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IRS Charges Fee for Estate Closing Letters
Starting October 28, a new $67 user fee will apply to any estate that requests an estate tax closing letter for its federal estate tax return. This closing letter is formally referred to as IRS Letter 627.
By law, federal agencies are required to charge a user fee to cover the cost of providing certain services to the public that confer a special benefit to the recipient. Moreover, agencies must review these fees every two years to determine whether they are recovering the cost of these services. Under the final regulations, the IRS determined that issuing closing letters is a service that confers a special benefit warranting a user fee. Even though obtaining a closing letter from the IRS can be helpful to an executor of an estate, it is not required by law.
The estate has the option of obtaining from the IRS an account transcript, showing certain information from the estate tax return. It is comparable to that found in a closing letter and may be an acceptable substitute for the estate tax closing letter.
Account transcripts can be used to confirm that an estate tax examination has been completed and the IRS file has been closed. It is the reason that is most often cited for requesting a closing letter. They are available online (and free of charge) to registered tax professionals using the Transcript Delivery System (TDS) or authorized representatives making requests using Form 4506-T.
Closing letter requests and payment of the user fee must be made using Pay.gov, a U.S. Department of the Treasury program, and a secure way to pay U.S. Federal Government Agencies.
Please contact the office with any questions.
Shared Custody and Advance Child Tax Credit Payments
Parents who share custody of their children may be confused about how the advance child tax credit payments are distributed. As such, the first step is to remember that these are advance payments of a tax credit that taxpayers expect to claim on their 2021 tax return. Understanding how the payments work will allow parents to unenroll, if they choose, and possibly avoid a possible tax bill when they file next year.
Let’s take a look at four of the most common questions about shared custody and the advance child tax credit payments:
1. How will the IRS decide which one receives the advance child tax credit payments if two parents share custody?
Who receives 2021 advance child tax credit payments is based on the information on the taxpayer’s 2020 tax return or their 2019 return if their 2020 tax return has not been processed. The parent who claimed the child tax credit on their 2020 return will receive the 2021 advance child tax credit payments.
2. If a parent is receiving 2021 advance child tax credit payments and they shouldn’t be, what should they do?
Parents who will not be eligible to claim the child tax credit when filing their 2021 tax return should go to IRS.gov and unenroll to stop receiving monthly payments. They can do this by using the Child Tax Credit Update Portal. Receiving monthly payments now could mean they have to return those payments when they file their tax return next year. If their custody situation changes and they are entitled to the child tax credit for 2021, they can claim the full amount when they file their tax return next year.
3. How will 2021 advance child tax credit payments be handled for parents who claim their child in alternate years on their tax return?
If the taxpayer claimed their child on their 2020 tax return, the IRS will automatically issue the advance payments to them. When they file their 2021 tax return, they may have to pay back the payments over the amount of the credit they’re entitled to claim. Some taxpayers may qualify for repayment protection and be excused from repaying some or all of the excess amount. Also, if a taxpayer won’t be claiming the child tax credit on their 2021 return, they should unenroll from receiving monthly payments using the Child Tax Credit Update Portal.
4. If one parent receives the advance child tax credit payments even though the other parent will be claiming the child tax credit on their 2021 tax return, will the parent claiming the qualifying child still be able to claim the full credit amount?
Yes. Taxpayers will be able to claim the full amount of the child tax credit on their 2021 tax return even if the other parent is receiving the advance child tax credit payments. The parent receiving the payments should unenroll, but their decision will not affect the other parent’s ability to claim the child tax credit.
If you share custody with another parent and need further clarification about this important tax issue, don’t hesitate to call.
Tips To Avoid Fraud and Scams After a Disaster
Criminals and fraudsters often see disasters as an opportunity to take advantage of victims when they are the most vulnerable, as well as the generous taxpayers who want to help with relief efforts. Generally, these disaster scams start with unsolicited contact – typically a phone call, on social media, by email, or even in person. Reviewing the tips listed below will help taxpayers recognize a scam and avoid becoming a victim.
- Some thieves pretend they are from a charity. They do this to get money or private information from well-intentioned taxpayers.
- Bogus websites use names like legitimate charities. They do this scam to trick people into sending money or providing personal financial information.
- Pretending to be the IRS. Scammers even claim to be working for – or on behalf of – the IRS. The thieves say they can help victims file casualty loss claims and get tax refunds.
- Use a check or credit card. Taxpayers should always contribute by check or credit card to have a record of the tax-deductible donation if they choose to give money.
- Avoid giving out personal information. Donors should not give out personal financial information to anyone who solicits a contribution. This includes things like Social Security numbers or credit card and bank account numbers and passwords.
Taxpayers should also be aware that sometimes when they search for a charity online, they may be directed to a website or social media page that is not affiliated with the actual charity. If in doubt, the best way to check an organization’s eligibility to receive tax-deductible charitable contributions is to visit the Tax Exempt Organization Search tool on the IRS website, IRS.gov. Donations to qualified charities are usually tax-deductible.
If you are a disaster victim, you can call the IRS toll-free disaster assistance line at 866-562-5227. When you call, you will be connected to a phone assistor who will answer questions about tax relief or disaster-related tax issues.
Finally, as a reminder, individual taxpayers can deduct up to $300, and married couples can deduct up to $600 in qualifying charitable contributions for tax year 2021. Itemizing is not necessary.
As always, don’t hesitate to contact the office if you have any questions about charitable contributions or disaster relief and how it affects your tax situation.
Deferred Tax on Gains From Forced Sales of Livestock
Farmers and ranchers forced to sell livestock due to drought may have an additional year to replace the livestock and defer tax on any gains from the forced sales. Here are some important facts to help farmers understand how the deferral works and their eligibility.
- The one-year extension gives eligible farmers and ranchers until the end of the tax year after the first drought-free year to replace the sold livestock.
- The farm or ranch must be in an applicable region to qualify for relief. An applicable region is a county or other jurisdiction designated as eligible for federal assistance plus counties contiguous to it.
- The farmer’s county, parish, city, or district included in the applicable region must be listed as suffering exceptional, extreme, or severe drought conditions by the National Drought Mitigation Center. All or part of 36 states and one U.S. territory are listed.
- The relief applies to farmers who were affected by drought that happened between September 1, 2020, and August 31, 2021.
- This relief generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy, or breeding purposes. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, or poultry are not eligible.
- To qualify, the sales must be solely due to drought, flooding, or other severe weather causing the region to be designated as eligible for federal assistance.
- Farmers generally must replace the livestock within a four-year period instead of the usual two-year period.
- Qualified farmers and ranchers whose drought-sale replacement period was scheduled to expire at the end of this tax year, December 31, 2021, in most cases, now have until the end of their next tax year. The normal drought sale replacement period is four years. As such, this extension immediately impacts drought sales that occurred during 2017. Furthermore, the replacement periods for some drought sales before 2017 are also affected because of previous drought-related extensions affecting some of these areas.
Please call the office if you want more information about reporting drought sales or other farm-related tax issues.
Advertising and Marketing Costs May Be Tax Deductible
As a small business owner, you may be able to deduct advertising and marketing expenses that help them bring in new customers and keep existing ones. Even better is that these deductions help small businesses save money on their taxes.
Generally, small businesses can’t deduct amounts they pay to influence legislation, which includes advertising in a convention program of a political party or any other publication if any of the proceeds from the publication are for, or intended for, the use of a political party or candidate. Here’s what else you need to know about this valuable tax deduction:
Advertising and marketing costs must be ordinary and necessary.
An ordinary expense is one that is common and accepted in the industry. A necessary expense is one that is helpful and appropriate for the trade or business. An expense does not have to be indispensable to be considered necessary. Advertising and marketing costs that are ordinary and necessary are tax-deductible.
Advertising expenses include:
- Reasonable advertising expenses that are directly related to the business activities.
- An expense for the cost of institutional or goodwill advertising to keep the business name before the public if it relates to a reasonable expectation to gain business in the future. For example, the cost of advertising that encourages people to contribute to the Red Cross or to participate in similar causes is usually deductible.
- The cost of providing meals, entertainment, or recreational facilities to the public as a means of advertising or promoting goodwill in the community.
As always, don’t hesitate to call if you have any questions regarding tax deductions that benefit your small business.