IRS audits may be increasing, so be prepared
The IRS just released audit statistics for the 2020 fiscal year and fewer taxpayers had their returns examined compared with prior years. Overall, just 0.5% of individual returns were audited. Historically, this is very low. However, even though a small percentage of returns are being audited these days, that will be little consolation if yours is one of them. Plus, the Biden administration has announced it would like to increase tax compliance. The easiest way to survive an IRS audit is to prepare. On an ongoing basis, maintain documentation (invoices, bills, canceled checks, receipts, or other proof) for items reported on your returns. Contact us if you receive an IRS audit letter.
10 facts about the pass-through deduction for qualified business income
Are you eligible to take the deduction for qualified business income (QBI)? This valuable tax break is also referred to as the pass-through or Section 199A deduction. It’s available to owners of sole proprietorships, single member limited liability companies, partnerships and S corps. The deduction is intended to reduce the tax rate on QBI to a rate closer to the corporate tax rate. It’s available regardless of whether you itemize or take the standard deduction. The deduction is complex but is generally equal to 20% of qualified business income. There are two other limitations based on W-2 wages and on some “specified service trades or businesses.” Contact us with questions.
MIOSHA Rescinds COVID-19 Emergency Workplace Rules
On Tuesday, 6/22/21, the Michigan Occupational Safety and Health Administration (MIOSHA) officially rescinded the existing COVID-19 Emergency Workplace Rules. The rules were replaced with a new standard for health care employers that is in alignment with the federal OSHA Emergency standard for health care settings. Because the COVID-19 rules were rescinded, decisions regarding the following […]
Eligible Businesses: Claim the Employee Retention Tax Credit
The Employee Retention Tax Credit (ERTC) is a valuable tax break that was extended and modified by the American Rescue Plan Act (ARPA). Originally, the ERTC applied to wages paid after March 12, 2020, and before Jan. 1, 2021. Congress later modified and extended the ERTC to apply to wages paid before July 1, 2021. The ARPA again extended and modified the ERTC to apply to wages paid after June 30, 2021, and before Jan. 1, 2022. The maximum ERTC available is generally $7,000 per employee per calendar quarter or $28,000 per employee in 2021. Other modifications have also been made that may be beneficial to your business. Contact us if you have questions about your business claiming the ERTC.
Are you a nonworking spouse? You may still be able to contribute to an IRA
Married couples may not be able to save as much as they need for retirement when one spouse doesn’t work outside the home. An IRA contribution is generally only allowed if you earn compensation. But an exception exists. A spousal IRA allows a contribution for a nonworking spouse. For 2021, a couple can contribute $6,000 to an IRA for a nonworking spouse ($7,000 if the spouse will be 50 by the end of the year). However, if in 2021, the working spouse is an active participant in an employer retirement plan, a deductible contribution can be made to the IRA of the nonparticipant spouse only if the couple’s adjusted gross income doesn’t exceed a certain threshold. Contact us for more details.
Critical path method can propel IT projects
For many businesses, IT projects look good on paper but get bogged down in “scope creep,” missed deadlines and disagreements. One potential solution is critical path method (CPM), a scheduling technique used to calculate a project’s duration and illustrate how schedules are affected when variables change. It identifies the “critical path,” which is the most efficient sequence of scheduled activities that drives a project to completion. Typically, CPM involves creating a flow chart showing the “activity sequence” and calculating the project timeline. Dedicated CPM software can be used for larger, more complex projects. Contact us for help keeping your IT projects on time and within budget.
Are your company’s job descriptions pulling their weight?
Outdated, vague or inaccurate job descriptions can lead to longer hiring times, bad hires, workplace conflicts and even legal exposure. For these reasons, business owners should regularly ask themselves: Are our job descriptions pulling their weight? Conduct a review to determine whether yours are current and comprehensive. As necessary, revise wording to better summarize the duties and responsibilities of a position as it exists today. Use your updated job descriptions to increase organizational efficiency in areas such as recruiting, compensation, workload distribution, cross-training and performance management. Ensure yours are actively contributing to your company’s success.
Traveling for business again? What can you deduct?
As we continue to come out of the pandemic, you may be traveling again for business. There are a number of rules for deducting your out-of-town business travel expenses within the U.S. These rules apply if the business reasonably requires an overnight stay. The actual costs of travel (plane fare, cabs, etc.) are deductible for out-of-town business trips. You’re also allowed to deduct the cost of lodging. For 2021 and 2022, the law allows a 100% deduction for food and beverages provided by a restaurant. If a trip is a combined business/pleasure trip, only the cost of meals, lodging, etc., incurred for the business days are deductible (not those incurred for personal vacation days).
Seniors may be able to write off Medicare premiums on their tax returns
Are you age 65 and older and have basic Medicare insurance? You may need to pay additional premiums to get the level of coverage you want. The premiums can be expensive, especially if you’re married and both you and your spouse are paying them. But there may be a bright side: You may qualify for a tax break for paying the premiums. However, it can be difficult to qualify to claim medical expenses on your tax return. For 2021, you can deduct medical expenses only if you itemize deductions and only to the extent that total qualifying expenses exceeded 7.5% of adjusted gross income. Contact us if you want more information about deducting medical expenses, including Medicare premiums.
Don’t assume your profitable company has strong cash flow
Most of us are taught from a young age never to assume anything. A dangerous assumption that many business owners make is that, if their companies are profitable, their cash flow must also be strong. But this isn’t always the case. There are many reasons profits and cash flow might differ, including changes in working capital, fixed assets, financing and owners’ capital. Business owners should look beyond profits to ensure they have enough cash on hand to pay employees, suppliers, lenders and of course the IRS (if necessary). Our firm can help you generate accurate financial statements and glean the most important insights from them, including the distinction between profits and cash flow.
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