Completing the Free Application for Federal Student Aid (FAFSA)

To apply for federal student aid, such as federal grants, work-study, and loans, you, the student, need to complete the Free Application for Federal Student Aid (FAFSA).

In addition, many states and colleges use your FAFSA information to determine your eligibility for state and school aid, and some private financial aid providers may use your FAFSA information to determine whether you qualify for their aid.

The FAFSA is available in October of the year prior to the year you will be starting college in the fall, so high school seniors and their parents should be prepared to fill them out then.

You can complete and submit the FAFSA at fafsa.ed.gov. While our government encourages us to complete the FAFSA forms online, they still allow you the old fashioned option of completing a form and mailing it in. See studentaid.ed.gov/sa/fafsa/filling-out for a downloadable pdf.

Technically the FAFSA form is the student’s form, but if you are a dependent student, you will need information from your parents in the form. Here are the steps you need to take, and some (but not all) of the information required to fill out the FAFSA form.

1. Create a Federal Student Aid (FSA) ID, which is a user name and password you and your dependent student will use to complete the FAFSA form online. Both the student and the parent must create their own FSA IDs. Your FSA ID serves as your legal electronic signature, so be sure to keep it private like other passwords.

   When creating an FSA ID, keep in mind you cannot use an email address or mobile phone number with more than one FSA ID.

   Create your new FSA ID at fsaid.ed.gov/npas/index.htm.

   And just so you are aware ahead of time, your username must be 6 to 30 characters long and can be any combination of numbers and letters. The username is not case-sensitive. Your password must be 8 to 30 characters and contain at least one number, uppercase letter and lowercase letter. The password is case-sensitive.

2. Start the FAFSA form at fafsa.gov. You can start the process on behalf of your child. Be sure not to sign in at the same time as your child. You can create a “save key,” which is a temporary password that allows you and your child to alternative editing the form.

3. Fill in the Student Demographics section of the form, such as name, date of birth, etc. Be sure to use the same name as on the Social Security card – no nicknames.

4. Select the schools that you want the FAFSA information sent to.

5. Answer the dependency status questions. Answering yes to any of the questions means you will not have to provide parental information. For example, if you were born before January 1, 1999 or the 2022-2023 academic period, you are considered independent for FAFSA purposes. Or if you are married, are on active military duty, will be working on a master’s degree, etc., you are considered independent.

6. Fill out the parent demographics section – there is a series of questions here regarding your parents’ status that drive what information is required for the form.

7. Financial information must be provided. There is a link to the IRS Data Retrieval Tool (DRT) that allows you to import your tax information to the FAFSA form. Your child will also need to do this if he or she files taxes.

   In addition to your tax return(s), the FAFSA form will require information about untaxed income, such as child support received and interest income. You will also be asked to provide information about cash, bank balances, investments and business assets. Investments also include real estate held for sale (excluding principal residence), 529 college savings plans, etc. You do not need to include the value of 401k, IRA and other retirement plans.

8. Sign the form.

There’s a handy FAFSA worksheet for the 2022-2023 school year at studentaid.gov/sites/default/files/2022-23-fafsa-worksheet.pdf for those looking to review what is required in advance of completing the form.

Additionally, a pdf of the 10 page form (with notes) for the 2022-2023 academic year is at studentaid.gov/sites/default/files/2022-23-fafsa.pdf.

Eligibility for California Golden State Stimulus I and II Payments

A friend of mine who is in his 80s called me the other day asking if I knew why he received a check in the mail from the State of California. It was a check for $600 as part of the Golden State Stimulus II program. Here are the details.

Golden State Stimulus I Payments

First off, earlier in the year, many Californians received the Golden State Stimulus 1 payment, which was either $600 or $1200. Qualifications for GSS I were as follows:

• Must have filed your 2020 taxes,

• Must be either a CalEITC recipient or an ITIN filer who made $75,000 or less in California Adjusted Gross Income (AGI) in 2020.

  • A CalEITC (or California Earned Income Tax Credit) recipient is someone who in 2020 had California AGI of $30,000 or less and does not use the married filing separately filing status.

  • An ITIN (or Individual Taxpayer Identification Number) filer is a taxpayer who is not eligible to obtain a Social Security Number.

• Must have lived in California at least half of 2020 and are a California resident the date the payment is issued.

• Cannot be claimed as a dependent by another taxpayer.

GSS I recipients received $600 if they were either 1) an CalEITC recipient or 2) were an ITIN filer and made $75,000 or less in 2020 CA AGI (if filing jointly at least one taxpayer must use an ITIN).

GSS I recipients received $1,200 if they 1) were both a CalEITC recipient and an ITIN filer and made $75,000 CA AGI or less in 2020 or 2) filed a joint return, were CalEITC recipients, at least one was an ITIN filer and made $75,000 or less in 2020 CA AGI.

More information about GSS I on the Franchise Tax Board website at www.ftb.ca.gov/about-ftb/newsroom/golden-state-stimulus/gss-i.html.

Golden State Stimulus II

The state expanded the program and started paying out additional stimulus payments in October, continuing through mid-January. The amount of these payments is either $500, $600, $1,000 or $1,100. Qualifications for GSS II are as follows:

• Must have filed your 2020 tax return by October 15, 2021.

• Have CA AGI of $1 to $75,000 and wages of $0 to $75,000 in 2020.

• Must have lived in California at least half of 2020 and are a California resident the date the payment is issued.

• Cannot be claimed as a dependent by another taxpayer.

Here’s what you get if you qualify and have a SSN:

• $500 if you also qualified for GSS I and claimed a credit for 1 or more dependents.

• $600 if you did not qualify for GSS I and did not claim any dependents.

• $1,100 if you did not qualify for GSS I and claimed 1 or more dependents.

• $0 if you qualified for GSS I and did not claim any dependents.

Here’s what you get if you qualify and have an ITIN:

• $1,000 if you did qualify for GSS I and claimed 1 or more dependents.

• $0 if you did qualify for GSS I but did not claim and dependents.

More information about GSS II on the FTB website at www.ftb.ca.gov/about-ftb/newsroom/golden-state-stimulus/gss-ii.html.

Federal Tax Credits for Installing Qualified Solar Electric Systems

Photo credit: Pixabay

The federal Residential Energy Efficient Property credit allows for a tax credit on the installation of residential solar electric and solar water heating systems.

As of November 2021, the credit is 26% of the cost for systems put in place during 2021 and 2022 and 22% of the cost if installed in 2023. Currently, the credit expires after December 31, 2023, but that could be changed by legislation. Previously (2019) the credit was 30%.

The tax credit is claimed on federal Form 5695 “Residential Energy Credits.” If the amount of the credit exceeds your tax liability in the year your claim the credit, the excess of the credit gets carried forward to the following tax year. You can continue carrying forward the credit until you use it - there is no expiration.

The state of California does not have a corresponding solar energy credit.

Keep in mind that the tax credit is available only if you purchase the system. You cannot receive the credit if you lease your system. You can certainly finance the purchase of your system, however.

The cost of the system that you claim for tax credit can include the cost of a battery, as long as 100% of its power is derived from your solar system.

Can you include the cost of a new roof as part of your system? Generally no. The roof is not part of the system, unless you are installing solar roofing tiles or solar roofing shingles - those actually do qualify for the credit.

Learn more about Residential Energy Credits on Form 5695 at www.irs.gov/pub/irs-pdf/i5695.pdf or on the Energy.gov website at www.energy.gov/eere/solar/homeowners-guide-federal-tax-credit-solar-photovoltaics.

All About the Advance Child Tax Credits That Commenced Today, July 15, 2021

Today, the IRS started sending out “Advance Child Tax Credits” to eligible taxpayers for 2021 that were voted into law as part of the American Rescue Plan Act in March.

The law did a number of things for the 2021 tax year only:

• It increased the amount of the Child Tax Credit from $2,000 for dependents under age 17 to $3,600 for ages 5 and under and $3,000 for ages 17 and under.

  • Dependents age 18 and up continue to generate a $500 tax credit, with no advance credit.

  • Note that in prior years, the credit dropped from $2,000 to $500 at age 17, not age 18. So effectively the Child Tax Credit for dependents age 17 increased from $500 to $3,000 for year 2021, which is quite substantial.

  • The ages are determined as of 12/31/21.

• The law allows for Advance Child Tax Credit payments to taxpayers over a 6 month period beginning July 15 through December 15, 2021. The advance payments are as follows:

  • Up to $1,800 of the $3,600 tax credit for ages 5 and under at a rate of $300 per month, beginning July 15th.

  • Up to $1,500 of the $3,000 tax credit for ages 6 to 17 at a rate of $250 per month, beginning July 15th.

  • The remaining 50% of the tax credit will be applied as usual when you file your 2021 tax return in 2022.

• However, there is a “first phaseout” of the increased Child Tax Credit in 2021 once your 2021 modified Adjusted Gross Income (AGI) reaches $150,000 for married filing joint, $112,500 for head of household and $75,000 for single filers.

  • This first phaseout begins to reduce the Child Tax Credit from $3,000 or $3,600 down to $2,000.

  • The reduction is $50 of tax credit for each $1,000 in AGI in excess of the limits shown above. That means the Child Tax Credit drops to $2,000 if your income is $30,000 (ages 6 to 17) or $36,000 (ages 5 and under) greater than the limits.

• There’s also a “second phaseout” if your income reaches $400,000 married filing joint or $200,000 for other filing statuses as there has been in prior years.

Isn’t this great how uncomplicated the rules are? <sarcasm>

How do they determine if you will be receiving the Advance Child Tax Credit? Based on your 2020, or if not filed yet, your 2019 tax return.

The IRS will be sending out “Letter 6419” next January to show the total amount of Advance Child Tax Credits paid. They will need to be included in your 2021 tax returns to derive any remaining Child Tax Credit.

The Advance Child Tax Credits are not taxable income. HOWEVER, if your tax situation changes significantly in 2021 and as a result you are not eligible for the full Child Tax Credit, but you receive the Advance Child Tax Credits, you may have to pay back some of the money when you file the return. For example:

• Your income increased in 2021 and you are no longer eligible for the increased tax credit.

• You no longer claim the dependent for whatever reason.

If you think you are in this situation, you can OPT OUT of receiving the Advance Child Tax Credits at https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021.

• You cannot opt out of payments already received, but you can opt out of future payments.

Inversely, your tax situation may have changed in 2021 that would allow you to receive more Advance Child Tax Credits:

• You had a baby in 2021 or otherwise have additional dependents under age 18.

• Your AGI dropped in 2021 and as a result you are now eligible for Child Tax Credits based on your reduced income.

• Your tax filing status changed in 2021 (single to married, or vice versa) and that changes your eligibility for Child Tax Credits.

Goldstein Weiss, CPAs www.goldsteinweiss.com 818-876-8380

Go to the link above to update your information with the IRS to start receiving Advance Child Tax Credits.

Free Online Tax Filing Options for Federal and State Income Taxes

There are a number of online resources to enable those with relatively simple tax returns to file for free. Generally these options cover those with W-2 income, some interest/dividends, kids and rent. What they don’t cover are itemized deductions, Schedule C (for self-employed individuals claiming business expenses), stock gains/losses, etc. Here are some options:

Free 1040 Tax Return: Free federal/state returns if your Adjusted Gross Income (AGI) is $69,000 or less and you are 70 or younger. www.fileyourtaxes.com/irs-free-file

H&R Block offers free federal/state returns for AGI $69,000 or less and age 17 to 51. www.hrblock.com/online-tax-filing/free-online-tax-filing

TurboTax offers free federal/state tax prep if your AGI is $36K or less and any age or meet other criteria summed up at freefile.intuit.com.

TaxAct allows for a free federal/state return if your AGI is $59,000 or less and you are age 56 or younger. www.taxact.com

Credit Karma offers free federal/state tax filing. You must sign up for a free Credit Karma account to do so. www.creditkarma.com/tax

In 2019, the IRS reports that a total of 154 million individual income tax forms were filed in the United States, including 137 million filed electronically.

Options For Getting a Copy of a Prior Year Federal Tax Return or IRS Transcripts

Are you in process of refinancing, applying for student loans or dealing with some other issue that requires information from a prior year tax return, but you can’t find a copy of the return? Here are your options.

Who Prepared the Return?

If you paid someone to do the tax return, it is likely that they can provide a copy of the return. If you did the return yourself using software like TurboTax, you should be able to log in and retrieve a copy of the return.

How to Obtain an IRS Transcript

If the above does not work and you primarily need information from the return but not necessarily a complete copy of the return, you can request a tax return transcript from the IRS. This can be done online (and almost immediately), by phone or by mail.

Obtaining an IRS Transcript Online

It’s actually quite simple obtaining a copy of tax return transcript or wage and income transcript at www.irs.gov/individuals/get-transcript. But first things first. You need to establish an eServices account with the IRS unless you already have one.

Setting up an eServices account at https://sa.www4.irs.gov/eauth/pub/es_general.jsp will take maybe 5 to 10 minutes. You’ll need the following information: Full name, Social Security Number, email, birthdate, most recent year’s tax filing status and current address. To verify your identity, the IRS will also need information from one of your financial accounts - such as the last eight digits of a credit card or other loan. You’ll also need your cell phone registered under your name to confirm you are you.

After you’ve set up your eServices account, you can log in to obtain your transcripts. Make sure your cell phone is handy, as the IRS uses two-factor authentication each time you log in. They will text a code to your phone.

When you log in, after selecting the reason for needing the transcript (e.g. Higher Education/Student Aid, FEMA/Disaster Related, etc.), you will have access to up to four years of return transcripts, five years of account transcripts and 10 years of wage and income transcripts.

Obtaining an IRS Transcript by Phone or Mail

You can also call 800-908-9946 or complete and mail in Form 4506-T to obtain a transcript. There is no cost for this. The form is at www.irs.gov/forms-pubs/about-form-4506-t.

Request a Copy of Tax Return From the IRS

If the transcript is not sufficient and you otherwise are not able to obtain a copy of your tax return, you can request a copy using Form 4506. Copies of individual tax returns (1040, 1040-SR, etc.) can take up to 75 days to be processed, so get ready to wait.

And yes, it does cost you to obtain a copy of the return. Up until very recently though, it was $50, But the new Form 4506 shows a fee of $43 for each return requested.

Returns are generally available for 7 years from filing before they are destroyed by law.

Beginning in Tax Year 2020, Eligible U.S. Taxpayers May Deduct up to $300 in Charitable Contributions from Gross Income

The CARES Act of 2020 brought about a change in how the IRS defines “Adjusted Gross Income” (AGI) on your tax returns.

Starting in 2020, “the amount (not to exceed $300) of qualified charitable contributions made by an eligible individual during the taxable year” are deducted, among other things, from gross income, in determining AGI.

The above language came out of the Internal Revenue Code. Let’s attempt to decipher this into language actual humans can understand.

The Short Answer

II you do not itemize deductions, starting in 2020, you can take as much as $300 in charitable contributions you make during the year. This reduces your taxable income and you may owe less taxes as a result.

How much less in taxes depend on your tax bracket, which can vary from 0 to 37% on your federal tax return. If you are already paying no federal taxes, this won’t change your tax bill. But otherwise, if you’re in, say, the 22% bracket and you gave $300 to charity, your tax bill will be lower by about $66.

What about state taxes? It’s not clear yet if California state law will conform to this law. If it does, that could save you a few more $$ on your state tax return.

Cash Contributions Only

Only charitable contributions made in cash (or credit card) are considered for this deduction. Non-cash deductions, such as giving used household items to Goodwill, are not included.

As a reminder, cash contributions to charities less than $250 require one of the following forms of documentation by the IRS: A bank record (e.g. canceled check or bank/credit card statement); a receipt showing the date, amount and name of the charity; or a payroll record, if it was withheld from your paycheck. Cash contributions over $250 also require a written acknowledgement from the charity showing date and amount and if any goods or services (other than religious benefits) were provided. You don’t need to attach this information to your return or anything; just keep it in your files.

$300 Per Return

So how does the $300 work for married couples? Is it $300 each? Nope. The $300 applies to all taxpayers. Yet another example of the “marriage penalty.” The $300 is per return.

What if you file married filing separate? There has been no clarification on this yet. We shall see.

Can I Take the Deduction If We Itemize Deductions?

No. If you itemize deductions, take the deduction there. If you are reading this, chances are that you did not itemize deductions in 2019. Before the Tax Cuts and Jobs Act of 2017 (TCJA), about 30% of taxpayers itemized deductions. After TCJA, it is estimated that only 10% of taxpayers itemize.

So give away if you can! Local Ventura County area charities at THIS LINK.