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.
As part of your 2021 tax planning, now is the time to review funding your retirement accounts. By establishing your contribution goals at the beginning of each year, the financial impact of saving for your future should be more manageable. Here are annual contribution limits for 2021:
Plan
2020
2021
Change
SIMPLE IRA
Annual Contribution 50 or over catch-up
$13,500 Add $3,000
$13,500 Add $3,000
No Change No Change
401(k), 403(b), 457 and SARSEP
Annual Contribution 50 or over catch-up
$19,500 Add $6,500
$19,500 Add $6,500
No Change No Change
Traditional IRA
Annual Contribution 50 or over catch-up
$6,000 Add $1,000
$6,000 Add $1,000
No Change No Change
AGI Deduction Phaseouts:
Single; Head of Household Joint nonparticipating spouse Joint participating spouse Married Filing Separately (any spouse participating)
If you or your business received funds from the Paycheck Protection Program (PPP), the recently passed Emergency Coronavirus Relief Act of 2020 will help to dramatically cut your tax bill. Here’s what you need to know.
Background
The PPP program was created by the CARES Act in March 2020 to help businesses which were adversely affected by the COVID-19 pandemic. Qualified businesses could apply for and receive loans of up to $10 million. Loan proceeds could be used to pay for certain expenses incurred by a business, including salaries and wages, other employee benefits, rent and utilities.
If the business used at least 60% of loan proceeds towards payroll expenses, the entire amount of the loan would be forgiven.
The Dilemma
While the CARES Act spelled out that a business’s forgiven PPP loan would not be considered taxable income, the legislation was silent about how to treat expenses paid for using PPP loan proceeds if the loan was ultimately forgiven.
Congress intended for these expenses to be deductible for federal tax purposes. But since the legislation was silent on this issue, the IRS swooped in and deemed these expenses to be nondeductible.
There was considerable debate over the latter half of 2020, with Congressional politicians explaining that their intent was that the expenses be deductible and the IRS responding “Too bad, they’re nondeductible.”
The Solution
Congress overruled the IRS’s position in the Emergency Coronavirus Relief Act of 2020. The legislation officially makes deductible for federal tax purposes all expenses paid for using proceeds from a forgiven PPP loan.
Stay tuned for updates as to how this new legislation affects your business.
Before the housing bubble burst in 2008, you could find high yield savings accounts that were paying rates over 5.0 percent. Today? These same banks are paying less than .10 percent.
So where are you supposed to put your money? Is there anywhere else you can put your hard-earned cash and generate a modest return? Here are several suggestions.
Social Lending. Consider a social lending site like LendingClub, a peer-to-peer loan network that allows you to invest in other people’s loans. Typical rates that you can earn range between seven and 20 percent. There is a required initial deposit of at least $1,000.
Risks: Social lending is not for the faint of heart. You are acting as a bank and have to be prepared to take loan losses…just like a bank.
Brokerage Accounts. Brokerage accounts often have a number of options to earn ongoing interest higher than most banks. It includes investing in dividend-bearing stocks, bonds, and other CDs. Many of these options will provide higher savings yields than banks, but you need to know the risks of your options before you invest.
Risks: Each product offered within your brokerage account will have its own risks. For instance, dividend stock returns are not guaranteed and underlying shares can lose value. So never invest in something you don’t understand. The good news is many investment savings alternatives are insured by the FDIC and SIPC.
High Yield Savings Accounts. High yield accounts don’t have very high interest rates. But an account earning .4% to .7% is better than nothing. For a balance of $30,000, this yields about $200 annually. These types of accounts can be found at both online and brick-and-mortar banks and typically pay a better rate than traditional savings and checking accounts.
Risks: Only choose well-respected, well-managed institutions when selecting an online account. And as always, be especially careful to take security precautions when moving funds online. Also double check to ensure your funds are FDIC insured.
The low rate environment is being influenced by the vast spending of the federal government. So until the fed moves rates up, you are going to need to stay vigilant to try to keep your hard-earned savings rates above the rate of inflation.
Virtual learning is a way of life again for many kids as we head towards winter.
Mayo Clinic psychologist Dr. Craig Sawchuk says that families will need to adapt to changing circumstances this school year.
“We’ve all been dealing with uncertainty,” Sawchuk said in a recent Mayo Clinic Q&A podcast. “We need to be flexible with the format of how our kids learn. It’s all going to look different, regardless of whether your kids are doing in-person, virtual or a hybrid learning model. And it’s subject to change.”
Here are some ideas shared by creative parents and experts to help maintain your family’s sanity, while trying to navigate virtual learning through the extended stay-at-home winter days.
Keep your kids moving. An absence of in-person learning means no recess and no gym class. Keep your kids exercising by scheduling 30 to 60-minute blocks of time for them to do their favorite activity. These activities can include, but not be limited to, walking, jogging, biking, skateboarding, rollerblading or riding on a scooter.
Do it differently: Consider tracking student activity information on a spreadsheet, then teach them how to make charts and graphs. They can then see progress toward fun goals while learning how to work with spreadsheets.
Get crafty. Kids love anything that involves glue, scissors and building stuff. Set aside a dedicated area for your kids to build whatever they can imagine. Give them some latitude to get messy (as long as they clean up!).
Do it differently: One of the more interesting phenomena of this year’s pandemic is our national coin shortage. If you have some spare change that you’re willing to part with, have your kids search online for DIY coin crafts.
Put on the chef hat. Turn your kitchen over to your kids. Yes, it might get messy, and your meatloaf may end up a little dry, but getting your kids to cook can spark their creativity and get them into the habit of helping prepare food for the entire family.
Do it differently: Have your kids create their own cooking show. Set up a video recorder on a sturdy tripod and have them narrate what they’re preparing. If extra time allows, they can jump on a video editing software program and edit their TV show.
Thumb through an actual book. Textbooks have been replaced by tablets. Newspapers have been supplanted by websites. Physical books have given way to e-books. While your kids are at home, consider reading through an actual book, while sitting on an actual chair or sofa.
Do it differently: After reading a book, have your children or grandchildren create their own story. Or have them create a different ending. You can record the story on your phone or be their scribe. They can then make their own book to share.
With the onset of COVID-19, small business banks are more nervous about potential loan losses than ever. Here are several tips for your business to maintain a great working relationship with your lender. These same tips can also be used if you want to plant seeds with your banker for potential future loans.
Produce timely financial statements. Your lender may require you to produce financial statements over the duration of your loans to ensure that you have enough cash to make consistent, on-time payments. Strive to produce up-to-date financial statements and send them to your bank before they ask for them. Not only will timely financial statements make your lenders happy, the pro-active nature of your financials will show a level of transparency to them. Be prepared to include a note explaining major changes and schedule regular phone calls to go over the business.
Implement solid internal controls. How does a lender have faith that the dollar amounts on your financial statements are accurate? By properly implementing internal controls. You’ll have a happy banker if your company can provide evidence that your internal controls are operating properly.
Communicate. If your business encounters turbulent financial waters, the best thing to do is immediately let your lender know about it. Better yet, by keeping in constant communication, your lender will most likely be able to spot if your business starts experiencing a downturn and will try devising a plan before you begin missing payment deadlines.
Remember, your banker probably has their hands full right now. These tips allow them to spend more time on their problem loans, and one of them will not be yours.
No one likes surprises from the IRS, but they do occasionally happen. Here are some examples of unpleasant tax situations you could find yourself in and what to do about them.
An expected refund turns into a tax payment. Nothing may be more deflating than expecting to get a nice tax refund and instead being met with the reality that you actually owe the IRS more money.
What you can do: Run an estimated tax return and see if you may be in for a surprise. If so, adjust how much federal income tax is withheld from your paycheck for the balance of the year. Consult with your company’s human resources department to figure out how to make the necessary adjustments for the future. If you’re self-employed, examine if you need to increase your estimated tax payments due in January, April, June and September.
Getting a letter from the IRS. Official tax forms such as W-2s and 1099s are mailed to both you and the IRS. If the figures on your income tax return do not match those in the hands of the IRS, you will get a letter from the IRS saying that you’re being audited. These audits are now done by mail and are commonly known as correspondence audits. The IRS assumes their figures are correct and will demand payment for the taxes you owe on the amount of income you omitted on your tax return.
What you can do: Assuming you already know you received all your 1099s and W-2s and confirmed their accuracy, verify the information in the IRS letter with your records. Believe it or not, the IRS sometimes makes mistakes! It is always best to ask for help in how to correspond and make your payments in a timely fashion, if they are justified.
Getting a tax bill for an emergency retirement distribution. Due to the pandemic, you can withdraw money from retirement accounts in 2020 without getting a 10% early withdrawal penalty, but you’ll still have to pay income taxes on the amount withdrawn. If you don’t plan for this extra tax you will be surprised with an additional tax bill. And you may still get an underpayment penalty bill from the IRS because you did not withhold enough during the year. You may also still receive an early withdrawal penalty in error because the IRS is still scrambling to update their systems with all of this year’s tax relief changes.
What you can do: Set aside a percentage of your distribution for taxes. Your account administrator may withhold funds automatically for you when you request the withdrawal, so check your statements. Your review should be for both federal and any state tax obligations. If the withholding is not sufficient, consider sending in an estimated tax payment. And if you are charged a withdrawal penalty, ask for help to correspond with the IRS to get this charge reversed.
No one likes surprises when filing their taxes. With a little planning now, you can reduce the chance of having a surprise hit your tax return later.
Too often you find yourself in a situation and aren’t sure what to do. Here are some everyday tips that could come in handy!
Chew the aspirin. Taking an aspirin at the outset of a heart attack could save a life. But for an aspirin to save your life during a heart attack, you need to chew it. Aspirin, which inhibits platelets that speed blood clots, works fastest if chewed.
Celsius to Fahrenheit conversion: Degrees in Celsius x 1.8 plus 32. Only 5 countries measure temperature using Fahrenheit, so it is good to know how to convert from one to another. C to F: Take the temperature times 1.8 and add 32. F to C: Reverse the math. Subtract 32, then divide by 1.8.
Cats like milk, but it often does not like them. It’s not healthy for your cat to eat or drink anything that contains dairy. Cats have a degree of lactose intolerance and can get sick from large quantities of milk.
Miles to kilometers? Use the 3-5 method for an approximation.
Kilometers to Miles: Divide by 5, multiply times 3
Miles to Kilometers: Divide by 3, multiply times 5
Never fear calls from the IRS. Don’t be afraid of a phone call from the IRS – because they will never call without mailing you first. If you owe money to Uncle Sam, the IRS will always initiate communication via mail.
Should you have any questions regarding your situation, feel free to call.
Raising prices can be fraught with risk during good economic times. So what happens if you try to raise prices during bad economic times?
As Hamlet would say, “Ah, there’s the rub.” If you raise prices, you risk losing clients to competitors. If you don’t, decreasing revenue or rising costs can capsize your company. So what’s a small business supposed to do?
The Art of Pricing
Raising (and, sometimes, even lowering) prices can be a balancing act. As with any major business decision, pricing should take into account various factors. Here are several to consider.
Analyze costs. First, you need to carefully analyze the costs needed to bring your products or services to market. Such expenses might include raw materials, storage, personnel, advertising, delivery, rent, equipment, taxes and insurance. Failure to cover all these costs in your price will inevitably lead to shrinking profits.
Establish profit margin. Next, it’s important to establish an acceptable profit margin. This is where the art of pricing begins. To find your company’s sweet spot with regards to pricing, consider researching competitors in your region to determine their pricing for comparable products, raising your finger to the wind to discern the business climate and asking your customers about their preferences.
Listen to your customers. Your customers will tell you if you raised prices too high. They’ll either continue to buy your product or seek out a competitor.
Consider incremental price increases. Small, incremental price increases tend to be more palatable to customers than a few large changes. We see this every day in the rising cost of gasoline, utilities and taxes. Many customers can handle incremental inflation…just don’t shock them with a huge increase all at once.
When considering pricing, it’s important to take a long, hard look at both your costs and the quality of your products and services. Customers will generally pay a premium for goods and services that provide greater value. Successful business owners endeavor to increase both the actual quality of their products and the perception of that quality in the minds of customers. Do both well, and a price increase may be in order.
