Why do partners sometimes report more income on tax returns than they receive in cash?
If you’re a partner in a business, you may wonder: Why in some years, were you taxed on more partnership income than was distributed to you from the partnership? The answer lies in the way partnerships and partners are taxed. Unlike regular corporations, partnerships aren’t subject to income tax. Instead, each partner is taxed on the partnership’s earnings whether or not they’re distributed. Similarly, if a partnership has a loss, the loss is passed through to partners. (However, various rules may prevent a partner from currently using his share of a partnership’s loss to offset other income.) Contact us if you’d like to discuss how you’re taxed as a partner.
Take advantage of a “stepped-up basis” when you inherit property
If you’re planning your estate, or you’ve recently inherited assets, you may be unsure of the “cost” (or “basis”) for tax purposes. Fair market value rules Under the fair market value basis rules (also known as the “step-up and step-down” rules), an heir receives a basis in inherited property equal to its date-of-death value. So, […]
Reopening concepts: What business owners should consider
“Reopening” a business, even if it was never completely closed, involves grappling with a variety of tricky strategic planning concepts. First you must decide when it’s safe to reopen, or further reopen. This decision should be based on scientific data and trusted guidance from all levels of government (including local). You also need to carefully consider and implement a policy regarding testing on-site employees for COVID-19. Involve your attorney in this effort. Beyond testing, there’s the matter of working safely. Re-evaluate the layout and functionality of your facilities, as well as the need for more protective equipment and upgraded technology. Contact us for help.
Even if no money changes hands, bartering is a taxable transaction
During the COVID-19 crisis, many small businesses are strapped for cash. They may find it beneficial to barter for goods and services instead of paying cash for them. If your business engages in bartering, remember that the fair market value of goods you receive is taxable income. And if you exchange services with another business, the transaction results in taxable income for both parties. Some businesses join barter clubs that facilitate barter exchanges. If you join such a club, you’ll be asked to provide your Social Security number or employer identification number. You may receive a form that reports barter transactions. Contact us if you need assistance or would like more information.
Does your business have a unique selling proposition?
One way to fully develop the strengths of your business is to identify and explicate its unique selling proposition (USP). A USP states why customers should buy your product or service rather than a similar one offered by a competitor, and many companies may need to spend time discussing and refining theirs. Hold brainstorming sessions with employees and ask questions such as: “What makes our products or services distinctive?” and “Why should customers buy from us instead of the competition?” Once established, your USP should serve as a sort of “mantra” for your sales team. They should integrate it (or iterations) into the sales process without overusing the USP. Contact us for help.
Conduct a “paycheck checkup” to make sure your withholding is adequate
Did you recently file your tax return and receive a refund that was smaller than you were expecting? Or did you wind up owing additional tax when you filed your return? That might mean it’s time to check and adjust your withholding. This might be necessary due to changes in the Tax Cuts and Jobs Act or because something in your situation is different this year (for example, you got married, divorced, purchased a home or had changes in your income). The IRS has a withholding calculator where you can perform a paycheck checkup. You can access the calculator at https://bit.ly/2OqnUod. Contact us if you need help determining whether you should adjust your 2020 withholding.
Businesses: Get ready for the new Form 1099-NEC
There’s a new IRS form for business taxpayers who pay or receive nonemployee compensation. Beginning with tax year 2020, payers must complete Form 1099-NEC, Nonemployee Compensation, to report any payment of $600 or more to a payee. (Prior to 2020, Form 1099-MISC was filed to report payments of at least $600 in a calendar year for services performed in a business by someone who isn’t treated as an employee.) Generally, payers must file Form 1099-NEC by Jan. 31. For 2020 tax returns, the due date will be Feb. 1, 2021, because Jan. 31 is a Sunday. There’s no automatic 30-day extension to file Form 1099-NEC. However, an extension to file may be available under certain hardship conditions.
6 key IT questions to ask in the new normal
The sudden shutdown of the economy in March because of COVID-19 forced many businesses to rely more heavily on technology. To keep your IT strategy relevant in the new normal, you’ve got to reassess processes and assets by asking the right questions. What are your users saying about your company’s technology? Do you have “information silos” inhibiting collaboration between people or teams? Do you have a sound digital file-sharing policy? Has your technology become outdated by the rapid, crisis-driven changes? Is more training needed? Are your security protocols being followed? Our firm can help you assess your IT strategy and identify cost-effective process changes and asset upgrades.
After you file your tax return: 3 issues to consider
After filing a 2019 tax return, there may still be three issues to bear in mind. 1) You can check up on your refund. Go to irs.gov and click on “Get Your Refund Status” to find out. 2) Some tax records can now be thrown out. You should generally save statements, receipts, etc. for three years after filing (although keep the actual returns indefinitely). But there are exceptions to this general rule. 3) If you forgot something, you can generally file an amended tax return. File Form 1040X to claim a refund within three years after the date you filed the original return or two years of the date you paid the tax, whichever is later. Contact us for more information.
Steer clear of the Trust Fund Recovery Penalty
If you own or manage a business with employees, you may be at risk for a severe tax penalty. It’s called the “Trust Fund Recovery Penalty” because it applies to the Social Security and income taxes required to be withheld by a business from employees’ wages. Because the taxes are considered government property, the employer holds them in “trust” on the government’s behalf until they’re paid over. The penalty is also sometimes called the “100% penalty” because the person liable and responsible for the taxes will be penalized 100% of the taxes due. Accordingly, the amounts IRS seeks when the penalty is applied are usually substantial, and IRS is very aggressive in enforcing this penalty.
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