Your grandson needs a car, but he cannot afford the payments. As a favor, you provide the $25,000 to purchase the car. You tell your grandson to pay you back when he can, but there is no loan document. The IRS sees this payment during an audit and asks you where your interest income is for this loan. Should this happen, you will quickly understand the meaning of AFRs.

AFRs Defined
AFRs stand for Applicable Federal Rates. They are minimum interest rates that the IRS applies to a transaction when no rate is stated or implied. In other words, you may have a transaction that the IRS believes has an interest income/expense element to it, but none has been claimed by you. These minimum interest rates are published each month by the IRS for three different loan terms: Short-term (0 to 3 years); Mid-term (4 to 9 years); and Long-term (over 9 years).

When does the AFR apply?
You may think that money you gave to a friend or that car sale to your cousin with repayment over time has no interest rate, but the IRS often sees it differently. If no interest rate is stated, the IRS will apply the applicable AFR and you could be in for a tax surprise. Here are some common examples when the AFR rates can come into play:

• Loans to family and friends.

 

• Buying anything over time. If you take possession of an item, but can pay for it over a length of time, imputed interest is involved.

 

• Employee advances. This can include giving an employee the rights of stock ownership, but not expecting payment for the stock right away.

How to use the AFR knowledge to your advantage
​

• Create a loan document. Whenever you establish a transaction that has the expectation of repayment, write up a simple loan agreement. Not only will it clarify your repayment expectation, it also establishes the repayment terms. Ensure both parties sign and date the document.

 

• Establish a safe interest rate. Use the AFR tables to establish an audit-safe interest rate. Remember, AFRs are also used if the IRS believes your stated interest rate is too low.

 

• Leverage gift rules. Remember you (and your spouse) can each gift up to $15,000 to an individual. If you stay under this threshold, you could defend your money transfer as a non-interest bearing gift and not a loan.

 

• Caution with housing transactions. Banks are asking buyers to document where they receive their money for their down payment. If the money comes from you, it could establish a potential implied loan document that you might need to defend. If you plan to help with a down payment in the future, try to understand the bank’s look-back rules for this disclosure reporting and use this knowledge in conjunction with the IRS gift rules to avoid creating implied interest.

Should you wish to see the published AFR rates, they are available on the IRS website at www.irs.gov AFRs.

​"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. 
 
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-372

WASHINGTON – The IRS announced today that, as required by law, all legally permitted first and second round of Economic Impact Payments have been issued and the IRS now turns its full attention to the 2021 filing season.
 
Beginning in April 2020, the IRS and Treasury Department began delivering the first round of Economic Impact Payments within two weeks of the legislation. The IRS issued more than 160 million EIPs to taxpayers across the country totaling over $270 billion, while simultaneously managing an extended filing season. In addition, since Congress enacted the COVID-related Tax Relief Act of 2020, the IRS has delivered more than 147 million EIPs in the second-round totaling over $142 billion.
 
The legislation required that the second round of payments be issued by Jan. 15, 2021. While some second round Economic Impact Payments may still be in the mail, the IRS has issued all first and second Economic Impact Payments it is legally permitted to issue, based on information on file for eligible people.
 
Get My Payment was last updated on Jan. 29, 2021, to reflect the final payments and will not update again for first or second Economic Impact Payments.
 
Most people who are eligible for the Recovery Rebate Credit have already received it, in advance, in these two rounds of Economic Impact Payments. If individuals didn't receive a payment – or if they didn’t receive the full amounts – they may be eligible to claim the Recovery Rebate Credit and must file a 2020 tax return. Eligibility for and the amount of the Recovery Rebate Credit are based on 2020 tax year information while the Economic Impact Payments were based on 2019 tax year information. For the first Economic Impact Payment, a 2018 return may have been used if the 2019 was not filed or processed.
 
Individuals will need to know the amounts of any Economic Impact Payments they received to claim the Recovery Rebate Credit. Those who don’t have their Economic Impact Payment notices can view the amounts of their first and second Economic Impact Payments through their individual online account. For married filing joint individuals, each spouse will need to log into their own account.
 
To avoid refund delays, the IRS urges people to file a complete and accurate tax return. Filing electronically allows tax software to figure credits and deductions, including the Recovery Rebate Credit. The Recovery Rebate Credit Worksheet on Form 1040 and Form 1040-SR instructions can also help.
 
Anyone with income of $72,000 or less, including those who don’t have a tax return filing requirement, can file their federal tax return electronically for free through the IRS Free File Program. The fastest way to get a tax refund is to file electronically and have it direct deposited - contactless and free - into the individual’s financial account. Bank accounts, many prepaid debit cards and several mobile apps can be used for direct deposit when you provide a routing and account number.
 
IRS.gov/filing has details about IRS Free File, Free File Fillable Forms, free VITA or TCE tax preparation sites in your community or finding a trusted tax professional.
More information
 
Recovery Rebate Credit Video
Publication 5486, Claiming the Recovery Rebate Credit on a 2020 Tax Return
Recovery Rebate Credit Frequently Asked Questions
IRS.gov/freefile ​Instructions for Form 1040 and 1040-SR
Secure Access: How to Register for Certain Online Self-Help Tools 

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. 
 
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720

​The IRS is expanding a pilot program that uses Identity Protection Personal Information Numbers (IP PINs) to provide an extra layer of security for all taxpayers. Here is what you need to know.
 


IP PIN program details
The IRS's IP PIN program is an additional layer of security to ensure your tax identity and withholdings are not stolen. When you register in the program, the IRS will mail you a six-digit numeric IP PIN. You must enter this number on your tax return or the return will be rejected. It is a one-time use IP PIN. In other words, you will receive a new number every year.
 
So why get an IP PIN?
The IRS uses the IP PIN to better verify your identity. It can prevent clever hackers from using your Social Security number to file fraudulent returns or access returns you’ve already filed.
 
Keep in mind that if you choose to get an IP PIN, you'll need to use an IP PIN for all future filings. While the IRS is planning to add the ability to opt out of the program, it is not yet available. So once you are in the program, you must stay in it. If need be, you can still paper file your tax return if you lose your IP PIN.
 
Getting your IP PIN
You can use special IRS tools to obtain an IP PIN and verify your identity through a two-factor authentication process. Go to the Get an IP PIN page on the IRS website to get started.
 
To get the IP PIN, you will be asked to register for an online account with the IRS. The process to open the account requires an independent ID verification prior to establishing the account. Once approved, you can then register for the program.
 
Final thoughts
Remember, a new IP PIN is generated for every filing season. It may be retrieved mid-January by logging into your account.
 
If you have experienced ID theft, the IRS automatically puts you into this program. So the IRS will continue to issue new IP PINs to taxpayers who have already been victimized by tax-related identity theft.

Remember, if you are in the program, you must protect this number. Do not tell it to anyone other than those who need the information to file a tax return. Also know that the IRS will never ask you for this number, so do not give it out.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. 
 
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720

Virtually every small business, including sole-proprietors, must issue at least one 1099 each year. And this year there is a new one called the 1099 NEC. Here is a summary of the most common of these informational tax forms that you will need to file your tax return this year.

The Form 1099
The Form 1099 is an informational tax form that captures economic activity that is then reported to you and the tax authorities. The primary purpose of the form is to ensure you are reporting your taxable income. The forms are typically required to be sent to you on or before January 31st each year. The same information is due to the IRS on or before February 28th (March 30th if the form is filed electronically).

The 1099 NEC
Beginning this year, nonemployee compensation will be reported to you on 1099 NEC. In prior years, this income was reported in box 7 of form 1099 MISC. So if you are a consultant or work for Uber or any other gig economy job, you will need to look for this form.

Common 1099 Forms
To help navigate the numerous forms here is a list of what you can expect to receive.

1099 INT: This is the form you receive for interest earned. You should expect one of these for every bank account that pays interest, no matter the dollar amount of interest.

1099 DIV: This form captures dividends paid to you. Correct classification of dividends on this form is crucial. Tax rates are lower for qualified ordinary dividends versus other types of dividend payments.

1099 B: You will receive this form if you sell stocks or mutual funds. This tells the IRS to look for possible taxable investment sales.

1099 MISC: This is the default catch all 1099 for income earned when you are not an employee. This form is provided to independent contractors and attorneys for gross compensation. If you are a sole proprietor, each of your customers that are billed over $600 should be sending you one of these forms.

1099 R: You will receive this form if you have distributions from a qualified retirement account during the year.

1099 G: This form captures governmental payments to you. You may receive one of these if you receive a state tax refund.

1099 SA: This form captures distributions from health reimbursement accounts like HSA's and MSA's.

What you need to know

• Use the information in this tip to ensure you are receiving the necessary 1099's to file your tax return.
• To be sure, create a list to confirm receipt of the necessary 1099's. Missing 1099's is a common reason for a delay in filing your tax return.
• There are other types of 1099's. If you receive a 1099 and are not sure what the form is, ask for clarification.
• When you receive the form, double check the accuracy of the form. If there are errors, try to get them corrected as soon as possible.

Remember, the IRS receives these forms. Their computers will run a cross-check against your return to ensure you have not omitted any of them.
​
"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. 
 
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720