IRS issues standard mileage rates for 2020

January 12, 2020

WASHINGTON — The Internal Revenue Service today issued the 2020 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2020, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 57.5 cents per mile driven for business use, down one half of a cent from the rate for 2019,
  • 17 cents per mile driven for medical or moving purposes, down three cents from the rate for 2019, and
  • 14 cents per mile driven in service of charitable organizations.

The business mileage rate decreased one half of a cent for business travel driven and three cents for medical and certain moving expense from the rates for 2019. The charitable rate is set by statute and remains unchanged.

It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details, see Rev. Proc. 2019-46.

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than five vehicles used simultaneously. These and other limitations are described in section 4.05 of Rev. Proc. 2019-46.

Notice 2020-05, posted today on IRS.gov, contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.  In addition, for employer-provided vehicles, the Notice provides the maximum fair market value of automobiles first made available to employees for personal use in calendar year 2020 for which employers may use the fleet-average valuation rule in § 1.61-21(d)(5)(v) or the vehicle cents-per-mile valuation rule in § 1.61-21(e).


Get ready for taxes: Here’s what to know about the amount of a tax refund

December 10, 2019

After filing their tax return, a taxpayer will know whether they are receiving a refund. Sometimes, however, a taxpayer’s refund will be for a different amount than they expect.

Here are some reasons a taxpayer’s refund might be less than they thought it would be:

  • Financial transactions happening late in the year can have an unexpected tax impact if a taxpayer’s 2019 federal income tax withholding unexpectedly falls short of their tax liability for the year. Certain transactions can affect 2019 tax withholding and influence the taxpayer’s anticipated refund next year. This includes things like:

    o Year-end and holiday bonuses.
    o Stock dividends.
    o Capital gain distributions from mutual funds and
    stocks.
    o Real estate or other property sold at a profit.

    If this happens, taxpayers can still make a quarterly estimated tax payment directly to the IRS for tax year 2019. The deadline for making a payment for the fourth quarter of 2019 is Wednesday, Jan. 15, 2020. Form 1040-ES includes a worksheet to help taxpayers figure the right amount of estimated taxes to pay.

  • A taxpayer’s refund can be used to pay other debts a taxpayer owes. All or part of a refund can go to pay a taxpayer’s:

    o Past-due federal tax.
    o State income tax.
    o State unemployment compensation debts.
    o Child and spousal support.
    o Other federal nontax debts, such as student loans.

    A taxpayer receives a notice if their debt meets the criteria for an offset. The IRS issues any remaining refund in a check or direct deposit as the taxpayer originally requested on the return.

 


Four common tax errors that can be costly for small businesses

November 27, 2019

A small business owner often wears many different hats. They might have to wear their boss hat one day, and the employee hat the next. When tax season comes around, it might be their tax hat.

They may think of doing their taxes as just another item to quickly cross off their to-do list. However, this approach could leave taxpayers open to mistakes when filing and paying taxes.

Accidentally failing to comply with tax laws, violating tax codes, or filling out forms incorrectly can leave taxpayers and their businesses open to possible penalties. The IRS encourages small businesses to explore using a reputable tax preparer – including certified public accountants, Enrolled Agents or other knowledgeable tax professionals – to help with their tax situation. Filing electronically can also help avoid common errors.

Being aware of common mistakes can also help tame the stress of tax time. Here are a few mistakes small business owners should avoid:

Underpaying estimated taxes
Business owners should generally make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. If they don’t pay enough tax through withholding and estimated tax payments, they may be charged a penalty.

Depositing employment taxes
Business owners with employees are expected to deposit taxes they withhold, plus the employer’s share of those taxes, through electronic fund transfers.  If those taxes are not deposited correctly and on time, the business owner may be charged a penalty.

Filing late
Just like individual returns, business tax returns must be filed in a timely manner. To avoid late filing penalties, taxpayers should be aware of all tax requirements for their type of business the filing deadlines.

Not separating business and personal expenses
It can be tempting to use one credit card for all expenses especially if the business is a sole proprietorship. Doing so can make it very hard to tell legitimate business expenses from personal ones. This could cause errors when claiming deductions and become a problem if the taxpayer or their business is ever audited.


How taxpayers can make sure their donations are tax deductible

November 26, 2019

It’s that time of year when taxpayers are thinking about how they want to give back, and many taxpayers will want to donate to a charity that means something to them. The IRS has a tool that may help them make sure their donations are as beneficial as possible.

Tax Exempt Organization Search on IRS.gov is a tool that allows users to search for tax-exempt charities. Taxpayers can use this tool to determine if donations they make to an organization are tax-deductible charitable contributions.

Here are some things to know about the TEOS tool:

  • It provides information about an organization’s federal tax status and filings.
  • It’s mobile device friendly.
  • Donors can use it to confirm that an organization is tax-exempt and eligible to receive tax-deductible charitable contributions.
  • Users can find out if an organization had its tax-exempt status revoked.
  • Organizations are listed under the legal name or a “doing business as” name on file with the IRS.
  • The search results are sortable by name, Employee Identification Number, state, and country.
  • Users may also download entire lists of organizations eligible to receive deductible contributions, auto-revoked organizations and e-Postcard filers.

Taxpayers can also use the Interactive Tax Assistant, Can I Deduct my Charitable Contributions? to help determine if a charitable contribution is deductible.


Taxpayers who donate to charity should check out these resources

October 25, 2019

Taxpayers who donate to a charity may be able to claim a deduction on their tax return. These deductions basically reduce the amount of their taxable income. Taxpayers can only deduct charitable contributions if they itemize deductions.

Here are some resources for people making donations:

Tax Exempt Organization Search
Taxpayers must give to qualified organizations to deduct their donations on their tax return. They can use this tool to find out if a specific charity qualifies as a charitable organization for income tax purposes.

Publication 526, Charitable Contributions
This pub explains how taxpayers claim a deduction for charitable contributions. It goes over:

  • How much taxpayers can deduct.
  • What records they must keep.
  • How to report contributions.

Publication 561, Determining the Value of Donated Property
Taxpayers generally can deduct the fair market value of property they donate. This publication helps determine the value of donated property.

Form 8283, Noncash Charitable Contributions
Taxpayers must file form 8283 to report noncash charitable contributions if the amount of this deduction is more than $500. The instructions for this form walk taxpayers through how to complete it.

Schedule A, Itemized Dedications
Taxpayers deducting donations do so on Schedule A. The instructions for this form include line-by-line directions for completing it.

Frequently asked questions: Qualified charitable distributions
Taxpayers age 70 ½ or older can make a qualified charitable distribution from their IRA – up to $100,000 – directly to an eligible charity. It’s generally a nontaxable distribution made by the IRA trustee to a charitable organization. A QCD counts toward their minimum distribution requirement for the year.


The earned income tax credit can put money in taxpayers’ pockets

October 9, 2019

The earned income tax credit benefits working people with low-to-moderate income. Last year, the average credit was $2,445. EITC not only reduces the amount of tax someone owes, but may also give them a refund, even if they don’t owe any tax at all.

Here are a few things people should know about this credit:

  • Taxpayers may move in and out of eligibility for the credit throughout the year. This may happen after major life events. Because of this, it’s a good idea for people to find out if they qualify.
  • To qualify, people must meet certain requirements and file a federal tax return. They must file even if they don’t owe any tax or aren’t otherwise required to file.
  • Taxpayers qualify based on their income, the number of children they have, and the filing status they use on their tax return. For a child to qualify, they must live with the taxpayer for more than six months of the year.

Here’s a quick look at the income limits for the different filing statuses. Those who work and earn less than these amounts may qualify.

Married filing jointly:

  • Zero children: $21,370
  • One child: $46,884
  • Two children: $52,493
  • Three or more children: $55,952

Head of household and single:

  • Zero children: $15,570
  • One child: $41,094
  • Two children: $46,703
  • Three or more children: $50,162

The maximum credit amounts are based on the number of children a taxpayer has. They are the same for all filing statuses:

  • Zero children: $529
  • One child: $3,526
  • Two children: $5,828
  • Three or more children: $6,557

Taxpayers who file using the status married filing separately cannot claim EITC.
More information:
Publication 5334, Do I Qualify for EITC?


Reminder: Oct. 15 deadline approaching for taxpayers who requested extensions

October 7, 2019

WASHINGTON — Taxpayers who requested the six-month filing extension should complete their tax returns and file on or before the Oct. 15 deadline. Convenient electronic filing options, including IRS  Free File, are still available.

Filing electronically is easy, safe and the most accurate way to file taxes. There are a variety of electronic filing options. Those options include having tax returns prepared at a Volunteer Income Tax Assistance or Tax Counseling for the Elderly site, purchasing commercial software or choosing a reputable tax professional who is also an authorized e-file provider.

About 15 million taxpayers filed for an extension this year. Although Oct. 15 is the last day for most people to file, some may have more time. They include:

  • Members of the military and others serving in a combat zone. They typically have 180 days after they leave the combat zone to file returns and pay any taxes due.
  • Taxpayers in federally-declared disaster areas who already had valid extensions. For details, see the disaster relief page on IRS.gov.

Extension filers can file when they are ready and don’t have to wait until Oct. 15 to file. Taxpayers who did not request an extension and have yet to file a 2018 tax return can generally avoid additional penalties and interest by filing the return as soon as possible and paying any taxes owed.

New Form 1040
Form 1040 has been redesigned for tax year 2018. The revised form consolidates Forms 1040, 1040A and 1040-EZ into one form that all individual taxpayers will use to file their 2018 federal income tax return.

The new form uses a “building block” approach that can be supplemented with additional schedules as needed. Taxpayers with straightforward tax situations will only need to file the Form 1040 with no additional schedules. People who use tax software will still follow the steps they’re familiar with from previous years. Since nearly 90 percent of taxpayers now use tax software, the IRS expects the change to Form 1040 and its schedules to be seamless for those who file electronically.

Recordkeeping and adjusted gross income
As a reminder, taxpayers should keep a copy of their tax returns and supporting documents for a minimum of three years. Some taxpayers using a tax-filing software product for the first time may need their adjusted gross income amount from their prior-year tax return to verify their identity.

Taxpayers using the same tax software they used last year will not need to enter their prior year information to electronically sign their 2018 tax return. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Payment options
IRS Direct Pay offers taxpayers a fast way to pay what they owe. Direct Pay is free and allows individuals to securely pay their tax bills or make quarterly estimated tax payments online directly from checking or savings accounts without any fees or pre-registration.

Taxpayers can also pay by debit or credit card. While the IRS does not charge a fee for this service, the payment processer does. Other payment options include the Electronic Federal Tax Payment System (enrollment is required) and electronic funds withdrawal which is available when e-filing. Taxpayers can also pay what they owe using the IRS2Go mobile app. Those choosing to pay by check or money order should make the payment out to the “United States Treasury.”

Eligible taxpayers can set up an online payment agreement in a matter of minutes to pay tax, interest and penalties they may owe. There is no application fee to setup payment plans lasting 120 days or less. In 2019, over 1 million agreements were set up by taxpayers online.

Individual taxpayers can go to IRS.gov/account and login to view their balance, payment history, pay their taxes and access tax records through Get Transcript. Before setting up an account, taxpayers should review Secure Access: How to Register for Certain Online Self-Help Tools to make sure they have the information needed to verify their identities.

Prepare for next year − Do a ‘Paycheck Checkup’ now
The IRS also urges extension filers to do a “Paycheck Checkup” now. It helps make sure the right amount is being withheld from their checks following tax reform. If a change is needed, there’s still time to adjust withholding during the last quarter of the year.

Taxpayers can use the Tax Withholding Estimator to approximate their 2019 income taxes and proper withholding. The tool compares the estimate to current withholding to help taxpayers decide if they want to change that amount with their employer. Taxpayers should have their 2018 tax return available when using the tool to estimate income, deductions, adjustments and credits for 2019. They will also need their most recent pay stub to compute the amount of withholding so far this year.

With major changes made by the Tax Cuts and Jobs Act, the IRS encourages taxpayers seeking more information on tax reform to review Publication 5307, Tax Reform: Basics for Individuals and Families, and Publication 5318,


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