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This is a common question: How long must taxpayers keep copies of their income tax returns and supporting documents?

Generally, individuals should hold on to their income tax records for at least 3 years after the due date of the return to which those records apply. However, if the original return was filed later than the due date, including if the taxpayer received an extension, the actual filing date is substituted for the due date. A few other circumstances can require taxpayers to keep these records for longer than 3 years.

The statute of limitations in many states is 1 year longer than in the federal statute. This is because the IRS provides state tax authorities with federal audit results. The extra year gives the states adequate time to assess taxes based on any federal tax adjustments.

In addition to the potential confusion caused by the state statutes, the federal 3-year rule has a number of exceptions that cloud the recordkeeping issue:

• The assessment period is extended to 6 years if a taxpayer omits more than 25% of his or her gross income on a tax return.
• The IRS can assess additional taxes without regard to time limits if a taxpayer (a) doesn’t file a return, (b) files a false or fraudulent return to evade taxation, or (c) deliberately tries to evade tax in any other manner.
• The IRS has unlimited time to assess additional tax when a taxpayer files an unsigned return.

If none of these exceptions apply to you, then for federal purposes, you can probably discard most of your tax records that are more than 3 years old; however, you may need to add a year or more if you live in a state with a statute of longer duration.

Examples: Susan filed her 2018 tax return before the due date of April 15, 2019. She will be able to safely dispose of most of her tax records after April 15, 2022. On the other hand, Don filed his 2018 return on June 1, 2019. He needs to keep his records at least until June 1,2022. In both cases, the taxpayers should keep their records a year or more beyond those dates if their states have statutes of limitations that are longer than 3 years.

Important note: Although you can discard backup records, do not throw away the copies of any filed tax returns or W-2s. Often, these returns provide data that can be used in future tax-return calculations or to prove the amounts of property transactions, Social Security benefits, and so on. You should also keep certain records for longer than 3 years:

• Stock acquisition data. If you own stock in a corporation, keep the purchase records for at least 4 years after selling the stock. The purchase data is needed to prove the amount of profit (or loss) that you had on the sale.
• Statements for stocks and mutual funds with reinvested dividends. Many taxpayers use the dividends that they receive from a stock or mutual fund to buy more shares of the same stock or fund. These reinvested amounts add to the basis of the property and reduce the gain when it is eventually sold. Keep these statements for at least 4 years after final sale.
• Tangible property purchase and improvement records. Keep records of home, investment, rental-property or business-property acquisitions, as well as all related capital improvements, for at least 4 years after the underlying property is sold.
• Sales that create loss carryovers. If you sell stock, mutual funds or investment property at a loss, and your total capital loss for the sale year isn’t fully absorbed by capital gains plus $3,000, the excess loss may be carried forward to be used on the next year’s return and even beyond, depending on the amount of the loss. The IRS could require proof of the original loss if a carry forward year’s return is audited, even many years after the original loss year. So, not only should you keep the return copies to account for the use of the carryforward loss, you should also retain the records to substantiate the original loss until the carryover amount is fully used up, and for at least 4 years after the last year for which a loss is deducted.

Tax return copies from prior years are also useful for the following:

• Verifying Income. Lenders require copies of past tax returns on loan applications.
• Validate Identity. Taxpayers who use tax-filing software products for the first time may need to provide their adjusted gross incomes from prior years’ tax returns to verify their identities.

The IRS Can Provide Copies of Prior-Year Returns – Taxpayers who have misplaced a copy of a prior year’s return can order a tax transcript from the IRS. This transcript summarizes the return information and includes AGI. This service is free and is available for the most current tax year once the IRS has processed the return. These transcripts are also available for the past 6 years’ returns. When ordering a transcript, always plan ahead, as online and phone orders typically take 5 to 10 days to fulfill. Mail orders of transcripts can take 30 days (75 days for full tax returns). There are three ways to order a transcript:

• Online Using Get Transcript. Use Get Transcript Online on IRS.gov to view, print or download a copy for any of the transcript types. Users must authenticate their identities using the Secure Access process. Taxpayers who are unable to register or who prefer not to use Get Transcript Online may use Get Transcript by Mail to order a tax return or account transcript.
• By phone. The number is 800-908-9946.
• By mail. Taxpayers can complete and send either Form 4506-T or Form 4506T-EZ to the IRS to receive a transcript by mail.

Those who need an actual copy of a tax return can get one for the current tax year and for as far back as 6 years. The fee is $43 per copy (the fee is subject to change, so verify it on the current form). Complete Form 4506 to request a copy of a tax return and mail that form to the appropriate IRS office (which is listed on the form).

If you have questions about which records you should retain and which ones you can dispose of, please give our office a call.

With home mortgage rates at historic lows, it may be appropriate for you to consider refinancing your current mortgage. However, refinancing may not always be the greatest idea, even though mortgage rates are low, and even when your friends, relatives, and coworkers are bragging about the low interest rates they got with their refinance. This is because a number of issues must be considered when refinancing.

Cost to Refinance – Refinancing can be costly, considering you might have to pay for title insurance, points, and other closing costs that easily can lessen the benefits of a lower interest rate and generally aren’t tax-deductible. However, many lenders are offering no-cost refinancing, so you need to compare lenders carefully. Some may be offering no-cost loans, but the interest rate may be higher, or vice versa.

Interest Rates – One of the primary reasons to refinance is to secure a lower interest rate for your home loan. Whether refinancing is a good idea depends on how much you can reduce your interest rate and resulting mortgage payments. Some recommend reducing your interest rate by at least two percentage points, while others contend that as little as a one-point savings is enough of an incentive to refinance. However, you must also consider the costs of refinancing and the tax implications discussed later.

Credit Score – Some homeowners are concerned that refinancing will affect their credit rating adversely. Of course, all lenders will check your credit score, and adding new debt naturally will cause your credit score to dip. But because refinancing replaces an existing loan with another of roughly the same amount, its impact on your credit score is minimal. However, increasing the amount of the loan will have a negative impact on your credit score. Additionally, taking out cash and increasing the loan amount will have negative tax effects, as discussed later.

Borrowing Additional Cash – Some lenders are even hyping taking out additional cash when refinancing. They suggest vacations, retail purchases, and other discretionary uses. Many borrowers have already forgotten the hard lessons of 2004 through 2008, when home prices took a severe drop in value and those who treated their home equity like a piggy bank found themselves owing more on their home than it was worth. Sound financial planning dictates paying off one’s home as quickly as possible and resisting borrowing against its equity.

If you are tempted to take out additional cash, you should also be aware that interest on equity debt is not tax-deductible. This means if the replacement loan is greater than the amortized balance of your original loan, then the interest attributable to the equity debt (the cash out) will not be deductible.

Example: Your original debt to purchase your home (the acquisition debt) some years ago was $300,000. You’ve paid off $100,000 of the original debt, leaving a loan balance of $200,000. You refinance it for $300,000, taking $100,000 in cash out. So, the new loan is 2/3 acquisition debt and 1/3 equity debt. Thus, any interest paid on the refinanced loan will be only 66.67% deductible since the loan is 1/3 equity debt.

However, if the $100,000 in the example was used to make substantial home improvements, then the additional $100,000 of debt would be treated as acquisition debt, and the interest on the entire loan would be deductible, subject to the loan-term limits discussed next later.

Mortgage Limit – As modified in 2018 the tax law currently only allows an interest deduction on home acquisition loans up to $750,000. But the law does grandfather prior loans (those taken out before December 16, 2017) based on prior law which allowed home acquisition debt of up to $1 million. So, if you are refinancing your home loan to pay for a substantial home improvement, then $750,000 becomes the limit.

Example #1: Suppose your grandfathered mortgage balance is $800,000 and you refinance to pay for a kitchen remodel. Although you can still deduct interest on the portion of the loan attributable to the grandfathered portion of the refinanced loan, the interest on the portion of the remaining refinanced loan balance will not be deductible.

Example #2: If your existing mortgage is less than $750,000 any amount borrowed up to the $750,000 limit and used to pay for substantial home improvements would be treated as home acquisition debt, and the interest on that portion of the loan would be deductible as home mortgage interest if you itemize your deductions.

Loan Term – Mortgages are available for various terms, and the most common for first-time homeowners is 30 years. However, many of the current loans offering the best interest rates are 15-year loans. So, depending upon your circumstances, the shorter-term loan may not reduce your mortgage payments but will instead pay off your mortgage sooner.

The Tax Cuts & Jobs Act (TCJA), which became effective in 2018, included a restriction to extending the term of the original acquisition debt. This is best described by example:

Example #3: A taxpayer’s original loan to purchase a home was a 20-year loan taken out on January 1, 2010. Thus, it would normally be paid off on January 1, 2030. If the taxpayer were to refinance the amortized balance of the loan with a 15-year loan on July 1, 2021, that loan normally would be paid off on July 1, 2036, thus extending the refinanced loan term by 6.5 years. However, under current law, the interest on the refinanced loan will only be deductible for the term of the original acquisition debt, and the interest on the refinanced loan would cease to be deductible after January 1, 2030, meaning that the interest on the loan would not be deductible for the remaining 6.5 years of the loan.

State Treatment – Some states, including California, have not conformed to the home mortgage debt interest and loan term changes made by the federal tax reform. In these states, for Example 1, above, the deduction on the state return would include all of the interest paid during the year because the loan amount is less than the $1 million limit, and in Example 3, the interest would continue to be deductible as home mortgage interest until the refinanced loan is paid off in 2036.

Itemizing Deductions – Qualified home mortgage interest is deductible only if you itemize your deductions rather than claim the standard deduction. For a married couple filing a joint return, their 2021 standard deduction will be $25,100. The standard deduction for those filing single or head of household is $12,550 or $18,800, respectively. These amounts are slightly more for those who are age 65 or older and/or blind. For most people, their itemized deductions will consist of medical expenses exceeding 7.5% of income, charitable contributions, state and local income and property taxes (maximum $10,000), and home mortgage interest. If your itemized deductions have been just over your standard deduction amount, after refinancing at a lower interest rate, it’s possible that your total itemized deductions could be less than your standard deduction amount because you will be paying less interest. This means you would not get any tax benefit on your federal return from the mortgage interest you pay. In this case, you would want to be aware of the strategy of bunching deductions, which then could allow you to itemize one year and use the standard deduction the next year.

As you can see, there is a lot to consider when contemplating a refinance. If you need assistance in making your decision, please call for an appointment.

Owning your own small business is a dream that few are fortunate enough to realize, but even those new to the joys of entrepreneurial self-determination need to spend time thinking about how you’re going to eventually leave the business. No matter how far off it may seem, the best way to ensure that your time in your business ends up meeting your personal goals and expectations is to prepare an exit strategy now.

Crafting an exit strategy long before you plan to leave may feel a bit like starting a meal with dessert, but there are plenty of benefits to doing so. It helps you understand all your options and what the potential outcomes of each may be. Let’s take a closer look.

Why an Exit Strategy is Necessary for a Small Business

Though you may think of an exit strategy as only suitable for big corporations or partnerships, every business should have one so that ownership can be transferred without being hampered by negotiations or stress. As with so many things in life, the more planning you do ahead of time, the less aggravation you are likely to encounter when the time comes. If you’re just starting to think about what your exit strategy should encompass, make sure that you think about the following:

• What your expectations are of your business in the long term, what your financial needs are now, and what they are likely to be in the future
• How long you want to be involved with the business
• Who else has been involved in the business, what their needs will be, and how you will meet those needs

Those are the key issues that an exit strategy takes into consideration and keeping them in mind will help you to ensure that you’ve addressed everything that you need to in a strategic and organized way. Even if the particulars involving these individual elements change over time, having a rudimentary exit strategy already in place will make modifications easier.

The Most Common Exit Strategies Used by Small Businesses

There are several different ways to leave a small business, but the five shown below represent the most commonly used:

Liquidation

This is the straightforward process of selling a business’ assets. Liquidation can be done in two different ways.

• Close and sell assets quickly – Business owners who do this often find themselves unable to leverage goodwill, client lists, and other non-tangible assets. They only monetize assets that they sell and end up losing value. Though this has the advantage of being a simple and quick process, it often leaves you with less then you could realize if you take your time, and only allows you to take advantage of tangible assets like equipment or inventory. It also leaves you in the position of having to pay off creditors immediately with the proceeds.
• Liquidating over an extended period – This option represents a move from reinvesting funds into the business to paying yourself with the business’ revenues. Small business owners who choose this “lifestyle business” option run their business until they are no longer earning money and able to maintain their lifestyle, and then close. Though many prefer this option, it has a deleterious impact on the business’ growth potential and your ability to consider selling it for a profit. It may work well for sole proprietors, but it is not a good option for businesses that have investors who want to earn a profit or get paid. Choosing this option also requires consultation with a tax professional.

  Small business owners considering liquidation need to consult with experts who can advise them on the right approach to asset sales, addressing liabilities, how to handle existing employees and more to ensure that all their commitments and obligations have been legally and responsibly addressed.

Selling the business to someone familiar such as a family member, friend, employee, or customer

In most cases this involves a process formalized by a seller financing agreement that outlines a gradual purchase that provides income to the seller and avoids a large initial investment for the buyer. Many times, these agreements involve either formal or informal mentoring as the business transfers hands to allow a smooth transition. Though it may be tempting to arrange a sale to a friend informally, it is important that everything be done with the help of an attorney and accountant to ensure that valuation and other issues such as estate planning and family succession can be addressed if appropriate.

There are many advantages and disadvantages to this type of arrangement. By having an exit strategy in place that makes current employees into eventual owners, you create more goodwill and loyalty and inspire greater productivity and creativity. It also allows you to continue being involved and ensures a smoother transition of business operations.

However, this type of plan can also create jealousies and competition between family members or employees, and may lead to your undervaluing your own business as you attempt to help those you care about.

Selling the business on the open market

There are many entrepreneurs who are looking for established, successful small businesses to purchase, as it avoids much of the hard work and risk that is initially involved. Entrepreneurs will find it easier to secure financing for a business that has a known revenue stream, goodwill, cash flow, and systems in place. To make yourself as attractive as possible to this type of buyer long before putting your business on the market, make sure that all of your records and financial papers are in order, and check out helpful information like this from the Small Business Administration to make sure that you are leveraging all of the features that you have already worked so hard to establish.

Selling your business on the open market is a great exit strategy for those whose businesses have a solid financial foundation and well-established clientele and reputation. However, the process can be drawn out and disappointing, especially if the offers you receive are lower than your valuation expectation.

Selling to an industry insider

Competitor businesses may believe that your small business is a good acquisition, whether to add to their portfolio or to eliminate competition. Similarly, employees in a related industry may be interested in ownership of a company that is already well established so that they can leverage their experience without having to start from scratch. This can be a particularly good option if you wish to remain in the business but in a consulting role with fewer responsibilities. However, many previous owners find themselves disappointed with their new role or the changes in the business’ culture or approach or the disposition of long-tenured employees. This type of scenario requires extensive involvement with an attorney to ensure that all aspects of the acquisition agreement are clear, and that the valuation is appropriate.

Initial Public Offering (IPO)

This approach involves selling shares of the company to the public to raise capital. Though the process takes time and is expensive, it goes a long way to earn a company public recognition and brand awareness and can be very profitable. Going public also involves a significant amount of documentation and regulatory compliance surrounding reporting and being open to the opinions and desires of shareholders in how the company is operated.

Before you make any large decisions or moves regarding your business, be sure to consult with our office.

Do you own a second home at the beach, in the mountains, or some other getaway location, or are you thinking about buying one? If so, then you may have thought about the possibility of renting it out. Though many people would never consider inviting renters into their vacation home, preferring to keep it for themselves and their family, doing so can offset some of the expenses related to the property, and you may even reap a tax benefit at the same time. Whichever route you choose to go, knowing all of the applicable tax rules regarding designated second homes helps you get the maximum financial benefit out of your asset and keeps you from making tax filing errors.

If You Don’t Rent Your Property – Depending upon your individual tax situation, a designated second home’s acquisition mortgage interest may be able to be included as an itemized deduction. However, there is a limit on the amount of acquisition debt for a taxpayer’s main residence and one additional home for which the interest is deductible. For a primary residence and second home acquired before December 16, 2017, that limit is $1,000,000 ($500,000 if filing married separate). After December 15, 2017, the limit is reduced to $750,000 (except that debt incurred before December 16, 2017 still falls under the $1,000,000 limit).

Real property taxes on your main and any number of additional homes are also deductible if you itemize deductions when figuring your regular tax, but not for the alternative minimum tax (AMT). However, even though itemized taxes include property tax, state income tax, and certain other taxes, the total amount allowed per year is limited to $10,000 ($5,000 if you are married and file a separate return from your spouse), so the deduction for some of your taxes may be limited.

If You Rent Your Property – The tax ramifications of renting out your designated second home are largely dependent upon the amount of time that it is rented out during the year: (1) fewer than 15 days, (2) 15 days or more and your personal use is 10% or less and (3) 15 days or more and your personal use is more than 10%.

• Rented Fewer Than 15 Days – When you rent out a dwelling unit that you use as a residence–whether it’s your main home or a second home–for a period that is fewer than 15 days during the year, you do not report the income and cannot deduct any rental-related expenses. However, you are still able to continue writing off eligible mortgage interest and real property taxes as itemized deductions. Used Personally But for Less Than the Greater of 15 Days or 10% of the Rental Days – In this scenario, the home’s use would be allocated into two separate activities: a rental home and a second home. Let’s say that the home is used 5% for personal use; then 5% of the interest and taxes would be treated as home interest and taxes that can be deducted as an itemized deduction. The other 95% of the interest and taxes would be rental expenses, combined with 95% of the insurance, utilities, allowable depreciation and 100% of the direct rental expenses. The result can be a deductible tax loss, which would be combined with all other rental activities and limited to a $25,000 loss per year for taxpayers with adjusted gross incomes (AGI) of $100,000 or less. This loss allowance is ratably phased out when AGI is between $100,000 and $150,000. Thus, if your income exceeds $150,000, the loss cannot be deducted; it is carried forward until the home is sold or there are gains from other passive activities that can be used to offset the loss.
• Personal Use Exceeds the Greater of 14 Days or 10% of the Rental Days – For those whose personal use of the home is more than 10% of the amount of time that it is rented (or more than 14 days, whichever is greater), no rental tax loss is allowed. Let’s assume that the personal use of the home is 20%. As for the remaining 80%, it is used as a rental. The rental income is first reduced by 80% of the taxes and interest. If, after deducting the interest and taxes, there is still a profit, the direct rental expenses (such as the rental portion of the utilities, insurance and any other direct rental expenses) are deducted, but not more than will offset the remaining income. If there is still a profit, you can take a deduction for depreciation of the building, furnishings, etc., but it is again limited to the remaining profit. End result: No loss is allowed, but any remaining profit is taxable. The personal 20% of the interest and taxes is deducted as an itemized deduction, subject to the interest, taxes and AMT limitations discussed earlier. Take note that if the rental income becomes less than the business portion of the interest and taxes, the balance of the interest and taxes is still treated as home mortgage interest and taxes.

If You Sell Your Vacation Home – Even if you use your vacation home to generate rental income, it is still considered to be a property for your personal use, and that means that once you sell it you are subject to taxation on any gains you realize. By contrast, if the sale results in a loss, you are not permitted to deduct any losses – at least not in the examples we’ve provided above. In some cases, a loss on a property can be broken down between the personal, nondeductible use and the business rental portion, which would be deductible.

If You Sell Your Home – When you sell your primary home, you are able to take advantage of what is known as the home gain exclusion, but this is not true of designated second homes. The gain from the sale of a second home is taxable, but eligible for favorable capital gains tax rates in most cases. The only exception to this rule is when the taxpayer has occupied the second home as their primary residence for at least two of the five years immediately before the sale takes place. At no time during that two-year period can the home have been rented. When this is the case and the taxpayer hasn’t applied the home gain exclusion on the sale of another property in the previous two years, the taxpayer is able to take the exclusion. Doing so would allow married homeowners (where both qualify) to exclude from their income up to $500,000 of the home’s gain and single homeowners to exclude home sale gain of up to $250,000, except for depreciation of the home that has previously been deducted.

Other Issues – There are certain situations involving designated second homes that are particularly complex, such as homes that are converted from an investment property to a primary residence, or when they were acquired by tax-deferred exchange. In these instances, it is essential that you consult with this office in order to ensure that all appropriate planning is done to provide you with the ability to gain the most benefit.

If you rent out your property and provide additional services such as maid service, or rent it out for short-term stays, the IRS may view that activity as a business operation rather than a rental. When this is the case the tax ramifications are entirely different. Because of this and many other complicating factors and exceptions it would be appropriate to contact our office to review the tax impact of all of your real estate transactions.

Congress has provided businesses with a temporary tax break as a means of helping the restaurant industry, which has been devastated by the COVID pandemic.

Although the Tax Cuts and Jobs Act eliminated the business deduction for entertainment, it continued to allow a deduction for 50% of the cost of qualified business meals.

As part of its COVID relief efforts Congress is allowing businesses to deduct 100% of business meals during 2021 and 2022, provided the meals are provided by a restaurant.

Recent guidance from the IRS (Notice 2021-25) defines the term restaurant to mean a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises. However, a restaurant does not include a business that primarily sells pre-packaged food or beverages not for immediate consumption, such as a grocery store; specialty food store; beer, wine, or liquor store; drug store; convenience store; newsstand; or a vending machine or kiosk.

In addition, an employer may not treat as a restaurant any eating facility located on the business premises of the employer and used in furnishing meals excluded from an employee’s gross income under IRC Sec 119, or any employer-operated eating facility treated as a de minimis fringe benefit even if such eating facility is operated by a third party under contract with the employer.

Business meals are deductible up to an amount not considered “lavish” (reasonable under the circumstances). Also, the taxpayer (or a representative of the taxpayer) must be present. The representative could be, for example, the taxpayer’s employee, an attorney or an independent contractor who performs significant services for the taxpayer.

A final hoop to qualify for the deduction is meeting the substantiation requirements. You must be able to establish the amount spent, the time and place, the business purpose and the business relationship and names of the individuals involved. Taxpayers should keep a diary, account book or similar records with this information and record the details within a short time of incurring the expenses – a timely kept record carries more weight in an IRS audit than one created months or years after the event occurred, when memory can be hazy. For expenses of $75 or more, documentary proof (receipts, etc.) is also required.

Lastly, individuals who are employees cannot claim a deduction for business meals, even if all of the requirements noted above have been met. This is because the Tax Cuts and Jobs Act suspended the deduction of employee business expenses as an itemized deduction for years 2018 through 2025.

Please give our office a call if you have questions.

This is an overview of the several tax benefits that were included in the American Rescue Plan Act recently passed by Congress that will impact families with children and lower-income taxpayers during 2021. These include increased child care benefits plus an increased child tax credit, including advanced monthly payments for some.

• Child and Dependent Care Credit
  The new law increases the amount of the credit and the percentage of employment-related expenses for qualifying care considered in calculating the credit, modifies the phase-out of the credit for higher earners, and makes it refundable for eligible taxpayers. For 2021, eligible taxpayers can claim qualifying employment-related expenses up to:
  • $8,000 for one qualifying individual, up from $3,000 in prior years, or
  • $16,000 for two or more qualifying individuals, up from $6,000.

The maximum credit rate in 2021 is increased to 50% of the taxpayer’s employment-related expenses, which means the maximum credit will be $4,000 for one qualifying individual, or $8,000 for two or more qualifying individuals. In past years the credit rate varied from 35% down to 20%. When figuring the credit, a taxpayer must subtract tax-free employer-provided dependent care benefits, such as those provided through a flexible spending account, from total employment-related expenses.

A qualifying individual is a dependent under the age of 13, or a dependent of any age or spouse who is incapable of self-care, and who lives with the taxpayer for more than half of the year.

As before, the more a taxpayer earns, the lower the percentage of employment-related expenses that are considered in determining the credit. However, under the new law, more individuals will qualify for the maximum credit percentage rate. That’s because the adjusted gross income level at which the credit percentage starts to phase out is raised to $125,000, whereas it was only $15,000 under the prior law. Above $125,000, the 50% credit percentage goes down as income rises. It is entirely unavailable for any taxpayer with adjusted gross income over $444,000.

The credit is fully refundable for the first time in 2021. This means an eligible taxpayer can benefit, even if they owe no federal income tax. To be eligible for the refundable portion of the credit, a taxpayer, or the taxpayer’s spouse if filing a joint return, must reside in the United States for at least half of the year.

• Workers Can Set Aside More in a Dependent Care FSA
  For 2021, the maximum amount of tax-free employer-provided dependent care benefits increased to $10,500. This means an employee can set aside $10,500 in a dependent care flexible spending account, instead of the normal $5,000. However, workers can only do this if their employer adopts this change. Employees should contact their employer for details.
• Childless EITC Expanded for 2021
  For 2021 only, more workers without qualifying children can qualify for the earned income tax credit, a fully refundable tax benefit that helps many low- and moderate-income workers and working families. That’s because the maximum credit is nearly tripled for these taxpayers and is, for the first time, available to younger workers and now has no age limit cap.

  For 2021, EITC is generally available to filers without qualifying children who are at least 19 years old with earned income below $21,430 or $27,380 for spouses filing a joint return. The maximum EITC for filers with no qualifying children is $1,502.

  Another change for 2021 allows individuals to figure the EITC using their 2019 earned income if it was higher than their 2021 earned income. In some instances, this option will give them a larger credit.

• Other Changes Expand EITC for 2021 and Beyond
  Additional new law changes expand the EITC for 2021 and future years. These changes include:
  • More workers and working families who also have investment income can get the credit. Starting in 2021, the amount of investment income they can receive and still be eligible for the EITC increases to $10,000.
    • Married but separated spouses who do not file a joint return may qualify to claim the EITC. They qualify if they live with their qualifying child for more than half the year and either:
    • Do not have the same principal place of abode as the other spouse for at least the last six months of the tax year for which the EITC is being claimed, or
    • Are legally separated according to their state law under a written separation agreement or a decree of separate maintenance and do not live in the same household as their spouse at the end of the tax year for which the EITC is being claimed.
• Expanded Child Tax Credit for 2021
  The American Rescue Plan Act made several notable but temporary changes to the child tax credit, including:

• Increasing the amount of the credit.
• Making it available for qualifying children who turn age 17 in 2021.
• Making it fully refundable for most taxpayers.
• Allowing many taxpayers to receive half of the estimated 2021 credit in advance.

Taxpayers who have qualifying children under age 18 at the end of 2021 can now get the full credit even if they have little or no income from a job, business, or other source. Prior to 2021, the credit was worth up to $2,000 per qualifying child, with the refundable portion limited to $1,400 per child, and a requirement to have at least $2,500 of earned income. The new law increases the credit to as much as $3,000 per child ages 6 through 17 at the end of 2021, and $3,600 per child age 5 and under at the end of 2021. For taxpayers who have their main homes in the United States for more than half of the tax year and bona fide residents of Puerto Rico, the credit is fully refundable, and the $1,400 limit and earned income requirement do not apply.

The maximum credit is available to taxpayers with a modified adjusted gross income of:

• $75,000 or less for single filers and married persons filing separate returns.
• $112,500 or less for heads of household.
• $150,000 or less for married couples filing a joint return and qualifying widows and widowers.

Above these income thresholds, the excess amount over the original $2,000 credit — either $1,000 or $1,600 per child — reduces by $50 for every $1,000 in additional modified AGI. The original $2,000 credit continues to be reduced by $50 for every $1,000 that modified AGI is more than $200,000 or $400,000 for married couples filing a joint return.

• Advance child tax credit payments
  From July 15 through December 2021, Treasury and the IRS will advance one half of the estimated 2021 child tax credit in monthly payments to eligible taxpayers. Eligible taxpayers are taxpayers who have a main home in the United States for more than half the year. This means the 50 states and the District of Columbia. U.S. military personnel stationed outside the United States on extended active duty are considered to have a main home in the United States.

  The monthly advance payments will be estimated from the taxpayer’s 2020 tax return, or their 2019 tax return if 2020 information is not available. Advance payments will not be reduced or offset for overdue taxes or other federal or state debts that taxpayers or their spouses owe. Taxpayers will claim the remaining child tax credit based on their 2021 information when they file their 2021 income tax return.

  The IRS is developing an online portal that taxpayers can use to opt-out of the advance child tax credit payments or to notify the IRS of changes in their personal situations, such as the birth of a child in 2021, that will impact the monthly payment amounts. The IRS should be releasing details about this soon.

These are substantial financial benefits. If you have further questions regarding these benefits, please give our office a call.

Slowly, our world is changing. A percentage of the population has been vaccinated and many employees are headed back to the office. For many, this causes anxiety – and understandably so. Here are few ways to help take the edge off of returning to the workplace.

Wake up Earlier 

For some of you, working from home may have caused a shift in office hours. Maybe you began starting later and staying up later. Whatever your routine, it’s safe to say that generally office hours are 9 a.m. to 5 p.m. In advance of your return to the office–perhaps a week before you expect to go back—set your alarm earlier. Each day, baby step it back a few minutes to the time you roused yourself before the shutdown began. Though things might never be the same, at least your re-entry into the work world might feel somewhat familiar.

Prepare the Night Before Your First Day

Along with starting your day earlier, think through everything you need to take with you. Do you drink coffee? Make sure you have a thermos with a hot cup of joe ready to go. Do you eat lunch at work? Make your lunch the night before; or if you prefer microwavable meals, be sure you’ve got all your favorites ready to pop into your work bag. Ensuring that you will have sustenance at whatever time you take lunch will save you a lot of worries.

Review Your Workplace Protocols 

Here we’re talking about rules to keep you safe. Do you need a mask if you’ve been vaccinated? What if you haven’t been vaccinated? Do you need to always wear a mask? Will there be hand sanitizer on site or do you need to bring your own? Email HR or leadership to learn of the policies so you can keep up-to-date with any changes. Staying informed will help calm your nerves. 

Manage Your Stress

Make sure you’re being mindful of how you’re feeling emotionally before, during, and after you return to work. If you’re dealing with anxiety when you’re back at work, practice self-care. Take a walk outside during lunch to get some fresh air. If you like to exercise and your gym is open, plan a quick workout. If for some reason you can’t leave the office, try meditation apps like Calm, Headspace, or Simple Habit. (These are also great when you get home and before you go to bed – anytime, actually.) You might also call a friend or family member and share how you’re feeling. Letting off some steam and expressing yourself helps alleviate some of the pressure that might be building up.

Communicate with Your Team

Making the transition back to the office can be challenging, if not downright tough. To diffuse any misunderstandings, practice transparency with everyone, no matter what their position. If you’re a manager, lay out your expectations so that everyone is on the same page. If you’re an individual contributor, make sure your manager and peers know what you’re working on, your hours, and any out-of-the-office days you have coming up. Many companies are asking employees, initially, to split their time between the office and home, which means that for some a full transition back to the office is yet to come. Regardless, overcommunicating will ensure you don’t miss out on anything important.

We may never return to the days before the pandemic. However, we’re making strides to get back to a place of normalcy and are here to guide you every step of the way. 

Sources

https://blog.execu-search.com/returning-to-work-5-tips/

According to a Prudential survey, 87 percent of respondents said they would prefer to work remotely at least one day per week. This is compared to 13 percent of respondents preferring to work at the office all the time. The same survey found that one-third of respondents would not want to work for a business that had a 100 percent on-site work policy.

According to a report from Microsoft titled, “The Next Great Disruption is Hybrid Work – Are We Ready?” 54 percent of employees report “feeling overworked” while 39 percent say they “feel exhausted.” The study attributes these feelings to an overload of “digital collaboration” through “remote meetings, emails, chats, and groups working on documents together.” With workers reporting a desire for change in the workplace, how can companies develop their own hybrid work policy?

Crafting an Effective Hybrid Work Policy

By developing the right mix of remote work and office work, employees and employers can find a balance that works well for everyone. Looking to Fujitsu, as Harvard Business Review (HBR) explains, we can study a model of how the pandemic changed everyone’s view – including owners, managers, and e – of working in the office all the time.

Hiroki Hiramatsu, head of the human resources unit at Fujitsu, realized that the 120 minutes people spent traveling to work could be put to better use. There was a better mousetrap to be devised to make both the business and its workers more efficient with a hybrid workplace plan. For businesses that want to create more flexible working arrangements, HBR believes there are four areas of focus:

1. Employee’s Position and Responsibilities

The first task is to examine the employee’s position and list of responsibilities. HBR looks at the job of a strategic planner and hones in on the attribute of focus. The person in this position is responsible for creating business plans and obtaining details on their industry. Requiring intense focus, they need time that is not interrupted; hence, this can be performed virtually anywhere.

Looking at the team manager, being able to coordinate things is imperative. Team managers are more efficient and effective working in person because they are able to provide guidance and job-improving feedback while in the office working on projects.

While there is no cut-and-dry call on where both of these jobs could be done, with a hybrid work policy, certain tasks can be done anywhere, while other tasks are more effectively completed at home or at the office. A hybrid work policy merges the benefits for businesses and their employees.

2. Worker Inclinations

HBR explains that it is imperative to understand individual worker preferences and aid teams to work within such preferences. Using the example of two strategic planners, there are different employees with different work and family lives. One resides far from the office, has a busy family life with kids in school, and prefers a hybrid work approach. The other employee is at an earlier stage in their career, does not have a dedicated home workspace, and lives near the office.

This stage is where companies can speak with employees and have them take surveys to see how a hybrid workplace policy can be constructed for optimal employee engagement.

3. Reworking How Work is Done

When it comes to working outside the office, HBR explains that in a hybrid work environment, businesses have to get creative, especially with technology. HBR uses the example of the Norwegian Equinor corporation that is involved in handling gas from North Sea fields. In place of normal operations for plant inspections, robotic devices were supplied to provide real-time visual data for inspection engineers to complete their jobs remotely with the same level of accuracy.

4. Equal Policy Application

Regardless of the hybrid policy that is developed, it is important to maintain inclusion and fairness. HBR points out that failure to apply the policy evenly can lead to less productive workers, higher rates of burnout, fewer instances of teamwork, and more turnover. Additionally, with select employees having time- and place-dependent jobs unsuited to or not optimized for a hybrid workplace, many felt they were treated unfairly when this approach is taken.

HBR gives the example of how Brit Insurance changed the traditional approach to the uneven application of a hybrid work policy. One out of 10 of its employees was chosen randomly, from all departments and job roles. Over the next six months, these employees were put in six-person groups to work together virtually. After reflecting on their working styles and capabilities—and their coworkers’ and company’s needs—they concluded that by developing ideas based on their experience and sharing them with the CEO, change would occur. The project resulted in the Brit Playbook, documenting novel ideas for employees to work together.

While each business is unique and will have its own tailored hybrid plan, taking the time to learn how to develop it effectively will help reduce problems in implementing it.

Sources

https://news.prudential.com/presskits/pulse-american-worker-survey-is-this-working.htm

https://www.microsoft.com/en-us/worklab/work-trend-index/hybrid-work

https://hbr.org/2021/05/how-to-do-hybrid-right

Let’s face it, saving money is a challenge at best – and really hard the rest of the time. But what if you made it a fun game to inspire yourself to save? Here are a few ways to do just that.

Keep the Change Challenge

Anytime you receive or find loose change in your pockets or house, put it in a jar. Don’t touch it for a year, and then see how much you save. But here’s a great plus-up for this habit: download a money-saving app like Acorns and watch your savings grow. Anytime you buy something, Acorns will round up the total and deposit the difference into a diversified investment portfolio. Talk about easy.

Weather Wednesday Challenge

This is a great idea. Every Wednesday, look up the highest temperature in your state and deposit the amount into your savings account. For example, if it’s 100 degrees, deposit $100. If it’s 32 degrees, deposit $32. You’ll probably save more during the summer than the winter, but after 52 weeks, you could’ve socked away several thousand dollars. Pretty sweet.

Kick-a-Bad-Habit Challenge

Do you go to Starbucks every day for your Double Chocolatey Chip Crème Frappuccino with extra whip? How about guzzling those sodas every day? Are you a smoker? Whatever it is that you’d like to cut down on or even stop, this challenge has two great benefits: you’ll not only get healthier, but you will also save money.

The No-Spend Challenge

Start with a weekend (or even a week) and make a vow not to spend any money on anything except bills or other necessities. The idea is to save money by not spending it. It might cause you to be more creative. For instance, do you really need a new dress for that special occasion? Dig a little deeper into your closet instead of buying a new frock. Or maybe you decide to drive less and not put gas in the tank. This way, you’ll either bike or walk to your destination (if doable) and do more fun things at home.

The Pantry Challenge

Look inside your refrigerator and pantry. How much food do you have that you haven’t eaten? What about that spaghetti sauce or sesame oil? As long as the food isn’t expired, it’s your chance to get creative and whip up a new dish or revive an old favorite. This challenge is related to the “No-Spend Challenge,” and again, the intention is to save money by not spending it.

The 365-Day Nickel Challenge

Nickels are currency, too! But seriously, if you can remember to do this (set a timer on your phone), you’ll be rewarded handsomely. Here’s how it works: On day one, deposit 5 cents into a jar. The next day, 10 cents. The next day, 15 cents. And so on. By day 365, the total deposit will be $18.40. At the end of the year, you’ll have saved a whopping $3,339.75. Not bad, huh? 

While saving money might feel restrictive, you’re actually planning ahead to be very happy. When you’ve been able to stick to a habit, or in some cases give one up, you’ll see that anything is possible if you just put your mind to it. And that’s a great feeling. 

Sources

https://money.usnews.com/money/personal-finance/saving-and-budgeting/articles/money-saving-challenges

Business accounting activities can be tedious when performed manually and are prone to errors. For these reasons, many businesses have shifted to accounting software that offers numerous benefits, including data accuracy, time savings, easier auditing and on-demand reports.

With so many available options, it’s overwhelming to choose the right fit for a particular business. As more software vendors join the market with different enticing offers, it’s wise to be equipped with the right information.

Making a Decision Between Different Accounting Software

The accounting needs of businesses are different and vary with industry. For efficient accounting operations, you cannot afford to choose a one-size-fits-all solution. Here are tips to help ease the selection process.

• Understand your business requirements – Whether you are a start-up or already have an existing business, begin by establishing your accounting requirements. This will help in making a list of features that you need in accounting software. Avoid copying other businesses without understanding what your business needs are. Consider your business size, number of users and projected growth (in order to support business scaling).
• Conduct Research – Learn more about accounting software options. Some might offer only general accounting features while others provide industry-specific features. By reading online reviews, you can see what users are saying about different accounting software.
• Get Recommendations From Your Accountant – Accountants who have already worked with the software have better knowledge about the product and can advise what will work for your business. Get their opinions.
• Your Budget – Your budget is a major determining factor in purchasing an accounting program. Note that software vendors have different pricing models. Depending on how much you are willing to spend, you can choose between monthly subscription fees or a pay-per-use model. Ensure that you have checked out any extra or hidden costs as you could end up spending more than initially planned. And pricing aside, avoid choosing the cheapest option just to save on expenses. The wrong software could cost your business more in the long run.
• Integration with Other Software – Businesses today use various software applications. It’s crucial that you select one that integrates with your existing business applications. This will help avoid duplication of work, such as manual data entry from one program to another.
• Online Versus Offline Accounting Software – You might prefer to have accounting software that you install on your computer, or maybe you’d rather use the online hosted version. Online accounting software is gaining popularity among SMBs due to its affordability. To use this option, you don’t need to install anything – just access it with your credentials. This allows users to access the accounting software from anywhere, even using different devices.
• Availability of Customer Support – Check whether the software vendor offers support after you have purchased or subscribed to use the software. What times do they offer support? And for how long will this support be available?
• Data Security – Data security is especially important for those who choose to work with online accounting software. Consider security measures offered by the software vendor to safeguard against data breaches and other cybersecurity risks. A good software vendor should have measures in place like automatic data backup, data encryption, and allow granular user roles to be assigned. 

Parting Words

Accounting software is crucial for businesses of all sizes as it plays an important role in the accounting process; thus, you can’t afford to choose randomly. Consider all your business needs before choosing the best fit for your business. Create a list of preferences, then check for vendors that offer free trials to get a taste of their services before making a final decision. Remember, choosing the right accounting software will save you from the costly mistake of replacing the wrong one.