As we all know, the four seasons are baseball, football, basketball and tax. Those who have been eagerly awaiting 2022 tax season need wait no longer! IRS is ready to receive 2021 tax returns. If you have all the necessary information, file now to speed those refund dollars into your eagerly waiting fingers.
IRS is shorthanded this year — like all employers, they’re dealing with omicron absences — and that means it’s more important than ever to file electronically. Paper returns may crumble into dust before remaining IRS staff get around to processing them.
Reminder: If your return includes a claim for earned income credit or additional child tax credit, IRS isn’t allowed to issue a refund until mid-February, even if you file the return right away. The law requires this pause to give the IRS extra time to weed out fraudulent refund claims based on those credits.
There’s still time to take advantage of a special provision letting you claim a charitable contribution deduction for 2021 even if you don’t itemize. The main restrictions:
- The contribution must be paid by cash, check or credit card. Donations of property don’t qualify.
- The dollar limit is $300 or, if married filing jointly, $600 for the couple. (A glitch that limited married couples to $300 last year has been fixed.)
Contributions in larger dollar amounts or made in the form of property are still allowed of course, but won’t be deductible unless you itemize.
Due to a quirk in the tax system, you may encounter alternative minimum tax (AMT) if you have a large long-term capital gain. We’ve updated and revised our explanation of how this happens and what you may be able to do about it.
AMT and Long-Term Capital Gain
The IRS has posted a series of videos explaining how to make an offer in compromise (“OIC”). You may want to make an OIC if you have an unpaid federal tax debt that’s beyond your reasonable ability to pay. If the IRS accepts your offer, your debt will be reduced to an amount you can handle so you can get on with your life.
The OIC process has some strict eligibility rules, including a requirement that you’re up to date in filing all your tax returns. For those who are eligible, the process is anything but quick and easy. Take this on without professional assistance only if you’re reasonably well organized and have the patience to work through instructions, gather all necessary information and enter it into the appropriate forms. You’ll also need to be prepared for long delays from the IRS in processing your offer.
More than half these offers are rejected, especially those prepared without professional help. Many filers hope to avoid paying the full amount they’re able to pay, and make an offer too low for the IRS to accept. Many others fail to meet all the requirements. For those who qualify, and make an acceptable offer, the process can provide the proverbial new lease on life.
If you think you need professional help preparing your OIC, take care to use a reputable professional. This is an area where scammers seek to lure customers with a promise they’ll reduce a tax debt to mere pennies on the dollar, but fail to deliver. A capable pro can make the difference in whether your OIC succeeds, though.
For those who want to tackle this on their own, IRS covers the entire application in videos with total length a little over an hour (more if you also have a business entity that needs relief). Congress keeps the IRS strapped for cash, and perhaps for that reason the videos are distinctly lacking in production values. They do the job, though, and if you don’t like viewing them, you can simply read the script, which appears when you scroll down from the video.
Offer In Compromise (irsvideos.gov)
Recently there’s been some back-and-forth between Mayor Francis Suarez of Miami and mayor-elect Eric Adams of New York. Each wants his city to be a hub for cryptocurrency activity. So, when Suarez tweeted that he would take his next paycheck in bitcoin, Adams responded he would take his first three paychecks in bitcoin. I guess you’d call that an act of twoupmanship.
It turns out the Big Apple doesn’t have the mechanism in place for such payments, so an Adams spokesperson says hizzoner will instead receive cash and use it to buy bitcoin. Before we learned this, some were speculating about how Adams would be taxed on the receipt of bitcoin as salary, and on disposition of the bitcoin. What would be his basis for bitcoin received as salary? Would he end up being taxed double when he sold the crypto?
Actually, these questions are easy to answer. Back in 2014, the IRS said they would treat bitcoin and similar cryptocurrencies as property. When you receive property as compensation for services, you report compensation income equal to the value of the property when you received it, and the property takes a basis equal to the amount of income you reported. In essence, you have the same tax treatment as if you were compensated in cash and immediately used that cash to buy whatever property you received. You won’t be taxes double. A later sale produces taxable gain only to the extent the value increased while you were the owner.
Normally we don’t see people compensated in property other than stock of the employer, but with certain exceptions these rules can apply to anything that’s treated as property for tax purposes.