PRE-SEASON EMAIL #1 (Jan 15, 2021)
I’m just going to jump right in: if you hear advice to file early this year, ignore it. The likelihood of further changes to 2020 tax law is relatively high, and it’s going to be a while before I feel confident that everything (federal and state) is settled. Mid-February at the earliest. There’s no point in rushing anything before then.
Take some time over the next couple of weeks to make a quick list of all the forms you’re expecting to receive — W-2’s, 1099’s, 1098’s, etc. — and download them as soon as you receive notification that they’re available. To make things as simple as possible, put everything in a Dropbox or Google Drive folder that you can share with me later on. Add a summary document with a list of your 2020 charitable contributions, childcare expenses, and other tax-relevant items. (See this list for more info.) Use any format that makes sense to you. I’ll help you fill in any missing pieces.
A few important things:
- **Extensions** — April 15th does not need to be a pressure point! If you’ve never taken advantage of the 6-month filing extensions offered by the IRS and Oregon, this might be the year to give it a try, and I’m happy to handle that for you. Extensions are very easy to request, and they buy a lot of breathing room, at little to no cost.
- In case you’re curious, here are the things that are commonly missing when I receive clients’ tax information.
- If you received income from self-employment or rental activity, please read this. In particular, the information in the section about City/County tax filing is going to require your attention, sooner rather than later.
- If you worked from home as an employee (W-2 income, not 1099 or other self-employment income), there is currently no deduction that can be claimed for any of your home office expenses. Unless Congress changes things, there’s no need to summarize your home office expenses for me.
Ok, that’s enough for now. I have more that I need to communicate, but I’ll save it for a later email. If you want to be taken off of this email list, or if you need to update your email address, let me know.
PRE-SEASON EMAIL #2 (Feb 3, 2021)
Apologies in advance for the long email here. I try to keep these things short, but there’s just a lot that I want to call your attention to this year.
First off: my tax software is sufficiently up-to-date for me to start preparing returns, so you are welcome at this point to send your 2020 tax information over to me. There’s still a very real possibility of (retroactive) changes to 2020 tax law, but I’ll manage that on my end of things.
Second: in the rush of tax season, I know that people don’t always have the opportunity to read all the final signature paperwork closely. In the interest of giving you more time to take it all in, I thought I’d send out a sample copy of the 2020 signature paperwork now, which you can download here (pdf, 3 pages). It includes the current version of the Engagement Letter for this tax season, as well as the E-filing Agreement and the IRS e-File Authorization form. You don’t need to print or sign anything now. I’ll provide all the instructions for signing later.
(“Engagement Letter” is kind of an odd name; it’s a document that specifies the services that I’m providing, and spells out which aspects of the process we’re each responsible for. It changes a little bit each year for clarification, simplification, elaboration, and/or to account for process changes that I generally announce via emails such as this one. I ask new clients to sign the letter the first year that I prepare their tax return, but I don’t ask returning clients to sign it — you’re already familiar with the drill, and I assume that if you had problems with any of the terms in the letter or the info in these emails, you’d let me know.)
Ok, moving on. Here’s what else I’d like to share about the upcoming tax season —
Changes to the overall tax preparation process:
- If you have self-employment or rental income in Portland or Multnomah County, you’ll need to create a username to access your Portland business tax account. This is not straightforward. See here for more info. (Note that the law for the city/county business income tax hasn’t changed, just the filing process; I no longer have any easy way to e-file the required forms with the City of Portland on your behalf, so you’ll be responsible for filing the tax return on your own. I will continue to prepare it for you, and I’ll send you all the numbers in the correct format, but you’ll need to submit it, because I can’t.)
- In addition, I strongly recommend that everyone set up online access to their own personal tax account with the IRS (at irs.gov) and Oregon (at Revenue Online). Covid has created all sorts of tax processing issues and delays; having online access to your own personal income tax account online can make it much easier for you (and me) to resolve problems. At some point in the future, this is going to be a must; it’s the direction they keep pushing us in.
- Avoid paying your federal and state tax bill via paper check this year, especially as we get closer to April 15. Electronic payments are a safer bet. Mail processing at the IRS during Covid has been slow, and payments aren’t always being credited to people’s accounts on time, leading to penalty notices that were being sent out in error. If you end up owing tax to the IRS or OR, I will let you know the best options for making electronic payments.
- I’ll need to ask you whether you had any foreign financial accounts or virtual currency transactions in 2020. I’ll send you some simple yes/no questions once I start working on your return. The IRS is making it a little more difficult for me to just leave it up to you to tell me about certain things.
Things that haven’t changed, but are worth repeating:
- I don’t need (and don’t really want) a paper copy of any of your tax forms, receipts, etc. It slows things down and ups the overall cost. If there are tax forms (W-2’s, etc) that you’ve received in the mail but can’t download a copy of, take a photo and send that to me instead of the paper copy. But if it’s paper or bust, then fine — go ahead and send me the paper.
- Signing the final tax paperwork by hand (on paper) continues to be a better option than e-signatures. E-sign currently requires the involvement of third-party software providers, and it’s not even close to seamless. The IRS is taking steps to make this an easier process, but … they haven’t gotten very far with it yet, and we remain stuck with the rules that they wrote ages ago. Sigh.
- I can mail the final paperwork to you. If you don’t have access to a printer, it’s very easy for me to print the signature paperwork here and drop it in the mail to you. (I know, I know — I just asked you not to send paper to me, and here I am offering to mail something to you.)
Significant aspects of tax law (new and old) that are particularly pertinent this year:
- Some married couples may benefit by filing separately this year. It has to do with getting (ahem) “extra” stimulus money, particularly for dependents. I’d ignore this if I could, since it seems distinctly unfair to double-dip, but I’m not allowed to do that. (Tax law is what it is. We can blame Congress for writing sloppy tax laws, intentionally or otherwise.) I’ll figure out for you whether it’s beneficial to file separately this year, and then let you decide if you think it’s worth the trouble.
- Unemployment benefits are fully taxable. If you were on unemployment, you may get hit with a tax bill this year — especially for Oregon — even if you elected to have taxes withheld.
- There’s no Oregon “kicker” this year. The kicker was a pretty big tax credit for most of you on your 2019 tax return, but it’s an every-other-year thing, so — nothing for tax year 2020. This is going to flip a lot of you from getting an Oregon refund (2019) to owing Oregon tax (2020).
- Contributing to someone’s GoFundMe is not tax-deductible. You’ve probably heard that more people are going to be able to claim a deduction for charitable giving this year, but as always, the donations must have been made to 501(c)(3) organizations. Gifts to individuals, or to non-501(c)(3) organizations, are not deductible. Nor are raffle ticket purchases, auction purchases (usually), or the value of your own time.
- Your employer may have deferred withholding your payroll taxes. This particular aspect of the CARES Act is incredibly confusing and has the potential to make things messy, especially if you had more than one employer. The short of it: for some of you, filing an amended tax return later in the year, or next year, is going to be unavoidable. I’ll let you know.
There’s always more, of course, but I’ll leave it at that and deal with the rest on an individual basis.
If you have questions about any of the above, feel free to ask now, or (preferably, for the sake of consolidation) you can wait until you’re ready to send me your tax info.
Happy February! The days are getting longer, spring is coming…