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Understanding Tax Laws 2020 by Lisa P. Gill CPA
As Pastors, Business Owners and Taxpayers, how do we know, yet understand what’s accurate information, misinformation or disinformation?
Let’s get an understanding of wisdom. An understanding is the ability to perceive and discern a situation in order to apply wisdom. Today, all of us receive an overwhelming amount of information from many sources; sources, known and unknown.
Over many years of educating, equipping and empowering churches, tax exempt entities, small businesses and individual/family tax clients, we have experienced too often the application of misinformation and disinformation leading to a financial crisis, especially as it relates to the federal and state income taxes for businesses and individuals.
Our CPA firm and its Staff are educated, trained, experienced and gifted to differentiate the varying types of information received and to apply the “accurate information” to the accounting and tax processes and procedures which ensures compliance with federal and state tax codes and the issuance of accurate financial data and information. Ultimately, we focus on the Pastors, Business Owners and Taxpayers being educated, equipped and empowered which provides a high level of compliance and alleviates letters, contacts and visits from regulatory authorities.
Following, we provide “accurate information” from the Internal Revenue Code and Federal and State Programs for your preparedness with your 2020 federal and state taxes.
Federal Economic Impact Payment (Rebate)
Based on eligibility, during 2020, the federal government approved and issued $1,200 or $2,400, if married filing jointly. In addition, $500 was added for each eligible child.
These payments are considered a federal tax rebate/ credit for the tax year 2020. You are not required to repay the tax rebate/credit and it will not increase your 2020 taxable income. However, the IRS “Draft” 2020 Form 1040 revealed the tax rebate/credit will be reported on your 2020 tax return, but again, it will not impact your taxable income and you are not required to repay.
Federal Pandemic Unemployment Compensation (FPUC) check of $600
The weekly Federal Pandemic Unemployment Compensation (FPUC) check of $600 that Congress authorized as part of the CARES Act is considered to be taxable income. States must include the FPUC payments when preparing Form 1099-Gs for 2020.
State Unemployment Compensation
Monies received from the State as an unemployment benefit is considered by the IRS to be “taxable income.” As income, it is subject to the same income tax requirements as regular income from a job. Also, the State of North Carolina requires state taxes on unemployment benefits. Check your State of residence to determine if you must pay State taxes for unemployment compensation.
The Consequences of not Filing a Tax Return
The question is asked, what is the importance of April 15th? We all lift our voices to say tax returns and tax payments, if applicable, are due (As a note, the tax return due dates may differ for tax exempt, partnerships, and corporations)! While we know the due date, some choose not to file tax returns. Our responsibility is to communicate to your understanding the severe consequences and tremendous financial obligations evolving from a decision not to file tax returns timely.
Whether you owe money, or you are entitled to a refund of taxes you paid, there are consequences for failing to file an income tax return.
✓ You will be liable for penalties.
Late filing penalties. If you file more than 60 days after the due date of the tax return, the penalty can be up to a maximum of 25% of the unpaid tax.
Late payment penalties. Filing an extension to file your return does not extend the due date for the payment of taxes. Late payment penalties accrue at a rate of 5% of the unpaid taxes per month, up to a maximum of 25% of the unpaid tax.
✓ You could be charged with a crime.
Failing to file a tax return can be classified as a federal crime punishable as a misdemeanor or a felony. Willful failure to file a tax return is a misdemeanor pursuant to IRC 7203. If an overt act of evasion occurred, willful failure to file may be elevated to a felony under IRC 7201. If you are charged with a criminal tax violation, the punishment can be severe and may include fines and imprisonment.
✓ The statute of limitations does not start until a tax return is filed.
Generally, the IRS has three (3) years from the filing of a return to audit a tax return and propose an assessment. Once assessed, the IRS generally has ten (10) years from the date of that assessment to collect on an outstanding tax bill. While these periods can be extended under certain circumstances, neither of these periods of limitation start until a tax return is filed resulting in the IRS assessing and collecting on the tax many years later.
✓ The IRS can prepare a tax return for you.
Every tax year, the IRS receives income information reported by third parties via Form W-2, Form 1099 and related forms. The IRS can use this information to prepare a tax return for you meaning they will not include your exemptions, deductions and credits which results in a higher tax liability.
✓ You could lose your refund.
Generally, you are not penalized for filing late if you are due a refund. However, you only have three (3) years from the due date to file the tax return and claim your refund. After the three (3) year period, any unclaimed refund is automatically turned over to the government. Further, if your late filed tax return is subsequently audited resulting in an underpayment of tax, the late filing and late payment penalties will be applied.
