Remember back in July when you got an extension to file your taxes and October felt so far away? Time has been all out of whack for most of the year, right? Three months was SO much time. Well, we reach that 10^th month next week, so it is time to start to get things ready to fill out your return and get it filed.

That means that now it is time for the regular spiel when it comes to the tax extension deadline. And it starts with, what are you waiting for? If you are expecting a refund, wouldn’t it be nicer to have it in your pocket than letting the government hold onto your money? If you are expecting to have to pay, wouldn’t’ it be better to get that under control and stop having to worry about it? Furthermore, if you are in that situation of having to pay, remember that your extension was only an extension to file, not an extension to pay any taxes owed, so you are probably already gathering penalties and interest that also must be paid. The quicker you get on those, the less they can be.

That deadline is rapidly approaching, but there is deadline news all over the place and it feels like it pulls in many directions, again like the rest of this year.

For instance, for those who had to file on September 15 and missed that deadline, it’s possible that penalties for late filing could be avoided by writing “COVID-19” across the top of the tax return. This is not necessarily a hard and fast rule, but communication with the IRS indicates that those who are making good-faith efforts to file in a difficult time could received some forgiveness. (Read more about that here).

Now, will this also carry over to individuals who will be filing on the October 15 deadline? It seems to be setting a precedent that there are some situations where that could be the case, but again, that is not set in stone, so I recommend still making all possible efforts to get it done on time.

But of course, this banner year of 2020 could not be satisfied with just a pandemic, so it has also thrown the wildfires at many on the west coast. There, the IRS has offered some concrete help, extending many deadlines for three more months. If you want more information on that, you can read the agency’s news release here.

Beyond immediate deadline talk, though, is just filing taxes for next year, too, which is just another few months away for starting, so I wanted to include a final link that could have meaning in that period. There you can see what the new Form 1099-NEC will look like for those who receive nonemployee compensation as part of their income (largely those who earn income as a contractor and not an employee). This is a new form this coming year and will replace the 1099-MISC form for many.

 

A lot of times when one thinks of owing the IRS money for the year, the only thought is of this happening on April 15 (you know, in regular years anyway). However, the agency may be expecting money up to four times a year, and there can be penalties if they are not getting it as they wish.

First, I don’t want to use scare tactics here. If you get a majority of your income as a regular employee in a job where you receive a W2 at the end of the year, then you likely are having enough taxes withheld from your paycheck that there is no need for extra payments. So, if that’s the case and your situation hasn’t significantly changed since last year, then you need not pay attention to this.

Beyond that, though, the situation of many people HAS changed this year. A great number are making money in new ways, and some of those are doing so as contractors, which means taxes are not automatically being withheld from that income. The IRS does not always like when that’s the situation.

Overall, if you expect to owe $1,000 or more when you file your taxes for the year, the IRS expects some of that as the year goes on. Again, if enough is being withheld from your paycheck, there are no worries. It also doesn’t take all that much income from other places to reach this mark, though. Unfortunately, there is no easy and quick answer as to what puts you in this situation. Taxes are complicated, so there are no absolutes like ‘If you made X amount of dollars as a contractor and paid no taxes, you will owe Y amount of dollars in taxes.” These answers are dependent on individual situations.

If you then want to get a handle on your individual situation, you can find some information and links here from a recent IRS release about making estimated tax payments. And if you need more than that, as always you can set up an appointment with us and we can make plans to help mitigate whatever tax situation you are in.

It is not only contractors who may end up with surprising numbers come tax time, as many are also receiving unemployment compensation for the first time. It may hurt to think that these funds, which are being received to help one through a difficult time, will be taxed.  It may hurt even more, though, if one doesn’t realize that withholding taxes from those funds when they are received is voluntary and must be opted into. The IRS has another release about that situation here.

These aren’t going to be the only two new situations that people find themselves in this year. So, in this time where everyone is battling more difficulties than they deserve, it can pay to try to get a grasp on the tax implications of all that newness before receiving another unpleasant surprise next year.

 

As we come out of the summer, the hope of life returning to a ‘normal’ level continues to receive some basis for optimism. A lot of this came from the job market in August, which saw payroll numbers rise as unemployment fell (read more here), where large companies were a big part of adding jobs during the month (as seen here), and some areas are seeing small business growth (as stated in this article). At the same time, many schools across the country are opening or using hybrid models, and even though there are also stories of this not always going well, it does help with that sense of normalcy.

Although all of this feels great, let it not make us complacent. There are still many industries that are waiting for their resurgence (restaurants, airlines, etc.) and this can only be achieved when the pandemic is under control. So, things aren’t as bad as they have been this year, but they’re not as good as we want them to be. Continue taking steps to control the spread and transmission of the virus as we take the uplift from good news when it comes.

Not all the payroll news is fully good, though, as President Trump’s executive order deferring payroll taxes is being largely ineffective. Much of this is due to the limitation of the office of president. The president can defer such taxes, but it takes an act of Congress to forgive them. And even though that deferral could have started at the beginning of the month, it is not being universally used.

A big reason for this is that it is a voluntary move that an employer opts in to. At the same time, though, if an employer does that, it gains a headache in making sure that the numbers are properly recorded, paid back by the end of April next year, and remaining on the hook for any taxes not paid by employees no longer with the company at the end of that period.  If you want to get more in-depth on this, you can read this article, but that is the basic layout for why it is easy to see why employers are choosing not to engage in this program.

So who knows what we can expect over the new few months. Hopefully people will steadily keep going to work and the numbers of those infected with and dying from COVID-19 will continue to decline. But will that lead to people continuing to take measures to hold off the spread or will it make things more lax? Will there be government action to create goodwill before the election or will the two sides just get further entrenched? As has felt the case for the last six months, answers are not always easy. But we remain here to help in any way we can as we continue to travel the road forward together.

 

This week, I want to look at some numbers I saw in a recent article, even if they come from a study that says a little over half of tax clients are not positive that their tax preparer fully minimizes their tax payment.

I would like to hope that we do better than that here. And I assume if you are reading this, you are either a client who does like what we do or someone looking for advice from elsewhere. So hopefully that means you are either on the positive side of this question or looking to join us and get there (and if that’s the case, please contact us!)

To dig into the article a little more, I find it interesting that it also points out that 46% of people were disappointed with the size of their tax refund. It may not feel like it on first read, but that question does not necessarily reflect upon the tax preparer at all. We could do a great job for someone on their tax return, the best job even, and they still can end up disappointed with the final number.

Without fail, every tax season comes with passing along bad news to some clients. Some were expecting a large refund and get a smaller one, some were expecting a refund and end up paying, some were expecting to pay a little and end up paying more. Even with that disappointment, though, I think those are the people who should leave our office with the most confidence in the work we have done. Even if they are unhappy with the outcome, they should know we gave them the best outcome they can (legally) obtain.

These tend to be the clients with whom we have the most conversation during a return. They are surprised and they want to know what happened. Those whose final number on their return is around what they expected, though, don’t always end up delving into what we did. I suspect that in here lie most of the respondents from the article who are not sure they had their tax situations maximized. Instead, things were not surprising and that makes it ‘good enough.’

So this is a plea for communication. If you think you might qualify for something that we are unaware of, tell us. If you think you might be able to get a deduction that we are unaware of, tell us. I mean, nothing will get worse by asking. If the answer is no, you are not going to have to then pay more. And in turn, we hope to communicate well enough that you are confident you are submitting a tax return with the best possible result. We are in this together, after all.

 

“Cooking the books” is a term that most people have heard, but few really understand what it means. Of course, the obvious implication is it occurs when a company provides misleading (or flat out incorrect) financial information to make their position look better than the reality. But just how does it happen?

Well, for those really interested, here is a recent article that gives some of the ins and outs of how it is usually pulled off. For those that aren’t interested in diving that far into it, I think a good summation of it is that this does not happen by accident. To make a big difference, it takes the knowledge of multiple people to make it happen. One person in a sizable corporation, for example, cannot suddenly decide to report a bunch of income at another date and not have someone else notice that it happened. This is also why it doesn’t take much for these schemes to fall apart. The more people involved in the scheme, the more people who can ruin it.

We work with smaller businesses than those with their own accounting departments, but all the same rules apply, including the potential for everything crashing down around you.

To see this, one must think about just what financial information is meant to show. To many, this may just be that you need to pass along numbers to someone at the end of the year so they can file your taxes. But that sounds like it’s not quite enough, doesn’t it? They must do more, right?

Yes, they do more than this and your financial information should be the place you go to when making decisions about your business. Are you spending too much money in any area? Are you earning enough money on all your services? Is the money you’re spending resulting in increased revenue? If you are keeping good records, you can answer these questions and those answers can move your business forward.

If you are fudging numbers to make yourself feel better (or have that tax return be more beneficial to you), you are still only a small step away from everything falling down around you. After all, what you do to make things seem better today is going to come back and get you tomorrow. That tax return may look better at the moment, but you have probably shifted things that are going to make the next one worse.

There is power in those numbers and there is power in being honest with them. The more you stay on top of them, the quicker you can fix things so that those distant moments of comeuppance do not have to come. So in this time when there are many going through the worst times their business has seen, if you legitimately operate the best you can, you are setting yourself up for long-range success.

 

We may just be coming off the tax season that would never end (hey, those extra three months felt like a long time), but it has left some loose ends that still need to be tied up.

First, the IRS is letting people know that it still has a backlog of mail to go through. This means if you mailed a payment to the agency and it has not yet been cashed, do not cancel the check, and ensure funds are still available to pay it. The chances are higher that the agency just hasn’t opened your envelope yet than that the check got lost in the mail. The IRS also promises that you will receive credit for the payment on the day it was mailed and not on the day that that mail actually gets opened.

And if you try to call the IRS to find out about any payments, the chances are also high you are going to be waiting an annoyingly long time to get anyone on the line. (The mail is not the only part of the agency still playing catch-up, after all.) Many questions about payments (and you can even make online payments) can be done via the internet on the webpage, www.irs.gov/payments.

Conversely, if you filed by mail and are waiting for a refund check or deposit, that backlog of envelopes means you may have to just keep waiting a little longer. Electronic filing is not experiencing the same level of delay, so if you did things that way and are still waiting on your money, the easiest way to check on the status of any refund is also done online at www.irs.gov/refunds.

Also still at a bit of loose ends is the receiving of some Economic Impact Payments. One of the big issues still lingering is many people not receiving the $500 per child that was to be part of the payment. If you have missed out on part of this payment, the IRS is allowing certain people (“Those eligible to provide this information include people with qualifying children who receive Social Security retirement, survivor or disability benefits, Supplemental Security Income (SSI), Railroad Retirement benefits and Veterans Affairs Compensation and Pension (C&P) benefits and did not file a tax return in 2018 or 2019.”) to use the non-filers tool through September 30 to get this money. It is expected that these catch-up payments will be made by mid-October.

If you have any other questions on where the agency stands with its operations during this time, the IRS is maintaining an extensive webpage here. This is also a good resource to use no matter the question you have concerning the agency, for it will point you to the best places to attempt to get the information you need in the fastest manner.

The last week was certainly not a good one for getting definite answers as to the direction the government is taking as we continue to weather the coronavirus pandemic. It went from Congress talking about a new stimulus package, Congress being unable to reach agreement on a deal, to the president passing some measures himself, and then some inevitable sniping against a background of two sides that still say they want to pass major legislation.

The biggest news out of this for many people is that there are no current plans for another stimulus payment check. This does not mean one will never come (both Democrats and Republicans say they want this to be part of a larger package) but it means it is not something you can currently count on.

For people then looking for a little extra bit of money elsewhere, the president’s executive order to delay collection of payroll taxes for those making less than approximately $100,000 a year could sound great. This may be a good temporary band-aid, but it must also be acknowledged that this does not mean those taxes will never come due. So sure, if someone needs money now to keep the lights on or put food on the table, that little bit of extra money can help. Just keep in mind that it will be owed at some point in the future, so save for that as soon as possible to try to keep the issues from snowballing.

This deferment of taxes could turn into complete forgiveness (and there is language in the executive order saying that doing this should be explored), but until that becomes official, one should not count on it happening.

The rules for the Paycheck Protection Program (PPP) have also not been good for definite answers, having changed many times since the program was first instituted, and there is certainly a chance that they will change again. The Small Business Administration has put out a recent series of FAQs concerning the program, though, (which you can access by clicking here), so this is the best place to go for the latest word on how forgiveness will be calculated.

Granted, some of this is not the easiest read and probably qualifies as legalese, but it is always good to have access to source information and not just utilize another’s interpretation of it. And to that end, the White House runs a web page where you can view the actual text of all executive orders.

All these issues point to how we have to live within the rules that are in operation at any given time. This can become very frustrating when they keep changing as often as they do, but it also prevents you from running into a tough situation at the end of the road. And when you commit to operating as well as you can during difficult times, that is when such moves as receiving stimulus money stand the best chance of really helping you move forward.

In closing, here is to hoping that you are doing the best you can in this current situation and may a combination of grace, common sense, and good policy carry us further forward.