Month: September 2021

Tax

1099‘s Tell Story On Dentist

Here’s a sad story of a dentist who did not file his tax returns. 

Of course, as you know, the failure to file tax returns often gets the IRS’s attention. In this case, it did, and this dentist suffered accordingly.

The IRS used the 1099s issued to this dentist by insurance companies and some of the insurance company checks he cashed to identify $43,886 in taxes due, a $10,072 penalty for failure to file, and a $1,754 penalty for failure to pay estimated taxes.

What made this dentist think the IRS would not notice his missing tax return? If he read any newspapers or even watched any television, he had to know that

  • the 1099s report his income; 
  • the IRS matches the 1099s to tax returns; and 
  • missing 1099s get the attention of the IRS audit process.

It’s true. When you don’t file a tax return, you increase your chances of an IRS audit.

If you are having trouble getting your tax information together to complete your return, please don’t hesitate to call me on my direct line at 408-778-9651.

Tax

Don’t Miss Out On The Employee Retention Credit

It’s hard to imagine that a small business does not qualify for some or all of the employee retention credit (ERC). 

And remember, this is a tax credit—one of the very best things that tax law has to offer. True, it’s not as valuable as some other tax credits, because you have to reduce your payroll income tax deductions for the credits, but the ERC certainly puts you money ahead.

And you can be looking at big bucks. The possible ERC is $5,000 per employee for 2020 and $28,000 per employee for 2021. That’s $33,000 per employee.

For 2020, you have two ways to qualify:

  1. You had a gross receipts drop during a calendar quarter of more than 50 percent when compared to the same calendar quarter of 2019. The 50 percent test is the trigger for the ERC and you automatically qualify in the following 2020 quarter.
  2. You suffered from a federal, state, or local government order that fully or partially suspended your operations.

For 2021, you have three ways to qualify:

  1. You suffered a federal, state, or local government order that fully or partially suspended your operations (under this rule, you qualify for the ERC on the days you suffered the full or partial suspension, even if you did not lose any money).
  2. Your gross receipts for a 2021 calendar quarter are less than 80 percent of gross receipts from the same quarter in calendar year 2019.
  3. As an alternative to number 2 above, using the preceding quarter to your 2021 calendar quarter, your gross receipts are less than the comparable quarter in 2019.

You can see by the rules that the government wants to help your small business. Take advantage.

One final note. You may not double dip. Wages you use for the ERC may not be used for the PPP, family leave credit, or similar COVID-19 programs.

If you would like to discuss the ERC, please call me on my direct line at 408-778-9651.

Tax

2021 Tax Loss Nightmare: Return Of The TCJA NOL Rules

The Tax Cuts and Jobs Act (TCJA) ugly net operating loss rules, which were laid dormant by the CARES Act, reappear in tax year 2021 to limit your tax loss benefits.

You’ll most often see an NOL when you have a net business loss for the tax year.

You are now stuck with the TCJA rules for NOLs starting in tax year 2021.

The TCJA rules are not in your favor:

  • You cannot carry back your NOL, but you can carry it forward an indefinite number of years, and
  • Your NOL can offset only up to 80 percent of your taxable income before your 20 percent Section 199A deduction.

The TCJA changes take away your ability to get immediate tax savings from your business losses.

Since you can’t carry back your NOL, you must be proactive to get immediate value from your loss. Consider these five strategies to create taxable income and lock in your loss immediately:

  1. Convert your traditional IRA to a Roth.
  2. Take a taxable traditional IRA distribution if you are not subject to penalties for early withdrawal.
  3. Offset depreciation recapture on the sale of vehicles and other equipment.
  4. Accelerate income into 2021.
  5. Fix depreciation errors that increase your taxable income.

If you are looking at a business loss this year and would like to see if you can take advantage of it now, please call me on my direct line at 408-778-9651.

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