How To Buy a Roth IRA When You Make Too Much To Qualify For One

With their tax-free growth and tax-free withdrawals, Roth IRAs are a great deal — if you qualify. If you don’t, well, there’s still a way to get into the game in a big way.

Moving out of California, even temporarily? Here’s what you need to know about taxes

Californians who worked part of this year in another state — to save money, be closer to family or for a change of scenery during the pandemic — may be in for a surprise next year when they file their taxes.

Depending on where they moved and how long they stayed, they may need to file a tax return, and possibly pay taxes, in both states. Although most states give their residents a credit for taxes paid to another state, the credit does not always make the taxpayer whole. And the rules are beyond perplexing.

“Right now, different states have different rules for when a nonresident working in that state” will be subject to income tax filing and withholding, said Eileen Sherr, a senior manager in tax policy with the American Institute of Certified Public Accountants. “The problem is, there are different thresholds that a lot of people aren’t aware of.”

Twenty-four states require employers to withhold taxes the first day a nonresident employee works in that state, or requires the nonresident employee to file a tax return if they’ve worked at least one day in the state, even if there’s no withholding, according to a map published by the Mobile Workforce Coalition, a business group pushing for interstate tax simplification.

“New York is notorious for staking out business conferences, looking for CEOs” who earn a lot in one day, said Jared Walczak, vice president of state projects with the Tax Foundation.

In other states, the threshold could be 15, 30, 60 or more days, or after the worker has earned a certain amount of money in that state. California requires nonresidents and part-year residents to file a tax return if they have a certain dollar amount of California-source income based on their age, filing status and dependents. (For details see FTB Publication 1031.)

Even if people don’t earn enough to owe taxes in a state where they are working temporarily, they may have to file a tax return in that state, especially if they want to recoup taxes withheld from their paycheck.

Business groups have been urging Congress for a decade to adopt a nationwide standard for the taxation of nonresidents, and exempt nonresidents working in a state for 30 days or less. They’re hoping the explosion in remote working during the pandemic will give it some urgency. A bill introduced by South Dakota Republican Sen. John Thune, S3995, would extend the exemption from 30 to 90 days for 2020 because of the public health emergency.

“In practice, even in normal years, compliance (with these rules) is not terribly high when we’re talking about a few days here or there,” Walczak said. “During the pandemic, when you have a diaspora of employees who have moved all over the country and employers may not even be aware because their home address has changed, it’s very unlikely that much withholding is taking place.”

Nevertheless, for workers on the move, it’s important to understand the rules.

California taxes its residents on all worldwide income, regardless of the source. This includes income earned while working in California and any other state, as well as investment and other income. If you are a California resident and work temporarily in another state, and the other state taxes your earnings, you may get a credit that offsets some or all of the taxes you owe California for the same income.

California taxes nonresidents on “California-source” income only. This includes income from services performed in California, rent or capital gains from real property located in California and income from a business or partnership based in California. (Merely owning stock in a publicly traded company based in California does not give rise to California-source income, unless you got the stock because you worked for the company, in which case it could.)

Determining the source of income for services performed in California is different if you are a nonresident employee or independent contractor. If you are a contractor, “the source of the income is determined by where the benefit of the service is received. When the benefit of the service is received in California,” it’s California-source income, said Franchise Tax board spokesperson Victoria Ramirez. It doesn’t matter where you were when you did the work.

If you are a nonresident employee, it depends on where you were when you performed the service, not where your employer is. If you performed the service in California, your income for those days is California-source income.

California previously taxed nonresidents on pensions they earned while working in California, but that ended after 1995.

If a California resident relocates permanently to another state, that person is considered a part-year resident. California taxes part-year residents on all worldwide income received while a California resident, and from California sources received while a nonresident.

Most states with an income tax follow this same general regime. So if you move from California to a new state, the new state generally will tax you on all worldwide income received while you were a resident of the new state. But you would still be liable for California tax on California-source income, such as rent on a home you left behind. (Seven states charge no personal income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.)

Determining who is a resident of which state is not always easy.

Most states presume you are a resident if you spend more than six months in that state (which does not have to be consecutive). If you are living in two places. it’s important to keep a log of where you have spent each day.

California has no such “bright line test,” Ramirez said. FTB Publication 1031 states, “You will be presumed to be a California resident for any taxable year in which you spend more than nine months in this state.” However, “there is no presumption of nonresidency,” Ramirez said.

In other words, spending more than six months or even nine months outside of California does not automatically make you a non-resident.

“The underlying theory of residency is that you are a resident of the place where you have the closest connections,” the FTB says. It looks at a multitude of factors including the amount of time you spend inside and outside of California, where your spouse and children live, the location of your principal residence, the state where your driver’s license is issued, where your vehicles are registered, where you maintain your professional licenses and voter registration, and where your bank, health care providers, accountants and attorneys are. The state considers not just the number of ties, but also their strength.

The Franchise Tax Board is famous for pursuing people who have moved out of state if they have significant California-source income.

“If you think you can move to another state and still have ties to California,” you are “likely to face an audit. Don’t go into that lightly,” said Clay Stevens, a tax lawyer with the wealth management firm Aspiriant.

Establishing residency in another state is not always easy.

Brendan Foley and his girlfriend moved in April from San Francisco to Boulder, Colo., because it had a lower cost of living and less traffic but a similar culture. He has always worked remotely for a French electric company. His girlfriend, who works for a major Bay Area tech company, is working from her new home until its Boulder office reopens.

The couple spent their first two months in an Airbnb, while they were looking to buy a house. “The first month we were not able to establish residency” in Colorado because they had no permanent address, Foley said. So they kept their residency in California, even though they were working and having taxes withheld in Colorado. “It was this weird limbo, we didn’t know what to do,” he said.

Once they closed on a home in Boulder, they were able to get a Colorado driver’s license and mail with their name on it, open a bank account and establish residency in Colorado.

Here’s How Moving to Work Remotely Could Affect Your Taxes

The rules are complicated and vary by state, so accountants are advising taxpayers to keep track of how many days they spend working in each state.


If you decided to ride out the pandemic at your out-of-state vacation house or with your parents in the suburbs, you may be in for an unpleasant reality: a hefty tax bill.

Given the complexity of state tax laws, accountants are advising their clients to track the number of days they spend working out of state. Some states impose income tax on people who work there for as little as a single day.

Even before the pandemic, conflicting state tax rules were creating issues for the increasing number of people who were working remotely, said Edward Zelinsky, a tax professor at Yeshiva University’s Cardozo School of Law.

“In the last six months, this has gone from a big problem to a humongous problem,” Mr. Zelinsky said. He knows from personal experience: He lives in Connecticut but works in New York and has paid tax on his New York-based salary to both states.

You might, depending on the state and how long you have been there.

The state where you have your primary residence typically can tax your worldwide income, and any state where you earn income also has the right to tax you on the income you earn in that state, said Kirk Stark, a professor of tax law at the University of California, Los Angeles.

“That immediately creates a possibility of two separate states taxing the same income,” Mr. Stark said.

Many states offer credits for taxes paid to other states, and that may ease the burden. But if the state where you have relocated does not have a reciprocity agreement with the state of your primary residence, you could be subject to double state-income taxation.

You have less to worry about if you have relocated to one of these 13 states, which have agreed not to tax workers who have moved there temporarily because of the pandemic: Alabama, Georgia, Illinois, Indiana, Massachusetts, Maryland, Minnesota, Mississippi, Nebraska, New Jersey, Pennsylvania, Rhode Island and South Carolina, according to the Association of International Certified Professional Accountants.

Unfortunately not, unless you are prepared to move there permanently.

Navneet Garodia, 35, a financial services professional, has an apartment in Jersey City, N.J., but moved in July to his in-laws’ house in Florida so that he and his family could have more space. He plans to reduce his New Jersey tax payments to account for the days he has worked from Florida, a state that does not impose income tax on residents.

“I shouldn’t be paying the amount of taxes I am in New Jersey, and Florida has no taxes,” he said. He has taken steps to show tax authorities that he is, in fact, in Florida, such as forwarding his mail to his address there.

But Mark S. Klein, the chairman of the law firm Hodgson Russ, says it is not that simple, as long as taxpayers still have a primary residence in the state where they had been working and intend to return there. The same applies for people who have moved to the Hamptons for the last few months — they will not be exempt from New York City tax if they return to the city once the pandemic is over.

“The rule with changing your domicile is you have to leave New York City, land in a new location and stick the landing,” Mr. Klein said.

Yes. Mr. Klein said more than 50 of his clients had moved to Florida, Texas, Nevada or Wyoming since March.

“It’s not a coincidence that these are no-tax states,” he said. The other states with no income tax are Alaska, South Dakota and Washington. Many of his clients have kept their residences in California or New York, he said, but will plan to spend the majority of the year in their homes in lower-tax or no-tax states.

Kent and Ruby Santin, who had lived in Long Island City, Queens, said they were looking to buy in New York when the pandemic hit. Instead, seeking better access to the outdoors, they changed course and bought a house on Lake Tahoe in Nevada.

The lack of income tax there was also a big plus. “That was part of the decision, to be totally honest,” Mr. Santin, 30, a management consultant said.

“Federalism,” Mr. Zelinsky said. Under the U.S. Constitution, states are permitted to create their own tax rules.

“What we’ve learned in the last six months are the benefits and the disadvantages of federalism,” he said. The benefits include governors who acted responsibly in managing the pandemic who “can make up for deficiencies of the federal government,” he said.

“The disadvantages are that states are going to have 50 different tax rules.”

Auditors are persistent, especially in New York. They will want to know how many days you have been in a state and will check your phone records, your credit card receipts, your voter registration, your travel records and details indicating how permanent your second residence is, including where your children are enrolled in school.

Even the nurses who came to New York to treat coronavirus patients will be subject to New York income tax if they worked in the state for more than 14 days, Gov. Andrew M. Cuomo said in May.

“We’re not in a position to provide any more subsidies right now because we have a $13 billion deficit,” Mr. Cuomo said at a news conference.

Nishant Mittal, the general manager of Topia Compass, which offers an app to help people keep track of their whereabouts for tax purposes, said he saw a 513 percent rise in subscribers in June, compared with June last year.

He said most of his clients did not envision a situation in which they would be working from the office as much as they did before the pandemic. “At this point, it’s no secret that this is going to be a big headache,” he said.


Small-Business Owners: Don’t Forget Special Pandemic Tax Breaks

Whatever shape your business is in, here are tax moves to consider now

If you’re a small-business owner, don’t overlook tax breaks that could help this year—whether your business is on the ropes or is booming.

The coronavirus pandemic has left millions of small businesses like restaurants and shops struggling to survive. Nearly two million American firms, mostly small ones, have already closed their doors in 2020, says Raymond Greenhill, president of Oxxford Information Technology, which tracks about 32 million U.S. businesses of all sizes. At the same time, some small firms, like cleaning services and bike stores, are straining to meet demand.

Either way, harried owners who have focused mainly on the Paycheck Protection Program and payroll tax deferrals allowed this year may be unaware of other provisions that could aid them. Several were prompted by the pandemic, while others are longstanding but newly relevant.

“Tax strategies aren’t top of mind during a crisis, but they make a difference. Some of them provide cash that many owners need,” says Bill Smith, an attorney who leads CBIZ MHM’s national tax office. One allows owners to sell stock in smaller companies tax free.

Whatever shape your small business is in, here are tax moves to consider now. Note: All are likely to require professional help but could provide big benefits.

Claim 2020 losses on 2019 tax returns. Section 165(i) of the tax code lets individuals and businesses claim some losses on last year’s tax return if a federal disaster has been declared. The intent is to get cash to victims as soon as possible.

Disaster declarations are usually for events like hurricanes or earthquakes, but this year the pandemic qualifies. For example, a restaurant owner who had a good year in 2019 might be able deduct 2020 pandemic expenses for food spoilage on the 2019 tax return and reduce taxes owed or get a refund. Alternately, these losses can be claimed on 2020 returns, which are due as late as Oct. 15, 2021.

Not all pandemic costs are deductible, and it’s not clear which ones qualify because the pandemic differs from other disasters. Write-offs may need to be for “casualty” losses as defined by the tax code, which typically requires them to be both sudden and caused by the disaster.

Valrie Chambers, a CPA who studies casualty losses and teaches at Stetson University, thinks that a revenue drop for a restaurant due to capacity limits wouldn’t count. She thinks that added costs for deep-cleaning or a payment to get out a lease because of the pandemic could count.

The Internal Revenue Service hasn’t issued guidance on pandemic disaster losses, but a spokesman says the agency is aware of the issues.

Next year, carry 2020 losses back up to 5 years. The 2017 tax overhaul ended the ability of many firms to use current operating losses to offset prior-years’ taxes, but this spring’s Cares Act allows a five-year carryback of net losses for 2018, 2019 and 2020. It also removed other restrictions on their use, making this provision highly valuable to some taxpayers.

A broad array of losses are allowed under this provision, because it applies when business deductions outstrip income. However, this benefit takes longer to get than the one for disasters because 2020 losses can’t be claimed until returns are filed next spring.

The expanded carryback benefit can be used both by corporations, including S corporations, and by owners of pass-through entities such as partnerships.

Switch to cash accounting to defer taxes. The 2017 overhaul allowed firms averaging less than a certain amount of revenue over three years to use “cash accounting” rather than “accrual accounting.” This means they won’t owe the IRS until customers pay, rather than owing when the customers commit to pay.

Mr. Smith says that this year some smaller firms have seen revenues drop enough to lower their average below the current $26 million threshold for several years going forward, enabling them to switch to cash accounting.

Get generous treatment for losses from failed businesses. Tax code section 1244 provides a benefit for some failed businesses that’s often overlooked, says Dr. Chambers. Certain owners who sell can use up to $50,000 of net losses—$100,000 for a married couple filing jointly—to offset current or future ordinary income such as wages.

Without this provision, the losses would count as capital losses that only offset capital gains, plus $3,000 of ordinary income a year. Such losses could take a long time to use.

The requirements to claim this break apply to many investors in small firms. The business must be organized as a C or S Corp oration, not a partnership, and the break often doesn’t apply if more than $1 million in capital was invested at the firm’s outset. It can only be used by original investors, not subsequent ones.

Sell a business, tax-free. Owners who sell at a profit have a terrific opportunity if they can use code section 1202. In that case, some or even all of the gains on the sale may be tax-free.

To be eligible, the business must be a C corporation, and the seller must have held the stock in it for more than five years. The business can’t have had more than $50 million in assets when it was started. If the conditions are met, says Mr. Smith, the owners can often eliminate capital-gains tax on at least $10 million of profits on their sale, and sometimes far more.

Renting out your home? 9 expenses you can write off

Abby Hayes in as published by on 10:00 AM Feb. 23, 2017

Home sharing through sites like Airbnb, VRBO and HomeAway are becoming more and more popular. My family jumped on the Airbnb hosting train recently, and we made a tidy little side income in January renting out our spare room. I won’t have to pay taxes on that income until next tax season, but I’m already wondering what expenses I can write off.

It turns out that lots of Airbnb host expenses are deductible, and those deductions work for other home-sharing services as well. (If you’re wondering about other ways to save on your taxes, check out’s tax learning center.)

The basics of taxes and home sharing

Renting out a part of your home is similar to becoming a landlord for an entire property, and it’s a lot like running a small business. The general IRS rule is that you can deduct expenses that are “both ordinary and necessary” for your business. But you’ll pay taxes on any income that you earn over and above those deductions.

If you really like being a host, though, and rent all or part of your home for 15 days or more, you’ll have to report the income. So you’ll want to take all the deductions you possibly can. When it comes to deductions for rentals, you need to be careful, though. You can only deduct expenses that were spent on your business.

So if you buy new bath towels that your renters just happen to use in your shared bathroom, you can’t deduct the full cost of the bath towels. But if you buy linens just for your Airbnb renters, you can deduct the full cost.

With that in mind, below are some expenses you might deduct.

9 expenses you could deduct

1. Service fees: Most short-term rental services charge hosts a fee that comes off the top of the rent paid by the guest. Even if this fee comes out of the guest payment before it hits your bank account, you can deduct it as a business expense.

2. Advertising fees: If you pay for any advertising outside of that offered by the rental company (and, therefore, covered with your service fees), deduct those expenses.

3. Cleaning/maintenance fees: If you buy cleaning supplies for your rental room, deduct those. If you pay a professional for cleaning, deduct that expense, too. Any maintenance costs related to the rental property are also deductible. If you pay for whole-house maintenance, such as a furnace tune-up or a roof replacement, a part of that cost will be deductible.

4. Utilities: If you’re only renting part of your home part of the time, you’ll split the utilities — part as a personal expense and part as a business expense that can be deducted.

5. Property insurance: If you need to pay more insurance on your home because of having renters present, you can deduct the extra cost. Even if your property insurance fees haven’t increased, you can write off part of the expense as a business expense.

6. Property taxes: The same goes for property taxes: You can write off the portion of your property taxes equal to the portion of your home being rented.

7. Trash removal services: Services that you pay the municipality for can be deducted, because they’re both reasonable and necessary.

8. Property improvements: You can deduct the cost — or the interest paid on a loan, if you don’t pay cash — of improvements made to the property if those apply to the rented area.

9. Furniture, linens and food: You presumably provide guests with at least a couch, if not a bed. If you buy new furniture for your guest room, you can deduct that. You can also deduct the cost of linens, curtains, shower supplies, or food that you provide to your guests.

Splitting the expenses

Unless you’re renting your whole home for the full year, you’ll need to prorate these deductions. In short, you can only deduct these expenses when they actually apply to the rental space while it’s being rented.

As you can see, things can get hairy! If you decide to host through Airbnb or another similar service this year, here’s what you need to do:

  • Keep detailed records. Know exactly when you had renters and for how much. Keep all your receipts related to expenses for the rental, or for improvements or utilities for your whole house.
  • Know your local laws. In some cases, you may have to pay additional local taxes when you do a short-term rental. Get familiar with those laws, which vary by state and locality.
  • Get a professional to help. Because these issues are so complex, it’s best to consult with a tax professional about your rental income, especially if you made a decent amount of money through the year. You want to take all the deductions you can to lower your tax bill. But you also want to make sure you’re doing it legally.

Coronavirus Telecommuters could face a Tax Nightmare

BY JEFF JOHN ROBERTS in on June 27, 2020 7:00 AM CDT

As the COVID-19 outbreak battered Brooklyn in March, Beth and Ryan Carey decided to flee. The two educators and their toddler, Finn, drove nine hours south to stay with family in North Carolina. They have yet to return. Like many others who left New York during pandemic, the Careys have discovered numerous upsides to leaving the city: a lower cost of living, ample space for Finn and their hound dog, Cash Money, to roam, a more leisurely pace of life. And since both can do their job remotely, the couple are tempted to leave the stresses of New York life behind for good.

But just because they may be ready to part ways with New York doesn’t mean the state is ready to part ways with them.

What is the ‘convenience rule’?

As it turns out, moving to another state—even one 500 miles away—doesn’t mean workers can escape the clutch of New York’s powerful tax collectors. The reason is a controversial tax policy, known as the “convenience rule,” which deems that those who work for a New York company are earning wages in the state even if they are telecommuting. In the view of the Albany tax gnomes, a move to North Carolina, like the one made by the Careys, is one of convenience, not necessity. And that means, for tax purposes, they are are still working in New York.

A handful of other states—Pennsylvania, Delaware, and Nebraska have formal convenience rules of their own—but tax lawyers say those states don't enforce the rules with nearly the same vigor as the Empire State.

“New York has always had an aggressive tax department,” says Elizabeth Pascal, an attorney with Hodgson Russ, adding the state uses sophisticated auditing software in its hunt for revenue.

The upshot is that many middle-class workers who are contemplating permanent post-COVID relocations could face tax headaches more familiar to affluent earners like hedge fund managers and professional athletes. And many could face the prospect of double taxation.

Edward Zelinsky, a professor at Cardozo Law School, knows this firsthand. The Connecticut resident has battled New York in court for years, saying he is willing to pay tax on the days he is physically present to teach, but that he should not have to pay income tax on the days he works from home. His legal challenges have come up short in New York’s courts, however, meaning Zelinsky has had to pay income tax in two states.

Tax credits for commuters

Zelinsky and other telecommuters caught a break two years ago when Connecticut changed its tax policy to let its residents who paid New York income tax obtain an offsetting credit. But the credit does not entirely reduce the burden since New York tax rates are higher than those in Connecticut.

Meanwhile, most other states do not provide any credit to resident telecommuters who pay under New York’s long-arm tax rules. The reason, says Zelinsky, is that those states don’t believe the New York policy is legitimate. (Unsurprisingly, Zelinsky agrees with this position, arguing New York’s convenience rule violates the Constitution).

In an ideal world, Congress or the 50 states themselves would devise a compact to prevent double taxation and to clarify how telecommuters should be taxed. And indeed, there are pockets of such cooperation—notably in the form of reciprocity agreements among the District of Columbia and neighboring states, and between Illinois and its neighbors.

The broader reality, though, is that many of those who telecommute across state lines will face conflict and confusion. And the situation is likely to get worse as states react to the economic shocks created by COVID-19.

The State of Arkansas, for instance, created a buzz among tax lawyers this May after it issued a legal opinion saying that a computer programmer in Washington State should pay income tax to Little Rock for work done for an Arkansas entity.

As these situations become more common, the nation’s growing telecommuter workforce will face hard choices in the coming tax year.

Exceptions and enforcement of the convenience rule
While New York is aggressive about enforcing its convenience rule, there are three ways to escape it. The clearest exemption is for those employees who transfer to a company’s out-of-state office: A New Yorker who moves to her firm’s satellite office in Boston need only pay taxes to Massachusetts.

In the case of an out-of-state employee working from a home office, though, it’s not so easy to escape New York’s clutches, says tax lawyer Pascal. In order to qualify for an exemption, she says, the worker must be performing a task at the employer’s behest that could only be done out of state. For instance, the employee might require proximity to a special laboratory or factory that doesn’t exist in New York.

The third way to avoid New York’s convenience rule is for telecommuters to avoid setting foot in the state—though there is some debate about what this entails. Pascal says an employee can safely go to New York for a vacation so long as the trip doesn’t have work purposes, but a recent bulletin from Ernst & Young suggests that spending even “one day” a year in the state could trigger the rule.

Zelinsky, meanwhile, says he used to tell people they could go New York for non-work purposes, but that he believes tax authorities will no longer grant such latitude.

Fortune sought clarity from New York’s Department of Taxation and Finance about how and when the convenience rule applies, but did not receive a response.

Some other states, meanwhile, have issued guidance to say they won’t tax those who are working remotely in their states as a result of the coronavirus. But many others have not, and given the dire fiscal situations many states are finding themselves in, it’s unlikely tax authorities will be in a forbearing mood next year.

New York, in particular, could become still more aggressive in seeking income tax revenue. Several tax lawyers have noted the state offered little relief to those who had to relocate in the wake of Hurricane Sandy in 2012. And Zelinsky points out the state has even refused to provide tax exemptions for medical workers who came to the state to assist with the COVID-19 emergency—including many nurses from Tennessee, where there is no income tax at all.

Some middle-class telecommuters may wonder if they can avoid out-of-state tax headaches by simply declaring income in their resident state, and hoping for the best. Tom Corrie, a tax lawyer at Friedman LLP, says that New York has historically targeted high-income individuals for audits, rather than those making $50,000 a year.

But a modest income is no guarantee, of course, that an out-of-state telecommuter will escape an audit by New York tax authorities. This is especially the case given that the state, according to Corrie, is facing a drastic shortfall in sales-tax revenue as a result of the pandemic.

“The state is extremely hungry for money,” he says.

Months after filing, thousands of Americans are still waiting for their tax refunds

Pandemic closed IRS offices, but employees are back and trying to clear backlog of paper returns


American taxpayers got an extra three months from the Internal Revenue Service to pay their taxes this year. But this act of bureaucratic largesse didn’t benefit many people who filed their returns long before the usual April 15 deadline. They are still awaiting refunds.

For the most part, the IRS stopped processing paper returns around March 30 because of the novel coronavirus. Some work was curtailed even earlier.

“Yes, some paper returns filed early in the season have not yet been processed,” said IRS spokesman Eric Smith. “We have been hearing this from a number of folks and very much understand that people are concerned. We are continuing to whittle away at our paper inventory.”

The coronavirus-related chaos that has marred this year’s tax season should give people who still mail paper tax returns additional incentive to switch to electronic filing.

One reader, waiting on a $10,000 refund, said his tax preparer doesn’t like e-filing returns.

“Big mistake,” he emailed. “Next time will hope my accountant of 40 years will do electronic filing or just retire. We filed a paper federal return on February 25. We are due a large refund. I got my Maryland state tax refund promptly (paper return) and can’t tell if my federal return got lost in the mail. Stupid me, I did not send it certified. Or is it still sitting in a trailer waiting to be reviewed? I’m not sure if the IRS ‘penalizes’ someone due a refund of several thousand dollars if the return just never got to them.”

The agency began a phased reopening on June 1, with employees working to dig out from under a backlog of mail. “Even now, we’re still not at 100 percent staffing,” Smith said.

As of the week ending July 4, the agency estimates that it had 7.8 million pieces of mail correspondence, which includes about 3.6 million unopened returns, Smith said.
  “These are not exact figures, and because both paper and electronic returns continue to come in, it’s very much a moving target,” he said. “So, we don’t yet have an estimated date of when the backlog will be completed.”

The IRS remains scaled back to comply with social distancing recommendations. Still, in the week ending July 10, the agency processed more than 4 million returns compared to the previous week.

At least if you’re getting a refund, your return gets priority treatment — whether your return arrived early in the year or during the typical spike around the filing deadline, which shifted to July 15 this year.

There are four key points to keep in mind if you’re worried about when your return will be processed, or whether the IRS received it.

— Even without receipt proof, it’s very likely your return is in the backlog. But if you’re unsure, don’t file a second tax return or bother calling the IRS.

“We completely sympathize with your concern that the IRS may not have received your return, especially when it comes to refunds,” said Smith. “Right now, sending in a follow-up letter or another copy of the return won’t help, and in fact it will usually slow things down. It could take even longer to get your refund.”

As of July 10, the average refund was $2,762.

— Check the status of your refund by using the “Where’s My Refund?” tool at or by calling 800-829-1954. But you don’t have to check multiple times a day. The refund portal is only updated once a day, usually overnight.

You should call the IRS if it has been more than 21 days since you e-filed your return or you get a message while using the “Where’s My Refund?” tool to contact the IRS. Although phone lines supported by customer service representatives are open, expect long waits because of limited staffing.

— If you’re due a refund, you’ll get the full amount. There’s no penalty assessed by the IRS even if the return is late. There is only a late-filing penalty if you owe.

— There is a decent bonus for your wait. If you filed your tax return before July 15, you’ll receive interest on your refund. The interest rate for the second quarter, which ended June 30, is 5 percent, compounded daily. After this date, the interest rate for the third quarter, ending Sept. 30, drops to 3 percent.

The interest accrues from April 15 to whenever the IRS issues your refund, and it could come in a separate check or direct deposit.

And, in case you’re wondering, yes, the interest is considered taxable income.

The PPP Loan Forgiveness Process Just Got Easier

Robin Saks Frankel on at

If doing the paperwork to have your Paycheck Protection Program (PPP) loan forgiven seems intimidating, help has arrived. A new online tool can simplify the process—and it won’t cost you a cent.

You can find the new PPP forgiveness platform at Any business that took out a PPP loan can use the tool for free, regardless of whether they worked with a bank or a non-bank lender. The American Institute of CPAs (AICPA) and released the platform this week, which is powered by software from small business lender Biz2Credit.

An Easy Way to Get Started on PPP Loan Forgiveness

Business owners or their accountants can access a suite of loan aids on the platform, including the AICPA’s PPP forgiveness calculator, the PPP loan forgiveness application and all of the required government forms mandated when you submit your loan forgiveness application.

You can even submit your application on the platform using an electronic signature, although the site recommends holding off on filing the application until the federal government offers additional guidance on calculating PPP loan forgiveness.

“From the beginning [of the PPP], we’ve been issuing documents with what our recommendations were and our suggestions on how loan forgiveness works,” says Erik Asgeirsson, president and CEO of “And now we’ve put it all into one application process.”

If you’ve been hesitant to apply for a PPP loan, the new tool could make the forgiveness application part of the process easier.

The PPP forgiveness tool also will incorporate the latest guidelines surrounding forgiveness as they’re released by the U.S. Small Business Administration (SBA) and the Treasury Department, Asgerisson says. From the site: “Once additional guidance is released, will be updated to reflect the new rules and we will contact borrowers who have started applications on the tool.”

Until that occurs, the site recommends you do not submit your completed application.

PPP Loan Money Still Available

Lenders have issued over $517 billion in PPP loans to date to help small businesses struggling to stay solvent during the COVID-19 pandemic. According to data from the SBA, more than 51 million jobs were supported by PPP funds. While the initial $349 billion round of funding ran out in less than two weeks, fewer businesses rushed to claim a second round of $310 billion

The complexity surrounding the requirements for PPP loan forgiveness, plus the extensive paperwork documenting eligibility, may have deterred some small-business owners from applying. Even as the government relaxed forgiveness rules, over $100 billion in PPP funds remains unclaimed. 

PPP loan forgiveness terms state that at least 60% of the funds must be used for eligible payroll costs and must be used over a span of 24 weeks.  Although repayment of PPP loans for those not seeking or who are ineligible for forgiveness was extended to five years at an interest rate of 1%, and additional rules were released allowing for partial loan forgiveness, the possibility of taking on any more debt is unlikely to appeal to anyone struggling to keep their business running.

“This tool hopefully will also encourage people with the next phase of business relief to make sure that complexity in the process is not a reason to not get the assistance they need,” Asgeirsson says. 

The government is still ironing out the details of what will come next in a second stimulus relief package. But GOP lawmakers and Senate Majority Leader Mitch McConnell began discussions this week about what might be included in the Republican proposal, indicating that additional aid to small businesses was likely to be part of any package.

U.S. Companies Get Tax Reprieve in IRS Foreign-Income Rules

Government softens blow of new minimum tax on foreign profits but doesn’t give companies all they wanted

The Treasury rules finalized on Monday will reduce the U.S. tax burden on companies operating in places such as Germany and Japan.

WASHINGTON—The Treasury Department relaxed some tax rules on U.S.-based multinational corporations, issuing final regulations Monday that give relief to companies operating in high-tax foreign countries.

The final rules gave companies some but not all of what they wanted and will reduce the U.S. tax burden on companies operating in places such as Germany and Japan. The change may encourage them to invest more in such high-tax places, according to an analysis by the Treasury Department and Internal Revenue Service.

Companies can now seek retroactive benefits, going back to periods before the proposed regulations came out in June 2019. And they also have somewhat looser rules about how their foreign subsidiaries are defined.

The rules implement the Global Intangible Low-Taxed Income, or GILTI, system that Congress created in the 2017 tax law. That requires U.S. companies to pay additional U.S. taxes if their foreign rates are below certain thresholds. It was designed to prevent companies from concentrating profits in low-tax jurisdictions.

Lawmakers and companies say they thought the GILTI tax wouldn’t apply if companies paid rates above 13.125%. But there were technicalities in how the new U.S. system interacted with longstanding U.S. tax rules, which meant that many companies with relatively high foreign tax rates were subject to GILTI—including Kansas City Southern and Procter & Gamble Co.

The Treasury rules finalized on Monday largely mean that companies with tax rates above 18.9% shouldn’t owe GILTI. That higher rate mirrors the rule that applies when U.S. companies earn investment income abroad.

Companies such as Freeport McMoRan Inc., Corning Inc. and Hanesbrands Inc. had filed public comments seeking changes to the proposed rules.

The rules give companies some choice in how the system applies to them each year, and they will invariably pick the way that lets them pay lower taxes, said Sen. Ron Wyden of Oregon, the top Democrat on the Finance Committee.

“This is yet another case where the Trump administration makes the rules more favorable toward megacorporations as the regulatory process moves forward,” he said in a statement.

When will I get my tax refund? ‘We’re focused on the paper returns,’ the IRS says as it reopens offices

Andrew Keshner, June 2020, MarketWatch,

As tax season winds down, the Internal Revenue Service is gearing up its operations.

The federal tax collector’s plans and procedures have been upended this year, like countless other government agencies and companies contending with the coronavirus pandemic.

The IRS temporarily closed offices in March due to the COVID-19 public-health emergency and the filing deadline was pushed from April 15 to July 15. On top of that, lawmakers tasked the agency with distributing millions of stimulus checks, beginning in April. The IRS started reopening its offices last month after 90% of its facilities were closed at the peak of the pandemic.

The IRS has processed 130.5 million returns by July 3, down 9.5% from the same point last year when it had already processed 144.3 million, according to the most recent data. It’s issued 95.2 million refunds so far, which is 9.6% fewer issued refunds than the same point last year.

As of late June, the IRS was also working its way through 12.3 million pieces of correspondence, IRS Commissioner Charles Rettig told senators at a June 30 Finance Committee hearing. Paper tax returns are the top priority in the mountain of documents, he noted.

“We’re focused on the paper returns because many of those also obviously will have refunds,” Rettig said, referring to the tax credit for low- and moderate-income families.

The IRS is processing paper returns in the order it receives them.

When it comes to on-site office returns, Rettig said the IRS has focused first on staffing up its capacity to issue refunds and handle customer service calls. “We’re trying to ramp up as quickly as we can,” he said.

By this week, all of the IRS processing facilities and call centers were scheduled to be open, Rettig said last month, “understanding that ‘open’ is a relative term for socially distanced working, different schedules, working different shifts, having people spread out.”

The IRS did not immediately respond to a request for comment on the latest working status for its facilities.

So when will I get my refund?

Anxious taxpayers don’t need to raise their stress level by constantly refreshing the page. The refund tracker gets updated once a day, and it’s usually overnight, the IRS says. (Around 98% of all returns with refunds are processed and paid in 21 days, Rettig noted during his testimony.)

The average refund, a reimbursement for overpayment of income tax, is $2,762. That’s basically unchanged from last year’s average amount — and worth more than two $1,200 stimulus checks. In theory, they should start to arrive around the same the additional $600 in weekly unemployment benefits expire at the end of July.

98% of all refunds should be processed and paid in 21 days, but there may be delays given the extraordinary set of circumstances related to the pandemic. —

If a taxpayer has already submitted their tax return, they can track the status of their refund through the IRS’ “Where’s My Refund?” portal. Users need to supply their Social Security or individual taxpayer identification number. They must also provide their filing status and exact refund amount.

If you have already submitted your tax return and expect money, track the refund status through the IRS site, experts told MarketWatch.

Rafael Alvarez, CEO and founder, of ATAX, a national tax-preparation company, said if you haven’t yet filed your return, do so electronically and supply bank-account information for a direct-deposit receipt.

A taxpayer who doesn’t supply bank-account information will get a paper check for their refund, which could prolong the wait by a week, Alvarez said.

If you already submitted a return without bank account information, you can give updated account information to the IRS. However, Alvarez said that may be a tough task for a backlogged agency that’s wary of enabling scammers who could make off with someone else’s refund money.

“It can be modified by talking to IRS agents, but you need to explain the reason why you are doing this,” Alvarez said.

The IRS was never an agency designed for downtime given its time-sensitive work, according to Robert Kerr, executive vice president of the National Association of Enrolled Agents, a trade organization for tax professionals. That’s especially true during filing season, he added.

He credits the IRS for doing its best under extraordinary circumstances, but says the sheer number of returns mean a small percentage of snafus and delays can equate to big numbers.

For example, the IRS has fraud and error filters to screen out potentially questionable returns. Some mistakenly flagged returns are taking a long time to fix and send refunds, according to the National Taxpayer Advocate report.

“When these returns bounce, they bounce to somebody’s desk,” Kerr said.