Here are some suggestions to help you master the art of documenting and organizing your business now and in the future.
Document policies and procedures. Write down daily responsibilities, skills needed to complete tasks related to these responsibilities, and the location of all paper and electronic files. Appoint and cross-train backup staff to ensure these daily tasks are done.
Document your succession plan. It may not be for another 10 or 20 years, but documenting your succession plan is critical for both you as the owner and for your employees. Consider how much longer you plan on owning the business and who you have in mind to take over after you leave. If you currently don’t have a successor in mind, document your plan to either train or find this person(s).
Document your tax planning strategy. Be aware of possible tax incentives, such as credits for hiring certain workers and accelerated depreciation available for acquiring business assets. For example, for asset purchases, retain receipts and record the purchase details. These details include the type of equipment, the acquisition date, the amount of the purchase, the date you began using the equipment, and a schedule of related set-up costs.
Organize your daily documents. Organize your desk by shredding documents with sensitive information and scanning older papers into computer files. The most efficient method is to scan, file, and shred as soon as you are finished with a document. If you don’t have time, consider assigning document organization to specific employees and making it a task to be completed on a daily basis.
You’re busy, and you may feel that organizing your records will take more time than you have available. But spend a minute and consider how using these organizational tips may save you not only time, but money as well.
Don’t get shocked by a high tax bill! Be prepared for these pandemic-related tax surprises when you file your 2020 tax return.
Taxes on unemployment income. If you received unemployment benefits in 2020, you need to report these benefits on your tax return as taxable income. Check to see if either federal or state taxes were withheld from unemployment payments you received. If taxes were not withheld, you may need to write a check to the IRS when you file your tax return.
Taxes from side jobs. Did you pick up a part-time gig to make ends meet? Payments received for performing these jobs may not have had your taxes withheld. If this is the case, you’ll need to pay your taxes directly to the IRS on April 15.
Unusual profit-and-loss. If you run a business that was hit by the pandemic, you may find your estimated tax payments were either overpaid or underpaid compared to normal. Now that 2020 is in the books, run a quick projection to ensure you are not surprised with an unexpected tax bill when you file your tax return.
Underpayment penalty. If you did not have proper tax withholdings from your paycheck or your estimated tax payments weren’t enough, you could be subject to an underpayment penalty. While it’s too late to avoid a penalty on your 2020 tax return, the solution in the future is to make high enough estimated tax payments each quarter in 2021 or have the appropriate amount withheld from your 2021 paychecks.
A chance to claim missing stimulus payments. (A good surprise!) If any of your stimulus payments were for less than what you should have received, you can get money for the difference as a tax credit when you file your 2020 tax return.
Please use these examples to prepare yourself for a potential tax surprise during the uncertainty caused by the ongoing pandemic.
WASHINGTON — Today the Treasury Department and Internal Revenue Service announced that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021.
Individual taxpayers can postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17.
This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments.
Individual taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief.
Individual taxpayers who need additional time to file beyond the May 17 deadline can request a filing extension until Oct. 15 by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Filing Form 4868 gives taxpayers until Oct. 15 to file their 2020 tax return but does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by May 17, 2021, to avoid interest and penalties.
The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds associated with e-filed returns are issued within 21 days.
Here are four ways to make sure the preparation of your tax return keeps humming along until it gets filed.
Keep tax documents in one place. Missing items are one of the biggest reasons filing a tax return gets delayed! Find a place in your home and put all tax documents in this one place as you receive them. Common missing items this year will include the new 1099-NEC for any taxpayers that are contractors, consultants or part of the gig economy.
Organize documents by type. Every tax professional has a story of someone bringing their documents to them in a shoebox or storage container. All this does is increase the amount of time it takes to prepare your return, so it’s best to sort your documents in tax return order. Pull out last year’s tax return and create folders for each section including income, business/rental information, adjustments to income, itemized deductions, tax credit information and a not-sure bucket.
Create list of special events. You receive a Form W-2 from your employer every year. You may get a 1099-INT from your bank if you earn interest income on your deposit accounts. But selling a home usually doesn’t happen every year. Retiring from a 40-year job doesn’t happen every year. Sending a child to college also doesn’t happen every year (although it might seem like it does!). If you don’t write down these unusual events as they happen, you might forget them when your tax return is being prepared. And you may not remember until the moment your return is about to be filed. This is sure to cause delays.
Don’t forget your signature! You may be surprised to learn that even if you electronically file your tax return, you still must sign Form 8879, which authorizes the e-filing of your return. So whether it’s a traditionally-filed paper tax return or one filed electronically, a signature is required.
These are four of the more common reasons why the preparation of your tax return may get delayed. Be prepared and file your return without a hitch!
Common New Year’s resolutions are to lose weight or become more active. Perhaps 2021 is the year to shift focus. Here are seven tips to help you become more financially fit.
Create a budget. It’s easy to get into financial trouble if you spend more than you earn. By watching your budget more carefully, you might be surprised by how much you spend in certain areas of your life. Many banks and credit unions offer budgeting tools directly on their websites.
Get a free credit report. You can obtain a free copy of your credit report from each of the three major credit reporting agencies every 12 months. Reviewing your reports regularly can help ensure the data in your report is accurate and allows you to contact creditors to dispute any errors.
Pay down debt. Start chipping away at your debts through a series of regular payments. Begin with bills that have the highest interest rates. Research whether it makes sense to consolidate debts at a more reasonable interest rate.
Review your investments. With recent changes in Washington, D.C. and market volatility, reviewing your investments is more important than ever. Protect yourself against risks by diversifying across different classes of investments. If you have not developed an asset allocation plan, do so. If you have, adjust your portfolio to ensure it is still meeting your objectives.
Plan ahead for retirement. Take advantage of tax-favored retirement plans such as a 401(k) at work. Both the contributions and earnings are tax-deferred and can compound over time. The 401(k) limit for 2021 is $19,500 ($26,000 if you’re age 50 or over). Also consider contributing to an IRA, which has a contribution limit of $6,000 ($7,000 if you’re age 50 or older).
Check your insurance coverage. Things can change over time, so don’t assume the coverage you acquired years ago still provides adequate protection for your family or business. Take a look at your policies to determine if adjustments are needed.
Save for emergencies. And finally, would you be financially prepared if your business failed or you lost your job? The COVID-19 pandemic has reminded us the importance of establishing an emergency fund that can last for several months if you lost your salary or business revenue dramatically declines.
Acting on all these tips may seem a bit overwhelming. By focusing on a few now, before you know it, your financial wellness will improve over time.
