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What Will Filing Taxes Be Like in 2021 – And How Can You Prepare? September 30, 2020

Posted by bradstreetblogger in : Business consulting, COVID, COVID-19, General, tax changes, Tax Planning Tips, Tax Preparation, Tax Rules, Tax Tip, Taxes , add a comment

Some of the tax return changes listed below provide us with likely insights into the IRS’s future audit and cross matching software programs.  The IRS is always trying to close the so-called “tax gap.”  The tax gap is the amount of income taxes due which are not paid in a timely or voluntary fashion.  One of the studies in recent years indicated that about 16 percent of taxes are never paid.  At the time of this study, that amount represented about 18 percent of annual federal revenues (this study was pre-COVID era).

Let me share my thoughts on the dangers of two of the new changes below as recapped by Morris Armstrong.  The first change is the possibility of deferring the deposit and payment of the employer’s portion of the Social Security taxes.  The second one involves receiving retirement plan distributions and deferring their repayments.  Both are akin to kicking the can down the road which typically sounds like a good idea.  But, keep in mind, there is a day of reckoning.  Failure to later pay either the employer’s portion of the Social Security taxes or your retirement plan distributions will result in interest and penalties and maybe even additional income taxes.  Don’t get me wrong, sometimes kicking the can down the road is the only option one may have.  And, if that is the case, then I would take full advantage of the tax law.

-Mark Bradstreet


“THERE HAVE BEEN CHANGES to the tax code this year, and they will be reflected on the Form 1040 of your tax return.

Each year, if necessary, the IRS releases drafts of the forms so professionals may comment, and line numbers are subject to change. However, the advance notice is always appreciated and can give insights into what next year’s taxes will look like.

Here’s how tax-filing will look different in 2021 – when 2020 income taxes are filed – and what you can do to prepare.

A New Focus on Cryptocurrency
This year, the Department of Treasury is focusing on virtual currencies. The first question asks this: At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?

Over the past several years, the government has focused on cryptocurrencies, issued guidance on its tax treatment and advised certain taxpayers that they may have failed to report transactions properly. Likely, the government must feel that it has in place the infrastructure to trace your transactions.

As you answer this question, remember that you are signing the tax return under penalties of perjury, a conviction of which can carry a five-year prison sentence.

Adjustment to Income Via Charity
A bonus to taxpayers in 2020 is that they may be eligible to reduce their income by up to $300 for charitable contributions, thanks to the coronavirus relief bill.

These contributions must be in the form of cash, check or credit card payments, and you must have the proper documentation. You may not deduct donations of items such as the four bags of clothing that you dropped off at Goodwill this spring.

This “adjustment to income” is nice because it reduces your adjusted gross income, also called AGI, which impacts many other aspects of your financial life. Your Medicare Part B and Medicare Part D premiums and programs at the state level are tethered to AGI. So, having a lower adjusted gross income can reduce those premiums or make you eligible for additional state programs.

Prepare by keeping your receipts and other substantiating documents. Remember, contributions of $250 or more to a charity require a letter of acknowledgment.

Look Out for Changes in Reporting Taxes Paid
In the past, when you reported the amount of federal tax withheld, you reported one number. This would be the paid federal income tax shown on your W-2 and on any 1099 form.

This year, the numbers are being reported on separate lines, and that could mean that someone at the IRS will be focusing on 1099s in the future.

Tax Credit Reconciling the Economic Impact Payments
Line 30 seems to be reserved for something that the government is calling a recovery rebate credit, which refers to the stimulus payments you received. This is where you may receive an additional credit if your 2020 tax return has a smaller AGI than the one that was used to calculate the initial stimulus check or if you have additional dependents.

Prepare by keeping the letter from the IRS telling you how much you received. It is Notice 1444 that you want to have available when you are filing your tax returns.

Payroll Tax Deferment Impacts the Amount You Owe
If you had household employees or are self-employed, which you report on Schedule H and Schedule SE, you may have to pay extra attention to this calculation.

Normally, the calculation is a simple addition of the taxes owed minus any payments and credits, but this year, we have a wrinkle. The coronavirus relief bill allows employers to defer the deposit and payment of the employer’s portion of the Social Security taxes.

The span of March 27 through Dec. 31, 2020 is important because any payroll taxes that were due then may be deferred, with 50% paid by Dec. 31, 2021, and the balance by Dec. 31, 2022. If you are a Schedule C filer, this will apply to you.

Flexibility Around Retirement Plan Distributions for Taxpayers Impacted by COVID-19
The coronavirus relief bill allows for distributions from a retirement account, including an IRA, to be handled differently if the taxpayer was impacted by COVID-19. This does not require contracting the disease but includes having your economic life disrupted by it.

You could be quarantined, furloughed, laid-off or had work hours reduced, been unable to work because you could not find child care– if it is virus related – and qualify for this retirement plan provision.

When the taxpayer self-certifies to these facts, the tax impact is substantial. There will be no 10% penalty if you take a distribution while under the age of 59½, the distribution will be spread over three years, and the taxpayer may repay the amount taken out over three years and avoid taxation.

Prepare by keeping documentation. Since you are self-certifying that you are impacted, you may want to keep any medical records, notices from your employers or notes describing your circumstances.

For most people, these are the main changes that will impact their personal 1040 Form. But keep in mind that Congress is still in session, it is an election year and more changes are possible.”

Credit given to US News & World Report published Sept 1, 2020 by Morris Armstrong.

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.

BWC Board Approves 10% Rate Cut for Public Employers September 23, 2020

Posted by bradstreetblogger in : Business consulting, General, Tax Planning Tips, Tax Tip, Taxes, Uncategorized , add a comment

Ohio’s public employers will pay $14.8 million less in premiums to the Ohio Bureau of Workers’ Compensation (BWC) in 2021 thanks to a rate cut the BWC Board of Directors approved Friday.

The rate reduction means approximately 3,700 counties, cities, public schools and other public taxing districts will pay an average of 10% less on their annual premiums than this calendar year. The reduction, made possible by declining injury trends and relatively low medical inflation costs, is the twelfth cut for public employers since 2009 and follows a 10% cut that went into effect in January.

“We are pleased to pass these savings along to our public employer community, especially as the COVID-19 pandemic continues to challenge our economy,” said BWC Administrator/CEO Stephanie McCloud. “It is our hope they invest these dollars in workplace safety and improving their communities.”

The 10% reduction represents an average statewide change to premiums and does not include costs related to the administrative cost fund or other funds BWC administers. The actual total premium paid by individual employers depends on several factors, including the expected future claims costs in their industry, their company’s recent claims history, and their participation in various BWC programs.

A history of BWC rate changes since 2000 can be found online by clicking this link.

Credit given to BWC Website, News Release August 24, 2020

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

–until next week.

Good Record-keeping is an Essential Element of Tax Planning September 16, 2020

Posted by bradstreetblogger in : Business consulting, General, tax changes, Tax Planning Tips, Tax Preparation, Tax Rules, Tax Tip, Taxes , add a comment

I can go on ad nauseum about the importance of good record-keeping. Of course, being an accountant, I may be more than a little biased. I won’t say that good record-keeping is THE most important piece of the business world BUT it is certainly near the top. You simply must have a way to keep score. Without knowing the score, you may be using the wrong playbook. Most businesses have poor records which results in inaccurate financial statements. Making decisions from incorrect data just sets the stage for a disaster. Eventually, most of your day will be wasted answering calls from past due or incorrect payments on your invoices, screwed up orders, improper or missed billings, unable to obtain credit, poor credit history and losing money all the while not knowing you are underwater until it is too late.
                                                -Mark

Now is a good time for people to begin thinking about next year’s tax return. While it may seem early to be preparing for 2021, reviewing your record-keeping now will pay off when it comes time to file again.

Here are some suggestions to help taxpayers keep good records:

Credit given to – IRS.gov – click here for original article

This week’s Author – Mark Bradstreet, CPA

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

–until next week.

How to Owe Nothing with Your Federal Tax Return September 9, 2020

Posted by bradstreetblogger in : Depreciation options, General, tax changes, Tax Preparation, Tax Rules, Tax Tip , add a comment

Here’s how to fine-tune your W-4 and avoid writing a fat check next year.

It’s a calming thought: owing nothing on your federal tax return. And you can make it happen if you handle your withholding strategically.

Here’s how:

The W-4 form that you fill out for your employer when you start a new job determines how much income tax will be withheld from your paycheck and, ultimately, how much tax you will either owe or get back as a refund at the end of the year.

What you may not know is that it’s not a one-time thing. You can submit a revised W-4 form to your employer whenever you want. Managing how much your employer withholds through your W-4 form will give you a better shot at owing no taxes come April.

You also should avoid having too much withheld, of course. That would be giving Uncle Sam an interest-free loan all year.

Here’s how to get your tax bill closer to zero before tax time arrives:

KEY TAKEAWAYS
• The W-4 form that you fill out for your employer determines how much tax is withheld from your paycheck throughout the year.
• An online calculator can help you estimate your tax liability for the year and determine whether you’re having too little or too much withheld.
• Once you know that, you can submit a new W-4 to get you closer to owing zero at tax time.

Estimate What You’ll Owe
If you are a salaried employee with a steady job, it’s relatively easy to calculate your tax liability for the year. You can predict what your total income will be.

Millions of Americans don’t fall into the above category. They work freelance, have multiple jobs, work for an hourly rate, or depend on commissions, bonuses, or tips. If you’re one of them, you’ll need to make an educated guess based on your earnings history and how your year has gone so far.

From there, there are several ways to get a good estimate of your tax liability:

Use an Online Check Calculator
There are a number of free income tax calculators online. If you enter your gross pay, your pay frequency, your federal filing status, and other relevant information, the calculator will tell you your federal tax liability per paycheck.

You can multiply that by the number of pay periods in a year to see your total tax liability.

This method is easy, and the result will be reasonably accurate, but it may not be perfect since your actual tax liability may depend on some other variables, such as whether you itemize deductions and which tax credits you claim.

Use a Tax Withholding Estimator
The tax withholding estimator on the Internal Revenue Service website is particularly useful for people with more complex tax situations.

It will ask about factors like your eligibility for child and dependent care tax credits, whether and how much you contribute to a tax-deferred retirement plan or health savings account, and how much federal tax you had withheld from your most recent paycheck.

Based on the answers to your questions, it will tell you your estimated tax obligation for the year, how much you will have paid through withholding by year’s end, and your expected over-payment or underpayment.

Fill Out a Sample Tax Return
Another option is to complete a sample tax return for the year, either by using tax software or by downloading the forms you need from the IRS website and filling them out by hand.

This method should give you the most accurate picture of your annual tax liability.

If you’re using last year’s tax software or IRS forms, make sure there haven’t been significant changes to the rules or the tax rates that would affect your situation.

How To Get The Most Money Back On Your Tax Return

Adjust Your Tax Withholding
Once you know the total amount you will owe in federal taxes, the next step is figuring out how much you need to have withheld per pay period to reach that target but not exceed it by Dec. 31.

Then fill out a new W-4 form accordingly.

You don’t have to wait for your employer’s HR department to hand you a new W-4 form. You can print one yourself from the IRS website.

If Not Enough Is Being Withheld
The W-4 form has a place to indicate the amount of additional tax you’d like to have withheld each pay period.

If you’ve underpaid so far, subtract the amount you’re on track to pay by the end of the year, at your current level of withholding, from the amount you will owe in total. Then divide the result by the number of pay periods that remain in the year.

That will tell you how much extra you want to have withheld from each paycheck.

You could also decrease the number of withholding allowances you claim, but the results won’t be as accurate.

If You’ve Been Overpaying
Unless you’re looking forward to a big refund, try increasing the number of withholding allowances you claim on the W-4.

Deciding on the exact number can be tricky. The best method is to plug different numbers of withholding allowances into a paycheck calculator until it hits the amount closest to the federal tax you want to have withheld for each pay period going forward.

Note that the IRS requires that you have a reasonable basis for the withholding allowances you claim. It doesn’t want you fiddling with its form just to avoid paying taxes until the last minute.

If you don’t have enough tax withheld, you could be subject to underpayment penalties.

Bear in mind that you need to have enough tax withheld throughout the year to avoid underpayment penalties and interest. You can do that by making sure your withholding equals at least 90% of your current year’s tax liability or 100% of your previous year’s tax liability, whichever is smaller.

You’ll also avoid penalties if you owe less than $1,000 on your tax return.

Other Considerations
If it’s so early in the year that you haven’t received any paychecks yet, you can just divide your total tax liability for the year that just ended by the number of paychecks you receive in a year. Then, compare that amount to the amount that’s withheld from your first paycheck of the year once you get it and make any necessary adjustments from there.

If you adjust your W-4 to make up for any underpayment or over-payment partway through the year, you’ll want to fill out a new W-4 in January or your withholding will be off for the new year.

Of course, if your income fluctuates unpredictably, this is all a lot harder. But following the steps above should help you get close to a reasonable number.

And remember: You can redo your W-4 several times during the year if necessary.

Article credit given to – Amy Fontinelle – click here for original article

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.

–until next week.

Fraud in your Workplace September 2, 2020

Posted by bradstreetblogger in : Fraud, General, Tax Rules, Tax Tip , add a comment

Heaven forbid – but, if you have some underhanded activities going on at your company – the culprit is often someone that you suspect the least. The numbers below are alarming. And, I wonder how many fraudsters are never caught.                                     
                   -Mark Bradstreet

Inventory is short, money is missing from the till, or you’re reimbursing an employee for bogus T&E costs. These are all examples of employee fraud. It’s probably not a question of whether you experience it but rather how much employee fraud is costing your business.

According to the Association of Certified Fraud Examiners’ 2018 Report to the Nations on Occupational Fraud and Abuse, workplace fraud is widespread.

Here are some alarming statistics:

•    The median loss to a small business (fewer than 200 employees) is $200,000, which is nearly double the amount ($104,000) for larger companies.
•    The most common schemes in small businesses include corruption, billing, check and payment tampering, expense reimbursements, skimming, and  cash on hand. Fraud is primarily detected by a tip, although management review and internal audits are also useful.
•    Almost half (48%) of fraud in companies of all sizes is by rank-and-file employees, although management isn’t far behind (31%). In small businesses, 29% of frauds are perpetrated by an owner or executive.

What do these stats mean to you?

These statistics should be a wake-up call for you to put business practices in place that can minimize the risk of fraud by your employees. The report found that small businesses typically have fewer anti-audit controls than large companies, leaving them more vulnerable to fraud. But you can take action that will help. Here are some ideas to use:

•    Code of conduct
•    Data monitoring and analysis
•    Dedicated fraud team
•    External audits
•    Formal fraud risk assessments
•    Fraud training for managers and employees
•    Job rotation and mandatory vacations
•    Physical barriers (alarms, limited access to cash, cameras, etc.)
•    Rewards for whistle-blowers

Insurance protection

Check your current business policy to see what is and what is not covered in the way of theft. You may need employee theft coverage (“employee dishonest coverage”) as an add-on to your existing business owner’s policy (BOP). Even assuming your policy covers employee theft, it could have a cap as little as $10,000 or $25,000; given that the average theft is over $100,000, you may want to raise the limit. Talk with your insurance agent to understand what your current policy covers and what changes you can make to obtain better protection in case of employee fraud.

Final thought

Today, with computers it’s easier than ever for employees to commit fraud. Pay special attention to controls over your data and access to sensitive company information (bank accounts, customer lists, etc.). The Computer Fraud and Abuse Act (“CFAA”) is a federal law that prohibits intentionally accessing a computer without authorization. It has been used successfully by employers in certain situations to obtain civil penalties against former employees who take information from company computers.

This week’s author – Mark Bradstreet

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We also welcome and appreciate anyone who wishes to write a Tax Tip of the Week for our consideration. We may be reached in our Dayton office at 937-436-3133 or in our Xenia office at 937-372-3504. Or, visit our website.  

–until next week.