As the summer rolls on I thought it would be a good time to update taxpayers on current issues:
FOR ALL TAXPAYERS:
By now many of you have begun receiving monthly payments of your 2021 child tax credit. While this is great news, please understand that these funds represent a pre-payment of the tax credit you previously received as a lump-sum when you filed your tax return. If you relied on the lump-sum credit to fund savings, pay for a large purchase, or to help pay your tax bill be aware that this money will not be there next year, as you will have already received it in monthly installments. Adjust your budget accordingly.
If you are supplementing your income with “gig” work remember these 3 tips:
- Report all your income – The IRS is on the lookout for gig workers who try to hide income. It is not worth the risk.
- Keep track of your expenses – You can deduct ordinary and necessary business expenses to reduce your taxable income, but you must keep good records. If you are an Uber or Lyft driver you must track your business mileage as well as the total mileage you put on the vehicle, on an annual basis.
- Make estimated tax payments – Generally, to avoid estimated tax penalties, you must pay at least 90% of your current year tax liability or 100% of the prior year’s tax liability in the form of estimated tax payments (form 1040-ES).
Be aware of scams! The latest Scam Alert involves individuals impersonating NJ Division of Consumer Affairs (DCA) agents and investigators and demanding money with the threat of prosecution or license revocation. Another common scam is advertised on TV and the internet and involves companies promising to settle IRS tax debts for pennies on the dollar. The IRS refers to these companies as “offer in compromise mills”. They charge large up-front fees, warn that time is running out, and prepare applications for relief that have very little chance of being successful.
Still waiting on your refund? You are not alone. As of late June the IRS had a backlog of almost 17 million unprocessed returns, some dating back to 2019. Most of these returns were paper returns, so it is always best to file electronically as almost all of my clients do. Unfortunately, there is not much you can do but wait. However, since the IRS is mostly back to work after the covid lockdown and filings have slowed over the summer, they are making good progress.
FOR BUSINES OWNERS:
Forgiveness for the second round of Paycheck Protection Program (PPP) loans has begun. Contact your lender to get the process started. Similar to the first time around, loans under $50,000 are generally forgiven with little to no problem. For larger loans there is more scrutiny. Generally there is nothing to worry about as long as you complied with the rules and spent the funds appropriately.
Remember 1099-NEC forms are REQUIRED to be completed and mailed to all businesses, vendors, suppliers, contractors and sub-contractors that received $600.00 or more in total payments during the year. Landlords still get the old 1099-MISC forms. The 2021 forms must be mailed out and a copy filed with the IRS by January 31, 2022. You will need the total amount you paid each recipient in 2021 as well as their name, address and tax ID number. You should download a W-9 form (or get one from me) and have each entity fill it out and return it to you now, before you pay them one more penny. Then all you need to do at year-end is total up the amounts you paid. You can prepare the forms yourself with kits available at Staples or I can do them for you for a reasonable fee. I know many business owners ignore this requirement or only partially comply but you do so at your own risk. The penalties can range up to $550 per 1099 form not filed, as well as the loss of the business tax deduction for the amounts paid. Again, this requirement is for virtually ALL entitles your business pays, NOT ONLY SUB-CONTRACTORS as many business owners believe.
Lastly, if you are short-staffed or your spouse is unemployed it may be a good idea to look into hiring your spouse, especially if they are already helping out. The advantages range from boosting your joint retirement funds, getting a bigger deduction for business travel, saving taxes on health insurance bills, to increased joint life insurance coverage. Contact me for more details.
Hope you all are enjoying your summer.
Leigh J Kremer, CPA
I help clients reduce taxes, increase profitability, meet reporting requirements, and save valuable time. Contact me to find out how!