IRS Voice Bots Get New Options

IRS Voice Bots Get New Options

The Internal Revenue Service started using voice bots on many of its toll-free telephone lines around the first of the year. The system has already helped more than 3 million taxpayers avoid wait times for simple questions about payments or notices, and the agency is adding more options.

Callers can set up or modify payment plans on the Automated Collection System (ACS) and Accounts Management toll-free lines. The system will even help create a personal identification number using information from a taxpayer’s most recent IRS bill and some additional personal information.

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Will the IRS add more voice bots in the future?

IRS voice bots use artificial intelligence software to route callers to the information they need based on voice responses. Initially designed to answer simple questions, the IRS plans to continue adding voice-bot features that will help callers avoid extended wait times—even during tax season.

Voice bots aren’t just being used to collect payments. They have already been deployed on the Economic Impact Payment (EIP) and Advance Child Tax Credit toll-free lines to answer frequently asked questions. And the IRS says planned upgrades will provide taxpayers with active PINs access to a number of newly automated services:

  • Account and return transcripts
  • Payment history
  • Current balance owed

While voice bots can quickly provide information for taxpayers, the agency says live phone representatives will still be available for English and Spanish speakers.

More information about self-service options is available on IRS.gov.

Self-service? How about self-study?

Our education specialists on DrakeCPE.com have designed self-study and on-demand continuing education courses that can help you earn CPE and prepare for the upcoming filing season. We offer a variety of courses, from selling your home and fringe benefits to amended returns and virtual currency. If you’re interested in learning more about our Annual Federal Tax Refresher Course, read our blog: “Now Available: Drake 2022 AFTR Course!

Source: IR-2022-127

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Separation and Divorce Tax Issues to Consider

Separation and Divorce Tax Issues to Consider

Singer Neil Sadaka was right: breaking up is hard to do. For clients in the process of ending their marriage, there is more to consider than a simple separation of assets. Whether legally separating or divorcing, they could be facing big changes in their individual tax situations—and the Internal Revenue Service recently highlighted information that could help. 

One of the first issues is timing. The Internal Revenue Service considers a married couple to be wed until they get either a separate maintenance decree or a final divorce decree. So, until there is an official court ruling, they’ll still be viewed as a married couple for tax purposes.

Another early issue is withholding. When a taxpayer divorces or legally separates from their partner, they will normally need to modify their withholding setup at work. This means filing a new Form W-4 with their employer.

For some, the process may not be more complicated. Taxpayers who receive alimony payments, for example, may have to make estimated tax payments. However, help is available through the Tax Withholding Estimator tool on IRS.gov. This tool can determine whether current withholding amounts are correct for a specific situation.

What are the tax considerations of alimony and separate maintenance?

The IRS could view money “paid to a spouse or a former spouse under a divorce decree, a separate maintenance decree, or a written separation agreement may be alimony or separate maintenance payments for federal tax purposes.” Why is this important? Some payments are deductible for the payer and have to be included in income by the payee. However, there are exceptions.

“Individuals can’t deduct alimony or separate maintenance payments made under a divorce or separation agreement executed after 2018 or executed before 2019 but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification,” the IRS explains. “Alimony and separate maintenance payments received under such an agreement are not included in the income of the recipient spouse.”

What about child custody?

Figuring out which partner can claim a dependent child is often a hotly contested topic among those on the brink of a breakup. According to the IRS, “the parent who has custody of the child can [generally] claim the child on their tax return.” However, the situation gets murky if parents split custody 50-50 but can’t agree who gets to claim the child(ren).

In that situation, there are tie-breaker rules that can apply. Further, under this arrangement, the IRS says these “child support payments aren’t deductible by the payer and aren’t taxable to the payee.”

What filing statuses are available to separating or divorced couples?

The IRS lists four basic filing statuses available for individuals who are divorced or separating:

  • Married filing jointly. On a joint return, married people report their combined income and deduct their combined allowable expenses. For many couples, filing jointly results in a lower tax than filing separately.
  • Married filing separately. If spouses file separate tax returns, they each report only their own income, deductions, and credits on their individual return. Each spouse is responsible only for the tax due on their own return. People should consider whether filing separately or jointly is better for them.
  • Head of household. Some separated people may be eligible to file as head of household if all of these apply:
    • Their spouse didn’t live in their home for the last six months of the year.
    • They paid more than half the cost of keeping up their home for the year.
    • Their home was the main home of their dependent child for more than half the year.
  • Single. Once the final decree of divorce or separate maintenance is issued, a taxpayer will file as single starting for the year it was issued, unless they are eligible to file as head of household or they remarry by the end of the year.

See Publication 504, Divorced or Separated Individuals, and Topic No. 452, Alimony and Separate Maintenance, for more information on tax issues for divorcing or separating couples.

Helping a client plan for the future?

Easily compare clients’ current tax situation to customizable tax scenarios—like a change in filing status—with the Drake Tax Planner. Since it’s accessed directly within Drake Tax, you have the tools you need to efficiently help clients plan for the future. Sign up for the free trial to see for yourself!

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Source: IRS Tax Tip 2022-92

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2022 Mileage Rates Increasing

2022 Mileage Rates Increasing

Due to rising gasoline prices, the Internal Revenue Service has taken the rare step of increasing its optional standard mileage rates for the last six months of the 2022 tax year. These rates are significant since taxpayers use them to calculate the deductible costs of operating a vehicle for business purposes.  

Typically, the IRS tweaks mileage rates for the upcoming tax year in the fall. However, record fuel prices pushed the agency to act now for the current year. The last time the IRS made a midyear adjustment was 2011.

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What are the new mileage rates for 2022?

The IRS issued Announcement 2022-13 to make the new rates official, setting forth the associated legal language, guidance, and limitations for the new rates. Here is a short breakdown from the agency:

  • The standard mileage rate for business travel will be 62.5 cents per mile
  • The new rate for deductible medical or moving expenses (available for active-duty members of the military) will be 22 cents per mile
  • The 14 cents per mile rate for charitable organizations remains unchanged as it is set by statute
  • These new rates become effective July 1, 2022

Moving expenses are only available to active-duty service members “pursuant to a military order and incident to a permanent change of station” (Announcement 2022-13). Taxpayers who traveled prior to this update—from January 1 to June 30, 2022—should use Notice 2022-03 to calculate their mileage rates.

What are the limits on who can claim a deduction?

Announcement 2022-13 states that the Tax Cuts and Jobs Act (TCJA) passed in 2017 limits which taxpayers are eligible to claim a deduction. The TCJA suspends all miscellaneous itemized deductions that are tied to the 2% of adjusted gross income floor until 2026, including unreimbursed employee travel expenses.

So, how do reservists, some state or local government officials, and some performance artists get to claim the mileage rate whereas other taxpayers do not? They are paid on a fee basis, and the IRS considers the deduction in these cases to be an adjustment to income.

What is the big picture?

Fuel costs are, no doubt, a significant factor for determining mileage rates, but other factors also play a part, such as depreciation, insurance, and other costs. Taxpayers can use the optional business standard mileage rate to help calculate the deductible costs of operating a vehicle for business purposes, instead of keeping track of the actual cost.

In addition, the federal government and some businesses use the rate to reimburse employees for their mileage. The IRS notes that taxpayers always have the option to use their vehicle’s actual costs rather than the optional standard mileage rates.

We can help you stay up to date!

Here are just a few recent IRS updates we covered:

Sources: IRS increases mileage rate for remainder of 2022; Announcement 2022-13 

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IRS Highlights Work Opportunity Tax Credit

IRS Highlights Work Opportunity Tax Credit

It’s a tight job market out there, and many employers are struggling to recruit and retain qualified employees to maintain operations. While tax pros can’t provide employees for their clients’ businesses, they can explain tax benefits like the Work Opportunity Tax Credit (WOTC). This credit is designed to reward employers who hire long-term unemployment recipients or those who face employment challenges.

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Exploring the Work Opportunity Tax Credit

The Work Opportunity Tax Credit isn’t new. Dating back to 1996, it encourages employers to hire individuals whose circumstances have historically presented barriers to employment by providing a credit for wages paid to qualified workers who start their position on or before Dec. 31, 2025.

The IRS identifies 10 groups who could qualify for the WOTC:

  • Temporary Assistance for Needy Families (TANF) recipients
  • Unemployed veterans, including disabled veterans
  • Formerly incarcerated individuals
  • Designated community residents living in Empowerment Zones or Rural Renewal Counties
  • Vocational rehabilitation referrals
  • Summer youth employees living in Empowerment Zones
  • Supplemental Nutrition Assistance Program (SNAP) recipients
  • Supplemental Security Income (SSI) recipients
  • Long-term family assistance recipients
  • Long-term unemployment recipients

To qualify as one of these 10 targeted groups, candidates must meet certain criteria. For example, long-term unemployment recipients are generally defined as those who have been out of work “for at least 27 consecutive weeks and received state or federal unemployment benefits during part or all of that time.”

How do employers determine if a hire qualifies for the WOTC?

To qualify for the WOTC, employers must complete Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit with the job applicant on or before the day they make an offer of employment. Then, they must submit the form to their state workforce agency (SWA)—not the IRS—within 28 days after the eligible worker started the position.

The WOTC is claimed on Form 3800, General Business Credit, but it’s calculated based on the wages paid to new eligible workers during their first year on the job on Form 5884, Work Opportunity Credit. It’s important to note that this credit can only be claimed once for each new employee—rehires do not qualify.

Can tax-exempt organizations claim the WOTC?

Tax-exempt organizations cannot claim the WOTC for most new hires, with the exception of qualified veterans. Instead of Form 3800, tax exempt organizations instead use Form 5884-C, Work Opportunity Credit for Qualified Tax Exempt Organizations Hiring Qualified Veterans.

For more information, see the LB&I and SB/SE Joint Directive on the WOTC issued by the IRS to help employers who have been impacted by extended delays in the Work Opportunity Tax Credit certification process.

Source: IR-2022-104

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Higher IRS Interest Rates Coming in Q3

Higher IRS Interest Rates Coming in Q3

The Internal Revenue Service is increasing the interest rates it can charge taxpayers for under- or overpayments, starting July 1. This follows the trend of interest rates for consumer loans and other financial transactions.

The Internal Revenue Code dictates that IRS’ interest rates be calculated on a quarterly basis. The rates are split between corporate tax payers and non-corporate tax payers.

What are the new rates?

The IRS says the new rates will be 5% for overpayments (if the taxpayer is a corporation, the rate is 4%); corporate overpayments exceeding $10,000 draw a 2.5% rate; underpayments get a 5% rate; and large-corporate underpayments will add 7%.

In most cases, the underpayment rate for a corporation will be the federal short-term rate plus three percentage points. For corporate overpayments, the rate is the federal short-term rate plus two percentage points.

If the taxpayer is a large corporation, the underpayment rate swells to the federal short-term rate plus five percentage points. If a large corporation makes an overpayment that is more than $10,000 for the taxable period, its overpayment rate will be calculated as the federal short-term rate plus one-half (0.5) of a percentage point.

The new third-quarter rates are calculated using the federal short-term rate that took effect May 1 and are based on daily compounding.

The full schedule of interest rates is listed in Revenue Ruling 2022-11, which officially announces the new rates in Internal Revenue Bulletin 2022-23, dated June 6, 2022.

Source: IRS interest rates increase for the third quarter of 2022

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