2021 Year-end tax and financial planning

As we wrap up 2021, it’s important to take a closer look at your tax and financial plans. This year likely brought challenges and disruptions that significantly impacted your personal and financial situation –– a continued global pandemic, several significant natural disasters, new tax laws and political shifts. Now is the time to take a closer look at your current tax strategies to make sure they are still meeting your needs and take any last-minute steps that could save you money.

We’re here to help you take a fresh look at the health of your tax and financial well-being. Please contact me at your earliest convenience to discuss your situation so we can develop a customized plan. In the meantime, here’s a look at some issues to consider as we approach year-end.

Key tax considerations from recent tax legislation

Many tax provisions were implemented under the American Rescue Plan Act that was enacted in March 2021. This act aimed to help individuals and businesses deal with the COVID-19 pandemic and its ongoing economic disruption. Also, some tax provisions were passed late in December 2020 that will impact this filing season. Below is a summary of the highlights in recent tax law changes to help you plan.

Economic impact payments (EIPs)

The American Rescue Plan Act created a new round of EIPs that were sent to qualifying individuals. As with last year’s stimulus payments, the EIPs were set up as advance payments of a recovery rebate tax credit. If you qualified for EIPs, you should have received these payments already. However, if the IRS owes you more, this additional amount will be captured and claimed on your 2021 income tax return and we can help you plan for any modification now. 

If you received an EIP as an advance payment, you should receive a letter from the IRS. Keep this for record-keeping purposes to help us determine any potential adjustment.

Child tax credit

As part of the American Rescue Plan Act, there were many important changes to the child tax credit, such as the credit:

·         Amount has increased for certain taxpayers

·         Is fully refundable (meaning taxpayers will receive a refund of the credit even if they don’t owe the IRS)

·         May be partially received in monthly payments

·         Is applicable to children age 17 and younger

The IRS began paying half of the credit in advance monthly payments beginning in July –– some taxpayers chose to opt out of the advance payments, and some may have complexities that require additional analysis. We’ll be here to help you navigate any questions to make sure you get the best benefit for your family.

Charitable contribution deductions

Individuals who do not itemize their deductions can take a deduction of up to $300 ($600 for joint filers). Such contributions must be made in cash and made to qualified organizations. Taxpayers who itemize can continue to deduct qualifying donations. In addition, taxpayers can claim a charitable deduction up to 100% of their adjusted gross income (AGI) in 2021 (up from 60%). There are many tax planning strategies we can discuss with you in this area.

Required minimum distributions (RMDs)

RMDs are the minimum amount you must annually withdraw from your retirement accounts (e.g., 401(k) or IRA) if you meet certain criteria. For 2021, you must take a distribution if you are age 72 by the end of the year (or age 70½ if you reach that age before Jan. 1, 2020). Planning ahead to determine the tax consequences of RMDs is important, especially for those who are in their first year of RMDs.

Unemployment compensation

Another thing to note that's different in 2021 is the treatment of unemployment compensation. There is no exclusion from income. The $10,200 income tax exclusion that a taxpayer may have received in 2020 is no longer available in 2021. We can help you plan for any potential impacts of this change.

State tax obligations related to teleworking arrangements

The pandemic has spawned changes in how people work, and more people are permanently working from home (i.e., teleworking). Such remote working arrangements could potentially have tax implications that should be considered by you and your employer.

Fraudulent activity remains a significant threat

Our firm takes data security seriously and we think you should as well. Fraudsters continue to refine their techniques and tax identity theft remains a significant concern. Beware if you:  

• Receive a notice or letter from the IRS regarding a tax return, tax bill or income that doesn’t apply to you
• Get an unsolicited email or another form of communication asking for your bank account number, other financial details or personal information
• Receive a robocall insisting you must call back and settle your tax bill

Make sure you’re taking steps to keep your personal financial information safe. Let us know if you have questions or concerns about how to go about this.  

Virtual currency/cryptocurrency

Virtual currency transactions are becoming more common. There are many different types of virtual currencies, such as Bitcoin, Ethereum and non-fungible tokens (NFTs). The sale or exchange of virtual currencies, the use of such currencies to pay for goods or services, or holding such currencies as an investment, generally has tax impacts. We can help you understand those consequences. 

Additional tax and retirement planning considerations

We recommend you review your retirement situation at least annually. That includes making the most of tax-advantaged retirement saving options, such as traditional IRAs, Roth IRAs and company retirement plans. It’s also advisable to take advantage of health savings accounts (HSAs) that can help you reduce your taxes and save for your future. We can help you determine whether you’re on target to reach your retirement goals.

Here are a few more tax and financial planning items to discuss with us:

·         Let us know about any major changes in your life such as marriages or divorces, births or deaths in the family, job or employment changes, starting a business and significant expenditures (real estate purchases, college tuition payments, etc.).

·         Consider tax benefits related to using capital losses to offset realized gains –– and move any gains to the lowest tax brackets, if possible.

·         Make sure you’re appropriately planning for estate and gift tax purposes. There is an annual exclusion for gifts ($15,000 per donee, $30,000 for married couples) to help save on potential future estate taxes.

·         Consider Sec. 529 plans to help save for education; there can be income tax benefits to do so, and we can help you with any questions.

·         Consider any updates needed to insurance policies or beneficiary designations.

·         Discuss tax consequences of converting traditional IRAs to Roth IRAs.

·         Let’s review withholding and estimated tax payments and assess any liquidity needs.

Looming potential tax legislation

With potential tax changes looming as Congress debates proposals in President Biden’s “Build Back Better” agenda, there remains uncertainty in how this will impact taxpayers. As legislation continues to evolve, and if it passes, please contact me to discuss how changes impact your tax and financial plan.

Year-end planning equals fewer surprises

There are many other opportunities to discuss as year-end approaches. And, many times, there may be strategies such as deferral or acceleration of income, prepayment or deferral of expenses, etc., that can help you save taxes and strengthen your financial position.

Whether it’s working toward retirement or getting answers to your tax and financial planning questions, we’re here for you. Please contact my office today at 248-514-6213 to set up your year-end review. As always, planning ahead can help you minimize your tax bill and position you for greater success.

Andrew J. Jordan, CPA, MSF

The information provided is not intended as a substitute for legal or other professional services. Legal or other expert assistance should be sought before making any decision that may affect your situation.

Qualified Business Income (QBI) Deduction (Sec. 199A)

Starting in 2018 Individuals will qualify for a 20% deduction of qualified business income from some businesses (partnerships, S Corporations, or sole proprietorships). The new deduction is authorized by Section 199A of the Internal Revenue Code.

What are some general rules of thumb of Sec. 199A?

Tax Cuts and Jobs Act (TCJA) Highlights

The TCJA was signed into law at the end of 2017. The IRS has been working throughout 2018 on this major piece of tax legislation, issuing proposed regulations, notices, memos, FAQs and more to help businesses make sense of all the changes.  The following are some highlights of the new tax law that may affect your 2018 tax return. 

Tax Identity Theft is a Significant Threat

I take security very seriously, so I want to post a reminder that tax identity theft is a growing problem. Unfortunately, it can take many forms, so beware if you:

R&D Tax Credit Changes Benefit Small Businesses

Do you design, develop or improve products, processes, techniques, formulas, inventions or soft ware?  If your company has invested time, money and resources toward the advancement and improvement of its products and processes, then you may qualify for the R&D Tax Credit. 

The intent of the Sec. 41 research and development (R&D) credit is to give companies incentive to invest in innovation within the United States. The R&D credit is available to companies in a variety of industries that develop new or improved products or processes. Certain wages, supplies, and contract research costs

Taxes and Divorce

If you’re going through a divorce I don’t need to tell you it’s a significant emotional and financial event. The last thing you may have on your mind is how the breakup will affect your taxes. Most people think that their divorce attorney is going to take care of things. However if your divorce attorney does not have a tax background only basic thought will be given to the tax planning.

Work Opportunity Tax Credit

What is WOTC?

WOTC is a Federal tax credit available to employers who hire and retain veterans and individuals from other target groups with significant barriers to employment. Employers claim about $1 billion in tax credits each year under the WOTC program. There is no limit on the number of individuals an employer can hire to qualify to claim the tax credit, and there are a few simple steps to follow to apply for WOTC.

· WOTC Program Brochure

· Video: An Introduction to WOTC

· WOTC Tutorial: A Step-by-Step Guide for Employers

· Employer's Guide to the WOTC

How does WOTC Work?

Seven Steps for Making Identity Protection Part of Your Routine

The theft of your identity, especially personal information such as your name, Social Security number, address and children’s names, can be traumatic and frustrating. In this online era, it’s important to always be on guard.

Here are seven steps you can make part of your routine to protect your tax and financial information:

Tips for Wise Business Decision-Making

As you manage your business, you will be faced with important decisions that may impact the future of your company. This may seem stressful, but keep these tips in mind and you'll find yourself making wiser decisions in no time:

Elements of an Effective Business Planning and Budgeting Process

In my last posting I discussed the importance of having a Planning and Budgeting Process for your business.   Every business has this process some more formalized than others.  The following is a list of the universally accepted elements to an effective business planning and budgeting process.

Key Benefits of the Business Planning and Budgeting Process

This is the time of year that business owners need to continue to focus on the current year but also start thinking about next year. When we think about the future of your business the Planning and Budgeting Process comes to mind.  Every business has this process, some more formalized than others.   The benefits of planning and budgeting usually will outweigh the effort.  It's like anything else the more you put into it the more one can potentially get out of it.  The following discussion outlines the potential benefits of planning and budgeting.  (Pretty much a list of the typical roles and responsibilities of management.)

Open Database Connectivity (OBDC) in Excel

     As promised the following is the information on Open Database Connectivity (OBDC) function in Excel.  As you recall from my last blog we covered how Excel can connect to external data to create reports that can be refreshed or updated with current information.  ODBC complaint databases can be connected to Excel using the Data Connection Wizard or Microsoft Query.
     Microsoft Access can be used to extract data stored in external databases and then the data is transferred to Excel to create reports.  But if your accounting software supports ODBC, then Excel can access your historical data in your general ledger directly without re-keying any data or going

Built-In Office Data Connections (ODC) files in Microsoft Excel 2007

     One of the many Data Tools in Microsoft Excel is the Office Data Connection (ODC) designed to facilitate the re-use of external data connections.   Using this tool one can easily create financial reports that can be updated/refreshed with the click of a few buttons.  Excel has three built-in ODC files.  All three are web queries: 1) MSN Currency Rates, 2) MSN Major Indices, and 3) MSN Stock quotes.   To set-up these built-in ODC files in Excel 2007 open a blank workbook and simply click Data, Get External Data,

Tax Breaks for People with Disabilities Are Often Overlooked

Greetings.  As you know most accountants are very busy this time of year.  I haven't been able to write as much as I'd like, but I ran across the following tax information that I wanted to share.  The authors at http://www.allsup.com/ did a good job of summarizing tax breaks for disabled individuals so there's no point in me rewriting their article.   I have no affiliation with Allsup but I do like their article reprinted below.

4 Self-Employment Tax Savings Ideas for Small Business

There have been a lot of temporary and proposed tax changes targeted toward small business.  Of all these changes and proposals the Self Employment (SE) tax changes are some of the more helpful.  Here's some background and ideas to help you reduce your SE tax.

2 Popular Tax Breaks to pay for College and other Education Planning Ideas

The cost of college can be challenging for most parents and young adults getting ready to start.  Even if one plans ahead chances are you will not save enough to cover all of the expense.  One can not discount the value of a college education.  A recent article in Time magazine estimated that nearly 40 % of the

Federal Student Aid Planning, FAFSA application

The Free Application for Federal Student Aid (FAFSA) application needs to be submitted shortly after January 1 for students starting or returning to college in the fall.  As with most government programs funds are finite so it's best to apply early before the money runs out.  See http://federalstudentaid.ed.gov/  if you are interested in additional information on Federal Student Aid.  The website has a forecasting tool that is useful to determine how much financial aid one will qualify for if you'd like to get an early estimate for planning purposes.


 
Andrew Jordan, CPA
ajordancpa@comcast.net

Mining the Company Data

Data mining is the process of extracting patterns from data.  Data mining is seen as an increasingly important tool by modern business to transform data into business intelligence giving an informational advantage.  It is currently used in a wide range of profiling practices, such as marketing, surveillance, fraud detection, and scientific discovery.  (Source: Wikipedia definition of data mining)

Most business software allows one to extract data very easily by downloading it into Microsoft Excel or other types of files.   The data can be downloaded to included a number of data field combinations within each record. Once the information is in Excel it can be manipulated with

Break-Even Analysis Part 2

Break-even:  As one can see from my previous B/E analysis posting the additional sales needed to "breakeven" on a new hire decision can be challenging.  With new revenue hard to come by, why would a company add staff if sales have to be increased so much to make a profit on the decision?

Break-even Analysis

One way to look at a spending decision in one's business is to determine how much the company sales have to increase in order to pay for the amount one wishes to spend.  For example if you're making a $30,000 hiring decision and your contribution/gross margin is say 50% the company's sales will need to increase $60,000 in order to "break-even" on the decision.  In other words