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May 2021

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Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.


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 to be stressful and frustrating and wait until the last minute. Complicating matters this year is tax reform and the newly redesigned Form 1040. 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 very 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 not only keep the process calm but also 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.

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 getting 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 15, 2021 - but make sure you pay by the May 17 due date. However, the extension itself does not give you more time to pay any taxes 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, 2021, to file their 2020 tax returns and pay any tax due. The special 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 May 17 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 a variety of 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.

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Tax Withholding for Seasonal and Part-Time Employees

Many businesses hire part-time or full-time workers, especially in the summer. The IRS classifies these employees as seasonal workers, defined as an employee who performs labor or services on a seasonal basis (i.e., six months or less). Examples of this kind of work include retail workers employed exclusively during holiday seasons, sports events, or during the harvest or commercial fishing season. Part-time and seasonal employees are subject to the same tax withholding rules that apply to other employees.

All taxpayers fill out a W-4 when starting a new job. Employers use this form to determine the amount of tax to be withheld from your paycheck. Taxpayers (including students) with multiple summer jobs will want to make sure all their employers withhold an adequate amount of taxes to cover their total income tax liability.

Changes to Withholding under Tax Reform

The Tax Cuts and Jobs Act made changes to the tax law starting in 2018, including increasing the standard deduction, eliminating personal exemptions, increasing the child tax credit, limiting or discontinuing certain deductions, and changing the tax rates and brackets. Some taxpayers, such as those who are returning to the workforce, work part-time, or have seasonal jobs, may not be aware of the changes in tax law that could affect their paycheck.

Any changes a part-year employee makes to their withholding amount have a more significant impact on their paycheck than for employees who work year-round. As such, now is an excellent time to perform a "paycheck check-up" using the Withholding Calculator, a special tool on the IRS website that can help taxpayers with part-year employment estimate their income, credits, adjustments, and deductions more accurately. It also checks to see whether a taxpayer is having the correct amount of tax withheld for their financial situation.

Using the Withholding Calculator

  • First, the calculator asks about the dates of a taxpayer's employment and accounts for a part-year employee's shorter employment rather than assuming that their weekly tax withholding amount would be applied to a full year.
  • Next, the calculator makes recommendations for part-year employees accordingly. If a taxpayer has more than one part-year job, the Withholding Calculator can account for this as well.

Taxpayers should have a completed prior-year tax return available and will also need their most recent pay stub before using the Withholding Calculator.

Calculator results depend on the accuracy of information entered. If a taxpayer's circumstances change during the year, they should return to the calculator to check whether they should adjust their withholding. For taxpayers who work for only part of the year, it's best to do a "paycheck check-up" early in their employment period, so their tax withholding is most accurate from the start.

The Withholding Calculator does not request personally identifiable information, such as name, Social Security number, address, or bank account numbers. The IRS does not save or record the information entered on the calculator. As always, taxpayers should watch out for tax scams, especially via email or phone, and be especially alert to cybercriminals impersonating the IRS. Remember, the IRS does not send emails related to the calculator or the information entered.

If you Need to Adjust your Withholding

If the calculator results indicate a change in withholding amount, the employee should complete a new Form W-4 and should submit it to their employer as soon as possible. Employees with a change in personal circumstances that reduces the number of withholding allowances should submit a new Form W-4 with corrected withholding allowances to their employer within ten days of the change.

As a seasonal or part-time worker, you may not be required to file a federal or state return if the wages you earn at a part-time or seasonal job are less than the standard deduction; however, if you work more than one job, you may end up owing tax.

As you can see, seasonal and part-time workers have unique tax situations. If you have any questions about your tax situation, don't hesitate to call the office today.

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Saving for Education: Understanding 529 Plans

Many parents are looking for ways to save for their child's education, and a 529 Plan is an excellent way to do so. Even better is that thanks to the passage of tax reform legislation in 2017, 529 plans are now available to parents wishing to save for their child's K-12 education as well as college (two and four-year programs) or vocational school.

The SECURE Act expanded the 529 Plan to include fees, books, supplies, and equipment for apprenticeship programs and repayment of principal and interest on student loan debt for the designated beneficiary or the beneficiary's sibling, up to a lifetime limit of $10,000.

You may open a Section 529 plan in any state, and there are no income restrictions for the individual opening the account. Contributions, however, must be in cash, and the total amount must not be more than is reasonably needed for higher education (as determined initially by the state). A minimum investment may be required to open the account, such as $25 or $50.

Each 529 Plan has a Designated Beneficiary (the future student) and an Account Owner. The account owner may be a parent or another person and typically is the principal contributor to the program. The account owner is also entitled to choose (as well as change) the designated beneficiary.

Neither the account owner nor beneficiary may direct investments. Still, the state may allow the owner to select a type of investment fund (e.g., fixed income securities), change the investment annually as well as when the beneficiary is changed. The account owner decides who gets the funds (can pick and change the beneficiary) and is legally allowed to withdraw funds at any time, subject to tax and penalties (more about this below).

Unlike some of the other tax-favored higher education programs such as the American Opportunity and Lifetime Learning Tax Credits, federal tax law doesn't limit the benefit only to tuition. Room, board, lab fees, books, and supplies can be purchased with funds from your 529 Savings Account as well. However, individual state programs could have a more narrow definition, so be sure to check with your particular state.

Tax-free Distributions

Distributions from 529 plans are tax-free as long as they are used to pay qualified higher-education expenses for a designated beneficiary. Distributions are tax-free even if the student is claiming the American Opportunity Credit, Lifetime Learning Credit, or tax-free treatment for a Section 530 Coverdell distribution--provided the programs aren't covering the same specific expenses. Qualified expenses include tuition, required fees, books, supplies, equipment, and special needs services. For someone who is at least a half-time student, room and board also qualify. Also, starting in 2018, "qualified higher education expenses" include up to $10,000 in annual expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.

Qualified expenses also include computers and related equipment used by a student while enrolled at an eligible educational institution; however, software designed for sports, games, or hobbies does not qualify unless it is predominantly educational in nature.

Federal Tax Rules

Income Tax. Contributions made by the account owner or other contributor are not deductible for federal income tax purposes, but many states offer deductions or credits. Earnings on contributions grow tax-free while in the program. Distribution for a purpose other than qualified education is taxed to the one receiving the distribution. In addition, the taxable portion of the distribution will incur a 10 percent penalty, comparable to the 10 percent penalty in Section 530 Coverdell plans. Also, the account owner may change the beneficiary designation from one to another in the same family. Funds in the account roll over tax-free for the benefit of the new beneficiary.

Gift Tax. For gift tax purposes, contributions are treated as completed gifts even though the account owner has the right to withdraw them - thus, they qualify for the up-to-$15,000 annual gift tax exclusion. One contributing more than $15,000 may elect to treat the gift as made in equal installments over that year and the following four years so that up to $75,000 can be given tax-free in the first year.

Estate Tax. Funds in the account at the designated beneficiary's death are included in the beneficiary's estate - another odd result since those funds may not be available to pay the tax. Funds in the account at the account owner's death are not included in the owner's estate, except for a portion where the gift tax exclusion installment election is made for gifts over $15,000. Here is an example: if the account owner made the election for a gift of $75,000 in 2019, a part of that gift is included in the estate if he or she dies within five years.

A Section 529 program can be an especially attractive estate-planning move for grandparents. There are no income limits, and the account owner giving up to $75,000 avoids gift tax and estate tax by living five years after the gift, yet has the power to change the beneficiary.

State Tax. State tax rules are all over the map. Some reflect the federal rules, some quite different rules. For specifics of each state's program, see: http://www.collegesavings.org.

Seek Professional Guidance First

Considering the differences among state plans, the complexity of federal and state tax laws, and the dollar amounts at stake, please call the office and speak to a tax and accounting professional before opening a 529 plan.

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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 even if they transferred all of their assets 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.

If you decide to start a side business while in retirement and are self-employed, you may claim the foreign earned income exclusion on foreign earned self-employment income. However, the excluded amount will reduce your regular income tax but will not reduce your self-employment tax. You must pay self-employment tax on all your net profit, including any amount excluded from income.

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 (e.g., April 15, 2021.

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. 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 or one who specializes in expat tax services.

Foreign Earned Income Exclusion

If you've retired overseas but work at 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 2021, this amount is $108,700. If you qualify for the exclusion, you won't pay tax on up to $108,700 of your wages, and other foreign earned income in 2021.

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 many 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 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.

Affordable Care Act

Starting in 2014, the individual shared responsibility provision calls for each individual to have minimum essential coverage for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return. Under tax reform, the penalty for the individual mandate was eliminated starting January 1, 2019.

U.S. citizens or residents living abroad for at least 330 days within 12 months are treated as having minimum essential coverage during those 12 months and thus will not owe a shared responsibility payment for any of those 12 months. Also, U.S. citizens who qualify as a bona fide resident of a foreign country for an entire taxable year are treated as having minimum essential coverage for that year.

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.

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 Form 8854 must also be filed with Internal Revenue Service (Philadelphia, PA 19255-0049) by the tax return's due date (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. Suppose you are a nonresident alien receiving social security retirement income. In that case, SSA will withhold a 30 percent flat tax from 85 percent of those benefits unless you qualify for a tax treaty benefit, in which case 25.5 percent of your monthly benefit amount is withheld.

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.

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Deducting Business-Related Car Expenses

If you're self-employed and use your car for business, you can deduct certain business-related car expenses. There are two options for claiming deductions:

Actual Expenses. To use the actual expense method, you need to figure out the actual costs of operating the car for business use. You are allowed to deduct the business-related portion of costs related to gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments).

Standard Mileage Rate. To use the standard mileage deduction, multiply 56 cents (in 2021) by the number of business miles traveled during the year.

Deduct car expenses such as parking fees and tolls attributable to business use separately no matter which method you choose.

Which Method Is Better?

For some taxpayers, using the standard mileage rate produces a larger deduction. Others fare better tax-wise by deducting actual expenses. You may use either of these methods whether you own or lease your car.

To use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. In subsequent years, you can choose to use the standard mileage rate or actual expenses. If you choose the standard mileage rate and lease a car for business use, you must use the standard mileage rate method for the entire lease period - including renewals.

Opting for the standard mileage rate method allows you to bypass certain limits and restrictions and is simpler; however, it's often less advantageous in dollar terms. Generally, the standard mileage method benefits taxpayers who have less expensive cars or travel many business miles.

The standard mileage rate may understate your costs, especially if you use the car 100 percent (or close to it) for business.

Documentation

Tax law requires that you keep travel expense records and that you show business versus personal use on your tax return. Furthermore, if you don't keep track of the number of miles driven and the total amount you spent on the car, your tax advisor won't be able to determine which of the two options is more advantageous for you at tax time. It is essential to keep careful records of your travel expenses (if you use the actual expenses method, you must keep receipts) and record your mileage.

You can use a mileage logbook or, if you're tech-savvy, an app on your phone or tablet. Several phone applications (apps) are available to help you track your business expenses, including mileage and billable time. These apps also allow you to create formatted reports that are easy to share with your CPA, EA, or tax preparer.

To simplify your recordkeeping, consider using a separate credit card for business.

Questions?

Don't hesitate to call and find out which deduction method is best for your particular tax situation.

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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 full 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 May 17 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.

Taxpayers should remember that an extension of time to file is not an extension of time to pay. An extension gives taxpayers until October 15, 2021 to file their 2020 tax return, but taxes owed are still due May 17, 2021.

2. File an extension. 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 May 17 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 May 17 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 for 2020, please call the office as soon as possible.

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Common Errors To Avoid When Filing a Tax Return

While not all mistakes on tax returns cause delays in refunds, some do. As the May 17 deadline approaches, it pays to steer clear of the ten tax return errors listed below.

1. 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.

2. 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.

3. Using Incorrect 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.

4. 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.

5. Forgetting to answer the virtual currency question. The 2020 Form 1040 asks whether at any time during 2020, a person received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency. If a taxpayer's only transactions involving virtual currency during 2020 were purchases of virtual currency, they are not required to answer "yes" to the question.

6. Mailing paper returns to the right address. Paper filers should check the right address for where to file on IRS.gov or on the form instructions to avoid processing delays. Note that due to staffing issues related to COVID-19, processing paper tax returns could take much longer than usual. Taxpayers and tax professionals are encouraged to file electronically if possible.

7. Not using the correct routing and account numbers. Requesting direct deposit of a federal refund into one, two, or even three accounts is convenient and allows the taxpayer access to his or her money faster. Make sure 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.

8. 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).

9. 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.

10. Not requesting an extension, if needed. Taxpayers who cannot meet the May 17 deadline can easily request an automatic filing extension to October 15 and prevent late filing penalties. Keep in mind that while an extension grants additional time to file, tax payments are still due May 17.

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Refunds for Nontaxable Unemployment Compensation

The IRS is automatically refunding money to eligible people who filed their tax returns reporting unemployment compensation before the recent changes made by the American Rescue Plan.

Background

Typically, when an individual receives unemployment compensation, it is taxable. However, under a recent law change (American Rescue Plan), taxpayers who earned less than $150,000 in modified adjusted gross income can exclude some unemployment compensation from their income, which means they don't have to pay tax on some of it.

People who are married and filing joint returns can exclude up to $20,400 – up to $10,200 for each spouse who received unemployment compensation. All other eligible taxpayers can exclude up to $10,200 from their income.

This law change occurred after some people filed their 2020 taxes. Eligible taxpayers who filed and figured their 2020 tax based on the full amount of unemployment compensation will automatically receive a refund. The IRS expects to begin issuing these refunds in May.

What You Need to Do

There is no need to do anything. The IRS will determine the correct taxable amount of unemployment compensation. Any resulting overpayment of tax will be either refunded or applied to other taxes owed.

The recalculations will take place in two phases:

  • First, taxpayers who are eligible to exclude up to $10,200.
  • Second, those married filing jointly who are eligible to exclude up to $20,400, and others with more complex returns.

When to File an Amended Return

Taxpayers only need to file an amended return if the recalculations make them newly eligible for additional federal tax credits or deductions not already included on their original tax return. For example, the IRS can adjust returns for taxpayers who claimed the earned income tax credit and, because the exclusion changed their income level, may now be eligible for an increase in the EITC amount.

However, taxpayers would have to file an amended return if they did not originally claim the EITC or other credits but are now eligible to claim them following the change in the tax law. If they now qualify for these credits, they should consider filing an amended return to claim this money. These taxpayers may want to review their state tax returns as well.

Taxpayers who haven't yet filed and choose to file electronically simply need to respond to the related questions when preparing their tax returns. For those who choose to file a paper return, instructions and an updated worksheet about the exclusion are also available.

Don't hesitate to contact the office with questions. As always, help is just a phone call away.

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Recovery Rebate Credit May Be Different Than Expected

Some taxpayers who claim the 2020 Recovery Rebate Credit (RRC) on their 2020 tax returns are discovering that they may be getting a different amount than they expected. Let's take a closer look at why this is happening.

The first and second Economic Impact Payments (EIP) were advance payments of the 2020 credit. Most eligible taxpayers already received the first and second payments and shouldn't (and don't need to) include this information on their 2020 tax return. However, those who didn't receive a first or second EIP or received less than the full amounts may be eligible for the 2020 RRC. However, to claim the credit, they must file a 2020 tax return - even if they don't usually file a tax return.

How the Rebate Recover Credit Works

When it processes a 2020 tax return claiming the credit, the IRS determines the eligibility and amount of the taxpayer's credit based on the 2020 tax return information and the amounts of any EIP previously issued. If a taxpayer is eligible, the credit is reduced by the amount of any EIPs already issued to them.

  • If there is a mistake with the credit amount (Line 30 of the 1040 or 1040-SR), the IRS will calculate the correct amount, make the correction and continue processing the return.
  • If a correction is needed, there may be a slight delay in processing the return, and the IRS will send the taxpayer a letter or notice explaining any change.

Taxpayers who receive a notice saying the IRS changed the amount of their 2020 credit should read the notice and review their 2020 tax return. Taxpayers who disagree with the IRS calculation should review their letter as well as the questions and answers for what information they should have available when contacting the IRS.

Common reasons that the IRS corrected the credit are as follows:

  • The individual was claimed as a dependent on another person's 2020 tax return.
  • The individual did not provide a Social Security number valid for employment.
  • The qualifying child was age 17 or older on January 1, 2020.
  • Math errors relating to calculating adjusted gross income and any EIPs already received.

Don't hesitate to call if you have any questions about this topic.

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Deductions for Food or Beverages From Restaurants

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.

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How to Customize Sales Forms in Quickbooks

When you receive an invoice or bill in the mail or online, how much attention do you pay to the way it looks? You might think you don't pay any attention. Still, any communication received from vendors patronized does have an affect, and people are more likely to notice if it's particularly good or bad.

As such, any interaction with customers has an impact on their perception of your business. How do you want them to think about you? If you send invoices that are professional and polished, they can reflect on you positively. Unattractive sales forms with many empty, unused fields may make customers wonder about your commitment to excellence.

Some of your customers will glance at your invoices and pay them. But it would be best if you didn't miss an opportunity to make a good impression, especially when it is as painless as customizing your sales forms in QuickBooks. Here's how it works:

Modifying Your Templates

QuickBooks comes with pre-designed templates for each type of sales form it supports: invoices, estimates, credit memos, sales receipts, purchase orders, statements, sales orders, and payment receipts (you may not have access to all of these depending on what version you're using). You can see the list by opening the Lists menu and clicking on Templates.

Figure 1 - QuickBooks comes with modifiable templates for numerous types of sales forms.
Figure 1: QuickBooks comes with modifiable templates for numerous types of sales forms.

Let's look at an invoice template. Right-click on Intuit Service Invoice in the list to open the action menu, then click Edit Template. Click on Manage Templates, then click Copy at the bottom of the window to make a copy of the original so you can practice. The Preview in the right pane is named Copy of Intuit Service Invoice. Click OK.

Tip: You can use the Copy command to make and modify multiple copies of any sales form that you can use for different purposes and/or customers.

Now you're back at the Basic Customization window. Check to make sure the Selected Template field reads Copy of Intuit Service Invoice. You can practice using this one and delete it when you want to work on your main template.

Click the box in front of Use logo and browse in the window that opens to find it. Double-click on it, then click OK in the small window that opens to confirm, and QuickBooks returns you to the previous window with the logo showing in the Preview pane. If you want to change the color of the invoice, click the down arrow in the field below Select Color Scheme. Choose the one you want and click Apply Color Scheme.

Figure 2 - You can add a logo and change the color scheme and fonts used on your invoice. The preview in the right pane (not shown here) updates to reflect your modifications.
Figure 2: You can add a logo and change the color scheme and fonts used on your invoice. The preview in the right pane (not shown here) updates to reflect your modifications.

If you want to change the fonts for the four fields pictured above, click on each and then click Change Font to open a window with your options. Below that, is the list of fields available for your Company & Transaction Information (next to your logo). You can click boxes to check or uncheck the fields you want to appear.

Warning: If you select too many fields, you may have to use the Layout Designer to position them on the invoice, which can be challenging.

You can also turn on the Status Stamp and Past Due Stamp to display the status of each invoice (Paid, Pending, etc.) using a graphic that looks like you've stamped the form.

Selecting Fields and Columns

QuickBooks also gives you control over the fields and columns that appear in the body of the invoice. Click Additional Customization at the bottom of the window. In the window that opens, you can change three things for the content that appears in the header, footer, and columns. By clicking boxes and entering text, you can indicate which fields should appear on the screen and which should be printed. You can also edit the default field titles. Click on each tab at the top to see all of your options.

Figure 3 - You can tell QuickBooks which fields should appear on the screen and on printed invoices, as well as how their titles should read.
Figure 3: You can tell QuickBooks which fields should appear on the screen and on printed invoices, as well as how their titles should read.

As you're making these changes, QuickBooks will warn you that you might have overlapping fields and that, again, you'll have to use the Layout Designer. You can click Print Preview at any time to see what your finished invoice will look like and decide whether you want to try to modify your design. If you're adding, deleting, or moving (drag and drop) a few fields, this may work fine for you. But QuickBooks is not a sophisticated graphic design program, and your results may not look professional if you attempt too much.

When you are finished modifying your template, click OK. Copy of Intuit Service Invoice will now appear in the list of options that drops down under the Template field at the top of the screen when you're creating an invoice. If you want to edit, delete, or hide it by making it inactive, you can do so by again going to Lists | Templates and clicking on its name, then clicking the down arrow next to Templates to open the action menu.

Tip: You can also click Duplicate, which will open a list of all of your sales forms. Select one and click OK, and you'll be able to transfer your formatting preferences over to it.

There is so much the software can do to help you understand and manage your finances that you may not yet have explored. While you probably won't have much trouble customizing your sales forms in QuickBooks, but you may have other problems that you need help with, such as expanding your use of QuickBooks or developing a daily workflow. If so, don't hesitate to call for assistance.

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Tax Due Dates for May 2021

May 10

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

Employers - Social Security, Medicare, and withheld income tax. File Form 941 for the first quarter of 2021. This due date applies only if you deposited the tax for the quarter in full and on time.

May 17

Individuals - File an income tax return for 2020 and pay any tax due. 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 or you can get an extension by phone if you pay part or all of your estimate of income tax due with a credit card. Then file Form 1040 by October 15.

Household Employers - If you paid cash wages of $2,200 or more in 2020 to a household employee, file Schedule H (Form 1040) with your income tax return and report any employment taxes. Report any federal unemployment (FUTA) tax on Schedule H if you paid total cash wages of $1,000 or more in any calendar quarter of 2019 or 2020 to household employees. Also, report any income tax you withheld for your household employees.

Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in April.

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


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