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You’ve Got Mail!

Posted on March 1st, 2021

Mail

Notice Mailed to Address Shared with Other Businesses Started 30-day Filing Deadline

Do you have upcoming IRS Tax Notice deadlines? If so, you could be affected by a recent tax court action. The Tax Court has held that an IRS Notice of Intent to Levy that was mailed to a taxpayer’s actual (and last known) address by certified mail, return receipt requested, started the running of the 30-day period under Code Sec. 6330(a)(2).

Multiple businesses shared the taxpayer’s address. The USPS carrier left the notice at that address with a person who was neither the taxpayer’s employee nor authorized to receive mail on the taxpayer’s behalf. This is a simple reminder that, obviously, Certified Mail from the IRS should never be ignored, regardless of the situation.


Pandemic & Unexpected Taxes

Posted on February 22nd, 2021

The recent pandemic has changed many aspects of our daily lives. But it is not just your schedule that Covid-19 might be changing! For instance, you may find yourself with unusual profits and losses, as well as new and unusual taxes regarding unemployment and side jobs. We are prepared to help you navigate these changes to ensure you don’t receive any unfortunate tax surprises.

If you have any questions or concerns regarding your tax situation please feel free to call at 904-351-0195.


C Corp Confusion

Posted on February 15th, 2021

Recent Tax Court Claims Payments to Shareholders
Were Not Deductible Management Fees

It is always important to optimize your tax planning to achieve maximum success. Recent tax court actions, however, may throw your tax planning for a loop. The Tax Court has recently decided that a C corporation was not entitled to deductions for management fees paid to its three shareholders because the payments were disguised distributions. The court noted that the corporation never paid dividends to its shareholders. Even more so, it presented no evidence showing that an independent investor would have been satisfied with investment returns after shareholder compensation. Don’t find yourself caught in a similar situation! Your tax planning should be reviewed and, if necessary, updated accordingly. Contact our office to set up an appointment today.

Call us at: 904-351-0195


Seven Tips For Financial Wellness In 2021

Posted on February 8th, 2021

Financial Wellness

Common New Year’s resolutions are to lose weight or become more active. Perhaps 2021 is the year to shift focus. Here are seven tips to help you become more financially fit.

  • Create a budget. It’s easy to get into financial trouble if you spend more than you earn. By watching your budget more carefully, you might be surprised by how much you spend in certain areas of your life. Many banks and credit unions offer budgeting tools directly on their websites.
  • Get a free credit report. You can obtain a free copy of your credit report from each of the three major credit reporting agencies every 12 months. Reviewing your reports regularly can help ensure the data in your report is accurate and allows you to contact creditors to dispute any errors.
  • Pay down debt. Start chipping away at your debts through a series of regular payments. Begin with bills that have the highest interest rates. Research whether it makes sense to consolidate debts at a more reasonable interest rate.
  • Review your investments. With recent changes in Washington, D.C. and market volatility, reviewing your investments is more important than ever. Protect yourself against risks by diversifying across different classes of investments. If you have not developed an asset allocation plan, do so. If you have, adjust your portfolio to ensure it is still meeting your objectives.
  • Plan ahead for retirement. Take advantage of tax-favored retirement plans such as a 401(k) at work. Both the contributions and earnings are tax-deferred and can compound over time. The 401(k) limit for 2021 is $19,500 ($26,000 if you’re age 50 or over). Also consider contributing to an IRA, which has a contribution limit of $6,000 ($7,000 if you’re age 50 or older).
  • Check your insurance coverage. Things can change over time, so don’t assume the coverage you acquired years ago still provides adequate protection for your family or business. Take a look at your policies to determine if adjustments are needed.
  • Save for emergencies. And finally, would you be financially prepared if your business failed or you lost your job? The COVID-19 pandemic has reminded us the importance of establishing an emergency fund that can last for several months if you lost your salary or business revenue dramatically declines.

Acting on all these tips may seem a bit overwhelming. By focusing on a few now, before you know it, your financial wellness will improve over time.


2021 Retirement Plan Limits

Posted on January 25th, 2021

As part of your 2021 tax planning, now is the time to review funding your retirement accounts. By establishing your contribution goals at the beginning of each year, the financial impact of saving for your future should be more manageable. Here are annual contribution limits for 2021:

Take Action

If you have not already done so, please consider:

  • Reviewing and adjusting your periodic contributions to your retirement savings accounts to take full advantage of the tax advantaged limits
  • Setting up new accounts for a spouse or dependent(s)
  • Using this time to review the status of your retirement plan
  • Reviewing contributions to other tax-advantaged plans including flexible spending accounts and health savings accounts

For any questions or concerns, please feel free to call us at 904-351-0195.


PPP Loan Expenses Are Now Tax Deductible

Posted on January 18th, 2021

PPP Loan Expenses

If you or your business received funds from the Paycheck Protection Program (PPP), the recently passed Emergency Coronavirus Relief Act of 2020 will help to dramatically cut your tax bill. Here’s what you need to know.

Background

The PPP program was created by the CARES Act in March 2020 to help businesses which were adversely affected by the COVID-19 pandemic. Qualified businesses could apply for and receive loans of up to $10 million. Loan proceeds could be used to pay for certain expenses incurred by a business, including salaries and wages, other employee benefits, rent and utilities.

If the business used at least 60% of loan proceeds towards payroll expenses, the entire amount of the loan would be forgiven.

The Dilemma

While the CARES Act spelled out that a business’s forgiven PPP loan would not be considered taxable income, the legislation was silent about how to treat expenses paid for using PPP loan proceeds if the loan was ultimately forgiven.

Congress intended for these expenses to be deductible for federal tax purposes. But since the legislation was silent on this issue, the IRS swooped in and deemed these expenses to be nondeductible.

There was considerable debate over the latter half of 2020, with Congressional politicians explaining that their intent was that the expenses be deductible and the IRS responding “Too bad, they’re nondeductible.”

The Solution

Congress overruled the IRS’s position in the Emergency Coronavirus Relief Act of 2020. The legislation officially makes deductible for federal tax purposes all expenses paid for using proceeds from a forgiven PPP loan.

Stay tuned for updates as to how this new legislation affects your business.


Make Preparations for Form 1099s This Year

Posted on January 11th, 2021

Deadline for filing new Form 1099-NEC is February 1, 2021!

Here are three tasks to consider that will make meeting your business’s information reporting requirements less stressful this tax season.

  • Review your general ledger. Even if you’ve already identified 1099 vendors in your payables system, review current year expenses to make sure no new or infrequent payments have been overlooked. For example, it’s easy to forget that fees totaling $600 or more paid to service providers must be reported on a Form 1099. But be careful! There is a new form this year, Form 1099-NEC. Be sure to know whether you should use the existing Form 1099-MISC or the new Form 1099-NEC.
  • Verify vendor information. Check your files for up-to-date Forms W-9, the form you use to request a vendor’s federal taxpayer identification number (TIN). In general, you should have Form W-9 on file for each vendor who provides services, even if the transaction is a one-time event. Why? Filing mismatched 1099 forms – where the combination of name and TIN do not match IRS records – will result in a notice, and possibly penalties. To avoid problems, consider signing up for the TIN Matching Program, an online service run by the IRS, so you can verify identification numbers prior to filing 1099s.
  • Order forms. If you plan to file paper forms this year, the copy you mail to the IRS must be on forms preprinted with scan-friendly ink. You’ll also need Form 1096, the annual summary, for each type of information return you file.

As always, should you have any questions or concerns regarding your tax situation please feel free to call at 904-351-0195.


A Happy Banker Makes for a Happy Business

Posted on January 4th, 2021

With the onset of COVID-19, small business banks are more nervous about potential loan losses than ever. Here are several tips for your business to maintain a great working relationship with your lender. These same tips can also be used if you want to plant seeds with your banker for potential future loans.

  • Produce timely financial statements. Your lender may require you to produce financial statements over the duration of your loans to ensure that you have enough cash to make consistent, on-time payments. Strive to produce up-to-date financial statements and send them to your bank before they ask for them. Not only will timely financial statements make your lenders happy, the pro-active nature of your financials will show a level of transparency to them. Be prepared to include a note explaining major changes and schedule regular phone calls to go over the business.
  • Implement solid internal controls. How does a lender have faith that the dollar amounts on your financial statements are accurate? By properly implementing internal controls. You’ll have a happy banker if your company can provide evidence that your internal controls are operating properly.
  • Communicate. If your business encounters turbulent financial waters, the best thing to do is immediately let your lender know about it. Better yet, by keeping in constant communication, your lender will most likely be able to spot if your business starts experiencing a downturn and will try devising a plan before you begin missing payment deadlines.

Remember your banker probably has their hands full right now. These tips allow them to spend more time on their problem loans, and one of them will not be yours.

If you have any questions, please feel free to call us at 904-351-0195.


Using Depreciation to Control a Loan Forgiveness Tax Surprise

Posted on December 28th, 2020

Depreciation for Loan Forgiveness

Bonus depreciation and Section 179 expense can be a valuable tool to help you manage your business’ profit margin this year. Here are some thoughts to consider.

The Problem

Many businesses struggling during the pandemic took out Small Business Association Payroll Protection Program loans (SBA PPP loans). The SBA’s willingness to forgive these loans is now creating a potential tax obligation. This is because the expenses used to offset this loan can no longer be deducted from the business.

So the loan forgiveness could create an unexpected taxable event.

A Possible Solution

Instead of paying some of the loan back to cover the tax created by the loan forgiveness, consider investing some of the funds in necessary capital purchases. You could then use special depreciation rules to manage your tax obligation. This can be done by using:

  • Bonus depreciation. For assets that you purchase during the current fiscal year, you can deduct 100% of an asset’s cost using bonus depreciation. You can use this option to expense 100% of an asset’s cost using bonus depreciation this year.

    Note: This bonus depreciation is 100% in 2020 and 2021. After that the bonus depreciation amount phases out through 2025.
  • Section 179 depreciation. Section 179 depreciation works similarly to using bonus depreciation, as you can deduct 100% of an asset’s cost that you purchase and place in service during the current year. You can deduct up to $1.04 million of qualified Section 179 purchases in 2020.

The Downside

Whenever you use these special tax rules, you will lose the ability to take this depreciation for these capital purchases in future years, so some tax planning is required. But at least you will be able to use some of the forgiven loan proceeds to help your business, versus paying it back in the way of additional tax.

Even worse, recent IRS notices suggest the PPP loan forgiveness needs to be reflected in this year’s tax return, so you have little time if you wish to take advantage of bonus depreciation and Section 179 this tax year. To consider this option, you will need to select qualified assets and ensure they are placed in service before the end of your tax year. But if used correctly, depreciation can be used to offset business income and lower your taxes. Please call if you want to discuss your situation.

As always, should you have any questions or concerns regarding your tax situation please feel free to call at 904-351-0195.


Turn Your Home Office Into a Tax Deduction

Posted on December 21st, 2020

If you are working from home for the first time in 2020, you may be wondering if your home office is tax deductible. The bad news? If you’re working from home for an employer, you normally can’t deduct your home office expenses.

Here’s a quick look at the basic requirements to be able to deduct your home office expenses, along with some suggestions for how to qualify for the deduction if you’re currently working for your company as an employee.

The Basics

There are two requirements for having a tax-deductible home office:

  • Your home office is only used for business purposes. Your home office must be used exclusively for operating your business. It can’t double as the family media center or living room. To meet this requirement, set up your office in a separate area of your house. Then if you get audited by the IRS, there is no doubt that your office is used exclusively for business purposes.
  • Your home office is your primary place of business. You need to demonstrate that your home office is the primary place you conduct your business. The IRS has clarified that you can meet clients and conduct meetings at separate office locations, but your home office must be the only location where your administrative work is completed. So if you meet with clients or work on any part of your business away from your home office, keep a journal of each specific activity undertaken and describe how it doesn’t violate the primary place-of-business rule.

Looking at these two criteria, everyone that is now required to work from home probably meets both qualifications. If you’re a W-2 employee, however, you can’t deduct your home office expenses on your tax return.

Solving the Problem

Here are three options for solving your problem of being a W-2 employee and qualifying to deduct your home office expenses on your tax return.

  • Become an independent contractor. The easiest way to deduct your home office expenses is by switching from being an employee to an independent contractor. With a number of firms cutting pay and hours due to the pandemic, it may be worth exploring. There’s a big warning label if you go this route, however. You will need to account for lost benefits such as health insurance, and the additional cost of self-employment taxes. If you can meet the IRS requirements for becoming an independent contractor, it may be worth doing the math and considering all the deductions your home office may make available to you.
  • Start a side business. If becoming an independent contractor for your current employer isn’t an option, consider starting a side business. You can deduct all business-related expenses on your tax return, including your home office expenses. If you go this route, ensure your home office is in a different location in your home than your other work space.
  • Consider your entire household. Even if you don’t qualify for the home office deduction, maybe someone else living in your home does qualify. So look into your options to see if a family member can take advantage of the home office deduction.

What if none of these options for deducting home office expenses are feasible for you? While you won’t be able to deduct your home office expenses on your tax return, you may still be able to end up financially ahead with the help of your employer.

Get Reimbursed by Your Company

There’s no question you are picking up some of the expense of your home office with added electrical, heating, telephone, internet and other expenses. One way companies are solving this is by allowing employees to submit valid expense reports to cover some of these extra costs. They do this by setting up an accountable plan. With financial pressures on businesses, this might be a tough subject to broach, but if the system is already in place you may be able to find a way to get some of your home office expense reimbursed.

So if you’re stuck working as a W-2 employee, look into whether your employer offers reimbursement for home office expenses.

Figuring out how to properly deduct your home office or get reimbursed by your employer can be a lot more complicated than it appears. If you need help, please call us at 904-351-0195.


Common IRS Surprises

Posted on December 14th, 2020

Common IRS Surprises

No one likes surprises from the IRS, but they do occasionally happen. Here are some examples of unpleasant tax situations you could find yourself in and what to do about them.

  • An expected refund turns into a tax payment. Nothing may be more deflating than expecting to get a nice tax refund and instead being met with the reality that you actually owe the IRS more money.

    What you can do: Run an estimated tax return and see if you may be in for a surprise. If so, adjust how much federal income tax is withheld from your paycheck for the balance of the year. Consult with your company’s human resources department to figure out how to make the necessary adjustments for the future. If you’re self-employed, examine if you need to increase your estimated tax payments due in January, April, June and September.
  • Getting a letter from the IRS. Official tax forms such as W-2s and 1099s are mailed to both you and the IRS. If the figures on your income tax return do not match those in the hands of the IRS, you will get a letter from the IRS saying that you’re being audited. These audits are now done by mail and are commonly known as correspondence audits. The IRS assumes their figures are correct and will demand payment for the taxes you owe on the amount of income you omitted on your tax return.

    What you can do: Assuming you already know you received all your 1099s and W-2s and confirmed their accuracy, verify the information in the IRS letter with your records. Believe it or not, the IRS sometimes makes mistakes! It is always best to ask for help in how to correspond and make your payments in a timely fashion if they are justified.
  • Getting a tax bill for an emergency retirement distribution. Due to the pandemic, you can withdraw money from retirement accounts in 2020 without getting a 10% early withdrawal penalty, but you’ll still have to pay income taxes on the amount withdrawn. If you don’t plan for this extra tax you will be surprised with an additional tax bill. You may still get an underpayment penalty bill from the IRS because you did not withhold enough during the year. You may also still receive an early withdrawal penalty in error because the IRS is still scrambling to update their systems with all of this year’s tax relief changes.

    What you can do: Set aside a percentage of your distribution for taxes. Your account administrator may withhold funds automatically for you when you request the withdrawal, so check your statements. Your review should be for both federal and any state tax obligations. If the withholding is not sufficient, consider sending in an estimated tax payment. If you are charged a withdrawal penalty, ask for help to correspond with the IRS to get this charge reversed.

No one likes surprises when filing their taxes. With a little planning now, you can reduce the chance of having a surprise hit your tax return later.

If you have any questions please call our office at 904-351-0195.


More Stimulus Payments on the Way

Posted on February 1st, 2021

What you need to know NOW!

You could soon see another stimulus payment in your bank account with the recent passage of the Emergency Coronavirus Relief Act of 2020, which means more direct relief to you and your family. Here are some of the major points you need to know that are buried inside this $900 billion piece of legislation.

Direct stimulus payments to you. The legislation includes a $600 payment per person, including adults and dependent children who are under age 17. Payments are based on your 2019 income and should start being distributed shortly, per Treasury Secretary Mnuchin. The payment amount phases out for adjusted gross incomes over $75,000 for single taxpayers and $150,000 for married couples.

Things to consider:

  • If your income in 2019 is over the phaseout threshold, but not over the phaseout threshold for 2020, you will have an opportunity to request the funds on your 2020 tax return.
  • Unlike the first round of stimulus payments in 2020, if you have someone in your household who is ineligible, you can still get payments for those individuals who are eligible.
  • If the number of adults or dependents in your household changed during the year, you will need to keep track of this and be prepared to issue corrections to ensure you receive the correct payment amount.
  • The payment mechanism in place for the initial 2020 direct stimulus payments should help facilitate distributions of this second round of direct stimulus payments.

Extension of unemployment benefits. Federal unemployment benefits of up to $300 per week are extended through March 14. Benefits for self-employed workers, set to expire at the end of 2020, are also extended.

Things to consider:

  • If you have not already done so, you must file for unemployment with your state.
  • These benefits also apply to self-employed and part-time employees. Many workers who were eligible for this unemployment earlier in 2020 did not file because this class of workers is typically not eligible for most state unemployment programs.

New PPP loan funds. There is additional money available from the Small Business Administration (SBA) for a new round of PPP loans. The new loan program is targeted to businesses that need the funds. To qualify, your business must have 300 or fewer employees and have seen a drop in revenue of 25% or more during any quarter in 2020. Some of the money is earmarked for very small borrowers, underserved communities, and small lenders. There are even simplified requirements for forgiveness if the loan amount being applied for is less than $150,000.

Eviction moratoriums and rent assistance. The bill extends until January 31, 2021 a moratorium on evictions that was scheduled to expire at the end of 2020. The bill also includes $25 billion in emergency assistance to renters.

There is much more in this huge bill, including relief for hard-hit industries, education, student loans, and vaccine assistance. Please keep up-to-date as more is learned after a full review of the bill is made available.

If you have any questions, please feel free to call us at 904-351-0195.


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M Disbrow CPA Blog

© Marilyn M Disbrow CPA 2021, 88 Riberia St - Ste 400, St. Augustine, FL 32084
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