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The Internal Revenue Service (IRS) has announced that it will allow the use of E-signatures on certain tax forms that cannot be filed electronically. This is a temporary move intended to reduce in-person contact and lessen the risk to taxpayers and tax professionals during COVID.

What does that mean? Well, some forms, like Form 1040, U.S. Individual Income Tax Return, are already set up to allow e-signatures when filed electronically. More than 90% of Form 1040s are filed electronically.

But others, like Form 3115, are not: they’re intended to be signed on paper. Forcing tax professionals and taxpayers to sign by paper – and then asking the IRS to process that paper – just isn’t practical right now. As a result, the IRS is taking these temporary steps.

“We take the health and safety of the nation’s taxpayers, the tax professional community and our employees very seriously,” said IRS Commissioner Chuck Rettig. “Expanding the use of digital signatures is an important step during COVID-19 to help tax professionals. We understand the importance of digital signatures to the tax community, and we will continue to review our processes to determine where long-term actions can help reduce burden for the tax community, while appropriately balancing that with critical security and protection against identity theft and fraud.”

So, which forms can you sign digitally (for now)?

For now, the following forms can be submitted with digital signatures:

  • Form 3115, Application for Change in Accounting Method;
  • Form 8832, Entity Classification Election;
  • Form 8802, Application for U.S. Residency Certification;
  • Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit;
  • Form 1120-RIC, U.S. Income Tax Return For Regulated Investment Companies;
  • Form 1120-C, U.S. Income Tax Return for Cooperative Associations;
  • Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts;
  • Form 1120-L, U.S. Life Insurance Company Income Tax Return;
  • Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return; and
  • Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file Signature Authorization Forms.

This is a temporary measure and applies to those tax forms that are signed and postmarked beginning on or after August 28, 2020, through December 31, 2020. The IRS plans to monitor the submissions and determine if additional steps are needed.

And if you’re wondering whether you have to use a specific brand or type of e-signature, the answer is no. According to an IRS memorandum, electronic and digital signatures may be created by many different technologies and they are not specifying a particular technology for this purpose.

The Internal Revenue Service (IRS) has released a draft of Form 1040, U.S. Individual Income Tax Return. There are several notable changes to the form proposed for the tax year 2020 – the tax return that you’ll file in 2021. And… postcard-sized, it’s not. Let’s dive right in.

Virtual currency. At first blush, the top of the return doesn’t look much different from the 2019 tax return with one rather interesting exception: the virtual currency question’s placement. A new cryptocurrency compliance measure for taxpayers was introduced in 2019 in the form of a checkbox on the top of Schedule 1, Additional Income and Adjustments to Income (downloads as a PDF). Schedule 1 is used to report income or adjustments to income that can’t be entered directly on the front page of form 1040.

I noted last year that the IRS has made no secret that it believes that taxpayers are not correctly reporting cryptocurrency transactions. An IRS dive into the data showed that for the 2013 through 2015 tax years, when IRS matched data collected from forms 8949, Sales and Other Dispositions of Capital Assets, which were filed electronically, they found that just 807 individuals reported a transaction using a property description likely related to bitcoin in 2013; in 2014, that number was only 893; and in 2015, the number fell to 802.

You may recall that I wasn’t a fan of the location since taxpayers who don’t have to file Schedule 1 for any other purpose may not be aware that they need to file Schedule 1 to answer to this question if it applies to them. Yes, tax software interviews will likely catch it – but what if they don’t? Or what if taxpayers are completing the form by hand? Or if tax preparers don’t think to ask? I said at the time that “I think it’s something that IRS will need to address.” Clearly, they did.

I also noted at the time that:

It’s clear that the IRS is getting serious about cryptocurrency reporting.

I think the new placement of the virtual currency question signals – even more than before – that the IRS is taking action.

Standard Deductions and Dependents. Largely nothing to see here. The information requested and the layout remain mostly the same.

Charitable contributions. Typically, you don’t see reference to charitable contributions until Schedule A. However, due to the CARES Act, charitable cash contributions of up to $300 are temporarily above-the-line deductions. That means that you do not have to itemize to claim those deductions – something that many taxpayers have grappled with because of the increased standard deduction under the Tax Cuts and Jobs Act (TCJA).

Income items. Outside of the adjustments to income, there isn’t much difference in income reconciliation. We’ll just have to get used to yet another line number for taxable income (tentatively line 15). 

Tax, Credits, and Deductions. Page two of your Form 1040 – where you figure your tax, withholding, and what you actually owe (or are due a refund) is where many changes are for 2020. One thing that jumps out immediately is that the trusty “Federal income tax withheld from Forms W-2 and 1099” line has been divided into separate lines for withholding for Forms W-2, 1099, and “other.” This suggests an increased level of scrutiny for the self-employed and gig workers (I could be wrong).

Stimulus Checks. We’ve been talking about it for a bit, but now we get to see how the stimulus checks will be reported. There is a separate reconciliation schedule that will carry over to page two of your Form 1040. The draft notes “see instructions” for specifics – but those instructions aren’t out just yet.

Refunds. Outside of some renumbering, the refund sections have not changed.

Amount You Owe. Usually, figuring the amount you owe is pretty simple: it’s tax due less credits and payments. But there’s a new line for 2020 which notes: Schedule H and Schedule SE filers, line 37 may not represent all of the taxes you owe for 2020. See Schedule 3, line 12e, and its instructions for details. 

And yes, Schedule 3, line 12e, is new. It says: Deferral for certain Schedule H or SE filers (see instructions) That deferral? Under the CARES Act, employers may defer the deposit and payment of the employer’s portion of Social Security taxes. The deferral applies to deposits and payments of the employer’s share of Social Security tax that would otherwise be required to be made during the period beginning on March 27, 2020, and ending December 31, 2020, with half being due on December 31, 2021, and the remainder due on December 31, 2022. What does that have to do with Form 1040? The relief also applies to self-employed persons. 

There are more changes to come since the IRS just released a slew of draft returns, but this gives you a sense of the direction things are heading (spoiler alert: more complicated, not less).

A cautionary note: This is a draft return, and not yet the real thing. That means, reminds the IRS, “Do not file draft forms and do not rely on draft forms, instructions, and publications for filing.” The IRS cautions that “unexpected issues occasionally arise, or legislation is passed” which means that this form could look a lot different in the final version that it does now. Things could change – and if we’ve learned anything from 2020, it’s that they probably will.

After weeks of waiting, tax professionals and taxpayers finally got the word from the Internal Revenue Service (IRS): amended returns can now be electronically filed.

In May, the IRS had given notice that later this summer, taxpayers would be able to file Form 1040-X, Amended U.S Individual Income Tax Return electronically.

Before this year, you could only amend your tax return by paper. At the best of times, that could mean a six-to-eight week wait for processing. And these are not the best of times. With a backlog of mail and some offices closed due to the pandemic, processing times are extremely lengthy.

Taxpayers and tax professionals have – for years – hoped that the IRS would allow for e-filing amended returns. According to the IRS, making the 1040-X an electronically filed form has been the agency’s goal for years. It has also been a continuing recommendation from the Internal Revenue Service Advisory Council (IRSAC) and the Electronic Tax Administration Advisory Committee (ETAAC). Now, it’s finally happening: you can submit Form 1040-X electronically with commercial tax-filing software.

“The ability to file the Form 1040-X electronically has been an important long-term goal of the IRS e-file initiative for many years,” said Sunita Lough, IRS Deputy Commissioner for Services and Enforcement. “Given the details needed on the form, there have been numerous challenges to add this form to the e-file family. Our IT and business operation teams worked hard with the nation’s tax industry to make this change possible. This is another success for IRS modernization efforts. The addition helps taxpayers have a quicker, easier way to file amended returns, and it streamlines work for the IRS and the entire tax community.”

Since the tax-filing software allows users to input their data in a question-answer format, it simplifies the process. According to the IRS, it also makes it easier for IRS employees to answer taxpayer questions since the data is entered electronically and submitted to the agency almost simultaneously.

“Adding the 1040-X to the e-filing portfolio provides a better experience for the taxpayer, all around. It makes submitting an amended return easier and it allows our employees to process it in a more efficient way,” said Ken Corbin, the IRS Wage and Investment commissioner and head of the division responsible for processing these returns.

But don’t get too excited. So far, you can only file electronically for amended returns for the tax year 2019 Forms 1040 and 1040-SR returns. More years and “additional improvements” are planned for the future.

If you don’t want to file electronically, you don’t have to: you still can submit a paper version of the Form 1040-X. Those filing their Form 1040-X electronically and on paper can use the “Where’s My Amended Return?” online tool to check their amended return status.

It’s my annual Taxes from A to Z series! If you’re wondering how to figure basis for cryptocurrency or whether you can claim home office expenses during COVID, you won’t want to miss a single letter.

V is for Voluntary Withholding.

You already know that if you expect to owe tax at tax time, you should make estimated tax payments. But there’s an additional way that you can pay the government so that you don’t have to write a big check at the end: you can choose to have voluntary withholding from your benefits during the year. This is similar to withholding on your paycheck and means that you should owe less at tax time (or preserve your refund if you’re entitled to one).

Why might you owe? You might be receiving unemployment compensation (yes, it’s taxable), Social security benefit along with other income, Social security equivalent Tier 1 railroad retirement benefits, Commodity Credit Corporation loans, certain crop disaster payments under the Agricultural Act of 1949 or under Title II of the Disaster Assistance Act of 1988, or dividends and other distributions from Alaska Native Corporations to its shareholders. If you’re not certain whether your payment is eligible for voluntary withholding, just ask.

To request voluntary withholding, use Form W-4V (downloads as a PDF) to ask the payer to withhold federal income tax. It’s a very simple form. It looks like this:

W-4v

Just complete the personal information and tick the box that indicates the percentage you want to have withheld. There are limits on how much you can withhold. For unemployment compensation, the payer is permitted to withhold 10% from each payment. For any other government payment listed above, you may choose to have the payer withhold federal income tax of 7%, 10%, 12%, or 22% from each payment. There are no other options.

You should ask your payer when income tax withholding will begin. It will continue until you change or stop it, or if your payments stop.

You can find the rest of the series here:

It’s my annual Taxes from A to Z series! If you’re wondering how to figure basis for cryptocurrency or whether you can claim home office expenses during COVID, you won’t want to miss a single letter.

U is for Undue Hardship.

If you’d read any posts on extensions – like this one – you are aware that filing for an extension is generally an extension of the time to file, and not the time to file. It’s almost the extension mantra.

But did you know that there actually is an extension available for payments – but there’s a pretty high bar.

First things first. The form is Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship (downloads as a PDF). It’s used to request an extension of time under section 6161 for payment of the tax shown on your return or an amount determined as a deficiency (an amount you owe after an examination of your return). It’s not meant to be a substitute for a regular extension or to set up an installment agreement.

You can file Form 1127 if you will owe any of the following, and paying the tax when it is due will cause an undue hardship. 

  • Income taxes
  • Self-employment income taxes
  • Withheld taxes on nonresident aliens and foreign corporations
  • Taxes on private foundations and certain other tax-exempt organizations
  • Taxes on qualified investment entities
  • Taxes on greenmail (popular in the 1980s but not so much now)
  • Taxes on structured settlement factoring transactions
  • Gift taxes (but not estate taxes)

Form 1127 can also be filed if you receive a notice and demand for payment (or tax bill) for any of the following if paying them at the time they are due will cause undue hardship: 

  • Normal taxes and surtaxes
  • Taxes on private foundations and certain other tax-exempt organizations
  • Taxes on qualified investments
  • Gift taxes

But here’s the key. You can only use the form if you can prove undue hardship. “Undue hardship” means more than an inconvenience: you must show that you would sustain a substantial financial loss if required to pay a tax or deficiency on the due date. The mere inability to pay does not ordinarily result in penalty relief. Under Treas. Reg. 301.6651–1(c), you must also show that you exercised ordinary business care and prudence for the liability. The IRS will look at all of the facts and circumstances, including your financial situation, and the amount and nature of your spending compared to your income. The IRS will consider whether you made reasonable efforts to conserve sufficient assets in a marketable form (you can’t have converted them to illiquid assets or restricted them in some way) and still could not pay all or part of your tax when it came due.

But you know how I noted earlier that an extension to file isn’t an extension to pay? The reverse is also true: undue hardship generally does not affect your ability to file. You can substitute this form for an extension to file (and it usually doesn’t provide a basis for penalty relief in a failure to file situation). 

You should file Form 1127 as soon as you know of a tax liability or a tax deficiency that you cannot pay. If the liability is for an upcoming return, file on or before the due date of that return, not including extensions. If you are requesting an extension of time to pay an amount determined as a deficiency, file on or before the due date for payment indicated in the tax bill. 

Typically, the IRS won’t give you more than six additional months to pay the tax shown on a return. However, other than taxes due under sections 4981 (excise tax on undistributed income of real estate investment trusts), 4982 (excise tax on undistributed income of regulated investment companies), and 5881 (greenmail), you may be granted an extension for more than six months if you are out of the country. And you must pay the tax before the extension runs out: do not wait to receive a bill from the IRS.

You can find the rest of the series here:

The tax filing deadline for individual taxpayers is just a week away. If you’ve been pushing off filing, you may want to consider filing for an extension. It only takes a few minutes, there are no special hoops to jump through, and there’s no fee payable to the Internal Revenue Service (IRS). And contrary to popular belief – and what some suggest this time of year – filing for an extension isn’t an audit trigger.

The IRS understands that there are legitimate reasons why taxpayers may need more time to file. The great thing about filing for an extension early on is that you don’t need to tell anyone – not your mother, not your best friend and not even the IRS – why you’re making the request since the extension is automatically granted if you follow the rules.

To file for an extension, you can:

How easy is it? Here’s the entire Form 4868:

The regular “timely filing” rules apply – so be sure and get your extension postmarked or e-file accepted by the end of the day on July 15, 2020.

But here’s where things get interesting. An extension allows you six more months to get your return to the IRS and not be subject to the late-filing penalty from the original filing date of April 15, 2020. The extension does not start the clock running on July 15, 2020. In other words, with a six-month extension in 2020, you’ll have until October 15, 2020, to file a return.

To file an extension, you’ll need:

  • Your name (and spouse’s name if you’re filing jointly) and address;
  • Your Social Security number (and spouse’s Social Security number if you’re filing jointly);
  • An estimate of your total tax liability for 2019;
  • Total of what you have already paid for the 2019 tax year (including withholding and estimated payments); and
  • The amount you’re paying with the extension, if any.

Remember that an extension is an extension of the time to file and not an extension of time to pay. If you expect to owe at tax time and you’re filing for an extension, you should make a payment with your extension request to avoid additional interest and penalty. 

If you need to make a payment with your extension, you can send in a check or money order with your form 4868, pay online, or pay by phone. You can also pay by making a direct transfer from your bank account using Direct Pay, using the Electronic Federal Tax Payment System (EFTPS, registration required), or by debit or credit card (third-party charges may apply). Some services need an extra day or so for processing.

Some taxpayers get an automatic extension of time to file without having to file. Those include:

  • Members of the military and others serving in combat zones or hazardous zone areas generally have until at least 180 days after they leave the zone to file returns and pay any taxes due.
  • Taxpayers affected by natural disasters may have extra time. In particular, the IRS extended tax filing deadlines for those individuals and businesses affected by the April tornadoes. For more details, check the disaster relief page on the IRS website.

While it’s always a relief to have your tax return over and done, it’s not the end of the world if that doesn’t happen by the due date. It’s always better to file a complete, correct return on an extension than a rushed, flawed return by Tax Day. So go ahead, file for an extension. And then go back to whatever it was that you really wanted to do, like watching Hamilton or Knives Out one more time…

Scrambling to make estimated payments? Don’t worry! The Internal Revenue Service (IRS) is reminding taxpayers that estimated tax payments for the tax year 2020, ordinarily due April 15, 2020, and June 15, 2020, are now due July 15, 2020.

The extended deadline means that any individual or corporation that has a quarterly estimated tax payment due April 15, 2020, or June 15, 2020, has until July 15 to make that payment without penalty. The extension is part of the IRS response to the COVID-19 pandemic.

Generally, you should pay estimated tax if you are not subject to withholding. Realistically, this means that folks who rely on income reported on a Form 1099 (like self-employment income, interest, dividends, and retirement income) are most likely to be responsible for estimated tax. If you’re self-employed, a gig economy worker, a retiree with a pension or other income, or a partner in a partnership or LLC, this likely applies to you.

You will need to make estimated payments if you:

  1. You expect to owe at least $1000 in tax for the 2020 tax year after subtracting your withholding and credits.
  2. You expect your withholding and credits to be less than the smaller of 90% of the tax to be shown on your 2020 tax return or 100% of the tax shown on your 2019 tax return.

To figure your estimated tax, you can use form Form 1040-ES, Estimated Tax for Individuals (downloads as a PDF). 

You can write a check or IRS pay electronically. You can schedule tax payments up to 30 days in advance with Direct Pay or up to 365 days in advance with the Electronic Federal Tax Payment System (EFTPS).

And one more thing: don’t be too casual about your payments. If you do not pay enough tax by the due date for each quarter, you may be charged a penalty even if you are due a refund when you file your income tax return (nice, huh?).

Taxpayer asks:

How can I change my address with the IRS?

Taxgirl says:

The easiest way to change your address if there’s no time consideration is just to use your new address when you file your tax return. But if you filed a joint tax return and you and your ex now have separate addresses, each of you should notify the IRS of your separate address when you file.

If you move after filing your return, use Form 8822, Change of Address to notify the IRS of your new address. The form is easy to use – just download it from the IRS website or use the link above – but if you don’t want to use the form, the IRS allows you to submit a written statement. Mail a signed statement with your full name and Social Security Number (SSN) or Individual Tax Identification Number (ITIN), together with your old address and your new address to the address where you filed your last return. If you filed a joint return and you both still live together, include both names, SSNs (or ITINs), and signatures on the form or statement.

Keep in mind that the IRS isn’t fully open right now, so paper forms and statements can take a while to process.

The IRS says that you can also advise them of an address change over the phone. I’m a big fan of paper trails, so I don’t love this option – even if you could get through on the phone – but be aware that it is an option.

Finally, you can change your address with the US Postal Service to make sure your mail – including your stimulus check – gets to you. But that’s not a permanent solution – don’t forget to change it with the IRS, too!

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.

The Internal Revenue Service (IRS) has announced a game-changer: later this summer, taxpayers will be able to file Form 1040-X, Amended U.S Individual Income Tax Return, electronically.

Before this year, you could only amend your tax return by paper. At the best of times, that could mean a six-to-eight week wait for processing. And these are not the best of times. With a backlog of mail due to the pandemic, processing times were expected to be extremely lengthy.

Taxpayers and tax professionals have – for years – hoped that the IRS would allow for e-filing amended returns. According to the IRS, making the 1040-X an electronically filed form has been the agency’s goal for years. 

Now, it’s really happening.

 (Insert cheers and whistles here.)

“This new process is a major milestone for the IRS, and it follows hard work by people across the agency,” said IRS Commissioner Chuck Rettig. “E-filing has been one of the great success stories of the IRS, and more than 90 percent of taxpayers use it routinely. But the big hurdle that’s been remaining for years is to convert amended returns into this electronic process. Our teams have worked diligently to overcome the unique challenges related to the 1040-X, and we look forward to offering this new service this summer.”

Typically, about 3 million amended returns are filed by taxpayers each year. Most tax professionals expect that number to be higher due to the pandemic as taxpayers hope to change elections affecting dependents and refunds (a superseded return might be a better bet).

If you’re one of those folks rushing to file an amended return, use caution. If you’re making a change that is more than correcting a missed line item or righting a transposed number, take a breath first and think about the big picture. Merely filing an amended return may not be the best way to correct tax fraud or address a significant omission like a missed foreign compliance form. If your amended return carries potential consequences beyond payment due, check with a tax professional before mailing it in. You can’t un-ring that bell.

And you shouldn’t use an amended return to file for an injured spouse claim. Use Form 8379, Injured Spouse Allocation (downloads as a PDF) for that. You also shouldn’t use Form 1040-X to request a refund of penalties and interest or an addition to tax that you have already paid: you’ll make that request with Form 843, Claim for Refund and Request for Abatement (downloads as a PDF).

But the opportunity to correct mistakes quickly is a welcome change. Just don’t get too excited: you won’t be able to amend returns for multiple years just yet. Only tax year 2019 Forms 1040 and 1040-SR returns can be amended electronically when the program opens. Additions will be added in the future.

” Adding amended returns to the electronic family also complements our partnership with the tax software industry, which continues to work with us to provide better ways to help taxpayers,” said Ken Corbin, Commissioner of the IRS Wage and Investment division.

Of course, you can always opt to file your amended return by paper, but why would you want to? According to the IRS, filing electronically means that returns can be processed faster (true in my experience) while minimizing errors generally associated with manually completing the form (arguably true, if you remember to consider user input issues).

Despite the lag times in processing, the rules haven’t changed: if you choose to file an amended return (by paper or electronically), the regular statute of limitations rules apply. That means that filing an amended return does not extend the statute of limitations, or extend the time to pay. 

If you electronically file Form 1040-X, you can still use the “Where’s My Amended Return?” online tool to check the status. You’ll need to provide your Tax ID number, your date of birth and your zip code.

(One quick sidebar: You may be used to seeing the amended return referred to as Form 1040X. I’m not just dash-happy: as of January 2020, the IRS advised that Form 1040X will be called Form 1040-X.)

First things first: as of today, the 2019 tax filing season deadline remains July 15, 2020. 

I just wanted to get that out of the way since there are so many headlines suggesting that there’s a change on the way. As of today, nothing has changed. 

Here’s where we stand. On March 20, 2020, the IRS officially confirmed – and issued guidance – making clear that the due date for filing tax returns and making tax payments has been extended from April 15 to July 15. You can read the guidance here (downloads as a PDF).

And if you need more time to file, you can always file for an extension. However, it’s important to note that, in 2020, an extension would extend the time to file by six months from the original due date (April 15) to October 15, 2020, and NOT six months from the revised due date (July 15, 2020) to January 15, 2021.

But it is true that there are whispers about pushing the filing deadline into fall. So far, those are just whispers. There is no official proposal on the books. There’s not even a potential date being bandied about: it’s been rumored that it could move anywhere from September 15, 2020, to December 15, 2020. For now, those rumors aren’t helpful.

A group of tax professionals and I had a lively discussion on Zoom about this just last evening (on May 7). I think the consensus is that there will be political pressure to push the date forward, but that could create more problems. Extending the time to pay assumes that taxpayers will have those funds to pay later. But in a tough economy, that might not be true. Taxpayers may just be kicking the can down the road by planning to pay later – at the same time that other payments may come due (like those for 2020).

And, the stats also don’t support the need for a push just yet. 

Last year, the Internal Revenue Service (IRS) received and processed nearly 156 million returns. About 137 million were received before the filing deadline. The remainder – about 10% – were filed with an extension. That’s in keeping with the usual expectations for extended returns.

Despite the extraordinary circumstances surrounding this tax season, the IRS has already received over 125 million returns in 2020. That’s off by just 11% from 2019 – remarkable, really, considering that much of the country – and the IRS – is shut down. And, it’s not even the end of the not-so-normal filing season yet. It’s very likely that a few million more taxpayers could file before the July 15, 2020, deadline, bringing us level(ish) with 2019.

So, to recap, there’s no official proposal to move the tax filing deadline. Just speculation. If something changes, I’ll let you know.