Preface: Find a great mentor who believes in you; your life will change forever! –Bill Walsh

10 Business Leaders Share Their Words Of Wisdom For First-Time Entrepreneurs

There is no shortage of advice blogs, books and podcasts about entrepreneurship these days. Sifting through all of this advice can take up valuable time and, unfortunately, not all of it will actually help you succeed.

That’s why it’s helpful to learn targeted tips from entrepreneurs who understand what it takes to launch and grow a successful startup. To share the good and warn against the bad, 10 members of Young Entrepreneur Council gave their advice for first-time entrepreneurs. Follow their tips when you need guidance to get you through the early days of your business endeavors.

10 Business Leaders Share Their Words Of Wisdom For First-Time Entrepreneurs

Preface: It is imperative that taxpayers who received the advance Child Tax Credit in 2021 be on the lookout for and keep the IRS Letter 6419.

Important Notice Regarding Advance Child Tax Credit

Credit: Matthew P. Glick

TLDR; Beginning in late December, the IRS started issuing Letter 6419, 2021 advance CTC to notify taxpayers of advance Child Tax Credit payments in 2021. These letters should be treated with the same importance as a W-2 or 1099 for tax filing purposes and retained for your tax filing.

If you are a parent, chances are that you’ve been receiving a deposit into your bank account each month to the tune of $250-$300 for every child listed as a dependent on your tax return. This is due to changes in the child tax credit which stem from the American Rescue Plan Act passed in March of 2021. The changes are valid for 2021 only, but they are substantial.

The first change increased the amount per child, and increased the age of eligible children from 16 to 17. For the 2020 tax year the amount was $2,000. That has now been increased to $3,000 and $3,600 for children under the age of 6. The second change made the credit fully refundable. This simply means that you can claim the credit even if you do not have the income to cover it.

While the previous two changes will most likely have the larger impact on the amount of taxes you owe, the third change that the American Rescue Plan brought about will have a larger impact on the process of filing your taxes. The third change prompted the IRS to start paying a portion of the credit in advance in monthly installments. This is much different from the method we are all used to, where the credit is calculated at the end of the year during tax time. This change has prompted the IRS to begin sending Letter 6419 to taxpayers who received the advance child tax credit.

This means that it is imperative that taxpayers who received the advance Child Tax Credit in 2021 be on the lookout for and keep the Letter 6419 along with the rest of the familiar tax forms and notices that they are used to keeping. Think of it like a W-2 from the IRS. This is their record of how much money they have sent you over the past year.

Keep in mind, however, that the amount of the advance payment was based on historical data provided to the IRS through previous tax returns. As we all know, circumstances change quicker than we tend to file our taxes, meaning that the amount that the IRS has been using to calculate the amounts for the advance payments is subject to change, pending confirmation at tax time.

So, what happens if the IRS used outdated information and issued an overpayment? The answer: it depends. If your income (Modified Adjusted Gross Income) is less than $40,000 for single or $60,000 for joint filers, there will be no repayment requirement. There is a phase-out that ends at $80,000 for single and $120,000 for joint taxpayers. Taxpayers with a MAGI over these amounts will have to repay any overpayment amount. Keep in mind that while we try to give the most up-to-date and concrete information available, individual facts and circumstances can impact these amounts. If you are concerned that you may have received an overpayment and are unsure if you will be required to pay it back, please contact your tax advisor regarding your individual situation.

So, are these changes here to stay? Currently, no. There was a provision in Biden’s Build Back Better act, which would extend these provisions into 2022, but after being passed by the House of Representatives, this plan failed to garner enough support in the Senate to become law. As things currently stand, the child tax credit is set to revert back to the pre-2021 level of $2,000 for children younger than 16, $1,400 of which will be refundable, and none of it will be paid in advance.

Should I Extend my Tax Return?

Credit: Jacob M. Dietz, CPA

 Tax Season

Time steadily keeps ticking.  Another year has nearly ended, another year will soon dawn.  Time brings new things and brings new opportunities to do old things.  Each year brings a new opportunity to file taxes, which is a practice that started millennia ago.

Some taxpayers always file timely, some always file an extension.  Which option is right for you?  Read this article to consider the benefits of both timely filing and filing after an extension.

Benefits of Timely Filing

• • • • Clarity and Precision
      • Avoid Procrastination
      • Allow Partners to File Timely
      • Calculate Quarterly Estimates

A taxpayer might file timely to gain clarity and precision.  Before the taxes are prepared for filing, the taxpayer likely does not know precisely how much the tax bill will be.  Good tax planning, however, might give an idea of the amount.  Think of tax planning as watching a deer walking through the field 200 yards away with the unaided eye.  You can see it with the unaided eye, but the clarity increases when the scope is placed between the eye and the deer.  Likewise, preparing the tax return brings the tax bill into focus.  A hunter catching sight of a big buck might shake with buck fever, and a taxpayer catching a glimpse of a huge tax liability might tremble as well.  Unfortunately, tax returns do not taste as delicious as a deer, although paying taxes can be salty.

Another reason to file timely is to avoid procrastination.  The wise old saying attributed to Ben Franklin “Don’t put off until tomorrow what you can do today” might inspire some taxpayers to take care of their taxes quickly, even though they could delay if they chose to do so.  Filing an extension causes a delay.  It does not drive taxes away permanently.

One important reason for partnerships to consider timely filing is that the individual partners will need a K-1 from the partnership to file their personal tax returns.  A partnership might therefore choose to file timely if some or all the partners want to file their personal tax returns timely.

A fourth reason to file timely is to calculate quarterly estimates for the next year.  The safe harbor for tax estimates factors in the income of the prior year.  If a taxpayer wants to use that safe harbor, it helps to know the prior year income.  If the taxpayer does not know it, then they may pay more estimates than necessary, or perhaps pay too little and miss the safe harbor.

Interest rates that banks pay you on cash is not high at the time of this writing.  If cashflow is good, a taxpayer might happily pay in a high amount in estimated taxes to try to cover the tax liability.  The lost interest earnings may be de minimis.  If they pay in more than is necessary, they could simply roll forward their payments and pay less later.

On the other hand, if cashflow is tight, a taxpayer may not want to pay any more than they absolutely must pay.

Benefits of Extensions

So why would anyone ever extend a tax return?  In some cases, the prudent taxpayer will file an extension.  Here are some reasons.

• • • Save on Accounting Fees
    • Wait to See if Tax Rates Increase
    • Wait to See if the Next Year Looks Profitable

Many tax returns are filed on an annual basis.  Tax accountants file scores of returns after December 31 but before April 15.  As you can imagine, that provides a buildup of work for tax accountants.  If you normally file timely but do not care when you file, consider asking your accountant if you can go on extension to get a discount since you are leveling out their workload.  The price savings may make it worth the wait.  Good things take time.  Sometimes the first buck trotting along the path is not the biggest buck.

From time to time throughout history, tax rates go up.  At the time of writing, we do not know exactly what tax increases will or will not come for next year.

If taxes increase significantly from one year to the next, some taxpayers may prefer to defer depreciation until future years, when tax rates are higher, rather than accelerate depreciation on new purchases this year when rates are lower.  Without knowing the tax rates, that decision is more difficult.  Some taxpayers may benefit from extending to see how it ends up.  Patience sometimes pays.

Another reason to extend is to assess how profitable next year will be.  If a taxpayer files in February, they have a small idea of how the next year will be, and they might find it difficult to make tax decisions on tax elections, such as depreciation.  Alternatively, a taxpayer filing in July would have a much longer timeframe to assess how well the next year is going.

If the next year appears to be going well, the taxpayer may save some depreciation to reduce income in that year.  Alternatively, if the year past was great and the next year is challenging, the taxpayer may elect to accelerate depreciation into the high-income year.  The additional months may reduce the guesswork.

To Extend or not to Extend?

 As you read the article, did any of the points resonate with you?  Different taxpayers will make different decisions.  Do not automatically file on time, and do not automatically file for an extension.  Consider which path makes sense in your situation.  Hopefully this article brings some clarity and perspective to you as you hunt for the answers.

This article is general in nature, and it does not contain legal advice.  Contact your advisors to discuss your specific situation.

Preface: “Happiness is the meaning and purpose of life, the whole aim and end of human existence” — Aristotle

Business Profits – The Journey to Bondage or Freedom

Credit: Donald J. Sauder, CPA | CVA

More than two thousand years ago as portrayed in Gospel of Luke, Joseph and Mary went up from Galilee out of the City of Nazareth into Bethlehem to be taxed. While many are familiar with the Christmas story, our purpose of mentioning it in this blog is that Joseph was required to take a mandatory vacation from his likely trade as a carpenter on account of a tax decree from emperor Caesar Augustus. Although the timing with the world-wide taxation decree was less ideal for the couple for whom God had a special purpose, the Wisemen knew it was all according to the perfect plan and additionally that Joseph and Mary were in complete compliance with the emperors tax regulations. For most tradesmen that historic time was supposedly not a journey of happiness or liberty.

Today as we enter 2022, business communities in the United States from east to west, north and south, are enjoying a journey through time that is unprecedented, extraordinary, and exceptional. It is to this cause that we wish reflect from an accounting perspective.

Double entry accounting is an incredible and wonderful invention and widely applied in managing business finances. While all that and more, it also has the ability to aid financial subterfuge. Therefore, the art of accounting is based on a high-level of trust. What business doesn’t want accurate, trustworthy, reliable financial data? While we would all agree on that, what often is overlooked is the underlying unit of that accounting—and more precisely money.

Today, truth be told, while some would agree that typewriters are a business tool for museums, our assumption is that the money we account for with business transaction is stable and timeless. Is that truth? Now, the purpose of this is not to say that any central bank currency, including the US dollar is facing forthcoming doom and that you need to prepare for some type of end; or that only using cash is the necessary. Certainly not. This is not investment advice, and this is not business advice. This is to say plainly and simply that no matter your social affinity, that at present, while enjoying the freedoms of this journey we could quickly see the realization that it is actually financial bondage for scores. If you believe the story of Genesis, then you should consider Proverbs 22:7– The rich rule over the poor, and the borrower is slave to the lender. There is money of kings, there is money of gentlemen, and money of peasants, but debt is the money of slaves – paraphrase of sage words from Norm Franz.

Along this unprecedented, extraordinary, and exceptional financial journey where we see RV’s driven for enjoyment that cost more than a decade of prime-year working salaries of a minimum wage earner, we need to appreciate the while world-wide taxation is not a new concept to history of world civilization, central banking certainly is.

I recently read a book about two adventurers who journeyed the globe in approximately 37 days. One of the most memorable facts of that read for me was that of the million-dollar smiles, accounted on the faces of some happy Asians heading home to their families after a good day of work where daily wages would be less than what some American’s spend daily on a cup of coffee.

Perhaps a people who do not know the history of their successes at present, whether family, community, or financial are likely at risk of missing a big key to their future successes.  Likewise as truth has always prevailed in history, we too should continue to believe it will prevail again. Subsequently, do we realize what is financial truth? The reality is that anyone searching for financial truth will realize that being materially subject to “money” risks with perhaps changing tax regulations, increased money printing, or interest rate shifts, we should humbly consider possible expectations if financial truth prevails, and secondly and more concerningly, if we even want it to prevail with freedoms it brings. Yet, if financial truth prevails, will you be in bondage? Any therein is the purpose of this blog.

In closing, the Wisemen knew exactly what journey they had embarked upon, and we should ponder that in our hearts this Christmas Day. Our encouragement to you looking towards the new year is like the angels words to the shepherds — “Fear not!” You too can understand the historical truths of money and its freedom.

With gratitude this Christmas Season, we have for the first 10 readers who email me dsauder@saudercpa.com — a free copy of Money and Liberty

God Bless on your journey ahead.

2021 Year-End Tax Planning for Businesses

Year-end tax planning for businesses is especially difficult for 2021 because the Build Back Better Act has the potential to impact broad areas of taxation. Congress continues to negotiate a compromise. Unfortunately, it is difficult to know what is likely to emerge as the final version. In addition, although the effective date for most of the provisions in the Build Back Better plan are tied to the enactment date, January 1, 2022, or even later, a few proposals may be retroactive.

Here are some highlights of current proposals under the Build Back Better Plan that may impact businesses:

• • • • Effective in tax years beginning after December 31, 2022, the Section 250 deduction may be reduced from 37.5 percent of the foreign-derived intangible income plus 50 percent of the global intangible low-taxed income amount (if any) included in the gross income for the tax year to 24.8 and 28.5 percent respectively.
      • Owners of pass-through businesses may be impacted by an expanded application of the 3.8 percent net investment income tax. A modification to the net investment income tax starting in 2022 would classify pass-through income as investment income subject to the NIIT even if the taxpayer materially participates in the business.
      • Currently scheduled to expire after 2025, the disallowance of excess business losses may be made permanent. An excess business loss is the amount by which the total deductions attributable to all of the taxpayer’s trades or businesses exceed their total gross income and gains attributable to those trades or businesses plus a threshold amount adjusted for cost of living. For tax years beginning in 2021, the threshold amounts are $262,000 (or $524,000 in the case of a joint return).
      • Under current law, a tax credit may be available in 2021 for a taxpayer who places a new qualified plug-in electric drive motor vehicle in service. The maximum credit is $7,500 and is reduced once a manufacturer sells 200,000 eligible vehicles for use in the United States. However, taxpayers may want to hold off on making that purchase until 2022. Under proposals in the Build Back Better Act, it could mean an additional $5,000 credit. If the credit is not currently available, the tax savings increase to $12,500.
      • Corporations with average annual adjusted financial statement income greater than $1 billion ($100 million for members of an international financial reporting group) may be subject to a 15% alternative minimum tax in tax years beginning after December 31, 2022.
      • A corporate interest deduction limit may be imposed on certain members of international financial reporting groups effective in tax years beginning after December 31, 2022.

Changes in the taxation of corporations and pass-through entities always makes it a good idea to review choice of entity decisions to make sure the current entity structure continues to make the most sense.

Expiring Tax Provisions

Taxpayers might consider taking advantage of the following tax benefits in 2021 before they expire.

Employee Retention Credit. The recently passed Infrastructure Investment and Jobs Act includes a tax provision that terminates the employee retention credit early. With the exception for wages paid by an eligible recovery startup business, wages paid after September 30, 2021 are no longer eligible for the credit.

Research and experimental expenditures. Under present law, research and experimental expenditures are deductible in the year paid or incurred or at the taxpayer’s option, amortizable over a period of not less than 60 months beginning in the month that benefits are first realized from the expenditures.

Beginning in 2022, research and experimental expenditures performed in the United States are required to be amortized ratably over five years and over fifteen years for foreign research. Taxpayers may want to consider the implications of the upcoming changes in 2022 tax year.

Deferred Payroll Tax Payments. Employers that took advantage of the option to defer payroll taxes due from the period beginning on March 27, 2020 and ending on December 31, 2020 must prepare to make the payments. Half of the deferred payroll taxes are due on December 31, 2021, with the remainder due on December 31, 2022.

There is no one size fits all for tax planning and any tax strategy may have unintended consequences if the taxpayer’s situation is not appropriately evaluated to consider the future changing tax landscapes. 

2021 Year-End Tax Planning for Individuals

As we near the end of 2021, Congress is still considering a large package of tax changes that could increase taxes in 2022 for wealthier taxpayers while potentially reducing taxes for low to middle-income taxpayers.

Referred to as the Build Back Better Act, the detail of this legislation are still subject to substantial changes as legislators continue to negotiate the terms. It is possible an agreement might not be reached until very late in the year. Some of the tax provisions may be effective as of the enactment date, others could potentially be retroactive, and some might be effective starting in 2022 or later.

In general, tax planning includes accelerating deductions, postponing income, reviewing investment portfolios for possible capital gain or loss realizations, making charitable gifts, and lifetime gifts to family members. However, due to its size, the implications of the Build Back Better Act must be taken into consideration. Unfortunately, it may be enacted too late to act. Therefore, you will benefit from speaking to us now about your situation and year-end plans that might make sense for you within this changing tax landscape.

High-Income Taxpayers

The Build Back Better plan proposes a larger tax burden for individuals and estates and trusts with high income. These proposals include:

• • • a modification to the net investment income tax starting in 2022 that would classify pass through income as investment income subject to the NIIT even if the taxpayer materially participates in the business.
    • an additional tax of five percent that would apply to the modified adjusted gross income of a joint filer, single filer, or head of household in excess of $10 million ($5 million for a married taxpayer filing separately, $200,000 for an estate and trust). An additional three percent tax that would apply to the modified adjusted gross income of a joint filer, single filer, or head of household in excess of $15 million ($12.5 million for a married taxpayer filing separately, $500,000 for an estate and trust). The surcharge would apply in tax years beginning after 2021.
    • new limits on the favorable tax rules for investment in qualified small business stock. Possibly retroactive to the sale or exchange of qualified small business stock after September 13, 2021, favorable rules will not apply to any taxpayer with adjusted gross income of $400,000 or more, or any estate or trust.
    • wash sale rules may apply to a wider range of investments including foreign currency, cryptocurrency and commodities.

Considering the timing for these tax changes, wealthier taxpayers may want to consider accelerating income rather than the usual postponement of income and may also want to consider postponing deductions rather than the usual acceleration of deductions. In addition, a careful review of portfolio investments may be beneficial.

Other December 2021 tax strategies:

• • • All taxpayers may want to look at year-end charitable contributions to take advantage of the $300 deduction for those claiming the standard deduction or the 100 percent of adjusted gross income limit on those itemizing deductions; both provisions currently expire at the end of 2021
    • With a possible significant increase in IRS funding to enhance audit rates of tax returns, taxpayers may want to focus on making sure they have documentation to support all deductions and credits on their tax returns
    • Owners of pass-through businesses should consider reviewing possible changes to the 20 percent deduction for qualified business income, disallowance of excess business losses, changes to the taxation of carried interests, and a significant package of changes to the taxation of partnerships.
    • There is a proposal to extend residential energy credits in the Build Back Better Act. However, under current law, they are due to expire at the end of 2021. Taxpayers might consider the tax impact for timing installation of energy-efficient exterior windows, doors, skylights, roofs, and insulation, as well as energy efficient heating and air conditioning systems and water heaters to take advantage of the greatest tax savings.
    • Under current law, a tax credit may be available in 2021 for a taxpayer who places a new qualified plug-in electric drive motor vehicle in service. The maximum credit is $7,500 and is reduced once a manufacturer sells 200,000 eligible vehicles for use in the United States. However, taxpayers may want to hold off on making that purchase until 2022. Under proposals in the Build Back Better Act, it could mean an additional $5,000 credit. If the credit is not currently available, the tax savings increase to $12,500.

Because of the large scope of the Build Back Better Plan, including retroactive changes to the tax rules, there is no one size fits all for tax planning and any strategy may have unintended consequences if the taxpayer’s situation is not evaluated holistically. Please call our office to schedule an appointment to discuss your tax strategies strategy.

Preface: “It’s tangible, it’s solid, it’s beautiful. It’s artistic, from my standpoint, and I just love real estate.”  Donald Trump, 45th President of the United States of America

Tax Planning: Real Estate Activity Compliance

Landlords should be aware that keeping accurate accounting records is just as important as collecting the rent on time each month. If a taxpayer owns rental real estate, there are federal tax responsibilities. All rental income must be reported on their tax return, and in general the associated expenses can be deducted from their rental income.

If a landlord is a cash basis taxpayer, they will report rental income on their return for the year they receive it, regardless of when it was earned. As a cash basis taxpayer, a landlord generally deducts their rental expenses in the year they pay them. If a landlord uses an accrual method, they generally report income when they earn it, rather than when they receive it and they deduct their expenses when they incur them, rather than when they pay them. Most individuals use the cash method of accounting.

Rental Income

Landlords must include in their gross income all amounts they receive as rent. Rental income is any payment received for the use or occupation of property. Landlords must report rental income for all their properties. In addition to amounts they receive as normal rent payments, there are other amounts that may be rental income that include:

• • • • Amounts paid to cancel a lease
      • Advance rent
      • Expenses paid by a tenant
      • Security deposits

Rental Expenses

If a landlord receives rental income from the rental of a dwelling unit, there are certain rental expenses they may deduct on their tax return. These expenses may include mortgage interest, property tax, operating expenses, depreciation, and repairs.

Landlords can deduct the ordinary and necessary expenses for managing, conserving, and maintaining their rental property. Ordinary expenses are those that are common and generally accepted in the business. Necessary expenses are those that are deemed appropriate, such as interest, taxes, advertising, maintenance, utilities, and insurance.

Recordkeeping

Good records will help landlords monitor the progress of their rental property, prepare your financial statements, identify the source of receipts, keep track of deductible expenses, prepare their tax returns and support items reported on tax returns. Landlords must be able to substantiate certain elements of expenses to deduct them. Generally, the landlord must have documentary evidence, such as receipts, canceled checks or bills, to support their expenses. Keep track of any travel expenses that are incurred for rental property repairs.

Contact Us

Questions? Call our office. We can assist you with your real estate business accounting evaluate the proper recordkeeping to substantiate your real estate business transactions.

Preface: A great teacher can teach Calculus with a paper clip and literature in an empty field. Technology is just another tool, not a destination.’ –Unknown

2021 Taxpayer Planning: Unreimbursed Expenses Deduction for Educators

Now that autumn is here, and school has started, many teachers are dipping into their own pockets to buy classroom supplies. Doing this throughout the year can add up fast. Fortunately, eligible educators may be able to defray qualified expenses they pay during the year when they file their tax return.

Educators who work in schools may qualify to deduct up to $250 of unreimbursed expenses. That amount goes up to $500 if two qualified educators are married and file a joint return. However, neither spouse can deduct more than $250 of his or her qualified expenses when they file.

Taxpayers qualify for this deduction if they:

• • • • Teach any grade from kindergarten through twelfth grade.
      • Are a teacher, instructor, counselor, principal or aide.
      • Work at least 900 hours during the school year.
      • Work in a school that provides elementary or secondary education.

The Consolidated Appropriations Act, 2021 expands the above-the-line deduction for classroom expenses to include personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of COVID–19 paid or incurred after March 12, 2020.

Qualified expenses include:

• • • • Professional development courses,
      • Books,
      • Supplies,
      • Computer equipment including related software and services,
      • Supplementary materials,
      • Athletic supplies only for health and physical education,
      • Face coverings,
      • Disinfectant for use against COVID-19,
      • Hand soap,
      • Hand sanitizer,
      • Gloves,
      • Tape, paint, or chalk used to guide social distancing,
      • Protective physical barriers (such as clear plexiglass),
      • Air purifiers,

Eligible taxpayers can claim this deduction when they file their taxes. We encourage teachers to consider tracking their qualified expenses incurred throughout the year.

If you have any questions related to the deduction for educator expenses, please call our office.