their tax return.

Individuals should generally decrease their withholding if they qualify for income tax credits or deductions other than the basic standard deduction.

Either way, those who need to adjust their withholding must submit the new W-4 information to their employer as soon as possible since withholding occurs throughout the year.

Individuals who should check their withholding include those:

  • who are working two or more jobs at the same time or who only work for part of the year
  • who claim credits such as the child tax credit
  • with dependents age 17 or older
  • who itemized deductions on prior year returns
  • with large tax refunds or large tax bills for the previous tax year

Reasons to use the Tax Withholding Estimator

The IRS Tax Withholding Estimator can help taxpayers:

  • Estimate their federal income tax withholding
  • See how their refund, take-home pay or tax due are affected by withholding amount
  • Choose an estimated withholding amount that works for them

Individuals who should not use the Tax Withholding Estimator are those:

Taxpayers should prepare before using the Tax Withholding Estimator by having pay statements for all jobs, information for other income sources and their most recent income tax return. The tool does not ask for sensitive information such as name, Social Security number, address, or bank account numbers.

NY Attorney General Hints at Trump Tax Fraud & Other Financial Crimes

As part of her ongoing civil inquiry into the financial dealings of the Trump organization and in response to Donald Trump, Donald Trump Jr. and Ivanka Trump’s motions to quash the investigation into them and the organization, New York State Attorney General Letitia James has requested that the New York State Supreme Court, New York County compel Donald Trump, Donald Trump Jr., and Ivanka Trump to testify under oath in her investigation. Her office also requested that the Trump organization produce documents related to the  financial dealings of the Trump organization.

Upon this Supplemental Verified Petition; the Affirmation of Colleen Faherty, dated January 18, 2022; and its attachments (incorporated herein), OAG moves to compel the testimony of Donald J. Trump, Donald Trump, Jr., and Ivanka Trump, and to compel the production of documents in the possession, custody, or control of Donald J. Trump.

Here are the court documents filed by the Attorney General’s office:

As part of the motion to compel them to testify in her investigation and produce Trump organization documents, Attorney General James’ office outlined potential mortgage, tax and insurance fraud committed by the Trump organization.

Furthermore and more specifically, the office outlined the potential involvement of Donald Trump, Donald Trump Jr., Allen Weisselberg and Ivanka Trump.

The Attorney General’s office said this in their court filing,

“Since moving to compel the testimony of Eric Trump in August 2020, the Office of the Attorney General (OAG) has collected significant additional evidence indicating that the Trump Organization used fraudulent or misleading asset valuations to obtain a host of economic benefits, including loans, insurance coverage, and tax deductions. While OAG has not yet reached a final decision regarding whether this evidence merits legal action, the grounds for pursuing the investigation are self-evident. The OAG filed today’s motion to get necessary testimony and evidence from high-ranking corporate personnel with close involvement in the events under investigation to determine, among other things, their relevant knowledge about those events.

For more than two years, the Trump Organization has used delay tactics and litigation in an attempt to thwart a legitimate investigation into its financial dealings,” said Attorney General James. “Thus far in our investigation, we have uncovered significant evidence that suggests Donald J. Trump and the Trump Organization falsely and fraudulently valued multiple assets and misrepresented those values to financial institutions for economic benefit.

The office went on to say,

Since at least 2004, Mr. Trump and the Trump Organization have prepared an annual “Statement of Financial Condition of Donald J. Trump,” and since 2017, when Mr. Trump became president, these statements have been issued by the Trustees of the Donald J. Trump Revocable Trust, which is overseen by Donald Trump, Jr. and Allen Weisselberg. These financial statements contain Mr. Trump’s or the Trustees’ assertions of net worth, based principally on asserted values of particular assets minus outstanding debt.

The statements were submitted to counterparties, including financial institutions, other lenders, and insurers in connection with Trump Organization business transactions. The counterparties relied on the statements and additional information provided by the Trump Organization in evaluating Mr. Trump’s financial condition.

The Office of Attorney General (OAG) has determined that the Statements of Financial Condition described Mr. Trump’s (or the Trustees of the Revocable Trust’s) valuation process in broad terms and in ways which were often inaccurate or misleading when compared with the supporting data and documentation that the Trump Organization submitted to its accounting firm. Among other things, the statements:

  • Misstated objective facts, like the size of Mr. Trump’s Trump Tower penthouse;
  • Miscategorized assets outside Mr. Trump’s or the Trump Organization’s control as “cash,” thereby overstating his liquidity;
  • Misstated the process by which Mr. Trump or his associates reached valuations, including deviations from generally accepted accounting principles in ways that the statements did not disclose;
  • Failed to use fundamental techniques of valuation, like discounting future revenues and expenses to their present value, or choosing as “comparables” only similar properties in order to impute valuations from public sales data;
  • Misstated the purported involvement of “outside professionals” in reaching the valuations; and
  • Failed to advise that certain valuation amounts were inflated by an undisclosed amount for brand value.

And while the New York State Attorney General’s office cannot impose any jail time on individuals in the Trump organization should they find any wrongdoing, they can  impose financial fines, forfeitures and damages on the Trump organization if they determine that crimes have been committed.

As they state in their filing, “The Attorney General is responsible for overseeing the activities of New York corporations and the conduct of their officers and directors, in accordance with the New York Executive Law and other applicable laws. She is expressly tasked by the Legislature with policing fraud and illegal conduct in business.

They can also refer any other crimes they may come across to district attorneys in other parts of the country who may be able to seek prosecution and jail time for individuals in the organization.

Michael Cohen’s Congressional Testimony

This state investigation is an investigation that started after Donald Trump’s former attorney, Michael Cohen testified before Congress in March of 2019 highlighting some of the crimes that he alleges the Trump organization and Donald Trump committed.

In part of that testimony, Mr. Cohen outlined for New York Congressional House Representative, Alexandria Ocasio-Cortez the various ways the Trump organization carried out tax, insurance and mortgage fraud. Here is that testimony.

Here is the full day of testimony that Mr. Cohen provided regarding his involvement with Donald Trump and his dealings.

It is worth noting that Cohen gave this testimony under oath before Congress. If any of his testimony was found to be false, he would face potential jail time. As of today, he is not faced any jail time due to this testimony.

Attorney General’s Preliminary Findings

Piggyback on this testimony, and as mentioned earlier, the New York State Attorney General’s office has laid out vast instances where the Trump organization and executive at the Trump organization potentially engaged in a number of financially criminal activities.

The majority of the investigation around that activity is related to potential misrepresentations to financial institutions & potential misrepresentations to insurance providers. And in their filing, the AG’s office highlighted a number of Trump properties involved in those potential misrepresentations. They include:

  • Seven Springs in Westchester County New York
  • Trump Tower Triplex in Manhattan New York
  • Trump International Golf Club in Scotland
  • The Trump Brand in Manhattan, New York
  • Trump National Golf Club in Westchester County New York
  • Trump Park Avenue in Manhattan, New York
  • 40 Wall Street in Manhattan, New York

Misrepresentations to the IRS

The investigation is also looking into misrepresentation to the IRS. Specifically, the Attorney General said this,

“Evidence indicates that the Trump Organization also submitted fraudulent or misleading valuations to the Internal Revenue Service (IRS), specifically related to the Trump National Golf Club Los Angeles and Seven Springs.

Evidence indicates that an appraisal commissioned by the Trump Organization and submitted to the IRS substantially overstated the value of a land donation at the Trump National Golf Club Los Angeles by overstating the speed with which the site could be developed and by failing to value a reduction in affordable housing requirements that the donation enabled. During the preparation of that appraisal, one appraiser wrote that “Trump is fighting for every $1.” The misrepresentations were incorporated into the final valuation arrived at by appraisers, and ultimately submitted to the IRS in connection with a tax deduction Mr. Trump sought on the property.

Evidence indicates that an appraisal commissioned by the Trump Organization also substantially overstated the value of a land donation at Seven Springs. After efforts to develop the Seven Springs property in Westchester were unsuccessful, the Trump Organization granted a conservation easement over 158 acres of the property in 2015.

The OAG has identified evidence that the number of lots relied upon to calculate the value of the conservation easement that the Trump Organization sought on this property was more than double what was permitted by development restrictions imposed by a locality — restrictions that the Trump Organization was long aware of and had agreed to on the record at a town meeting. As a result of these restrictions, the Trump Organization would have been required to reduce the number of potential subdivision lots that could be developed, which on information and belief, would have reduced the value reached by the appraisal by as much as approximately 50 percent. The OAG has also identified evidence suggesting that the development timeline used to calculate the value of the easement donation was inconsistent with applicable disturbance restrictions, and if the actual timeline were utilized, it would have further reduced the value of the appraisal.

Mr. Trump’s accountants have told OAG that the easement deductions at Trump National Golf Club Los Angeles and Seven Springs resulted in several million dollars of benefit to Mr. Trump.

Supplemental Verified Petition

The supplemental verified petition portion of the Attorney General’s filing mentioned earlier offers very detailed information about the criminal investigation surrounding the Trump organization and the executives that work in the organization. Here are a number of the highlights. For beginners they start off with the following introductory statement.

The Office of the Attorney General (“OAG”) is currently investigating whether the Trump Organization and Donald J. Trump (“Mr. Trump”) misstated the value of Mr. Trump’s assets on annual financial statements, tax submissions, and other documents and made other material misrepresentations provided to third parties in order to secure loans and insurance coverage and obtain other economic and tax benefits.

Preliminary Factual Findings

Here are the extensive preliminary factual findings in the Attorney General’s report:

  • Statements described Mr. Trump’s (or the Trustees of the Revocable Trust’s) valuation process in broad terms and in ways which are often inaccurate or misleading to a reader when compared with the supporting data and documentation that the Trump Organization submitted to Mazars.
  • It appears that the valuations in the Statements were generally inflated as part of a pattern to suggest that Mr. Trump’s net worth was higher than it otherwise would have appeared.
  • A 2000 appraisal prepared for the Royal Bank of Pennsylvania and sent to the Trump Organization estimated that Seven Springs had an “as-is” market value of $25 million for residential development. The same bank’s records further indicate that a 2006 appraisal showed an “as-is” market value of $30 million. In 2004 the Trump Organization valued the property at $80 million and in 2007 they valued it at $200 million.
  • Despite the Trump Organization’s receipt of a valuation of twenty-four lots across three Westchester townships reflecting a value between $29.5 million and $50 million, the 2014 Statement of Financial Condition valued seven non-existent mansions in Bedford at $161 million—without factoring in the valuation the Trump Organization commissioned or the time it would take to build and sell such homes.
  • As described in previous submissions and alleged in detail below, in March 2016, two Cushman appraisers completed an appraisal of Seven Springs and concluded that the entire property (including undeveloped land and existing buildings) as of December 1, 2015 was worth $56.5 million. Like Mr. McArdle’s verbal consultation, this March 2016 Appraisal—reporting less than one-fifth of the value that Mr. Trump had most recently asserted on his financial statements and certified as accurate to financial institutions—substantially undermines the assertions in Mr. Trump’s Statements of Financial Condition: from 2008 through 2014, the Statements assigned valuations for Seven Springs that range from $200 million to $291 million.
  • For instance at Trump Park Avenue, from 2010-2012 the twelve rent stabilized units were valued collectively at $49,596,000—a rate 98.5 percent higher than the $750,000 valuation for those units in the 2010 appraisal, which valued them based on their rent-stabilized status.
  • With respect to Mr. Trump’s triplex apartment in Trump Tower, OAG has discovered that the valuations of this asset as incorporated into the Statements of Financial Condition since at least 2012 were based on the assertion that the triplex apartment was 30,000 square feet in size. Evidence indicates that Mr. Weisselberg and Mr. McConney both participated in such valuations. Further, there is evidence that documents demonstrating that the actual size of Mr.Trump’s triplex apartment was only 10,996 square feet (namely the condominium offering plan and associated amendments for Trump Tower) were easily accessible inside the Trump Organization, were signed by Mr. Trump, and were sent to Mr. Weisselberg in 2012.
  • Mr. Trump’s Statement of Financial Condition from at least 2013 through 2020 included cash in the Vornado partnership entities as Mr. Trump’s “cash and marketable securities” or similarly identified liquid asset, often comprising a considerable portion of Mr. Trump’s reported liquidity.
  • Mr. Trump’s Statements of Financial Condition for several years reported cash amounts in partnership entities Mr. Trump did not control as Mr. Trump’s own liquidity. In some years these restricted funds accounted for almost one-third of all the cash reported by Mr. Trump (for example $24 million of the total $76 million in cash reported for 2018). For the sake of simplicity, these entities will be referred to here as the Vornado partnership entities.
  • Evidence indicates that the Trump Organization obtained Zurich’s approval to renew the Program on at least two occasions through intentional misrepresentations concerning Mr. Trump’s personal financial statements.
  • Since 2017, Donald Trump, Jr. has had authority over numerous financial statements containing misleading asset valuations.
  • Ms. Trump caused misleading financial statements to be submitted to Deutsche Bank and the federal government.
  • Asked to explain various aspects of the 2012 and 2013 valuations, Eric Trump repeatedly invoked his Fifth Amendment privilege.
  • Eric Trump then invoked his Fifth Amendment right against self-incrimination in response to more than 500 questions over six hours.
  • Asked whether he discussed the valuation of Seven Springs with Mr. McConney on September 12, 2014, Eric Trump invoked his Fifth Amendment privilege.
  • In testimony to OAG, Trump Organization CFO Allen Weisselberg admitted that the value of Mr. Trump’s apartment was overstated by “give or take” $200 million.
  • At testimony held on September 24, 2020, after answering a number of preliminary questions, Allen Weisselberg invoked his Fifth Amendment right against self-incrimination to more than 500 questions over five-and-a-half hours.

The Need for Trump Family Testimony

In asking for their sworn testimony, the Attorney General’s office wants to get an understanding from the Trump family members exactly what happened with some of the transactions that have been highlighted in the investigation. Because, “those involved have not been able to provide plausible justification for the valuation decisions at issue.”

Testimony from family members will provide information that shows that the financial statements were prepared correctly and there are simple misunderstandings about them or that there was fraud involved with the preparation of the statements.

As noted in the filing, the investigation by the Attorney General’s office is still ongoing.

OAG has identified facts and evidence indicating that the annual financial statements, tax submissions, and other documents under investigation contain material misstatements and omissions. It intends to make a final determination about who is responsible for those misstatements and omissions.

There is reason to believe that because Donald Trump, Donald Trump Jr. and Ivanka Trump are the last people being asked to testify, that the investigation is almost over.

Here is MSNBC coverage of the Attorney General’s investigation.

For more on TaxAssurances, check out our reviews, photos and links on Google Reviews. For the TaxAssurances course on selecting the best business entity from a federal tax standpoint, visit: https://taxassurances-llc.mykajabi.com/ For more information about TaxAssurances, visit https://taxassurances.com/

Tax Season Starts on January 24, 2022

The Internal Revenue Service (IRS) announced that the tax season for 2022 starts on January 24, 2022. Here is their full announcement:

IR-2022-08, January 10, 2022

WASHINGTON — The Internal Revenue Service announced that the nation’s tax season will start on Monday, January 24, 2022, when the tax agency will begin accepting and processing 2021 tax year returns.

The January 24 start date for individual tax return filers allows the IRS time to perform programming and testing that is critical to ensuring IRS systems run smoothly. Updated programming helps ensure that eligible people can claim the proper amount of the Child Tax Credit after comparing their 2021 advance credits and claim any remaining stimulus money as a Recovery Rebate Credit when they file their 2021 tax return.

“Planning for the nation’s filing season process is a massive undertaking, and IRS teams have been working non-stop these past several months to prepare,” said IRS Commissioner Chuck Rettig. “The pandemic continues to create challenges, but the IRS reminds people there are important steps they can take to help ensure their tax return and refund don’t face processing delays. Filing electronically with direct deposit and avoiding a paper tax return is more important than ever this year. And we urge extra attention to those who received an Economic Impact Payment or an advance Child Tax Credit last year. People should make sure they report the correct amount on their tax return to avoid delays.”

The IRS encourages everyone to have all the information they need in hand to make sure they file a complete and accurate return. Having an accurate tax return can avoid processing delays, refund delays and later IRS notices. This is especially important for people who received advance Child Tax Credit payments or Economic Impact Payments (American Rescue Plan stimulus payments) in 2021; they will need the amounts of these payments when preparing their tax return. The IRS is mailing special letters to recipients, and they can also check amounts received on IRS.gov.

Like last year, there will be individuals filing tax returns who, even though they are not required to file, need to file a 2021 return to claim a Recovery Rebate Credit to receive the tax credit from the 2021 stimulus payments or reconcile advance payments of the Child Tax Credit. People who don’t normally file also could receive other credits.

April 18 tax filing deadline for most
The filing deadline to submit 2021 tax returns or an extension to file and pay tax owed is Monday, April 18, 2022, for most taxpayers. By law, Washington, D.C., holidays impact tax deadlines for everyone in the same way federal holidays do. The due date is April 18, instead of April 15, because of the Emancipation Day holiday in the District of Columbia for everyone except taxpayers who live in Maine or Massachusetts. Taxpayers in Maine or Massachusetts have until April 19, 2022, to file their returns due to the Patriots’ Day holiday in those states. Taxpayers requesting an extension will have until Monday, October 17, 2022, to file.

Awaiting processing of previous tax returns? People can still file 2021 returns
Rettig noted that IRS employees continue to work hard on critical areas affected by the pandemic, including processing of tax returns from last year and record levels of phone calls coming in.

“In many areas, we are unable to deliver the amount of service and enforcement that our taxpayers and tax system deserves and needs. This is frustrating for taxpayers, for IRS employees and for me,” Rettig said. “IRS employees want to do more, and we will continue in 2022 to do everything possible with the resources available to us. And we will continue to look for ways to improve. We want to deliver as much as possible while also protecting the health and safety of our employees and taxpayers. Additional resources are essential to helping our employees do more in 2022 – and beyond.”

The IRS continues to reduce the inventory of prior-year individual tax returns that have not been fully processed. As of December 3, 2021, the IRS has processed nearly 169 million tax returns. All paper and electronic individual 2020 refund returns received prior to April 2021 have been processed if the return had no errors or did not require further review.

Taxpayers generally will not need to wait for their 2020 return to be fully processed to file their 2021 tax returns and can file when they are ready.

Key information to help taxpayers
The IRS encourages people to use online resources before calling. Last filing season, as a result of COVID-era tax changes and broader pandemic challenges, the IRS phone systems received more than 145 million calls from January 1 – May 17, more than four times more calls than in an average year. In addition to IRS.gov, the IRS has a variety of other free options available to help taxpayers, ranging from free assistance at Volunteer Income Tax Assistance and Tax Counseling for the Elderly locations across the country to the availability of the IRS Free File program.

“Our phone volumes continue to remain at record-setting levels,” Rettig said. “We urge people to check IRS.gov and establish an online account to help them access information more quickly. We have invested in developing new online capacities to make this a quick and easy way for taxpayers to get the information they need.”

Last year’s average tax refund was more than $2,800. More than 160 million individual tax returns for the 2021 tax year are expected to be filed, with the vast majority of those coming before the traditional April tax deadline.

Overall, the IRS anticipates most taxpayers will receive their refund within 21 days of when they file electronically if they choose direct deposit and there are no issues with their tax return. The IRS urges taxpayers and tax professionals to file electronically. To avoid delays in processing, people should avoid filing paper returns wherever possible.

By law, the IRS cannot issue a refund involving the Earned Income Tax Credit or Additional Child Tax Credit before mid-February, though eligible people may file their returns beginning on January 24. The law provides this additional time to help the IRS stop fraudulent refunds from being issued.

Some returns, filed electronically or on paper, may need manual review, which delays the processing, if our systems detect a possible error or missing information, or there is suspected identity theft or fraud. Some of these situations require us to correspond with taxpayers, but some do not. This work does require special handling by an IRS employee so, in these instances, it may take the IRS more than the normal 21 days to issue any related refund. In those cases where IRS is able to correct the return without corresponding, the IRS will send an explanation to the taxpayer.

File electronically and choose direct deposit
To speed refunds, the IRS urges taxpayers to file electronically with direct deposit information as soon as they have everything they need to file an accurate return. If the return includes errors or is incomplete, it may require further review that may slow the tax refund. Having all information available when preparing the 2021 tax return can reduce errors and avoid delays in processing.

Most individual taxpayers file IRS Form 1040 or Form 1040-SR once they receive Forms W-2 and other earnings information from their employers, issuers like state agencies and payers. The IRS has incorporated recent changes to the tax laws into the forms and instructions and shared the updates with its partners who develop the software used by individuals and tax professionals to prepare and file their returns. Forms 1040 and 1040-SR and the associated instructions are available now on IRS.gov. For the latest IRS forms and instructions, visit the IRS website at IRS.gov/forms.

Free File available January 14
IRS Free File will open January 14 when participating providers will accept completed returns and hold them until they can be filed electronically with the IRS. Many commercial tax preparation software companies and tax professionals will also be accepting and preparing tax returns before January 24 to submit the returns when the IRS systems open.

The IRS strongly encourages people to file their tax returns electronically to minimize errors and for faster refunds – as well having all the information they need to file an accurate return to avoid delays. The IRS’s Free File program allows taxpayers who made $73,000 or less in 2021 to file their taxes electronically for free using software provided by commercial tax filing companies. More information will be available on Free File later this week.

In addition to IRS Free File, the IRS’s Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs free basic tax return preparation to qualified individuals.

Watch for IRS letters about advance Child Tax Credit payments and third Economic Impact Payments
The IRS started sending Letter 6419, 2021 advance Child Tax Credit, in late December 2021 and continues to do so into January. The letter contains important information that can help ensure the return is accurate. People who received the advance CTC payments can also check the amount of the payments they received by using the CTC Update Portal available on IRS.gov.

Eligible taxpayers who received advance Child Tax Credit payments should file a 2021 tax return to receive the second half of the credit. Eligible taxpayers who did not receive advance Child Tax Credit payments can claim the full credit by filing a tax return.

The IRS will begin issuing Letter 6475, Your Third Economic Impact Payment, to individuals who received a third payment in 2021 in late January. While most eligible people already received their stimulus payments, this letter will help individuals determine if they are eligible to claim the Recovery Rebate Credit for missing stimulus payments. If so, they must file a 2021 tax return to claim their remaining stimulus amount. People can also use IRS online account to view their Economic Impact Payment amounts.

Both letters include important information that can help people file an accurate 2021 tax return. If the return includes errors or is incomplete, it may require further review while the IRS corrects the error, which may slow the tax refund. Using this information when preparing a tax return electronically can reduce errors and avoid delays in processing.

The fastest way for eligible individuals to get their 2021 tax refund that will include their allowable Child Tax Credit and Recovery Rebate Credit is by filing electronically and choosing direct deposit.

Tips to make filing easier
To avoid processing delays and speed refunds, the IRS urges people to follow these steps:

Organize and gather 2021 tax records including Social Security numbers, Individual Taxpayer Identification Numbers, Adoption Taxpayer Identification Numbers, and this year’s Identity Protection Personal Identification Numbers valid for calendar year 2022.

Check IRS.gov for the latest tax information, including the latest on reconciling advance payments of the Child Tax Credit or claiming a Recovery Rebate Credit for missing stimulus payments. There is no need to call.

Set up or log in securely at IRS.gov/account to access personal tax account information including balance, payments, and tax records including adjusted gross income.

Make final estimated tax payments for 2021 by Tuesday, January 18, 2022, to help avoid a tax-time bill and possible penalties.

Individuals can use a bank account, prepaid debit card or mobile app to use direct deposit and will need to provide routing and account numbers. Learn how to open an account at an FDIC-Insured bank or through the National Credit Union Locator Tool.

File a complete and accurate return electronically when ready and choose direct deposit for the quickest refund.

Key filing season dates
There are several important dates taxpayers should keep in mind for this year’s filing season:

January 14: IRS Free File opens. Taxpayers can begin filing returns through IRS Free File partners; tax returns will be transmitted to the IRS starting January 24. Tax software companies also are accepting tax filings in advance.

January 18: Due date for tax year 2021 fourth quarter estimated tax payment.

January 24: IRS begins 2022 tax season. Individual 2021 tax returns begin being accepted and processing begins

January 28: Earned Income Tax Credit Awareness Day to raise awareness of valuable tax credits available to many people – including the option to use prior-year income to qualify.

April 18: Due date to file 2021 tax return or request extension and pay tax owed due to Emancipation Day holiday in Washington, D.C., even for those who live outside the area.

April 19: Due date to file 2021 tax return or request extension and pay tax owed for those who live in MA or ME due to Patriots’ Day holiday

October 17: Due date to file for those requesting an extension on their 2021 tax returns

Planning ahead
It’s never too early to get ready for the tax-filing season ahead. For more tips and resources, check out the Get Ready page on IRS.gov.

Here is a CBS 13 WJZ news segment on the challenges of the upcoming tax season.

I Messed Up On My Tax Return, How Can I Fix It?

Even when it comes to tax preparation, mistakes happen. Every year a number of filed tax returns need to be fixed because something came up after it was submitted to the Internal Revenue Service (IRS).

For instance, some tax returns need to be fixed because income or expenses related to a business were not included in the original return. Other times, education or childcare expenses are left off of a return. Sometimes, married couples file their tax returns separately but later realize it was better to file their tax return together.

IRS Statistics

The IRS receives between 3.5 and 4 million “fixed” tax returns every year. By comparison, here is a table provided by the IRS that gives a summary and breaks down how many total tax returns they received in the past 2 years.

Number of tax returns filed in 2019 and 2020 by type

For 2020 they received roughly 240 million tax returns. So as you can see, with roughly 4 million tax returns being fixed, errors do not happen that frequently when it comes to filing tax returns.

Most return filers want to make sure they only have to prepare a tax return once so they don’t have to go back and forth with the IRS when it comes to processing a return. For that reason, most preparers make sure they have all the information they need to file a return up front.

Amended Tax Returns

However, when mistakes do happen on a tax return, the IRS allows people to fix or “amend” a tax return. Amending a tax return is a process where the taxpayer puts updated information on the proper tax forms and sends it to the IRS so they can make changes to the original tax return. Making it a more accurate tax return then before.

Here’s how the IRS describes how amended tax returns are used: “When you file Form 1040-X for a tax year, it becomes your new tax return for that year. It changes your original return to include new information. The entries you make on Form 1040-X under the column headings Correct amount and Correct number are the entries you would have made on your original return had it been done correctly.

This is what the IRS 1040-X amended tax return form looks like.

As you can see on the form, part of the process of preparing an amended tax return involves showing what was originally submitted to the IRS (A. Original amount). That’s what is shown in the first column.

To reflect that information, the taxpayer just needs to pull the information off of their original return that they previously sent to the IRS. For some people, that may be easy while others may have more of a challenge with it.

But whether the amended return is prepared by the taxpayer or a tax preparer, reporting the correct information on the amended return is important in making sure the return gets processed without any problems. The IRS will likely want a copy of that original return sent with the “new” return to make sure everything is processed correctly.

The middle column (B. Net change) is where “the magic” happens. This is the section where changes need to be reflected.

So whether it’s adding a spouse to an already filed tax return or accounting for missing student loan interest information, this is the section where the taxpayer lets the IRS know what needs to be fixed.

The last column (C. Correct amount) shows what the new and correct return should be once the adjustments are made in the middle column compared to column A. Making sure this last part is correct is critical to the entire process.

When that’s done, part 3 of the 1040-X involves explaining why the tax return has to be fixed. This is where the taxpayer describes in detail why they needed to amend their original tax return. Providing as much information as possible here is important. It reduces the number of questions that the IRS may have about the form.

Where’s My Amended Tax Return?

Okay, so the amended tax return has been filed and the taxpayer is waiting to hear from the IRS. How can they get an update about what has happened with their amended tax return? 

Fortunately, the IRS provides a helpful link that gives an update about an amended tax return. Here is that link: https://www.irs.gov/filing/wheres-my-amended-return

The IRS also offers some more helpful information about amending a return in this document.

So if you prepared a tax return and realize after you filed it that it needs to be corrected, rest assured that you have options to fix it. And whether you do it yourself or with a tax preparer, just make sure that the IRS is clear about all of the details involved in the process.

Here’s a video that Kolonji Murray of tax preparation company TaxAssurances did about fixing or amending a tax return.

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What Can I Write Off When It Comes To My Daughter’s College Expenses?

For many taxpayers, getting a college education is a pathway to a better life and there’s government data to back it up. The U.S. Bureau of Labor Statistics (BLS) reported in their June 2021 career outlook report, “even in the best of economic times, data show that workers who have higher levels of education typically earn more and have lower rates of unemployment compared with workers who have less education.

Income & Education Analysis

Also, according to recent U.S. Census data, “in 2019, high school was the highest level of education completed by 28.1% of the population age 25 and older and 22.5% finished four years of college.”

“workers with a bachelor’s degree had median weekly earnings of $1,305 in 2020, compared with $781 for workers with a high school diploma.”

U.S. Bureau of Labor Statistics (BLS)

And when income gets compared between high school only and college grads in the recent past, the BLS reports that, “workers with a bachelor’s degree had median weekly earnings of $1,305 in 2020, compared with $781 for workers with a high school diploma. And the unemployment rate for bachelor’s-level workers was 5.5 percent, compared with 9.0 percent for those whose highest level of education was a high school diploma.”

Getting an education helps taxpayers make more money and stay working.

The challenge however when it comes to getting a college degree for most taxpayers, is that, it is not cheap to get. Students and parents that claim their children as dependents on their tax return can spend tens of thousands of dollars a year on a college education.

In fact, in September 2021 U.S. News and World Reports reported that, “the average cost of tuition and fees to attend a ranked public college in state is about 73% less than the average sticker price at a private college, at $10,388 for the 2021-2022 year compared with $38,185, respectively, U.S. News data shows. The average cost for out-of-state students at public colleges comes to $22,698 for the same year.”

Now granted, people do have years to pay it off, but none the less, all of this is a hefty bill for taxpayers trying to attain a better life for themselves and their families.

Tax Help for Educational Expenses

Fortunately, the IRS provides some relief for tax paying parents that claim their children and pay the tuition and other expenses for their children to go to college. It’s not perfect, but “it is something” that offers some relief for them.

Here’s a video Kolonji Murray of tax preparation firm TaxAssurances prepared going over deducting educational expenses on a tax return:

So what deductions are available for taxpaying parents that are helping with the educational expenses of their dependent children?

American Opportunities Credit

The first and most commonly used deduction when it comes to writing off educational expenses is the American Opportunities Credit (AOTC).

To be eligible for AOTC, the student must:

  • Be pursuing a degree or other recognized education credential
  • Be enrolled at least half time for at least one academic period beginning in the tax year
  • Not have finished the first four years of higher education at the beginning of the tax year
  • Not have claimed the AOTC or the former Hope credit for more than four tax years
  • Not have a felony drug conviction at the end of the tax year

The IRS does have some restrictions on who can claim the American Opportunities Credit. Here’s what they say.

To claim the full credit, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly). You receive a reduced amount of the credit if your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing jointly). You cannot claim the credit if your MAGI is over $90,000 ($180,000 for joint filers).

Calculating the AOTC Deduction

The IRS is also specific in terms of what expenses are included in calculating total qualifying educational expenses. Fortunately, they are the largest expenses. They include tuition and fees, room and board, books, supplies and equipment.

Now it is worth noting that the cost of room and board qualifies only to the extent that it is not more than the greater of:

The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student, or The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.

That said, scholarship and fellowship money received for the student’s benefit reduces the amount that can be deducted on a student or parent’s tax return. The idea is that, if you get financial help from sources other than the government and your own resources, then the IRS is not going to provide a benefit for that.

In fact, if a student receives more scholarship or fellowship money than the cost of school, then the money becomes taxable on a tax return. This rarely happens, but it is worth noting.

So as a basic math equations for determining what amount is available for tax deductibility on a tax return, here’s the formula:

Tuition and other expenses

Minus

Scholarship and fellowship money

Student loans and other money paid out of pocket are definitely part of what is eligible for deductibility on a tax return.

So now the important question when it comes to using the American Opportunities Credit, what’s the maximum amount that can be deducted on a tax return in any given year? The answer, $2,500 for 2022.

So yes, if you spend 10, 20, 30, 60, $70,000 for the year, with no scholarships or fellowships for education related expenses, the maximum amount that can be deducted on a tax return is $2,500. I did say it wasn’t much but “it is something.”

IRS form 8863 is what is used to calculate how much of the available $2,500 is actually available to put down as a deduction on a tax return. Here’s what it looks like:

IRS Form 8863 Education Credits

Lifetime Learning Credit

Now there is another education credit that can be deducted on a tax return. It’s typically used for graduate school and in some cases undergraduate school. It’s called the Lifetime Learning Credit (LLC).

Here’s who the IRS says qualifies to deduct the allowable expenses and what the maximum deductible amount is on a tax return.

For TY2020, the amount of your LLC is gradually reduced (phased out) if your MAGI is between $59,000 and $69,000 ($118,000 and $138,000 if you file a joint return).
You can’t claim the credit if your MAGI is $69,000 or more ($138,000 or more if you file a joint return).

The lifetime learning credit (LLC) is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. This credit can help pay for undergraduate, graduate and professional degree courses — including courses to acquire or improve job skills. There is no limit on the number of years you can claim the credit. It is worth up to $2,000 per tax return.

To be eligible for LLC, the student must:

  • Be enrolled or taking courses at an eligible educational institution.
  • Be taking higher education course or courses to get a degree or other recognized education credential or to get or improve job skills.
  • Be enrolled for at least one academic period beginning in the tax year.

Like the American Opportunities Credit, taxpayers have to use IRS form 8863 Education Credits to determine how much of a tax deduction they can take on their tax return based on what they paid in tuition and other expenses.

Student Loan Interest

Parents can also deduct paid student loan interest after their child has graduated or stopped otherwise going to school. Here’s how the IRS puts it.

Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. However, if your modified adjusted gross income (MAGI) is less than $80,000 ($160,000 if filing a joint return), there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntary interest payments.

For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. This deduction can reduce the amount of your income subject to tax by up to $2,500.

The student loan interest deduction is taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Form 1040’s Schedule A.

IRS Education Credit Guidance

In an effort to provide a better understanding on what deductions are available when it comes to tax preparation and education credits, the IRS provided this helpful video for taxpayers:

The IRS also provides this helpful link that provides more in depth information about deducting education related expenses on a tax return.

https://www.irs.gov/newsroom/tax-benefits-for-education-information-center

So if you are a parent that is helping their child try to get ahead by paying their college tuition, just know that the IRS provides a little tax relief for you. It’s not a lot, but “it is something.”

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U.S. Taxpayers Are Getting National Infrastructure Repair

For decades American taxpayers have seen first-hand how much the bridges, roads, tunnels and other pieces of our national infrastructure have decayed. Decay that has impacted rural towns, small cities and large metropolitan areas. As a result, during the past few decades, patchwork has been done to try and fix it. But much more has been needed for a long time.

What Infrastructure Improvements Are Needed?

The American Society of Civil Engineers annually prepares and releases a report that summarizes the overall condition of American infrastructure. It’s a report they have prepared since 1998 and each year it comes back with findings that reflect our need for major repairs to our national infrastructure. Here is a copy of the full report for 2021.

So what are the key findings in this year’s annual American infrastructure report? Here’s what they reported:

The 2021 Report Card for America’s Infrastructure reveals we’ve made
some incremental progress toward restoring our nation’s infrastructure.

For the first time in 20 years, our infrastructure is out of the D ran
ge.

The 2021 grades range from a B in rail to a D- in transit. Five category grades — aviation, drinking water, energy, inland waterways,

and ports — went up, while just one category — bridges — went down. And stormwater infrastructure received its first grade: a disappointing D. Overall, eleven category grades were stuck in the D range, a clear signal that our overdue bill on infrastructure is a long way from being paid off.

While we grade 17 categories individually, our infrastructure is a system of systems and more connected than ever before. As we look at the low grades and analyze the data behind them, there are three trends worth noting:

1. Maintenance backlogs continue to be an issue, but asset management helps prioritize limited funding. Sectors like transit and wastewater have staggering maintenance deficits, but developing a clear picture of where the available funding is most needed improves overall system performance and public safety. The drinking water sector, for example, has embraced asset management and new technology to pinpoint leaks and target repairs.

2. State and local governments have made progress. Increased federal investment or reform has also positively impacted certain categories. Thirty-seven states have raised their gas tax to fund critical transportation investments since 2010. Ninety-eight percent of local infrastructure ballot initiatives passed in November 2020. At least 25 major cities and states now have chief resilience officers. These improvements were made by elected officials from both sides of the aisle and with strong voter support. Meanwhile, categories like ports, drinking water, and inland waterways have been the beneficiaries of increased federal funding.

3. There are still infrastructure sectors where data is scarce or unreliable. Sectors like school facilities, levees, and stormwater still suffer from a lack of robust condition information or inventory of assets. To target investments and allocate funding, routine, reliable data should be the standard.

The elected officials and members of the public who have improved infrastructure policy and supported additional funding are applauded. We’re seeing the benefits of this action in drinking water, inland waterways, and airports. The private sector has invested in the electric grid, freight rail, and more.

However, significant challenges lie ahead. Importantly, the COVID-19 pandemic’s impacts on infrastructure revenue streams threaten to derail the modest progress we’ve made over the past four years. In addition, many sectors and infrastructure owners are learning what it will take to make our communities climate resilient as we grapple with more severe weather. Meanwhile, many of our legacy transportation and water resource systems are still in the D range. These infrastructure networks suffer from chronic underinvestment and are in poor condition.

We’re headed in the right direction, but a lot of work remains.

Along with the findings in the report, engineers came back with the following key recommendations:

To improve our quality of life and strengthen our international competitiveness, we need a strategic and holistic plan to renew, modernize, and invest in our infrastructure. This plan should make basic maintenance a centerpiece as we improve our legacy systems. Importantly, policymakers must understand we are only as strong as our weakest link — if our roadways become too rough to travel, if our bridges close to heavier traffic like ambulances, or if our levees protect one community at the expense of the one next door, the economy grinds to a halt. We all pay the price. ASCE urges bold leadership and action, sustained investment, and a focus on resilience to raise the national infrastructure grade over the next four years, so that every American family, community, and business can thrive.

Outside of the finding in this report, ask any taxpayer and they will tell you how important our roads are. How important our airports are, our drinking water, our hospitals, our electric grids. They will tell you that we need school safety and healthy waterways. Our dams, bridges, airports and hospitals are critical to making sure that we stay safe. So weaknesses in our infrastructure present a number of potential risks wherever they are.

Besides the political disagreements between the two parties, one of the biggest roadblocks that has prevented large infrastructure projects from being done is how to pay for it.  American taxpayers want to make sure that their tax dollars are being spent wisely. They know the work is severely needed, but they also don’t want their tax dollars going toward national waste, fraud and abuse.

Signing of the Infrastructure Bill & Cost

Well recently and thankfully, President Joe Biden signed legislation that dramatically funds major infrastructure work and projects throughout the country.

For many supporters of the bill, they have been working their whole political careers trying to get important legislation like this passed. Thankfully for all of us, they got it done.

Well, $1.2 trillion is how much this infrastructure bill is going to cost.

So the trillion dollar question is, “how much are the American taxpayers going to spend for the massive overhaul to our national infrastructure?” Well, $1.2 trillion is how much this infrastructure bill is going to cost. So what does that mean? It means $550 billion of new federal investments in America’s infrastructure will happen every year over the next 5 years.

Now that we know what the overall cost will be and for how long, the next question is, “how much will be spent on our different infrastructure needs? Things like bridges, airports and the electric grid. Well the politicians in Washington D.C. worked it out. Here’s how your tax dollars will be specifically spent across our various national infrastructure needs.

  • $110 billion for roads, bridges and major infrastructure projects
  • $40 billion for bridge repair, replacement and rehabilitation
  • $66 billion in passenger and freight rail. (The funds would eliminate Amtrak’s maintenance backlog, modernize the Northeast Corridor line and bring rail service to areas outside the Northeast and mid-Atlantic regions)
  • $12 billion in partnership grants for intercity rail service, including high-speed rail
  • $65 billion investment in improving the nation’s broadband infrastructure. (It also aims to help lower the price households pay for internet service by requiring federal funding recipients to offer a low-cost affordable plan, by creating price transparency and by boosting competition in areas where existing providers aren’t providing adequate service. It will also create a permanent federal program to help more low-income households access the internet.)
  • $65 billion to rebuild the electric grid. (It calls for building thousands of miles of new power lines and expanding renewable energy.)
  • $55 billion to upgrade water infrastructure. (It will replace lead service lines and pipes so that communities have access to clean drinking water.)
  • $50 billion will go toward upgrading water infrastructure and making the system more resilient — protecting it from drought, floods and cyberattacks.
  • $39 billion to modernize public transit. (The funds will repair and upgrade existing infrastructure, make stations accessible to all users, bring transit service to new communities and modernize rail and bus fleets, including replacing thousands of vehicles with zero-emission models.)
  • $25 billion in airports to address repair and maintenance backlogs, reduce congestion and emissions near ports and airports and promote electrification and other low-carbon technologies
  • $21 billion to clean up Superfund and brownfield sites, reclaim abandoned mine land and cap orphaned gas wells
  • $17 billion in port infrastructure to address repair and maintenance backlogs, reduce congestion and emissions near ports and airports and promote electrification and other low-carbon technologies
  • $11 billion for transportation safety
  • $7.5 billion for zero- and low-emission buses and ferries, aiming to deliver thousands of electric school buses to districts across the country.
  • $7.5 billion will go to building a nationwide network of plug-in electric vehicle chargers.
  • $1 billion to reconnect communities (It will fund planning, design, demolition and reconstruction of street grids, parks or other infrastructure.)

So with the allocation of these tax dollars, we can all look forward to safer and more reliable infrastructure. And to make sure that there is very little if any waste, fraud and abuse of our tax dollars, President Biden has appointed former New Orleans mayor Mitch Landrieu to oversee the administration of taxpayer dollars for these vast projects.

Signing Day & Full Text of the Bill

So what does the signing ceremony look like and what are the full details of the legislation?

Surrounded by Vice President Kamala Harris, Senate Majority Leader Chuck Schumer, Speaker of the House Nancy Pelosi and a number of other leading lawmakers, here is the actual moment that President Biden signed the infrastructure bill.

Also, here is the full text of the legislation that President Biden signed into law.

Investing in the Future

So hopefully with these major improvements in our infrastructure, not only will we be safer, but it will also prepare us as a country to be competitive with the rest of the world going into the future.

President Biden represented Delaware for 36 years in the U.S. Senate before becoming the 47th Vice President of the United States.

The American Society of Civil Engineers, founded in 1852, is the country’s oldest national civil engineering organization. It represents more than 150,000 civil engineers in private practice, government, industry, and academia who are dedicated to advancing the science and the profession of civil engineering, and protecting public health, safety, and welfare.

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Taxable and Nontaxable Income

When it comes to people getting paid, there are a number of ways that it can happen. However, it’s safe to say that most income that people receive is taxable both at the federal level and the state level.  So when tax season comes around, any income that is taxable should be reported on both tax returns.

However, there are certain circumstances when income that someone receives is not taxable. There are also circumstances where some of the income is taxable while other parts of the income are not taxable. Therefore, it is important that a taxpayer understands what income is taxable and what income is not taxable.

Here’s how the Internal Revenue Service (IRS) puts it, “Income that is taxable must be reported on your return and is subject to tax. Income that is nontaxable may have to be shown on your tax return but isn’t taxable.”

Nontaxable Income

The first question that most people have when it comes to income being taxable is, “what income is not taxable?” Fortunately, the IRS lays out pretty clearly what income is not taxable.  Here is a quick list:

  • Child Support Payments
  • Welfare Benefits
  • Gifts & Inheritance to the Recipient
  • Alimony Payments to the Recipient
  • Court Awards or Settlements for Personal Injury or Sickness
  • ROTH IRA Distribution

So any taxpayer receiving any money from these sources doesn’t have to worry about paying taxes on the money they receive and reporting it on their taxes. There are a number of reason why the IRS doesn’t tax this money, but again, none of it is taxed and reportable.

Partially Taxable Income

There is some income that is either not taxed, partially taxed or fully taxed depending on the circumstances. The most common type of income that fits this description is social security income.

Fortunately, the IRS provides guidance and a worksheet on how much social security income is taxed.  But it’s worth noting that the basic idea when it comes to social security income is that the more overall income that an individual has, the more their social security will be taxed.

In other words, the IRS takes the position that the more money that you make in retirement including your social security income, the more that you can afford to pay taxes on your social security income as well as your other income.

Now it is worth noting that if the only income that a retired taxpayer has is social security income, then none of that income is taxable. However, if they have a job, if they receive retirement money, if they receive distributions, then the more that they receive, the more of their social security and overall income is taxed.

Here’s a helpful IRS video that goes over the taxation of social security income.

So if a taxpayer wants to know how much of their social security income is taxable how can they find that out?  Fortunately, the IRS provides a worksheet that helps figure that out.

For that worksheet (page 7 of 33) and other social security tax information the IRS provided the following publication:

IRS Publication 915 – Social Security and Equivalent Railroad Retirement Benefits

Fully Taxable Income

So then there are the final questions about income being taxable and as I mentioned earlier, most income is taxable. Therefore, taxpayers want to make sure that enough taxes are taken out of their pay, to pay their appropriate tax rate. The IRS provides a table of tax rates so that people at different tax levels can understand what their tax rate is, so they can pay the appropriate amount in taxes.

Here are the marginal tax rates for 2022 provided by the IRS.

To get a deeper understanding of taxation on the various types of income that are possible, IRS publication 525 goes into great detail about how to account for it. But here are the main ways that taxpayers receive some sort of taxable income for the year:

  • Wages/Salaries/Bonuses
  • Tips
  • Fringe Benefits
  • Punitive Damages or Compensation for Lost Wages
  • Bartering
  • Traditional IRA Distribution
  • Business & Investment Income

Now each one of these income sources has their own way for figuring out how much is taxable, but it is safe to say that this income should be reported on the federal tax return and the state tax return at the end of the year.

IRS Tax Help

Now obviously, TaxAssurances can provide helpful guidance on distinguishing between taxable and non taxable income. However, taxpayers can also get more of an understanding on what income is taxable and what income is not taxable, with this video from the IRS.

Also, as mentioned earlier, the Internal Revenue Service provides publication 525 for more information about what income is taxable and what income is not taxable.  To get a copy of that publication, click on the link below.

Click to access internal-revenue-service-publication-525-taxable-and-nontaxable-income.pdf

Finally, here is a helpful IRS tool to help with any other taxable income questions that you may have. https://www.irs.gov/help/ita

The Internal Revenue Service is the revenue service of the United States federal government, which is responsible for collecting taxes and administering the Internal Revenue Code, the main body of the federal statutory tax law.

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The Cost of American Racism – Measured by the Federal Reserve Bank of San Francisco President, Mary C. Daly

With a grant funded by the National Science Foundation Graduate Research Fellowship and released through the Brookings Institution at the Fall 2021 BPEA conference, President and Chief Executive Officer of the Federal Reserve Bank of San Francisco, Mary C. Daly

Mary C. Daly, President and CEO of the Federal Reserve Bank of San Francisco

along with Lori Y. Choi, Vice President of Community Development at the Federal Reserve Bank of San Francisco, graduate student Shelby R. Buckman of Stanford University and graduate student Lily M. Seitelman of Boston University, embarked on research that examined the economic impact of racism in the overall American economy.

The final paper entitled, “The Economic Gains from Equity” specifically examines,

“how much larger would the U.S. economic pie be if opportunities and outcomes were more equally distributed by race and ethnicity?”

With an approach that used data from the Current Population Survey (1990-2019), and that focused on non-self employed, civilian, non-institutionalized adults ages 25–64, they estimated the improvements in aggregate output associated with more equal outcomes in employment, hours worked, educational attainment, educational utilization, and earnings by race and ethnicity.

So what did their research reveal?

Here are 19 Take-Aways from the Paper

  1. Many racial and ethnic minorities are “over-educated” for the jobs they hold.
  2. Over the entire sample period, the average employment gap between white and Black males is about 11 percentage points because Black males are far less likely to be employed than other males.
  3. Structural barriers have persistently disrupted the lives of many Americans, leaving the talents of millions of people underutilized or on the sidelines. The result is lower prosperity, not just for those affected, but for everyone.
  4. 60 years after the passage of the Civil Rights Act, and the countless policies and programs that have followed, race and ethnicity remain significant predictors of labor market success in the U.S.
  5. Ongoing differences in education do play a role in determining economic opportunities.
  6. The persistence of systemic disparities is costly, and eliminating them has the potential to produce large economic gains.
  7. More equitable allocation matters both for the level of GDP and for the process of sustained economic growth.
  8. Changing opportunity affects both current and future economic output.
  9. Employment rates for Black males are consistently lower than for all other groups.
  10. Eliminating disparities in employment rates and educational attainment would contribute substantially to economic output.
  11. Gains could come from eliminating earnings gaps.
  12. Even when gaps in educational attainment are closed, research has found that racial and ethnic minorities may not always be in occupations consistent with their degrees. The gap is especially large for Black and Hispanic males.
  13. White males work more hours than Black, Hispanic, or API+ males.
  14. Black and API+ females work more hours than their white or Hispanic counterparts.
  15. The persistent and large differentials in the employment opportunities of racial and ethnic minorities, even after controlling for educational attainment, point to considerable underutilized human resources that if more equitably allocated could boost aggregate output.
  16. There is a sizeable gap between the earnings of white and API+ workers and the earnings of Black and Hispanic workers.
  17. In 1990, the average Black female earned about 87 percent of the average white female. As of 2019, the average Black female earned only 82 percent of the average white female.
  18. The largest gains to GDP come from equalizing employment and educational attainment.
  19. Among males, the white-Black earnings gap is consistently larger for those with a bachelor’s degree or higher, but sizable gaps exist for all education groups.

But along with these findings, the group, as mentioned at the outset, also set out to imagine what if. What if gaps were erased? How much better would the U.S. economy be?

Here are some of their estimates

* Closing gaps between Black and white adults in wages, higher education, home ownership, and entrepreneurship would have generated significant additional income for saving, investing, and consumption, leading to a GDP boost of $16 trillion over the past 20 years, and a projected $5 trillion gain over the next five years.

  • $0.76 trillions of dollars lost each year.
  • Between 1990 and 2019, the annual gains from equity, including labor and capital, would have amounted to nearly $51 trillion in extra GDP
  • Economic gains from achieving greater equity over our 30 year sample adds up to almost $22.9 trillion dollars.
  • Multiplying our percentage gain in labor income (10 percent) by aggregate labor income of $11.45 trillion generates an aggregate gain to GDP of about $1.15 trillion from eliminating gaps in 2019 alone.
  • Eliminating earnings gaps alone would add about $0.66 trillion to GDP.
  • Improved allocation of talent contributed between 20 percent and 40 percent of the total growth in aggregate market output per person during this period.
  • Lowering human capital barriers explains 36 percent of growth in GDP per person over the period.
  • Declining labor market discrimination explains 8 percent of growth.
  • Through the lens of an Oxford model, closing the Black-white wealth gap by 2028 would increase aggregate output by 4-6 percent using income, tangible investments, and stock-market investments as components of wealth.

So given these gaps, what are the recommendations offered by the paper that would improve these market inefficiencies?

Here are a few of their recommendations:

Imagine what’s possible if equity is achieved.

More equitable allocation of talent by education, employment, and jobs improves innovation, invention, and entrepreneurship, which sets the foundation for growth today and growth in the future.

To discuss their approach, findings and estimates, President Daly and her team participated in a Brookings Institution virtual conference presentation giving attendees and listeners a chance to hear from them. This Brookings Economic Studies program video is that one-hour panel discussion that President Daly and others had.

For reference, here is a copy of the full report complied for the Brookings Economic Studies program and the BPEA Fall 2021 conference by President Daly and her team:

The Brookings Institution is a nonprofit public policy organization based in Washington, DC. Their mission is to conduct in-depth research that leads to new ideas for solving problems facing society at the local, national and global level. For more information on them and their work, visit their website at https://www.brookings.edu/

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How Much Money Did the Federal Government Get from Taxpayers Last Year and How Did They Spend It?

Recently, the Treasury Department under the leadership of Secretary of the Treasury Janet L. Yellen and Acting Director of the Office of Management and Budget Shalanda D. Young, released information about how much the federal government received in revenue for Fiscal Year 2021 (October 1, 2020 to September 30, 2021). They also disclosed how much the federal government spent. Here’s a brief summary.

Federal Government Revenue Received for the Year

“the Treasury Department in fiscal year 2021 took in a total of $4 trillion dollars.”

In terms of tax revenue from American taxpayers, the Treasury Department in fiscal year 2021 took in a total of $4 trillion dollars. The $4 trillion dollars that was received by Treasury was $465 billion dollars higher than the budget estimate of $3.6 trillion dollars.

The Treasury Department described the increase in received revenues over its estimates this way:

“This net increase in receipts was the net effect of higher-than-estimated collections of individual income taxes, corporation income taxes, social insurance and retirement receipts, estate and gift taxes, deposits of earnings by the Federal Reserve, and excise taxes, partially offset by lower-than-estimated collections of customs duties and other miscellaneous receipts. The increase in 2021 receipts can be largely attributed to higher personal and business income.”

So where did the $4 trillion dollars come from that the federal government received? Well, $2 trillion dollars was received by the government from individual income taxes that were paid by every day American taxpayers. Corporation income taxes that the government received totaled $371 billion dollars for the year. Social Security insurance and retirement receipts for FY2021 totaled $1.3 trillion dollars.

For the rest of the income that the federal government received, excise tax revenue taxes were $75 billion dollars. Estate and gift taxes were $27 billion dollars. Customs duties were $80 billion dollars and miscellaneous receipts were $133 billion dollars.

So as you can see, half of the tax revenue that the federal government received for fiscal year 2021 came from individual income taxes paid by everyday American taxpayers.

Federal Government Spending for the Year

Now in terms of money that was spent by the federal government, the  total for FY2021 was $6.8 trillion dollars.

So when it came to how much the federal government spent, where were the biggest amounts?

Well first and foremost, as would be expected, $1.6 trillion dollars was spent by the Treasury Department. The reason why the Treasury spent so much is because the coronavirus had a huge impact on how much the federal government had to spend to save the American economy.

Also, the federal government had to spend money to pay the interest on the debt for what we already borrowed from past decades. Currently, the U.S federal government owes $28 trillion dollars.

The next largest amount spent by the federal government for FY2021 was through the Department of Health and Human Services and they spent $1.5 trillion dollars. So why did they spend $1.5 trillion dollars? The Department of Health and Human Services is responsible for the Medicare and the Medicaid programs that help seniors and people on low or with no income, receive health care. Without these government programs, many American taxpayers would not have access to affordable health care.

Social Security Administration has the next largest expense with $1.19 trillion dollars for FY2021. The primary role that the Social Security Department plays is providing monthly income to retired seniors. And it’s estimated that roughly 40% of seniors rely solely on social security for their total monthly income.

The next largest expense that the federal government incurred was through the Department of Defense and for FY2021 they spent $717 billion dollars.

As you would expect, the Department of Defense is the military and their primary role is to protect the United States of America through the different branches of the military which include the Army, the Navy, the Air Force, the Marines and the Coast Guard.

The federal government also spent $404.8 billion dollars on the Department of Labor. And in the year of covid lockdowns and furloughs, and layoffs, the unemployment checks that many taxpayers received from the Department of Labor helped them pay for some necessary expenses in their lives.

It is worth noting that outlays in the Department of Labor were $147.8 billion lower than the Budget estimate. The Treasury Department described the reasoning for that difference this way:

“The difference was attributable primarily to lower-than-expected outlays in the Unemployment Trust Fund and Federal Additional Unemployment Compensation account. Outlays were lower in the Unemployment Insurance (UI) Program due to approximately half of states terminating the CARES Act pandemic UI programs early, economic conditions improving faster than expected, and ongoing claims backlogs.”

After those large expenditures, the government starts to spend a little bit less money on other departments. But it is worth noting that of the $6.8 trillion dollars that was spent by the federal government in total for FY2021, $5.44 trillion dollars or roughly 79.6% of total spending went to those 5 departments.

So after that for instance, the federal government spent $235 billion dollars on the Department of Agriculture. It spent $260 billion dollars on the Department of Education. It spent $91 billion dollars on the Department of Homeland Security. It’s spent $31.8 billion dollars on the Department of Housing and Urban Development. It spent $39 billion dollars on the Department of Justice. It spent $104.9 billion dollars on the Department of Transportation. The federal government spent $322 billion dollars with the Small Business Administration.

Federal Deficit for FY 2021

So as you can see, if the federal government received $4 trillion dollars in revenue but they spent $6.8 trillion dollars in expenses, then we as a country for FY 2021 had a deficit of $2.8 trillion. And given the impact of covid-19, that makes sense.

Here is full testimony that Treasury Secretary Janet Yellen provided, along with Federal Reserve Chairman Jerome Powell, to the Senate Banking, Housing and Urban Affairs Committee about the financial impacts of FY2021 and other financial conversation of national interest:

For more information about the annual report put out by the Treasury Department that summarizes how much was spent and how much was received for FY2021, here is the Treasury link: https://home.treasury.gov/news/press-releases/jy0428

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