The Latest Tax Info You Need to Know

The Latest Tax Info You Need to Know

Tax Return Deadline Extended to May 17

The IRS has extended the federal income tax filing due date for individuals from April 15 to May 17. To accommodate the new deadline, we will accept returns until Thursday, April 15th. If we receive your paperwork AFTER April 15, we will file an extension for you. To help you prepare your files, please download a copy of our 2020 Personal Tax Preparation Checklist.

Note that the deadline for estimated tax payments has NOT changed. First quarter payments are still due on April 15.

The American Rescue plan, which was signed by President Biden on March 11th, and other tax law changes probably affected your finances and returns for both 2020 and 2021. Here are some of the details you need to know:

Contribution Deadlines Extended to May 17

In addition to extending the tax return filing deadline to May 17, the IRS has extended other deadlines that would normally fall on April 15. You now have until May 17, 2021, to make 2020 contributions to your:

  • Individual Retirement Arrangements (IRAs and Roth IRAs),
  • Health Savings Accounts (HSAs),
  • Archer Medical Savings Accounts (Archer MSAs), and
  • Coverdell Education Savings Accounts (Coverdell ESAs).

This new deadline also applies to the reporting and payment of any 10% additional tax due on 2020 distributions from IRAs or workplace-based retirement plans.

IRS to Review Returns, Issue Refunds for Unemployment Benefits

The IRS will automatically begin refunding money in May if you filed your 2020 tax return and reported unemployment compensation before the American Rescue Plan was passed. The new law allows taxpayers who earned less than $150,000 in modified AGI to exclude 2020 unemployment compensation up to $20,400 (married filing jointly) or $10,200 (other taxpayers).

If you already filed and figured your tax based on the full amount of unemployment compensation, the IRS will determine the correct taxable amount. Any resulting overpayment of tax will be either refunded or applied to other outstanding taxes owed. So there is no need to file an amended return unless the change makes you eligible for additional federal credits and deductions.

If we filed your tax return for you before March 11, we will automatically check it for additional credits and deductions, then let you know if an amended return should be filed. If we have not yet filed your taxes, we will take the new law into account for you. Please contact us if you have any questions about this.

3rd EIP Is Different from Earlier Payments

You may notice that the third Economic Impact Payment you receive(d) is different from the first and second payments. Here’s how:

• The 3rd EIP is an advance payment of the 2021 recovery rebate credit. The two earlier payments are advance payments of the 2020 recovery rebate credit. If you didn’t get a first or second EIP or got less than the full amounts, you may be eligible to claim the 2020 recovery rebate credit on your 2020 tax return.

• The 3rd EIP may be larger. You will receive up to $1,400 as a single taxpayer or $2,800 as a joint filer. If you have qualifying dependents, you will receive up to $1,400 per qualifying dependent.

• More dependents qualify. You will get a payment for all qualifying dependents claimed on your return, not just for children under age 17. This may include older family members like college students, adults with disabilities, parents and grandparents.

• Income phase-out amounts are different. You will not receive a 3rd EIP if your AGI exceeds:

  • $160,000 if married filing jointly or as a qualifying widow/er.
  • $120,000 if filing as head of household.
  • $80,000 if filing single or married filing separately.

• You may be eligible for additional funds. The amount of the 3rd EIP is based on your latest processed tax return (either 2020 or 2019). If it’s based on your 2019 return and is less than the full amount, you may qualify for a supplemental payment after your 2020 return is processed.

Small Businesses: Take Advantage of the Employee Retention Credit

The Employee Retention Credit was modified by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, and applies to the first two calendar quarters of 2021. The changes include:

  • Increasing the maximum credit amount,
  • Expanding the category of employers eligible to claim the credit,
  • Modifying the gross receipts test,
  • Revising the definition of qualified wages, and
  • Revising the ability of employers to request an advance payment of the credit.

Eligible employers can claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after from January 1-June 30, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. Thus, the maximum employee retention credit available is $7,000 per employee per calendar quarter, for a total of $14,000 per employee for 2021.

Employers can access the Credit for the 1st and 2nd calendar quarters of 2021 prior to filing their employment tax returns by reducing employment tax deposits. Small employers may request advance payment of the credit (subject to certain limits) on Form 7200, Advance of Employer Credits Due to Covid-19.

Note that the Employee Retention Credit is also available to eligible employers during the third and fourth quarters of 2021, thanks to the American Rescue Plan. The IRS will provide further guidance on this soon.

If you need assistance on how to calculate and claim the Employee Retention Credit, please contact us today.

Are You Taking Advantage of These 3 COVID-Related Business Tax Credits?

Are You Taking Advantage of These 3 COVID-Related Business Tax Credits?

Put into place to help small business owners during the COVID-19 crisis, these tax credits may help you reduce your business’s financial burden:

Employee Retention Credit

This credit encourages businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19. The credit is available to all employers and tax-exempt organizations regardless of size, except for state and local governments, and small businesses who take small business loans. To qualify, your business must be fully or partially suspended by government order due to COVID-19 during the calendar quarter, OR your gross receipts are below 50% of the comparable quarter in 2019. Once your gross receipts go above 80% of a comparable quarter in 2019, you no longer qualify after the end of that quarter.

Paid Sick Leave Credit

This credit allows businesses to receive a credit for an employee who is unable to work due to coronavirus quarantine, self-quarantine or has coronavirus symptoms and is seeking a medical diagnosis. Those employees are entitled to paid sick leave for up to 10 days (up to 80 hours) at the employee’s regular rate of pay — up to $511 per day, $5,110 in total.

Employers can also receive the credit for employees who are unable to work due to caring for someone with coronavirus or caring for a child because the child’s school or place of care is closed, or the paid childcare provider is unavailable due to the coronavirus. Those employees are entitled to paid sick leave for up to two weeks (up to 80 hours) at two-thirds the employee’s regular rate of pay — up to $200 per day, $2,000 in total.

Family Leave Credit

Employees are entitled to paid family and medical leave equal to two-thirds of the employee’s regular pay — up to $200 per day, $10,000 in total. Up to 10 weeks of qualifying leave can be counted towards the Family Leave Credit.

How Will You Receive the Credit?

As an employer, you can be immediately reimbursed for the credit by reducing your required deposits of payroll taxes that have been withheld from your employees’ wages by the amount of the credit. If you are eligible, you are entitled to immediately receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and your share of Medicare tax on the leave, through December 31, 2020. The refundable credit is applied against certain employment taxes on wages paid to all employees.

You must report your total qualified wages and the related health insurance costs for each quarter on your quarterly employment tax returns or Form 941. If your employment tax deposits are not sufficient to cover the credit, you may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19. You may also request an advance of the Employee Retention Credit this way.

The rules regarding these COVID-19 related tax credits can be confusing. Whether we handle your payroll or you do, please contact us to discuss how you can take advantage of these money-saving tax credits for your small business.

PPP Loans of $50k or Less Get Simplified Forgiveness Application

If you received a Paycheck Protection Program (PPP) loan of $50,000 or less, you can now apply for loan forgiveness using a simple application: SBA Form 3508S. The forgiveness process for smaller loans is streamlined because you are not required to undergo complicated full-time equivalent (FTE) or salary reduction calculations. You will still have to make some certifications and provide documentation to your lender for payroll and nonpayroll costs, however. If you’re ready to get started with the process, contact your lender to be sure they want you to use the new form (they may have their own version). And give us a call if you need help completing the forgiveness application.

Approximately 3.57 million of the 5.2 million total PPP loans approved by the SBA were for $50,000 or less. And about 1.71 million of those loans were made to businesses with zero-to-one employee.

Make Your Appointment

It’s time to make your year-end tax planning appointment. Choose an in-person meeting (limited availability), or a Zoom or phone meeting. Please call Amber at  706-632-7850 or email her to set up a date.

MONEY BRIEF #1

If you do not plan to talk with us before the end of the year, then you should still review your tax withholding and payments now. An adjustment or two can boost your take-home pay OR allow you to increase your tax payments to avoid a surprise tax bill when filing next year. Things that can affect your year-end taxes include:

  • Coronavirus tax relief
  • Unemployment compensation
  • Job change or loss
  • Work-from-home changes
  • Life changes, such as marriage or childbirth

 You can visit IRS.gov/account to view your tax payment history, taxes owed and certain tax return information. And you can use the IRS’s Tax Withholding Estimator tool to determine how much you should be paying throughout the year.

MONEY BRIEF #2

Social Security recipients can expect a modest 1.3% cost-of living adjustment, or COLA, in 2021. The estimated average Social Security payment will increase about $20 to $1,543 a month next year; a typical couple’s benefits would increase $33 to $2,596 per month. (The 2020 increase was 1.6%.) The COLA affects about 1 in 5 Americans, including Social Security recipients, disabled veterans and federal retirees — some 70 million people.

How to Reduce Higher Education Costs with Tax Credits

How to Reduce Higher Education Costs with Tax Credits

If you, your spouse or your dependent child takes college classes — whether online or in-person, part-time or full-time — you may be able to offset some of the costs with tax credits. These credits reduce the amount of tax you owe. And if the credit reduces your tax to less than zero, you could even receive a refund.

Two Education Credits Available

Two different higher education tax credits are available to help you save money:

American Opportunity Tax Credit

  • Worth a maximum benefit of up to $2,500 per eligible student.
  • Applies to the first four years at an eligible college or vocational school.
  • For students pursuing a degree or other recognized education credential.
  • Partially refundable (get up to $1,000 back).

Lifetime Learning Credit

  • Worth a maximum benefit of up to $2,000 per tax return, per year, no matter how many students qualify.
  • Available for all years of postsecondary education, and for courses to acquire or improve job skills.
  • Available for an unlimited number of tax years.

To claim the credit(s), you’ll need to file Form 8863: Education Credits along with your federal income tax return. And you’ll need a copy of Form 1098-T from your educational institution.

We’ll be happy to answer any questions you might have, and help you determine your eligibility for the credits.

National Coffee Day Is September 29th

Did you know? Coffee drinkers consume more than 2.25 billion cups of coffee each day! Coffee beans are among the most valuable export crops, with small farms producing about 70% of the world’s coffee.

Per the nationaltoday.com website: If it weren’t for the Boston Tea Party in 1773, Americans may never have swapped tea for coffee. When the colonies revolted against King George III’s hefty tea tax, tea was out and coffee was in. Things really started to percolate in the mid 1800s when brothers John and Charles Arbuckle started selling coffee to cowboys in the American West. James Folger successfully introduced coffee to gold miners in California. Upon returning to San Francisco in 1865, Folger became a full partner of The Pioneer Steam Coffee and Spice Mills — which eventually became the J.A. Folger & Co. in 1872.

On this National Coffee Day, visit your favorite coffee shop for a special deal:

Dunkin’ Donuts: Free medium hot or iced coffee with any purchase, limited to one per order.

McDonald’s: Use the McDonald’s app to get a premium roast or iced coffee for $0.99.

Some additional freebies and offers are listed in this article.

Make Your Appointment

It’s time to make your year-end tax planning appointment. Choose an in-person meeting (limited availability), or a Zoom or phone meeting. Please call  706-632-7850 or email Amber to set up a date.

MONEY BRIEF #1

The IRS will mail letters later this month to about 9 million Americans who typically do not file federal income tax returns, but who may be eligible for (and have not yet claimed) an Economic Impact Payment. The IRS urges folks to register at irs.gov by October 15 so they can receive their payment by the end of the year: Up to $1,200 for individuals and $2,400 for married couples, plus up to an additional $500 for qualifying children who were under age 17 at the end of 2019.

MONEY BRIEF #2

Cash transactions of more than $10,000 must be reported to the IRS. This includes both U.S. and foreign coins and currency received:

  • In one lump sum.
  • In two or more related payments within 24 hours.
  • As part of a single transaction within 12 months.
  • As part of two or more related transactions within 12 months.

Cash payments are reported by filing Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business within 15 days after the cash is received. Filing electronically is encouraged. To e-file, a business has to have an account with the Financial Crimes Enforcement Network’s BSA E-Filing System. To set up an account, call the BSA E-Filing Help Desk at 866-346-9478 or email bsaefilinghelp@fincen.gov.

Working from Home? Here’s What You Need to Know About Taxes

Working from Home? Here’s What You Need to Know About Taxes

Thanks to COVID-19, you may find yourself working from home — whether for the first time or more often than before. So can you claim a home office deduction when you file your 2020 tax return next year?

First of all, if you are an employee, you are NOT eligible to claim the home office deduction. You may be able to deduct a few expenses, but these are very limited.

What Is Deductible?

  • You must meet specific requirements to deduct home business expenses. Even then, the deductible amount may be limited.
  • The home office deduction is available to both homeowners and renters, whether you live in a house, apartment, condo, mobile home, boat or similar property. It also includes other structures on the property — unattached garage, studio, barn or greenhouse — if they are related to the business.
  • It does NOT include any part of your property used exclusively as a hotel, motel, inn or similar business.
  • Deductible expenses include mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent.
  • There are two basic requirements for your home to qualify as a deduction:
    1. You must use a portion of your home exclusively for conducting business on a regular basis, and
    2. Your home must be your principal place of business.

Figuring Your Deduction

If you qualify for a home office deduction, you may choose one of two methods to calculate the deduction:

  1. The Simplified Option provides a rate of $5 per square foot, up to a maximum of 300 square feet, for a maximum deduction of $1,500 per year.
  2. For the Regular Method, you must determine the percentage of your home devoted to business use to determine the deduction for indirect expenses (utilities, mortgage, etc.). Direct expenses (office supplies, etc.) are deducted in full.

Please contact us for more details or for help determining if you qualify for the home office deduction.

Wallet of money

What You Need to Know About Payroll Tax Deferral

On August 8, President Trump signed a Presidential Memorandum allowing for a Payroll Tax Deferral. The IRS recently issued guidance on the memorandum. Here’s what you need to know:

  • It applies only to employees whose biweekly paychecks are less than $4,000 (about $104,000/year).
  • Employers can stop withholding employees’ payroll taxes from September 1-December 31, 2020.
  • Employees will then have to re-pay those taxes between January 1-April 30, 2021. (President Trump left open the possibility of forgiving the deferred taxes, but that can only be approved by Congress.)
  • This is a voluntary program. It is up to the employer whether to opt in to the payroll tax deferral. Many are not because employees would be forced to pay a big tax bill next year.

If you have questions about this new program, we can help you determine the best option for you — whether you have a company with employees or you are an employee affected by the tax deferral.

MONEY BRIEF #1

If you mailed a check to the IRS to pay your taxes recently, it may still be unopened in the backlog of mail due to COVID-19. Do not cancel your check thinking it may be lost! Any payments sent will be posted as of the date the IRS received them — rather than the date the agency processes them. The IRS is providing relief from bad check penalties for dishonored checks the agency received between March 1 and July 15 due to delays in processing. Note that interest and penalties may still apply if they were received late.

MONEY BRIEF #2

The Work Opportunity Tax Credit is available to employers who hire long-term unemployment recipients and others certified by their state workforce agency if the individual begins work before January 1, 2021. You can find out more about this credit at IRS.gov/wotc or contact us for details on how this general business credit can save you money.

MONEY BRIEF #3

Reminder: The Coronavirus, Aid, Relief and Economic Security Act (CARES Act) enacted earlier this year allows employers to defer the deposit and payment of the employer’s share of Social Security taxes through December 31, 2020. This also allows self-employed individuals to defer certain self-employment taxes. These FAQs address the issue; or call us if you have questions.

MONEY BRIEF #4

Do you use an Individual Taxpayer Identification Number (ITIN) instead of a Social Security number? If so, it may expire at the end of 2020. ITINs are used by people who have tax filing or payment obligations under U.S. law, but are not eligible for a Social Security number. More than 1 million ITINs will expire at the end of 2020, including:

  • ITINs that have not been used on a federal tax return at least once in the last three consecutive years, and
  • ITINs issued before 2013.

If this applies to you, the IRS urges you to submit a renewal application now to avoid refund delays next year. Visit the irs.gov for more details.

COVID-19 Update: 3 New Tax Credits May Apply to Your Small Business

COVID-19 Update: 3 New Tax Credits May Apply to Your Small Business

The IRS has announced three new tax credits available to employers affected by the COVID-19 crisis. You may qualify for one or more of them:

Employee Retention Credit

This refundable tax credit is designed to keep employees on your payroll. It provides a credit of 50% of up to $10,000 in wages paid. The credit is available to most businesses, including tax-exempt organizations, but not state and local governments and their instrumentalities, or small businesses that have taken small business loans.

To qualify, you must fall into one of two categories:

  • Your business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
  • Your gross receipts are below 50% of the comparable quarter in 2019. Once your gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

Paid Sick Leave Credit

This tax credit allows your business to get credit for any employee who is unable to work (including telework) due to Coronavirus quarantine or self-quarantine, or has Coronavirus symptoms and is seeking a medical diagnosis. Those employees are entitled to paid sick leave for up to 10 days (up to 80 hours) at your employee’s regular rate of pay — up to $511 per day and $5,110 in total.

Family Leave Credit

Like the Paid Sick Leave Credit, here you can receive a credit for employees who are unable to work due to caring for someone with Coronavirus or caring for a child because the child’s school or place of care is closed, or the paid childcare provider is unavailable. Those employees are entitled to paid sick leave for up to two weeks (up to 80 hours) at two-thirds (2/3) the employee’s regular rate of pay — up to $200 per day and $2,000 in total. Up to 10 weeks of qualifying leave can be counted towards the Family Leave Credit.

How to Receive the Credit

If you qualify, you are entitled to immediately receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and your share of Medicare tax on the leave, for the period of April 1, 2020, through December 31, 2020.

You can be reimbursed for the credit by reducing your required deposits of payroll taxes that have been withheld from your employees’ wages by the amount of the credit. You must report your total qualified wages and the related health insurance costs for each quarter on your quarterly employment tax returns, or Form 941, beginning with the second quarter. If your employment tax deposits are not sufficient to cover the credit, you may receive an advance payment from the IRS by submitting Form 7200 (Advance Payment of Employer Credits Due to COVID-19).

Here for You

Please contact us if you have any questions about these new credits. The IRS has also posted Employee Retention Credit FAQs and Paid Family Leave and Sick Leave FAQs on its website to help answer your questions.

MONEY BRIEF #1

Good news! The Economic Impact Payment you may have received will NOT be counted as taxable income. It will not reduce your refund or increase the amount you owe when you file your 2020 federal income tax return.

MONEY BRIEF #2

The IRS has a new web page, Filing and Payment Deadlines Questions and Answers, to answer tax and financial relief questions most asked by self-employed taxpayers, business owners and their employees. It will be updated often to reflect latest information.

MONEY BRIEF #3

You can now request FREE credit reports — every week — if you’re feeling anxious about your financial health. To get your free reports, go to AnnualCreditReport.com. The three credit reporting agencies are making these reports free for the next year.