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DANRVAN

stimulus check planning

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I have added a line to my tax preparation and planning check list to maximize stimulus check when possible.

First case, married couple with no dependents will have AGI over $200,000 in 2019 due to land sale .

Their 2018 AGI was less than $150,000.

So as I read the stimulus check qualifications, checks will be issued in about 3 weeks based on 2019 tax return; or if not yet filed, then based on 2018.

For this couple, then it appears they will come out $2,400 ahead if they wait for the payment based on 2018 before they file their 2019 return.

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True, but the payment is an advance on the credit that will be claimed on the 2020 tax return, so won't they have some payback if the income on that return exceeds the upper limit?

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7 minutes ago, jklcpa said:

True, but the payment is an advance on the credit that will be claimed on the 2020 tax return, so won't they have some payback if the income on that return exceeds the upper limit?

The class that I attended Friday said that they will not have to pay it back. The instructor was Tom Gorczynski and he is way smarter than me. I just keep reading and have other classes still to take. It's a good thing that I don't have any tax returns to file.🤪

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12 minutes ago, jklcpa said:

True, but the payment is an advance on the credit that will be claimed on the 2020 tax return, so won't they have some payback if the income on that return exceeds the upper limit?

Advance on credit ? Is this not one time payment from federal government. I believe this is not taxable income.

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It's all three of those. We'll be reconciling these checks on next year's tax returns. The Tax Preparer Full Employment Law.

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22 minutes ago, jklcpa said:

so won't they have some payback if the income on that return exceeds the upper limit?

This is from stimulus Q and A from various websites:

 

What if my income is higher in 2020? You do not have to pay the government back. Technically a person’s 2020 income is what qualifies them for the payment. Since no one knows their total 2020 income yet, the government is using tax returns from 2019 and 2018 to figure out who qualifies for a check. If you get a payment and then your 2020 income is higher and thus merits a reduced payment or no payment, the money does not have to be paid back.

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24 minutes ago, DANRVAN said:

This is from stimulus Q and A from various websites:

The official IRS site has not yet posted the info on non-repayment that was quoted from press releases.  https://www.irs.gov/coronavirus

So I am not making any promises to clients yet, but will continue to monitor updates.  I expect Checkpoint will have an analysis on it soon. 

Also looking for client returns with income over $150,000 in 2018 but less in 2019. 

They might need to  file 2019 ASAP to avoid disqualification from 2018.

 

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16 hours ago, DANRVAN said:

The official IRS site has not yet posted the info on non-repayment that was quoted from press releases.  https://www.irs.gov/coronavirus

So I am not making any promises to clients yet, but will continue to monitor updates.  I expect Checkpoint will have an analysis on it soon. 

Also looking for client returns with income over $150,000 in 2018 but less in 2019. 

They might need to  file 2019 ASAP to avoid disqualification from 2018.

 

Wow, that's true... but way too much work for me... Great information. I am postponing some clients whose income went over the top in 2019. That's about all I'm capable of doing. 

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No need to file in a hurry.  They will get the check next year when we do their taxes.

I am pretty sure that the IRS and Congress know that the situation changes from 2019 to 2020... and changes are bigger if you consider 2018 vs 2020.

This is what will happen and I hope I am wrong: I have five MFJ couples all of them will a refund of $3K when I prepare their 2020 return. This is their situation in March 2021:

MFJ 1.  Filed 2018 and earned $140K.  They got $2,400. In 2020 they earned $250K.  I believe their refund of $3k will be reduced to $600

MFJ 2. Filed 2018 and earned $200K. They filed in February, 2020 their 2019 tax return and earned $300K. They will not get a stimulus advance payment.  When I prepare their 2020 return, they earned $100K, so they will get $3K of their regular refund plus $2,400 for a total $5,400.

MFJ 3. Has not filed for 2018 or 2019. They are trying to rush the returns but the IRS will run the report tomorrow, so their returns got 2 hours too late. They will not get a check.  In 2020 they earned $300K. Their refund will be $3K... no harm no foul.

MFJ 4. Same situation as above, except that they came to Pacun enterprises and their 2019 return was two hours before the IRS run the report. Their income in 2019 was $140K. They got the stimulus check. In 2020 their refund will be $600 because they have to return that money.

MFJ 5. Filed 2019 in Feb 2020 and reported $175K. Got a check for $1,200. Their income in 2020 was $140K, so their refund will be $4,200.

 

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First, there are no paybacks at all, per the IRS. On the 2020 return there will be their credit, and you will enter the amount of their advance check; however, the subtraction will NOT take their credit below zero.

Second, the IRS has said they will issue advance payments through 31 December, so clients filing later this year might still receive checks/direct deposits.

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2 minutes ago, Lion EA said:

First, there are no paybacks at all, per the IRS. On the 2020 return there will be their credit, and you will enter the amount of their advance check; however, the subtraction will NOT take their credit below zero.

Second, the IRS has said they will issue advance payments through 31 December, so clients filing later this year might still receive checks/direct deposits.

To be perfectly clear, there are a lot of sites saying "no payback".  The IRS' official page for coronavirus has a lot of good information, but IRS does not specifically say "no payback" yet. 

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I can't recall the cite, but my understanding is it will be an advance of a refundable credit  on the 2020 returns, so it's a wash on the return.  But no idea how they're going to make that work for people who would get different amounts based on 2018 vs 2019 vs 2020.  Good luck figuring that one out, IRS.

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Just now, GLJEANNE said:

I can't recall the cite, but my understanding is it will be an advance of a refundable credit  on the 2020 returns, so it's a wash on the return.  But no idea how they're going to make that work for people who would get different amounts based on 2018 vs 2019 vs 2020.  Good luck figuring that one out, IRS.

I too recall reading that, and I think it was in a Journal of Accountancy article.

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I relied on Section 6428(e)(1).

Tony Nitti of RubinBrown taught a two-hour webinar to 5,000 tax preparers this afternoon and stated the following:


Basic Structure: Adds new Section 6428 to the Code

Section 6428(a): Individuals are entitled to a refundable credit on their 2020 tax return. (See Section 6428(b) for refundable status).

But in many cases, the taxpayer will receive an “advance payment” against the credit in the coming months. This advance payment is NOT taxable.

When the taxpayer files their 2020 tax return, the advance payment will be “trued up” with the credit; but only in a taxpayer friendly direction.

If the advance payment is LESS than the “actual credit” the taxpayer is entitled to the full credit on the 2020 return, less the advance payment; i.e., the taxpayer will receive the extra benefit.

If the advance payment is MORE than the “actual credit” the taxpayer is entitled to on the 2020 tax return, however, there is no mechanism for the taxpayer to either:

Report the excess advance payment as income, or

Repay the excess advance payment as is required with the premium tax credit.


What happens in 2020?

When a taxpayer files their 2020 return, a refundable credit will be computed using the same metrics and thresholds as the advance payment.

Section 6428(e)(1): the credit is reduced –but not below zero –by the advance payments received by the taxpayer.

Section 6428(e)(2): If an advance payment was made to a joint return and in 2020 they are no longer joint, half of the advance payment is treated as having been made to each spouse.

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22 hours ago, Pacun said:

MFJ 3. Has not filed for 2018 or 2019. They are trying to rush the returns but the IRS will run the report tomorrow, so their returns got 2 hours too late.

Have they actually announced the date when 2019 returns won't be reviewed for the stimulus figures?

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So, you REALLY think that the IRS will be checking and comparing for the rest of 2020? In December, most systems are down for testing and maintenance.  According to the information posted here, if I don't file for 2019, but in 2018 I reported $175K, I will get a check for 600. A week later (let's say) I file for 2019 and I made only $140K, I will get a second check for $600.

Let's say that this emergency last ONLY 2 months and the economy goes back to normal,  why will the IRS have to bother sending a check in December... six months after the emergency?

If I am not mistaken, that's the interpretation of the instructors but reality might be a bit different.  I do believe the IRS will run a report this month. If 2019 has been filed, they will get a check based on the income reported on that return (or not get a check).  If 2019 was not reported, then they system will check 2018 and will send a check accordingly.  If someone has not filed for both years, they will get their check when they file their 2020 return.

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Straight from the horse's mouth:

https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know

"I need to file a tax return. How long are the economic impact payments available?

For those concerned about visiting a tax professional or local community organization in person to get help with a tax return, these economic impact payments will be available throughout the rest of 2020."

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11 hours ago, North Idaho Rich said:

Have they actually announced the date when 2019 returns won't be reviewed for the stimulus figures?

I don't believe there is any review process of 2019 returns.  

As I read section 6428(f)(3)(A), the payments are to be issued ASAP; if your 2019 return has not been filed at the time the payment is calculated, then your payment will be based on your 2018 return.

 

 

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19 minutes ago, DANRVAN said:

As I read section 6428(f)(3)(A), the payments are to be issued ASAP; if your 2019 return has not been filed at the time the payment is calculated, then your payment will be based on your 2018 return.

In other words, the advanced payment is a one time event.  They are not going to wait for a 2019 return.  

Per section 6428(f)(3)(5)(A) if a 2019 return has not been filed they will look back to 2018.

And  6428(f)(3)(5)(B) says if a 2018 return has not been filed  then  "the Secretary may" use information from your 2019 SSA or RRB 1099 to make the determination. 

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20 minutes ago, DANRVAN said:

They are not going to wait for a 2019 return. 

So if you have not filed for 2019 or 2018, nor have you received a 2019 SSA  RRB 1099 on the date determination,  I am not sure if you will get a payment later if you file before Dec 31 2020, or if you have to wait until you file for 2020.  It's past my bedtime.

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Exactly, this is a one time event and the IRS will run the report and send the money. After the report is run and checks are sent, the IRS will say "Finito la musica.... if we made a mistake, it will be corrected when you file your 2020 return". 

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My question was when will they stop looking for 2019 returns and calculate off the 2018 returns. Yesterday, tomorrow, in a week?

I do realize everything will settle out when the 2020 returns are filed.

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