Hood & Strong LLP

If you invest in mutual funds, there are potential pitfalls involved in buying and selling shares. For example, you may already have made taxable sales of part of your mutual fund without knowing it. One way this can happen is if your mutual fund allows you to write checks against your fund investment. If you write a check against your mutual fund account, you’ve made a partial sale of your interest in the fund (except for funds such as money market funds, for which share value remains constant). Thus, you may have taxable gain (or a deductible loss) when you write a check. And each such sale is a separate transaction that must be reported on your tax return. Contact us with questions.

The IRS has issued the 2021 marginal income tax rates. The top tax rate remains 37% for single taxpayers with incomes greater than $523,600 ($628,300 for married couples filing jointly). The other rates are: 35%, for incomes over $209,425 ($418,850 for married couples filing jointly); 32% for incomes over $164,925 ($329,850 for married couples filing jointly); 24% for incomes over $86,375 ($172,750 for married couples filing jointly); 22% for incomes over $40,525 ($81,050 for married couples filing jointly); 12% for incomes over $9,950 ($19,900 for married couples filing jointly); and 10% for incomes of $9,950 or less ($19,900 for married couples filing jointly).

Cash flow is a top concern for most businesses today. Cash flow forecasts can help you predict potential shortfalls and proactively address working capital gaps. To keep cash flow positive, consider applying these four best practices: 1) Identify peak needs for your business cycle. 2) Anticipate the amount and timing of expenses and incoming payments. 3) Seek sources of contingency funding, including a line of credit. 4) Identify potential obstacles, such as slow invoicing, delayed payments and poor resource management. Contact us for help forecasting cash flow. We can help your business adopt a more proactive approach to cash flow management during these challenging times.

The IRS has announced most 2021 annual inflation-adjusted amounts. These adjustments generally apply to tax returns filed in 2022. The standard deduction for married couples filing jointly will rise to $25,100, up $300 from 2020. For single taxpayers and married individuals filing separately, it will increase to $12,550, up $150. The Alternative Minimum Tax exemption amount is $73,600 and begins to phase out at $523,600 for single taxpayers and $114,600 for married couples filing jointly for whom the exemption begins to phase out at $1,047,200. For 2021, there continues to be no limitation on itemized deductions. For all of the 2021 annual inflation-adjusted amounts: https://bit.ly/2HDXZtg

The passive activity loss rules affect business ventures you’re engaged in or might engage in. If the ventures are passive activities, the passive activity loss rules prevent you from deducting expenses that are generated by them in excess of their income. You can’t deduct the excess expenses (losses) against earned income or against other nonpassive income. Nonpassive income for this purpose includes interest, dividends, annuities, royalties, gains and losses from most property dispositions, and income from certain oil and gas property interests. There are different rules for rental activities. Contact us if you’d like to discuss how these rules apply to your business.

The Pension Benefit Guaranty Corporation (PBGC) has released its 2021 premium rates. The PBGC is a government agency that collects insurance premiums from employers that sponsor defined benefit plans. The 2021 flat premium rate for PBGC’s single-employer plan termination insurance program will be $86 per participant, up from the 2020 premium rate of $83. The 2021 premium rate for multi-employer plans will be $31 per participant, up from the 2020 rate of $30. For 2021, the variable-rate premium (VRP) for single-employer plans will be $46 per $1,000 of unfunded vested benefits. The VRP is capped at $582 times the number of participants for 2021.

This year, most companies’ financial statements will reflect the impact of the COVID-19 pandemic on sales and expenses. Be sure to look at inventory management as well. Carrying too much inventory can reflect poorly on a business as the value of surplus items drops throughout the year. Refine your inventory processes and trim excess items. If yours is a more service-oriented business, apply a similar approach. Check into whether you’re overstocking on services that aren’t contributing to profitability. Be prepared to make tough decisions about customers to whom you provide services that aren’t profitable anymore. Contact us for help.

Oct. 15 is the deadline for individual taxpayers who extended their 2019 tax returns. If you’re finally done filing last year’s return, you might wonder: Which tax records can you toss once you’re done? Now is a good time to go through old tax records and see what you can discard. A common rule of thumb is to keep tax records for at least six years from filing, after which the IRS generally no longer can audit your return or assess additional taxes, even if your income was understated. But hang on to certain records longer including the tax returns themselves, W-2 forms and records related to real estate, investments and retirement accounts.

Interested in reducing your 2020 tax liability? There’s still time to take these year-end tax planning steps. Follow the link for more details https://bit.ly/31x2fBF.

Correction! Misleading information posted on the Financial Crimes Enforcement Network (FinCEN) website caused many taxpayers to miss an important due date. U.S. taxpayers with interests in foreign financial accounts valued at $10,000 or more are required to file a Foreign Bank and Financial Accounts Report (FBAR), by Oct. 15. In early Oct., FinCEN announced that victims of natural disasters had until Dec. 31, 2020 to file this year’s FBARs. However, a subsequent incorrect message on FinCEN’s website stated that this extension applied to all FBAR filers, causing many taxpayers to miss the Oct.15 deadline. For those taxpayers, FinCEN and the IRS have extended their due dates to Oct. 31, 2020.

During the COVID-19 crisis, accounting compliance may take a backseat to operational issues. In response to these challenges, on September 30, the FASB finalized a rule to delay the effective date of the updated long-term insurance standard from 2022 to 2023 for large public companies and from 2024 to 2025 for smaller reporting companies, private companies and not-for-profit organizations. This is the second delay; the effective date was postponed last November to give insurers more time to update software, train staff and conduct educational outreach. If your organization reports life insurance, disability income, long-term care and annuity payouts, we can help you implement the changes.

The sudden impact of the COVID-19 pandemic in March forced every business owner, ready or not, to execute his or her disaster response plan. How did yours do? Now’s a good time to review it while the experience is fresh in your mind. Identify all distinctive threats (including, now, a pandemic) related to your industry, size, location(s), and products or services. Look back at whether and how your business was able to communicate in the initial months of the crisis. Which methods were most and least effective? Is new technology needed? Commit to revisiting your plan at least annually as well as to keeping your staff fully aware of it. Contact us for assistance and further information.

Are you subject to backup withholding on payments you receive? The IRS requires the payer of certain non-payroll amounts to withhold 24% backup tax, under specific conditions. Generally, the payers just report amounts they paid on information returns such as Form 1099s, but they don’t need to withhold tax. Tax payment is the duty of the recipient. However, in some situations, such as when the payment recipient hasn’t provided the payer with a legitimate taxpayer ID number, the payer must withhold taxes, to ensure the IRS receives the tax due. Examples of payment that are subject to withholding include: interest, dividends and some gambling winnings. Here’s more: https://bit.ly/2SZNmmF

The Social Security (SS) wage base increases to $142,800 for 2021, up from $137,700. Wages and self-employment income above this threshold aren’t subject to SS tax. The Federal Insurance Contributions Act (FICA) imposes SS tax and a Medicare tax on employees, employers and the self-employed. There’s no threshold for Medicare tax; all wages and self-employment income are subject to the tax. The FICA tax rate for employees and employers is 7.65%: 6.2% for SS and 1.45% for Medicare. The self-employed pay both the employee and employer portions. Wages or self-employment income above $200,000 ($250,000 for joint filers, $125,000 for separate filers) are subject to an additional 0.9% Medicare tax.