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Filing Early Could Cost You $1,400 ?


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I know discussing upcoming legislation is often an exercise in futility, but here's an interesting take on how filing early this year MIGHT be problematic for some people.  (If you don't mind clicking a link)  It applies to those taxpayers fortunate enough to have experienced an INCREASE in income in 2020 over 2019.  Just wondering if anyone else has run across anything along these lines?

https://currently.att.yahoo.com/att/lose-1-400-stimulus-check-210600457.html?.tsrc=daily_mail&uh_test=1_11

 

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Timing is always an issue to be reviewed.  In the case of the EIP's, there is timing to maximize, such as what is popular in the media, and items not so popular, such as an adult child not being a dependent for 2020 (but not filing until potential EIP 3 is paid, so the parents get the "dependent" amount, which does not have to be paid back, then the adult child files to get their EIP 1, 2, and eventually 3).

No moral issues, as it is something done all the time, like bundling income and/or expenses for the best benefit.

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The proposed EIP 3 may give an amount for dependents over 16yo, unlike EIP 1 and 2.  Still speculation, but there is no point filing early and losing what may be a gain.

Example:

Parents and one adult dependent (for the sake of this example, a disabled adult)

Parents: EIP 1 and EIP 2, nothing for adult dependent. Parents elect not to claim dependency for 2020 (-500 federal, and for sake of example, -300 state), making adult child eligible to file and receive EIP 1 and 2 (+1800).

If EIP 3 passes as proposed (1400, adult dependents eligible):

Wait to file until EIP 3 is paid.  Parents receive their own, plus 1400 for the adult dependent from prior qualifying TY.  Parents then file, without dependent, and because there is no claw or pay back requirement, keep the 1400.  Adult (the parents child) files, and receives their EIP 1, EIP 2.  Likely for 2021, the child files separately again, to get EIP 3.

With the proposed EIP 3, the net:

Parents, +1400 EIP 3 for 2019 adult dependent, less 1600 for loss of credits on their 20 and 21 returns.

Child, +1800 for EIP 1 and 2 (20 return) and EIP 3 of 1400 on 21 return.

Parents, - 200, Child +3200, net +3000.

---

Disregarding EIP 3:

Parents -800 (20), Child +1800 (20), net +1000

 

 

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Yes, an interesting predicament.  I'm just laying out the scenario where it applies and telling them to let me know whether they want to file a Federal extension or "just go for it" as things are right now.  One thing I'm not going to do is hold onto the returns waiting for IRS or Congress to extend the filing date.  If the client want to wait, then an extension goes out immediately.  Once their info is in my hands, I either want it out the door on the first pass or send in an extension.  (Less stressful for me that way).

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The White House has reached a compromise with the moderate Democrats in the Senate.

The compromise phaseout range for for MFJ would be $ 150,000 to $ 160,00 and MFS $75,000 to $ 80,000.

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