February 2023 Feature Articles Do You Need To File a 2022 Tax Return? Taxable vs. Nontaxable Income Tax Breaks for Older Adults and Retirees What Is a Designated Roth Account? Small Business: Deducting Startup Costs Tax Tips What Is the Saver's Credit? Unemployment Tax Break Refunds Issued for 2020 Standard vs. Itemized Deductions What Businesses Need To Know About the Excise Tax How Filing Status Affects Your Tax Return QuickBooks Tips Use QuickBooks To Get Your Finances in Order for 2023

Do You Need To File a 2022 Tax Return?

Most people file a tax return because they have to, but even if you don't, you might be eligible for a tax refund and not know it. The tax tips below should help determine whether you must file a tax return this year.

General Filing Rules

Whether you need to file a tax return depends on several factors: the amount of your income, your filing status, and your age. For example, if you're single and 24 years old, you must file if your income is at least $12,950. If you are 65 or older, income thresholds are higher ($14,700 in 2022 for single filers). Other tax rules may apply if you're self-employed or dependent of another person.

Employment Tax Withheld or Paid

If you held a job and answer "yes" to any of these questions, you could be due a refund, but you have to file a tax return to receive it:

• Did your employer withhold federal income tax from your pay?
• Did you make estimated tax payments?
• Did you overpay last year, and have it applied to this year's tax?

Eligibility for Certain Tax Credits

Premium Tax Credit. If you, your spouse, or a dependent was enrolled in healthcare coverage purchased from the Marketplace in 2022, you might be eligible for the Premium Tax Credit - but only if you chose to have advance payments of the premium tax credit sent directly to your insurer during the year. However, you must file a federal tax return and reconcile any advance payments with the allowable premium tax credit. Earned Income Tax Credit. Did you work and earn less than $59,187 last year? You could receive EITC as a tax refund if you qualify with or without a qualifying child. You may be eligible for up to $6,935. If you qualify, file a tax return to claim it. Additional Child Tax Credit. Do you have at least one child that qualifies for the Child Tax Credit? If you don't get the full credit amount, you may qualify for the Additional Child Tax Credit and receive a refund even if you do not owe any tax. American Opportunity Tax Credit. The AOTC (up to $2,500 per eligible student) is available for four years of post-secondary education. You or your dependent must have been a student enrolled at least half-time for at least one academic period. Even if you don't owe any taxes, you still may qualify; however, you must complete Form 8863, Education Credits, and file a return to claim the credit. Health Coverage Tax Credit. If you, your spouse, or a dependent received advance payments of the health coverage tax credit, you will need to file a 2022 tax return. Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments, shows the amount of the advance payments.

Other Situations

You must file a return in other situations as well, including, but not limited to, the following situations:

• You owe special taxes such as the alternative minimum tax (AMT), additional tax on qualified plans such as an individual retirement arrangement (IRA), another tax-favored account, or household employment taxes. However, if you are filing a return only because you owe these taxes, you can file Schedule H, Household Employment Taxes, by itself.
• You (or your spouse, if filing jointly) received Archer MSA, Medicare Advantage MSA, or health savings account distributions.
• You had net earnings from self-employment of at least $400.
• You had wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes.

Questions about whether you should file a return? Help is just a phone call away.

Taxable vs. Nontaxable Income

Are you wondering if there's a hard and fast rule about what income is taxable and what income is not? The quick answer is that all income is taxable unless the law specifically excludes it. But as you might have guessed, there's more to it than that. Taxable income includes any money you receive, such as wages, tips, and unemployment compensation. It can also include noncash income from property or services. For example, both parties in a barter exchange must include the fair market value of goods or services received as income on their tax return.

Nontaxable Income

Here are some types of income that are usually not taxable:

• Gifts and inheritances
• Child support payments
• Welfare benefits
• Damage awards for physical injury or sickness
• Cash rebates from a dealer or manufacturer for an item you buy
• Reimbursements for qualified adoption expenses

In addition, some types of income are not taxable except under certain conditions, including:

• Life insurance proceeds paid to you are usually not taxable. But if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.
• Income from a qualified scholarship is normally not taxable; that is, amounts you use for certain costs, such as tuition and required books, are not taxable. However, amounts used for room and board are taxable.
• If you received a state or local income tax refund, the amount might be taxable. You should have received a 2022 Form 1099-G from the agency that made the payment to you. If you didn't get it by mail, the agency might have provided the form electronically. Contact them to find out how to get the form. Be sure to report any taxable refund you received even if you did not receive Form 1099-G.

Important Reminders About Tip Income

If you get tips from customers, you must pay federal income tax on any tips you receive. The value of noncash tips, such as tickets, passes, or other items of value, are also subject to income tax. You must include the total of all tips you received during the year on your income tax return, such as tips received directly from customers, tips added to credit cards, and your share of tips received under a tip-splitting agreement with other employees.

Bartering Income is Taxable

Bartering is trading one product or service for another. Small businesses sometimes barter to get products or services they need. For example, a plumber might trade plumbing work with a dentist for dental services. Typically, there is no cash exchange; however, if you barter, the value of products or services from bartering is considered taxable income by the IRS. Barter and trade dollars are the same as real dollars for tax purposes and must be reported on a tax return. Both parties must report as income the fair market value of the product or service they get. The tax rules may vary based on the type of bartering. Barterers may owe income taxes, self-employment taxes, employment taxes, or excise taxes on their bartering income. How you report bartering on a tax return also varies. For example, if you are in a trade or business, you normally report it on Form 1040, Schedule C, Profit or Loss from Business.

Questions?

Don't hesitate to call if you have any questions about taxable and nontaxable income.

Tax Breaks for Older Adults and Retirees

Everyone wants to save money on their taxes, and retirees and older adults are no exception. If you're 50 or older, here are six tax tips that could help you do just that.

1. Standard Deduction for Seniors

If you and your spouse are 65 or older and do not itemize your deductions, you can take advantage of a higher standard deduction amount. There is an additional increase in the standard deduction if you (or your spouse) are blind.

2. Credit for the Elderly or Disabled

If you and your spouse are either 65 years or older - or under age 65 years old and are permanently and totally disabled - you may be able to take the Credit for Elderly or Disabled. The credit is based on your age, filing status, and income. You may only take the credit if you meet the following requirements: The amount on Form 1040 or 1040-SR, line 11 is less than $17,500 ($20,000 if married filing jointly and only one spouse qualifies), $25,000 (married filing jointly and both qualify), or $12,500 (married filing separately and lived apart from your spouse for the entire year). and The nontaxable part of your Social Security or other nontaxable pensions, annuities, or disability income is:

• Less than $5,000 (single, head of household, or qualifying widow/er with dependent child);
• $5,000 (married filing jointly and only one spouse qualifies);
• $7,500 (married filing jointly and both qualify); or
• $3,750 (married filing separately and lived apart from your spouse the entire year).

3. Retirement Account Limits Increase

Once you reach age 50, you are eligible to contribute (and defer paying tax on) up to $27,000 in 2022 ($30,000 in 2023). The amount includes the additional "catch up" contribution ($6,500 in 2022 and $7,500 in 2023) for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan.

4. Early Withdrawal Penalty Eliminated

If you withdraw money from an IRA account before age 59 1/2, you generally must pay a 10 percent penalty; however, once you reach age 59 1/2, there is no longer a penalty for early withdrawal. Furthermore, if you leave or are terminated from your job at age 55 or older (age 50 for public safety employees), you may withdraw money from a 401(k) without penalty. However, you still have to pay tax on the additional income. To complicate matters, money withdrawn from an IRA is not exempt from the penalty.

5. Social Security Benefits Generally Not Taxable

Americans can sign up for social security benefits as early as age 62 or wait to receive full benefits at age 66 or 67 (depending on your full retirement age). Generally, you pay federal income taxes on your Social Security income only if you have other substantial income in addition to your benefits. Most retirees do not pay income tax on their social security benefits. Some, however, do. The more income you have coming in, the more likely it is that a portion of your social security benefits will be taxed. Therefore, when preparing your return, it is advisable to be especially careful when calculating the taxable amount of your Social Security.

6. Higher Income Tax Filing Threshold

Taxpayers who are 65 and older are allowed an income of $1,750 more ($2,800 married filing jointly and both spouses are 65 or older) before they need to file an income tax return. In other words, older taxpayers age 65 and older with an income of $14,700 ($28,700 married filing jointly - both spouses over age 65) or less may not need to file a tax return.

Don't Miss Out

If you have any questions about these and other tax deductions and credits available for older Americans, please call.

What Is a Designated Roth Account?

Many 401(k) plans allow taxpayers to make Roth contributions as long as the plan has a designated Roth account. Your plan may also allow you to transfer amounts to the designated Roth account in the plan or borrow money.

Check with your employer to find out if your 401(k), 403(b), or 457 governmental plan has a Designated Roth account and whether it allows in-plan Roth rollovers or loans.

A designated Roth account allows you to:

• Make designated Roth contributions to the account; and
• if the plan permits, roll over certain amounts in your other plan accounts to the Roth account.

Pretax Deferrals vs. After-tax Contributions

Unlike pretax salary deferrals, which are not taxed when you contribute them to the plan, you have to pay taxes on any contribution you make to a designated Roth account. Any pretax salary deferrals and related earnings are taxable when you withdraw them from the plan.

Your gross income for the year in which you make designated Roth contributions will be higher than if you had made only pretax salary deferrals.

Roth contributions, on the other hand, are not taxed when you withdraw them from the plan. Earnings on Roth contributions are also not taxed when withdrawn from the plan if your withdrawal is a qualified distribution. A "qualified distribution" is a distribution that is made:

• At least five years after the first contribution to your Roth account; and
• After you are age 59 1/2 or because you are disabled, or to your beneficiary after your death.

Maximum Contribution Amounts

Roth IRA. In 2023, the maximum contribution to a regular Roth IRA account is $6,500 ($7,500 if age 50 or older). Furthermore, contributions are limited by tax filing status and adjusted gross income. Designated Roth Account. In contrast, in 2023, the maximum contribution to a Designated Roth account is $22,500 ($30,000 if age 50 or older), and contribution limits are not impacted by filing status or adjusted gross income.

New Rules for 2023

Effective January 1, 2023, employers can let employees choose between having a company match in a Roth 401k or a regular 401k. In prior years, only employee elective deferrals were allowed to be contributed to a designated Roth account. Matching employer contributions went into a pretax account within the plan (such as a regular 401k) - even if taxpayers put money in their Roth 401k.

Questions?

Depending on your particular tax situation, contributing to a designated Roth account could be a smart move. Please call to learn whether you should take advantage of a designated Roth account.

Small Business: Deducting Startup Costs

If you've recently started a business - or are thinking about starting a business - you should know that as an owner, all eligible costs incurred before you began operating the business are treated as capital expenditures. As such, they are part of the cost basis for the business. Generally, the business can recover costs for assets through depreciation deductions. Businesses with costs paid or incurred after September 8, 2008, can deduct a limited amount of start-up and organizational costs enabling business owners to recover the costs they cannot deduct currently over a 180-month period. This recovery period starts with the month the business begins to operate active trade or as a business.

Business Start-up Costs

Start-up costs are amounts the business paid or incurred for creating an active trade or business or investigating the creation or acquisition of an active trade or business. Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for-profit and to produce income in anticipation of the activity becoming an active trade or business. Examples of start-up costs include amounts paid for the following:

• An analysis or survey of potential markets, products, labor supply, transportation facilities, etc.
• Advertisements for the opening of the business.
• Salaries and wages for employees who are being trained and their instructors.
• Travel and other necessary costs for securing prospective distributors, suppliers, or customers.
• Salaries and fees for executives, consultants, or similar professional services.

Qualifying Costs

A start-up cost is recoverable if it meets both of the following requirements:

• It's a cost a business could deduct if they paid or incurred it to operate an existing active trade or business in the same field as the one entered into by the business.
• It's a cost a business pays or incurs before the day their active trade or business begins.

Nonqualifying Costs

Start-up costs don't include deductible interest, taxes, or research and experimental costs.

Purchasing an Active Trade or Business

Recoverable start-up costs for purchasing an active trade or business include only investigative costs incurred during a general search for or preliminary investigation of the business. These are costs that help in deciding whether to purchase a business. Costs incurred to purchase a specific business are considered capital expenses and cannot be amortized.

Disposition of business

If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business. Questions about deducting start-up costs for your small business? Help is just a phone call away.

What Is the Saver's Credit?

The Retirement Savings Contributions Credit, also known as the Saver's Credit, is a special tax credit for low-and moderate-income workers. In tax year 2020, the most recent year for which complete figures are available, Saver's Credits totaling more than $1.7 billion were claimed on about 9.4 million individual income tax returns. That's an average of about $186 per eligible return. Income Limits Apply Income limits, based on a taxpayer's adjusted gross income and marital or filing status, apply to the Saver's Credit. Due to inflation, the limits will increase significantly in 2023, and taxpayers should take note. As a result, the Saver's Credit can be claimed by:

• Married couples filing jointly with incomes up to $68,000 in 2022 or $73,000 in 2023.
• Heads of household with incomes up to $51,000 in 2022 or $54,750 in 2023.
• Married individuals filing separately and singles with incomes up to $34,000 in 2022 or $36,500 in 2023.

The credit helps offset part of the first $2,000 workers voluntarily contribute to Individual Retirement Arrangements, 401(k) plans, and similar workplace retirement programs. The credit also helps any eligible person with a disability who is the designated beneficiary of an Achieving a Better Life Experience (ABLE) account to contribute to that account. The Saver's Credit is available in addition to any other tax savings that apply. Like other tax credits, the Saver's Credit can increase a taxpayer's refund or reduce the tax owed. Though the maximum Saver's Credit is $1,000 ($2,000 for married couples), the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers. It supplements other tax benefits available to people who set money aside for retirement. For example, most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn. There's Still time to Make a Contribution for 2022 Eligible workers still have time to make qualifying retirement contributions and get the Saver's Credit on their 2022 tax return. Taxpayers have until April 18, 2023 - the due date for filing their 2022 return - to set up a new IRA or add money to an existing IRA for 2022. Both Roth and traditional IRAs qualify.

Taxpayers participating in workplace retirement plans must have made elective deferrals by December 31, 2022, for contributions to count for this year - including a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees.

A taxpayer's credit amount is based on their filing status, adjusted gross income, tax liability, and amount contributed to qualifying retirement programs or ABLE accounts. Taxpayers should use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the Saver's Credit. Other special rules that apply to the saver's credit include:

• Eligible taxpayers must be at least 18 years of age.
• Anyone claimed as a dependent on someone else's return cannot take the credit.
• A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.

Any distributions from a retirement plan or ABLE account reduce the contribution amount used to figure the credit. For 2022, this rule applies to distributions received after 2019 and before the due date, including extensions of the 2022 return. Form 8880 and its instructions have details on making this computation. Please call if you have any questions about this or other tax credits.

Unemployment Tax Break Refunds Issued for 2020

Final corrections for taxpayers who overpaid their taxes on unemployment compensation received in 2020 have been completed by the IRS. Approximately 14 million returns were corrected, resulting in nearly 12 million refunds totaling $14.8 billion. Background The American Rescue Plan Act of 2021, which became law in March 2021, allowed taxpayers to exclude up to $10,200 in 2020 unemployment compensation from taxable income calculations (up to $10,200 for each spouse if married filing jointly). The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000. To ease the burden on taxpayers, the IRS reviewed Forms 1040 and 1040-SR that were filed prior to the law's enactment to identify taxpayers who had already reported unemployment compensation as income and were eligible for the correction. The IRS determined the correct taxable amount of unemployment compensation and tax. Overpayments Refunded or Applied to Tax Due With an average refund of $1,232, some taxpayers received refunds, while others had the overpayment applied to taxes due or other debts. In some cases, the exclusion only resulted in a reduction in their adjusted gross income. Letters were mailed to these taxpayers to inform them of the corrections. Taxpayers should keep that letter with their tax records. Many of the adjustments included corrections to the:

• Earned Income Tax Credit
• Recovery Rebate Credit
• Additional Child Tax Credit
• American Opportunity Tax Credit
• Premium Tax Credit
• Advance Premium Tax Credit

Of note is that a taxpayer who is eligible for the unemployment compensation exclusion but whose account was not corrected by the IRS may need to file an amended 2020 tax return. Taxpayers who filed 2020 Forms 1040 and 1040-SR can file Form 1040-X, Amended U.S. Individual Income Tax Return, to claim the exclusion and any applicable non-refundable or refundable credits impacted by the exclusion. Taxpayers should not file an amended return if they previously filed one claiming the exclusion. Taxpayers that need to file an amended tax return can view their 2020 tax records in their Online Account or request that a 2020 tax account transcript be mailed to them. Please call the office for more information about this topic, including eligibility requirements.

Standard vs. Itemized Deductions

When completing a tax return, taxpayers have two options: take the standard deduction or itemize their deductions. Most taxpayers use the option that gives them the lowest overall tax. Due to all the tax law changes in recent years, including increases to the standard deduction, that means taking the standard deduction - but not always. Let's look at a few details about these two options. Standard deduction The standard deduction amount increases slightly every year and varies by filing status. Factors that affect the standard deduction amount include the taxpayer's filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don't itemize deductions are entitled to a higher standard deduction. Most filers who use Form 1040, U.S. Individual Income Tax Return, can find their standard deduction on the first page of the form. For most filers of Form 1040-SR, U.S. Tax Return for Seniors, the standard deduction is on page 4. Not all taxpayers can take a standard deduction. Those taxpayers include:

• A married individual filing as married filing separately whose spouse itemizes deductions - if one spouse itemizes on a separate return, both must itemize.
• An individual who files a tax return for a period of less than 12 months. This situation is uncommon and could be due to a change in their annual accounting period.
• An individual who was a nonresident alien or a dual-status alien during the year. However, nonresident aliens who are married to a U.S. citizen or resident alien can take the standard deduction in certain situations.

Itemized deductions Taxpayers who choose to itemize deductions should file Schedule A, Form 1040, Itemized Deductions. Itemized deductions that taxpayers may claim include:

• State and local income or sales taxes
• Real estate and personal property taxes
• Home mortgage interest
• Mortgage insurance premiums on a home mortgage
• Personal casualty and theft losses from a federally declared disaster
• Gifts to a qualified charity
• Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income

Some itemized deductions, such as the deduction for taxes, may be limited. Don't hesitate to contact the office for more information on these limitations or any other questions.

What Businesses Need To Know About the Excise Tax

Excise tax is an indirect tax on specific goods, services, and activities. Federal excise tax is usually imposed on the sale of things like fuel, airline tickets, heavy trucks and highway tractors, indoor tanning, tires, tobacco, and other goods and services. This tax is commonly included in the cost of the product. While the end consumer doesn't usually see the excise tax on their receipt, it may be charged at the time of:

• Import
• Sale by the manufacturer
• Sale by the retailer
• Use by the manufacturer or consumer

Many excise taxes go into trust funds for projects related to the taxed product or service, such as highway and airport improvements. Excise taxes are independent of income taxes. Generally, businesses subject to excise tax must file a Form 720, Quarterly Federal Excise Tax Return to report the tax to the IRS. Often, the retailer, manufacturer, or importer must pay the excise tax to the IRS and file Form 720. Some excise taxes are collected by a third party. The third party then sends the tax to the IRS and files Form 720. For example, the tax on an airline ticket generally is paid by the purchaser and collected by the airline. When to file Businesses must file the form for each quarter of the calendar year. Here are the due dates:

• Quarter 1 – January, February, March: deadline, April 30
• Quarter 2 – April, May, June: deadline, July 31
• Quarter 3 – July, August, September: deadline, October 31
• Quarter 4 – October, November, December: deadline, January 31

If the deadline for filing a tax return falls on a Saturday, Sunday, or legal holiday, the due date is the next business day. How to file E-filing excise tax returns is safe, secure, easy, and accurate, and while the IRS does accept paper excise tax returns, electronic filing is strongly encouraged. The contact information for all approved e-file transmitters of excise forms is listed on IRS.gov. Businesses can submit forms online 24 hours a day. When businesses e-file, they get confirmation that the IRS received their form. Also, e-filing reduces processing time and errors. To electronically file, business taxpayers will have to pay the provider's fee for online submission. The excise tax forms available for electronic filing include:

• Form 720, Quarterly Federal Excise Tax Return
• Form 2290, Heavy Highway Vehicle Use Tax
• Form 8849, Claim for Refund of Excise Taxes, Schedules 1, 2, 3, 5, 6 and 8

Please call the office if you have any questions or want more information about federal or state excise taxes.

How Filing Status Affects Your Tax Return

A taxpayer's filing status defines the type of tax return form they should use when filing their taxes. Filing status can affect the amount of tax they owe, and it may even determine whether they need to file a tax return at all. As taxpayers get ready for the upcoming filing season, let's take a closer look at how filing status affects a tax return. Taxpayers can choose from five different filing statuses when filing their returns:

• Single. Normally, this status is for taxpayers who are unmarried, divorced, or legally separated under a divorce or separate maintenance decree governed by state law.
• Married filing jointly. A taxpayer can file a joint tax return with their spouse if a taxpayer is married. When a spouse passes away, the widowed spouse can usually file a joint return for that year.
• Married filing separately. Married couples can choose to file separate tax returns. Doing so may result in less tax owed than filing a joint tax return.
• Head of household. Unmarried taxpayers may be able to file using this status, but special rules apply. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person living in the home for half the year.
• Qualifying widow(er) with dependent child. This status may apply to a taxpayer if their spouse died during one of the previous two years and they have a dependent child. Other conditions also apply.

When preparing and filing a tax return, filing status affects:

• If the taxpayer is required to file a federal tax return
• If they should file a return to receive a refund
• Their standard deduction amount
• If they can claim certain credits
• The amount of tax they should pay

Filing status generally depends on the taxpayer's marital status as of December 31 of the filing tax year (e.g., 2022). More than one filing status may apply in certain situations. If this is the case, taxpayers can usually choose the filing status that allows them to pay the least amount of tax. Not sure which filing status you should use this year? Help is just a phone call away.

Use QuickBooks To Get Your Finances in Order for 2023

Now that it's the new year, it's time for a fresh start in a lot of ways, including your bookkeeping. But you can't look ahead very effectively if you're not sure where you are now, so it is strongly recommended that you take stock of the state of your QuickBooks company file. Are you caught up on bills? Do customers need to be invoiced? Are any of them past due on their payments to you? QuickBooks is great at customer and vendor management, transaction processing, and reports. It can also serve as a barometer of your overall financial health. Let's take a look at what you can do to update your company file and get ready for the challenges coming in 2023.

Who Do You Owe?

It's easy to let some bills slip at the end of the year. Extra expenses in December may have caused you to run short on funds. Maybe you simply forgot, or you didn't have a chance to deal with your payables. Whatever the reason, you can easily find out what bills you need to pay using QuickBooks. The first thing you should do is run an A/P Aging Detail report. Open the Report Center (Reports | Report Center) and click Vendors & Payables . Locate the report and click the green arrow button. When the report opens, click Customize Report in the upper if you want to change the Dates . Then look to see if any bills are past due. Double-click on any row to see the original bill and pay it. You can also run the Unpaid Bills Detail report. Figure 1: The Unpaid Bills Detail report. You've probably heard this before, but it's important: If you're past due on any bills, contact the vendors and let them know when they might expect payment. It makes a difference.

Who Owes You?

Just as you may have missed some bills in December, your customers might have let invoice payments slip, and you will need to find out who is in arrears. Two reports can help you here. Open the Report Center again and click Customers & Receivables. Run the A/R Aging Detail report and look at the Aging column to see if any customers have gone past due on payments. Open Invoices, too, can alert you to those customers.

How Should You Approach Past-Due Customers?

This is a problem for every small business. You don't want to come on too strong and threaten the goodwill you've built with your customers, but you have your cash flow to consider. Here are some approaches:

• • Set up payment reminders so you'll remember to send follow-up emails. Go to Edit | Preferences | Payments | Company Preferences. Answer the questions under Payment Reminders.
  • Automate reminders. Open the Customers menu and select Payment Reminders | Schedule Payment Reminders. This step is a little complicated; you may want our help. You'll be creating schedules to automate the sending of invoices or statements at intervals you define. So you might dispatch an invoice to All customers when their payments are 15 days after the due date, for example. Click Add reminder to see the default text for the email accompanying the invoice and edit it.

Figure 2: QuickBooks can automatically send out reminder invoices and statements when customers are a specific number of days past due.

• Send a handwritten note. This is only realistic, of course, if your customer base is small or isn't often delinquent on payments. Handwritten notes are so unusual these days that they're more likely to get noticed than an email.

Don't know how to create statements in QuickBooks? Go to Customers | Create Statements. Here, you'll tell QuickBooks who should receive statements and specify any other preferences you might have for their content. Please call with any questions or need a QuickBooks expert to walk you through the process.

How Do You Turn On Reminders?

Turning on the Reminders tool in QuickBooks can help keep you current on bills, invoices, and other critical tasks. Open the Edit menu and click Preferences. Click Reminders and make sure the box is checked under the My Preferences tab so Reminders will open every time you run QuickBooks. Click Company Preferences and tell QuickBooks which reminders you want to see and when. Figure 3: QuickBooks' Reminders tool can help you stay current with bills and invoices, and other critical activities.

Making 2023 a Better Year Using QuickBooks Tools

Now that you know how to clean up your receivables and payables from 2022, next month's topic will discuss steps you can take in QuickBooks to make 2023 a more productive - and hopefully, prosperous - year, including evaluating your inventory.

Tax Due Dates for February 2023

February 10

Employees - who work for tips. If you received $20 or more in tips during January, report them to your employer. You can use Form 4070. Employers - Social Security, Medicare, and withheld income tax. File Form 941 for the fourth quarter of 2022. This due date applies only if you deposited the tax for the quarter in full and on time. Farm Employers - File Form 943 to report Social Security and Medicare taxes and withheld income tax for 2022. This due date applies only if you deposited the tax for the year in full and on time. Certain Small Employers - File Form 944 to report Social Security and Medicare taxes and withheld income tax for 2022. This tax due date applies only if you deposited the tax for the year in full and on time. Employers - Nonpayroll taxes. File Form 945 to report income tax withheld for 2022 on all nonpayroll items. This due date applies only if you deposited the tax for the year in full and on time. Employers - Federal unemployment tax. File Form 940 for 2022. This due date applies only if you deposited the tax for the year in full and on time.

February 15

Individuals - If you claimed exemption from income tax withholding last year on the Form W-4 you gave your employer, you must file a new Form W-4 by this date to continue your exemption for another year. Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in January. Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in January. All businesses. Give annual information statements to recipients of certain payments made during 2022. You can use the appropriate version of Form 1099 or other information return. This due date applies only to payments reported on Form 1099-B, Form 1099-S, and substitute payments reported in Box 8 or gross proceeds paid to an attorney reported in Box 10 of Form 1099-MISC.

February 16

Employers - Begin withholding income tax from the pay of any employee who claimed exemption from withholding in 2022, but did not give you a new Form W-4 to continue the exemption this year.

February 28

Businesses - File information returns (for example, certain Forms 1099) for certain payments you made during 2022. However, Form 1099-NEC reporting nonemployee compensation must be filed by January 31. There are different forms for different types of payments. Use a separate Form 1096 to summarize and transmit the forms for each type of payment. See the General Instructions for Certain Information Returns for information on what payments are covered, how much the payment must be before a return is required, what form to use, and extensions of time to file. If you file Forms 1097, 1098, 1099 (except a Form 1099-NEC reporting nonemployee compensation), 3921, 3922 or W-2G electronically, your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms generally remains January 31. Payers of Gambling Winnings - File Form 1096, Annual Summary and Transmittal of U.S. Information Returns, along with Copy A of all the Forms W-2G you issued for 2022. If you file Forms W-2G electronically, your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms remains January 31. Health Coverage Reporting - If you are an Applicable Large Employer, file paper Forms 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and 1095-C with the IRS. For all other providers of minimum essential coverage, file paper Forms 1094-B, Transmittal of Health Coverage Information Returns, and 1095-B with the IRS. If you are filing any of these forms with the IRS electronically, your due date for filing them will be extended to March 31. Large Food and Beverage Establishment Employers - with employees who work for tips. File Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips. Use Form 8027-T, Transmittal of Employer's Annual Information Return of Tip Income and Allocated Tips, to summarize and transmit Forms 8027 if you have more than one establishment. If you file Forms 8027 electronically your due date for filing them with the IRS will be extended to March 31.

March 1

Farmers and Fisherman - File your 2022 income tax return (Form 1040 or Form 1040-SR) and pay any tax due. However, you have until April 18 to file if you paid your 2022 estimated tax by January 17, 2023.

March 2

Health Coverage Reporting - If you are an Applicable Large Employer, provide Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, to full-time employees. For all other providers of minimum essential coverage, provide Form 1095-B, Health Coverage, to responsible individuals.

October 2022 Feature Articles What To Know About IRS Letters and Notices Understanding Marginal vs. Effective Tax Rates Cash Management Tips for Small Businesses Use These Strategies To Pass on Wealth to Heirs Lending Money to a Friend? It Pays To Plan Ahead Tax Tips Business-related Travel Deductions Tax Deductions for Homeowners Closing a Business for Good Federal Tax Obligations During Chapter 13 Bankruptcy Early Withdrawals from Retirement Plans QuickBooks Tips Dealing with Payments and Deposits in QuickBooks

What To Know About IRS Letters and Notices

When the IRS needs to ask a question about a taxpayer's tax return, notify them about a change to their account, or request a payment, it often mails a letter or notice to the taxpayer. Taxpayers should know that the IRS sends millions of these letters and notices to taxpayers for a variety of reasons. Many of these letters and notices can be dealt with simply, without having to call or visit an IRS office. Here's what taxpayers should know about IRS notices and letters: The IRS sends notices and letters for the following reasons:

• You have a balance due.
• You are due a larger or smaller refund.
• We have a question about your tax return.
• We need to verify your identity.
• We need additional information.
• We changed your return.
• We need to notify you of delays in processing your return.

Your notice or letter will explain the reason for the contact and give you instructions on how to handle the issue. If your notice or letter requires a response by a specific date, there are two main reasons you'll want to comply:

• To minimize additional interest and penalty charges.
• To preserve your appeal rights if you don't agree.

Read the Notice Carefully

Most IRS letters and notices are about federal tax returns or tax accounts. Each notice or letter deals with a specific issue and includes specific instructions on what to do and it is important that you read it carefully. A notice may reference changes to a taxpayer's account, taxes owed, a payment request or a specific issue on a tax return. Taking timely action could minimize additional interest and penalty charges as noted above. If a letter is about a changed or corrected tax return, the taxpayer should review the information and compare it with the original return. If the taxpayer agrees, they should make notes about the corrections on their personal copy of the tax return and keep it for their records.

When to Take Action

Typically, a taxpayer will only need to take action or contact the IRS if they don’t agree with the information, if the IRS requested additional information, or if they have a balance due. The IRS and authorized private debt collection agencies do send letters by mail. Most of the time, all the taxpayer needs to do is read the letter carefully and take the appropriate action or submit a payment. There is generally no need to reply to a notice or call the IRS unless specifically told to do so.

If a taxpayer does need to call the IRS, they should use the number in the upper right-hand corner of the notice and have a copy of their tax return and letter.

Taxpayers should keep notices or letters they receive from the IRS. These include adjustment notices when an action is taken on the taxpayer's account. Taxpayers should keep records for three years from the date they filed the tax return.

Watch Out for Scams

IRS notices and letters are sent by mail. The IRS does not correspond by email, phone, or social media about taxpayer accounts or tax returns. You can find the notice (CP) or letter (LTR) number on either the top or the bottom right-hand corner of your correspondence. If you search the IRS website for your notice or letter and it doesn't return a result - or you believe the notice or letter looks suspicious report it on the Report Phishing page on IRS.gov. Taxpayers who are unsure whether they owe money to the IRS can view their tax account information on IRS.gov.

Help is Just a Phone Call Away

Receiving mail from the IRS is usually not a cause for panic, but it should not be ignored either. If you have any questions or concerns about an IRS letter or notice that you've received, don't hesitate to contact the office.

Understanding Marginal vs. Effective Tax Rates

Understanding marginal and effective tax rates is important for tax planning purposes; however, many taxpayers don't fully understand the differences. Let's take a closer look:

Marginal Tax Rate

The United States has a progressive tax system. The more money you earn, the higher your tax rate is and the more taxes you pay to the IRS. In 2022, there are seven tax brackets ranging from 10% to 37%. If you earn $35,000 a year as a single filer, you are in the 12% tax bracket. If you make $550,000 a year as a single filer, you are in the 37% tax bracket. These brackets represent the percentage of taxes you pay based on your taxable income and are referred to as marginal tax rates. When someone says they are in the 35% tax bracket, this is typically what they are referring to - and this is where the confusion begins.

For many taxpayers, their income is the same as their earnings from wages; however, taxpayers should note that income from capital gains may be taxed differently. Short-term capital gains are generally taxed as ordinary income subject to the seven tax brackets mentioned above. Long-term capital gains, however, are taxed at 0%, 15%, and 20%.

Due to the way the tax code is set up and because marginal tax rates apply to each additional level of income above your tax bracket's income limit, it is not as straightforward as it seems. If you earn $100,000 and are in the 24% tax bracket, it doesn't mean that you pay a 24% tax on your earned income (0.24 x $100,000 = $24,000). To illustrate how this works, let's look at the following example for a single taxpayer earning $100,000 of annual income in 2022 (i.e., filing a tax return in April 2023). The amount of tax owed breaks down as follows:

• • 10% Bracket: ($10,275 - $0) x 10% = $1027.50
  • 12% Bracket: ($41,775 - $10,275) x 12% = $3,780.00
  • 22% Bracket: ($89,075 - $41,775) x 22% = $10,406.00
  • 24% Bracket: ($100,000 - $89,075) x 24% = $2,622.00

Total tax = $17,835.50 In the example above, the marginal tax rate (tax bracket) on $100,000 of income is 24%, but the effective tax rate is closer to 18% ($17,835.50/$100,000) - without taking any deduction that reduce taxable income.

Effective Tax Rate

The effective tax rate is the actual amount of federal income taxes paid on a taxpayer's taxable income and more accurately represents the amount of tax most people pay. The effective tax rate does not include state taxes and local taxes, FICA taxes, or self-employment tax. Many taxpayers take advantage of tax credits and deductions that reduce taxable income, such as the standard deduction, tax-deductible contributions to a retirement or pension plan, health savings account, tax credits for dependent children, and charitable contributions. Calculating your effective tax rate is relatively simple: Divide your total tax liability by your gross (before tax) annual income. For example, if you made $100,000 (single filer), took the standard deduction of $12,950 in 2022, reducing your income to $87,050, and paid $14,768.00 in tax, the effective tax rate is closer to 15 percent even though you are in the "24%" tax bracket.

Questions?

If you feel like too much of your hard-earned money goes straight to the IRS instead of your bank account, please call the office to learn more about tax planning strategies that could save you money.

Cash Management Tips for Small Businesses

Cash flow is the lifeblood of every small business but many business owners underestimate just how vital managing cash flow is to their business's success. In fact, a healthy cash flow is more important than your business's ability to deliver its goods and services. While that might seem counterintuitive, consider this: if you fail to satisfy a customer and lose that customer's business, you can always work harder to please the next customer. If you fail to have enough cash to pay your suppliers, creditors, or employees, you are out of business.

What is Cash Flow?

Cash flow, simply defined, is the movement of money in and out of your business; these movements are called inflow and outflow. Inflows for your business primarily come from the sale of goods or services to your customers but keep in mind that inflow only occurs when you make a cash sale or collect on receivables. It is the cash that counts! Other examples of cash inflows are borrowed funds, income derived from sales of assets, and investment income from interest. Outflows for your business are generally the result of paying expenses. Examples of cash outflows include paying employee wages, purchasing inventory or raw materials, purchasing fixed assets, operating costs, paying back loans, and paying taxes.

A tax and accounting professional is the best person to help you learn how your cash flow statement works. He or she can prepare your cash flow statement and explain where the numbers come from. If you need help, don't hesitate to call.

Cash Flow versus Profit

While they might seem similar, profit and cash flow are two entirely different concepts, each with entirely different results. The concept of profit is somewhat broad and only looks at income and expenses over a certain period, say a fiscal quarter. Profit is a useful figure for calculating your taxes and reporting to the IRS. Cash flow, on the other hand, is a more dynamic tool focusing on the day-to-day operations of a business owner. It is concerned with the movement of money in and out of a business. But more important, it is concerned with the times at which the movement of the money takes place. In theory, even profitable companies can go bankrupt. It would take a lot of negligence and total disregard for cash flow, but it is possible. Consider how the difference between profit and cash flow relate to your business.

Example: If your retail business bought a $1,000 item and turned around to sell it for $2,000, then you have made a $1,000 profit. But what if the buyer of the item is slow to pay his or her bill, and six months pass before you collect on the account? Your retail business may still show a profit, but what about the bills it has to pay during that six-month period? You may not have the cash to pay the bills despite the profits you earned on the sale. Furthermore, this cash flow gap may cause you to miss other profit opportunities, damage your credit rating, and force you to take out loans and create debt. If this mistake is repeated enough times, you may go bankrupt.

Analyzing your Cash Flow

The sooner you learn how to manage your cash flow, the better your chances of survival. Furthermore, you will be able to protect your company's short-term reputation as well as position it for long-term success. The first step toward taking control of your company's cash flow is to analyze the components that affect the timing of your cash inflows and outflows. A thorough analysis of these components will reveal problem areas that lead to cash flow gaps in your business. Narrowing, or even closing, these gaps is the key to cash flow management. Some of the most important components to examine are:

• Accounts receivable. Accounts receivable represent sales that have not yet been collected in the form of cash. An accounts receivable balance sheet is created when you sell something to a customer in return for his or her promise to pay at a later date. The longer it takes for your customers to pay on their accounts, the more negative the effect on your cash flow.
• Credit terms. Credit terms are the time limits you set for your customers' promise to pay for their purchases. Credit terms affect the timing of your cash inflows. A simple way to improve cash flow is to get customers to pay their bills more quickly.
• Credit policy. A credit policy is the blueprint you use when deciding to extend credit to a customer. The correct credit policy - neither too strict nor too generous - is crucial for a healthy cash flow.
• Inventory. Inventory describes the extra merchandise or supplies your business keeps on hand to meet the demands of customers. An excessive amount of inventory hurts your cash flow by using up money that could be used for other cash outflows. Too many business owners buy inventory based on hopes and dreams instead of what they can realistically sell. Keep your inventory as low as possible.
• Accounts payable and cash flow. Accounts payable are amounts you owe to your suppliers that are payable at some point in the near future - "near" meaning 30 to 90 days. Without payables and trade credit, you'd have to pay for all goods and services at the time you purchase them. For optimum cash flow management, examine your payables schedule.

Some cash flow gaps are created intentionally. For example, a business may purchase extra inventory to take advantage of quantity discounts, accelerate cash outflows to take advantage of significant trade discounts or spend extra cash to expand its line of business. For other businesses, cash flow gaps are unavoidable. Take, for example, a company that experiences seasonal fluctuations in its line of business. This business may normally have cash flow gaps during its slow season and then later fill the gaps with cash surpluses from the peak part of its season. Cash flow gaps are often filled by external financing sources. Revolving lines of credit, bank loans, and trade credit are just a few of the external financing options available that you may want to discuss with us. Monitoring and managing your cash flow is important for the vitality of your business. The first signs of financial woe appear in your cash flow statement, giving you time to recognize a forthcoming problem and plan a strategy to deal with it. Furthermore, with periodic cash flow analysis, you can head off those unpleasant financial glitches by recognizing which aspects of your business have the potential to cause cash flow gaps.

Need Help?

Without adequate funds to cover day-to-day expenses, your business could fail. Why take that chance? If you need help analyzing and managing your cash flow more effectively, please call and speak to a tax professional who can help.

Use These Strategies To Pass on Wealth to Heirs

Individuals with significant assets should take advantage of proven tax strategies such as gifting and direct payments to educational institutions to transfer wealth to heirs tax-free and minimize estate taxes. Rising inflation, a volatile stock market, and relatively low interest rates also provide additional opportunities. Let's take a look at some of them:

Gifting

The annual gift tax exclusion provides a simple, effective way of cutting estate taxes and shifting income to heirs. For example, in 2022, you can make annual gifts of up to $16,000 ($32,000 for a married couple) to as many donees as you desire. The $16,000 is excluded from the federal gift tax so that you will not incur gift tax liability. Furthermore, each $16,000 you give away during your lifetime reduces your estate for federal estate tax purposes. However, any amounts above this limit will reduce an individual's federal lifetime exemption and require filing a gift tax return.

Direct Payments

Direct payments for medical or educational purposes indirectly shift income to heirs; however, it only works if the payments are made directly to the qualifying educational institution or medical provider. This strategy allows you to give more than the annual gifting limit of $16,000 per donee. For example, if you're a grandparent, you can pay tuition directly to your grandchild's boarding school, college, or university. Room and board, books, supplies, or other nontuition expenses are not covered. Similarly, they can make direct payments to a hospital or medical provider. Medical expenses reimbursed by insurance are not covered, however.

Loans to Family Members

This strategy works by loaning cash to family members at low interest rates, which is then invested with the goal of reaping significant profits down the road. With mid and long-term applicable federal rates (AFR) rates for October 2022, as low as 3.28 and 3.43 percent, respectively, heirs can lock in these rates for many years - three to nine years (mid-term) and nine to more than 20 years (long-term).

Grantor Retained Annuity Trust (GRAT)

Another relatively low-risk strategy is the grantor retained annuity trust (GRAT), where the donor transfers assets to an irrevocable trust and receives an annuity payment back from the trust each year. This strategy enables heirs to profit from their investments long-term if returns are higher than the IRS interest rate. Now that IRS interest rates are so low, this is easier than ever to do. In October 2022, the interest rate used to value certain charitable interests in trusts such as the GRAT is 4.00 percent.

Roth IRA Conversions

Contributions to a traditional IRA are made pre-tax, which means distributions are considered taxable income; however, the tax is paid upfront with a Roth IRA, and distributions are completely exempt from income tax. This feature makes converting a traditional IRA to Roth IRA and rolling it over to an heir an attractive option, especially during a financial crisis. The conversion is treated as a rollover where the trustee of the traditional IRA is directed to transfer an amount from the traditional IRA to the trustee of the Roth IRA. The account owner pays income tax on the amount rolled over in the year the account is converted, which allows the account to accumulate assets tax-free and future distributions are tax-free. To learn more about these and other tax strategies related to wealth management, please call the office and speak to a tax professional who can assist you.

Lending Money to a Friend? It Pays To Plan Ahead

Lending money to a cash-strapped friend or family member is a noble and generous offer that just might make a difference. But before you hand over the cash, you need to plan ahead to avoid tax complications for yourself down the road. Take a look at this example: Let's say you decide to loan $15,000 to your daughter who's been out of work for over a year and is having difficulty keeping up with the mortgage payments on her condo. While you may be tempted to charge an interest rate of zero percent, you should resist the temptation. Here's why: When you make an interest-free loan to someone, you will be subject to "below-market interest rules." IRS rules state that you need to calculate imaginary interest payments from the borrower. These imaginary interest payments are then payable to you, and you will need to pay taxes on these interest payments when you file a tax return. To complicate matters further, if the imaginary interest payments exceed $16,000 for the year, there may be adverse gift and estate tax consequences.

Exception: The IRS lets you ignore the rules for small loans ($10,000 or less), as long as the aggregate loan amounts to a single borrower are less than $10,000, and the borrower doesn't use the loan proceeds to buy or carry income-producing assets.

As was mentioned above, if you don't charge any interest, or charge interest that is below market rate (more on this below), then the IRS might consider your loan a gift, especially if there is no formal documentation (i.e. written agreement with payment schedule), and you go to make a nonbusiness bad debt deduction if the borrower defaults on the loan or the IRS decides to audit you and decides your loan is really a gift. Formal documentation generally refers to a written promissory note that includes the interest rate, a repayment schedule showing dates and amounts for all principal and interest, and security or collateral for the loan, such as a residence (see below). Make sure that all parties sign the note so that it's legally binding. As long as you charge an interest rate that is at least equal to the applicable federal rate (AFR) approved by the Internal Revenue Service, you can avoid tax complications and unfavorable tax consequences. AFRs for term loans that is, loans with a defined repayment schedule, are updated monthly by the IRS and published in the IRS Bulletin. AFRs are based on the bond market, which changes frequently. For term loans, use the AFR published in the same month that you make the loan. The AFR is a fixed rate for the duration of the loan. Any interest income that you make from the term loan is included on your Form 1040. In general, the borrower, who in this example is your daughter, cannot deduct interest paid, but there is one exception: if the loan is secured by her home, then the interest can be deducted as qualified residence interest--as long as the promissory note for the loan was secured by the residence. If you have any questions about the tax implications of loaning a friend or family member money, don't hesitate to call.

Business-related Travel Deductions

Business travel deductions are available when employees travel away from their tax home or principal place of work for business reasons. With inflation on the rise, business travel is more costly than ever. Hotel bills, airfare or train tickets, cab fares, and public transportation can all add up fast. The good news is that business travelers may be able to off-set some of those costs by claiming business travel deductions when they file their taxes. Let's take a look at a few details that every business traveler should know about:

1. The travel period must be substantially longer than an ordinary day's work and a need for sleep or rest to meet the demands of the work while away.
2. Travel expenses must be ordinary and necessary. They can't be lavish, extravagant, or for personal purposes.
3. Employers can deduct travel expenses (see below) paid or incurred during a temporary work assignment if the assignment length does not exceed one year.
4. Travel expenses for conventions are deductible if attendance benefits your trade or business (you can't deduct the travel expenses for your family). You can't deduct the expenses if the convention is for investment, political, social, or other purposes unrelated to your trade or business. There are special rules for conventions held outside North America.

Deductible travel expenses while away from home include the costs of:

• Travel by airplane, train, bus, or car between your home and your business destination.
• Fares for taxis or other types of transportation between an airport or train station to a hotel, from a hotel to a work location.
• Shipping of baggage and sample or display material between regular and temporary work locations.
• Using a personally owned car for business, which can include an increase in mileage rates.
• Lodging and non-entertainment-related meals.
• Dry cleaning and laundry.
• Business calls and communication.
• Tips paid for services related to any of these expenses.
• Other similar ordinary and necessary expenses related to business travel.

Self-employed or farmers with travel deductions Self-employed individuals can deduct travel expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship). Farmers should use Schedule F (Form 1040), Profit or Loss From Farming. Travel deductions for the National Guard or military reserves National Guard or military reserve service members can claim a deduction for unreimbursed travel expenses paid during the performance of their duty. Recordkeeping Well-organized records make it easier to prepare a tax return and help provide answers if your return is selected for examination or if you receive an IRS notice. You must keep records, such as receipts, canceled checks, and other documents that support an item of income, a deduction, or a credit appearing on a return. Questions? If you have questions about business-related travel deductions, don't hesitate to call the office.

Tax Deductions for Homeowners

For many people buying a home - whether it's a fixer-upper in an up and coming neighborhood or that custom home you’ve always dreamed of - is a milestone event. While there is often a steep learning curve associated with buying and owning a home, there are also some perks - at least when it comes to taxes. The first thing taxpayers should understand is that when it comes to home ownership is how the IRS defines a home as: a house, condominium, cooperative apartment, mobile home, houseboat or house trailer that contains a sleeping space, toilet and cooking facilities. It's important to note that even if you own several homes, an individual has only one main home at a time. Generally, people own and live in just one home. If so, then that property is your main home. Most home buyers take out a mortgage loan to buy their home and then make monthly payments to the mortgage holder. This payment may include several costs of owning a home. The only costs the homeowner can deduct are:

• State and local real estate taxes (SALT) - subject to the $10,000 limit
• Home mortgage interest - within the allowed limits
• Mortgage insurance premiums

Taxpayers must file Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Income Tax Return for Seniors, and itemize their deductions to deduct home ownership expenses. Taxpayers cannot, however, take the standard deduction if they itemize. Non-deductible Payments and Expenses Homeowners can't deduct any of the following items:

• Insurance, other than mortgage insurance, including fire and comprehensive coverage, and title insurance
• The amount applied to reduce the principal of the mortgage
• Wages you pay for domestic help
• Depreciation
• The cost of utilities, such as gas, electricity, or water
• Most settlement or closing costs
• Forfeited deposits, down payments, or earnest money
• Internet or Wi-Fi system or service
• Homeowners' association fees, condominium association fees, or common charges
• Home repairs

Mortgage Interest Credit The mortgage interest credit is meant to help individuals with lower income afford home ownership. Those who qualify can claim the credit each year for part of the home mortgage interest paid. A homeowner may be eligible for the credit if they were issued a qualified Mortgage Credit Certificate (MCC) from their state or local government. An MCC is issued only for a new mortgage for the purchase of a main home. The MCC will show the certificate credit rate the homeowner will use to figure their credit. It will also show the certified indebtedness amount and only the interest on that amount qualifies for the credit. Homeowners Assistance Fund The Homeowners Assistance Fund program provides financial assistance to eligible homeowners for paying certain expenses related to their principal residence to prevent mortgage delinquencies, defaults, foreclosures, loss of utilities or home energy services, and also displacements of homeowners experiencing financial hardship after January 21, 2020. Minister's or Military Housing Allowance Ministers and members of the uniformed services who receive a nontaxable housing allowance can still deduct their real estate taxes and home mortgage interest. They don't have to reduce their deductions based on the allowance. As always, please contact the office if you have any questions about this important tax topic. Help is just a phone call away.

Closing a Business for Good

If you're a small business owner who is thinking about closing your business for good, you should be aware that there is more to closing a business than laying off employees, selling office furniture, and closing the doors - you must also take certain actions as required by the IRS to fulfill your tax obligations. For example, if you have employees, you must file final employment tax returns as well as make final federal tax deposits of these taxes. You must also file an annual tax return for the year you go out of business. You also need to attach a statement to your return listing the name and address of the person that keeps the payroll records (this could be you or another person). If you are disposing of business property, exchanging like-kind property, and/or changing the form of your business, you must file a return to report these actions. Depending on your type of business structure, you may need to take the some or all of the following steps:

• File final federal tax deposits
• File final quarterly or annual employment tax form (Forms 94x)
• Issue final wage and withholding information to employees (Form W-2, Wage and Tax Statement
• Report information from W-2s issued (Form W-3, Transmittal of Income and Tax Statements)
• File final tip income and allocated tips information return (Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips)
• Report capital gains or losses
• Report partner's/shareholder's shares (Schedules K-1)
• File final employee pension/benefit plan
• Issue payment information to sub-contractors (Form 1099-MISC, Miscellaneous Income)
• Report information from 1099s issued Form 1096, Annual Summary and Transmittal of U.S. Information Returns)
• Report corporate dissolution or liquidation
• Consider allowing S corporation election to terminate
• Report business asset sales
• Report the sale or exchange of property used in your trade or business.

If you find yourself in the difficult position of having to close your business and have more questions than answers, help is just a phone call away.

Federal Tax Obligations During Chapter 13 Bankruptcy

The most common type of bankruptcy for individuals is Chapter 13, which allows individuals and small business owners in financial difficulty to repay their creditors. Often, it is a last resort for wage earners (individuals and those filing jointly as spouses), the self-employed and sole proprietor businesses to get out of their debts. While the overall bankruptcy rate has been dropping in recent years, Chapter 13 appears to be increasing, according to the US Courts. If you're considering filing for Chapter 13, here's what you should know about federal tax obligations: First, taxpayers must file all required tax returns for tax periods ending within four years of their bankruptcy filing. During a bankruptcy taxpayers must continue to file, or get an extension of time to file, all required returns. Failure to file returns and pay current taxes during a bankruptcy may result in a case being dismissed, converted to a liquidating bankruptcy chapter 7, or the chapter 13 plan may not be confirmed. Furthermore, during a bankruptcy case taxpayers should pay all current taxes as they come due. What Else You Should Know If one of the reasons a taxpayer is filing bankruptcy is overdue federal tax debts, they may need to increase their withholding or their estimated tax payments. The Tax Withholding Estimator can help people determine the proper withholding. The IRS.gov Estimated Taxes page has more information on estimated taxes. If the IRS is listed as a creditor in their bankruptcy, the IRS will receive electronic notice about their case from the U.S. Bankruptcy Courts. People can check by calling the IRS' Centralized Insolvency Operation at 800-973-0424 and giving them the bankruptcy case number. People can still receive tax refunds while in bankruptcy. However, refunds may be subject to delay or used to pay down their tax debts. Taxpayers can see if their refund has been delayed or offset against their tax debts by going to the Where's My Refund tool or by contacting the Centralized Insolvency Operations Unit. Other Types of Bankruptcy Partnerships and corporations file bankruptcy under Chapter 7 or Chapter 11 of the bankruptcy code. Individuals may also file under Chapter 7 or Chapter 11. Other types of bankruptcy include Chapters 9, 12 and 15. Cases under these chapters of the bankruptcy code involve municipalities, family farmers and fisherman, and international cases. Please call if you have any questions about federal filing obligations and Chapter 13 bankruptcy.

Early Withdrawals from Retirement Plans

Many people find themselves in situations where they need to withdraw money from their retirement plan earlier than planned. Doing so, however, can trigger an additional tax on top of any income tax taxpayers may have to pay. Here are five things taxpayers should know about early withdrawals from retirement plans: 1. Early Withdrawal. An early withdrawal normally is taking cash out of a retirement plan before the taxpayer is 59 1/2 years old.2. Paying Additional Tax. If a taxpayer took an early withdrawal from a plan last year, they must report it to the IRS. They may have to pay income tax on the amount taken out. If it was an early withdrawal, they might have to pay an additional 10 percent tax.3. Nontaxable Withdrawals. The additional 10 percent tax does not apply to nontaxable withdrawals. These include withdrawals of contributions that taxpayers paid tax on before they put them into the plan. A rollover is a form of nontaxable withdrawal. A rollover occurs when people take cash or other assets from one plan and put the money in another plan. They normally have 60 days to complete a rollover to make it tax-free.4. Exceptions. There are many exceptions to the additional 10 percent tax. Some of the rules for retirement plans are different from the rules for IRAs.5. Form 5329. If someone took an early withdrawal last year, they may have to file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their federal tax return.Please call if you have any questions about early withdrawals or filing Form 5329.

Dealing with Payments and Deposits in QuickBooks

If you're still doing your accounting manually, depositing checks and cash that come in from customers takes a lot of work. You probably wait until you have several payments to deposit to minimize your trips to the bank. When you're ready, you have to fill out a deposit slip and calculate a total, though you've probably already recorded the transactions elsewhere in your bookkeeping system. You must store the transaction receipt from the bank in a safe place, probably in a folder with your documentation from the deposit. QuickBooks simplifies the process of recording deposits. If you're using QuickBooks Payments, deposits get processed automatically. If you're not, you can use QuickBooks tools that help you prepare deposits by selecting payments you've already recorded and getting them ready to present to the bank. This is another example of how the software helps you avoid doing unnecessary, tedious bookkeeping chores. Here's how it works:

How Do You Record a Payment In QuickBooks?

When you receive cash or a check from a customer, QuickBooks allows you to record it in the Receive Payments window. You can select the customer and enter the amount in the fields provided. You can also select the type of payment (cash, check, credit/debit card, or e-check). If the customer has outstanding invoices, you'll see them listed at the bottom of the window. Double-check your work and save the transaction.

You can add or delete payment methods so you'll only see the ones you offer. Open the Lists menu and click Customer & Vendor Profile Lists | Payment Method List. Open the Payment Method menu in the lower right to add a new one or edit or delete existing ones.

Figure 1: You can record customer payments in this QuickBooks window.

Where Do the Payments Go?

Unless you have instructed QuickBooks to do otherwise, payments you record in the software automatically go in an account called Undeposited Funds, where they remain until you deposit them.

There is a way to specify a different account for your payments. You can also set up QuickBooks so you're able to choose a different account for individual transactions. We don't recommend that you try this on your own. Let us explain how to do it and how QuickBooks will be affected.

To see your Undeposited Funds account, click the Chart of Accounts icon on the home page or open the Company menu and select Chart of Accounts. Scroll down a bit until you see Undeposited Funds. Double click it to see all of the transactions contained there, but don't alter them. This account is just a holding place for transactions in transition.

How Do You Process a Deposit?

When you're ready to take cash and checks to the bank and you have your deposit slip ready, click Record Deposits on the home page. A window like this will open: Figure 2: You'll select the payments you want to deposit in this window. Make any changes you want to the options under Select View at the top of the window, and click in front of any payments you want to include in the deposit to create checkmarks. Compare the Payment Subtotal to your deposit slip to make sure they match. When you're satisfied, click OK.In the upper left corner of the Make Deposits window that opens, make sure the Deposit To window is showing the account where the funds should go and that the Date of deposit is correct. Add a Memo if you'd like. If you want to receive cash back, select the destination account and enter the amount in the lower left corner of the window. When everything is correct, save the deposit. Your account register will now reflect this transaction.

A quick way to look at an account register is to open the Banking menu and select Use Register. Choose the account in the window that opens.

Help Is Just a Phone Call Away

Deposits are another QuickBooks feature that looks deceptively simple. That is, the mechanics aren't complicated, but you definitely don’t want to be making any mistakes here. If you need assistance, please call. It's a lot easier to learn how to use this tool up front than to go in and try to untangle errors.

A Warning from Intuit: In case you missed the email, Intuit sent out warnings to users about a recent increase in phishing scams. Hackers who want to steal your information send very official-looking emails (logo and everything) that imply they're from Intuit. They suggest there might be a problem with your account and ask you to click a link to verify/supply some personal information. The company does not send emails like this. We recommend you never click a link in an email unless you know it's coming and it's from a trusted source.

Tax Due Dates for October 2022

October 11

Employees who work for tips - If you received $20 or more in tips during September, report them to your employer. You can use Form 4070.

October 17

Individuals - If you have an automatic 6-month extension to file your income tax return for 2021, file Form 1040 and pay any tax, interest, and penalties due. Corporations - File a 2021 calendar year income tax return (Form 1120) and pay any tax, interest, and penalties due. This due date applies only if you timely requested an automatic 6-month extension. Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in September. Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in September.

October 31

Employers - Social Security, Medicare, and withheld income tax. File form 941 for the third quarter of 2022. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until November 10 to file the return. Certain Small Employers - Deposit any undeposited tax if your tax liability is $2,500 or more for 2022 but less than $2,500 for the third quarter. Employers - Federal Unemployment Tax. Deposit the tax owed through October if more than $500.

September 2022 Feature Articles Key Tax Provisions of the Inflation Reduction Act of 2022 Small Employer Health Reimbursement Arrangements Retirement Plan Options for Small Businesses Avoiding Tax Surprises When Retiring Overseas Homeowner Records: What to Keep and How Long Tax Tips Extension Deadline Looming for 2021 Tax Returns Tips To Help You Figure Out if Your Gift Is Taxable What To Know About IRS Online Accounts Filing Payroll Taxes Electronically Using E-file Penalty Relief for Certain 2019 and 2020 Tax Returns< QuickBooks Tips How to Use QuickBooks' Doc Center

Key Tax Provisions of the Inflation Reduction Act of 2022

The Inflation Reduction Act (IRA), signed into law on August 16, 2022, includes tax provisions affecting businesses, individuals, the clean-energy industry, healthcare, and more. Let's take a look:

Businesses

Sec. 461(l) Business Loss Limitation. The pass-through tax deduction for small business owners (sole proprietorships, some limited liability companies, partnerships, and S-corporations) was enacted under tax reform (TCJA of 2017). The tax break limited individuals from taking more than $250,000 ($500,000 for married taxpayers filing jointly) of business losses to offset nonbusiness income. In effect for tax years 2021 through 2026, it has been extended through 2028. Research Credit Against Payroll Taxes. For tax years beginning after December 31, 2022, the limitation amount increases by $250,000 to $500,000 for the Sec. 41(h) research credit against payroll tax for small businesses . The first $250,000 of the credit limitation will be applied against the FICA payroll tax liability. The second $250,000 of the limitation will be applied against the employer portion of Medicare payroll tax liability. Alternative Minimum Tax for Large Corporations. The corporate AMT repealed under tax reform in 2017 has been reinstated but is based on book income - the amount of income corporations publicly report on their financial statements to shareholders - instead of taxable income. Generally, this new corporate AMT of 15% applies only to large corporations with an average adjusted financial statement income exceeding $1 billion for the three consecutive tax years preceeding the tax year. Nondeductible 1% Excise Tax on Corporate Stock Repurchases. A new 1% excise tax applies to corporate stock repurchases after December 31, 2022. The tax is paid on the stock's fair market value (FMV); however, the excise tax does not apply if the total value of stock repurchased during a tax year is $1 million or less. Furthermore, it also does not apply if repurchased stock is contributed to an employer-sponsored retirement plan, employee stock ownership plan, or for stock repurchases that are part of a reorganization in which the shareholder recognizes no gain or loss.

Healthcare

Affordable Care Act Premium Tax Credits. The premium tax credit is extended through 2025 for taxpayers whose household income exceeds 400% of the poverty line.

IRS Funding

Approximately $80 billion is allocated to fund IRS activities such as taxpayer services, enforcement against tax evasion by high earners and corporations, operations, and modernization of IRS business systems. The IRS has stated that it does not intend to use this increased funding to "increase audit scrutiny on small businesses or middle-income Americans."

Clean Energy

Clean Vehicle Tax Credits. The clean vehicle tax credit was extended through 2032, in addition to a new credit for previously owned clean vehicles. However, for new clean vehicles purchased after August 16, 2022, the tax credit is generally available only if the qualifying vehicle's final assembly occurred in North America (the "final assembly requirement"). To determine whether the vehicle meets the final assembly requirement, taxpayers should enter the vehicle's 17-character vehicle identification number (VIN) into the National Highway Traffic Safety Administration's VIN Decoder tool. They can view the "Plant Information" field identifying where the vehicle was built.

Buyers who entered into a written, binding contract to purchase a qualifying clean vehicle before August 16, 2022, - but did not take possession of the vehicle until on or after that date - should abide by pre-existing rules in effect before August 16, 2022.

Clean Energy Credits for Individuals. Renamed the energy-efficient home improvement credit, the nonbusiness energy property credit is extended through 2032. It is now equal to 30% of the sum of the amount paid or incurred by the taxpayer for energy-efficient improvements installed during the tax year, the amount of residential energy property expenditures paid or incurred by the taxpayer during the tax year, and the amount paid by the taxpayer for home energy audits.

In prior years, the credit was equal to 10% of the amount paid or incurred for qualified energy-efficiency improvements plus the amount of residential energy property expenditures paid or incurred by the taxpayer during the tax year.

Also renamed (the residential clean energy credit) and extended (through 2034) is the Sec. 25D residential energy-efficient property credit. Furthermore, the new energy-efficient home credit under Sec. 45L has increased dwelling units acquired after December 31, 2022, and the credit extended through 2032. Clean Energy Credits for Manufacturing. Several new credits have been created: Sec. 45Y to encourage clean electricity production at qualified facilities placed in service after December 31, 2024, with zero greenhouse gas emissions; Sec 45X for US production of photovoltaic cells and solar and wind components. In addition, starting January 1, 2023, the Section 48C Manufacturers' Tax Credit is expanded to provide $10 billion in tax credits. The tax credit is 30 percent of the amount invested in new or upgraded factories to build specified renewable energy components. Energy Credits for Businesses. Several energy credits for business have been created, extended, or modified in the Inflation Reduction Act, including a new sustainable aviation fuel credit, the Sec 48 energy credit (extended through 2024 and modified to increase the energy credit for qualified solar and wind facilities placed in service in connection with low-income communities), the Sec. 45 credit for electricity produced from renewable sources such as geothermal, solar, and wind facilities (extended through 2024 and modified), the Sec. 40A biodiesel and renewable fuel credit, and several alternative fuel credits (extended through 2024).

Help is Just a Phone Call Away

As always, tax law is complex, and it pays to speak with a qualified tax and accounting professional. Don't hesitate to contact the office if you have any questions about the Inflation Reduction Act and your tax situation.

Small Employer Health Reimbursement Arrangements

Small employer HRAs or QSEHRAs (Qualified Small Employer Health Reimbursement Arrangements) allow small businesses without group health plans to set aside money, tax-free, for employees to use toward medical expenses - including the cost of buying health insurance. Here's what small business owners need to know about QSEHRAs.

Background

Included in the 21st Century Cures Act enacted by Congress on December 13, 2016, was a provision for QSEHRAs, which permit an eligible employer to provide a qualified small employer health reimbursement arrangement (QSEHRA), which is not a group health plan and thus is not subject to the requirements that apply to group health plans. QSEHRAs must meet several criteria such as:

• The arrangement is funded solely by an eligible employer, and no salary reduction contributions may be made under the arrangement;
• The arrangement generally is provided on the same terms to all eligible employees of the employer;
• The arrangement provides, after the employee provides proof of coverage, for the payment or reimbursement of medical expenses incurred by the employee or the employee's family members; and
• The amount of the payments and reimbursements for any year do not exceed inflation-adjusted amounts for payments and reimbursements of expenses. For 2022, the maximum dollar amount for employee-only arrangements is $5,450. The maximum dollar amount for arrangements that provide for payments and reimbursements for expenses of family members is $11,050.

Which Employers Qualify?

Any small employer from a startup to a nonprofit that doesn't offer a group health plan is able to set up a QSEHRA as long as they meet certain rules (see below). Small employers are defined as an employer that is not an applicable large employer (ALE). An applicable large employer is defined as one that employs more than 50 full-time workers, including full-time equivalent employees, on average.

If a small employer currently offers a group health plan but wants to set up a QSEHRA, the group health plan must be canceled before the QSEHRA will start.

Are There Any Other Rules?

Yes. One of the most important rules is that in order for employees to participate in a QSEHRA, they must have health insurance that meets minimum essential coverage. That is, indemnity, short-term health insurance, and faith-based insurance plans (e.g., Liberty HealthShare) do not qualify. Health insurance plans purchased through the Marketplace meet this qualification. Employers may choose whether to reimburse employees for both medical expenses and health insurance premiums or just premiums. Furthermore, while there are no minimum monthly contribution limits, there is an annual maximum contribution limit. For 2022, the limit is $454.16 per month for individuals and $920.83 per month for families.

QSEHRAs are funded entirely by the employer. As such, employees are prohibited from making contributions.

Written Notice to Employees

Eligible employers are required to provide written notice to eligible employees at least 90 days before the beginning of a year for which the QSEHRA is provided. In the case of an employee who is not eligible to participate in the arrangement as of the beginning of the year, the written notice must be furnished on the date on which the employee is first eligible. The written notice must include:

1. A statement of the amount that would be the eligible employee's permitted benefit under the arrangement for the year;
2. A statement that the eligible employee should provide that permitted benefit amount to any health insurance exchange to which the employee applies for advance payments of the premium tax credit; and
3. A statement that if the eligible employee is not covered under minimum essential coverage for any month, the employee may be liable for an individual shared responsibility payment (eliminated for tax years starting in 2019) for that month and reimbursements under the arrangement may be includible in gross income.

Questions About QSEHRAs?

If you have any questions about QSEHRAs or are wondering whether your small business would benefit from a QSEHRA, don't hesitate to call.

Retirement Plan Options for Small Businesses

According to the US Small Business Administration, small businesses employ half of all private-sector employees in the United States. However, a majority of small businesses do not offer their workers retirement savings benefits. If you're like many other small business owners in the United States, you may be considering the various retirement plan options available for your company. Employer-sponsored retirement plans have become a key component of retirement savings. They are also an increasingly important tool for attracting and retaining the high-quality employees you need to compete in today's competitive environment. Besides helping employees save for the future, however, instituting a retirement plan can provide you, as the employer, with benefits that enable you to make the most of your business's assets. Such benefits include:

• Tax-deferred growth on earnings within the plan
• Current tax savings on individual contributions to the plan
• Immediate tax deductions for employer contributions
• Easy to establish and maintain
• Low-cost benefit with a highly-perceived value by your employees

Types of Plans

Most private-sector retirement plans are either defined benefit plans or defined contribution plans. Defined benefit plans are designed to provide a desired retirement benefit for each participant. This type of plan can allow for a rapid accumulation of assets over a short period. The required contribution is actuarially determined each year, based on age, years of employment, the desired retirement benefit, and the value of plan assets. Contributions are generally required each year and can vary widely. On the other hand, a defined contribution plan does not promise a specific amount of benefit at retirement. In these plans, employees or their employer (or both) contribute to employees' individual accounts under the plan, sometimes at a set rate (such as 5 percent of salary annually). A 401(k) plan is one type of defined contribution plan. Other defined contribution plans include profit-sharing plans, money purchase plans, and employee stock ownership plans. Small businesses may choose to offer a defined benefit plan or any of these defined contribution plans. Many financial institutions and pension practitioners make available both defined benefit and defined contribution "prototype" plans that have been pre-approved by the IRS. When such a plan meets the requirements of the tax code, it is said to be qualified and will receive four significant tax benefits.

1. The income generated by the plan assets is not subject to income tax because the income is earned and managed within the framework of a tax-exempt trust.
2. An employer is entitled to a current tax deduction for contributions to the plan.
3. The plan participants (the employees or their beneficiaries) do not have to pay income tax on the amounts contributed on their behalf until the year the funds are distributed to them by the employer.
4. Under the right circumstances, beneficiaries of qualified plan distributors are afforded special tax treatment.

It is necessary to note that all retirement plans have important tax, business, and other implications for employers and employees. Therefore, you should discuss any retirement savings plan you consider implementing with your accountant or financial advisor. Here's a brief look at some plans that can help you and your employees save.

SIMPLE: Savings Incentive Match Plan

A SIMPLE IRA plan allows employees to contribute a percentage of their salary each paycheck and to have their employer match their contribution. Under SIMPLE IRA plans, employees can set aside up to $14,000 in 2022 by payroll deduction. If the employee is 50 or older, they may contribute an additional $3,000. Employers can either match employee contributions dollar for dollar - up to 3 percent of an employee's wage - or make a fixed contribution of two percent of pay for all eligible employees instead of a matching contribution. SIMPLE IRA plans are easy to set up by filling out a short form. Administrative costs are low, and much of the paperwork is done by the financial institution that handles the SIMPLE IRA plan accounts. Employers may choose to allow employees to select the IRA to which their contributions will be sent or send all employees' contributions to one financial institution. Employees are 100 percent vested in contributions, get to decide how and where the money will be invested, and keep their IRA accounts even when they change jobs.

October 1 deadline. You can set up a SIMPLE IRA plan effective on any date between January 1 and October 1 for 2022. If you're a new employer that came into existence after October 1 of the year, you can establish the SIMPLE IRA plan as soon as administratively feasible.

SEP: Simplified Employee Pension Plan

A SEP plan allows employers to set up a type of individual retirement account - known as a SEP IRA - for themselves and their employees. Employers must contribute a uniform percentage of pay for each employee. Employer contributions are limited to less than 25 percent of an employee's annual salary or $61,000 in 2022. Most employers can start SEP plans, including those that are self-employed. SEP plans have low start-up and operating costs and can be established using a single quarter-page form. Businesses are not locked into making contributions every year. You can decide how much to put into a SEP IRA each year - offering you some flexibility when business conditions vary.

401(k) Plans

401(k) plans have become a widely accepted savings vehicle for small businesses and allow employees to contribute a portion of their incomes toward their retirement. The employee contributions, not to exceed $20,500 in 2022, reduce a participant's pay before income taxes so that pretax dollars are invested. If the employee is 50 or older, they may contribute another $6,500 in 2022. Employers may offer to match a certain percentage of the employee's contribution, increasing participation in the plan. While more complex, 401(k)plans offer higher contribution limits than SIMPLE IRA plans and IRAs, allowing employees to accumulate greater savings.

Profit-Sharing Plans

Employers also may make profit-sharing contributions to plans that are unrelated to any amounts an employee chooses to contribute. Profit-sharing Plans are well suited for businesses with uncertain or fluctuating profits. In addition to the flexibility in deciding the amounts of the contributions, a Profit-Sharing Plan can include service requirements, vesting schedules, and plan loans that are not available under SEP plans. Contributions may range from 0 to 25 percent of eligible employees' compensation, to a maximum of $61,000 in 2022. The contribution in any one year cannot exceed 25 percent of the total compensation of the employees participating in the plan. Contributions need not be the same percentage for all employees. Key employees may get as much as 25 percent, while others may get as little as three percent. A plan may combine these profit-sharing contributions with 401(k) contributions (and matching contributions).

Seek Professional Guidance

The rules for setting up retirement plans are complex, and the tax aspects of retirement plans can also be confusing, so it is important to consult with a tax and accounting professional before deciding which plan is right for you and your employees.

Avoiding Tax Surprises When Retiring Overseas

Are you approaching retirement age and wondering where you can retire to make your retirement nest egg last longer? Retiring abroad may be the answer. But first, it's important to look at the tax implications because not all retirement country destinations are created equal.

Taxes on Worldwide Income

Leaving the United States does not exempt U.S. citizens from their U.S. tax obligations. While some retirees may not owe any U.S. income tax while living abroad, they must still file a return annually with the IRS. This would be the case even if all of their assets were moved to a foreign country. The bottom line is that you may still be taxed on income regardless of where it is earned. Unlike most countries, the United States taxes individuals based on citizenship and not residency. As such, every U.S. citizen (and resident alien) must file a tax return reporting worldwide income (including income from foreign trusts and foreign bank and securities accounts) in any given taxable year that exceeds threshold limits for filing. The filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the foreign earned income exclusion or the foreign tax credit, that substantially reduce or eliminate U.S. tax liability.

These tax benefits are not automatic and are only available if an eligible taxpayer files a U.S. income tax return.

Any income received or deductible expenses paid in foreign currency must be reported on a U.S. return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars. In addition, taxpayers who are retired may have to file tax forms in the foreign country in which they reside. You may, however, be able to take a tax credit or a deduction for income taxes you paid to a foreign country. These benefits can reduce your taxes if both countries tax the same income. Nonresident aliens who receive income from U.S. sources must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens is generally April 15.

FBAR Reporting

U.S. persons who own a foreign bank account, brokerage account, mutual fund, unit trust or another financial account are required to file a Report of Foreign Bank and Financial Accounts (FBAR) by April 15 if they have:

• Financial interest in, signature authority or other authority over one or more accounts in a foreign country, and
• The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.

A foreign country does not include territories and possessions of the United States such as Puerto Rico, Guam, United States Virgin Islands, American Samoa, or the Northern Mariana Islands.

Income from Social Security or Pensions

If Social Security is your only income, then your benefits may not be taxable, and you may not need to file a federal income tax return. If you receive Social Security you should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of your benefits. Likewise, if you have pension or annuity income, you should receive a Form 1099-R for each distribution plan. Retirement income is generally not taxed by other countries. As a U.S. citizen retiring abroad who receives Social Security, for instance, you may owe U.S. taxes on that income, but may not be liable for tax in the country where you're spending your retirement years. However, if you receive income from other sources (either U.S. or country of retirement) as well, from a part-time job or self-employment, for example, you may have to pay U.S. taxes on some of your benefits. Each country is different, and you may also be required to report and pay taxes on any income earned in the country where you retired.

Foreign Earned Income Exclusion

If you've retired overseas, but take on a full or part-time job or earn income from self-employment, the IRS allows qualifying individuals to exclude all, or part, of their incomes from U.S. income tax by using the Foreign Earned Income Exclusion (FEIE). In 2022, this amount is $112,000 per person. If two individuals are married, and both work abroad and meet either the bona fide residence test or the physical presence test, each one can choose the foreign earned income exclusion. Together, they can exclude as much as $224,000 for the 2022 tax year.

Income earned overseas is exempt from taxation only if certain criteria are met such as residing outside of the country for at least 330 days over a 12-month period, or an entire calendar year.

Tax Treaties

The United States has income tax treaties with a number of foreign countries, but these treaties generally don't exempt residents from their obligation to file a tax return. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate or are exempt from U.S. income taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income. Treaty provisions are generally reciprocal; that is they apply to both treaty countries. Therefore, a U.S. citizen or resident who receives income from a treaty country and who is subject to taxes imposed by foreign countries may be entitled to certain credits, deductions, exemptions, and reductions in the rate of taxes of those foreign countries.

State Taxes

Many states tax resident income as well, so even if you retire abroad, you may still owe state taxes unless you established residency in a no-tax state before you moved overseas. Some states honor the provisions of U.S. tax treaties; however, some states do not. Therefore it is prudent to consult a tax professional for advice.

Relinquishing U.S. Citizenship

Taxpayers who relinquish their U.S. citizenship or cease to be lawful permanent residents of the United States during any tax year must file a dual-status alien return and attach Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with Internal Revenue Service by the due date of the tax return (including extensions).

Giving up your U.S. citizenship doesn't mean giving up your right to receive social security, pensions, annuities or other retirement income. However, the U.S. Internal Revenue Code (IRC) requires the Social Security Administration (SSA) to withhold nonresident alien tax from certain Social Security monthly benefits. If you are a nonresident alien receiving social security retirement income, then SSA will withhold a 30 percent flat tax from 85 percent of those benefits unless you qualify for a tax treaty benefit. This results in a withholding of 25.5 percent of your monthly benefit amount.

Consult a Tax Professional Before You Retire

Don't wait until you're ready to retire to consult a tax professional. Call the office today and find out what your options are well in advance of your planned retirement date.

Homeowner Records: What to Keep and How Long

Keeping full and accurate homeowner records is not only vital for claiming deductions on your tax return, but also for determining the basis or adjusted basis of your home. These records include your purchase contract and settlement papers if you bought the property, or other objective evidence if you acquired it by gift, inheritance, or similar means. You should also keep any receipts, canceled checks, and similar evidence for improvements or other additions to the basis. Here are a few examples:

• Putting an addition on your home
• Replacing an entire roof
• Paving your driveway
• Installing central air conditioning
• Rewiring your home
• Assessments for local improvements
• Amounts spent to restore damaged property

In addition, you should keep track of any decreases to the basis such as:

• Insurance or other reimbursement for casualty losses
• Deductible casualty loss not covered by insurance
• Payment received for easement or right-of-way granted
• Value of subsidy for energy conservation measure excluded from income
• Depreciation deduction if home is used for business or rental purposes

How you keep records is up to you, but they must be clear and accurate and must be available to the IRS. You must also keep these records for as long as they are important for the federal tax law. Keep records that support an item of income or a deduction appearing on a return until the period of limitations for the return runs out. A period of limitations is the limited period of time after which no legal action can be brought. For assessment of tax, the period of limitations is generally three years from the date you filed the return. When filing a claim for credit or refund, the period of limitations is generally three years from the date you filed the original return or two years from the date you paid the tax, whichever is later. Returns filed before the due date are treated as filed on the due date. You may need to keep records relating to the basis of property longer than the period of limitations. For example, basis is needed to determine gain on home sale. Any gain on sale of a home is tax-exempt for amounts up to $250,000 ($500,000 for married couples). Basis is also important in figuring casualty loss, on conversion of the home to business use, or where there's a gift of the home (in this case, it is important to the donee). You should keep these records for as long as needed because they are important in figuring the basis of the property. Generally, this means for as long as you own the property and, after you dispose of it, for the period of limitations that applies to you. If you have any questions as to what items are to be considered in determining basis, don't hesitate to call.

Extension Deadline Looming for 2021 Tax Returns

Time is running short for taxpayers who requested an extra six months to file their 2021 tax return. As a reminder, Monday, October 17, 2022, is the extension deadline for most taxpayers. Taxpayers are encouraged to file a complete and accurate return electronically as early as possible once they have gathered all their information. There's no need to wait until the October deadline. For those still waiting on their 2020 tax return to be processed, here's a tip to help with e-filing a 2021 tax return: To validate and successfully submit an electronically filed tax return to the IRS, taxpayers need their Adjusted Gross Income, or AGI, from their most recent tax return. Those waiting on their 2020 tax return can still file their 2021 return by entering $0 for their 2020 AGI on their 2021 tax return. Remember, if using the same tax preparation software as last year, this field will auto-populate. For taxpayers who have not yet filed, here are a few things to keep in mind about the extension deadline and taxes: 1. Taxpayers can still e-file returns. Electronic filing is the easiest, safest, and most accurate way to file taxes. Taxpayers who haven't filed a 2021 tax return yet – including extension filers – can file electronically any time before the October deadline and avoid the last-minute rush to file. 2. Choose direct deposit. For taxpayers owed a refund, the fastest way to get it is to combine direct deposit and e-file. The IRS processes most e-filed returns and issues direct deposit refunds in less than three weeks. 3. Taxpayers who owe taxes should consider using IRS Direct Pay, a simple, quick, and free way to pay from a checking or savings account using a computer or mobile device. There are also other online payment options. Please call the office if you need details about other payment options. 4. Members of the military and those serving in a combat zone generally get more time to file. Military members typically have until at least 180 days after leaving a combat zone to file returns and pay any tax due. 5. Taxpayers should always keep a copy of tax returns for their records. Keeping copies of tax returns can help taxpayers prepare future tax returns or assist with amending a prior year's return.  

Tips To Help You Figure Out if Your Gift Is Taxable

If you've given money or property to someone as a gift, you may owe federal gift tax. Many gifts are not subject to the gift tax, but exceptions exist. Because gift tax laws can be confusing, here are seven tips you can use to figure out whether your gift is taxable. 1. Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or a charity. If you make a gift to someone else, the gift tax usually does not apply until the value of the gifts you give that person exceeds the annual exclusion for the year. In 2022, the annual exclusion amount is $16,000. 2. Gift tax returns do not need to be filed unless you give someone other than your spouse money or property worth more than the annual exclusion for that year. 3. Generally, the person who receives your gift will not have to pay any federal gift tax because of it. Also, that person will not have to pay income tax on the value of the gift. 4. Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions). 5. The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. For example, the following gifts are not taxable:

• Gifts that do not exceed the annual exclusion for the calendar year,
• Tuition or medical expenses you pay directly to a medical or educational institution for someone,
• Gifts to your spouse,
• Gifts to a political organization for its use, and
• Gifts to charities.

6. You and your spouse can make a gift of up to $32,000 to a third party without making a taxable gift. The gift can be considered as made one-half by you and one-half by your spouse. If you split a gift you made, you must file a gift tax return to show that you and your spouse agree to use gift splitting. 7. You do not have to file a gift tax return to report gifts to political organizations and gifts made by paying someone's tuition or medical expenses. If you have any questions about the gift tax, don't hesitate to contact the office for assistance.

What To Know About IRS Online Accounts

Setting up an IRS Online Account is an easy and secure way for taxpayers to quickly get information about their IRS activity, such as any tax due balance, payments made, and tax records for the past several years. Taxpayers should be aware that balances update no more than once every 24 hours, usually overnight, and should also allow 1 to 3 weeks for payments to show up in the payment history. Setting up an IRS Online Account allows you to view:

• Their payoff amount, which is updated for the current day
• The balance for each tax year for which they owe taxes
• Their payment history
• Key information from their most current tax return as originally filed
• Payment plan details if they have one
• Digital copies of select IRS notices
• Economic Impact Payments if they received any
• Their address on file

Taxpayers can also use their online account to:

• Select an electronic payment option
• Set up an online payment agreement
• Access tax records and transcripts
• Approve and electronically sign Power of Attorney and Tax Information Authorization
• requests from their tax professional

Here's how new users get started:

1. Select "View Your Account" on IRS.gov homepage.
2. Select the "Create or View Your Account" button.
3. Click "Create Account."
4. Pass Secure Access authentication. This is a rigorous process to verify the taxpayer's identity. They must be able to authenticate their identity to continue.
5. Create a profile.

All password-protected online IRS tools for taxpayers are protected by multi-factor authentication. Once the initial authentication process is complete, returning users can use the same username and password to access other IRS online services such as Get Transcript and Get An Identity Protection PIN, if applicable.

Filing Payroll Taxes Electronically Using E-file

Business owners can simplify things by filing payroll taxes electronically. E-file software performs calculations and populates forms and schedules using a step-by-step process. It will also alert the filer if they are missing information which reduces the chances of receiving an IRS notice. Benefits of Filing These Forms Electronically:

• It saves time.
• It's secure and accurate.
• The filer gets an email to confirm that the IRS received the form within 24 hours.

How Businesses Can E-file: Employers can have their tax professional file the form. If employers submit the forms themselves, they must purchase IRS-approved software. The IRS website provides links to companies that have passed the IRS Assurance Testing System (ATS) requirements for Software Developers of electronic Employment Tax (94x MeF) Returns. Please note, however, that it is the filer's responsibility to contact the provider to determine if the software meets their needs. There may be a fee to file electronically. Also, the software will require a signature in one of two ways:

• The software instructs the user to apply for an online signature PIN. Taxpayers should allow at least 45 days to receive their PIN.
• The user can scan and attach Form 8453-EMP, Employment Tax Declaration for an IRS e-file Return.

Forms Employers Can E-file:

Form 940, Employer's Annual Federal Unemployment Tax Return - Employers use this form to report annual Federal Unemployment Tax Act tax. Form 941, Employer's Quarterly Federal Tax Return - Employers use this form to report income taxes, social security tax or Medicare tax withheld from employees' paychecks. They also use it to pay their portion of Social Security or Medicare tax. Form 943, Employer's Annual Federal Tax Return for Agricultural Employees - Employers file this form if they paid wages to one or more farmworkers and the wages were subject to social security and Medicare taxes or federal income tax withholding. Form 944, Employer's Annual Federal Tax Return - Small employers use this form. These are employers whose annual liability for social security, Medicare, and withheld federal income taxes is $1,000 or less. These employers use this form to file and pay these taxes only once yearly instead of every quarter.

The employer must contact the IRS to request to file Form 944. Employers are not permitted to file Form 944 unless they are notified by the IRS.

Form 945, Annual Return of Withheld Federal Income Tax - Employers use this form to report federal income tax withheld from nonpayroll payments.

Do not hesitate to call the office if you need assistance filing payroll taxes electronically or have other questions or concerns about taxes and your small business.

Penalty Relief for Certain 2019 and 2020 Tax Returns

Penalty relief for struggling taxpayers affected by the COVID-19 pandemic is now available to most people and businesses who file certain 2019 or 2020 returns late. Eligible income tax returns must be filed on or before September 30, 2022, to qualify for this relief. Furthermore, the nearly 1.6 million taxpayers who have already paid these penalties will automatically receive more than $1.2 billion in refunds or credits. Many of these payments will be completed by the end of September. The COVID-19 pandemic had an unprecedented effect on the IRS’s personnel and operations. The penalty relief is expected to help the IRS focus its resources on processing backlogged tax returns and taxpayer correspondence to return to normal operations for the 2023 filing season. Failure to File Penalty The relief applies to the failure to file penalty, typically assessed at a rate of 5% per month and up to 25% of the unpaid tax when a federal income tax return is filed late. This relief applies to forms in both the Form 1040 and 1120 series, as well as others such as Form 1041, U.S. Income Tax Return for Estates and Trusts. Penalty Relief for Information Returns Penalty relief is also available to banks, employers, and other businesses required to file various information returns, such as those in the 1099 series. To qualify for this relief, eligible 2019 returns must have been filed by August 1, 2020, and eligible 2020 returns must have been filed by August 1, 2021. Because both of these deadlines fell on a weekend, a 2019 return will still be considered timely for purposes of relief provided under the notice if it was filed by August 3, 2020, and a 2020 return will be considered timely for purposes of relief provided under the notice if it was filed by August 2, 2021. Penalty relief for filers of various international information returns, such as those reporting transactions with foreign trusts, receipt of foreign gifts, and ownership interests in foreign corporations, is also available. To qualify for this relief, any eligible tax return must be filed on or before September 30, 2022. Penalty Relief is Automatic Eligible taxpayers do not need not apply for it. If penalties were already assessed, they will be abated. If already paid, the taxpayer will receive a credit or refund. Penalty relief is not available in some situations, such as where a fraudulent return was filed, where the penalties are part of an accepted offer in compromise or a closing agreement, or where the penalties were finally determined by a court. Taxpayers should note that this relief is limited to failure to file penalties. Other penalties, such as the failure to pay penalty, are not eligible; however, taxpayers may use existing penalty relief procedures for these ineligible penalties, such as applying for relief under the reasonable cause criteria or the First Time Abate program. If you have questions, please call the office for more information.

How to Use QuickBooks' Doc Center

We've heard about the "paperless office" for many years. But if you look around your work area, you probably still see evidence of too much paper. We're not there yet and may never accomplish that goal completely; however, we are getting closer. You probably have numerous paper documents that you keep because they're related to records and transactions in QuickBooks, like receipts, contracts, price lists, and bills. There's no good way to store these in a place where you can access them quickly when you need them. All you can do is make a paper folder for each customer and vendor. If you have many of them, this could become quite unwieldy. QuickBooks has a good solution. You can upload documents and attach them to individual records and transactions or store them in the Doc Center. Depending on the version you're using, you may be able to scan them directly into QuickBooks. Here's how it works:

Using the Doc Center

Figure 1: QuickBooks' Doc Center makes it easy to work with documents you've uploaded to the software. QuickBooks dedicates a section to managing the documents you want to save to the software: the Doc Center. You can get to this screen by clicking the Docs link in the toolbar. The tools you'll find here can help you:

• Move files from your computer and storage devices into QuickBooks
• Scan documents into QuickBooks directly
• Add details that will help you keep track of the documents, like keywords and descriptions
• Search for and open them
• Remove them

It's easy to move your supporting documents into the Doc Center. You click Add in the upper left corner. QuickBooks then opens the directory to your PC and all storage devices connected to it. Next, you open the correct folder and double-click the file you want (or click on it once, then click Open), as you've probably done in other applications. You'll then be back at the Doc Center, where you'll see the name for the file you just uploaded to the list, along with the date and time the file was added.

Attaching Files from Transactions

You can also attach files directly from transactions and records. Open an invoice, for example, and click the Attach File button in the toolbar. A window will open containing the toolbar pictured in this image: Figure 2: You can attach files directly from transactions in QuickBooks. You'd click Computer if you wanted to select a file from your directories and Doc Center if you know the file is stored there. Once you've attached the file, it will appear in your list in the Doc Center. The Attach File icon in the toolbar will display the number 1 to indicate how many files are attached. You can attach multiple files and access any of them by clicking the Attach File button again.If you want to attach a document to a customer record, open the record (Customers | Customer Center) and click the paper clip icon in the upper right. Select the file you want and click Done. The paper clip icon will be shaded to indicate that at least one file is attached. But what about the Scan button?

The QuickBooks Scan Manager

QuickBooks provides a way to bring documents into your company file for versions prior to QuickBooks 2022. The QuickBooks Scan Manager is compatible with TWAIN-compliant scanners. It's too bad it was discontinued for new versions because it can be a helpful tool. To set it up, open the Company menu and click Documents, then Doc Center. Select Scan at the top of the screen to open the QuickBooks Scan Manager. QuickBooks first wants to know if it found the correct scanner in your system. If it's correct, click Select if you want to go through the brief setup wizard and run tests. This isn't always necessary, especially if QuickBooks detected the correct one and your scanner has worked with other applications. Figure 3: QuickBooks should be able to identify your scanner. Then, you can tell it what kind of output you want. When you're finished (or if you've skipped the testing) and are back at the QuickBooks Scan Manager window, click the Profile menu to specify the type of output you want (black and white, grey, or color PDF). Click Scan at the bottom of the screen. Your scanner may want to display its own scanning utility, so follow any directions you see until you get to the Preview and Manage Scanned Pages window, where you'll see a thumbnail of your scanned document. Click Done Scanning when you're satisfied with your scan and give it a title, keywords, etc., in the window that opens so your scan will appear in the Doc Center list.This whole operation may go smoothly, or you may run into problems. Don't hesitate to contact the office if the latter occurs. Storing files in QuickBooks' Doc Center or attaching them to transactions or records isn't exactly rocket science, but if you've never worked with file attachments or experienced problems with the QuickBooks Scan Manager, scheduling a consulting session with a QuickBooks professional to help you move some of those papers out of your filing cabinet - and into QuickBooks storage - is recommended.

Tax Due Dates for September 2022

September 12

Employees Who Work for Tips - If you received $20 or more in tips during August, report them to your employer. You can use Form 4070.

September 15

Individuals - Make a payment of your 2022 estimated tax if you are not paying your income tax for the year through withholding (or will not pay in enough tax that way). Use Form 1040-ES. This is the third installment date for estimated tax in 2022. Partnerships - File a 2021 calendar year income tax return (Form 1065). This due date applies only if you were given an additional 6-month extension. Provide each shareholder with a copy of Schedule K-1 (Form 1065) or a substitute Schedule K-1. S corporations - File a 2021 calendar year income tax return (Form 1120S) and pay any tax due. This due date applies only if you made a timely request for an automatic 6-month extension. Provide each shareholder with a copy of Schedule K-1 (Form 1120S) or a substitute Schedule K-1. Corporations - Deposit the third installment of estimated income tax for 2022. A worksheet, Form 1120-W, is available to help you make an estimate of your tax for the year. Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in August. Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in August. Copyright © 2022   All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.

August 2022 Feature Articles Qualified Charitable Distributions From IRAs Roth IRAs: Put Your Child's Summer Earnings to Work Got Cash? What To Do With a Windfall New Job? Don't Forget About Your 401(K) Tax Breaks for Teachers and Educators Tax Tips Requesting a Tax Transcript From the IRS Kids' Day Camp Expenses May Qualify for a Tax Credit Filing a Final Tax Return for a Decedent Applying for Tax-exempt Status as a Nonprofit Understanding Your Rights as a Taxpayer QuickBooks Tips Creating Items and Jobs in QuickBooks, Part 2

Qualified Charitable Distributions From IRAs

If you're a retiree aged 70 1/2 or older, consider taking advantage of legislation that allows you to reduce or eliminate the amount of income tax on IRA withdrawals transferred directly to a qualified charitable organization. You can use this tactic even though minimum distributions are no longer required until age 72. Referred to as Qualified Charitable Distributions (QCDs), they can also be used to satisfy all or part of your required minimum distribution. Here's an example:

Let's say your required minimum distribution in 2022 is $22,000. If you make a qualified charitable distribution of $15,000 for 2022, you would need to withdraw another $7,000 to meet the amount required for your 2022 required minimum distribution.

Required minimum distributions (RMDs) must be taken each year beginning with the year you turn age 72, whether you are still working or not. The RMD for each year is calculated by dividing the IRA account balance as of December 31 of the prior year by the applicable distribution period or life expectancy. This rule does not apply to your Roth IRAs.

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) became law on December 20, 2019. The Secure Act made major changes to the RMD rules. If you reached the age of 70 1/2 in 2019 the prior rule applies, and you must have taken your first RMD by April 1, 2020. If you reached age 70 1/2 in 2020 or later you must take your first RMD by April 1 of the year after you reach 72.

What is a Qualified Charitable Distribution (QCD)?

Generally, a qualified charitable distribution (QCD) is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) that is owned by an individual who is age 70 1/2 or over that is paid directly from the IRA to a qualified charity.

What are the Rules?

Unlike most tax-related rules, the rules for QCDs are fairly straightforward:

• You must be age 70 1/2 or older
• The QCD must be made from a traditional IRA, Roth IRA, or individual retirement annuity, but not from a simplified employee pension, a simple retirement account, or an inherited IRA
• The QCD must be a direct transfer from the IRA trustee to the charitable organization
• The organization must qualify for a charitable income tax deduction of an individual, that is, no private foundations (i.e., that give out grants)
• The organization must acknowledge the charitable contribution similar to a charitable income tax deduction or donor-advised fund

Tax Advantages of QCDs

Generally, taxable IRA distributions must be included in adjusted gross income (AGI), even if donated to charity. You may be able to take a deduction for a charitable donation, but you could be subject to a 50 percent AGI limitation, which means you wouldn't be able to deduct the full amount in that tax year and could be subject to income tax on the difference. The $100,000 limit is annual, so you can take advantage of a QCD for as many years as you wish. Also, it applies to each spouse's IRA. As such, up to $200,000 ($100,000 per spouse) could be donated in a given tax year and still qualify for the exclusion. Please note that these amounts are based on current tax law and subject to change in the future.

Reporting a QCD on your Income Tax Return

Charitable distributions are reported on Form 1099-R for the calendar year the distribution is made. You should receive Form 1099-R by January 31, 2023. To report a qualified charitable distribution on your Form 1040 tax return, you generally report the full amount of the charitable distribution on the line for IRA distributions. On the line for the taxable amount, enter zero if the full amount was a qualified charitable distribution and enter "QCD" next to this line. You must also file Form 8606, Nondeductible IRAs if you made the qualified charitable distribution from a traditional IRA in which you had basis and received a distribution from the IRA during the same year, other than the qualified charitable distribution; or the qualified charitable distribution was made from a Roth IRA.

Questions?

Don't hesitate to call if you want more information about qualified charitable distributions or have questions about IRAs and minimum required distributions for IRAs and how it affects your taxes.

Roth IRAs: Put Your Child's Summer Earnings to Work

With plentiful opportunities for teen employment this year, now is the perfect time to consider opening a Roth IRA for your minor child. Here's what you need to know.

What is a Roth IRA?

A Roth IRA is a type of IRA that allows you to make after-tax contributions instead of pretax contributions, such as those you might make with your own IRA or your employer's 401(k). While a regular IRA and a Roth IRA are similar in many respects, it's important that the account be designated as a Roth IRA when it is set up. A Roth IRA is subject to the same rules that apply to a traditional IRA with the following exceptions:

• You cannot deduct contributions to a Roth IRA.
• If you satisfy the requirements, qualified distributions are tax-free.
• For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.
• You can leave amounts in your Roth IRA as long as you live.
• The account or annuity must be designated as a Roth IRA when it is set up.

Roth IRAs for Minors

Minors generally cannot open brokerage accounts in their own name until age 18. As such, it requires an adult to serve as custodian. A Roth IRA for minors is also known as a custodial account Roth IRA or a Roth IRA for Kids. No matter which name it uses, the benefits are the same as a regular Roth IRA. Here's how it works: The custodian opens and maintains control of the minor child's Roth IRA. Decisions about contributions, investments, and distributions are also controlled by the custodian, who receives account statements as well. As the custodian, parents should remember that while they control and maintain the account, it belongs to the minor child. As such, the accounts funds must be used for the benefit of the minor. Generally, assets must be transferred to a new account in the minor's name when they reach either 18 or 21, depending on the state. Earned Income. A minor can only contribute to a Roth IRA if they have earned income from a summer or after-school job or earnings from self-employment such as babysitting, pet sitting, or mowing lawns. As a reminder, self-employment earnings of $400 or more may be subject to self-employment taxes such as Medicare and Social Security.

Most teens won't be required to file a tax return; however, they should keep a written log of hours worked in case the IRS contacts them with questions at a later date.

Contributions. For 2022, that maximum contribution to a Roth IRA is the lesser of $6,000 or the total of the child's earned income. For example, if your child earns $3,000 this year, the maximum contribution is $3,000 (not $6,000). Parents can add funds to their child's account as long as the total contribution amount (child and parent) does not exceed the amount of earned income your child made this year. Using the example above, if the child earned $3,000 but only wanted to contribute $1,500 to their Roth IRA, the parent could contribute an additional $1,500.

Contributions can be withdrawn penalty and tax-free at any time - you don’t need to wait until age 59 1/2. Even if your child makes a one-time contribution today, the earlier they start saving, the more time their money has to grow, thanks to the power of compounding.

Questions About Custodial Roth IRA Accounts?

While your teen might not see the point of contributing to a retirement account now, they will thank you later. If you have questions about Roth IRAs for minors, don't hesitate to contact the office.

Got Cash? What To Do With a Windfall

A cash windfall is any amount of money that you didn't expect to receive and is over your regular income. Most would consider it to be any amount over $1,000 - and quite often, the amount of money is much more than that. For example, you may have received a bonus at work, an inheritance, a legal settlement, a profit from selling a property or business, or won the lottery. The first thing to remember is that it is never a good idea to rush into anything, such as going on that safari trip you've been dreaming about or buying an expensive sports car or diamond jewelry. There are also tax considerations, so discussing your financial situation with a tax and accounting professional is vital. You may owe a significant amount of taxes - or no tax at all, depending on your particular financial situation and how you handle your windfall. Investing in a volatile stock market can be risky. Furthermore, with the current inflation rate hovering around 9 percent and the national interest rate for savings accounts averaging 0.11 percent (BankRate.com), holding money in a cash savings account means that you are losing money. With this in mind, if you've received a cash windfall recently, consider these three options:

1. Get Your Personal Finances in Order

If your personal finances aren't in order, then now is the time to use your cash windfall to build an emergency fund, pay off high interest and credit card debt, and pay off a mortgage or put a down payment on a home or investment property (after due diligence, of course). While doing any of those is not as much fun as spending money on a fancy vacation, it will pay off in the long run. Once your financial situation is in good standing, allocate 10 percent of any money left over toward something "fun." If you have money left over after that - or already have your financial house in order, consider one of the next two options.

2. Invest in Tax-Efficient Investment Accounts

Tax-advantage investment accounts include 401(k) retirement plans, 529 education savings plans, health savings accounts (HSAs), and IRAs. Investing in these types of accounts could lower your tax bill now, but keep in mind that if you need the money sooner rather than later, you may need to pay penalties and taxes. Which tax-efficient investment accounts to contribute to depends on your financial situation. If you are retired, you can no longer contribute to a 401(k), but if you have grandchildren, you can contribute to a 529 education plan. If you are still in the workforce and your employer offers a high-deductible health plan, consider maximizing your 401(k) contributions if you aren't already doing so, as well as contributing to an HSA to help pay for healthcare-related expenses you might incur now or in the future.

3. Buy Treasury I-Bonds

I-Bonds are U.S. savings bonds issued by the United States Treasury. The interest rate is adjusted every six months, in May and November. Currently, I-Bonds purchased through November 2022 are paying 9.62% on an annual basis for the first six months they're held. The interest rate will be adjusted in November based on inflation. Individuals purchase I-Bonds from Treasury Direct. There is a maximum of $10,000 per person per year (each spouse can purchase $10,000 for a total of $20,000). The minimum age for purchasing these bonds is age 24, but parents can gift the bonds to their children (age 18 and under). I-Bonds must be held for a minimum of one year; if redeemed before five years, three months of interest is forfeited. Interest income is exempt from state and local taxes but is subject to federal tax - unless the bonds are used to pay for qualified education expenses.

Help is Just a Phone Call Away

If you've received a substantial cash influx, take a deep breath, don't make any quick decisions, then carefully consider your next steps. If you need assistance managing your cash windfall, don't hesitate to contact the office and set up a consultation. You'll be glad you did.

New Job? Don't Forget About Your 401(K)

One of the most important questions you face when changing jobs is what to do with the money in your 401(k) because making the wrong move could cost you thousands of dollars or more in taxes and lower returns. Let's say you put in five years at your current job. For most of those years, you've had the company take a set percentage of your pretax salary and put it into your 401(k) plan. Now that you're leaving, what should you do? The first rule of thumb is to leave it alone. You have 60 days to decide whether to roll it over or leave it in the account. Resist the temptation to cash out. The worst thing an employee can do when leaving a job is to withdraw the money from their 401(k) plans and put it in their bank account. Here's why: If you decide to have your distribution paid to you, the plan administrator will withhold 20 percent of your total for federal income taxes, so if you had $100,000 in your account and wanted to cash it out, you're already down to $80,000. Furthermore, if you're younger than 59 1/2, you'll face a 10 percent penalty for early withdrawal come tax time. Now you're down another 10 percent from the top line to $70,000.

If you separate from service during or after the year you reach age 55 (age 50 for public safety employees of a state, or political subdivision of a state, in a governmental defined benefit plan), there is an exception to the 10 percent early withdrawal tax penalty. This applies to 401(k) plans only. IRA, SEP, SIMPLE IRA, and SARSEP Plans do not qualify for the exception.

In addition, because distributions are taxed as ordinary income, at the end of the year, you'll have to pay the difference between your tax bracket and the 20 percent already taken out. For example, if you're in the 32 percent tax bracket, you'll still owe 12 percent, or $12,000. This lowers the amount of your cash distribution to $58,000. But that's not all. You also might have to pay state and local taxes. Between taxes and penalties, you could end up with little over half of what you had saved up, short-changing your retirement savings significantly.

What are the Alternatives?

If your new job offers a retirement plan, the easiest course of action is to roll your account into the new plan before the 60-day period ends. This is known as a "rollover" and is relatively painless to do. Contact The 401(k) plan administrator at your previous job should have all of the forms you need. The best way to roll funds over from an old 401(k) plan to a new one is to use a direct transfer. With the direct transfer, you never receive a check, you avoid all of the taxes and penalties mentioned above, and your savings will continue to grow tax-deferred until you retire.

One word of caution: Many employers require that you work a minimum period of time before you can participate in a 401(k). If that is the case, one solution is to keep your money in your former employer's 401(k) plan until the new one is available. Then you can roll it over into the new plan. Most plans let former employees leave their assets for several months in the old plan.

60-Day Rollover Period

If you have your former employer make the distribution check out to you, the Internal Revenue Service considers this a cash distribution. Your check will have 20 percent taken out automatically from your vested amount for federal income tax. But don't panic. You have 60 days to roll over the lump sum (including the 20 percent) to your new employer's plan or into a rollover individual retirement account (IRA). Then you won't owe the additional taxes or the 10 percent early withdrawal penalty.

If you're not happy with the fund choices your new employer offers, you might opt for a rollover IRA instead of your company's plan. You can then choose from hundreds of funds and have more control over your money. But again, to avoid the withholding hassle, use direct rollovers.

Leave It Alone

If your vested account balance in your 401(k) is more than $5,000, you can usually leave it with your former employer's retirement plan. Your lump sum will keep growing tax-deferred until you retire. However, if you can't leave the money in your former employer's 401(k) and your new job doesn't have a 401(k), your best bet is a direct rollover into an IRA. The same applies if you've decided to go into business for yourself. Once you turn 59 1/2, you can begin withdrawals from your IRA without penalty, and your withdrawals are taxed as ordinary income. The IRS "Rule of 55" allows you to withdraw funds from your 401(k) or 403(b) without a penalty at age 55 or older. With both a 401(k) and an IRA, you must begin taking required minimum distributions (RMDs) when you reach age 72, whether you're working or not.

Help Is Just a Phone Call Away.

Don't hesitate to contact the office if you have any questions about IRA rollovers or need assistance figuring out how a new job could affect your tax situation.

Tax Breaks for Teachers and Educators

It's almost time for the start of the new school year, and teachers and other educators should know that they can still deduct certain unreimbursed expenses. Deducting expenses such as classroom supplies, training, and travel helps reduce the amount of tax owed when filing a tax return. Teachers and educators should keep in mind, however, that the deduction can only be claimed for expenses that weren't reimbursed by their employer, a grant or other source. To qualify for the deduction, the taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide. They must also work at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law. Teachers and other educators can also take advantage of various education tax benefits for ongoing educational pursuits, such as the Lifetime Learning Credit or, in some instances, depending on their circumstances, the American Opportunity Tax Credit.

How the Educator Expense Deduction Works

Educators can deduct up to $300 of unreimbursed business expenses in 2022. If both spouses are eligible educators and file a joint return, they may deduct up to $600 but not more than $300 each. The educator expense deduction is available even if an educator doesn't itemize their deductions. To take advantage of this deduction, the taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide for at least 900 hours during a school year in a school that provides elementary or secondary education as determined under state law. Those who qualify can deduct costs of books, supplies, computer equipment and software, classroom equipment, and supplementary materials used in the classroom, as well as COVID-19 protective items to stop the spread of the disease in the classroom. Expenses for participation in professional development courses are also deductible and athletic supplies qualify if used for courses in health or physical education.

Keep Good Records

Educators should keep receipts for qualifying expenses noting the date, amount, and purpose of each purchase. This will help prevent a missed deduction at tax time. Taxpayers should keep a copy of their tax returns for at least three years. Copies of tax returns may be needed for many reasons. A tax transcript summarizes return information and includes adjusted gross income and is available free of charge from the IRS.

Questions?

Don't hesitate to call if you have any questions about tax deductions available to educators, including teachers, administrators, and aides.

Requesting a Tax Transcript From the IRS

Filing an error-free tax return is key to taxpayers getting any refund they are due as soon as possible. Using Online Account on the IRS website is the fastest and easiest way to see account information such as estimated tax payments, prior year adjusted gross income, and economic impact payment amounts. Taxpayers who don't have an account will need to create one. Taxpayers can also request a tax transcript, free of charge. There are five types of transcripts:

• Tax Return Transcript
• Tax Account Transcript
• Record of Account Transcript
• Wage and Income Transcript
• Verification of Non-filing Letter

Each transcript type should be reviewed by the taxpayer to determine which one best meets their needs. Don't hesitate to call the office if you need help with this. IRS transcripts are a good way to check for fraudulent activity. However, ordering a transcript will not help them find out when they will get their refund. The Where's My Refund? tool provides the most up-to-date details about whether a tax return has been received and if the IRS has approved or sent the refund. To protect taxpayers' identities, the transcripts partially hide personally identifiable information such as names, addresses, and Social Security numbers. All financial entries are fully visible. There are three ways taxpayers can get transcripts:

Online. People can view their tax records in their Online Account, as well as visit Get Transcript Online to view, print, or download all transcript types. By mail. Taxpayers can use Get Transcript by Mail to get a tax return or tax account transcript delivered within 5-10 calendar days. They can also submit Form 4506-T to request any transcript type. Most Form 4506-T transcript requests are processed within 10 business days and then mailed. Form 4506-T is available on IRS.gov's Forms, Instructions, and Publications page. By phone. Taxpayers can call the IRS's automated phone transcript service at 800-908-9946 to get a tax return or tax account transcript delivered by mail within 5-10 calendar days.

Please contact the office if you need assistance obtaining a tax transcript. As always, help is just a phone call away.

Kids' Day Camp Expenses May Qualify for a Tax Credit

Day camps are common during school vacations and the summer months. Many parents enroll their children in a day camp or pay for daycare so they can work or look for work. Unlike overnight camps, the cost of summer day camp may count towards the child and dependent care credit. Here are 10 things parents should know: 1. Care for Qualifying Persons. Your expenses must be for the care of one or more qualifying persons. Your dependent child or children under age 13 generally qualify. 2. Work-related Expenses. Your expenses for care must be work-related. In other words, you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they are physically or mentally incapable of self-care. 3. Earned Income Required. You must have earned income. Earned income includes wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care. 4. Joint Return if Married. Generally, married couples must file a joint return. You can still take the credit, however, if you are legally separated or living apart from your spouse. 5. Type of Care. You may qualify for the credit whether you pay for care at home, at a daycare facility or at a day camp. 6. Credit Amount. The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on your income. 7. Expense Limits. The total expense that you can use in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more. 8. Certain Care Does Not Qualify. You may not include the cost of certain types of care for the tax credit, including:

• Overnight camps or summer school tutoring costs.
• Care provided by your spouse or your child who is under age 19 at the end of the year.
• Care given by a person you can claim as your dependent.

9. Keep Records and Receipts. Keep all your receipts and records for when you file taxes next year. You will need the name, address and taxpayer identification number of the care provider. You must report this information when you claim the credit on Form 2441, Child and Dependent Care Expenses. 10. Dependent Care Benefits. Special rules apply if you get dependent care benefits from your employer. Keep in mind this credit is not just a school vacation or summer tax benefit. You may be able to claim it at any time during the year for qualifying care. For more information, please call the office.

Filing a Final Tax Return for a Decedent

When someone dies, their surviving spouse or representative must file a final tax return for the deceased person or decedent. Usually, the representative filing the final tax return is named in the person's will or appointed by a court. Sometimes when there isn't a surviving spouse or appointed representative, a personal representative will file the final return. Other than noting that the person has died on the final tax return, the IRS doesn't need any other notification of the death. Three Things Taxpayers Should Know About Filing the Final Return:

1. The IRS considers someone married for the entire year that their husband or wife died if they don't remarry during that year.
2. The surviving spouse is eligible to use filing status married filing jointly or married filing separately.
3. The final return is due by the regular April tax date unless the surviving spouse or representative has an extension to file.

Who Signs the Return? When e-filing, the surviving spouse or representative should follow the directions provided by the software for the correct signature and notation requirements. For paper returns, the filer should write the word deceased, the deceased person's name and the date of death across the top. Here's who should sign the return:

Appointed representative. Any appointed representative must sign the return. If it's a joint return, the surviving spouse must also sign it.Surviving spouse. If there isn't an appointed representative, the surviving spouse filing a joint return should sign the return and write in the signature area labeled, filing as surviving spouse. No appointed representative and no surviving spouse. If there's no appointed representative and no surviving spouse, the person in charge of the deceased person's property must file and sign the return as "personal representative."

Other Documents to Include:

• Court-appointed representatives should attach a copy of the court document showing their appointment.
• Representatives who aren't court-appointed must include Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer, to claim any refund. Surviving spouses and court-appointed representatives don't need to complete this form.
• The IRS doesn't need a copy of the death certificate or other proof of death.

If tax is due, the filer should submit payment with the return. If they can't pay the amount due immediately, they may qualify for an IRS payment plan or installment agreement. Qualifying Widow or Widower Surviving spouses with dependent children may be able to file as a Qualifying Widow(er) for two years after their spouse's death. This filing status allows them to use joint return tax rates and the highest standard deduction amount if they don't itemize deductions. Questions? Don't hesitate to call if you have any questions about filing a final tax return for someone who has passed away.

Applying for Tax-exempt Status as a Nonprofit

To be tax-exempt under Section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for any of these purposes: charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition or preventing cruelty to children or animals. If you're thinking about starting a nonprofit and want to apply for tax-exempt status under Section 501(c)(3) of the tax code, you'll need to use a Form 1023-series application. Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. Here are seven key items to know about this process: 1. Form 1023-series applications for recognition of exemption must be submitted electronically online at Pay.gov. The application must be complete and must include the user fee. 2. Some organizations may be able to file Form 1023-EZ, a streamlined version if they meet certain criteria such as projected or past annual gross receipts of $50,000 or less for a period of three years. 3. Some types of organizations don't need to apply for Section 501(c)(3) status to be tax-exempt. These include churches and their integrated auxiliaries (organizations affiliated with a church or association of churches that receives financial support primarily from internal church sources and not public or governmental sources), as well as public charities whose annual gross receipts are normally less than $5,000. 4. Every tax-exempt organization, including a church, should have an Employer Identification Number (EIN) regardless of whether the organization has employees. An employer identification number is an organization's account number with the IRS and is required for the organization to apply for tax-exempt status. Once the EIN is received by the organization, it must be included on the application. 5. The effective date of an organization's tax-exempt status depends on their approved Form 1023. If they submit this form within 27 months after the month they legally formed, the effective date of their organization's exempt status is the legal date of its formation. If an organization doesn't submit this form within those 27 months, the effective date of its exempt status is the date it files Form 1023. 6. Once the IRS determines an organization qualifies for tax-exempt status under the law, it will also be classified as a private foundation unless the organization meets the requirements to be treated as a public charity. Generally, organizations classified as public charities receive contributions from many sources, including the general public. In contrast, private foundations typically have a single major source of funding (usually gifts from one family or corporation). 7. A charitable organization must make certain documents available to the public. These include its approved application for recognition of exemption with all supporting documents and its last three annual information returns. If you have any questions about applying for tax-exempt status, please call the office for assistance.

Understanding Your Rights as a Taxpayer

By law, all taxpayers have fundamental rights when interacting with the IRS, and all taxpayers should know and understand their rights. Ten categories of rights are presented in the Taxpayer Bill of Rights. Here's an overview: 1. The right to be informed. Taxpayers have the right to know what they need to do to comply with the tax laws. 2. The right to quality service. Taxpayers have the right to receive prompt, courteous, and professional assistance when working with the IRS and the freedom to speak to a supervisor about inadequate service. 3. The right to pay no more than the correct amount of tax. Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly. 4. The right to challenge the IRS's position and be heard. Taxpayers have the right to object to formal IRS actions or proposed actions and provide justification with additional documentation. 5. The right to appeal an IRS decision in an independent forum. Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including certain penalties. 6. The right to finality. Taxpayers have the right to know the maximum amount of time they have to challenge an IRS position and the maximum amount of time the IRS must audit a particular tax year or collect a tax debt. 7. The right to privacy. Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary. 8. The right to confidentiality. Taxpayers have the right to expect that their tax information will remain confidential. 9. The right to retain representation. Taxpayers have the right to retain an authorized representative of their choice to represent them in their interactions with the IRS. 10. The right to a fair and just tax system. Taxpayers have the right to expect fairness from the tax system. This includes considering all facts and circumstances that might affect their liabilities and ability to pay or provide information timely. Questions or concerns about your rights as a taxpayer? Help is just a phone call away.

Creating Items and Jobs in QuickBooks, Part 2

Last month, we talked about creating Item and Job records in QuickBooks. You can think of a Job as a project your company is doing for a customer, like a marketing campaign or a series of landscaping tasks. Once you set one up, you can assign all related transactions and eventually gauge profitability. We reviewed the steps required for managing Item and Job information. These actions allow you to:

• Create Product and Service Records (Lists | Item List | Item | New) that make up each Job.
• Create the Jobs themselves (Customers | Customer Center | New Customer & Job | New Customer or Add Job).

This month, we're going to explain how you can use Jobs in QuickBooks to keep track of all the income and expenses attached to each one. You can assign expenses like products you purchase, billable time, mileage, overhead (ask us how you can calculate this), freight charges, postage, etc., to specific Jobs. And, of course, you'll want to assign payments received to Jobs.

Creating Billable Time Entries

If you are using QuickBooks Payroll and you're going to be tracking hours for an employee so that they will be paid for their time, make sure the worker is set up for this first. Go to Employees | Employee Center and double-click the employee's name. Click Payroll Info and check the box in front of Use time data to create paychecks, then click OK to close the window. When you want to enter hours worked on a specific Job, open the Employees menu again. Click Enter Time | Time| Enter Single Activity. Complete the fields in this window as pictured below. Figure 1: You can create a record of billable time that will be used to both pay the employee and invoice the customer in this window. If you don't see the Enter Time option in the Employees menu, you haven’t turned on time-tracking in QuickBooks. Go to Edit | Preferences | Time & Expenses and click Company Preferences. Click the Yes button under Do you track time? There are other options in this window. You can mark all time entries as billable, for example, and set a Default Markup Percentage. If you want to move time and expense entries into customer invoices automatically, check the box in front of Create invoices from a list of time and expenses. When you’re done, click OK.Questions on this window? Do not hesitate to call for assistance.

Assigning Jobs to Other Transactions

Any transaction in QuickBooks that can be assigned to a customer can be assigned to a job. In all cases, assign the Job itself, not just the customer. And where appropriate, there will always be a Billable column or checkbox. Here are some examples of the transactions you can use: Checks. This one's easy. When you write a check, simply assign it to a CUSTOMER:JOB, whether it’s for Expenses or Items. Sales Receipts. Say you're doing a one-off task like tree and shrub trimming (as part of a larger Job), and the customer wants to pay you on the spot. In this case, you'd create a Sales Receipt. Go to Customers | Enter Sales Receipts. Select the CUSTOMER:JOB and fill out the rest of the fields, then save the transaction. Bills. If you've ordered items to use for a specific Job and enter/pay the bill in QuickBooks, be sure to attribute it to the CUSTOMER:JOB. Credit Card Charges. If you put an expense for a Job on a credit card, be sure to select the CUSTOMER:JOB when you enter it in QuickBooks. Invoices. It's likely that you're going to invoice customers for multiple transactions that you've assigned to a Job – that's why you're setting it up as a Job in the first place. There are at least four ways to do this.

• Start an invoice at the beginning of the Job and keep adding products, services, and expenses to it until you're ready to bill the customer. This is probably the least elegant way to do it since you'll have to keep remembering the invoice number, for one thing.
• Enter your billable items as individual entries as you go along. When you're ready to bill the customer, open an invoice form and select the CUSTOMER | JOB. This window will open:

Figure 2: When you create an invoice for a customer who has outstanding billable time and expenses, QuickBooks will display this window.

• Open the Customers menu and click Invoice for Time & Expenses. QuickBooks will display a list of Time, Expenses, Mileage, and Items. You select the date range and template type, and the software will create an invoice for the transactions you check.
• Use Progress Invoicing. Enter products and services on an estimate, and you'll be able to invoice them in batches. We can show you how to do this.

Of course, you'll eventually want to know how profitable all your Jobs are so you can adjust as needed. QuickBooks can help you determine this, but help is just a phone call away if you need assistance. If you want to schedule a session to talk about this – or any other element of QuickBooks, please call.

Tax Due Dates for August 2022

August 1

Employers - Federal unemployment tax. Deposit the tax owed through June if more than $500. Employers - If you maintain an employee benefit plan, such as a pension, profit sharing, or stock bonus plan, file Form 5500 or 5500-EZ for calendar year 2021. If you use a fiscal year as your plan year, file the form by the last day of the seventh month after the plan year ends. Certain Small Employers - Deposit any undeposited tax if your tax liability is $2,500 or more for 2022 but less than $2,500 for the second quarter. Employers - Social Security, Medicare, and withheld income tax. File Form 941 for the second quarter of 2022. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until August 10 to file the return.

August 10

Employees Who Work for Tips - If you received $20 or more in tips during July, report them to your employer. You can use Form 4070. Employers - Social Security, Medicare, and withheld income tax. File Form 941 for the second quarter of 2022. This due date applies only if you deposited the tax for the quarter in full and on time.

August 15

Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in July. Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in July.

Feature Articles Tax Return Tips for Last-minute Filers Reminder: Rules for Depreciation and Expensing The Tax Consequences of Crowdfunding Got Debt? How To Improve Your Financial Situation Cash Management Tips for Your Small Business Tax Tips File on Time Even if You Can't Pay What To Do if You're Missing Important Tax Documents Tax Credits To Help Cover Costs of Higher Education Small Business: Rent Expenses May Be Tax-deductible Taxpayer Rights: Pay No More Than the Correct Amount QuickBooks Tips Memorized, Commented, and Scheduled Reports

Tax Return Tips for Last-minute Filers

When it comes to working on your taxes, earlier is better, but many people find preparing their tax return stressful and frustrating and wait until the last minute. If you've been procrastinating on filing your tax return this year, here are eight tips that might help.

Don't Delay

Resist the temptation to put off your taxes until the last minute. Your haste to meet the filing deadline may cause you to overlook potential sources of tax savings and will likely increase your risk of making an error. Getting a head start (even if it is a week or two) will keep the process calm and mean you get your return faster by avoiding the last-minute rush.

Gather Tax Documents in Advance

Make sure you have all the records you need, including W-2s and 1099s. Don't forget to save a copy for your files. If you're missing important tax documents, see What To Do If You're Missing Important Tax Documents below.

Double-check Math and Verify Social Security Numbers

These are among the most common errors found on tax returns. Taking care will reduce your chance of hearing from the IRS. Submitting an error-free return will also speed up your tax refund.

E-file for a Faster Tax Refund

Taxpayers who e-file and choose direct deposit for their refunds, for example, will get their refunds in as few as ten days. That compares to approximately six weeks for people who file a paper return and get a traditional paper check.

Don't Panic if You Can't Pay

If you can't immediately pay the taxes you owe, consider some stress-reducing alternatives. You can apply for an IRS installment agreement suggesting your monthly payment amount and due date and get a reduced late payment penalty rate. You also have various options for charging your balance on a credit card. There is no IRS fee for credit card payments, but the processing companies charge a convenience fee. Electronic filers with a balance due can file early and authorize the government's financial agent to take the money directly from their checking or savings account on the April due date, with no fee.

Request an Extension of Time to File

If the clock runs out, you can get an automatic six-month extension bringing the filing date to October 17, 2022 - but make sure you pay by the April 18 due date. However, the extension does not give you more time to pay any tax due. You will owe interest on any amount not paid by the April deadline, plus a late payment penalty if you have not paid at least 90 percent of your total tax by that date.

Taxpayers Outside the United States File June 15

U.S. citizens and resident aliens who live and work outside the U.S. and Puerto Rico have until June 15, 2022, to file their 2021 tax returns and pay any tax due. The June 15 deadline also applies to military members on duty outside the U.S. and Puerto Rico who do not qualify for the longer combat zone extension. Affected taxpayers should attach a statement to their return explaining which of these situations apply. Although taxpayers abroad get more time to pay, interest - currently at the rate of 3% per year, compounded daily - applies to any payment received after this year's April 18 deadline.

Military Service Members Serving in a Combat Zone

Combat zone taxpayers (including eligible support personnel) have at least 180 days after they leave the combat zone to file their tax returns and pay any tax due - including those serving in Iraq, Afghanistan, and other combat zones. A complete list of designated combat zone localities is available on the IRS website. Combat zone extensions also give affected taxpayers more time for various other tax-related actions, including contributing to an IRA. Various circumstances affect the exact length of the extension available to taxpayers.

Help is Just a Phone Call Away

If you run into any problems, have any questions, or need to file an extension, contact the office today.

Reminder: Rules for Depreciation and Expensing

As part of final guidance issued that pertains to the Tax Cuts and Jobs Act of 2017, new rules and limitations are in effect for taxpayers who deduct depreciation for qualified property acquired after September 27, 2017. As a business owner, they could affect your tax situation. Let's take a closer look:

Businesses Can Immediately Expense More Under Tax Reform

A taxpayer may elect to expense the cost of any section 179 property and deduct it in the year the property is placed in service. These changes apply to property placed in service in taxable years beginning after December 31, 2017. As a reminder, the new law (ie., the Tax Cuts and Jobs Act of 2017) increased the maximum deduction from $500,000 to $1 million. It also increased the phase-out threshold from $2 million to $2.5 million. For taxable years beginning after 2018, these amounts of $1 million and $2.5 million will be adjusted for inflation. As such, for tax year 2022, the Section 179 expense deduction increases to a maximum deduction of $1,080,000 of the first $2,700,000 of qualifying equipment placed in service during the current tax year. For 2021, the maximum deduction was $1,050,000 and $2,620,000, respectively. The definition of Section 179 property was also expanded to allow the taxpayer to elect to include the following improvements made to nonresidential real property after the date when the property was first placed in service:

• • Qualified improvement property, which means any improvement to a building's interior.

Improvements do not qualify if they are attributable to the enlargement of the building, any elevator or escalator, or the internal structural framework of the building.

• Roofs, HVAC, fire protection systems, alarm systems, and security systems.

Temporary 100 Percent Expensing for Certain Business Assets

Under tax reform, the bonus depreciation percentage increases from 50 percent to 100 percent for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023. It is sometimes referred to as the first-year bonus depreciation. For tax years 2023 through 2026, the bonus depreciation is reduced by 20 percent a year and completely phased out at the end of 2026. As a reminder, the bonus depreciation percentage for qualified property that a taxpayer acquired before September 28, 2017, and placed in service before January 1, 2018, remains at 50 percent. Special rules apply for longer production period property and certain aircraft. The definition of property eligible for 100 percent bonus depreciation was expanded to include used qualified property acquired and placed in service after September 27, 2017, if all the following factors apply:

• The taxpayer or its predecessor didn't use the property at any time before acquiring it.
• The taxpayer didn't acquire the property from a related party.
• The taxpayer didn't acquire the property from a component member of a controlled group of corporations.
• The taxpayer's basis of the used property is not figured in whole or in part by reference to the adjusted basis of the property in the hands of the seller or transferor.
• The taxpayer's basis of the used property is not figured under the provision for deciding basis of property acquired from a decedent.
• Also, the cost of the used property eligible for bonus depreciation doesn't include the basis of property determined by reference to the basis of other property held at any time by the taxpayer (for example, in a like-kind exchange or involuntary conversion).

Furthermore, qualified film, television, and live theatrical productions as well as Certain fruit or nuts planted or grafted after September 27, 2017, also qualify as qualified property that may be eligible for 100 percent bonus depreciation. This provision applies to property acquired and placed in service after September 27, 2017. Certain types of property, however, are not eligible for bonus depreciation in any taxable year beginning after December 31, 2017. One such exclusion from qualified property is for property primarily used in the trade or business of the furnishing or sale of the following:

• Electrical energy, water or sewage disposal services,
• Gas or steam through a local distribution system or
• Transportation of gas or steam by pipeline.

This exclusion applies if the rates for the furnishing or sale have to be approved by a federal, state or local government agency, a public service or public utility commission, or an electric cooperative. The Tax Cuts and Jobs Act of 2017 also added an exclusion for any property used in a trade or business that has had floor-plan financing indebtedness if the floor-plan financing interest was taken into account under section 163(j)(1)(C). Floor-plan financing indebtedness is secured by motor vehicle inventory that in a business that sells or leases motor vehicles to retail customers. Furthermore, qualified improvement property acquired and placed in service after December 31, 2017, was eliminated as a specific category of qualified property.

Depreciation Limitations on Luxury Automobiles and Personal Use Property

Depreciation limits for passenger vehicles acquired after December 31, 2017, and placed in service in 2022 have also changed: If the taxpayer doesn't claim bonus depreciation, the greatest allowable depreciation deduction is: If a taxpayer claims 100 percent bonus depreciation, the greatest allowable depreciation deduction is:

• $19,200 for the first year,
• $18,000 for the second year,
• $10,800 for the third year, and
• $6,460 for each later taxable year in the recovery period.

• $11,200 for the first year,
• $18,000 for the second year,
• $10,800 for the third year, and
• $6,460 for each later taxable year in the recovery period.

Computers or peripheral equipment have been removed from the definition of listed property. This change applies to property placed in service after December 31, 2017.

Treatment of Certain Farm Property

The new law shortens the recovery period for machinery and equipment used in a farming business from seven to five years. This shorter recovery period, however, doesn't apply to grain bins, cotton ginning assets, fences or other land improvements. The original use of the property must occur after December 31, 2017. This recovery period is effective for eligible property placed in service after December 31, 2017. Also, property used in a farming business and placed in service after December 31, 2017, is not required to use the 150 percent declining balance method. However, if the property is 15-year or 20-year property, the taxpayer should continue to use the 150 percent declining balance method.

Applicable Recovery Period for Real Property

The new law keeps the general recovery periods of 39 years for nonresidential real property and 27.5 years for residential rental property. The new law changes the alternative depreciation system recovery period for residential rental property from 40 years to 30 years. Qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property are no longer separately defined and no longer have a 15-year recovery period under the new law. These changes affect property placed in service after December 31, 2017. Under the tax reform law, a real property trade or business electing out of the interest deduction limit must use the alternative depreciation system to depreciate any of its nonresidential real property, residential rental property, and qualified improvement property. This change applies to taxable years beginning after December 31, 2017.

Alternative Depreciation System for Farming Businesses

Farming businesses that elect out of the interest deduction limit must use the alternative depreciation system to depreciate any property with a recovery period of 10 years or more, such as single-purpose agricultural or horticultural structures, trees or vines bearing fruit or nuts, farm buildings, and certain land improvements. This provision applies to taxable years beginning after December 31, 2017.

Questions?

Tax law can be confusing. If you're a small to medium-sized business owner with questions about depreciation and expensing, help is just a phone call away.

The Tax Consequences of Crowdfunding

Crowdfunding websites such as Kickstarter and GoFundMe have become an increasingly popular way for small business owners to stay afloat. The upside is that it's often possible to raise the cash you need; the downside is that the IRS considers that money taxable income. Let's take a closer look at how crowdfunding works and how it could affect your tax situation.

What is Crowdfunding?

Crowdfunding is the practice of funding a project by gathering online contributions from a large group of backers. It was initially used by musicians, filmmakers, and other creative types to raise small sums of money for projects that were unlikely to turn a profit. More recently, it has been used to fund projects, events, and products and, in some cases, has become an alternative to venture capital. However, with the onset of coronavirus, many struggling business owners have turned to crowdfunding to raise cash to continue operating their businesses. There are three types of crowdfunding: donation-based, reward-based, and equity-based. Donation-based crowdfunding is when people donate to a cause, project, or event. GoFundMe is the most well-known example of donation-based crowdfunding, with pages typically set up by a friend or family member ("the agent") such as to help someone ("the beneficiary") pay for medical expenses, tuition, or natural disaster recovery. Reward-based crowdfunding involves an exchange of goods and services for a monetary donation, whereas, in equity-based crowdfunding, donors receive equity for their contribution.

Are Crowdfunding Donations Taxable?

This is where it can get tricky. As the agent or person who set up the crowdfunding account, the money goes directly to you; however, you may or may not be the beneficiary of the funds. If you are both the agent and the beneficiary, you would be responsible for reporting this income. Suppose you are acting as "the agent" and establish that you are indeed acting as an agent for a beneficiary who is not yourself. In that case, the funds will be taxable to the beneficiary when paid - not to you, the agent. An easy way to circumvent this issue is to make sure when you are setting up a crowdfunding account such as GoFundMe; you designate whether you are setting up the campaign for yourself or someone else. Again, as noted above, as the beneficiary, all income you receive, regardless of the source, is considered taxable income in the eyes of the IRS - including crowdfunding dollars. However, money donated or pledged without receiving something in return may be considered a "gift." As such, the recipient does not pay any tax. Up to $16,000 per year per recipient in 2022 ($15,000 in 2021) may be given by the "gift giver." Let's look at an example of reward-based crowdfunding. Say you develop a prototype for a product that looks promising. You run a Kickstarter campaign to raise additional funding, setting a goal of $20,000, and offer a small gift in the form of a t-shirt, cup with a logo, or a bumper sticker to your donors. Your campaign is more successful than you anticipated it would be, and you raised $35,000 - more than twice your goal. Taxable sale. Because you offered something (a gift or reward) in return for a payment pledge, it is considered a sale. As such, it may be subject to sales and use tax. Taxable income. Since you raised $35,000, that amount is considered taxable income. But even if you only raised $20,000 and offered no gift, the $20,000 is still considered taxable income and should be reported as such on your tax return even though you did not receive a Form 1099-K from a third-party payment processor (more about this below). Generally, crowdfunding revenues are included in income as long as they are not:

• Loans that must be repaid;
• Capital contributed to an entity in exchange for an equity interest in the entity; or
• Gifts made out of detached generosity and without any "quid pro quo." However, a voluntary transfer without a "quid pro quo" isn't necessarily a gift for federal income tax purposes.

Income offset by business expenses. You may not owe taxes however, if your crowdfunding campaign is deemed a trade or active business (and not a hobby) your business expenses may offset your tax liability. Factors affecting which expenses could be deductible against crowdfunding income include whether the business is a startup and which accounting method (cash vs. accrual) you use for your funds. For example, suppose your business is a startup. In that case, you may qualify for additional tax benefits such as deducting startup costs or applying part or all of the research and development credit against payroll tax liability instead of income tax liability. Timing of the crowdfunding campaign, receipt of funds, and when expenses are incurred also affect whether business expenses will offset taxable income in a given tax year. For instance, if your crowdfunding campaign ends in October but the project is delayed until January of the following year, it is likely that there will be few business expenses to offset the income received from the crowdfunding campaign since most expenses are incurred during or after project completion.

How Do I Report Funds on My Tax Return?

Typically, companies that issue third-party payment transactions such as Amazon if you use Kickstarter, PayPal if you use Indiegogo, or WePay if you use GoFundMe) are required to report payments that exceed a threshold amount of $600 in gross payments regardless of the number of transactions or donations. Prior to 2022, the threshold for a crowdfunding website or payment processor to file and furnish a Form 1099-K, Payment Card and Third Party Network Transactions, was met if, during a calendar year, the total of all payments distributed to a person exceeded $20,000 in gross payments resulting from more than 200 transactions or donations. Form 1099-K includes the gross amount of all reportable payment transactions and is sent to the taxpayer by January 31 if payments were received in the prior calendar year. Include the amount found on your Form 1099-K when figuring your income on your tax return; generally, Schedule C, Profit or Loss from Business for most small business owners.

Recordkeeping

The American Rescue Plan Act (ARPA) of 2021 clarified that the crowdfunding website or its payment processor is not required to file Form 1099-K with the IRS or furnish it to the person to whom the distributions are made if the contributors to the crowdfunding campaign do not receive goods or services for their contributions. As such, it is important to keep complete and accurate records of transactions relating to your crowdfunding campaign, including a screenshot of the crowdfunding campaign for at least three years (it could be several years before the IRS "catches up") as well as documentation of any money transfers.

Seek Professional Tax Advice

If you're thinking of using crowdfunding to raise money for your small business, it may be prudent to consult a tax and accounting professional who will evaluate your tax situation and help you figure out a course of action to help your small business succeed.

Got Debt? How To Improve Your Financial Situation

Being debt-free is a worthwhile goal; unfortunately, for most people, it is unrealistic - especially for those of pre-retirement age with children, a car payment or two, and a mortgage. As such, most people need to focus on managing their debt first since it's likely to be there for much of their adult life. With inflation on the rise (and subsequent interest rate hikes), your credit card debt could be even more difficult to pay off. Eliminating debt is especially crucial for anyone approaching retirement age. However, the good news is that when debt is handled wisely, you won't need to shell out every cent of your hard-earned money to your lender because of exorbitant interest rates or feel like you're always on the verge of bankruptcy. Here's how you can pay off debt the smart way while at the same time-saving money to pay it off even faster:

Review Each Debt

First, assess how much and what type of debt you have by writing it down using pencil and paper or entering the data into a spreadsheet like Microsoft Excel. You can also use a bookkeeping program such as Quicken or a debt management app such as Debt Manager, Debt Payoff Planner, or ChangEd if you are only concerned about student loan debt. When compiling or entering your list, be sure to include every instance you can think of where a company has given you something in advance of payment, such as your mortgage, car payment(s), credit cards (all of them), tax liens, student loans, Paypal Credit, and store payments or cards used on electronics or other household items such as Home Depot or Best Buy. Record the day the debt began and when it will end (check your credit card statements), the interest rate you're paying, and your typical payments. Next, as painful as that might be, add it all up - try not to be discouraged. Remember, the goal is to break this down into manageable chunks while finding extra money to help pay it down.

Make sure that the debt creditors claim you owe is actually what you owe and that the amount is correct. If you dispute a debt, first contact the creditor directly to resolve your questions. If you still have questions about the debt, contact your state or local consumer protection office or, in cases of serious creditor abuse, your state Attorney General.

If you have trouble making your payments, contact each creditor and let them know you are having difficulty making your payments. Tell them why you are having trouble - you recently lost your job, for example, or have unexpected medical bills. Try to work out an acceptable payment schedule with your creditors. Most are willing to work with you and will appreciate your honesty and forthrightness.

Identify High-Cost Debt

Even if you haven't lost your job or experienced sickness related to COVID-19, it never hurts to identify which debt is more expensive than others and pay it off first. Withdrawing savings from low-interest accounts to settle high-rate loans or credit card debt usually makes sense. In addition, there are several ways to pay off high-interest loans, such as credit cards, by getting a refinancing or consolidation loan, such as a second mortgage. However, keep in mind that second mortgages greatly increase the risk that you may lose your home. Unless you're getting payday loans (which you shouldn't be!), the worst offender is consumer debt such as personal loans, auto loans, and credit cards with high-interest rates. Credit cards are the easiest to tackle, so start with them first. Here's how to deal with them:

• Don't use them. You don't have to cut them up, but take them out of your wallet, put them in a drawer, and only access the one with the lowest interest rate in an emergency.
• Identify the card with the highest interest, pay off as much as you can every month, and pay the minimum amount due on other cards. When that one is paid off, work on the card with the next highest rate.

  Check your credit cards for balance transfer rates and transfer balances from higher interest accounts to lower interest ones. When you pay less interest, you can pay down your debt faster. The catch is that at the end of the balance transfer period (typically six months to 12 months), the low or, if you're lucky, zero interest rate reverts to a higher credit card interest rate.

• Don't close existing cards or open new ones. It won't help your credit rating and will only hurt it.
• Pay on time, absolutely every time. Late payments - even one - can lower your FICO score.
• Go over your credit card statements in detail and look for monthly charges for things you no longer use or don't need anymore.
• Call your credit card companies and ask them nicely if they would lower your interest rates - sometimes it works!

Be wary of any loan consolidations or other refinancing that actually increase interest owed, or require payments of points or large fees.

Live Below Your Means and Save, Save, Save

Do whatever you can to retire debt - even if it means reevaluating your priorities and changing your lifestyle. Consider taking a second job and using that income only for higher payments on your financial obligations. Substitute free family activities for high-cost ones. Sell high-value items that you can live without.

According to the IRS, the average tax refund this year is $3,536. If you are expecting a large (or even small) tax refund this year, consider using it to pay down any debt you owe. If you feel like you have a handle on debt, use your windfall to increase your emergency savings or contribute to a retirement account.

Create a spending plan that allows you to reduce your debts. Itemize your necessary expenses such as housing and healthcare and optional expenses such as entertainment and vacation travel. Stick to the plan. Leave your credit cards at home. Make it a habit to pay for everything you purchase with cash or a debit/credit card. If you don't have the cash (or the money in your bank account) for it, you probably don't need it. You'll feel better about what you have if you know it's owned free and clear. Cut out any unnecessary spending such as eating out and purchasing expensive entertainment. Think twice before purchasing the latest high-tech gadgets. Do you really need the latest iPhone? You'll be surprised at what you don't miss. Consider buying a used car, forgoing that expensive gym membership you don't have time to use anymore, visiting the public library to check out DVDs, or subscribing to a video streaming company instead of going to the movies - at least until your debt is under control.

Never, Ever Miss a Payment

Not only are you retiring debt, but you're also building a stellar credit rating. If you ever get another job, buy a house, rent an apartment or buy another car, you'll want to have the best credit rating possible. A blemish-free payment record will help with that. Besides, credit card companies can quickly raise interest rates because of one late payment, and a completely missed one is even more serious.

Need Help Managing Debt?

While each of these steps, taken alone, probably doesn't seem like much, you'll see your debt decrease every month if you adopt as many as you can. If you're having financial troubles or need help managing debt, or need advice regarding steps you can take to recession-proof your finances, help is just a phone call away.

Cash Management Tips for Your Small Business

Cash flow is the lifeblood of every small business but many business owners underestimate just how vital managing cash flow is to their business's success. In fact, a healthy cash flow is more important than your business's ability to deliver its goods and services. While that might seem counterintuitive, consider this: if you fail to satisfy a customer and lose that customer's business, you can always work harder to please the next customer. If you fail to have enough cash to pay your suppliers, creditors, or employees, you are out of business.

What is Cash Flow?

Cash flow, simply defined, is the movement of money in and out of your business; these movements are called inflow and outflow. Inflows for your business primarily come from the sale of goods or services to your customers but keep in mind that inflow only occurs when you make a cash sale or collect on receivables. It is the cash that counts! Other examples of cash inflows are borrowed funds, income derived from sales of assets, and investment income from interest. Outflows for your business are generally the result of paying expenses. Examples of cash outflows include paying employee wages, purchasing inventory or raw materials, purchasing fixed assets, operating costs, paying back loans, and paying taxes.

A tax and accounting professional is the best person to help you learn how your cash flow statement works. He or she can prepare your cash flow statement and explain where the numbers come from. If you need help, don't hesitate to call.

Cash Flow versus Profit

While they might seem similar, profit and cash flow are two entirely different concepts, each with entirely different results. The concept of profit is somewhat broad and only looks at income and expenses over a certain period, say a fiscal quarter. Profit is a useful figure for calculating your taxes and reporting to the IRS. Cash flow, on the other hand, is a more dynamic tool focusing on the day-to-day operations of a business owner. It is concerned with the movement of money in and out of a business. But more important, it is concerned with the times at which the movement of the money takes place. In theory, even profitable companies can go bankrupt. It would take a lot of negligence and total disregard for cash flow, but it is possible. Consider how the difference between profit and cash flow relate to your business.

If your retail business bought a $1,000 item and turned around to sell it for $2,000, then you have made a $1,000 profit. But what if the buyer of the item is slow to pay his or her bill, and six months pass before you collect on the account? Your retail business may still show a profit, but what about the bills it has to pay during that six-month period? You may not have the cash to pay the bills despite the profits you earned on the sale. Furthermore, this cash flow gap may cause you to miss other profit opportunities, damage your credit rating, and force you to take out loans and create debt. If this mistake is repeated enough times, you may go bankrupt.

Analyzing Your Cash Flow

The sooner you learn how to manage your cash flow, the better your chances of survival. Furthermore, you will be able to protect your company's short-term reputation as well as position it for long-term success. The first step toward taking control of your company's cash flow is to analyze the components that affect the timing of your cash inflows and outflows. A thorough analysis of these components will reveal problem areas that lead to cash flow gaps in your business. Narrowing, or even closing, these gaps is the key to cash flow management. Some of the most important components to examine are:

• Accounts receivable. Accounts receivable represent sales that have not yet been collected in the form of cash. An accounts receivable balance sheet is created when you sell something to a customer in return for his or her promise to pay at a later date. The longer it takes for your customers to pay on their accounts, the more negative the effect on your cash flow.
• Credit terms. Credit terms are the time limits you set for your customers' promise to pay for their purchases. Credit terms affect the timing of your cash inflows. A simple way to improve cash flow is to get customers to pay their bills more quickly.
• Credit policy. A credit policy is the blueprint you use when deciding to extend credit to a customer. The correct credit policy - neither too strict nor too generous - is crucial for a healthy cash flow.
• Inventory. Inventory describes the extra merchandise or supplies your business keeps on hand to meet the demands of customers. An excessive amount of inventory hurts your cash flow by using up money that could be used for other cash outflows. Too many business owners buy inventory based on hopes and dreams instead of what they can realistically sell. Keep your inventory as low as possible.
• Accounts payable and cash flow. Accounts payable are amounts you owe to your suppliers that are payable at some point in the near future - "near" meaning 30 to 90 days. Without payables and trade credit, you'd have to pay for all goods and services at the time you purchase them. For optimum cash flow management, examine your payables schedule.

Some cash flow gaps are created intentionally. For example, a business may purchase extra inventory to take advantage of quantity discounts, accelerate cash outflows to take advantage of significant trade discounts or spend extra cash to expand its line of business. For other businesses, cash flow gaps are unavoidable. Take, for example, a company that experiences seasonal fluctuations in its line of business. This business may normally have cash flow gaps during its slow season and then later fill the gaps with cash surpluses from the peak part of its season. Cash flow gaps are often filled by external financing sources. Revolving lines of credit, bank loans, and trade credit are just a few of the external financing options available that you may want to discuss with us. Monitoring and managing your cash flow is important for the vitality of your business. The first signs of financial woe appear in your cash flow statement, giving you time to recognize a forthcoming problem and plan a strategy to deal with it. Furthermore, with periodic cash flow analysis, you can head off those unpleasant financial glitches by recognizing which aspects of your business have the potential to cause cash flow gaps. Make Sure Your Business has Adequate Funds If you need help covering day-to-day expenses or analyzing and managing your cash flow more effectively, please call the office today.

File on Time Even if You Can't Pay

Generally, taxpayers should file their tax returns by the deadline even if they cannot pay the total amount due, but if you can't, there are several options. Let's take a look at a few scenarios: 1. An individual taxpayer owes taxes but can't pay in full by the deadline. If this is the case, file a tax return or request an extension of time to file by the April 18 deadline. If tax is owed and a return is not filed on time - or an extension is not requested - the taxpayer may face a failure-to-file penalty for not filing on time. 2. File an extension. Taxpayers should remember that an extension of time to file is not an extension of time to pay. An extension gives taxpayers until October 17, 2022, to file their 2021 tax return, but taxes owed are still due April 18, 2022 (April 19 if you live in Maine or Massachusetts). To file an extension, taxpayers must do one of the following:

• File Form 4868, Application for Automatic Extension of Time, through their tax professional
• Submit an electronic payment with Direct Pay, Electronic Federal Tax Payment System or by debit, credit card or digital wallet and select Form 4868 or extension as the payment type.

3. Set up a payment plan as soon as possible. Taxpayers who owe money but cannot pay in full by April 18 (April 19 if you live in Maine or Massachusetts) don't have to wait for a tax bill to set up a payment plan. Instead, they can:

• Apply for a payment plan on IRS.gov; or
• Submit a payment plan request using Form 9465, Installment Agreement Request

4. Pay as much as possible by the April 18 (or 19) due date. Whether filing a return or requesting an extension, taxpayers must pay their tax bill in full by the May deadline to avoid interest and penalties. People who do not pay their taxes on time will face a failure-to-pay penalty. The IRS has options for taxpayers who can't afford to pay taxes they owe. Don't wait. If you need assistance filing a tax return or an extension for 2021, please call the office as soon as possible.

What To Do if You're Missing Important Tax Documents

As the April 18th tax deadline quickly approaches, last-minute tax filers should make sure they have all their documents before filing a tax return. You should have received a Form W-2, Wage and Tax Statement, from each of your employers for use in preparing your federal tax return. Employers must furnish this record of 2021 earnings and withheld taxes no later than January 31, 2022. As such, most taxpayers should have received their documents near the end of January, including:

• Forms W-2, Wage and Tax Statement
• Form 1099-MISC, Miscellaneous Income
• Form 1099-INT, Interest Income
• Form 1099-NEC, Nonemployee Compensation
• Form 1099-G, Certain Government Payments; like unemployment compensation or state tax refund

Taxpayers who haven't received a W-2 or Form 1099 should contact the employer, payer, or issuing agency and request the missing documents. This also applies to those who received an incorrect W-2 or Form 1099. If they can't get the forms, they must still file their tax return on time or get an extension to file. To avoid filing an incomplete or amended return, they may need to use Form 4852, Substitute for Form W-2, Wage and Tax Statement or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, Etc. If a taxpayer doesn't receive the missing or corrected form in time to file their tax return, they can estimate the wages or payments made to them and any taxes withheld. They can use Form 4852 to report this information on their federal tax return. If they receive the missing or corrected Form W-2 or Form 1099-R after filing their return and the information differs from their previous estimate, they must file Form 1040-X, Amended U.S. Individual Income Tax Return. Incorrect Form 1099-G for unemployment benefits Many people received unemployment compensation in 2021. Unemployment compensation is taxable and must be reported on the recipient's tax return. Taxpayers who receive an incorrect Form 1099-G, Certain Government Payments (Info Copy Only), for unemployment benefits they did not get should contact the issuing state agency to request a revised Form 1099-G showing their correct benefits. Taxpayers who are unable to obtain a timely, corrected form from states should still file an accurate tax return, reporting only the income they did receive. Filing an Amended Return If you receive a corrected W-2 or 1099 after your return is filed and the information it contains does not match the income or withheld tax that you reported on your return, you must file an amended return on Form 1040X, Amended U.S. Individual Income Tax Return. Don't Wait, Take Action Now If you're missing important tax forms, please contact the office for assistance.

Tax Credits To Help Cover Costs of Higher Education

Whether your child attends trade school, private college or public university, you already know that higher education in the United States is expensive. The good news is that many taxpayers are able to take advantage of two education tax credits to help offset these costs: the American opportunity tax credit and the lifetime learning credit. Taxpayers, their spouses, or their dependents who take post-high school coursework, may be eligible for this tax benefit. How the Credits Work These credits reduce the amount of tax someone owes. If the credit reduces tax to less than zero, the taxpayer could even receive a refund. To be eligible to claim either of these credits, a taxpayer or a dependent must have received a Form 1098-T, Tuition Statement from an eligible educational institution. There are exceptions for some students. Key Things to Know The American opportunity tax credit is:

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

The lifetime learning credit is:

• 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.

Claiming the Credit Taxpayers can use the Interactive Tax Assistant tool on IRS.gov to figure out if they're eligible for either of these credits. If eligible, taxpayers who paid for higher education in 2021 can see these tax savings when they file their tax return. To claim either credit, taxpayers should complete Form 8863, Education Credits, and file it with their tax return.

Taxpayers should keep in mind that although there may be four academic years, there are five tax years. As such taxpayers can take advantage of both the American Opportunity Tax Credit (four tax years) and the lifetime learning credit (the fifth tax year), if eligible.

Don't hesitate to call the office if you have any questions about these and other tax credits that could reduce your tax bill this year.

Small Business: Rent Expenses May Be Tax-deductible

If you're a small business owner who is just starting out, you may not realize that some rent expenses may be deductible on your tax return. Here are some things small business owners should keep in mind when it comes to deducting rental expenses: How Rent is Defined Rent is any amount paid for the use of property that a small business doesn't own. Typically, rent can be deducted as a business expense when the rent is for property the taxpayer uses for the business. Lease or Purchase

• Sometimes a business must determine whether its payments are for rent or for the purchase of the property, because different tax rules may apply.
• Businesses must first determine whether an agreement is a lease or a conditional sales contract.
• Payments made under a conditional sales contract aren't deductible as rent expense.

Unreasonable Rent Businesses can't take a rental deduction for unreasonable rents paid. Rent is unreasonable for deduction when it is higher than market value or a professional appraisal.

• Usually, unreasonable rent becomes a problem when business owners and the lessors are related.
• Rent paid to a related person is reasonable if it’s the same amount a business owner would pay to a stranger for use of the same property. The definition of a related person is not limited to family members. Please call for more information.

Office in the Home A business owner's workplace can be in their home if they have a home office that qualifies as their principal place of business.

• Business owners who rent their home and have a home office as their principal place of business may also qualify for a deduction.
• IRS Publication 587, Business Use of Your Home, Including Use by Daycare Providers, has more details about this deduction.

Rent Paid in Advance Rent paid for a business is usually deductible in the year it is paid.

• If a business pays rent in advance, it can deduct only the amount that applies to the use of the rented property during the tax year. The business can deduct the rest of the payment over the period to which it applies.
• Business owners can review Publication 535, Business Expenses, for detailed examples on rent paid in advance.

Canceling a Lease A business can usually deduct the costs paid to cancel a business lease. Questions? If you have any questions about whether rental expenses are tax deductible for your small business, please contact the office.

Taxpayer Rights: Pay No More Than the Correct Amount

As a reminder, taxpayers have the right to pay only the amount of tax legally due, including interest and penalties. They also have the right to have the IRS apply all tax payments properly. This is one of 10 fundamental rights known collectively as the Taxpayer Bill of Rights. The Taxpayer Bill of Rights (TBOR) is a cornerstone document highlighting the ten fundamental rights taxpayers have when dealing with the Internal Revenue Service. Every taxpayer needs to be aware of these rights in the event they need to work with the IRS on a personal tax matter. With this in mind, taxpayers should know six important things about their right to pay no more than the correct tax owed. Here is a summary of what taxpayers can expect:

• File for a refund if they believe they overpaid their taxes.
• Contact the IRS by calling the number listed on the notice or bill if they believe there is an error on a notice or bill. Taxpayers may also write to the IRS office that sent the notice or bill within the time frame given and should provide photocopies of any records that may help correct the error.
• File an amended tax return if an error is discovered after the original return was filed. An amended return should also be filed if there is an error or change in your filing status, income, deductions, or credits.
• Request that any amount owed be removed if it exceeds the correct amount due under the law, if the IRS has assessed it after the period allowed by law, or if the assessment was done in error or in violation of the law.
• Request that the IRS remove interest from the account if the agency caused unreasonable errors or delays.
• Submit an offer in compromise using Form 656-L, Offer in Compromise. Taxpayers use this form to ask the IRS to accept less than the full amount of tax debt. Taxpayers do this if they believe all or part of the debt is not owed.

For general information about taxpayer rights, take a look at IRS Publication 1, Your Rights as a Taxpayer, which includes a full list of taxpayers’ rights. If you have specific questions, don't hesitate to contact the office. Help is just a phone call away.

Memorized, Commented, and Scheduled Reports

QuickBooks reports are your reward for conscientiously tracking your business income and expenses. Rather than scanning through lists of customer invoices to see which ones are past due, you can run an A/R Aging report with a couple of clicks. Same goes for your bills: A/P Aging. Need to know what items are selling well and which are not? Run Inventory Stock Status by Item. The insight reports can give you don’t just tell you how many products you’ve sold and what you owe and who owes you. They help you make better business decisions and plan for the future. But you can do much more with them than just absorb their information and move on with your day. You can modify them, share them and make comments on individual line items. Here’s how. (You can work with a QuickBooks sample file for most of these steps. Go to File | Open Previous Company.)

Memorizing Reports

Where does QuickBooks start when you create a report? How does it know, for example, what date range you want the report to cover and what customers and vendors, and items should be included? It doesn’t. The pre-built reports that QuickBooks can create have default settings. That is, they just provide a starting place. To run the reports with the content you want to see, you have to modify them by clicking the Customize Report button in the upper left and specifying your preferences. Figure 1: You can change numerous settings in QuickBooks’ reports, and then memorize those preferences for use again. Once you’ve modified a report that you want to save, it’s easy to keep a copy of it with its new settings. With the report open, click the Memorize button at the top of the screen. When the Memorize Report window opens, give your report a Name that you’ll remember and will associate with its settings and content. If you’d like to save it in a Memorized Report Group, check that box and open the drop-down menu to select from the options there ( Company, Customers, etc.). Do you think other QuickBooks users might want to use the model you created? Click the box next to Share this report template with others. In the window that opens, you’ll need to give your report a Description. You can choose to share your name or post it anonymously. Click Share, and you’ll be able to see your template in QuickBooks’ Report Center by clicking Shared with the Memorized tab highlighted. Other users will only be able to access the settings and use them with their own data. Yours will not be included.

Commented Reports

Figure 2: You can click the dialogue balloon next to any item and enter a comment about it in the box below. QuickBooks’ Reports menu is a comprehensive listing of all of your report options. Click on it, and you’ll see that there’s a link for your Memorized reports right at the top. You’ll also see a link for Commented Reports. QuickBooks allows you to enter comments in reports. To see this in action, open the Sales by Item Detail report. Click Comment on Report at the top of the screen. QuickBooks will open another copy with small dialogue balloons displayed next to every element of the report (Name, Qty, Sales Price, etc.) in every row. Click the one you want to comment on, and a window opens below. Enter your comment. The number in front of the comment (1) matches the correct location in the report. Click Save over to the right. You can now Print or E-mail the commented report or Save it after giving it a Name. To see the list of reports you’ve entered comments on, open the Reports menu and select Commented Reports. Your original report will not contain the comments, only the commented one you saved.

Scheduling Reports

You may be commenting on reports for your purposes, but you may also want to share them with colleagues or other business contacts sometimes. QuickBooks allows you to email selected reports on a schedule, as long as they’re memorized. Scheduling reports isn’t such a complex process, but your system has to be set up precisely for it to work. For example, you must:

• Be in single-user mode.
• Have an email service connected to QuickBooks (if it’s Outlook, it must be open and running).
• Not be in sleep or hibernation mode.
• Have QuickBooks updated to the latest release.
• Have QuickBooks running.

Your report data is very sensitive, and emailing it to the wrong person could be disastrous. If you need help with this or any other QuickBooks-related issues, please call, and someone can walk you through this process.

Tax Due Dates for April 2022

April 11

Employees who work for tips - If you received $20 or more in tips during March, report them to your employer. You can use Form 4070.

April 18

Individuals - File an income tax return for 2021 (Form 1040 or Form 1040-SR) and pay any tax due. If you live in Maine or Massachusetts, you may file by April 19. If you want an automatic 6-month extension of time to file the return, file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return and pay what you estimate you owe in tax to avoid penalties and interest. Then file Form 1040 or Form 1040-SR by October 17. Household Employers - If you paid cash wages of $2,300 or more in 2021 to a household employee, file Schedule H (Form 1040 or Form 1040-SR) with your income tax return and report any employment taxes. Report any federal unemployment (FUTA) tax on Schedule H (Form 1040 or Form 1040-SR) if you paid total cash wages of $1,000 or more in any calendar quarter of 2020 or 2021 to household employees. Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in March. Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in March. Individuals - If you are not paying your 2022 income tax through withholding (or will not pay in enough tax during the year that way), pay the first installment of your 2022 estimated tax. Use Form 1040-ES. Corporations - File a 2021 calendar year income tax return (Form 1120) and pay any tax due. If you want an automatic 6-month extension of time to file the return, file Form 7004 and deposit what you estimate you owe in taxes. Corporations - Deposit the first installment of estimated income tax for 2022. A worksheet, Form 1120-W, is available to help you estimate your tax for the year.

May 2

Employers - Federal unemployment tax. Deposit the tax owed through March if more than $500. Employers - Social Security, Medicare, and withheld income tax. File form 941 for the first quarter of 2022. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until May 10 to file the return. Copyright © 2022   All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.

Feature Articles Filing a Tax Return: Avoid These Common Errors Tax Breaks for Taxpayers Who Itemize What To Know About the Gig Economy and Your Taxes Small Business Financing: Securing a Loan Reminder: Social Security Benefits May Be Taxable Tax Tips There's Still Time To Make an IRA Contribution for 2021 What Is the Credit for Other Dependents? Business Meals Fully Deductible in 2021 and 2022 Employee Business Expense Deductions: Who Qualifies? The Facts: Taxable vs. Nontaxable Income QuickBooks Tips Bundling Items in Quickbooks? Build Assemblies

Filing a Tax Return: Avoid These Common Errors

While not all mistakes on tax returns cause delays in refunds, as the April 18 deadline approaches, taxpayers are advised to steer clear of the common tax return errors listed below to ensure a timely refund.

Not Using Electronic Filing

While this isn't necessarily a mistake per se, electronic filing is the best way to cut the chances for many tax return mistakes while maximizing deductions to reduce the amount of tax owed. The reason for this is that the tax software your tax professional uses automatically applies the latest tax laws, checks for available credits or deductions, does the calculations, and asks taxpayers for all required information.

Due to the backlog of returns related to COVID-19, processing paper tax returns could take much longer than usual, and electronic filing is encouraged. If filing a paper return, taxpayers should double-check the mailing address on IRS.gov or on the form instructions to avoid processing delays.

Failing To Report All Taxable Income

Be sure to have income documents on hand before starting the tax return. Examples are Forms W-2, 1099-MISC, or 1099-NEC. Underreporting income may lead to penalties and interest. Wages, dividends, bank interest, and other income received that was reported on an information return should be entered carefully on your tax forms. This includes any information needed to calculate credits and deductions.

Using Incorrect or Misspelled Names and Social Security Numbers

Enter each Social Security number (SSN) and individual's name on a tax return exactly as printed on the Social Security card. Persons generally must list the SSN of any person they claim as a dependent on their individual income tax return. If a dependent or spouse does not have and is not eligible to get an SSN, list the Individual Tax Identification Number (ITIN) instead of an SSN. Likewise, a name listed on a tax return should match the name on that person's Social Security card.

Not Using the Correct Filing Status

If taxpayers are unsure about their filing status, the Interactive Tax Assistant on IRS.gov can help them choose the correct status, especially if more than one filing status applies. Tax software, including IRS Free File, also helps prevent mistakes with filing status.

Forgetting to Answer the Virtual Currency Question

The 2021 Form 1040 asks whether, at any time during 2021, a person received, sold, sent, exchanged, or otherwise disposed of any financial interest in any virtual currency. All taxpayers must answer this question - not just taxpayers who engaged in a transaction involving virtual currency.

Not Using the Correct Bank Account and Routing Numbers

Requesting direct deposit of a federal refund into one, two, or even three accounts is convenient and allows the taxpayer access to their money faster. Make sure that the financial institution routing and account numbers entered on the return are accurate. Incorrect numbers can cause a refund to be delayed or deposited into the wrong account.

Taxpayers can also use their refund to purchase U.S. Savings Bonds by completing Part 2 of Form 8888, Allocation of Refund (Including Savings Bond Purchases), with their tax return. Your tax filing must be error-free to receive the Treasury bonds, however.

Figuring Credits or Deductions

Taxpayers can make mistakes figuring things like their earned income tax credit, child and dependent care credit, child tax credit, and recovery rebate credit. The Interactive Tax Assistant Tool on IRS.gov can help determine if a taxpayer is eligible for tax credits or deductions. Tax software will calculate these credits and deductions and include any required forms and schedules. Taxpayers should double-check where items appear on the final return before clicking the submit button.

Forgetting to Sign and Date the Return

If filing a joint return, both spouses must sign and date the return. E-filers can sign using a self-selected personal identification number (PIN).

Failing To Keep a Copy of Your Return

When ready to file, taxpayers should make a copy of their signed returns and all schedules for their records.

Not Requesting an Extension, if Needed

Taxpayers who cannot meet the April 18 deadline this year can easily request an automatic filing extension to October 17, 2022, and prevent late filing penalties. Remember that while an extension grants additional time to file, tax payments are still due April 18, 2022.

Tax Breaks for Taxpayers Who Itemize

Many taxpayers opt for the standard deduction, but sometimes itemizing your deductions is the better choice - often resulting in a lower tax bill. Whether you bought a house, refinanced your current home, or had extensive gambling losses, you may be able to take advantage of tax breaks for taxpayers who itemize. Here's what to keep in mind:

Deducting State and Local Income, Sales, and Property Taxes

The deduction that taxpayers can claim for state and local income, sales, and property taxes is limited to a combined, total deduction of $10,000 - $5,000 if married filing separately. State and local taxes paid above this amount can't be deducted.

Refinancing a Home

The deduction for mortgage interest is limited to interest paid on a loan secured by the taxpayer's main home or second home. Homeowners who choose to refinance must use the loan to buy, build, or substantially improve their main home or second home, and the mortgage interest they may deduct is subject to the limits described under "buying a home" below.

Buying a Home

People who bought a new home in 2021 can only deduct mortgage interest paid on a total of $750,000 ($375,000 married filing separately) in qualifying debt for a first and second home. For existing mortgages, if the loan originated on or before December 15, 2017, taxpayers may continue to deduct interest on a total of $1 million in qualifying debt secured by first and second homes.

Charitable Donations

Donations to a qualified charity also qualify as a tax break. Taxpayers who itemize deductions can take advantage of a temporary suspension of limits on charitable contributions (CARES Act of 2020) that allows them to deduct cash donations to public charities in amounts of up to 100 percent of adjusted gross income (AGI). Normally, the limit for the deduction for cash contributions is 60% of AGI. As a reminder, the non-profit organization must be a 501(c)(3) public charity or private foundation, and non-cash donations may require a qualified appraisal. Taxpayers must have proof of all donations.

Deducting Mileage for Charity

Miles driven using a personal vehicle for charitable service activities could qualify you for a tax break. Taxpayers who itemize can deduct 14 cents per mile for charitable mileage driven in 2021, as well as 2022.

Reporting Gambling Winnings and Claiming Gambling Losses

Taxpayers who itemize can deduct gambling losses up to the amount of gambling winnings. You may deduct gambling losses; however, the amount of losses you deduct can't be more than the amount of gambling income you report on your return. Furthermore, you must keep a record of your winnings and losses. For example, you must keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements, or other records that show the amount of both your winnings and losses.

Investment Interest Expenses

Investment interest expense is interest paid or accrued on a loan or part of a loan that is allocated to property held for taxable investments - the interest on a loan you took out to buy stock in a brokerage account, for example. Taxable investments include interest, dividends, annuities, or royalties. Wondering whether you should itemize deductions on your 2021 tax return? Don't hesitate to call the office and find out.

What To Know About the Gig Economy and Your Taxes

The gig economy, also called sharing or access economy, is defined by activities where taxpayers earn income providing on-demand work, services, or goods. This type of work is often carried out via digital platforms such as an app or website. There are many types of sharing economy businesses, including two of the most popular ones: ride-sharing, Uber and Lyft, for example, and home rentals such as Airbnb. If taxpayers use one of the many online platforms to rent a spare bedroom, provide car rides, or other goods or services, they may be part of the sharing or gig worker economy. Understanding how gig work can affect taxes may sound complicated, but it doesn't have to be. Let's take a look at what taxpayers should keep in mind:

Income is Taxable

Whether it's a full-time job or just a side hustle, taxpayers must report gig economy earnings on their tax returns. Income from these sources is taxable, regardless of whether an individual receives information returns. This is true even if the work is full-time, part-time, or a side job, if an individual is paid in cash, or if an information return like a Form 1099 or Form W2 is issued to the gig worker.

New for 2022: The reporting requirement PDF for issuance of Form 1099-K changed for payments received in 2022 to totals exceeding $600, regardless of the total number of transactions. This means some gig workers will now receive an information return. This is true even if the work is full-time, part-time or if an individual is paid in cash.

Taxpayers may also be required to make quarterly estimated income tax payments and pay their share of Social Security, Medicare, or Medicaid taxes. Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe $1,000 or more tax when their return is filed.

Renting Out Your Home

Special rules generally apply if a taxpayer rents out his home, apartment, or other dwelling but also lives in it during the year - this residential rental income may be taxable. For more information about these rules, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Taxpayers can also use the Interactive Tax Assistant Tool, Is My Residential Rental Income Taxable, and/or Are My Expenses Deductible? to determine if their residential rental income is taxable.

Worker Classification

While providing gig economy services, the taxpayer must be correctly classified. This means the business or the taxpayer must determine whether the individual providing the services is an employee or an independent contractor. Taxpayers can check out the worker classification page on IRS.gov to determine how they are classified. This is important because some gig workers may be classified as independent contractors and may be able to deduct business expenses, depending on tax limits and rules. To do so, taxpayers who are independent contractors need to keep records of their business expenses. For example, a taxpayer who uses their car for business should keep a written mileage log (or use a mileage tracking app) because they often qualify to claim the standard mileage rate on their tax return. For 2021, this rate was 56 cents per mile. In 2022, the rate rises to 58.5 cents per mile.

Paying Taxes on Gig Income

Since income from the gig economy is taxable, taxpayers must remember to pay the right amount of taxes throughout the year to avoid owing when they file. An employer typically withholds income taxes from their employees' pay to help cover income taxes their employees owe. However, gig economy workers who are not considered employees must pay their taxes. There are two ways to do this:

• Submit a new Form W-4 to their employer to have more income taxes withheld from their paycheck if they have another job as an employee.
• Make quarterly estimated tax payments to help pay their income taxes throughout the year, including self-employment tax.

If you have any questions about the sharing economy and your taxes, help is just a phone call away.

Small Business Financing: Securing a Loan

At some point, most small business owners will visit a bank or other lending institution to borrow money. Understanding what your bank wants and how to approach them properly can mean the difference between getting a loan for expansion or scrambling to find cash from other sources. Unfortunately, many business owners fall victim to several common, but potentially destructive myths regarding financing, such as:

• Lenders are eager to provide money to small businesses.
• Banks are willing sources of financing for start-up businesses.
• When it comes to seeking money, the company speaks for itself.
• A bank is a bank, is a bank, and all banks are the same.
• Banks, especially large ones, do not need and do not want the business of a small firm.

Understand the Basic Principles of Banking

It's vital to present yourself as a trustworthy businessperson, dependable enough to repay borrowed money, and demonstrate that you understand the basic principles of banking. Your chances of receiving a loan will significantly improve if you can see your proposal through a banker's eyes and appreciate the position that they are coming from. Banks have a responsibility to government regulators, depositors, and the community in which they reside. While a bank's cautious perspective may be irritating to a small business owner, it is necessary to keep the depositors' money safe, the banking regulators happy, and the community's economic health growing.

Each Banking Institution is Different

Banks differ in the types of financing they make available, interest rates charged, willingness to accept risk, staff expertise, services offered, and their attitude toward small business loans. Selection of a bank is essentially limited to your choices from the local community. Typically, banks outside of your area of business are not as anxious to make loans to your firm because of the higher costs of checking credit and collecting the loan in the event of default. Furthermore, a bank will typically not make business loans to any size business unless a checking account or money market account is maintained at that institution. Ultimately your task is to find a business-oriented bank that will provide the financial assistance, expertise, and services your business requires now and is likely to require in the future. If you need assistance deciding which bank best suits your needs and provides the greatest value for your business operation, don't hesitate to call the office.

Build Rapport

Building a favorable climate for a loan request should begin long before the funds are needed. The worst possible time to approach a new bank is when your business is in the throes of a financial crisis. Devote time and effort to building a background of information and goodwill with the bank you choose and get to know the loan officer you will be dealing with early on. Bankers are essentially conservative lenders with an overriding concern for minimizing risk. Logic dictates that this is best accomplished by limiting loans to businesses they know and trust. One way to build rapport and establish trust is to take out small loans, repay them on schedule, and meet all loan agreement requirements in both letter and spirit. By doing so, you gain the banker's trust and loyalty, and they will consider your business a valued customer and make it easier for you to obtain future financing.

Provide the Information Your Banker Needs to Lend You Money

Lending is the essence of the banking business, and making mutually beneficial loans is as crucial to the bank's success as it is to the small business. Understanding what information a loan officer seeks - and providing the evidence required to ease normal banking concerns - is the most effective approach to getting what is needed. A sound loan proposal should contain information that expands on the following points:

• What is the specific purpose of the loan?
• Exactly how much money is required?
• What is the exact source of repayment for the loan?
• What evidence is available to substantiate the assumptions that the expected source of repayment is reliable?
• What alternative source of repayment is available if management's plans fail?
• What business or personal assets, or both, are available to collateralize the loan?
• What evidence is available to substantiate the competence and ability of the management team?

Even a brief examination of these points suggests the need for you to do your homework before making a loan request because an experienced loan officer will ask probing questions about each of them. Failure to anticipate these questions or providing unacceptable answers is damaging evidence that you may not completely understand the business or are incapable of planning for your firm's needs.

What to Do Before You Apply for a Loan

Write a Business Plan. Your loan request should be based on and accompanied by a complete business plan. This document is the single most important planning activity that you can perform. A business plan is more than a device for getting financing; it is the vehicle that makes you examine, evaluate, and plan for all aspects of your business. A business plan's existence proves to your banker that you are doing all the right activities. Once you've put the plan together, write a two-page executive summary. You'll need it if you are asked to send "a quick write-up." Have an accountant prepare historical financial statements. You can't talk about the future without accounting for your past. Internally generated statements are OK, but your bank wants the comfort of knowing an independent expert has verified the information. Also, you must understand your statement and explain how your operation works and how your finances stand up to industry norms and standards. Line up references. Your banker may want to talk to your suppliers, customers, potential partners, or your team of professionals, among others. When a loan officer asks for permission to contact references, promptly answer with names and numbers; don't leave them waiting for a week.

Seek Advice From an Experienced Tax and Accounting Professional

Walking into a bank and talking to a loan officer is stressful for just about anyone. Preparation for and a thorough understanding of this evaluation process is essential to minimize the stressful variables and optimize your potential to qualify for the funding you seek. If you're thinking about taking out a small business loan, don't hesitate to call with any questions or to request a consultation.

Reminder: Social Security Benefits May Be Taxable

Social Security benefits include monthly retirement, survivor, and disability benefits; they do not include Supplemental Security Income (SSI) payments, which are not taxable. Generally, you pay federal income taxes on your Social Security benefits only if you have other substantial income in addition to your benefits. Your income and filing status affect whether you must pay taxes on your Social Security. About 40 percent of people who get Social Security have to pay income taxes on their benefits. At the end of each year, the Social Security Administration sends a Form SSA-1099, Social Security Benefit Statement, showing the amount of benefits you received. Use this statement when you complete your federal income tax return to find out if you must pay taxes on your benefits.

Although you're not required to have Social Security withhold federal taxes, you may find it easier than paying quarterly estimated tax payments.

An easy method of determining whether any of your benefits might be taxable is to take one-half of the Social Security money collected during the year and add it to your other income. Other income includes pensions, wages, self-employment, interest, dividends, capital gains, and any other taxable income that must be reported on your tax return. On the 1040 tax return, your "combined income" is the sum of your adjusted gross income plus nontaxable interest plus half of your Social Security benefits.

Taxpayers Filing an Individual Federal Tax Return

• If your combined income (adjusted gross income + nontaxable interest + 1/2 of your Social Security benefits) is between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
• If it is more than $34,000, up to 85 percent of your benefits may be taxable.

Taxpayers Filing a Joint Federal Tax Return

• If you and your spouse have a combined income (adjusted gross income + nontaxable interest + 1/2 of your (and your spouse, if applicable) Social Security benefits) that is between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
• If it is more than $44,000, up to 85 percent of your benefits may be taxable.

Married Taxpayers Filing Separately

Up to 85% of social security benefits may be taxable if you are:

• A married taxpayer who lived apart from your spouse for all of 2021 with more than $34,000 income
• A married taxpayer who lived with your spouse at any time during 2021

Pensions from Work

If you get a pension from work for which you paid Social Security taxes, that pension won't affect your Social Security benefits. However, if you get a retirement or disability pension from work not covered by Social Security, we may reduce your Social Security benefit. Work not covered by Social Security includes the federal civil service, some state or local government employment, or work in a foreign country.

State Taxes

Twelve states tax social security income as well including Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

Retiring Abroad?

Retirement income is generally not taxed by other countries. As a U.S. citizen retiring abroad who receives Social Security, for instance, you may owe U.S. taxes on that income but may not be liable for tax in the country where you're spending your retirement years. If Social Security is your only income, then your benefits may not be taxable, and you may not need to file a federal income tax return. However, if you receive income from other sources (either U.S. or country of retirement) as well, from a part-time job or self-employment, for example, you may have to pay U.S. taxes on some of your benefits - the same as if you were still living in the U.S. You may also be required to report and pay taxes on any income earned in the country where you retired. Each country is different, so consult a local tax professional specializing in expatriate tax services.

Even if you retire abroad, you may still owe state taxes - unless you established residency in a state that does not tax retirement income such as Florida before you moved overseas. Another thing to keep in mind is that some states honor the provisions of U.S. tax treaties and some states do not. Therefore, it is prudent to consult a tax professional before choosing a retirement location.

Help is Just a Phone Call Away

If you receive Social Security, a tax professional can help you determine if some - or all - of your benefits are taxable.

There's Still Time To Make an IRA Contribution for 2021

If you haven't contributed funds to an Individual Retirement Account (IRA) for tax year 2021, or if you've put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 18, 2022, due date (April 19 if you live in Maine or Massachusetts), not including extensions. Be sure to tell the IRA trustee that the contribution is for 2021. Otherwise, the trustee may report the contribution as being for 2022 when they get your funds. Generally, you can contribute up to $6,000 of your earnings for tax year 2021 (up to $7,000 if you are age 50 or older). You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts.

Traditional IRA. You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer's pension plan.Roth IRA. You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.

Each year, the IRS announces the cost of living adjustments and limitations for retirement savings plans. Saving for retirement should be part of everyone's financial plan, and it's important to review your retirement goals every year to maximize savings. If you need help with your retirement plans, give the office a call.

What Is the Credit for Other Dependents?

The credit for other dependents is a tax credit available to taxpayers for each of their qualifying dependents who can't be claimed for the child tax credit. The maximum credit amount is $500 for each dependent who meets certain conditions. These include:

• Dependents who are age 17 or older.
• Dependents who have individual taxpayer identification numbers.
• Dependent parents or other qualifying relatives supported by the taxpayer.
• Dependents living with the taxpayer who aren't related to the taxpayer.

The credit begins to phase out when the taxpayer's income is more than $200,000. This phaseout begins for married couples filing a joint tax return at $400,000. A taxpayer can claim this credit if:

• They claim the person as a dependent on the taxpayer's return.
• They cannot use the dependent to claim the child tax credit or additional child tax credit.
• The dependent is a U.S. citizen, national or resident alien.

Taxpayers can claim the credit for other dependents in addition to the child and dependent care credit and the earned income credit. The worksheet in Publication 972, Child Tax Credit and Credit for Other Dependents helps taxpayers determine if they can claim the credit for other dependents. For more information about this important tax credit for families, please call the office.

Business Meals Fully Deductible in 2021 and 2022

Beginning January 1, 2021, and extending through December 31, 2022, businesses can claim 100% of their food or beverage expenses paid to restaurants as long as the business owner (or an employee of the business) is present when food or beverages are provided, and the expense is not lavish or extravagant under the circumstances. In most tax years, there is a 50% limit on the amount that businesses may deduct for food or beverages. The temporary exception was included in the Taxpayer Certainty and Disaster Relief Act of 2020, part of a series of tax laws intended to provide coronavirus-related relief. Where can businesses get food and beverages and claim 100%? Under the temporary provision, restaurants include businesses that prepare and sell food or beverages to retail customers for immediate on-premises and/or off-premises consumption. However, restaurants do not include businesses that primarily sell pre-packaged goods, not for immediate consumption, such as grocery stores and convenience stores. Additionally, an employer may not treat certain employer-operated eating facilities like restaurants, even if a third party operates these facilities under contract with the employer. Questions? For more information about this and other coronavirus-related tax relief for business owners, please contact the office today.

Employee Business Expense Deductions: Who Qualifies?

Prior to tax reform, an employee could deduct unreimbursed job expenses, along with certain other miscellaneous expenses, that were more than two percent of adjusted gross income (AGI) as long as they itemized instead of taking the standard deduction. Starting in 2018, however, most taxpayers can no longer claim unreimbursed employee expenses as miscellaneous itemized deductions unless they are a qualified employee or eligible educator. No other type of employee is eligible to claim a deduction for unreimbursed employee expenses. In other words, employee business expenses can be deducted as an adjustment to income only for eligible educators and specific employment categories such as:

• Armed Forces reservists
• Qualified performing artists
• Fee-basis state or local government officials
• Employees with impairment-related work expenses

Qualified Expenses A qualified expense is one that is:

Paid or billed during the tax year
• Used for carrying on a trade or business of being an employee, and
• Ordinary and necessary

Nondeductible Expenses Taxpayers should also know there are nondeductible expenses as well. Examples of nondeductible expenses include club dues, commuting expenses, fees and licenses, such as car licenses, lunches with co-workers, meals while working late, expenses to improve professional reputation, and capital expenses. A full list of nondeductible expenses can be found in Publication 529, Miscellaneous Deductions. Please call if you have any questions.

The Facts: Taxable vs. Nontaxable Income

Are you wondering if there's a hard and fast rule about what income is taxable and what income is not taxable? The quick answer is that all income is taxable unless the law specifically excludes it. But as you might have guessed, there's more to it than that. Taxable Income Taxable income includes any money you receive, such as wages, tips, and unemployment compensation. It can also include noncash income from property or services. For example, both parties in a barter exchange must include the fair market value of goods or services received as income on their tax return. Nontaxable Income Here are some types of income that are usually not taxable:

• Gifts and inheritances
• Child support payments
• Welfare benefits
• Damage awards for physical injury or sickness
• Cash rebates from a dealer or manufacturer for an item you buy
• Reimbursements for qualified adoption expenses

Under the CARES Act, emergency financial aid grants made to students at a higher education institution because of an event related to the COVID-19 pandemic are not included in the student's gross income.

In addition, some types of income are not taxable except under certain conditions, including:

• Life insurance proceeds paid to you are usually not taxable. But if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.
• Income from a qualified scholarship is normally not taxable; that is, amounts you use for certain costs, such as tuition and required books, are not taxable. However, amounts used for room and board are taxable.
• If you received a state or local income tax refund, the amount might be taxable. You should have received a 2021 Form 1099-G from the agency that made the payment to you. The agency might have provided the form electronically if you didn't get it by mail. Contact them to find out how to get the form. Be sure to report any taxable refund you received even if you did not receive Form 1099-G.

If you have any questions about taxable and nontaxable income, don't hesitate to contact the office today.

Bundling Items in Quickbooks? Build Assemblies

Some things naturally go together. For example, if you manage a fast-food restaurant, you probably sell similar combinations frequently, like a double cheeseburger, fries, and a soft drink. If you run a car dealership, there are numerous ways to upsell your customers by adding accessories, maybe at a discount. Even very small businesses can bundle items. You might sell handmade jewelry and want to put together a package that includes cleaner and cleaning cloths for one price. You can, of course, continue to sell all of those products separately. But you may find you can bump up your sales (and profits) by creating assemblies (sometimes called "kits"), bundles of items that are sold as one unit. You can automatically build these using QuickBooks Desktop Premier or above. Here's how.

Putting Items Together

If you're already creating item records and recording product sales in QuickBooks, you probably already have Inventory turned on. If you don't, open the Edit menu and select Preferences. Click Items & Inventory, then Company Preferences. Make sure the boxes are checked for the options you want. Figure 1: QuickBooks has several options for dealing with inventory. You should check your Preferences before you start entering sales. Haven't started creating item records yet? If you have questions about how QuickBooks handles this, help is just a phone call away. In fact, this is encouraged because some of the records' fields may be foreign to you. If you want to try it on your own, however, you will need to open the Lists menu and select Item Lists. Next, click the down arrow next to Item in the lower-left corner and then click New. The New Item window will open. Since you're going to be building assemblies, you have to create records for all of the products that will be included. So choose the Inventory Part option under Type. Complete the rest of the fields here and click OK. Once you have enough product records created to start building assemblies, go through the same steps you went through to open the New Item window. Rather than selecting Inventory Part under Type, though, click on Inventory Assembly. Instead of defining a single item in this window, you'll be choosing the components that will be included. This is your Bill of Materials.You won't have to complete every field in this window, but several are required. Give your assembly its own Item Name/Number. Then, so you know what you'll be pricing, jump down to the Bill of Materials window and select the items that your assembly will include in the table provided. If you completed all of the fields in the product records, QuickBooks will fill in the other columns on each line except for quantity (QTY) , which you must enter. Figure 2: Enter the item name and quantity for every inventory part in your assembly, and QuickBooks will fill in the rest and calculate your total cost. When you've completed the table for your assembly, enter the Total Bill of Materials Cost in the Cost field above it, then supply the Sales Price that you will charge. Select the correct Tax Code and Income Account. Then go down to the bottom of the screen under Inventory Information and select the appropriate Asset Account. You'll also need to specify at what point new assemblies should be built (minimum and maximum). There are four other fields on this line that QuickBooks will fill out once you start building assemblies and selling them.

Building Assemblies

The hard work is over now. When you want to actually start building assemblies, open the Vendors menu and click Inventory Activities | Build Assemblies. Select the kit you want by opening the drop-down menu next to Assembly Item. The items you selected will appear in the table below. QuickBooks will also display the maximum number of kits you can build given the quantity of inventory on hand. Enter the number you want in the Quantity To Build field and click the Build & Close button. Now, when you go back to your item record, you'll see that QuickBooks has filled in the On Hand number to reflect the assemblies you just built. Figure 3: QuickBooks will keep the numbers in the lower right corner of the assembly item record updated. The process of building assemblies may feel a little foreign at first. And if you're going to keep some on hand, you'll need to pay extra attention to your inventory levels, which you can do by running the Inventory Stock Status by Item report. So, this is an area where you may need help. If that is the case, don't hesitate to call for assistance with inventory and assembly concepts or any other element of QuickBooks.

Tax Due Dates for March 2022

March 1

Farmers and Fisherman - File your 2021 income tax return (Form 1040 or Form 1040-SR) and pay any tax due. However, you have until April 18 (April 19 if you live in Maine or Massachusetts) to file if you paid your 2021 estimated tax by January 18, 2022.

March 2

Health Coverage Reporting - If you are an Applicable Large Employer, provide Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, to full-time employees. For all other providers of minimum essential coverage, provide Form 1095-B, Health Coverage, to responsible individuals.

March 10

Employees who work for tips - If you received $20 or more in tips during February, report them to your employer. You can use Form 4070.

March 15

Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in February. Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in February. Partnerships - File a 2021 calendar year income tax return (Form 1065). Provide each partner with a copy of their Schedule K-1 (Form 1065-B) or substitute Schedule K-1. To request an automatic 6-month extension of time to file the return, file Form 7004. Then file the return and provide each partner with a copy of their final or amended (if required) Schedule K­1 (Form 1065) by September 15. S Corporations - File a 2021 calendar year income tax return (Form 1120S) and pay any tax due. Provide each shareholder with a copy of Schedule K-1 (Form 1120S), Shareholder's Share of Income, Credits, Deductions, etc., or a substitute Schedule K-1. If you want an automatic 6-month extension of time to file the return, file Form 7004 and deposit what you estimate you owe in tax. Then file the return, pay any tax, interest, and penalties due and provide each shareholder with a copy of their Schedule K-1 by September 15. S Corporation Election - File Form 2553, Election by a Small Business Corporation, to choose to be treated as an S corporation beginning with calendar year 2022. If Form 2553 is filed late, S corporation treatment will begin with calendar year 2023.

March 31

Electronic Filing of Forms - File Forms 1097, 1098, 1099 (except Form 1099-NEC), 3921, 3922, and W-2G with the IRS. This due date applies only if you file electronically. The due date for giving the recipient these forms generally remains January 31. Electronic Filing of Form W-2G - File copies of all the Form W-2G (Certain Gambling Winnings) you issued for 2021. This due date applies only if you electronically file. The due date for giving the recipient these forms remains January 31. Electronic Filing of Forms 8027 - File copies of all the Forms 8027 you issued for 2021. This due date applies only if you electronically file. Electronic Filing of Forms 1094-C and 1095-C and Forms 1094-B and 1095-B - If you're an Applicable Large Employer, file electronic forms 1094-C and 1095-C with the IRS. For all other providers of minimum essential coverage, file electronic Forms 1094-B and 1095-B with the IRS. Copyright © 2022   All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.

Feature Articles The 2022 Tax Filing Season: What You Need to Know What's New for IRS Form 1040 This Year Three Tips for Getting an Accurate Business Valuation Working Remotely Could Affect Your Taxes Tax Breaks for Older Adults and Retirees Tax Tips What is IRS Letter 6419? Non-Profits: Electronic Filing of Form 1024 Important Information About Economic Impact Letters Standard vs. Itemized Deductions Eight Facts About the Adoption Credit QuickBooks Tips Should You Be Using Quickbooks' Custom Fields?

The 2022 Tax Filing Season: What You Need to Know

Monday, January 24, 2022, was the official start to this year's tax season. By now, everyone should have received most of the information they need to make sure they file a complete and accurate return. The start date for individual tax return filers is determined by how much time the IRS needs to perform programming and testing critical to ensuring IRS systems run smoothly. Updated programming helps ensure that eligible people can claim the proper amount of the Child Tax Credit after comparing their 2021 advance credits and claim any remaining stimulus money as a Recovery Rebate Credit when they file their 2021 tax return. Some returns, filed electronically or on paper, may need manual review, which delays the processing if IRS systems detect a possible error or missing information, or there is suspected identity theft or fraud. Some of these situations require the IRS to correspond with taxpayers, but some do not. This work does require special handling by an IRS employee, so, in these instances, it may take the IRS more than the normal 21 days to issue any related refund. In those cases where the IRS is able to correct the return without corresponding, the IRS will send an explanation to the taxpayer.

By law, the IRS cannot issue a refund involving the Earned Income Tax Credit or Additional Child Tax Credit before mid-February. However, eligible people may file their returns beginning on January 24. The law provides this additional time to help the IRS stop fraudulent refunds from being issued.

April 18 Tax Filing Deadline for Most Taxpayers

The filing deadline for most taxpayers to submit 2021 tax returns or an extension to file and pay any tax owed is Monday, April 18, 2022. Some taxpayers may have a different deadline, however. By law, Washington, D.C., holidays impact tax deadlines for everyone in the same way federal holidays do. The due date is April 18, instead of April 15, because of the Emancipation Day holiday in the District of Columbia for everyone except taxpayers who live in Maine or Massachusetts. Taxpayers in Maine or Massachusetts have until April 19, 2022, to file their returns due to the Patriots' Day holiday in those states. Taxpayers requesting an extension will have until Monday, October 17, 2022, to file.

No Need to Wait for 2020 Returns to Be Processed

As of December 3, 2021, the IRS has processed nearly 169 million tax returns. All paper and electronic individual 2020 refund returns received prior to April 2021 have been processed if the return had no errors or did not require further review. There is, however, a backlog of prior-year individual tax returns that have not been fully processed. As such, taxpayers generally will not need to wait for their 2020 return to be fully processed to file their 2021 tax returns and can file when they are ready.

Key Items to Know Before Filing 2021 Tax Returns

Before filing a tax return, taxpayers should know about three key items: Changes to the charitable contribution deduction. Taxpayers who don't itemize deductions may qualify to take a deduction of up to $600 for married taxpayers filing joint returns and up to $300 for all other filers for cash contributions made in 2021 to qualifying organizations. Check on advance child tax credit payments. Families who received advance payments will need to compare the advance child tax credit payments they received in 2021 with the amount of the child tax credit that they can properly claim on their 2021 tax return.

• Taxpayers who received less than the amount for which they're eligible will claim a credit for the remaining amount of child tax credit on their 2021 tax return.
• Eligible families who did not get monthly advance payments in 2021 can still get a lump-sum payment by claiming the child tax credit when they file a 2021 federal income tax return next year. This includes families who don't normally need to file a return.

In January 2022, the IRS began sending Letter 6419 (see What is IRS Letter 6419?, below) with the total amount of advance child tax credit payments taxpayers received in 2021. People should keep this and other IRS letters about advance child tax credit payments with their tax records. Individuals can also create or log in to IRS.gov Online Account to securely access their child tax credit payment amounts. Economic impact payments and claiming the recovery rebate credit. Individuals who didn't qualify for the third economic impact payment or did not receive the full amount may be eligible for the recovery rebate credit based on their 2021 tax information. They'll need to file a 2021 tax return, even if they don't usually file, to claim the credit. Individuals will need the amount of their third economic impact payment and any plus-up payments received to calculate their correct 2021 recovery rebate credit amount when they file their tax return. In early 2022, the IRS sent Letter 6475, Your Third Economic Impact Payment, that contains the total amount of the third economic impact payment and any plus-up payments received. People should keep this and other IRS letters about their stimulus payments with other tax records. Individuals can also create or log in to IRS.gov Online Account to securely access their economic impact payment amounts.

Important Filing Season Dates for Taxpayers

Important dates taxpayers should keep in mind for this year's filing season are listed below:

January 14 - IRS Free File opens. Taxpayers can begin filing returns through IRS Free File partners; tax returns will be transmitted to the IRS starting January 24. Tax software companies also are accepting tax filings in advance.January 18 - Due date for tax year 2021 fourth quarter estimated tax payment. January 24 - IRS begins 2022 tax season. Individual 2021 tax returns begin being accepted and processing begins. January 28 - Earned Income Tax Credit Awareness Day to raise awareness of valuable tax credits available to many people – including the option to use prior-year income to qualify. April 18 - Due date to file 2021 tax return or request extension and pay tax owed due to Emancipation Day holiday in Washington, D.C., even for those who live outside the area. April 19 - Due date to file 2021 tax return or request extension and pay tax owed for those who live in MA or ME due to Patriots' Day holiday. October 17 - Due date to file for those requesting an extension on their 2021 tax returns

Don't Wait to Get Started on Your Tax Return

Taxes are more complicated than ever, so it's important to work with a tax professional you can trust. If you're ready to get started on your tax return, call the office today and set up a consultation with a tax professional who can help.

What's New for IRS Form 1040 This Year

If you've gathered your tax documents and are ready to tackle your tax return, there's one more step you should take: becoming familiar with what's new on the 2021 Form 1040. While the format of Form 1040 and its schedules remain similar to 2020, there are several changes. Many of these changes can be attributed to the American Rescue Plan Act of 2021 (ARP). Some are more familiar to taxpayers, including charitable contributions, advance child tax credits, and economic impact payments (mentioned above). Others might not be as well-known. Let's take a look at ten of them:

1. Virtual Currency Question

If you engaged in a transaction involving virtual currency during 2021, you will need to answer "Yes" to the question on page 1 of Form 1040 or 1040-SR. The question, At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?, must be answered by all taxpayers - not just taxpayers who engaged in a transaction involving virtual currency. Do not leave this field blank.

Taxpayers who filed a 2020 return may remember answering this question last year; however, the wording for 2020 was different in that it used "acquire" instead of "dispose of."

2. Premium Tax Credit Expanded (PTC)

ARP expanded the PTC by eliminating the limitation that a taxpayer's household income may not exceed 400% of the Federal Poverty Line and generally increases the credit amounts. In addition, in 2021, if you receive unemployment compensation, you are generally eligible to claim the PTC if you meet the other requirements.

3. Changes to Schedule 8812, Credits for Qualifying Children and Other Dependents

Because of the changes made by ARP, a detailed discussion of the child tax credit and how to figure your child tax credit and credit for other dependents (previously part of these instructions) has been moved to the Instructions for Schedule 8812 (Form 1040). Also, instead of one page, Schedule 8812 is now three pages long. Part III now includes calculations for any additional tax due because of excess advance child tax credit payments. Complete Schedule 8812 if you are claiming the nonrefundable child tax credit, refundable child tax credit, additional child tax credit, or credit for other dependents, and attach it to your Form 1040 or 1040-SR.

4. EIC: Special Rules for Taxpayers Without a Qualified Child

Special rules apply if you claim the EIC (Earned Income Credit) without a qualifying child. In these cases, the minimum age has been lowered to age 19 except for specified students who must be at least 24 years old at the end of the year. However, the applicable minimum age is lowered further (to age 18) for former foster youth and qualified homeless youth. Additionally, you no longer need to be under age 65 to claim the EIC without a qualifying child.

5. Forgiveness of Paycheck Protection (PPP) Loans

The forgiveness of a PPP Loan creates tax-exempt income, so you don't need to report the income on Form 1040 or 1040-SR. You do, however, need to report certain information related to your PPP Loan. Please call if you need more information about how to report information related to your PPP Loan.

6. Direct Deposit Now Available for Late Filed Tax Returns

Even if you file your 2021 return after November 30, 2022, you are still able to receive a direct deposit of your refund.

7. Alternative Media Preference, Form 9000

Beginning in 2021, taxpayers with print disabilities can use Form 9000, Alternative Media Preference, to elect to receive notices from the IRS in an alternative format, including Braille, large print, audio, and electronic. You can attach Form 9000 to your Form 1040 or 1040-SR, or you can mail it separately.

8. Identity Verification

The IRS is now using ID.me. This trusted technology provider improves the identity verification and sign-in process and enables more people to access and use IRS online tools and applications securely. The new process ensures that taxpayer information is provided only to the person who legally has a right to the data. Taxpayers using the new mobile-friendly verification procedure can access existing IRS online services such as the Child Tax Credit Update Portal, Online Account, Get Transcript Online, Get an Identity Protection PIN (IP PIN), and Online Payment Agreement.

ID.me accounts would not be required to file tax returns; however, the Treasury Department and the IRS are considering alternatives to ID.me after concerns about privacy were raised.

9. Extension and Expansion of Sick and Family Leave Credits

Under ARP, certain self-employed individuals can claim credits for up to 10 days of "paid sick leave" and up to 60 days of "paid family leave" if they are unable to work or telework due to circumstances related to coronavirus. Self-employed individuals may claim these credits for the period beginning on April 1, 2021, and ending September 30, 2021.

10. Tuition and Fees Deduction No Longer Available

Finally, as a reminder, the tuition, and fees deduction, which was worth up to $4,000, is no longer available starting in 2021. Instead, the income limitations for the lifetime learning credit have been increased. Please call if you need more information about this valuable education-related tax credit.

It Pays To Be Prepared

Don't hesitate to call if you have questions about these and other tax law changes affecting individual taxpayers.

Three Tips for Getting an Accurate Business Valuation

If you're conscientious about financial reporting, you may already have a sense of your company's worth, but in some instances, you might need a formal business valuation, such as:

• Certain transactions: Are you selling your business? Planning an IPO? Need financing?
• Tax purposes: This includes estate planning, stock option distribution, and S Corporation conversions.
• Litigation: Often needed in cases like bankruptcy, divorce, and damage determinations.

While there isn't a single formula for valuing a business, there are generally accepted measures that will give you a valid assessment of your company's worth. Here are three tips that you can use to give your business a more accurate valuation:

1. Take a Close Look at How Your Business Operates

Does it incorporate the most tax-efficient structure? Have sales been lagging, or are you selling most of your merchandise to only a few customers? If so, consider jump-starting your sales effort by bringing in an experienced consultant who can help. Do you have several products that are not selling well? Maybe it's time to remove them from your inventory. Redesign your catalog to give it a fresh new look and make a point of discussing any new and exciting product lines with your existing customer base. It might also be time to give your physical properties a spring cleaning. Even minor upgrades such as a new coat of paint will increase your business valuation.

2. Tangible and Intangible Assets

Keep in mind that business valuation is not just an exercise in numbers where you subtract your liabilities from your assets. It's also based on the value of your intangible assets. It's easy to figure out the numbers for the value of your real estate and fixtures, but what is your intellectual property worth? Do you hold any patents or trademarks? And what about your business relationships or the reputation you've established with existing clients and in the community? Don't forget about key long-term employees whose in-depth knowledge about your business also adds value to its net worth.

3. Choose Your Appraisal Team Carefully

Don't try to do it yourself by turning to the Internet or reading a few books. You may eventually need to bring in experts like a business broker and an attorney, but your first step should be to contact an experienced tax professional with the expertise you need to arrive at a fair valuation of your business. If you need a business valuation for whatever reason, please don't hesitate to call and speak to a tax and accounting professional who can help.

Working Remotely Could Affect Your Taxes

When COVID-19 struck, many employers quickly switched to a work-from-home model for their employees. Many of them began working in a state other than where their office was located. While some workers have returned to their offices, as the pandemic drags on, more offices continue to work remotely with no back-to-office dates in sight. If you're working remotely from a location in a different state (or country) from that of your office, then you may be wondering if you will have to pay income tax in multiple jurisdictions or whether you will need to file income tax returns in both states. Here's what you should know: Generally, states can tax income whether you live there or work there. Whether a taxpayer must include taxable income while living or working in a particular jurisdiction depends on several factors, including nexus, domicile, and residency. Many states - especially those with large metro areas where much of the workforce resides in surrounding states - have agreements in place that allow credits for tax due in another state so that you aren't taxed twice. For example, in metro Washington, DC, payroll tax withholding is based on the state of residency, allowing people to work in another state without causing a tax headache. Other states such as Arkansas, Connecticut, Delaware, Massachusetts, Nebraska, New York, and Pennsylvania tax workers based on job location even if they reside (and pay tax in) a different state.

Remote Working in Multiple Locations

Let's say you live in Florida. During the pandemic, a mandatory office closure allows you to work remotely from your vacation home in North Carolina - a state that is not your domicile (i.e., your home). Next spring, you will need to file a nonresident income tax return on income earned in North Carolina (your remote work location, but not your domicile) in addition to your usual tax returns. However, in all the pandemic confusion, your employer may not have known you were working remotely from NC and did not withhold tax from your pay (income earned). If that's the case, then you may owe money. Here's why: If the tax rate in the remote location is higher than the taxpayer's home state or the home state doesn't impose an income tax, but the state they are working from does, the tax credit in the worker's home state may not be enough to offset all - or any - tax owed. Ideally, employers should establish a bona fide office at the teleworking locations of their remote employees and elect the proper state withholding of said employees, so they do not have to pay additional taxes.

Necessity or Convenience

Another important factor to consider is whether a worker's remote work location is due to necessity or convenience. If there is a mandatory government shutdown, then it is a necessity. If the option to go back to the office exists, but the worker chooses not to because of health concerns, then the state could view it as convenience.

Tax Deductions Not Allowed for Employees Who Are Remote Workers

Prior to the Tax Cuts and Jobs Act of 2018, taxpayers who were employees were able to deduct job-related expenses such as a desk and monitor used for work purposes or other miscellaneous itemized deductions that exceeded 2 percent of their adjusted gross income. Under tax reform, however, this is suspended for tax years 2018-2025.

Keeping Good Records

Keeping good records is always important when it comes to your taxes, but even more so when there are so many unknowns. As such, it's a good idea to keep track of how many days were worked in each state and how much money was earned.

Help is Just a Phone Call Away

Tax laws are complex even during the best of times. If you've been working remotely during the pandemic in a different location than your office, then it pays to consult with a tax and accounting professional to figure out your tax liability and recommend a course of action to lower your tax bill, such as changing your withholding.

Tax Breaks for Older Adults and Retirees

Everyone wants to save money on their taxes, and retirees and older adults are no exception. If you're 50 or older, here are six tax tips that could help you do just that.

1. Standard Deduction for Seniors

If you and your spouse are 65 years old or older and you do not itemize your deductions, you can take advantage of a higher standard deduction amount. There is an additional increase in the standard deduction if you or your spouse are blind.

2. Credit for the Elderly or Disabled

If you and your spouse are either 65 years or older - or under age 65 years old and are permanently and totally disabled - you may be able to take the Credit for Elderly or Disabled. The credit is based on your age, filing status, and income. You may only take the credit if you meet the following requirements: The amount on Form 1040 or 1040-SR, line 11 is less than $17,500 ($20,000 if married filing jointly and only one spouse qualifies), $25,000 (married filing jointly and both qualify), or $12,500 (married filing separately and lived apart from your spouse for the entire year). and The nontaxable part of your Social Security or other nontaxable pensions, annuities, or disability income is:

• Less than $5,000 (single, head of household, or qualifying widow/er with dependent child);
• $5,000 (married filing jointly and only one spouse qualifies);
• $7,500 (married filing jointly and both qualify); or
• $3,750 (married filing separately and lived apart from your spouse the entire year).

3. Retirement Account Limits Increase

Once you reach age 50, you are eligible to contribute (and defer paying tax on) up to $26,000 in 2021 ($27,000 in 2022). The amount includes the additional $6,500 "catch up" contribution for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan.

4. Early Withdrawal Penalty Eliminated

If you withdraw money from an IRA account before age 59 1/2, you generally must pay a 10 percent penalty; however, once you reach age 59 1/2, there is no longer a penalty for early withdrawal. Furthermore, if you leave or are terminated from your job at age 55 or older (age 50 for public safety employees), you may withdraw money from a 401(k) without penalty. However, you still have to pay tax on the additional income. To complicate matters, money withdrawn from an IRA is not exempt from the penalty.

5. Social Security Benefits Generally Not Taxable

Americans can sign up for social security benefits as early as age 62 or wait to receive full benefits at age 66 or 67 (depending on your full retirement age). Generally, you pay federal income taxes on your Social Security income only if you have other substantial income in addition to your benefits. Most retirees do not pay income tax on their social security benefits. Some, however, do. The more income you have coming in, the more likely it is that a portion of your social security benefits will be taxed. Therefore, when preparing your return, it is advisable to be especially careful when calculating the taxable amount of your Social Security.

6. Higher Income Tax Filing Threshold

Taxpayers who are 65 and older are allowed an income of $1,700 more ($2,700 married filing jointly and both spouses are 65 or older) before they need to file an income tax return. In other words, older taxpayers age 65 and older with an income of $14,250 ($27,800 married filing jointly - both spouses over age 65) or less may not need to file a tax return.

Don't Miss Out

If you have any questions about these and other tax deductions and credits available for older Americans, please call.

What is IRS Letter 6419?

Taxpayers should have started receiving IRS Letter 6419, 2021 advance CTC, in January. The advance child tax credit payments letter helps taxpayers get the remainder of their 2021 tax credit. It includes the total amount of advance child tax credit payments taxpayers received in 2021 and the number of qualifying children used to calculate the advance payments. Do not throw this letter away. The letter will help taxpayers and their tax preparers reconcile and receive all the 2021 child tax credits to which they are entitled on your 2021 tax return. Families who received advance payments need to file a 2021 tax return and compare the advance payments they received in 2021 with the amount of the child tax credit they can properly claim on their 2021 tax return. Eligible families who did not receive any advance child tax credit payments can claim the full amount of the child tax credit on their 2021 federal tax return. This includes families who don't normally need to file a tax return. Taxpayers who received the advance payments can also check the amount of their payments by using the CTC Update Portal available on IRS.gov. If you have any questions about this and other COVID-19-related tax relief, help is just a phone call away.

Non-Profits: Electronic Filing of Form 1024

Starting January 3, 2022, nonprofit organizations applying for recognition of exemption must submit Form 1024, Application for Recognition of Exemption Under Section 501(a) or Section 521 of the Internal Revenue Code, electronically online at Pay.gov. Form 1024, which was previously filed using a paper version, has been revised by the IRS to allow electronic filing. There is, however, a 90-day grace period during which the IRS will continue to accept paper versions of Form 1024 (Rev. 01-2018) and letter applications. The revised Form 1024 is part of the IRS’s ongoing efforts to improve service for the tax-exempt community and make it easier to complete an application for tax-exempt status while reducing errors and reducing processing time. Electronic filing will also shorten the time it takes the IRS to process these forms. Organizations requesting determinations under Section 521 are now also able to use the electronic Form 1024 instead of Form 1028, Application for Recognition of Exemption Under Section 521 of the Internal Revenue Code. The required user fee for Form 1024 remains $600 for 2022. Applicants must pay the fee through Pay.gov when submitting the form, and payment can be made directly from a bank account or by credit or debit card. In addition, applications for recognition of exemption under Sections 501(c)(11), (14), (16), (18), (21), (22), (23), (26), (27), (28), (29) and 501(d) can no longer be submitted as letter applications. Instead, these requests must be made on the electronic Form 1024. Accordingly, organizations that are described in Section 501(c) (other than 501(c)(3) and (c)(4)) and 501(d) applying for tax-exempt status must now use the electronic Form 1024. Section 501(c)(3) organizations must continue to use Form 1023 or Form 1023-EZ, and Section 501(c)(4) organizations must continue to use Form 1024-A. Those forms also must be filed electronically. Please contact the office if you need assistance applying for IRS recognition of tax-exempt status or have any other questions about applying for tax-exempt status.

Important Information About Economic Impact Letters

The IRS began issuing Letter 6475, Your Third Economic Impact Payment, to EIP recipients in late January. This letter helps Economic Impact Payment recipients determine if they are entitled to and should claim the recovery rebate credit on their 2021 tax returns when they file in 2022. It contains information that can reduce errors and delays and help taxpayers or tax professionals prepare their 2021 federal tax returns. Anyone who receives this letter should keep it. Do not throw it away. Letter 6475 only applies to the third round of Economic Impact Payments issued in March through December of 2021. The third round of Economic Impact Payments, including "plus-up" payments, were advance payments of the 2021 recovery rebate credit claimed on a 2021 tax return. Plus-up payments were additional payments the IRS sent to people who received a third Economic Impact Payment based on a 2019 tax return or information received from the Social Security Administration, Railroad Retirement Board, or Veterans Affairs. Plus-up payments were also sent to people who were eligible for a larger amount based on their 2020 tax return. Most eligible people have already received the payments. However, some people could be missing their stimulus payments and be able to claim a recovery rebate credit for 2020 or 2021, if eligible. This includes people who don't normally need to file a tax return. As a reminder, never throw away any letters you receive from the IRS, including those related to Economic Impact Payments. Keep these letters with your tax records because they include important information that can help you quickly and accurately file your tax return or resolve a tax dispute. If you think you are missing an economic impact payment, please call the office to find out if you are eligible to claim a recovery rebate credit for 2020 or 2021.

Standard vs. Itemized Deductions

When completing a tax return, taxpayers have two options: take the standard deduction or itemize their deductions. Most taxpayers use the option that gives them the lowest overall tax. Due to all the tax law changes in recent years, including increases to the standard deduction, that means taking the standard deduction - but not always. Let's look at a few details about these two options. Standard deduction The standard deduction amount increases slightly every year, and it varies by filing status. Factors that affect the standard deduction amount include the taxpayer's filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don't itemize deductions are entitled to a higher standard deduction. Most filers who use Form 1040, U.S. Individual Income Tax Return, can find their standard deduction on the first page of the form. For most filers of Form 1040-SR, U.S. Tax Return for Seniors, the standard deduction, is on page 4 of that form. Not all taxpayers can take a standard deduction. Those taxpayers include:

• A married individual filing as married filing separately whose spouse itemizes deductions—if one spouse itemizes on a separate return, both must itemize.
• An individual who files a tax return for a period of less than 12 months. This is uncommon and could be due to a change in their annual accounting period.
• An individual who was a nonresident alien or a dual-status alien during the year. However, nonresident aliens who are married to a U.S. citizen or resident alien can take the standard deduction in certain situations.

Itemized deductions Taxpayers choose to itemize deductions should file Schedule A, Form 1040, Itemized Deductions. Itemized deductions that taxpayers may claim include:

• State and local income or sales taxes
• Real estate and personal property taxes
• Home mortgage interest
• Mortgage insurance premiums on a home mortgage
• Personal casualty and theft losses from a federally declared disaster
• Gifts to a qualified charity
• Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income

Some itemized deductions, such as the deduction for taxes, may be limited. For more information on these limitations or any other questions, don't hesitate to contact the office.

Eight Facts About the Adoption Credit

Taxpayers who adopted or started the adoption process in 2021 may qualify for the adoption credit. This credit can be applied to international, domestic private, and public foster care adoption; however, taxpayers who adopt their spouse's child cannot claim this credit. Here are eight facts to help people understand the adoption tax credit and whether they can claim it when filing their taxes: 1. The maximum adoption credit taxpayers can claim on their 2021 tax return is $14,440 per eligible child. 2. There are income limits that could affect the amount of the credit. The income limit on the adoption credit or exclusion is based on your modified adjusted gross income (MAGI). If your MAGI amount for 2021 falls between certain dollar limits, your credit or exclusion is subject to a phaseout (is reduced or eliminated). For tax year 2021, the MAGI phaseout begins at $216,660 and ends at $256,660. In other words, if your MAGI amount is below $216,660 for 2021, you can take the full credit, but if your MAGI amount for 2021 is $256,660 or more, your credit will be zero. 3. Taxpayers should complete Form 8839, Qualified Adoption Expenses. This form is used to figure how much credit they can claim on their tax return. 4. An eligible child must be younger than 18. If the adopted person is older, they must be unable to take care of themselves physically. 5. This credit is non-refundable. This means the amount of the credit is limited to the taxpayer's taxes due for 2021. Any credit leftover from their owed 2021 taxes can be carried forward for up to five years. 6. Qualified expenses include:

• Reasonable and necessary adoption fees.
• Court costs and legal fees.
• Adoption related travel expenses like meals and lodging.
• Other expenses directly related to the legal adoption of an eligible child.

7. In some cases, a registered domestic partner may pay the adoption expenses. If they live in a state that allows a same-sex second parent or co-parent to adopt their partner's child, these may also be considered qualified expenses. 8. Expenses may also qualify even if the taxpayer pays them before an eligible child is identified. For example, some future adoptive parents pay for a home study at the beginning of the adoption process. These parents can claim the fees as qualified adoption expenses. Questions about whether you qualify for the adoption tax credit? Help is just a phone call away.

Should You Be Using Quickbooks' Custom Fields?

One of the reasons that QuickBooks is so popular is that it can be used by various business types, from pet stores to landscaping companies to coffee shops. Many companies are satisfied with the software and don't need to make any modifications. But have you ever needed to include more information in your customer records? Do your transaction forms need an additional field or two? QuickBooks makes this possible by supporting custom fields that you can define for yourself. It's not difficult to do, and it can help you, for example, :

• Generate more focused reports.
• Make customer and vendor records more detailed.
• Create records for similar-but-different inventory items.

Here's how it works:

Changing QuickBooks Forms

You may already know that you can change the structure and content of some QuickBooks forms, including invoices, estimates, sales receipts, statements, and purchase orders. To see what’s possible, open the Lists menu and select Templates. Right-click on the screen and select New. Choose the form you want to create and click OK. You can make changes in the window that opens and click Additional Customization to make more modifications. Figure 1: You have tremendous control over the content and structure of your forms in QuickBooks.

Creating Custom Fields for Records

QuickBooks does not include custom field creation in the Basic Customization and Additional Customization windows, although your new fields will appear in the Additional Customization window. Rather, you go to the Customer Center, Vendor Center, or Employee Center, depending on what kind of records you want to change. You can add up to 15 custom fields for those three types of records (no more than seven per type). Open the Customers menu and select Customer Center. Make sure the Customers & Jobs tab is highlighted. Double-click on any record to open its Edit Customer window and then click on Additional Info. In the lower right corner, click Define Fields. The window that opens displays four columns. In the first, Label, you'll enter the names of your new custom fields. Click in any or all of the next three columns to indicate which records should contain them: customer, vendor, or employee. Figure 2: You can create up to 15 custom fields in QuickBooks Pro and Premier, but you're limited to seven per record type. Think carefully about what custom fields you want to create before you start. Once you've defined them and started using them in records and transactions, you won't want to change them.

Adding Custom Fields to Items

You can also add up to five custom fields to your item records. Open the Lists menu and select Item List. Select an item and double-click it to open its Edit Item window, then click Custom Fields over to the right. In the window that opens, click Define Fields. This feature works like the one that was just explained for adding custom fields to contact records. You enter the Label name and click in the Use column to create a checkmark.

Using Custom Fields

It's easy to enter information in the custom fields you’ve created in your customer, vendor, and employee records. You go through the same process you did to create them. Open a record and click Additional Info. You'll see your new fields in the column to the right. Just enter the information in each record and click OK. Figure 3: It's easy to find the custom fields you've created and enter the appropriate information in each record. As was said earlier, the custom fields you've created will be available to add to the appropriate form templates when you customize them. You'll also be able to choose them as filters when you generate reports.

Dealing with Limitations

Obviously. QuickBooks' custom fields have some shortcomings. You can probably work within limits placed on contact records, but you may want to track more targeted information than the software's limits allow when you're dealing with items. If you sell t-shirts and you have a large inventory in different sizes and colors, for example, you'll have to create an item record for each configuration rather than using custom fields. You chose - or may be planning to choose - QuickBooks because it can work for so many types of businesses. Custom fields are one way the software provides to personalize its features. But there may come a time when you outgrow its capabilities. You might need to install an add-on application to deepen specific functional areas like inventory, or you may need to upgrade your edition of QuickBooks entirely. If so, it may be time to contact a QuickBooks professional. If you need help with the program's custom fields, or it's time for you to expand your current accounting system, don't hesitate to call.

Tax Due Dates for February 2022

February 10

Employees - who work for tips. If you received $20 or more in tips during January, report them to your employer. You can use Form 4070. Employers - Social Security, Medicare, and withheld income tax. File Form 941 for the fourth quarter of 2021. This due date applies only if you deposited the tax for the quarter in full and on time. Farm Employers - File Form 943 to report Social Security and Medicare taxes and withheld income tax for 2021. This due date applies only if you deposited the tax for the year in full and on time. Certain Small Employers - File Form 944 to report Social Security and Medicare taxes and withheld income tax for 2021. This tax due date applies only if you deposited the tax for the year in full and on time. Employers - Nonpayroll taxes. File Form 945 to report income tax withheld for 2021 on all nonpayroll items. This due date applies only if you deposited the tax for the year in full and on time. Employers - Federal unemployment tax. File Form 940 for 2021. This due date applies only if you deposited the tax for the year in full and on time.

February 15

Individuals - If you claimed exemption from income tax withholding last year on the Form W-4 you gave your employer, you must file a new Form W-4 by this date to continue your exemption for another year. Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in January. Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in January. All businesses. Give annual information statements to recipients of certain payments made during 2021. You can use the appropriate version of Form 1099 or other information return. This due date applies only to payments reported on Form 1099-B, Form 1099-S, and substitute payments reported in Box 8 or gross proceeds paid to an attorney reported in Box 10 of Form 1099-MISC.

February 16

Employers - Begin withholding income tax from the pay of any employee who claimed exemption from withholding in 2021, but did not give you a new Form W-4 to continue the exemption this year.

February 28

Businesses - File information returns (for example, certain Forms 1099) for certain payments you made during 2021. However, Form 1099-NEC reporting nonemployee compensation must be filed by January 31. There are different forms for different types of payments. Use a separate Form 1096 to summarize and transmit the forms for each type of payment. See the General Instructions for Certain Information Returns for information on what payments are covered, how much the payment must be before a return is required, what form to use, and extensions of time to file. If you file Forms 1097, 1098, 1099 (except a Form 1099-NEC reporting nonemployee compensation), 3921, 3922 or W-2G electronically, your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms generally remains January 31. Payers of Gambling Winnings - File Form 1096, Annual Summary and Transmittal of U.S. Information Returns, along with Copy A of all the Forms W-2G you issued for 2021. If you file Forms W-2G electronically, your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms remains January 31. Health Coverage Reporting - If you are an Applicable Large Employer, file paper Forms 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and 1095-C with the IRS. For all other providers of minimum essential coverage, file paper Forms 1094-B, Transmittal of Health Coverage Information Returns, and 1095-B with the IRS. If you are filing any of these forms with the IRS electronically, your due date for filing them will be extended to March 31. Large Food and Beverage Establishment Employers - with employees who work for tips. File Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips. Use Form 8027-T, Transmittal of Employer's Annual Information Return of Tip Income and Allocated Tips, to summarize and transmit Forms 8027 if you have more than one establishment. If you file Forms 8027 electronically your due date for filing them with the IRS will be extended to March 31.

March 1

Farmers and Fisherman - File your 2021 income tax return (Form 1040 or Form 1040-SR) and pay any tax due. However, you have until April 15 (April 19 if you live in Maine or Massachusetts) to file if you paid your 2021 estimated tax by January 18, 2021.

March 2

Health Coverage Reporting - If you are an Applicable Large Employer, provide Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, to full-time employees. For all other providers of minimum essential coverage, provide Form 1095-B, Health Coverage, to responsible individuals. Copyright © 2022   All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.

Feature Articles Getting Ready for the 2022 Tax Filing Season Important Tax Changes for Individuals and Businesses Tax Planning vs. Tax Preparation: What is the Difference? Reminder: Identity Protection PIN Available To Taxpayers Credit Reports: What You Should Know Tax Tips Standard Mileage Rates for 2022 Why Using the Correct Filing Status Matters Tax Credits for Accommodating Disabled Workers Watch Out for Holiday Gift Card Scams What To Know About Keeping Good Tax Records QuickBooks Tips Start the New Year Right: Cleaning Up QuickBooks

Getting Ready for the 2022 Tax Filing Season

Filing your tax return promises to be just as complicated as always - especially if you received stimulus payments or advance child tax credit payments. However, there are steps that taxpayers can take right now to make sure their tax filing experience goes smoothly in 2022. Let's take a look at four things taxpayers can do now to get ready for tax season:

Gather and Organize Tax Records

Organized tax records make preparing a complete and accurate tax return easier. They help avoid errors that lead to processing delays that slow refunds. Having all needed documents on hand before taxpayers prepare their return helps them file it completely and accurately. Important tax records you need to file a return include:

• Forms W-2 from employers
• Forms 1099 from banks, issuing agencies, and other payers, including unemployment compensation, dividends, distributions from a pension, annuity, or retirement plan
• Form 1099-K, 1099-MISC, W-2, or other income statements for workers in the gig economy
• Form 1099-INT for interest received
• Other income documents and records of virtual currency transactions

Taxpayers should also gather any documents from these types of earnings. People should keep copies of tax returns and all supporting documents for at least three years.

These types of Income documents help taxpayers determine if they're eligible for deductions or credits. For example, people who need to reconcile their advance payments of the child tax credit and premium tax credit will need their related 2021 information. Those who did not receive their full third Economic Impact Payments will need their third payment amounts to figure and claim the 2021 recovery rebate credit. Taxpayers should also keep end of year documents such as:

• Letter 6419, 2021 Total Advance Child Tax Credit Payments, to reconcile advance child tax credit payments
• Letter 6475, Your 2021 Economic Impact Payment, to determine eligibility to claim the recovery rebate credit
• Form 1095-A, Health Insurance Marketplace Statement, to reconcile advance premium tax credits for Marketplace coverage

Confirm Mailing and Email Addresses and Report Name Changes

To make sure forms make it to taxpayers on time, they should confirm now that each employer, bank, and other payer has their current mailing address or email address. People can report address changes by completing Form 8822, Change of Address and sending it to the IRS. Taxpayers should also notify the postal service to forward their mail online at USPS.com or their local post office. They should also notify the Social Security Administration of a legal name change.

View Account Information Online

Individuals who have not set up an Online Account yet should do so soon. People who have already set up an Online Account should make sure they can still log in successfully. Taxpayers can use Online Account to securely access the latest available information about their federal tax account.

Review Proper Tax Withholding and Make Adjustments if Needed

Taxpayers may want to consider adjusting their withholding if they find they owe taxes or receive a large refund in 2021. Changing withholding can help avoid a tax bill or let individuals keep more money each payday. Life changes – getting married or divorced, welcoming a child, or taking on a second job – may also be reasons to change withholding. Taxpayers might think about completing a new Form W-4, Employee's Withholding Certificate, each year and when personal or financial situations change. People also need to consider estimated tax payments. Individuals who receive a substantial amount of non-wage income like self-employment income, investment income, taxable Social Security benefits, and in some instances, pension and annuity income should make quarterly estimated tax payments. The last payment for 2021 is due on January 18, 2022.

Tax Season is Right Around the Corner

Filing taxes is inevitable for most people, and with tax law becoming more complex with every passing year, there's no better time to get ready than right now. Call today and find out how a professional tax preparer can help.

Important Tax Changes for Individuals and Businesses

Every year, it's a sure bet that there will be changes to current tax law, and this year is no different. From standard deductions to health savings accounts and tax rate schedules, here's a checklist of tax changes to help you plan the year ahead.

Individuals

In 2022, a number of tax provisions are affected by inflation adjustments, including Health Savings Accounts, retirement contribution limits, and the foreign earned income exclusion. The tax rate structure, which ranges from 10 to 37 percent, remains similar to 2021; however, the tax-bracket thresholds increase for each filing status. Standard deductions also rise, and as a reminder, personal exemptions have been eliminated through tax year 2025. Standard Deduction In 2022, the standard deduction increases to $12,950 for individuals (up from $12,550 in 2021) and to $25,900 for married couples (up from $25,100 in 2021). Alternative Minimum Tax (AMT) In 2022, AMT exemption amounts increase to $75,900 for individuals (up from $73,600 in 2021) and $118,100 for married couples filing jointly (up from $114,600 in 2021). Also, the phaseout threshold increases to $539,900 ($1,079,800 for married filing jointly). Both the exemption and threshold amounts are indexed annually for inflation. "Kiddie Tax" For taxable years beginning in 2022, the amount that can be used to reduce the net unearned income reported on the child's return that is subject to the "kiddie tax" is $1,150. The same $1,150 amount is used to determine whether a parent may elect to include a child's gross income in the parent's gross income and to calculate the "kiddie tax." For example, one of the requirements for the parental election is that a child's gross income for 2022 must be more than $1,150 but less than $11,500. Health Savings Accounts (HSAs) Contributions to a Health Savings Account (HSA) are used to pay the account owner's current or future medical expenses, their spouse, and any qualified dependent. Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return. A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care. For calendar year 2022, a qualifying HDHP must have a deductible of at least $1,400 for self-only coverage or $2,800 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $7,050 for self-only coverage and $14,100 for family coverage. Medical Savings Accounts (MSAs) There are two types of Medical Savings Accounts (MSAs): The Archer MSA created to help self-employed individuals and employees of certain small employers, and the Medicare Advantage MSA, which is also an Archer MSA, and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare. Both MSAs require that you are enrolled in a high-deductible health plan (HDHP).

Self-only coverage. For taxable years beginning in 2022, the term "high deductible health plan" for self-only coverage means a health plan that has an annual deductible that is not less than $2,450 and not more than $3,700, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,950.Family coverage. For taxable years beginning in 2022, the term "high deductible health plan" means, for family coverage, a health plan that has an annual deductible that is not less than $4,950 and not more than $7,400, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $9,050.

AGI Limit for Deductible Medical Expenses In 2022, the deduction threshold for deductible medical expenses is 7.5 percent of adjusted gross income (AGI), made permanent by the Consolidated Appropriations Act, 2021. Eligible Long-Term Care Premiums Premiums for long-term care are treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or younger at the end of 2022, the limitation is $450. Persons more than 40 but not more than 50 can deduct $880. Those more than 50 but not more than 60 can deduct $1,690, while individuals more than 60 but not more than 70 can deduct $4,510. The maximum deduction is $5,640 and applies to anyone more than 70 years of age. Medicare Taxes The additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly) remains in effect for 2022, as does the Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (AGI) more than $200,000 ($250,000 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts, and self-employed individuals are all liable for the tax. Foreign Earned Income Exclusion For 2022, the foreign earned income exclusion amount is $112,000 up from $108,700 in 2021. Long-Term Capital Gains and Dividends In 2022, tax rates on capital gains and dividends remain the same as 2021 rates (0%, 15%, and a top rate of 20%); however, threshold amounts have increased: the maximum zero percent rate amounts are $41,675 for individuals and $83,350 for married filing jointly. For an individual taxpayer whose income is at or above $459,750 ($517,200 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent. All other taxpayers fall into the 15 percent rate amount (i.e., above $41,675 and below $459,750 for single filers). Estate and Gift Taxes For an estate of any decedent during calendar year 2022, the basic exclusion amount is $12.06 million, indexed for inflation (up from $11.70 million in 2021). The maximum tax rate remains at 40 percent. The annual exclusion for gifts increases to $16,000.

Individuals - Tax Credits

Adoption Credit In 2022, a nonrefundable (only those individuals with tax liability will benefit) credit of up to $14,890 is available for qualified adoption expenses for each eligible child. Earned Income Tax Credit For tax year 2022, the maximum Earned Income Tax Credit (EITC) for low, and moderate-income workers and working families increases to $6,935 (up from $6,728 in 2021). The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children. Child Tax Credit For tax years 2018 through 2025, the child tax credit is $2,000 per child. The refundable portion of the credit is $1,500 in 2022 so that even if taxpayers do not owe any tax, they can still claim the credit. A $500 nonrefundable credit is also available for dependents who do not qualify for the Child Tax Credit (e.g., dependents age 17 and older). Child and Dependent Care Tax Credit The Child and Dependent Care Tax Credit also remained under tax reform. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses in 2022. For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher-income earners, the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income. This tax credit is nonrefundable.

Individuals - Education

American Opportunity Tax Credit and Lifetime Learning Credit The maximum credit is $2,500 per student for the American Opportunity Tax Credit. The Lifetime Learning Credit remains at $2,000 per return. To claim the full credit for either, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly).

While the phaseout limits for Lifetime Learning Credit increased, taxpayers should note that the qualified tuition and expenses deduction was repealed starting in 2021.

Interest on Educational Loans In 2022, the maximum deduction for interest paid on student loans is $2,500. The deduction begins to be phased out for higher-income taxpayers with modified adjusted gross income of more than $70,000 ($140,000 for joint filers) and is completely eliminated for taxpayers with modified adjusted gross income of $85,000 ($170,000 joint filers).

Individuals - Retirement

Contribution Limits The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan remains at $20,500. Contribution limits for SIMPLE plans also remain at $14,000. The maximum compensation used to determine contributions increases to $305,000 (up from $290,000 in 2021). Income Phase-out Ranges The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by an employer-sponsored retirement plan and have modified AGI between $68,000 and $78,000. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range increases to $109,000 and $129,000. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple's modified AGI is between $204,000 and $214,000. The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $129,000 to $144,000 for singles and heads of household, up from $125,000 to $140,000. For married couples filing jointly, the income phase-out range is $204,000 to $214,000, up from $198,000 to $208,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000. Saver's Credit In 2022, the AGI limit for the Saver's Credit (also known as the Retirement Savings Contribution Credit) for low and moderate-income workers is $68,000 for married couples filing jointly, up from $66,000 in 2021; $51,000 for heads of household, up from $49,500 in 2021; and $34,000 for singles and married individuals filing separately, up from $33,000 in 2021.

Businesses

Standard Mileage Rates In 2022, the rate for business miles driven is 58.5 cents per mile, up 2.5 cents from the rate for 2021. Section 179 Expensing In 2022, the Section 179 expense deduction increases to a maximum deduction of $1,080,000 of the first $2,700,000 of qualifying equipment placed in service during the current tax year. This amount is indexed to inflation for tax years after 2018. The deduction was enhanced under the TCJA to include improvements to nonresidential qualified real property such as roofs, fire protection, and alarm systems and security systems, and heating, ventilation, and air-conditioning systems. Also, of note is that costs associated with the purchase of any sport utility vehicle, treated as a Section 179 expense, cannot exceed $27,000. Bonus Depreciation Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% in 2027 and years beyond. Qualified Business Income Deduction Eligible taxpayers are able to deduct up to 20 percent of certain business income from qualified domestic businesses, as well as certain dividends. To qualify for the deduction business income must not exceed a certain dollar amount. In 2022, these threshold amounts are $170,050 for single and head of household filers and $340,100 for married taxpayers filing joint returns. Research & Development Tax Credit Starting in 2018, businesses with less than $50 million in gross receipts can use this credit to offset alternative minimum tax. Certain start-up businesses that might not have any income tax liability will be able to offset payroll taxes with the credit as well. Work Opportunity Tax Credit (WOTC) Extended through 2025 (The Consolidated Appropriations Act, 2021), the Work Opportunity Tax Credit is available for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire. Employee Health Insurance Expenses For taxable years beginning in 2022, the dollar amount of average wages is $28,700 ($27,800 in 2021). This amount is used for limiting the small employer health insurance credit and for determining who is an eligible small employer for purposes of the credit. Business Meals and Entertainment Expenses Taxpayers who incur food and beverage expenses associated with operating a trade or business are able to deduct 100 percent (50 percent for tax years 2018-2020) of these expenses for tax years 2021 and 2022 (The Consolidated Appropriations Act, 2021) as long as the meal is provided by a restaurant. Employer-provided Transportation Fringe Benefits If you provide transportation fringe benefits to your employees in 2022, the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $280. The monthly limitation for qualified parking is $280. While this checklist outlines important tax changes for 2022, additional changes in tax law are likely to arise during the year ahead. Don't hesitate to call if you have any questions or want to get a head start on tax planning for the year ahead.

Tax Planning vs. Tax Preparation: What is the Difference?

Many people assume tax planning is the same as tax preparation, but the two are quite different. Let's take a closer look:

What is Tax Preparation?

Tax preparation is the process of preparing and filing a tax return. Generally, it is a one-time event that culminates in signing your return and finding out whether you owe the IRS money or will be receiving a refund. For most people, tax preparation involves one or two trips to your accountant (CPA), generally around tax time (i.e., between January and April), to hand over any financial documents necessary to prepare your return and then to sign your return. They will also make sure any tax reporting on your return complies with federal and state tax law. Alternately, Individual taxpayers might use an enrolled agent, attorney, or a tax preparer who doesn't necessarily have a professional credential. For simple returns, some individuals prepare tax returns themselves and file them with the IRS. No matter who prepares your tax return, however, you expect them to be trustworthy (you will be entrusting them with your personal financial details), skilled in tax preparation, and accurately file your income tax return in a timely manner.

What is Tax Planning?

Tax planning is a year-round process (as opposed to a seasonal event) and is a separate service from tax preparation. Both individuals and business owners can take advantage of tax planning services, which are typically performed by a CPA and accounting firm or an Enrolled Agent (EA) with in-depth experience and knowledge of tax law, rather than a tax preparer. Examples of tax planning include the following: Bunching expenses (e.g., medical) to maximize deductions, tax-loss harvesting to offset investment gains, increasing retirement plan contributions to defer income, and determining the best timing for capital expenditures to reap the tax benefits. Good recordkeeping is also an important part of tax planning and makes it easier to pay quarterly estimated taxes, for example, or prepare tax returns the following year. Tax planning is something that most taxpayers do not take advantage of - but should - because it can help minimize their tax liability on next year's tax return by planning ahead. While it may mean spending more time with an accountant, say quarterly - or even monthly - the tax benefit is usually worth it. By reviewing past returns, an accountant will have a more clear picture of what you can do this year to save money on next year's tax return. If you're ready to learn how a tax and accounting professional can help you save money on your tax bill this year, don't hesitate to call the office today.

Reminder: Identity Protection PIN Available To Taxpayers

Starting in January 2021, the IRS Identity Protection PIN Opt-In Program expanded to include all taxpayers who can properly verify their identity. Previously, IP PINs were only available to identity theft victims.

What is an Identity Protection PIN?

An identity protection personal identification number (IP PIN) is a six-digit number assigned to eligible taxpayers to help prevent their Social Security number from being used to file fraudulent federal income tax returns. This number helps the IRS verify a taxpayer's identity and accept their tax return. Taxpayers with either a Social Security Number or Individual Tax Identification Number who can verify their identity are eligible for the program, and the number is valid for one year. Each January, the taxpayer must get a new one.

How To Get an IP PIN

The preferred method of obtaining an IP PIN - and the only one that immediately reveals the PIN to the taxpayer - is the Get an IP PIN tool located on the IRS website. If someone is unable to pass the Secure Access authentication, there are two alternate ways to get an IP PIN. Taxpayers with income of $72,000 or less should complete Form 15227, Application for an Identity Protection Personal Identification Number, and mail or fax it to the IRS. An IRS employee will call the taxpayer to verify their identity using a series of questions. Those who pass authentication will receive an IP PIN the following tax year. Taxpayers who cannot verify their identities remotely or who are ineligible to file Form 15277 should make an appointment for in-person identity verification at an IRS Taxpayer Assistance Center and bring two forms of picture identification. After the taxpayer passes authentication, an IP PIN will be mailed to them within three weeks.

What Else Taxpayers Need To Know Before Applying:

• The IP PIN must be entered correctly on electronic and paper tax returns to avoid rejections and delays.
• Any primary or secondary taxpayer or dependent can get an IP PIN if they can prove their identity.
• Taxpayers who want to voluntarily opt into the IP PIN program don't need to file a Form 14039, Identity Theft Affidavit.
• The IRS plans to offer an opt-out feature to the IP PIN program in 2022.

Confirmed Victims of Tax-related Identity Theft

For confirmed victims of tax-related identity theft, there is no change in the IP PIN Program. These taxpayers should still file a Form 14039, Identity Theft Affidavit if their e-filed tax return is rejected because of a duplicate SSN filing. The IRS will investigate their case, and once the fraudulent tax return is removed from their account, they will automatically receive an IP PIN by mail at the start of the next calendar year. IP PINs will be mailed annually to confirmed victims and participants enrolled before 2019. For security reasons, confirmed identity theft victims can't opt out of the IP PIN program. Confirmed victims also can use the IRS Get an IP PIN tool to retrieve lost IP PINs assigned to them. As a reminder, taxpayers should never share their IP PIN with anyone but their tax provider. The IRS will never call to request the taxpayer's IP PIN, and taxpayers must be alert to potential IP PIN scams. If you have any questions about the IP PIN, don't hesitate to call.

Credit Reports: What You Should Know

Creditors keep their evaluation standards secret, making it difficult to know just how to improve your credit rating. Nonetheless, it is still important to understand the factors that determine creditworthiness. Periodically reviewing your credit report can also help you protect your credit rating from fraud - and you from identity theft.

Credit Evaluation Factors

Many factors are used in determining credit decisions. Here are some of them:

• Payment history/late payments
• Bankruptcy
• Charge-offs (Forgiven debt)
• Closed accounts and inactive accounts
• Recent loans
• Cosigning an account
• Credit limits
• Credit reports
• Debt/income ratios
• Mortgages

Obtaining Your Credit Reports

Credit reports are records of consumers' bill-paying habits but do not include FICO credit scores. Also referred to as credit records, credit files, and credit histories, they are collected, stored, and sold by three credit bureaus, Experian, Equifax, and TransUnion. The Fair Credit Reporting Act (FCRA) requires that each of the three credit bureaus provides you with a free copy of your credit report, at your request, every 12 months. If you have been denied credit or believe you've been denied employment or insurance because of your credit report, you can request that the credit bureau involved provide you with a free copy of your credit report - but you must request it within 60 days of receiving the notification.

You can check your credit report three times a year for free by requesting a credit report from a different agency every four months.

Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act (FRCA) was passed in 1970 to give consumers easier access to and more information about their credit files. FCRA gives you the right to find out the information in your credit file, dispute information you believe is inaccurate or incomplete, and find out who has seen your credit report in the past six months.

Understanding Your Credit Report

Credit reports contain symbols and codes that are abstract to the average consumer. Every credit bureau report also includes a key that explains each code. Some of these keys decipher the information, but others cause more confusion. Read your report carefully, making a note of anything you do not understand. The credit bureau is required by law to provide trained personnel to explain it to you. If accounts are identified by code number, or if there is a creditor listed on the report that you do not recognize, ask the credit bureau to supply you with the name and location of the creditor, so you can ascertain if you do indeed hold an account with that creditor. If the report includes accounts that you do not believe are yours, it is extremely important to find out why they are listed on your report. It is possible they are the accounts of a relative or someone with a name similar to yours. Less likely, but more importantly, someone may have used your credit information to apply for credit in your name. This type of fraud can cause a great deal of damage to your credit report, so investigate the unknown account as thoroughly as possible. In light of numerous credit card and other breaches, it is recommended that you conduct an annual review of your credit report. You must understand every piece of information on your credit report so that you can identify possible errors or omissions.

Disputing Errors

The Fair Credit Reporting Act (FCRA) protects consumers in the case of inaccurate or incomplete information in credit files. The FCRA requires credit bureaus to investigate and correct any errors in your file.

If you find any incorrect or incomplete information in your file, write to the credit bureau and ask them to investigate the information. Under the FCRA, they have about thirty days to contact the creditor and find out whether the information is correct. If not, it will be deleted.

Be aware that credit bureaus are not obligated to include all of your credit accounts in your report. If, for example, the credit union that holds your credit card account is not a paying subscriber of the credit bureau, the bureau is not obligated to add that reference to your file. Some may do so, however, for a small fee. If you need help obtaining your credit reports or need assistance in understanding what your credit report means, don't hesitate to call.

Standard Mileage Rates for 2022

Starting January 1, 2022, the standard mileage rates for the use of a car, van, pickup, or panel truck are as follows:

• 58.5 cents per mile driven for business use, up 2.5 cents from the rate for 2021
• 18 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces, up 2 cents from the rate for 2021, and
• 14 cents per mile driven in service of charitable organizations. The charitable rate is set by statute and remains unchanged.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas, and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law. Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rates.

Under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, unless they are members of the Armed Forces on active duty moving under orders to a permanent change of station.

Taxpayers can use the standard mileage rate but must opt to use it in the first year the car is available for business use. Then, in later years, they can choose either the standard mileage rate or actual expenses. Leased vehicles. Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen. If you have any questions about standard mileage rates or which driving activities you should keep track of as the new tax year begins, do not hesitate to contact the office.

Why Using the Correct Filing Status Matters

As taxpayers get ready for the upcoming filing season, one needs to know their correct filing status. A taxpayer's filing status defines the type of tax return form they should use when filing their taxes. Filing status can affect the amount of tax they owe, and it may even determine if they have to file a tax return at all. There are five IRS filing statuses. They generally depend on the taxpayer's marital status as of Dec.31. However, more than one filing status may apply in certain situations. If this is the case, taxpayers can usually choose the filing status that allows them to pay the least amount of tax. When preparing and filing a tax return, the filing status affects:

• If the taxpayer is required to file a federal tax return
• If they should file a return to receive a refund
• Their standard deduction amount
• If they can claim certain credits
• The amount of tax they should pay

Here are the five filing statuses:

• Single. Normally this status is for taxpayers who are unmarried, divorced or legally separated under a divorce or separate maintenance decree governed by state law.
• Married filing jointly. If a taxpayer is married, they can file a joint tax return with their spouse. When a spouse passes away, the widowed spouse can usually file a joint return for that year.
• Married filing separately. Married couples can choose to file separate tax returns. When doing so it may result in less tax owed than filing a joint tax return.
• Head of household. Unmarried taxpayers may be able to file using this status, but special rules apply. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person living in the home for half the year.
• Qualifying widow(er) with dependent child. This status may apply to a taxpayer if their spouse died during one of the previous two years and they have a dependent child. Other conditions also apply.

Not sure which filing status you should use this year? Help is just a phone call away.

Tax Credits for Accommodating Disabled Workers

Businesses that make structural adaptations or other accommodations for employees or customers with disabilities may be eligible for tax credits and deductions. Let's take a look at a few of the tax incentives that are available to encourage employers to hire qualified people with disabilities - and offset some of the costs of providing accommodations.

Disabled Access Credit

The disabled access credit is a non-refundable credit for small businesses that have expenses for providing access to persons with disabilities. An eligible small business earned $1 million or less or had no more than 30 full-time employees in the previous year. The business can claim the credit each year they incur access expenditures. Eligible access expenditures must be reasonable and necessary to accomplish the following purposes and include amounts paid or incurred:

1. To remove barriers that prevent a business from being accessible to or usable by individuals with disabilities - but do not include expenditures paid or incurred in connection with any facility first placed in service after November 5, 1990;2. To provide qualified interpreters or other methods of making audio materials available to deaf and hard of hearing individuals; 3. To provide qualified readers, taped texts, and other methods of making visual materials available to individuals with visual impairments; or 4. To acquire or modify equipment or devices for individuals with disabilities.

Barrier Removal Tax Deduction

The architectural barrier removal tax deduction encourages businesses of any size to remove architectural and transportation barriers to the mobility of people with disabilities and the elderly. Businesses may claim a deduction of up to $15,000 a year for qualified expenses on items that normally must be capitalized. Businesses claim this deduction by listing it as a separate expense on their income tax return. Also, businesses may use the disabled tax credit and the architectural/transportation tax deduction together in the same tax year if the expenses meet the requirements of both sections. To use both, the deduction is equal to the difference between the total expenses and the amount of the credit claimed.

Work Opportunity Tax Credit

The work opportunity tax credit is available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment. This includes people with disabilities and veterans. The maximum amount of tax credit for employees who worked 400 or more hours of service is:

• $2,400 or 40% of up to $6,000 of first year wages, for qualifying individuals.
• $9,600 or 40% of up to $24,000 of first year wages for certain qualified veterans.

A 25% rate applies to wages for individuals who work at least 120 hours but less than 400 hours for the employer. Don't hesitate to contact the office with any questions about these and other small business tax credits.

Watch Out for Holiday Gift Card Scams

There's never an off-season when it comes to scammers and thieves who want to trick people into scamming them out of money, stealing their personal information, or talking them into engaging in questionable behavior with their taxes. While scam attempts typically peak during tax season, taxpayers need to remain vigilant all year long. As such, it is once again time to remind taxpayers that while gift cards make great presents for loved ones, they cannot be used to pay taxes. Nonetheless, that doesn't stop scammers from targeting taxpayers by asking them to pay a fake tax bill with holiday gift cards. Scammers may also use a compromised email account to send emails requesting gift card purchases for friends, family, or co-workers. How the Scam Works:

• The most common way scammers request gift cards is over the phone through a government impersonation scam. However, they will also request gift cards by sending a text message, email, or through social media.
• A scammer posing as an IRS agent will call the taxpayer or leave a voicemail with a callback number informing the taxpayer that they are linked to some criminal activity. For example, the scammer will tell the taxpayer their identity has been stolen and used to open fake bank accounts.
• The scammer will threaten or harass the taxpayer by telling them that they must pay a fictitious tax penalty.
• The scammer instructs the taxpayer to buy gift cards from various stores.
• Once the taxpayer buys the gift cards, the scammer will ask the taxpayer to provide the gift card number and PIN.

How to Know if it's Really the IRS calling: The IRS will never:

• Call to demand immediate payment using a specific payment method such as a gift card, prepaid debit card, or wire transfer. Generally, the IRS will first mail a bill to any taxpayer who owes taxes.
• Demand that taxpayers pay taxes without the opportunity to question or appeal the amount they owe. All taxpayers should be aware of their rights.
• Threaten to bring in local police, immigration officers, or other law enforcement to have the taxpayer arrested for not paying.
• Threaten to revoke the taxpayer's driver's license, business licenses or immigration status.

If You've Been Targeted by a Scammer:

• Contact the Treasury Inspector General for Tax Administration to report a phone scam. Use their IRS Impersonation Scam Reporting webpage. They can also call 800-366-4484.
• Report phone scams to the Federal Trade Commission. Use the FTC Complaint Assistant on FTC.gov. They should add "IRS phone scam" in the notes.
• Report threatening or harassing telephone calls claiming to be from the IRS to phishing@irs.gov. Please include "IRS phone scam" in the subject line.

What To Know About Keeping Good Tax Records

It's January and tax season is right around the corner. For many people that means scrambling to collect receipts, mileage logs, and other tax-related documents needed to prepare their tax returns. If this describes you, chances are, you're wishing you'd kept on top of it during the year so you could avoid this scenario yet again. With this in mind, here are seven suggestions to help taxpayers like you keep good records throughout the year: 1. Taxpayers should develop a system that keeps all their important info together. They can use a software program for electronic recordkeeping. They could also store paper documents in labeled folders. 2. Throughout the year, they should add tax records to their files as they receive them. Having records readily at hand makes preparing a tax return easier. 3. It may also help them discover potentially overlooked deductions or credits. Taxpayers should notify the IRS if their address changes. They should also notify the Social Security Administration of a legal name change to avoid a delay in processing their tax return. 4. Records that taxpayers should keep include receipts, canceled checks, and other documents that support income, a deduction, or a credit on a tax return. 5. Taxpayers should also keep records relating to property they dispose of or sell. They must keep these records to figure their basis for computing gain or loss. 6. In general, taxpayers should keep tax records for three years from the date they filed the return. 7. For business taxpayers, there's no particular method of bookkeeping they must use. However, taxpayers should find a method that clearly and accurately reflects their gross income and expenses. The records should confirm income and expenses. Taxpayers who have employees must keep all employment tax records for at least four years after the tax is due or paid, whichever is later. Well-organized records make it easier for taxpayers to prepare their tax returns. Good recordkeeping also helps provides answers in the event that a taxpayer's return is selected for examination or if the taxpayer receives an IRS notice. If you need help setting up a recordkeeping system that works for you, don't hesitate to call.

Start the New Year Right: Cleaning Up QuickBooks

January is always such a transitional month. You're trying to wrap up everything that didn't get done during a hectic December. At the same time, you have to jump into the new year and start doing your regularly-scheduled work. It can be hard to tell sometimes which year you're working on. Don't forget about QuickBooks while you're catching up on 2021 and looking ahead to 2022. You probably don't want to put one more item on your to-do list, but any steps you take now to ready the software for the new year will pay off. Once you start entering transactions and placing orders, and welcoming new customers, it will help tremendously to have a clean slate. Here are some suggestions for completing as much of the work you started in 2021 as you can:

Run Four Critical Reports

Bills can slip through without being paid in December because there's so much going on and applies to both you and your customers. The best way to catch up on what's owed to you (and what you owe) is to generate these four reports in QuickBooks:

• A/R Aging Detail. Which of your customers is in arrears with their payments to you? How much do they owe you, and when should the money have come in?
• Open Invoices. Which invoices have not yet been paid? There will be a certain amount of duplication with A/R Aging Detail, but this report isolates only unpaid transactions.
• A/P Aging Detail. Are you caught up with the money you owe other individuals and companies? This report will tell you.
• Unpaid Bill Details. Like Open Invoices, this report sets apart only the bills that have unpaid balances.

Create Statements for Past-due Customers

Figure 1: One collection method you can use in QuickBooks if you don't want to communicate directly with overdue customers is to send statements. You'll have to decide how hard you want to lean on customers who are late paying your bills when it's so early in the year. Certainly, if some customers are more than 60 days late (30 days if they have sizable balances), you may want to make a phone call or at least send a personalized email asking them to fulfill their obligations. But you can also send statements. These documents provide details of financial activity between you and your customers for a given period of time. Open the Customers menu and click Create Statements. Look over all of the options in the window that opens and indicate your preferences. If customers don't respond to your statements within ten days, it may be time for a phone call.

Take a Hard Look at Your Inventory

It may have been a while since you did this, but it's imperative to do it regularly – especially if you had a busy holiday season. The best way to start on this is to open the Vendors menu, scroll down and hover over Vendor Activities, and click Inventory Center. If you don't have a lot of inventory, you could highlight each entry under Active Inventory, Assembly over to the left. The window that opens on the right side of the screen holds enormous detail about each item. But if you sell many different items, that will take too much time. In that case, you might run one or more of the reports linked from this screen. Even the QuickReport can be helpful. Figure 2: You can get a lot of information about individual items you sell in QuickBooks’ Inventory Center. Tip: If you need to adjust the quantity you have on hand, click the down arrow next to Manage Transactions in the lower left and select Adjust Quantity/Value on Hand. You might consult with us if you're running into this problem, and we can go over inventory issues with you.

Set Up Online Financial Connections

January is also a good time to be thinking about how you can better use QuickBooks in 2022. We tend to learn how to use the tools we need and not explore any further when using software, and QuickBooks is such a large program that that's understandable. But two tools can have a tremendous impact on your daily workflow, your ability to get paid faster by customers and your understanding of where you stand financially every day. They are:

• Online Banking. Did you know that you can connect QuickBooks to many financial institutions and import your cleared daily transactions? That’s what the Bank Feeds Center is all about. If you sign up for this service, you won't have to wait until your monthly statement comes to see what transactions have gone through.
• Online Payments. If you're only accepting checks as payment from your customers, you're probably getting paid more slowly than you might. Sign up for QuickBooks Desktop Payments, and you'll be able to process credit cards, eChecks, and ACH payments.

As always, if you need help with anything discussed in this month's column, don't hesitate to call.

Tax Due Dates for January 2022

During January

All employers - Give your employees their copies of Form W-2 for 2021 by January 31, 2022. If an employee agreed to receive Form W-2 electronically, post it on a website accessible to the employee and notify the employee of the posting.

January 3

Employers - Payment of deferred employer share of social security tax from 2020. If the employer deferred paying the employer share of social security tax or the railroad retirement tax equivalent in 2020, pay 50% of the deferred amount of the employer share of social security tax by January 3, 2022. The remaining 50% of the deferred amount of the employer share of social security tax is due by January 3, 2023. Any payments or deposits made before January 3, 2022, are first applied against the payment due by January 3, 2022, and then applied against the payment due on January 3, 2023. Employers - Payment of the deferred employee share of social security tax from 2020. If the employer deferred withholding and payment of the employee share of social security tax or the railroad retirement tax equivalent on certain employee wages and compensation between September 1, 2020, and December 31, 2020, it should have withheld and paid those taxes ratably from wages paid to the employee between January 1, 2021, and December 31, 2021. The employer is liable to pay the deferred taxes to the IRS and must do so before January 3, 2022.

January 10

Employees - who work for tips. If you received $20 or more in tips during December 2021, report them to your employer. You can use Form 4070, Employee's Report of Tips to Employer.

January 18

Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in December 2021. Individuals - Make a payment of your estimated tax for 2021 if you did not pay your income tax for the year through withholding (or did not pay in enough tax that way). Use Form 1040-ES. This is the final installment date for 2021 estimated tax. However, you do not have to make this payment if you file your 2021 return (Form 1040 or Form 1040-SR) and pay any tax due by January 31, 2022. Employers - Nonpayroll Withholding. If the monthly deposit rule applies, deposit the tax for payments in December 2021. Farmers and Fisherman - Pay your estimated tax for 2021 using Form 1040-ES. You have until April 18 (April 19 if you live in Maine or Massachusetts) to file your 2021 income tax return (Form 1040 or Form 1040-SR). If you do not pay your estimated tax by January 18, you must file your 2021 return and pay any tax due by March 1, 2022, to avoid an estimated tax penalty.

January 31

Employers - Give your employees their copies of Form W-2 for 2021. If an employee agreed to receive Form W-2 electronically, have it posted on a website and notify the employee of the posting. File Form W-3, Transmittal of Wage and Tax Statements, along with Copy A of all the Forms W-2 you issued for 2021. Payers of nonemployee compensation - File Form 1099-NEC for nonemployee compensation paid in 2021. Individuals - who must make estimated tax payments. If you did not pay your last installment of estimated tax by January 18, you may choose (but are not required) to file your income tax return (Form 1040 or Form 1040-SR) for 2021 by January 31. Filing your return and paying any tax due by January 31, 2022, prevents any penalty for late payment of the last installment. If you cannot file and pay your tax by January 31, file and pay your tax by April 18 (April 19 if you live in Maine or Massachusetts). Employers - Federal unemployment tax. File Form 940 for 2021. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it is more than $500, you must deposit it. However, if you already deposited the tax for the year in full and on time, you have until February 10 to file the return. Farm Employers - File Form 943 to report social security and Medicare taxes and withheld income tax for 2021. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return. Certain Small Employers - File Form 944 to report Social Security and Medicare taxes and withheld income tax for 2021. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is $2,500 or more from 2021 but less than $2,500 for the fourth quarter, deposit any undeposited tax or pay it in full with a timely filed return. If you deposited the tax for the year timely, properly, and in full, you have until February 10 to file the return. Employers - Social Security, Medicare, and withheld income tax. File Form 941 for the fourth quarter of 2021. Deposit any undeposited tax. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. Employers - Nonpayroll taxes. File Form 945 to report income tax withheld for 2021 on all nonpayroll items, including backup withholding and withholding on pensions, annuities, IRAs, gambling winnings, and payments of Indian gaming profits to tribal members. Deposit any undeposited tax. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return. Payers of Gambling Winnings - If you either paid reportable gambling winnings or withheld income tax from gambling winnings, give the winners their copies of Form W-2G. Businesses - Give annual information statements to recipients of certain payments made during 2021. You can use the appropriate version of Form 1099 or other information return. Form 1099 can be issued electronically with the consent of the recipient. This due date only applies to certain types of payments. Copyright © 2022   All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.

Feature Articles Individual Taxpayers: The Year in Review Small Business Taxpayers: The Year in Review Tips To Avoid Credit Card Debt This Holiday Season Highlights of the Infrastructure Investment and Jobs Act Tax Tips Retirement Contributions Limits Announced for 2022 Small Business: Deducting Startup Costs Reminder: Deferred Payroll Taxes Due in December Important Information About Charitable Giving This Year Tax Credit for Hiring Long-Term Unemployed Workers QuickBooks Tips Importing Bank Accounts into QuickBooks

Individual Taxpayers: The Year in Review

As we close out the year and get ready for tax season, here's what individuals and families need to know about tax provisions for 2021. Personal Exemptions Personal exemptions are eliminated for tax years 2018 through 2025. Standard Deductions The standard deduction for married couples filing a joint return in 2021 is $25,100. For singles and married individuals filing separately, it is $12,550, and for heads of household, the deduction is $18,800. The additional standard deduction for blind people and senior citizens in 2021 is $1,350 for married individuals and $1,700 for singles and heads of households. Income Tax Rates In 2021 the top tax rate of 37 percent affects individuals whose income exceeds $518,400 ($628,300 for married taxpayers filing a joint return). Marginal tax rates for 2021 are as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. As a reminder, while the tax rate structure remained similar to prior years under tax reform (i.e., with seven tax brackets), the tax-bracket thresholds increased significantly for each filing status. Estate and Gift Taxes In 2021 there is an exemption of $11.70 million per individual for estate, gift, and generation-skipping taxes, with a top tax rate of 40 percent. The annual exclusion for gifts is $15,000. Alternative Minimum Tax (AMT) For 2021, exemption amounts increased to $73,600 for single and head of household filers, $114,600 for married people filing jointly and for qualifying widows or widowers, and $57,300 for married taxpayers filing separately. Pease and PEP (Personal Exemption Phaseout) Both Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) have been eliminated under TCJA. Flexible Spending Account (FSA) A Flexible Spending Account (FSA) is limited to $2,750 per year in 2021 (same as 2020) and applies only to salary reduction contributions under a health FSA. The term "taxable year" as it applies to FSAs refers to the plan year of the cafeteria plan, which is typically the period during which salary reduction elections are made. Long-Term Capital Gains In 2021 tax rates on capital gains and dividends remain the same as 2020 rates (0%, 15%, and a top rate of 20%); however, taxpayers should be reminded that threshold amounts don't correspond to the tax bracket rate structure as they have in the past. For example, taxpayers whose income is below $40,400 for single filers and $80,800 for married filing jointly pay 0% capital gains tax. For individuals whose income is at or above $445,850 ($501,600 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent. Miscellaneous Deductions Miscellaneous deductions that exceed 2 percent of AGI (adjusted gross income) are eliminated for tax years 2018 through 2025. As such, you can no longer deduct on Schedule A expenses related to tax preparation, moving (except for members of the Armed Forces on active duty who move because of a military order), job hunting, or unreimbursed employee expenses such as tools, supplies, required uniforms, travel, and mileage.

Business owners are not affected and can still deduct business-related expenses on Schedule C.

Individuals - Tax Credits

Adoption Credit In 2021 a nonrefundable (i.e., only those with tax liability will benefit) credit of up to $14,440 is available for qualified adoption expenses for each eligible child. Child and Dependent Care Credit The Child and Dependent Care Tax Credit was permanently extended for taxable years starting in 2013 and remained under tax reform. As such, if you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) to work or look for work, you may qualify for a credit. For 2021, the American Rescue Plan Act of 2021, enacted March 11, 2021, made the credit substantially more generous (up to $4,000 for one qualifying person and $8,000 for two or more qualifying persons) and potentially refundable, so you might not have to owe taxes to claim the credit (so long as you meet the other requirements). More taxpayers will be eligible for the credit for the first time and that, for many taxpayers, the amount of the credit will be larger than in prior years. Taxpayers with an adjusted gross income over $438,000, however, are not eligible for this credit even though they may have previously been able to claim the credit. Child Tax Credit and Credit for Other Dependents For the tax year 2021, the Child Tax Credit is increased from $2,000 per qualifying child to $3,600 for children ages 5 and under at the end of 2021 and $3,000 for children ages 6 through 17 at the end of 2021. The Child Tax Credit is fully refundable in 2021. Even if taxpayers do not owe any tax, they can still claim the credit.

Families that received Advanced Child Tax Credit payments will need to reconcile these amounts when filing their 2021 tax returns in 2022. Families generally received about one-half of their tax credit through these advance payments.

The Credit for Other Dependents is also available for dependents who do not qualify for the Child Tax Credit. The $500 credit did not change in 2021 and is nonrefundable. It also covers children older than age 17 and parents or other qualifying relatives supported by a taxpayer. Earned Income Tax Credit (EITC) For the tax year 2021, the maximum earned income tax credit (EITC) for low, and moderate-income workers and working families increased to $6,728 (up from $6,660 in 2020). For taxpayers with no qualifying children, the maximum credit is $543. The maximum income limit (three or more qualifying children) for the EITC increased to $57,414 (up from $56,844 in 2020) for married filing jointly and $51,464 for taxpayers whose filing status is single or head of household. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Individuals - Education Expenses

Coverdell Education Savings Account You can contribute up to $2,000 a year to Coverdell savings accounts in 2021. These accounts can be used to offset the cost of elementary and secondary education, as well as post-secondary education. American Opportunity Tax Credit and Lifetime Learning Credit The maximum credit is $2,500 per student for the American Opportunity Tax Credit. The Lifetime Learning Credit remains at $2,000 per return. To claim the full credit for either, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 or less for married filing jointly). Employer-Provided Educational Assistance As an employee in 2021, you can exclude up to $5,250 of qualifying postsecondary and graduate education expenses that are reimbursed by your employer. Student Loan Interest In 2021, you can deduct up to $2,500 in student-loan interest as long as your modified adjusted gross income is less than $70,000 (single) or $140,000 (married filing jointly). The credit cannot be claimed if your modified adjusted gross income (MAGI) is more than $85,000 for single filers ($170,000 if married filing jointly).

Individuals - Retirement

Contribution Limits For 2021, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is $19,500 (same as 2020). For persons age 50 or older in 2021, the limit is $26,000 ($6,500 catch-up contribution). Retirement Savings Contributions Credit (Saver's Credit) In 2021, the adjusted gross income limit for the saver's credit for low and moderate-income workers is $66,000 for married couples filing jointly, $49,500 for heads of household, and $33,000 for married individuals filing separately and for singles. The maximum credit amount is $2,000 ($4,000 if married filing jointly). As a reminder, starting in 2018, the Saver's Credit can be taken for your contributions to an ABLE (Achieving a Better Life Experience) account if you're the designated beneficiary. However, keep in mind that your eligible contributions may be reduced by any recent distributions you received from your ABLE account. If you have any questions about these and other tax provisions that could affect your tax situation, don't hesitate to call.

Small Business Taxpayers: The Year in Review

Here's what business owners need to know about tax changes for 2021. Standard Mileage Rates The standard mileage rate in 2021 is 56 cents per business mile driven. Health Care Tax Credit for Small Businesses Small business employers who pay at least half the premiums for single health insurance coverage for their employees may be eligible for the Small Business Health Care Tax Credit as long as they employ fewer than the equivalent of 25 full-time workers and average annual wages do not exceed $50,000 (adjusted annually for inflation). This amount is $56,000 for 2021 returns. In 2021, the tax credit is worth up to 50 percent of your contribution toward employees' premium costs (up to 35 percent for tax-exempt employers). Section 179 Expensing and Depreciation Under the Tax Cuts and Jobs Act of 2017, the Section 179 expense deduction increases to a maximum deduction of $1.05 million of the first $2.62 million of qualifying equipment placed in service during the current tax year. The deduction was indexed to inflation for tax years after 2018 and enhanced to include improvements to nonresidential qualified real property such as roofs, fire protection, alarm systems and security systems, and heating, ventilation, and air-conditioning systems. Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026. The standard business depreciation amount is 26 cents per mile (down from 27 cents per mile in 2020). Please call if you have any questions about Section 179 expensing and the bonus depreciation. Work Opportunity Tax Credit (WOTC) Extended through 2021 under the Further Consolidated Appropriations Act, 2021, the Work Opportunity Tax Credit can be used by employers who hire long-term unemployed individuals (unemployed for 27 weeks or more). It is generally equal to 40 percent of the first $6,000 of wages paid to a new hire. Please call if you have any questions about the Work Opportunity Tax Credit. SIMPLE IRA Plan Contributions Contribution limits for SIMPLE IRA plans increased to $13,500 for persons under age 50 and $16,500 for persons age 50 or older in 2021. The maximum compensation used to determine contributions is $290,000. Please contact the office if you would like more information about these and other tax deductions and credits to which you are entitled.

Tips To Avoid Credit Card Debt This Holiday Season

Credit card balances typically follow a seasonal pattern, increasing significantly in the fourth quarter, coinciding with holiday shopping, and millions of taxpayers are still carrying debt from last year's holiday season. Whether you are diligent about paying your credit card in full every month or are still paying down debt from a previous spending spree, these tips will help you avoid overspending this year and keep credit card spending on track.

Review Your Credit Card Balances

Before you head to your preferred shopping venue, check your credit card balances. There's nothing like seeing a large debt - or several - to make you think twice about spending. Writing it down has even more of an impact.

Control Your Spending

One of the most effective ways of controlling your spending is to develop a budget and stick to it. For holiday shoppers, setting a budget and then researching and compiling a list of items for each person you are giving a gift to goes a long way to curb impulse spending.

Pay Off High Interest Cards

If you are planning a last-minute holiday shopping spree this year and still have considerable debt on your credit cards, try to pay off any high-interest credit cards before you spend any more.

Pay With Cash

A recent MIT study indicates that shoppers spend more when using credit cards than they do when using cash because of the "out of sight, out of mind" mentality. While you might not feel comfortable carrying around large amounts of cash, if you are trying to save money, it's best to use cash for your purchases - even if it means making several trips. It is also easier to keep track of your spending, and you might even save a few bucks if the store charges a service fee to its customers for card purchases.

Get Help Managing Your Debt

Getting out of debt is a challenge that most people face - often multiple times - during their lifetime, and knowing how to manage debt and negotiate with creditors is a valuable skill that CPAs or other tax professionals can help you with. If you have any concerns relating to budgeting, interest rates, debt management, or any other issues related to your finances, don't hesitate to contact the office. As always, help is just a phone call away.

Highlights of the Infrastructure Investment and Jobs Act

While the recently passed Infrastructure Investment and Jobs Act primarily addresses infrastructure-related issues, it includes several tax provisions affecting individuals and small business taxpayers. Let's take a look:

Individuals

Cryptocurrency Reporting. Cryptocurrency reporting requirements are expanded to stem underreporting of cryptocurrency transactions. However, some have raised concerns that the reporting requirements of this tax provision are so broad that they apply to people who generate cryptocurrency and to people who do not have the information needed to comply with the reporting requirements. Disaster Relief. The legislation extends certain tax deadlines for taxpayers affected by federally declared disasters. Also amended is the definition of a disaster area. Tax Deadlines. The types of tax deadlines that are extended due to service in a combat zone are expanded.

Businesses

Employee Retention Credit. The Infrastructure Investment and Jobs Act legislation eliminates the credit for wages paid after September 30, 2021. Previously, however, The American Rescue Plan Act of 2021 extended the Employee Retention Credit to December 31, 2021. As such, there is some concern about the retroactive application of eliminating the credit since the legislation was not passed until after the start of the fourth quarter (i.e., December 1, 2021). Employer-sponsored Retirement Plans. The relaxation of minimum funding requirements for employer-sponsored retirement plans is further extended, adding to tax revenue projections as funding requirements are decreased. Contributions to Water and Sewer Utilities. Restoration of an exclusion for contributions to a regulated public utility for water or sewer construction. Private Activity Bonds. The authorized private activity bond uses are expanded to include qualified broadband projects and qualified carbon dioxide capture facilities. Excise Taxes. Excise taxes on fuels, retail sales of heavy trucks and trailers, and tires are expanded. Superfund excise taxes have been restored. If you have any questions about these and other tax provisions please contact the office.

Retirement Contributions Limits Announced for 2022

Cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for 2022 are as follows: 401(k), 403(b), 457 plans, and Thrift Savings Plan. Contribution limits for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased to $20,500, up from $19,500. The catch-up contribution limit for employees aged 50 and over remains unchanged at $6,500. SIMPLE retirement accounts. Contribution limits for SIMPLE retirement accounts for self-employed persons increases from $13,500 to $14,000. The catch-up contribution limit for employees aged 50 and over remains at $3,000. Traditional IRAs. The limit on annual contributions to an IRA remains at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000. Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions; however, if during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. If a retirement plan at work covers neither the taxpayer nor their spouse, the phase-out amounts of the deduction do not apply. The phase-out ranges for 2022 are as follows:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is $68,000 and $78,000, up from $66,000 and $76,000.
• For married couples filing jointly, where a workplace retirement plan covers the spouse making the IRA contribution, the phase-out range is $109,000 and $129,000, up from $105,000 and $125,000.
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple's income is between $204,000 and $214,000, up from $198,000 and $208,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Roth IRAs. The income phase-out range for taxpayers making contributions to a Roth IRA is $129,000 to $144,000 for singles and heads of household, up from $125,000 to $140,000. For married couples filing jointly, the income phase-out range is $204,000 to $214,000, up from $198,000 to $208,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000. Saver's Credit. The income limit for the Saver's Credit (also known as the Retirement Savings Contributions Credit) for low and moderate-income workers is $68,000 for married couples filing jointly, up from $66,000; $51,000 for heads of household, up from $49,500; and $34,000 for singles and married individuals filing separately, up from $33,000. If you have any questions about retirement plan contributions, don't hesitate to call.

Small Business: Deducting Startup Costs

If you've recently started a business - or are thinking about starting a business - you should know that as an owner, all eligible costs incurred before beginning to operate the business are treated as capital expenditures. As such, they are part of the cost basis for the business. Generally, the business can recover costs for assets through depreciation deductions. Businesses with costs paid or incurred after September 8, 2008, can deduct a limited amount of start-up and organizational costs. This enables business owners to recover the costs they cannot deduct currently over a 180-month period. This recovery period starts with the month the business begins to operate active trade or as a business. Business Start-up Costs Start-up costs are amounts the business paid or incurred for creating an active trade or business, or investigating the creation or acquisition of an active trade or business. Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit, and to produce income in anticipation of the activity becoming an active trade or business. Examples of start-up costs include amounts paid for the following:

• An analysis or survey of potential markets, products, labor supply, transportation facilities, etc.
• Advertisements for the opening of the business.
• Salaries and wages for employees who are being trained and their instructors.
• Travel and other necessary costs for securing prospective distributors, suppliers, or customers.
• Salaries and fees for executives and consultants, or for similar professional services.

Qualifying Costs. A start-up cost is recoverable if it meets both of the following requirements:

• It's a cost a business could deduct if they paid or incurred it to operate an existing active trade or business, in the same field as the one the business entered into.
• It's a cost a business pays or incurs before the day their active trade or business begins.

Nonqualifying Costs. Start-up costs don't include deductible interest, taxes, or research and experimental costs.Purchasing an Active Trade or Business. Recoverable start-up costs for purchasing an active trade or business include only investigative costs incurred during a general search for or preliminary investigation of the business. These are costs that help in deciding whether to purchase a business. Costs incurred to purchase a specific business are capital expenses that can't be amortized.Disposition of business. If you completely dispose of your business before the end of the amortization period, you can deduct any remaining deferred start-up costs. However, you can deduct these deferred start-up costs only to the extent they qualify as a loss from a business.Questions about deducting startup costs for your small business? Help is just a phone call away.

Reminder: Deferred Payroll Taxes Due in December

If you're a household employer or self-employed and chose to defer paying some Social Security taxes under the CARES Act the deferred Social Security taxes are due by December 31, 2021 and December 31, 2022. If you also deferred the employee share of Social Security taxes the balance is included in the installment amount due by December 31, 2021. You should have received a CP256V Notice in the mail. The notice is for informational purposes only and there is no need to respond. You'll need to pay your current installment amount by the due date shown on the notice. The notice may not reflect recent payments, but they will still be recorded correctly on your account. Review your tax return for the tax period in which you deferred Social Security taxes and subtract any payments you've made. Compare that figure with the amounts shown on your notice. If you discover an error, please contact the IRS at the telephone number shown on the notice. The first installment amount, due December 31, 2021, is half the employer's share of Social Security taxes you could have deferred. It includes any amount of the employee's share of Social Security taxes that were deferred minus all deposits and payments the IRS has already received. The second installment, due December 31, 2022, is the remaining unpaid deferred taxes. If you cannot pay, you may be eligible for a payment plan or other payment options. However, taxpayers should be aware that if the IRS does not receive your payment by the applicable due dates, the deferred taxes may be subject to Failure to Deposit penalties and the full amount of your net tax liability may become due immediately. Deferral payments can be made through the Electronic Federal Tax Payment System (EFTPS), by credit or debit card, or with a check or money order. These payments must be paid separately from other tax payments to ensure they're applied to the deferred payroll tax balance. If you include a payment of deferred taxes with other tax payments (or send it as a deposit), the IRS systems won't recognize the payment. Questions? Don't hesitate to call the office for assistance.

Important Information About Charitable Giving This Year

For many nonprofits and taxpayers alike, Giving Tuesday is the start of the charitable giving season. While most organizations are legitimate, taxpayers should always research charities before donating. It is also a good idea to understand the expanded tax benefits of giving to causes that mean something to you personally. Taxpayers should also know that they may be able to deduct donations to tax-exempt organizations on their tax returns. The first step when deciding where to make donations is to visit IRA.gov and use the Tax Exempt Organization Search tool to search for information about an organization's federal tax status and filings. Here are several facts about this valuable tool that taxpayers should be aware of:

• Donors can use it to confirm an organization is tax-exempt and eligible to receive tax-deductible charitable contributions.
• Users can find out if an organization had its tax-exempt status revoked. A common reason for revocation is when an organization does not file its Form 990-series return for three consecutive years.
• TEOS does not list certain organizations that may be eligible to receive tax-deductible donations, including churches, organizations in a group ruling, and governmental entities.
• Organizations are listed under the legal name or a "doing business as" name on file with the IRS. No separate listing of common or popular names is searchable.

Taxpayers can also use the interactive tax assistant, Can I Deduct my Charitable Contributions? to help them determine whether a charitable contribution is deductible. As a reminder, taxpayers should get a written acknowledgment for any charitable contributions of $250 or more. Expanded Tax Benefits in 2021 Tax law now permits taxpayers to claim a limited deduction on their 2021 federal income tax returns for cash contributions they made to certain qualifying charitable organizations even if they don't itemize their deductions. Taxpayers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021. The maximum deduction is $600 for married individuals filing joint returns. Qualified Charitable Distributions Taxpayers age 70 1/2 or older can make a qualified charitable distribution, up to $100,000, directly from their IRA, other than a SEP or SIMPLE IRA, to a qualified charitable organization. It's generally a nontaxable distribution made by the IRA trustee directly to a charitable organization. It is important to note that a qualifying deduction may also count toward the taxpayer's required minimum distribution requirement for the year. Please call for more information. Cash Donations Most cash donations made to charity qualify for the deduction. Cash contributions include those made by check, credit card, or debit card, as well as unreimbursed out-of-pocket expenses in connection with volunteer services to a qualifying charitable organization. Cash contributions don't include the value of volunteer services, securities, household items, or other property. There are some exceptions (they also apply to taxpayers who itemize their deductions), however. Cash contributions that are not tax-deductible include those:

• Made to a supporting organization
• Intended to help establish or maintain a donor-advised fund
• carried forward from prior years
• Made to most private foundations
• Made to charitable remainder trusts

Questions about charitable giving this tear? Don't hesitate to contact the office.

Tax Credit for Hiring Long-Term Unemployed Workers

With many businesses facing a tight job market, employers should know about a valuable tax credit available to them for hiring long-term unemployment recipients and other groups of workers facing significant barriers to employment. If your business is hiring right now, the Work Opportunity Tax Credit (WOTC) may help. Background Legislation enacted in December extended the WOTC through the end of 2025. This long-standing tax benefit encourages employers to hire workers certified as members of any of ten targeted groups facing barriers to employment. Millions of Americans have been out of work at one time or another since the pandemic began, but one of these targeted groups is long-term unemployment recipients who have been unemployed for at least 27 consecutive weeks and have received state or federal unemployment benefits during part or all of that time. Eligible Employees The other groups include certain veterans and recipients of various kinds of public assistance, among others. Specifically, the 10 groups are:

• Temporary Assistance for Needy Families (TANF) recipients,
• Unemployed veterans, including disabled veterans,
• Formerly incarcerated individuals,
• Designated community residents living in Empowerment Zones or Rural Renewal Counties,
• Vocational rehabilitation referrals,
• Summer youth employees living in Empowerment Zones,
• Supplemental Nutrition Assistance Program (SNAP) recipients,
• Supplemental Security Income (SSI) recipients,
• Long-term family assistance recipients,
• Long-term unemployment recipients.

Qualifying for the Credit To qualify for the credit, an employer must first request certification by submitting IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, to their state workforce agency (SWA). Do not submit this form to the IRS. Form 8850 must be submitted to the SWA within 28 days after the eligible worker begins work. Eligible businesses claim the WOTC on their federal income tax return. It is generally based on wages paid to eligible workers during the first year of employment. The credit is first figured on Form 5884, Work Opportunity Credit, and then is claimed on Form 3800, General Business Credit. Though the credit is not available to tax-exempt organizations for most groups of new hires, a special rule allows them to claim the WOTC for hiring qualified veterans. These organizations claim the credit against payroll taxes on Form 5884-C, Work Opportunity Credit for Qualified Tax Exempt Organizations. If you're a small business owner who wants to take advantage of this tax saving credit, but aren't sure you qualify, help is just a phone call away.

Importing Bank Accounts into QuickBooks

It's been a long time since your only options for learning about your bank balances and cleared transactions involved your telephone and your monthly statement. These days, accounting software and websites allow you to set up online connections to your financial institutions and download cleared transactions. If you're new to QuickBooks or you haven't set up online banking yet, you may not realize how simple it can be (depending on your financial institution), or how safe it is. You can connect to one of your banks and import months of transactions in less than 10 minutes, depending on how active your accounts are, and again, your banks. And QuickBooks uses data protection that is similar to what the banks themselves use. As long as you're following personal security protocols on your own computer, you're very unlikely to encounter problems. Online banking saves an enormous amount of time. It provides daily updates on your accounts, and if you entered the original transactions correctly, accuracy is assured. This real-time view of your finances can help you avoid money problems, make better business decisions, and plan for your company’s future. Here's how it works:

The Bank Feeds Center

QuickBooks provides the tools required to set up and maintain online banking in the Bank Feeds Center. To get there, open the Banking menu and select Bank Feeds, then Bank Feed Center. Click Add account in the upper right. QuickBooks will display a message saying it needs to close all open windows. Click Yes. In the Bank Feed Setup window that opens, select your bank from the list or enter its name in the search box if it's not there. Not every financial institution provides a direct connection to QuickBooks, but many of the major ones do. If yours does, you'll see a window like this: Figure 1: You'll see a window like this if your financial institution is set up for direct connections to QuickBooks. Enter the user ID and password that you use to sign on to your bank's website, then click Connect. You may be told that your financial institution needs more information. If that occurs, just follow the instructions. In our example, Discover Card wanted to send a temporary identification code as an email or text. Select your preference from the drop-down list and click Connect. Once you've retrieved your code and entered it, click Connect again. QuickBooks will open a window that displays your account(s) at the institution. Now you have to tell QuickBooks where to download the transactions. Click the down arrow in the field under QuickBooks Accounts. You can select an existing account or create a new one. We want to create a new one here, so you'd click . You may recognize the Add New Account window if you've done this before. QuickBooks already knew that this was a credit card account, so it pre-selected that option in the Account Type field. If you're connecting a checking account, for example, you would probably want to select Bank. Enter an Account Name. If you want to make it a Subaccount of another account, check that box and select the parent account from the drop-down list (or add a new one). Figure 2: When you set up online banking, you need to either create a new account in QuickBooks for each bank or credit card account or select an existing one. The rest of the fields here are optional. You can fill in the description and account number if you'd like, but don't assign Tax-Line Mapping or Opening Balance without talking to us. Just leave them for now. When you're done, click Save & Close. Click Connect in the window that opens after you've made sure your new account is showing in the field below QuickBooks Accounts. If all has gone well, you'll get a message saying that your account has been added to QuickBooks. Click Close. Go to Banking | Bank Feeds | Banks Feeds Center again. In the field next to Bank and Credit cards, click the down arrow to see a list if your new account isn't already showing and select it. Click the rotating circle in the blue card below to download your first set of transactions (or anytime you want to refresh the feed). This will typically bring in 90 days of transactions, depending on your financial institution. Figure 3: Click the rotating blue circle anytime you want to download transactions from your bank. There are many ways financial institutions interact with QuickBooks' bank feeds. This was the simplest one. You might have to contact your financial institution to get QuickBooks Direct Connect set up (fees may apply) or you may have to go to your bank's website and select the statement or transactions you want to move into QuickBooks. Next month's topic discusses how to manage the transactions you've downloaded into QuickBooks. In the meantime, if you need any help don't hesitate to call.

Tax Due Dates for December 2021

December 10

Employees who work for tips - If you received $20 or more in tips during November, report them to your employer. You can use Form 4070.

December 15

Corporations - Deposit the fourth installment of estimated income tax for 2021. A worksheet, Form 1120-W, is available to help you estimate your tax for the year. Employers Social Security, Medicare, and withheld income tax - If the monthly deposit rule applies, deposit the tax for payments in November. Employers Nonpayroll withholding - If the monthly deposit rule applies, deposit the tax for payments in November. Copyright © 2021   All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.

Feature Articles Individual Taxpayers: Year-end Tax Planning Strategies Business Owners: Year-end Tax Planning Strategies Worker Classification: Employee vs. Contractor Tax Benefits of Health Savings Accounts Tax Tips IRS Charges Fee for Estate Closing Letters Shared Custody and Advance Child Tax Credit Payments Tips To Avoid Fraud and Scams After a Disaster Deferred Tax on Gains From Forced Sales of Livestock Advertising and Marketing Costs May Be Tax Deductible QuickBooks Tips Ready To Reconcile in Quickbooks? How To Prepare

Individual Taxpayers: Year-end Tax Planning Strategies

With the end of the year fast approaching, now is the time to take a closer look at tax planning strategies that could reduce your tax bill for 2021.

General Tax Planning Strategies

General tax planning strategies for individuals include accelerating or deferring income and deductions, as well as careful consideration of timing-related tax planning strategies with regard to investments, charitable gifts, and retirement planning. For example, taxpayers might consider using one or more of the following strategies: Investments. Selling any investments on which you have a gain (or loss) this year. For more on this, see Investment Gains and Losses, below. Year-end bonus. If you anticipate an increase in taxable income in 2021, and are expecting a bonus at year-end, try to get it before December 31.

Contractual bonuses are different in that they are typically not paid out until the first quarter of the following year. Therefore, any taxes owed on a contractual bonus would not be due until you file your 2022 tax return in 2023. Please call the office if you have any questions about this.

Charitable deductions. Bunching charitable deductions every other year is also a good strategy if it enables the taxpayer to get over the higher standard deduction threshold under the Tax Cuts and Jobs Act of 2017 (TCJA). Another option is to put money into a donor-advised fund that enables donors to make a charitable contribution and receive an immediate tax deduction. A public charity manages the fund on behalf of the donor, who then recommends how to distribute the money over time. Don't hesitate to call if you would like more information about donor-advised funds. Scroll down to read more about charitable deductions. Medical expenses. Medical expenses are deductible only to the extent they exceed a certain percentage of adjusted gross income (AGI); therefore, you might pay medical bills in whichever year they would do you the most tax good. In 2021, deductible medical and dental expenses must exceed 7.5 percent of AGI. By bunching medical expenses into one year, rather than spreading them out over two years, you have a better chance of exceeding the thresholds, thereby maximizing the deduction.

Deductible expenses such as medical expenses and charitable contributions can be prepaid this year using a credit card or check. You can only deduct medical and dental expenses you paid this year - not payments for medical or dental care you will receive in a future year. For example, suppose you charge a medical expense in December but pay the bill in January. Assuming it's an eligible medical expense, you can take the deduction on your 2021 tax return.

Stock options. If your company grants stock options, then you may want to exercise the option or sell stock acquired by exercising an option this year. Use this strategy if you think your tax bracket will be higher in 2022. Generally, exercising this option is a taxable event; the sale of the stock is almost always a taxable event. Invoices. If you're self-employed, send invoices or bills to clients or customers this year to be paid in full by the end of December; however, make sure you keep an eye on estimated tax requirements. Conversely, if you anticipate a lower income next year, consider deferring sending invoices to next year. Withholding. If you know you have a set amount of income coming in this year that is not covered by withholding taxes, there is still time to increase your withholding before year-end and avoid or reduce any estimated tax penalty that might otherwise be due.

Avoid the penalty by covering the extra tax in your final estimated tax payment and computing the penalty using the annualized income method.

Accelerating or Deferring Income and Deductions

Strategies commonly used to help taxpayers minimize their tax liability include accelerating or deferring income and deductions. Which strategy you use depends on your current tax situation. Most taxpayers anticipate increased earnings from year to year, whether it's from a job or investments, so this strategy works well. On the flip side, however, if you are retiring and anticipate a lower income next year or you know you will have significant medical bills, you might want to consider deferring income and expenses to the following year. In cases where tax benefits are phased out over a certain adjusted gross income (AGI) amount, a strategy of accelerating income and deductions might allow you to claim larger deductions, credits, and other tax breaks for 2021, depending on your situation. Roth IRA contributions, child tax credits, higher education tax credits, and deductions for student loan interest are examples of these types of tax benefits. Accelerating income into 2021 is also a good idea if you anticipate being in a higher tax bracket next year. This is especially true for taxpayers whose earnings are close to threshold amounts that make them liable for the Additional Medicare Tax or Net Investment Income Tax ($200,000 for single filers and $250,000 for married filing jointly). See more about these two topics below.

Taxpayers close to threshold amounts for the Net Investment Income Tax (3.8 percent of net investment income) should pay close attention to "one-time" income spikes such as those associated with Roth conversions, sale of a home or any other large asset that may be subject to tax.

Examples of accelerating income include:

• • Paying an estimated state tax installment in December instead of at the January due date. However, make sure the payment is based on a reasonable estimate of your state tax.
  • Paying your entire property tax bill, including installments due in 2022, by year-end. This does not apply to mortgage escrow accounts.

A prepayment of anticipated real property taxes that have not been assessed prior to 2022 is not deductible in 2021.

Under TCJA, the deduction for state and local taxes (SALT) was capped at $10,000. Once a taxpayer reaches this limit the two strategies above are not effective for federal returns.

• Paying 2022 tuition in 2021 to take full advantage of the American Opportunity Tax Credit, an above-the-line tax credit worth up to $2,500 per student that helps cover the cost of tuition, fees, and course materials paid during the taxable year. Forty percent of the credit (up to $1,000) is refundable, which means you can get it even if you owe no tax.

Additional Medicare Tax

Taxpayers whose income exceeds certain threshold amounts ($200,000 single filers and $250,000 married filing jointly) are liable for an additional Medicare tax of 0.9 percent on their tax returns. They may, however, request that their employers withhold additional income tax from their pay to be applied against their tax liability when filing their 2021 tax return next April. As such, high net worth individuals should consider contributing to Roth IRAs and 401(k) because distributions are not subject to the Medicare Tax. Also, if you're a taxpayer who is close to the threshold for the Medicare Tax, it might make sense to switch Roth retirement contributions to a traditional IRA plan, thereby avoiding the 3.8 percent Net Investment Income Tax (NIIT) as well (more about the NIIT below).

Alternative Minimum Tax

The alternative minimum tax (AMT) applies to high-income taxpayers that take advantage of deductions and credits to reduce their taxable income. The AMT ensures that those taxpayers pay at least a minimum amount of tax and was made permanent under the American Taxpayer Relief Act (ATRA) of 2012. Furthermore, the exemption amounts increased significantly under the Tax Cuts and Jobs Act of 2017 (TCJA). As such, not as many taxpayers are affected as were in previous years. In 2021, the phaseout threshold increased to $523,600 ($1,047,200 for married filing jointly). Both the exemption and threshold amounts are indexed for inflation. AMT exemption amounts for 2021 are as follows:

• $73,600 for single and head of household filers,
• $114,600 for married people filing jointly and for qualifying widows or widowers,
• $57,300 for married people filing separately.

Charitable Contributions

Property, as well as money, can be donated to a charity. You can generally take a deduction for the fair market value of the property; however, for certain property, the deduction is limited to your cost basis. While you can also donate your services to charity, you may not deduct the value of these services. You may also be able to deduct charity-related travel expenses and some out-of-pocket expenses, however.

Contributions of appreciated property (i.e. stock) provide an additional benefit because you avoid paying capital gains on any profit.

In 2021, eligible individuals may take an above-the-line deduction of up to $300 ($600 for married taxpayers filing joint tax returns) in cash for charitable contributions made to qualified charitable organizations. Cash contributions include cash, check, electronic fund transfer, or payroll deduction. Taxpayers can claim the deduction even if they do not itemize on their 2021 taxes. Taxpayers who itemize deductions can take advantage of a temporary suspension of limits on charitable contributions (CARES Act of 2020) that allows them to deduct cash donations to public charities in amounts of up to 100 percent of adjusted gross income (AGI). Normally, the limit for the deduction for cash contributions was 60% of AGI. They may also take advantage of the above-the-line deduction for taxpayers that don't itemize ($300 for single filers; $600 for married filing jointly). Keep in mind that a written record of your charitable contributions - including travel expenses such as mileage - is required to qualify for a deduction. A donor may not claim a deduction for any cash contribution, check, or other monetary gifts unless the donor maintains a record of the contribution. A canceled check or written receipt from the charity showing the name of the charity, the date of the contribution, and the amount of the contribution is usually sufficient. Qualified Charitable Distributions (QCDs). Taxpayers who are age 70 1/2 and older can reduce income tax owed on required minimum distributions (RMDs) - a maximum of $100,000 or $200,000 for married couples - from IRA accounts by donating them to a charitable organization(s) instead.

Starting in 2020, taxpayers required to take required minimum distributions from IRAs, SIMPLE IRAs, SEP IRAs, or other retirement plan accounts can wait until age 72. In prior years, the age was 70 1/2.

Investment Gains and Losses

Investment decisions are often more about managing capital gains than about minimizing taxes. For example, taxpayers below threshold amounts in 2021 might want to take gains, whereas taxpayers above threshold amounts might want to take losses. Tax-loss harvesting - offsetting capital gains with losses - may be a good strategy to use if you have an unusually high income this year or significant losses.

Fluctuations in the stock market are commonplace; don't assume that a down market means investment losses. If you've held the stock for a long time your cost basis may be low.

Minimize taxes on investments by judicious matching of gains and losses. Where appropriate, try to avoid short-term capital gains, which are taxed as ordinary income (i.e., the rate is the same as your tax bracket). In 2021, tax rates on capital gains and dividends remain the same as 2020 rates (0%, 15%, and a top rate of 20%); however, threshold amounts have been adjusted for inflation as follows:

• 0% - Maximum capital gains tax rate for taxpayers with income up to $40,400 for single filers, $80,800 for married filing jointly;
• 15% - Capital gains tax rate for taxpayers with income of $40,400 to $445,850 for single filers and $80,800 to $501,600 for married filing jointly;
• 20% - Capital gains tax rate for taxpayers with income above $445,850 for single filers, $501,600 for married filing jointly.

Where feasible, reduce all capital gains and generate short-term capital losses up to $3,000. As a general rule, if you have a significant capital gain this year, consider selling an investment on which you have an accumulated loss. You can claim capital losses up to the amount of your capital gains plus $3,000 per year ($1,500 if married filing separately) as a deduction against income. Wash Sale Rule. After selling a securities investment to generate a capital loss, you can repurchase it after 30 days. This is known as the "Wash Rule Sale." If you buy it back within 30 days, the loss will be disallowed. Or you can immediately repurchase a similar (but not the same) investment, e.g., an ETF or another mutual fund with the same objectives as the one you sold.

The wash sale rule only applies to stocks and securities. It does not currently apply to cryptocurrencies such as Bitcoin, which means you can sell Bitcoin and immediately buy it back.

If you have losses, you might consider selling securities at a gain and then immediately repurchasing them since the 30-day rule does not apply to gains. That way, your gain will be tax-free, your original investment is restored, and you have a higher cost basis for your new investment (i.e., any future gain will be lower).

Net Investment Income Tax (NIIT)

The Net Investment Income Tax, which went into effect in 2013, is a 3.8 percent tax applied to investment income such as long-term capital gains for earners above a certain threshold amount ($200,000 for single filers and $250,000 for married taxpayers filing jointly). Short-term capital gains are subject to ordinary income tax rates as well as the 3.8 percent NIIT. This information is something to think about as you plan your long-term investments. Business income is not subject to the NIIT, provided the individual business owner materially participates in the business.

Mutual Fund Investments

Before investing in a mutual fund, ask whether a dividend is paid at the end of the year or whether it will be paid early in the following year but be deemed paid this year. The year-end dividend could make a substantial difference in the tax you pay.

Action: You invest $20,000 in a mutual fund in 2021. You opt for automatic reinvestment of dividends, and in late December of 2021, the fund pays a $1,000 dividend on the shares you bought. The $1,000 is automatically reinvested. Result: You must pay tax on the $1,000 dividend. You will have to take funds from another source to pay that tax because of the automatic reinvestment feature. The mutual fund's long-term capital gains pass through to you as capital gains dividends taxed at long-term rates, however long or short your holding period. The mutual fund's distributions to you of dividends it receives generally qualify for the same tax relief as long-term capital gains. If the mutual fund passes through its short-term capital gains, these are reported to you as "ordinary dividends" that don't qualify for relief.

Depending on your financial circumstances, it may or may not be a good idea to buy shares right before the fund goes ex-dividend. For instance, the distribution could be relatively small, with only minor tax consequences. Or the market could be moving up, with share prices expected to be higher after the ex-dividend date. To find out a fund's ex-dividend date, call the fund directly. Please call if you'd like more information on how dividends paid out by mutual funds affect your taxes this year and next.

Year-End Giving To Reduce Your Potential Estate Tax

The federal gift and estate tax exemption is currently set at $11.70 million in 2021. The maximum estate tax rate is set at 40 percent. Gift Tax. Sound estate planning often begins with lifetime gifts to family members. In other words, gifts that reduce the donor's assets are subject to future estate tax. Such gifts are often made at year-end, during the holiday season, in ways that qualify for exemption from federal gift tax. Gifts to a donee are exempt from the gift tax for amounts up to $15,000 a year per donee in 2021 and remain the same for 2022.

An unused annual exemption doesn't carry over to later years. To make use of the exemption for 2021, you must make your gift by December 31.

• • Husband-wife joint gifts to any third person are exempt from gift tax for amounts up to $30,000 ($15,000 each). Though what's given may come from either you or your spouse or both of you, both of you must consent to such "split gifts."
  • Gifts of "future interests" are assets that the donee can only enjoy at some future period such as certain gifts in trust and generally don't qualify for exemption. Gifts for the benefit of a minor child, however, can be made to qualify.

If you're considering adopting a plan of lifetime giving to reduce future estate tax, don't hesitate to call the office for assistance.

• Cash or publicly traded securities raise the fewest problems. You may choose to give property you expect to increase substantially in value later. Shifting future appreciation to your heirs keeps that value out of your estate. But this can trigger IRS questions about the gift's true value when given.
• You may choose to give property that has already appreciated. The idea here is that the donee, not you, will realize and pay income tax on future earnings and built-in gain on the sale.

Gift tax returns for 2021 are due on the same date as your income tax return (April 18, 2022). Gifts over $15,000 (including husband-wife split gifts totaling more than $15,000) and gifts of future interests must file a gift tax return. Though you are not required to file if your gifts do not exceed $15,000, you might consider filing anyway as a tactical move to block a future IRS challenge about gifts not "adequately disclosed." Please call the office if you're considering making a gift of property whose value isn't unquestionably less than $15,000.

Tax Rate Structure for the Kiddie Tax

The kiddie tax rules changed under the TCJA. For tax years 2018 through 2025, unearned income exceeding $2,200 is taxed at the rates paid by trusts and estates instead of the parent's tax rate. For ordinary income (amounts over $12,950), the maximum rate is 37 percent. For long-term capital gains and qualified dividends, the maximum rate is 20 percent. Exception. If the child is under age 19 or 24 and a full-time student and both the parent and child meet certain qualifications, then the parent can include the child's income on the parent's tax return.

Other Year-End Moves

Roth Conversions. Roth conversions allow a taxpayer to convert funds in a pre-tax individual retirement account or 401(k) to a post-tax Roth IRA. The amount withdrawn from the IRA is considered income and subject to tax; however, future Roth IRA distributions are tax-free.

You do not have to convert your entire IRA to a Roth IRA at once; you can convert all or part of it during different tax years. For example, if you have $90,000 in a 401(k), you can convert it over three years - $30,000 in the first year and $30,000 per year for the next two years. This strategy works well for taxpayers who want to eliminate to minimize RMDs (Required Minimum Distributions) at age 72 from their IRAs and leave more of your retirement account funds to heirs.

Converting to a Roth IRA from a traditional IRA makes sense if you've experienced a loss of income (lowering your tax bracket) or your retirement accounts have decreased in value. Please call if you would like more information about Roth conversions. Maximize Retirement Plan Contributions. If you own an incorporated or unincorporated business, consider setting up a retirement plan if you don't already have one. It doesn't need to be funded until you pay your taxes, but allowable contributions will be deductible on this year's return. If you are an employee and your employer has a 401(k), contribute the maximum amount ($19,500 for 2021), plus an additional catch-up contribution of $6,500 if age 50 or over, assuming the plan allows this, and income restrictions don't apply. If you are employed or self-employed with no retirement plan, you can make a deductible contribution of up to $6,000 a year to a traditional IRA (deduction is sometimes allowed even if you have a plan). Further, there is also an additional catch-up contribution of $1,000 if age 50 or over. Health Savings Accounts. Consider setting up a health savings account (HSA). You can deduct contributions to the account, investment earnings are tax-deferred until withdrawn, and any amounts you withdraw are tax-free when used to pay medical bills. In effect, medical expenses paid from the account are deductible from the first dollar (unlike the usual rule limiting such deductions to the amount of excess over 7.5 percent of AGI). For amounts withdrawn at age 65 or later not used for medical bills, the HSA functions much like an IRA. To learn more about HSAs, please see, Tax Benefits of Health Savings Accounts, below. 529 Education Plans. Maximize contributions to 529 plans, which can now be used for elementary and secondary school tuition as well as college or vocational school.

Don't Miss Out.

Implementing these strategies before the end of the year could save you money. If you are ready to save money on your tax bill, please contact the office today.

Business Owners: Year-end Tax Planning Strategies

Several end-of-year tax planning strategies are available to business owners to reduce their tax liability. Let's take a look:

Deferring Income

Businesses using the cash method of accounting can defer income into 2022 by delaying end-of-year invoices so that payment is not received until 2023. Businesses using the accrual method can defer income by postponing the delivery of goods or services until January 2022.

Purchase New Business Equipment

Bonus Depreciation. Businesses are allowed to immediately deduct 100% of the cost of eligible property such as machinery and equipment that is placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.

The first-year 100% bonus depreciation deduction is available for qualifying assets even if they are placed in service for only a few days in 2021.

Section 179 Expensing. Businesses should take advantage of Section 179 expensing this year whenever possible. In 2021, businesses can elect to expense (deduct immediately) the entire cost of most new equipment up to a maximum of $1.05 million of the first $2.62 million of property placed in service by December 31, 2021. Keep in mind that the Section 179 deduction cannot exceed net taxable business income. The deduction is phased out dollar for dollar on amounts exceeding the $2.62 million threshold and eliminated above amounts exceeding $3.67 million.

Computer or peripheral equipment placed in service after December 31, 2017, are not included in listed property.

Qualified Property. Qualified property is defined as property that you placed in service during the tax year and used predominantly (more than 50 percent) in your trade or business. Property placed in service and then disposed of in that same tax year does not qualify, nor does property converted to personal use in the same tax year it is acquired. Taxpayers can also elect to include certain improvements made to nonresidential real property after the date of when the property was first placed in service. 1. Qualified improvement property refers to any improvement to a building's interior; however, improvements do not qualify if they are attributable to:

• the enlargement of the building,
• any elevator or escalator or
• the internal structural framework of the building.

2. Roofs, HVAC, fire protection systems, alarm systems, and security systems. These changes apply to property placed in service in taxable years beginning after December 31, 2017.

Real estate qualified improvement property is eligible for immediate expensing, thanks to the CARES Act, which corrected an error in the Tax Cuts and Jobs Act. Taxpayers are also able to amend 2018 tax returns, if necessary.

Please contact the office if you have any questions regarding qualified property.

Other Year-End Moves to Take Advantage Of

Qualified Business Income Deduction. Many business taxpayers - including owners of businesses operated through sole proprietorships, partnerships, and S corporations, as well as trusts and estates, may be eligible for the qualified business income. This deduction is worth up to 20 percent of qualified business income (QBI) from a qualified trade or business for tax years 2018 through 2025. Your taxable income must be under $164,900 for single and head of household filers and $329,800 for married taxpayers filing joint returns to take advantage of the deduction in 2021. The QBI is complex, and tax planning strategies can directly affect the amount of deduction, i.e., increase or reduce the dollar amount. As such, it is important to speak with a tax professional before year's end to determine the best way to maximize the deduction. Small Business Health Care Tax Credit. Small business employers with 25 or fewer full-time-equivalent employees with average annual wages of $50,000 indexed for inflation (e.g., $56,000 in 2020) may qualify for a tax credit to help pay for employees' health insurance. The credit is 50 percent (35 percent for non-profits). Business Energy Investment Tax Credit (ITC). Business energy investment tax credits are still available, and businesses that want to take advantage of these tax credits can still do so. Business energy credits include geothermal electric, large wind (expires at the end of 2021), and solar energy systems used to generate electricity, heat, cool, or provide hot water for use in a structure, or to provide solar process heat. There is also a 30 percent tax credit for offshore wind facilities in inland or coastal waters if construction begins before 2026. Hybrid solar lighting systems, which use solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight, are also eligible; excluded, however, are passive solar and solar pool heating systems. Utilities are allowed to use the credits as well. Repair Regulations. Where possible, end-of-year repairs and expenses should be deducted immediately, rather than capitalized and depreciated. Small businesses lacking applicable financial statements (AFS) can take advantage of de minimis safe harbor by electing to deduct smaller purchases ($2,500 or less per purchase or invoice). Businesses with applicable financial statements can deduct $5,000. Small businesses with gross receipts of $10 million or less can also take advantage of safe harbor for repairs, maintenance, and improvements to eligible buildings. Please call if you would like more information on this topic. Depreciation Limitations on Luxury, Passenger Automobiles, and Heavy Vehicles. As a reminder, tax reform changed depreciation limits for luxury passenger vehicles placed in service after December 31, 2017. If the taxpayer doesn't claim bonus depreciation, the maximum allowable depreciation deduction for 2021 is $10,200 for the first year.

Deductions are based on a percentage of business use. A business owner whose business use of the vehicle is 100 percent can take a larger deduction than one whose business use of a car is only 50 percent.

For passenger autos eligible for the additional bonus first-year depreciation, the maximum first-year depreciation allowance remains at $8,000. It applies to new and used ("new to you") vehicles acquired and placed in service after September 27, 2017, and remains in effect for tax years through December 31, 2022. When combined with the increased depreciation allowance above, the deduction amounts to as much as $18,200 in 2021. Heavy vehicles, including pickup trucks, vans, and SUVs whose gross vehicle weight rating (GVWR) is more than 6,000 pounds, are treated as transportation equipment instead of passenger vehicles. As such, heavy vehicles (new or used) placed into service after September 27, 2017, and before January 1, 2023, qualify for a 100 percent first-year bonus depreciation deduction as well. Retirement Plans. Self-employed individuals who have not yet done so should set up self-employed retirement plans before the end of 2021. Call today if you need help setting up a retirement plan. Dividend Planning. Reduce accumulated corporate profits and earnings by issuing corporate dividends to shareholders. Paid Family and Medical Leave Credit. A business tax credit is available for employers providing paid family and medical leave to qualifying employees through 2025. Employers must have a written policy in place that meets certain requirements and meet other conditions. The credit, set to expire in 2020, was extended through 2025. It ranges from 12.5% to 25% of wages paid to qualifying employees for up to 12 weeks of family and medical leave per taxable year. Work Opportunity Tax Credit (WOTC). Extended through 2025 (The Consolidated Appropriations Act, 2021), the Work Opportunity Tax Credit is available for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire.

Year-end Tax Planning Could Make a Difference in Your Tax Bill

If you'd like more information, please call to schedule a consultation to discuss your specific tax and financial needs and develop a plan that works for your business.

Worker Classification: Employee vs. Contractor

If you hire someone for a long-term, full-time project or a series of projects that are likely to last for an extended period, you must pay special attention to the difference between independent contractors and employees.

Why It Matters

The Internal Revenue Service and state regulators scrutinize the distinction between employees and independent contractors because many business owners try to categorize as many of their workers as possible as independent contractors rather than as employees. They do this because independent contractors are not covered by unemployment and workers' compensation or federal and state wage, hour, anti-discrimination, and labor laws. In addition, businesses do not have to pay federal payroll taxes on amounts paid to independent contractors.

If you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker, plus a penalty. Generally, an employer must withhold and pay income taxes, Social Security and Medicare taxes, as well as unemployment taxes.

How workers are classified also affects how small and medium-size businesses calculate tax credits and deductions such as the Qualified Business Income Deduction, the Employee Retention Credit, and Sick and Family Leave Credits.

The Difference Between Employees and Independent Contractors

Independent Contractors - are individuals who contract with a business to perform a specific project or set of projects. You, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.

Example: Sam Smith, an electrician, submitted a bid of $6,400 to a housing complex for electrical work. Per the terms of his contract, every two weeks for the next ten weeks, he will receive a payment of $1,280. This is not considered payment by the hour. Even if he works more or less than 400 hours to complete the work, Sam will still receive $6,400. He also performs additional electrical installations under contracts with other companies that he obtained through advertisements. Sam Smith is an independent contractor.

Labor laws vary by state. Please call if you have specific questions.

Employees - provide work in an ongoing, structured basis. In general, anyone who performs services for you is your employee if you can control what will be done and how it will be done. A worker is still considered an employee even when you give them freedom of action. What matters is that you have the right to control the details of how the services are performed.

Example: Sarah Smith is a salesperson employed on a full-time basis by Rob Robinson, an auto dealer. She works six days a week and is on duty in Rob's showroom on certain assigned days and times. She appraises trade-ins, but her appraisals are subject to the sales manager's approval. Lists of prospective customers belong to the dealer. She has to develop leads and report results to the sales manager. Because of her experience, she requires only minimal assistance in closing and financing sales and other phases of her work. She is paid a commission and is eligible for prizes and bonuses offered by Rob. Rob also pays the cost of health insurance and group term life insurance for Sarah. Sarah Smith is an employee of Rob Robinson.

Independent Contractor Qualification Checklist

The IRS, workers' compensation boards, unemployment compensation boards, federal agencies, and even courts all have slightly different definitions of what an independent contractor is. However, their means of categorizing workers as independent contractors are similar. One of the most prevalent approaches used to categorize a worker as either an employee or independent contractor is the analysis created by the IRS, which considers the following:

1. What instructions the employer gives the worker about when, where, and how to work. The more specific the instructions and the more control exercised, the more likely the worker will be considered an employee.
2. What training the employer gives the worker. Independent contractors generally do not receive training from an employer.
3. The extent to which the worker has business expenses that are not reimbursed. Independent contractors are more likely to have unreimbursed expenses.
4. The extent of the worker's investment in the worker's own business. Independent contractors typically invest their own money in equipment or facilities.
5. The extent to which the worker makes services available to other employers. Independent contractors are more likely to make their services available to other employers.
6. How the business pays the worker. An employee is generally paid by the hour, week, or month. An independent contractor is usually paid by the job.
7. The extent to which the worker can make a profit or incur a loss. An independent contractor can make a profit or loss, but an employee does not.
8. Whether there are written contracts describing the relationship the parties intended to create. Independent contractors generally sign written contracts stating that they are independent contractors and setting forth the terms of their employment.
9. Whether the business provides the worker with employee benefits, such as insurance, a pension plan, vacation pay, or sick pay. Independent contractors generally do not get benefits.
10. The terms of the working relationship. An employee generally is employed at will (meaning the relationship can be terminated by either party at any time). An independent contractor is usually hired for a set period.
11. Whether the worker's services are a key aspect of the company's regular business. If the services are necessary for regular business activity, it is more likely that the employer has the right to direct and control the worker's activities. The more control an employer exerts over a worker, the more likely it is that the worker will be considered an employee.

Minimize the Risk of Misclassification

If you misclassify an employee as an independent contractor, you may end up before a state taxing authority or the IRS. Sometimes, the issue arises when a terminated worker files for unemployment benefits, and it's unclear whether the worker was an independent contractor or employee. The filing can trigger state or federal investigations that can cost many thousands of dollars to defend, even if you successfully fight the challenge. There are ways to reduce the risk of an investigation or challenge by a state or federal authority. At a minimum, you should:

• Familiarize yourself with the rules. Ignorance of the rules is not a legitimate defense. Knowing the rules will allow you to structure and carefully manage your relationships with your workers to minimize risk.
• Document relationships with your workers and vendors. Although it won't always save you, it helps to have a written contract stating the terms of employment.

Voluntary Classification Settlement Program

The Voluntary Classification Settlement Program (VCSP) is an optional program that provides employers with an opportunity to reclassify their workers as employees for future tax periods for employment tax purposes with partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat their workers (or a class or group of workers) as employees. Please call the office if you need more information about this program.

Consult a Tax Professional

With the rise of the gig economy, employers may have questions about how to classify workers. If so, don't hesitate to call the office and speak to a tax professional who can assist you.

Tax Benefits of Health Savings Accounts

While similar to FSAs (Flexible Savings Plans) in that both allow pretax contributions, Health Savings Accounts or HSAs offer taxpayers several additional tax benefits. Let's take a look:

What is a Health Savings Account?

A Health Savings Account is a type of savings account that allows you to set aside money pretax to pay for qualified medical expenses. Contributions that you make to a Health Savings Account (HSA) are used to pay current or future medical expenses (including after you've retired) of the account owner, their spouse, and any qualified dependent. There are several caveats that individuals should be aware of, however, such as:

• Medical expenses that are reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return are not eligible.
• You cannot be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care, and you cannot be claimed as a dependent on someone else's tax return.
• Spouses cannot open joint HSAs. Each spouse who is an eligible individual who wants an HSA must open a separate HSA.
• Insurance premiums for taxpayers younger than age 65 are generally not considered qualified medical expenses unless the premiums are for health care continuation coverage (such as coverage under COBRA), health care coverage while receiving unemployment compensation under federal or state law.

Tax-Advantaged Savings Accounts

Health Savings Accounts (HSAs) offer a triple tax advantage:

• Contributions are made pretax.
• Growth is tax-free.
• Distributions are tax-free as long as they are used for qualified health care expenses.

Contributions to an HSA, which can be opened through your bank or another financial institution, must be made in cash. Contributions of stock or property are not allowed. An employee may be able to elect to have money deposited directly into an HSA account through payroll withholdings. If your employer does not offer this option, you must wait until filing a tax return to claim the HSA contributions as a deduction. Unlike contributions to FSAs, you may change the amount withheld at any time during the year as well, and unused funds automatically roll over into the next calendar year (there is no "use it or lose it"). Funds in the account may be invested much like any other retirement savings account; however, less than 10 percent of account holders do so, according to the Employee Benefit Research Institute. Whether funds can be invested depends on whether the HSA administrator offers this option. There may also be a minimum balance requirement, which could limit individuals with smaller account balances.

High Deductible Health Plans

However, a Health Savings Account is not available to everyone and can only be used if you have a High Deductible Health Plan (HDHP). Typically, high-deductible health plans have lower monthly premiums than plans with lower deductibles, but you pay more health care costs yourself before the insurance company starts to pay its share (your deductible). A high-deductible plan can be combined with a health savings account, allowing you to pay for certain medical expenses with tax-free money that you have set aside. Using the pretax funds in your HSA to pay for qualified medical expenses before you reach your deductible and other out-of-pocket costs such as copayments reduces your overall health care costs. Calendar year 2021. For the calendar year 2021, a qualifying HDHP must have a deductible of at least $1,400 for self-only coverage or $2,800 for family coverage. The beneficiary's annual out-of-pocket expenses, such as deductibles, copayments, and coinsurance, are limited to $7,000 for self-only coverage and $14,000 for family coverage. This limit doesn't apply to deductibles and expenses for out-of-network services if the plan uses a network of providers. Instead, only use deductibles and out-of-pocket expenses for services within the network to figure whether the limit applies. Last-month rule. Under the last-month rule, you are considered to be an eligible individual for the entire year if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers). You can make contributions to your HSA for 2021 until April 15, 2022. Your employer can make contributions to your HSA between January 1, 2022, and April 15, 2022, that are allocated to 2021. The contribution will be reported on your 2021 Form W-2.

Summary of HSA Tax Advantages

• Tax deductible. You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you don't itemize your deductions on Schedule A (Form 1040).
• Pretax dollars. Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
• Tax-free interest on earnings. Contributions remain in your account until you use them and are rolled over year after year. Any interest or other earnings on the assets in the account are tax-free. Furthermore, an HSA is "portable" and stays with you if you change employers or leave the workforce.
• Tax-free distributions. Distributions may be tax-free if you pay qualified medical expenses.
• Additional contributions for older workers. Employees, aged 55 years and older are able to save an additional $1,000 per year.
• Tax-free after retirement. Distributions are tax-free at age 65 when used for qualified medical expenses including amounts used to pay Medicare Part B and Part D premiums, and long-term care insurance policy premiums. You cannot, however, use money in an HSA to pay for supplemental insurance (e.g., Medigap) premiums.

Help is Just a Phone Call Away

Please contact the office if you have any questions about health savings accounts.

IRS Charges Fee for Estate Closing Letters

Starting October 28, a new $67 user fee will apply to any estate that requests an estate tax closing letter for its federal estate tax return. This closing letter is formally referred to as IRS Letter 627. Background By law, federal agencies are required to charge a user fee to cover the cost of providing certain services to the public that confer a special benefit to the recipient. Moreover, agencies must review these fees every two years to determine whether they are recovering the cost of these services. Under the final regulations, the IRS determined that issuing closing letters is a service that confers a special benefit warranting a user fee. Even though obtaining a closing letter from the IRS can be helpful to an executor of an estate, it is not required by law. Account Transcripts The estate has the option of obtaining from the IRS an account transcript, showing certain information from the estate tax return. It is comparable to that found in a closing letter and may be an acceptable substitute for the estate tax closing letter. Account transcripts can be used to confirm that an estate tax examination has been completed and the IRS file has been closed. It is the reason that is most often cited for requesting a closing letter. They are available online (and free of charge) to registered tax professionals using the Transcript Delivery System (TDS) or authorized representatives making requests using Form 4506-T. Closing Letters Closing letter requests and payment of the user fee must be made using Pay.gov, a U.S. Department of the Treasury program, and a secure way to pay U.S. Federal Government Agencies. Questions? Please contact the office with any questions.

Shared Custody and Advance Child Tax Credit Payments

Parents who share custody of their children may be confused about how the advance child tax credit payments are distributed. As such, the first step is to remember that these are advance payments of a tax credit that taxpayers expect to claim on their 2021 tax return. Understanding how the payments work will allow parents to unenroll, if they choose, and possibly avoid a possible tax bill when they file next year. Let's take a look at four of the most common questions about shared custody and the advance child tax credit payments: 1. How will the IRS decide which one receives the advance child tax credit payments if two parents share custody? Who receives 2021 advance child tax credit payments is based on the information on the taxpayer's 2020 tax return or their 2019 return if their 2020 tax return has not been processed. The parent who claimed the child tax credit on their 2020 return will receive the 2021 advance child tax credit payments. 2. If a parent is receiving 2021 advance child tax credit payments and they shouldn't be, what should they do? Parents who will not be eligible to claim the child tax credit when filing their 2021 tax return should go to IRS.gov and unenroll to stop receiving monthly payments. They can do this by using the Child Tax Credit Update Portal. Receiving monthly payments now could mean they have to return those payments when they file their tax return next year. If their custody situation changes and they are entitled to the child tax credit for 2021, they can claim the full amount when they file their tax return next year. 3. How will 2021 advance child tax credit payments be handled for parents who claim their child in alternate years on their tax return? If the taxpayer claimed their child on their 2020 tax return, the IRS will automatically issue the advance payments to them. When they file their 2021 tax return, they may have to pay back the payments over the amount of the credit they're entitled to claim. Some taxpayers may qualify for repayment protection and be excused from repaying some or all of the excess amount. Also, if a taxpayer won't be claiming the child tax credit on their 2021 return, they should unenroll from receiving monthly payments using the Child Tax Credit Update Portal. 4. If one parent receives the advance child tax credit payments even though the other parent will be claiming the child tax credit on their 2021 tax return, will the parent claiming the qualifying child still be able to claim the full credit amount? Yes. Taxpayers will be able to claim the full amount of the child tax credit on their 2021 tax return even if the other parent is receiving the advance child tax credit payments. The parent receiving the payments should unenroll, but their decision will not affect the other parent's ability to claim the child tax credit. If you share custody with another parent and need further clarification about this important tax issue, don't hesitate to call.

Tips To Avoid Fraud and Scams After a Disaster

Criminals and fraudsters often see disasters as an opportunity to take advantage of victims when they are the most vulnerable, as well as the generous taxpayers who want to help with relief efforts. Generally, these disaster scams start with unsolicited contact - typically a phone call, on social media, by email, or even in person. Reviewing the tips listed below will help taxpayers recognize a scam and avoid becoming a victim.

1. Some thieves pretend they are from a charity. They do this to get money or private information from well-intentioned taxpayers.
2. Bogus websites use names like legitimate charities. They do this scam to trick people into sending money or providing personal financial information.
3. Pretending to be the IRS. Scammers even claim to be working for - or on behalf of - the IRS. The thieves say they can help victims file casualty loss claims and get tax refunds.
4. Use a check or credit card. Taxpayers should always contribute by check or credit card to have a record of the tax-deductible donation if they choose to give money.
5. Avoid giving out personal information. Donors should not give out personal financial information to anyone who solicits a contribution. This includes things like Social Security numbers or credit card and bank account numbers and passwords.

Taxpayers should also be aware that sometimes when they search for a charity online, they may be directed to a website or social media page that is not affiliated with the actual charity. If in doubt, the best way to check an organization's eligibility to receive tax-deductible charitable contributions is to visit the Tax Exempt Organization Search tool on the IRS website, IRS.gov. Donations to qualified charities are usually tax-deductible. If you are a disaster victim, you can call the IRS toll-free disaster assistance line at 866-562-5227. When you call, you will be connected to a phone assistor who will answer questions about tax relief or disaster-related tax issues. Finally, as a reminder, individual taxpayers can deduct up to $300, and married couples can deduct up to $600 in qualifying charitable contributions for tax year 2021. Itemizing is not necessary. As always, don't hesitate to contact the office if you have any questions about charitable contributions or disaster relief and how it affects your tax situation.

Deferred Tax on Gains From Forced Sales of Livestock

Farmers and ranchers forced to sell livestock due to drought may have an additional year to replace the livestock and defer tax on any gains from the forced sales. Here are some important facts to help farmers understand how the deferral works and their eligibility. 1. The one-year extension gives eligible farmers and ranchers until the end of the tax year after the first drought-free year to replace the sold livestock. 2. The farm or ranch must be in an applicable region to qualify for relief. An applicable region is a county or other jurisdiction designated as eligible for federal assistance plus counties contiguous to it. 3. The farmer's county, parish, city, or district included in the applicable region must be listed as suffering exceptional, extreme, or severe drought conditions by the National Drought Mitigation Center. All or part of 36 states and one U.S. territory are listed. 4. The relief applies to farmers who were affected by drought that happened between September 1, 2020, and August 31, 2021. 5. This relief generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy, or breeding purposes. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, or poultry are not eligible. 6. To qualify, the sales must be solely due to drought, flooding, or other severe weather causing the region to be designated as eligible for federal assistance. 7. Farmers generally must replace the livestock within a four-year period instead of the usual two-year period. 8. Qualified farmers and ranchers whose drought-sale replacement period was scheduled to expire at the end of this tax year, December 31, 2021, in most cases, now have until the end of their next tax year. The normal drought sale replacement period is four years. As such, this extension immediately impacts drought sales that occurred during 2017. Furthermore, the replacement periods for some drought sales before 2017 are also affected because of previous drought-related extensions affecting some of these areas. Please call the office if you want more information about reporting drought sales or other farm-related tax issues.

Advertising and Marketing Costs May Be Tax Deductible

As a small business owner, you may be able to deduct advertising and marketing expenses that help them bring in new customers and keep existing ones. Even better is that these deductions help small businesses save money on their taxes. Generally, small businesses can't deduct amounts they pay to influence legislation, which includes advertising in a convention program of a political party or any other publication if any of the proceeds from the publication are for, or intended for, the use of a political party or candidate. Here's what else you need to know about this valuable tax deduction: Advertising and marketing costs must be ordinary and necessary. An ordinary expense is one that is common and accepted in the industry. A necessary expense is one that is helpful and appropriate for the trade or business. An expense does not have to be indispensable to be considered necessary. Advertising and marketing costs that are ordinary and necessary are tax-deductible. Advertising expenses include:

• Reasonable advertising expenses that are directly related to the business activities.
• An expense for the cost of institutional or goodwill advertising to keep the business name before the public if it relates to a reasonable expectation to gain business in the future. For example, the cost of advertising that encourages people to contribute to the Red Cross or to participate in similar causes is usually deductible.
• The cost of providing meals, entertainment, or recreational facilities to the public as a means of advertising or promoting goodwill in the community.

As always, don't hesitate to call if you have any questions regarding tax deductions that benefit your small business.

Ready To Reconcile in Quickbooks? How To Prepare

There is no question that account reconciliation is a dreaded chore. So much so that many small business people don't do it. QuickBooks' reconciliation tools and its ability to import transactions from your banks make this activity less painful. They also allow you to make reconciliation an ongoing process rather than a once-a-month marathon. But it still takes time and strict attention to detail, and you still have to sit down with your bank statement once a month. Making account reconciliation a habit is strongly recommended. Doing so has numerous benefits. For example, you will be able to:

• Have confidence that your bank balance in QuickBooks is accurate.
• Match payments to invoices.
• Make sure that your bill payments get posted.
• Catch errors sooner.
• Detect unauthorized access to your accounts.

Before you even attempt a reconciliation using QuickBooks, there are actions you can take ahead of time to minimize the time required and make the process less frantic and frustrating. Here are some tips:

Match Your Real-Life Accounts With Quickbooks Accounts

If you are new to QuickBooks or you haven't set up accounts that mirror your real-life bank and credit card accounts, you'll need to do so. We try to avoid sending you to the Chart of Accounts, but you'll have to create accounts there to store your downloaded transactions. Open the Company menu and select Chart of Accounts. Click the down arrow next to Account in the lower left corner and select New. This window will open: Figure 1: QuickBooks needs one account for each bank account or credit card you plan to reconcile. You are going to want to reconcile your checking account(s), so select Bank and click Continue. Complete the fields on the screen that opens and save the account. Warning: It is critical that you enter the correct Opening Balance. This is the beginning balance printed on the statement you're going to reconcile. After you've gone through the process once, QuickBooks will supply this for you.

Keep Your Quickbooks Transactions up to Date

If you have connected your QuickBooks file to your online bank, this will be easier. You'll want to enter any cleared transactions from your statement that are missing in QuickBooks. If you haven't set up a link to your financial institution, you should do so now. Otherwise, you will have to sign on to your online bank account and locate each cleared transaction for each account. Please call if you need help with this step.

Be clear about the process

Reconciling an account in QuickBooks is similar to how you used to do it using a paper statement and your checkbook register. You will be matching the transactions in one to the other and clicking the ones that correspond. When you've finished, QuickBooks should show a $0.00 difference between the two. The software makes suggestions about what to do if it doesn't - which may or may not work. This is the most difficult step in reconciling: ending up with a zero difference. We can troubleshoot your reconciliation if you're not able to complete it correctly.

Enter Interest Earned and Service Fee Amounts

Figure 2: QuickBooks will prompt you, but don't forget to enter any Service Charges or Interest Earned. These will probably seem like small amounts, but your reconciliation will not work if you don't enter any interest earned or bank service charges. These fields will appear at the bottom of the window when you open the Banking menu and select Reconcile.

Back Up Your Quickbooks Company File

Before you begin the reconciliation process, you must back up your QuickBooks company file. If you get hopelessly tangled up in your reconciliation, you want to be able to go back to where you started. Click File | Backup Company |Create Local Backup. You have two choices here: Online backup (cloud-based storage; fees apply) or Local backup (like a USB drive). You should be backing up your QuickBooks file regularly, so do not hesitate to call if you are unsure what to choose or how to set it up. Once you've gone through a reconciliation successfully, the next ones should be easier. But doing it for the first time can be a major challenge. Fortunately, a QuickBooks expert is available to help you through the process or even take over your reconciliation chores completely. If you would like to discuss this further, please call the office.

Tax Due Dates for November 2021

During November

Employers - Income Tax Withholding. Ask employees whose withholding allowances will be different in 2022 to fill out a new Form W-4. The 2022 revision of Form W-4 will be available on the IRS website by mid-December.

November 1

Employers - Social Security, Medicare, and withheld income tax. File form 941 for the third quarter of 2021. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until November 10 to file the return. Certain Small Employers - Deposit any undeposited tax if your tax liability is $2,500 or more for 2021 but less than $2,500 for the third quarter. Employers - Federal Unemployment Tax. Deposit the tax owed through September if more than $500.

November 10

Employees who work for tips - If you received $20 or more in tips during October, report them to your employer. You can use Form 4070. Employers - Social Security, Medicare, and withheld income tax. File Form 941 for the third quarter of 2021. This due date applies only if you deposited the tax for the quarter in full and on time.

November 15

Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in October. Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in October. Copyright © 2021   All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.

Feature Articles Marginal vs. Effective Tax Rates Small Business: Tips for Ensuring Financial Success Defer Capital Gains Using Like-Kind Exchanges Use These Strategies To Pass on Wealth to Heirs If You Receive an IRS Letter or Notice Tax Tips Federal Per Diem Rates Updated for FY 2022 IRAs: Terms to Know E-Signatures Extended for Many Tax Forms Closing Your Business: A Tax Checklist Reporting Gambling Income and Losses QuickBooks Tips How To Use Quickbooks' New Customer Groups

Marginal vs. Effective Tax Rates

Understanding marginal and effective tax rates is important for tax planning purposes; however, many taxpayers don't fully understand the differences. Let's take a closer look:

Marginal Tax Rate

The United States has a progressive tax system. The more money you earn, the higher your tax rate is and the more taxes you pay to the IRS. In 2021, there are seven tax brackets ranging from 10% to 37%. If you earn $35,000 a year as a single filer, you are in the 12% tax bracket. If you make $520,000 a year as a single filer, you are in the 37% tax bracket. These brackets represent the percentage of taxes you pay based on your taxable income and are referred to as marginal tax rates. When someone says they are in the 35% tax bracket, this is typically what they are referring to - and this is where the confusion begins.

For many taxpayers, their income is the same as their earnings from wages; however, taxpayers should note that income from capital gains may be taxed differently. Short-term capital gains are generally taxed as ordinary income subject to the seven tax brackets mentioned above. Long-term capital gains, however, are taxed at 0%, 15%, and 20%.

Due to the way the tax code is set up and because marginal tax rates apply to each additional level of income above your tax bracket's income limit, it is not as straightforward as it seems. If you earn $100,000 and are in the 24% tax bracket, it doesn't mean that you pay a 24% tax on your earned income (0.24 x $100,000 = $24,000). To illustrate how this works, let's look at the following example for a single taxpayer earning $100,000 of annual income in 2021 (i.e., filing a tax return in April 2022). The amount of tax owed breaks down as follows:

• • 10% Bracket: ($9,950 - $0) x 10% = $995.50
  • 12% Bracket: ($40,525 - $9,950) x 12% = $3,669.00
  • 22% Bracket: ($86,375 - $40,525) x 22% = $10,087.00
  • 24% Bracket: ($100,000 - $86,375) x 24% = $3,270.00

Total tax = $18,021.50 In the example above, the marginal tax rate (tax bracket) on $100,000 of income is 24%, but the effective tax rate is closer to 18% ($18,021.50/$100,000) - without taking any deduction that reduce taxable income.

Effective Tax Rate

The effective tax rate is the actual amount of federal income taxes paid on a taxpayer's taxable income and more accurately represents the amount of tax most people pay. The effective tax rate does not include state taxes and local taxes, FICA taxes, or self-employment tax. Many taxpayers take advantage of tax credits and deductions that reduce taxable income, such as the standard deduction, tax-deductible contributions to a retirement or pension plan, health savings account, tax credits for dependent children, and charitable contributions. Calculating your effective tax rate is relatively simple: Divide your total tax liability by your gross (before tax) annual income. For example, if you made $100,000 (single filer), took the standard deduction of $12,500 in 2021, reducing your income to $87,450, and paid $15,009.50 in tax, the effective tax rate is 15 percent even though you are in the "24%" tax bracket.

Questions?

If you feel like too much of your hard-earned money goes straight to the IRS instead of your bank account, please call the office to learn more about tax planning strategies that could save you money.

Small Business: Tips for Ensuring Financial Success

Can you point your company in the direction of financial success, step on the gas, and then sit back and wait to arrive at your destination? Probably not. While you may wish it was that easy, the truth is that you can't let your business run on autopilot and expect good results. Every business owner knows you need to make numerous adjustments along the way. So, how do you handle the array of questions facing you? One way is through cost accounting.

Cost Accounting Helps You Make Informed Decisions

Cost accounting reports and determines the various costs associated with running your business. With cost accounting, you track the cost of all your business functions - raw materials, labor, inventory, and overhead, among others.

Cost accounting differs from financial accounting because it's only used internally, for decision making. Because financial accounting is employed to produce financial statements for external stakeholders, such as stockholders and the media, it must comply with generally accepted accounting principles (GAAP). Cost accounting does not.

Cost accounting allows you to understand the following: Cost behavior. For example, will the costs increase or stay the same if production of your product goes up? Appropriate prices for your goods or services. Once you understand cost behavior, you can tweak your pricing based on the current market. Budgeting. You can't create an effective budget if you don't know the real costs of the line items.

Pay Attention to Fixed and Variable Costs

To monitor your company's costs with this method, you need to pay attention to the two types of costs in any business: fixed and variable. Fixed costs. Fixed costs do not fluctuate with changes in production or sales and include:

• rent
• insurance
• dues and subscriptions
• equipment leases
• payments on loans
• management salaries
• advertising

Variable costs. Variable costs do change with variations in production and sales. Variable costs include:

• raw materials
• hourly wages and commissions
• utilities
• inventory
• office supplies
• packaging, mailing, and shipping costs

Cost accounting is easier for smaller, less complicated businesses. The more complex your business model, the harder it becomes to assign proper values to all the facets of your company's functioning.

Setting up a Cost Accounting System

If you'd like to understand the ins and outs of your business better and create sound guidance for internal decision making, consider setting up a cost accounting system. If you need assistance with this or any other matter related to ensuring the financial success of your business, don't hesitate to call the office to schedule a consultation.

Defer Capital Gains Using Like-Kind Exchanges

If you're a savvy investor, you probably know that you must generally report as income any mutual fund distributions, whether you reinvest them or exchange shares in one fund for shares of another. In other words, you must report and pay any capital gains tax owed. But if real estate's your game, did you know that it's possible to defer capital gains by taking advantage of a tax break that allows you to swap investment property on a tax-deferred basis?

What Is Section 1031?

Named after Section 1031 of the tax code, a like-kind exchange generally applies to real estate and was designed for people who wanted to exchange properties of equal value. If you own land in Montana and trade it for a shopping center in Rhode Island, as long as the values of the two properties are equal, nobody pays capital gains tax even if both properties may have appreciated since they were originally purchased. Section 1031 transactions don't have to involve identical types of investment properties. You can swap an apartment building for a shopping center or a piece of undeveloped raw land for an office or building. You can even swap a second home that you rent out for a parking lot. There's also no limit as to how many times you can use a Section 1031 exchange. It's entirely possible to roll over the gain from your investment swaps for many years and avoid paying capital gains tax until a property is finally sold. Keep in mind that gain is deferred but not forgiven in a like-kind exchange, and you must calculate and keep track of your basis in the new property you acquired in the exchange. Section 1031 is not for personal use. For example, you can't use it for stocks, bonds, and other securities, or personal property (with limited exceptions such as artwork).

Properties of Unequal Value

Let's say you have a small piece of property, and you want to trade up for a bigger one by exchanging it with another party. You can make the transaction without having to pay capital gains tax on the difference between the smaller property's current market value and your lower original cost. That's good for you, but the other property owner doesn't make out so well. Presumably, you will have to pay cash or assume a mortgage on the bigger property to make up the difference in value. In the tax trade, this is referred to as "boot," and your partner must pay capital gains tax on that part of the transaction. To avoid that, you could work through an intermediary who is often known as an escrow agent. Instead of a two-way deal involving a one-for-one swap, your transaction becomes a three-way deal. Your replacement property may come from a third party through the escrow agent. Juggling numerous properties in various combinations, the escrow agent may arrange evenly valued swaps. Under the right circumstances, you don't even need to do an equal exchange. You can sell a property at a profit, buy a more expensive one, and defer the tax indefinitely. You sell a property and have the cash put into an escrow account. Then the escrow agent buys another property that you want. They get the title to the deed and transfers the property to you.

Mortgage and Other Debt

When considering a Section 1031 exchange, it's important to consider mortgage loans and other debt on the property you are planning to swap. Let's say you hold a $200,000 mortgage on your existing property but your "new" property only holds a mortgage of $150,000. Even if you're not receiving cash from the trade, your mortgage liability has decreased by $50,000. In the eyes of the IRS, this is classified as "boot," and you will still be liable for capital gains tax because it is still treated as "gain."

Advance Planning Required

A Section 1031 transaction takes advance planning. You must identify your replacement property within 45 days of selling your estate. Then you must close on that within 180 days. There is no grace period. If your closing gets delayed by a storm or by other unforeseen circumstances, and you cannot close in time, you're back to a taxable sale. Find an escrow agent specializing in these types of transactions and contact your accountant to set up the IRS form ahead of time. Some people sell their property, take the cash, and put it in their bank account. They figure that all they have to do is find a new property within 45 days and close within 180 days, but that's not the case. As soon as "sellers" have cash in their hands or the paperwork isn't done right, they've lost their opportunity to use this provision of the code.

Personal Residences and Vacation Homes

Section 1031 doesn't apply to personal residences, but the IRS lets you sell your principal residence tax-free as long as the gain is under $250,000 for individuals ($500,000 if you're married). Section 1031 exchanges may be used for swapping vacation homes but present a trickier situation. Here's an example of how this might work. Let's say you stop going to your condo at the ski resort and instead rent it out to a bona fide tenant for 12 months. In doing so, you've effectively converted the condo to an investment property, which you can then swap for another property under the Section 1031 exchange. However, if you want to use your new property as a vacation home, there's a catch. You'll need to comply with a 2008 IRS safe harbor rule that states in each of the 12-month periods following the 1031 exchange, you must rent the dwelling to someone for 14 days (or more) consecutively. In addition, you cannot use the dwelling more than the greater of 14 days or 10 percent of the number of days during the 12-month period that the dwelling unit is rented out for at a fair rental price. You must report a section 1031 exchange to the IRS on Form 8824, Like-Kind Exchanges and file it with your tax return for the year in which the exchange occurred. If you do not precisely follow the rules for like-kind exchanges, you may be held liable for taxes, penalties, and interest on your transactions.

Help is Just a Phone Call Away

While they may seem straightforward, like-kind exchanges can be complicated, and you need to be careful of all kinds of restrictions and pitfalls. If you're considering a Section 1031 exchange or have any questions, don't hesitate to call.

Use These Strategies To Pass on Wealth to Heirs

Individuals with significant assets should take advantage of proven tax strategies such as gifting and direct payments to educational institutions to transfer wealth to heirs tax-free, as well as minimize estate taxes. Additional opportunities are available as well, thanks to low interest rates and a volatile stock market. Let's take a look at some of them:

Gifting

The annual gift tax exclusion provides a simple, effective way of cutting estate taxes and shifting income to heirs. For example, in 2021, you can make annual gifts of up to $15,000 ($30,000 for a married couple) to as many donees as you desire. The $15,000 is excluded from the federal gift tax so that you will not incur gift tax liability. Furthermore, each $15,000 you give away during your lifetime reduces your estate for federal estate tax purposes. However, any amounts above this limit will reduce an individual's federal lifetime exemption and require filing a gift tax return.

Direct Payments

Direct payments for medical or educational purposes indirectly shift income to heirs; however, it only works if the payments are made directly to the qualifying educational institution or medical provider. This strategy allows you to give more than the annual gifting limit of $15,000 per donee. For example, if you're a grandparent, you can pay tuition directly to your grandchild's boarding school, college, or university. Room and board, books, supplies, or other nontuition expenses are not covered. Similarly, they can make direct payments to a hospital or medical provider, but medical expenses reimbursed by insurance are not covered, however.

Loans to Family Members

This strategy works by loaning cash to family members at low interest rates, which is then invested with the goal of reaping significant profits down the road. With mid and long-term applicable federal rates (AFR) rates for October 2021, as low as 0.91 and 1.72 percent, respectively, heirs can lock in these rates for many years - three to nine years (mid-term) and nine to more than 20 years (long-term).

Grantor Retained Annuity Trust (GRAT)

Another relatively low-risk strategy is the grantor retained annuity trust (GRAT), where the donor transfers assets to an irrevocable trust and receives an annuity payment back from the trust each year. This strategy enables heirs to profit from their investments long-term if returns are higher than the IRS interest rate. Now that IRS interest rates are so low, this is easier than ever to do. In October 2021, the interest rate used to value certain charitable interests in trusts such as the GRAT is 1.00 percent.

Roth IRA Conversions

Contributions to a traditional IRA are made pre-tax, which means distributions are considered taxable income; however, the tax is paid upfront with a Roth IRA, and distributions are completely exempt from income tax. This feature makes converting a traditional IRA to Roth IRA and rolling it over to an heir an attractive option, especially during a financial crisis. The conversion is treated as a rollover where the trustee of the traditional IRA is directed to transfer an amount from the traditional IRA to the trustee of the Roth IRA. The account owner pays income tax on the amount rolled over in the year the account is converted, which allows the account to accumulate assets tax-free and future distributions are tax-free. To learn more about these and other tax strategies related to wealth management, please call the office and speak to a tax professional who can assist you.

If You Receive an IRS Letter or Notice

The IRS sends millions of letters and notices to taxpayers for a variety of reasons. Many of these letters and notices can be dealt with without calling or visiting an IRS office. Here's what you need to know about IRS notices and letters:

Reasons You Might Receive an IRS Notice or Letter

The IRS sends notices and letters for a number of reasons such as:

• You have a balance due.
• You are due a larger or smaller refund.
• We have a question about your tax return.
• We need to verify your identity.
• We need additional information.
• We changed your return.
• We need to notify you of delays in processing your return.

Each Notice or Letter Contains Valuable Information

It is very important that you read the IRS notice or letter carefully. If the IRS changed your tax return, compare the information provided in the notice or letter with the information in your original return.

Explaining the Reason for the Contact

The notice will explain why it was sent and will also give you instructions on how to handle the issue. If your notice or letter requires a response by a specific date, there are two main reasons you'll want to comply:

• To minimize additional interest and penalty charges.
• To preserve your appeal rights if you don’t agree.

Usually No Reply Is Necessary

If you agree with the correction to your account, then usually no reply is necessary - unless a payment is due or the notice directs otherwise.

Respond as Requested

If you disagree with the correction the IRS made, it is still important to respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider along with the bottom tear-off portion of the notice. Mail the information to the IRS address located in the upper left of the notice. Allow at least 30 days for a response.

Pay as Much as You Can

If you can't pay the full amount you owe, you should pay as much as you can to try to avoid or reduce penalties incurred. You can pay online or apply for an Online Payment Agreement or Offer in Compromise. If you need help with either of these, please call the office.

Usually No Need to Visit an IRS Office

Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right of the notice. Have a copy of your tax return and the correspondence available when you call to help the IRS respond to your inquiry.

Keep a Copy of Notices and Letters

It's important to keep a copy of all notices or letters with your tax records. You may need to reference these documents at a later date.

IRS Notices and Letters Are Sent by Mail

The IRS does not correspond by email about taxpayer accounts or tax returns. If you search the IRS website for your notice or letter and it doesn't return a result - or you believe the notice or letter looks suspicious - contact the IRS at 800-829-1040 or report it on the Report Phishing page on IRS.gov. You can find the notice (CP) or letter (LTR) number on either the top or the bottom right-hand corner of your correspondence.

Contact Phone Number Is Provided

A contact phone number is provided on the top right-hand corner of the notice or letter. Typically, you only need to contact the IRS if you don't agree with the information, have a balance due, or need to send additional information.

Questions or Concerns About IRS Notices?

As always, don't hesitate to call if you have questions or concerns about IRS notices.

Federal Per Diem Rates Updated for FY 2022

Per diem rates have been updated for FY 2022 and are effective October 1, 2021. These allowances substantiate the amount of ordinary and necessary business expenses paid or incurred while traveling away from home and include lodging, meal, and incidental expenses, as well as meal and incidental expenses only. Taxpayers are not required to use a method described in this revenue procedure. Instead, they may substantiate actual allowable expenses provided they maintain adequate records. As a reminder, the TCJA suspended the miscellaneous itemized deduction that employees could take for non-reimbursed business expenses. Certain individuals such as the self-employed, Armed Forces reservists, and qualified performing artists that deduct unreimbursed expenses for travel away from home may still use per diem rates for meals and incidental expenses, or incidental expenses only. Special meal and incidental expenses rates for taxpayers in the transportation industry are $69 for any location in the continental United States and $74 for any locality outside the continental U.S. The rate for the incidental-expenses-only deduction is $5 per day and applies to any travel locale inside or outside the continental United States. Per diem rates and the list of high-cost localities for purposes of the high-low substantiation method are also updated. For travel to any high-cost locality, per diem rates are $296. The per diem rate is $202 for travel to any other locality within the continental U.S. The amount that is treated as paid for meals is $74 for travel to any high-cost locale and $64 for travel to any other locality within the continental U.S. Travel to areas on the list of high-cost localities have a federal per diem rate of $249 or more. Please call the office if you have any questions about per diem rates.

IRAs: Terms to Know

IRAs, or Individual Retirement Arrangements, provide tax incentives for people to make investments that can provide financial security for their retirement. To help people better understand this type of retirement savings account, here's a basic overview of terms to know:

Contribution. The money that someone puts into their IRA. There are annual limits to contributions depending on their age and the type of IRA. Generally, a taxpayer or their spouse must have earned income to contribute to an IRA. Distribution. The amount that someone withdraws from their IRA. Withdrawals. Taxpayers may face a 10% penalty and a tax bill if they withdraw money before age 59 ½ unless they qualify for an exception. Required distribution. There are requirements for withdrawing from an IRA:

• Someone generally must start taking withdrawals from their IRA when they reach age 70 1/2.
• Per the 2019 SECURE Act, if a person's 70th birthday is on or after July 1, 2019, they do not have to take withdrawals until age 72.
• Special distribution rules apply for IRA beneficiaries.

Traditional IRA. An IRA where contributions may be tax-deductible. Generally, the amounts in a traditional IRA are not taxed until they are withdrawn. Roth IRA. This type of IRA that is subject to the same rules as a traditional IRA but with certain exceptions:

• A taxpayer cannot deduct contributions to a Roth IRA.
• Qualified distributions are tax-free.
• Roth IRAs do not require withdrawals until after the death of the owner.

Savings Incentive Match Plan for Employees. This is commonly known as a SIMPLE IRA. Employees and employers may contribute to traditional IRAs set up for employees. It may work well as a start-up retirement savings plan for small employers. Simplified Employee Pension. This is known as a SEP-IRA. An employer can make contributions toward their own retirement and their employees' retirement. The employee owns and controls a SEP. Rollover IRA. This is when the IRA owner receives a payment from their retirement plan and deposits it into a different IRA within 60 days.

It's essential to understand the tax implications of your retirement planning choices. If you haven't started saving for retirement, call the office and speak to a tax professional who will help you figure out a plan that works for you.

E-Signatures Extended for Many Tax Forms

To help reduce the burden to taxpayers brought about by the coronavirus pandemic, the use of electronic or digital signatures on certain paper forms they normally cannot file electronically have been extended through December 31, 2021. Let’s take a look at what this means for taxpayers: Types of acceptable electronic signatures An electronic signature is a way to get approval on electronic documents. There are a number of ways to do this. Acceptable electronic signature methods include:

1. A typed name typed on a signature block
2. A scanned or digitized image of a handwritten signature that's attached to an electronic record
3. A handwritten signature input onto an electronic signature pad
4. A handwritten signature, mark or command input on a display screen with a stylus device
5. A signature created by a third-party software

The type of technology a taxpayer must use to capture an electronic signature is not specified; the IRS will accept images of signatures (scanned or photographed) including common file types supported by Microsoft 365 such as tiff, jpg, jpeg, pdf, Microsoft Office suite or Zip. E-signatures on certain paper-filed forms Electronic or digital signatures are typically allowed on paper forms that cannot be filed using IRS e-file. Some of these forms are listed below. For a complete list, please call the office.

• Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return;
• Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return;
• Form 1120-C, U.S. Income Tax Return for Cooperative Associations;
• Form 1120-H, U.S. Income Tax Return for Homeowners Associations;
• Form 1120-L, U.S. Life Insurance Company Income Tax Return;
• Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return;
• Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts;
• Form 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B);
• Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship;
• Form 1128, Application to Adopt, Change or Retain a Tax Year;
• Form 2678, Employer/Payer Appointment of Agent;
• Form 3115, Application for Change in Accounting Method;
• Form 4421, Declaration – Executor's Commissions and Attorney's Fees;
• Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes;
• Form 8038-G, Information Return for Tax-Exempt Governmental Bonds;
• Form 8038-GC; Information Return for Small Tax-Exempt Governmental Bond Issues, Leases, and Installment Sales;
• Form 8283, Noncash Charitable Contributions;
• Form 8802, Application for U.S. Residency Certification;
• Form 8832, Entity Classification Election;
• Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent.

Closing Your Business: A Tax Checklist

Many small businesses have closed due to COVID-19. If yours is one of them, you should be aware that there is more to closing a business than laying off employees, selling office furniture, and closing the doors - you must also take certain actions as required by the IRS to fulfill your tax obligations. For example, if you have employees, you must file final employment tax returns as well as make final federal tax deposits of these taxes. You will need to attach a statement to your return listing the name and address of the person that keeps the payroll records (this could be you or another person) as well. If you are disposing of business property, exchanging like-kind property, and/or changing the form of your business, you must file a return to report these actions too. You must also file an annual tax return for the year you go out of business. Depending on your type of business structure, you may need to take the some or all of the following steps:

• File final federal tax deposits
• File final quarterly or annual employment tax form (Forms 94x)
• Issue final wage and withholding information to employees (Form W-2, Wage and Tax Statement
• Report information from W-2s issued (Form W-3, Transmittal of Income and Tax Statements)
• File final tip income and allocated tips information return (Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips)
• Report capital gains or losses
• Report partner's/shareholder's shares (Schedules K-1)
• File final employee pension/benefit plan
• Issue payment information to sub-contractors (Form 1099-MISC, Miscellaneous Income)
• Report information from 1099s issued Form 1096, Annual Summary and Transmittal of U.S. Information Returns)
• Report corporate dissolution or liquidation
• Consider allowing S corporation election to terminate
• Report business asset sales
• Report the sale or exchange of property used in your trade or business.

If you find yourself in the position of having to close your business, help is just a phone call away.

Reporting Gambling Income and Losses

If you aren't in the trade or business of gambling, you should be aware that gambling winnings are fully taxable and must be reported as income on your tax return. Gambling income includes but isn't limited to winnings from lotteries, raffles, horse races, and casinos, and also includes cash winnings and the fair market value of prizes, such as cars and trips. Here is what you need to know: Gambling Winnings If you receive certain gambling winnings or have any gambling winnings subject to federal income tax withholding, you will be issued a Form W-2G, Certain Gambling Winnings. Gambling winnings are reported as "Other Income" on Schedule 1 of Form 1040 or Form 1040-SR. Winnings that aren't reported on a Form W-2G should also be included. Depending on the amount of gambling winnings, you may be required to pay an estimated tax on that additional income. For additional information on withholding gambling winnings, please contact the office. Gambling Losses You may deduct gambling losses only if you itemize your deductions on Schedule A (Form 1040) and have kept a record of your winnings and losses. The amount of losses you deduct can't be more than the amount of gambling income you reported on your return. You can claim your gambling losses up to the amount of winnings as "Other Itemized Deductions." Nonresident Aliens As a nonresident alien of the United States for income tax purposes and you must file a tax return for U.S. source gambling winnings, using Form 1040-NR, U.S. Nonresident Alien Income Tax Return. Generally, nonresident aliens of the United States who aren't residents of Canada can't deduct gambling losses. Recordkeeping To deduct your losses, you must keep an accurate diary or similar record of your gambling winnings and losses and be able to provide receipts, tickets, statements, or other records that show the amount of both your winnings and losses. If you need assistance with this, don't hesitate to call.

How To Use Quickbooks' New Customer Groups

QuickBooks has a new set of tools that can help you deal with what is probably one of your most pressing problems: getting customers to pay. Here's how to use this new feature:

Creating Your Groups

QuickBooks has added an entry in the Customers menu to take you to these new tools. Go to Customers | Payment Reminders | Manage Customer Groups. In the window that opens, click Create Customer Group. QuickBooks then walks you through a three-step wizard. First, you enter a Name for your group in the first field of the Group details window. We’ll call ours “California High Balance.” If you’d like you can add a Description. Click Next. In the Select fields window, you’ll set the filters for the group. If you’d rather open your complete list of customers and choose the ones you want manually, you can skip this step. For our example, we’ll define a group by choosing:

• One or more Fields. We want to narrow the group down to California customers. Click the down arrow in the Field box and select State.
• An Operator. Here, you’d select Equals.
• A Value. QuickBooks will display a list of states. Click the box in front of CA. If you’d like to include more states, you can do so. When you’re done, click Add. You’ll see your Selected fields in the box below.

Figure 1: You can set the parameters for your group by selecting multiple fields, operators, and values. We want to narrow the list down to customers in California who have open balances of more than $500. So you’d select Open Balance for the Field, Greater Than for the Operator, and 500 for the Value. Then click Add again to move your filter into the Selected fields box. You can keep adding filters to narrow down your list even more if you’d like. When you’re done, click Next. The View/select customers window opens displaying the results of your search in a table whose columns include Name, Overdue balance, and Avg days to pay. There’s a checkmark in the box in front of Automatically add new or remove existing customers based on fields and values selected in this group. If you leave the box checked, QuickBooks will move customers into the group as their open balances top $500 and out when they catch up on their payments. Uncheck the box, and you'll have to add and remove customers manually, which would take vigilance and a lot of extra work. If you’re satisfied with the list, click Finish, then OK. The Manage groups window now contains an entry for your new group. Entries here are earmarked with icons indicating whether they are manually or automatically updated. You can also click links in the Actions column to edit or delete a group or send an email to it. If you select the last option, a window will open containing your list of customers (you can unselect any of them) and a composition box for your email.

Sending Payment Reminders

To start working with Payment Reminders, open the Customers menu and click Payment Reminders | Schedule Payment Reminders. Click Let’s get started. From the next window, you can send either invoices or statements. Click New schedule next to Invoice and enter a name in the box that opens. Lat's call ours 15 days past due since we want to create reminders for customers who are more than 15 days past due. This should go to all customers who fit the criteria, so click in the drop down list that follows Send reminder to. Call the new group All customers in the window that opens. Click Next, then Next again to display your entire list of customers. Click Finish, then OK. Back on the Schedule payment reminders screen, click + Add Reminder. This overlapping window will open: Figure 2: You can see and edit what your reminder will say and what fields will be replaced with real data. Enter 15 after Send this reminder and select after from the drop-down list. QuickBooks supplies a sample email that you can edit if you'd like. Real data will, of course, replace the text in brackets. You can delete any of these and add more by clicking Insert Field in the lower right corner. Be very careful if you modify the bracketed fields. Brackets should surround the exact text that comes from the QuickBooks options supplied. When you’re satisfied with your email, you can Check spelling. Then click OK. You’ll be back at the Payment reminders screen where you can save your reminder or add another. QuickBooks will now prompt you to send reminders when they're due. You can track them in your customers' invoice histories and your sent mail folder. When the time comes, open the Customers menu and select Payment Reminders | Review & Send Payment Reminders. QuickBooks will display a list of reminders that need to be dispatched. Make sure all of the reminders you want to send have a checkmark in the box next to them and click Send Now. While there's nothing difficult about using these new QuickBooks tools, you should be very careful with them. You don't want to annoy customers by sending payment reminders unless they are really warranted, and you also don't want to let late payments languish. Should you choose to use them, contact the office to speak with a QuickBooks professional who will be happy to walk you through the process to prevent errors. As always, please call if you have any questions about QuickBooks or want to learn how to make optimal use of it in your business.

Tax Due Dates for October 2021

October 12

Employees who work for tips - If you received $20 or more in tips during September, report them to your employer. You can use Form 4070.

October 15

Individuals - If you have an automatic 6-month extension to file your income tax return for 2020, file Form 1040 and pay any tax, interest, and penalties due. Corporations - File a 2020 calendar year income tax return (Form 1120) and pay any tax, interest, and penalties due. This due date applies only if you timely requested an automatic 6-month extension. Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in September. Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in September.

November 1

Employers - Social Security, Medicare, and withheld income tax. File form 941 for the third quarter of 2021. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until November 10 to file the return. Certain Small Employers - Deposit any undeposited tax if your tax liability is $2,500 or more for 2021 but less than $2,500 for the third quarter. Employers - Federal Unemployment Tax. Deposit the tax owed through October if more than $500. Copyright © 2021   All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.

Feature Articles Tax Relief for Those Affected by Natural Disasters What Is a Designated Roth Account? Six Things To Know Before You Start a Business Verifying Your Identity When Calling the IRS Tax Rules for Divorce and Alimony Payments Tax Tips Extension Deadline Looming for 2020 Tax Returns Reminder: Protect Yourself From Scammers Gross Receipts Safe Harbor for Employers Claiming ERC How To Get an Identity Protection Pin Tax Planning: Facts About Credits and Deductions QuickBooks Tips How to Track Inventory in Quickbooks

Tax Relief for Those Affected by Natural Disasters

Recovery efforts after natural disasters can be costly. With floods, tornadoes, hurricanes, earthquakes, and other natural disasters affecting so many people throughout the U.S. this year, many have been left wondering how they're going to pay for the cleanup or when their businesses will be able to reopen. The good news is that there is relief for taxpayers - but only if you meet certain conditions. Let's take a look:

Tax Relief for Homeowners

Fortunately, personal casualty losses are deductible on your tax return as long as the property is located in a Presidentially-declared disaster area as long as: 1. The loss was caused by a sudden, unexplained, or unusual event. Natural disasters such as flooding, hurricanes, tornadoes, and wildfires qualify as sudden, unexplained, or unusual events. 2. The damages were not covered by insurance. You can only claim a deduction for casualty losses not covered or reimbursed by your insurance company. The catch here is that if you submit a claim to your insurance company late in the year, your claim could still be pending come tax time. If that happens, you can file an extension on your taxes. Please call if you need help filing an extension or have any questions about what losses you can deduct. 3. Your losses were sufficient to overcome any reductions required by the IRS. The IRS requires several "reductions" to claim casualty losses on your tax forms. The first is that you must subtract $100 from the total loss amount for each casualty event. This is referred to as the $100 loss limit. Second, you must reduce the amount by 10 percent of your adjusted gross income (AGI) or adjusted gross income from the total casualty losses for the year. For example, if your AGI is $25,000 and your insurance company paid for all of the losses you incurred due to flooding except $3,100, you would first subtract $100 and then reduce that amount by $2500. The amount you could deduct as a loss would be $500.

Taxpayers claiming the disaster loss on a prior year's return should put the Disaster Designation in red ink at the top of the form. Doing so ensures the IRS can expedite the refund processing, waive the usual fees, and expedite requests for copies of previously filed tax returns for affected taxpayers who need them to apply for benefits or to file amended returns claiming casualty losses.

Tax Relief for Homeowners and Businesses

The IRS often provides tax relief for those affected by natural disasters, such as the individuals and businesses impacted by Hurricane Ida in Louisiana. Tax relief for victims of Hurricane Ida includes postponing various tax filing and payment deadlines that occurred starting on August 26, 2021. As a result, affected individuals and businesses will have until January 3, 2022, to file returns and pay any taxes that were originally due during this period. Individuals who had a valid extension to file their 2020 return due to run out on October 15, 2021, will now have until January 3, 2022, to file. However, taxpayers should be aware that because tax payments related to these 2020 returns were due on May 17, 2021, those payments are not eligible for this relief.

Claiming Disaster-related Casualty Losses

Affected taxpayers in a Presidential Disaster Area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original (2021) or amended return for last year (2020) will get the taxpayer an earlier refund, but waiting to claim the loss on this year's return could result in a greater tax saving, depending on other income factors. If you choose to deduct losses on your 2020 tax return, you have one year from the due date of the tax return to file.

Help is Just a Phone Call Away

If you're confused about whether you qualify for tax relief after a recent natural disaster, please contact the office for assistance in figuring out the best way to handle casualty losses related to hurricanes and other natural disasters.

What Is a Designated Roth Account?

Many 401(k) plans allow taxpayers to make Roth contributions as long as the plan has a designated Roth account. Your plan may also allow you to transfer amounts to the designated Roth account in the plan or borrow money.

Check with your employer to find out if your 401(k), 403(b) or 457 governmental plan has a designated Roth account and whether it allows in-plan Roth rollovers or loans.

A designated Roth account allows you to:

• Make designated Roth contributions to the account; and
• if the plan permits, rollover certain amounts in your other plan accounts to the Roth account.

Pre-tax Deferrals vs. After-tax Contributions

Unlike pre-tax salary deferrals, which are not taxed when you contribute them to the plan, you have to pay taxes on any contribution you make to a designated Roth account. Any pre-tax salary deferrals and related earnings are taxable when you withdraw them from the plan.

Your gross income for the year in which you make designated Roth contributions will be higher than if you had made only pre-tax salary deferrals.

Roth contributions, however, are not taxed when you withdraw them from the plan. Earnings on Roth contributions are also not taxed when they are withdrawn from the plan if your withdrawal is a qualified distribution. A qualified distribution is a distribution that is made:

• At least 5 years after the first contribution to your Roth account; and
• After you are age 59 1/2 or on account of you being disabled, or to your beneficiary after your death.

Maximum Contribution Amounts

Roth IRA. In 2021, the maximum contribution to a regular Roth IRA account is $6,000 ($7,000 if age 50 or older). Furthermore, contributions are limited by tax filing status and adjusted gross income. Designated Roth Account. In contrast, in 2021, the maximum contribution to a designated Roth account is $19,500 ($26,000 if age 50 or older), and contribution limits are not impacted by filing status or adjusted gross income.

Questions?

Depending on your particular tax situation, contributing to a designated Roth account could be a smart move. To learn more about whether you should take advantage of a designated Roth account, please call.

Six Things To Know Before You Start a Business

Starting your own business is an exciting prospect, but there is more to it than simply writing a business plan. Understanding the tax responsibilities of starting a business venture can save taxpayers money and help set them up for success. That's where a tax professional can help. Here is what you need to know before you start a new business:

1. Deciding on a Business Entity

The first decision you need to make is determining which business entity you will use because the type of business structure you choose determines what taxes you need to pay and how to pay them, as well as which income tax return you file. The most common types of business entities are:

• Sole proprietorship - An unincorporated business owned by an individual. There's no distinction between the taxpayer and their business.
• Partnership - An unincorporated business with ownership shared between two or more people.
• Corporation - Also known as a C corporation. It's a separate entity owned by shareholders.
• S Corporation - A corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders.
• Limited Liability Company - A business structure allowed by state statute.

2. Obtaining an Employer Identification Number (EIN)

Securing an Employer Identification Number (also known as a Federal Tax Identification Number) is the first thing you must do since many other forms require it. The IRS issues EINs to employers, sole proprietors, corporations, partnerships, nonprofit associations, trusts, estates, government agencies, certain individuals, and other business entities for tax filing and reporting purposes. An EIN is used to identify a business. Most businesses need one of these numbers. A business with an EIN needs to keep the business mailing address, location, and responsible party up to date. IRS regulations require EIN holders to report changes in the responsible party within 60 days. They do this by completing Form 8822-B, Change of Address or Responsible Party, and mailing it to the address on the form.

Even if you already have an EIN as a sole proprietor, for example, if you start a new business with a different business entity, you will need to apply for a new EIN.

The fastest way to apply for an EIN is online through the IRS website or telephone. Applying by fax and mail generally takes one to two weeks, and you can apply for one EIN per day. There is no cost to apply.

3. Choosing a Tax Year

A tax year is defined as an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either calendar year or fiscal year defined as follows: Calendar year. 12 consecutive months beginning January 1 and ending December 31. Fiscal year. 12 consecutive months ending on the last day of any month except December.

4. Understanding State Withholding, Unemployment, Sales, and Other Business Taxes

Once you have your EIN, you need to fill out forms to establish an account with the state for payroll tax withholding, Unemployment Insurance Registration, and sales tax collections (if applicable). Business taxes include income tax, self-employment tax, employment tax, and excise tax. Generally, the type of tax your business pays depends on the type of business structure. Keep in mind that you may also need to make estimated tax payments.

5. Payroll Record Keeping

Payroll reporting and recordkeeping can be time-consuming and costly. Also, keep in mind that almost all employers are required to transmit federal payroll tax deposits electronically. Personnel files should be kept for each employee and include an employee's employment application as well as the following:

• Form W-4, Employee's Withholding Allowance Certificate. Completed by the employee and used to calculate their federal income tax withholding. This form also includes necessary information such as the employee's address and Social Security number.
• Form I-9, Employment Eligibility Verification U.S. Citizenship and Immigration Services . This form verifies that an employee is legally permitted to work in the U.S.

6. Employee Healthcare Requirements

As an employer with employees, you may have certain healthcare requirements you need to comply with as well. If so, you should know about the Small Business Health Care Tax Credit, which helps small businesses (fewer than 25 employees who work full-time or a combination of full-time and part-time) pay for health care coverage they offer their employees. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent for small tax-exempt employers, such as charities. It is available to eligible employers for two consecutive taxable years. If you have any questions or need help setting up a payroll and accounting system for your new business, don't hesitate to call.

Verifying Your Identity When Calling the IRS

Sometimes, taxpayers need to call the IRS about a tax matter. If this is the case, they should know that IRS phone assistors take great care to only discuss personal information with the taxpayer or someone the taxpayer authorizes to speak on their behalf. As such, the IRS will ask taxpayers and tax professionals to verify their identity when they call. As part of the IRS's ongoing efforts to keep taxpayer data secure from identity thieves and to avoid having to call the IRS back, taxpayers should have the following information ready before calling the IRS:

• Social Security numbers (SSN) and birth dates for those who were named on the tax return
• An Individual Taxpayer Identification Number (ITIN) letter if the taxpayer has one instead of an SSN
• Their filing status: single, head of household, married filing joint, or married filing separate
• The prior-year tax return. Phone assistors may need to verify taxpayer identity with information from the return before answering certain questions
• A copy of the tax return in question
• Any IRS letters or notices received by the taxpayer

Taxpayer's Legally Designated Representative

By law, IRS telephone assistors will only speak with the taxpayer or to the taxpayer's legally designated representative. In other words, a taxpayer can grant a third party authorization to help them with federal tax matters. Depending on the authorization, the third-party can be a family member or friend, a tax professional, attorney, or business. The different types of third party authorizations include:

• Power of Attorney - Allow someone to represent you in tax matters before the IRS. Your representative must be an individual authorized to practice before the IRS.
• Tax Information Authorization - Appoint anyone to review and/or receive your confidential tax information for the type of tax and years/periods you determine.
• Third Party Designee - Designate a person on your tax form to discuss that specific tax return and year with the IRS.
• Oral Disclosure - Authorize the IRS to disclose your tax information to a person you bring into a phone conversation or meeting with us about a specific tax issue.

Taxpayers must still meet all of their tax obligations even when authorizing someone to represent them.

Taxpayers Calling on Behalf of Someone Else's Account

If taxpayers or tax professionals are calling about someone else's account, they should be prepared to verify their identities and provide information about the person they are representing. Before calling about a third-party, they should have the following information available:

• Verbal or written authorization from the third-party to discuss the account
• The ability to verify the taxpayer's name, SSN or ITIN, tax period, and tax forms filed
• Preparer Tax Identification Number or PIN if a third-party designee
• One of these forms, which is current, completed and signed: Form 8821, Tax Information Authorization or Form 2848, Power of Attorney and Declaration of Representative

Questions or Concerns?

If you have any questions or concerns about verifying your identity before calling the IRS, don't hesitate to contact the office for assistance.

Tax Rules for Divorce and Alimony Payments

Divorce is a painful reality for many people, both emotionally and financially. Quite often, the last thing on anyone's mind is the effect a divorce or separation will have on their tax situation. To make matters worse, most court decisions do not consider the effects divorce or separation has on your tax situation, which is why it's always a good idea to speak to an accounting professional before anything is finalized. Furthermore, tax rules regarding divorce and separation can and do change - as they recently did under tax reform. Divorced and separated individuals should be aware of tax law changes that took effect in 2019.

Who is Impacted

The new rules relate to alimony or separate maintenance payments under a divorce or separation agreement and includes all taxpayers with:

• Divorce decrees.
• Separate maintenance decrees.
• Written separation agreements.

Tax reform did not change the tax treatment of child support payments which are not taxable to the recipient or deductible by the payor.

Timing of Agreements

Agreements executed beginning January 1, 2019 or later. Alimony or separate maintenance payments are not deductible from the income of the payor spouse, nor are they includable in the income of the receiving spouse if made under a divorce or separation agreement executed after December 31, 2018. Agreements executed on or before December 31, 2018 and then modified. The new law applies if the modification does these two things:

• Changes the terms of the alimony or separate maintenance payments.
• Specifically states that alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.

Agreements executed on or before December 31, 2018. Before tax reform, a taxpayer who made payments to a spouse or former spouse could deduct it on their tax return. The taxpayer who receives the payments is required to include it in their income. If an agreement was modified after that date, the agreement still follows the previous law as long as the modifications do not:

• Change the terms of the alimony or separate maintenance payments.
• Specifically state that alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.

Tax reform made an already complicated situation even more so. Don't hesitate to call if you have any questions about the tax rules surrounding divorce and separation.

Extension Deadline Looming for 2020 Tax Returns

Time is running short for taxpayers who requested an extra six months to file their 2020 tax return. As a reminder, Friday, October 15, 2021, is the extension deadline for most taxpayers. Taxpayers who owe tax – even those who did not request an extension - and have yet to file a 2020 tax return can generally avoid additional penalties and interest by filing the return as soon as possible and paying any balance due. Taxpayers with relatively simple returns should keep the following items in mind regarding the extension deadline and taxes: 1. Taxpayers can still e-file returns. Filing electronically is the easiest, safest, and most accurate way to file taxes. 2. For taxpayers owed a refund, the fastest way to get it is to combine direct deposit and e-file. 3. Taxpayers who owe taxes should consider using IRS Direct Pay, a simple, quick, and free way to pay from a checking or savings account using a computer or mobile device. There are also other online payment options. Please call the office if you need details about other payment options. 4. Members of the military and those serving in a combat zone generally get more time to file. Military members typically have until at least 180 days after leaving a combat zone to both file returns and pay any tax due. 5. Taxpayers should always keep a copy of tax returns for their records. Keeping copies of tax returns can help taxpayers prepare future tax returns or assist with amending a prior year's return. Taxpayers with complicated tax returns should contact the office immediately for assistance. Many tax preparers and accounting professionals are extremely busy due to the complexity of tax regulations brought about by the COVID-19 pandemic.

Reminder: Protect Yourself From Scammers

Understanding how the IRS communicates can help taxpayers protect themselves from scammers who pretend to be from the IRS with the goal of stealing personal information. For example, the IRS typically does not call a taxpayer, but if the IRS does call, it should not be a surprise because the agency will have sent a notice or letter first to alert the taxpayer of their intent. As a reminder, taxpayers should always protect themselves from scammers. One of the ways they can do this is by understanding how the IRS communicates with them. With this in mind, let's take a look at some of the other ways the IRS communicates with taxpayers:

1. The IRS doesn't normally initiate contact with taxpayers by email. As such, never reply to an email from someone who claims to be from the IRS because the IRS email address could be spoofed or fake. Emails from IRS employees will end in irs.gov.
2. The agency does not send text messages or contact people through social media. Fraudsters will impersonate legitimate government agents and agencies on social media and try to initiate contact with taxpayers.
3. When the IRS needs to contact a taxpayer, the first point of contact is normally by letter delivered by the U.S. Postal Service. Taxpayers should be aware that debt relief firms send unsolicited tax debt relief offers through the mail. Fraudsters will often claim they already notified the taxpayer by U.S. mail.
4. Depending on the situation, IRS employees may first call or visit with a taxpayer. In some instances, the IRS sends a letter or written notice to a taxpayer in advance, but not always. Many IRS notices are searchable on the IRS website; however, just because someone references an IRS notice in email, phone call, text, or social media, it does not mean the request is legitimate. If you have any doubts, don't hesitate to contact the office.
5. IRS revenue agents or tax compliance officers may call a taxpayer or tax professional after mailing a notice to confirm an appointment or to discuss items for a scheduled audit. The IRS encourages taxpayers to review, How to Know it's Really the IRS Calling or Knocking on Your Door: Collection, found on the IRS website.
6. Private debt collectors can call taxpayers to collect certain outstanding inactive tax liabilities, but only after the taxpayer and their representative have received written notice. Private debt collection should not be confused with debt relief firms who will call, send lien notices via U.S. mail, or email taxpayers with debt relief offers. Taxpayers should contact the IRS regarding filing back taxes properly.
7. IRS revenue officers and agents routinely make unannounced visits to a taxpayer's home or place of business to discuss taxes owed, delinquent tax returns, or a business falling behind on payroll tax deposits. IRS revenue officers will request payment of taxes owed by the taxpayer. However, taxpayers should remember that payment will never be requested to a source other than the U.S. Treasury.
8. If the IRS visits a taxpayer, they should always ask for credentials; IRS representatives can always provide two forms of official credentials: a pocket commission and a Personal Identity Verification Credential.

Gross Receipts Safe Harbor for Employers Claiming ERC

Safe harbor is now available that allows employers to exclude certain items from their gross receipts solely for determining eligibility for the Employee Retention Credit (ERC). These amounts are:

• The amount of the forgiveness of a Paycheck Protection Program (PPP) Loan;
• Shuttered Venue Operators Grants under the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act; and
• Restaurant Revitalization Grants under the American Rescue Plan Act of 2021.

An employer elects to apply the safe harbor by excluding these amounts solely for determining whether it is an eligible employer for a calendar quarter for purposes of claiming the ERC on its employment tax return. The safe harbor should be applied consistently to determine eligibility for the ERC. Employers must exclude the amounts from their gross receipts for each calendar quarter in which gross receipts are relevant to determining eligibility to claim the ERC. Furthermore, the employer claiming the credit must also apply the safe harbor to all employers treated as a single employer under the aggregation rules. Employers claim the ERC on their employment tax return, generally Form 941, Employers Quarterly Federal Tax Return, or adjusted employment tax return, generally Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund. Please note that an employer is not required to apply this safe harbor, and the safe harbor does not permit the exclusion of these amounts from gross receipts for any other federal tax purpose. Further changes may be forthcoming pending legislation; however, if you have any questions or would like more information about the latest guidance regarding the ECR, don't hesitate to call the office now.

How To Get an Identity Protection Pin

An Identity Protection PIN is a six-digit number eligible taxpayers get to help prevent their Social Security number or Individual Taxpayer Identification Number from being used to file fraudulent federal income tax returns. This number helps the IRS verify a taxpayer's identity and accept their tax return. The Get An IP PIN tool enables anyone with an SSN or ITIN to get an IP PIN after verifying their identity through a rigorous authentication process. For security reasons, tax pros cannot get an IP PIN on behalf of clients. Facts taxpayers should know about the IP PIN:

• It's a six-digit number known only to the taxpayer and the IRS.
• The opt-in program is voluntary.
• The IP PIN should be entered onto the electronic tax return when prompted by the software product or onto a paper return next to the signature line.
• The IP PIN is valid for one calendar year.
• For security reasons, enrolled participants get a new IP PIN each year.
• Spouses and dependents are eligible for an IP PIN if they can verify their identities.
• IP PIN users should never share their number with anyone but the IRS and their trusted tax preparation provider. The IRS will never call, email, or text a request for the IP PIN.

Currently, taxpayers can get an IP PIN for 2021, which should be used when filing any federal tax returns during the year, including prior year returns. New IP PINs will be available starting in January 2022. Taxpayers Unable to Validate Identity Online Taxpayers who are unable to validate their identity online and have income of $72,000 or less, can file Form 15227 (EN-SP), Application for an Identity Protection Personal Identification Number. The IRS will call the phone number the taxpayer provided on Form 15227 to validate the taxpayer's identity. However, for security reasons, the IRS will assign an IP PIN for the next filing season, and the taxpayer cannot use the IP PIN for the current filing season. Taxpayers who cannot validate their identity online, or by the phone, or who are ineligible to file a Form 15227 can make an appointment at a Taxpayer Assistance Center. Please call the office if you need assistance locating a center. Before arriving at their appointment, taxpayers will need to bring one current government-issued picture ID and another identification document to prove their identity. Once verified, the taxpayer will receive an IP PIN in the mail, usually within three weeks.

Tax Planning: Facts About Credits and Deductions

Tax credits and deductions can mean more money in a taxpayer's pocket. Here are a few facts about credits and deductions that help taxpayers with their year-round tax planning:

1. Taxable income is what's left over after someone subtracts any eligible deductions from their adjusted gross income. This includes the standard deduction ($12,5550 in 2021 for single filers; $25,100 for married filing jointly). Most individual taxpayers take the standard deduction. On the other hand, some taxpayers may choose to itemize their deductions because it could lower their taxable income.
2. As a general rule, if a taxpayer's itemized deductions are larger than their standard deduction, they should itemize. Also, in some cases, taxpayers may even be required to itemize.
3. For a quick overview of what expenses they may be able to itemize, taxpayers with less complicated returns may be able to use the Interactive Tax Assistant found on the IRS website.
4. Tax credits are subtracted from the total amount of tax owed. To claim a credit, taxpayers should keep records that show their eligibility for it.
5. The American Rescue Plan changed several valuable tax credits, including the child and dependent tax credit, the childless earned income tax credit, the childless earned income tax credit, and the child tax credit. It's important for taxpayers to understand how these changes may affect the 2021 tax return.
6. Properly claiming tax credits can reduce taxes owed and boost refunds. Some tax credits, like the Earned Income Tax Credit (EITC), are even refundable, which means a taxpayer can get money refunded to them even if they don't owe any taxes.

To learn more about how you can save money on your 2021 tax return by planning ahead, please call the office today.

How to Track Inventory in Quickbooks

If your company sells physical products, you know how important it is to always be aware of your stock levels. You have to know what's selling and what's not, and you need to get a head start on ordering new inventory when yours is running low. The tricky part is always having enough available to meet the needs of existing orders as they come in. On the other hand, you don't want to have too much money tied up in products that are selling slowly. It's a delicate balance and one you can't maintain unless you have precise inventory records and reports. QuickBooks helps with both sides of this equation. It lets you create detailed records for each of your company's products that track your existing stock levels in real-time and alert you when it's time to reorder. Plus, specialized reports provide insight into your inventory as a whole. Here is how it works:

Getting Set Up

Before you start entering item records, you need to make sure that QuickBooks is set up for inventory tracking. Open the Edit menu and select Preferences, then Items & Inventory. If you are the administrator, you can click on the Company Preferences tab to open this window. Figure 1: Before you start working with inventory, you must make sure that QuickBooks is ready. Click in the box in front of Inventory and purchase orders are active if it's not already checked. Check the next two boxes if those apply to you, then respond to the final query. Quantity On Hand refers to the number of units you have in stock. Some items may not be available if they're committed to assemblies, for example. So choose one of the two conditions that should trigger a warning about inaccessible inventory. When you're done here, click OK.

Creating Accurate Records

Even if you have a relatively modest catalog of products for sale, we recommend that you use QuickBooks' inventory tracking. It's just too difficult to keep tabs on your item levels manually, especially if you sell in any volume. And errors in this area may mean you come up short when customers order products that you thought were available but weren't. You could easily lose business. To start creating item records, click the Items & Services icon on the home page or open the Lists menu and select Item List. Right-click anywhere in the window that opens and select New. Under Type in the upper left corner, click the down arrow and select Inventory Part. This just means that you want to be able to track how many of this item that you have in stock. Figure 2: QuickBooks provides detailed record templates for your item records. You don't necessarily have to complete every field in these records, but the more thorough you are, the more comprehensive and accurate your inventory tracking will be. Enter an Item Name/Number. If this product will be a subitem of another, check that box and select the parent item. Manufacturer's Part Number is optional. In the two columns below these fields, you'll provide Purchase Information and Sales Information. In the left column, enter the text that would appear on a purchase order and the Cost the vendor charges for the item. The Cost of Goods Sold account should appear by default. Change it if it doesn't. And if you have a Preferred Vendor, select it from the drop-down list. The right column should contain information about your sale of the item. The Description on Sales Transactions may be different from the vendor's text. Next, decide what your Sales Price will be. Of course, this should be higher, so you can make a profit. Is the item taxable? Select the correct jurisdiction under Tax Code if so. You'll then need to select your Income Account. You may want to consult with us on this issue because it's important that you make the right choice - or know how to create your own. On the bottom row here, let the first field default to Inventory Asset. If you want to be reminded to reorder when your inventory count hits a specific number, enter a number in the field below Reorder Point (Minimum) . Provide the number you currently have On Hand. QuickBooks will automatically complete the remaining fields. When you've finished here, click OK. Your item will now appear in the Item List and will be available to use in sales and purchase forms. QuickBooks can quickly show you the status of your items in the form of numerous reports. Open the Reports menu and hover your mouse over Inventory to see the list that is available, including Inventory Stock Status by Item and Inventory Valuation Detail.

Simple or Complex?

QuickBooks Pro and Premier can handle simple inventory tracking and even meet more complex needs in some cases. If you find that it doesn't do everything you need, you have options. There are add-on apps that expand on the software's capabilities and older versions of QuickBooks that offer robust inventory management. Don't hesitate to get in touch if you want to explore one of these or if you need help understanding the basics of inventory tracking in your current version.

Tax Due Dates for September 2021

September 10

Employees Who Work for Tips - If you received $20 or more in tips during August, report them to your employer. You can use Form 4070.

September 15

Individuals - Make a payment of your 2021 estimated tax if you are not paying your income tax for the year through withholding (or will not pay in enough tax that way). Use Form 1040-ES. This is the third installment date for estimated tax in 2021. Partnerships - File a 2020 calendar year income tax return (Form 1065). This due date applies only if you were given an additional 6-month extension. Provide each shareholder with a copy of Schedule K-1 (Form 1065) or a substitute Schedule K-1. S corporations - File a 2020 calendar year income tax return (Form 1120S) and pay any tax due. This due date applies only if you made a timely request for an automatic 6-month extension. Provide each shareholder with a copy of Schedule K-1 (Form 1120S) or a substitute Schedule K-1. Corporations - Deposit the third installment of estimated income tax for 2021. A worksheet, Form 1120-W, is available to help you make an estimate of your tax for the year. Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in August. Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in August. Copyright © 2021   All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.