Category Archives: Taxes

Tax News from EJK Accounting & Tax

04.01 2021

Get Ready for Individual Tax Returns

On March 17, 2021, IRS 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. That means you do not have to file Form 4868 for the tax return extension unless you plan to file after May 17. For any return or payment postponed by this announcement, no penalty and interest to file a federal income tax return and its payment will be accrued between April 15 and May 17, 2021*.

* Postponement applies only to individual taxpayers (Form 1040); estimated income tax payments are due April 15, 2021 for 2021 tax years.

Taxpayers should double-check to ensure they have all their documents before filing a tax return.  If taxpayers find errors or missing documents such as a W-2 or Form 1099, they should contact the employers and payers or other issuers to request the missing documents or to reissue corrected forms. If taxpayers do not receive missing or corrected documents in time to their returns, they may need to estimate the payments made to them. Estimated amounts can be reported on Form 3852 on their federal tax return. If they receive the missing or corrected Form W-2 or Form 1099-R after filing their return and the information differs from their estimate, they must file Form 1040-X, Amended U.S. Individual Income Tax Return.

Most taxpayers should have received income documents near the end of January, including:

  • Forms W-2, Wage and Tax Statement
  • Form 1099-MISC, Miscellaneous Income
  • Form 1099-INT, Interest Income
  • Form 1099-NEC, Nonemployee Compensation
  • Form 1099-G, Certain Government Payments; like unemployment compensation or state tax refund

 

New Exclusion of Unemployment Compensation

On March 11, 2021, the American Rescue Plan announced that up to $10,200 of unemployment compensation paid in 2020 can be excluded from your 2020 tax return if your modified adjusted gross income (AGI) is less than $150,000. That means you won’t have to pay tax on unemployment compensation of up to that threshold.

Additionally, if you are married, the $10,200 exclusion can be applied separately for each spouse.  Amounts over $10,200 for each individual are still taxable. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation.

The exclusion should be reported separately from your unemployment compensation. Visit the IRS website for more information.

 

Payroll and Payroll Taxes

All businesses should know about their obligations for filing with local, state, and federal tax systems. Businesses with employees are required to withhold payroll taxes from employees’ paychecks. Calculating payroll taxes can be complicated. Here are some basic payroll tax components that businesses and owners should know:

 

  • Federal Income Tax Withholding

Federal income tax withholding is withholding taxes from employee pay for federal income taxes owed by the employees. By completing Form W-4, the amount of federal income tax is determined. Employees can change this form anytime to update their information.

  • Social Security and Medicare

These are also called FICA taxes (Federal Insurance Contributions Act), which is shared between employers and employees. The employer deducts the employee’s share, which is one-half the total due, from employee wages/salaries, and the employer pays the other half.

  • Additional Medicare Tax

In 2013 as part of the Affordable Care Act, employers withhold 0.9% additional Medicare Tax on employees’ earnings that exceed a threshold. This medicare tax has no employer match.

  • Federal Unemployment (FUTA) Tax: 

FUTA is paid separately from the other taxes by the employer and isn’t withheld from employee pay.

  • Self-Employment Tax

This is basically social security and medicare taxes for self-employed individuals.

 

Washington State does not impose a personal State income tax on employees. However, they do require State Unemployment and Paid Family Medical Leave to be paid to the Employment Security Department, and disability insurance to be paid through the Department of Labor and Industry.

Here are what employers in Washington State need to know:

Register as Employer

As an employer in Washington, you need to register with the Secretary of the State, and then file a new business license application through the Washington State Department of Revenue (DOR). After submission of application, Washington Department of Labor and Industries (for worker’s compensation) and Washington Employment Security Department (for Unemployment insurance) will notify and provide you the information you need to run your payroll, such as tax rates.

Payroll Tax Filing Requirements

Completed by Employee 

Form W-4 (IRS) Employee information for the determination of federal income tax withholding
Form I-9 (USCIS) Proof of an employee’s eligibility to work in the United State
Completed by Employer

New Hire Report (form to DSHS or Online report to Secure Access WA) Report all newly and rehired employees within 20 days of hire
Electronic Federal Income Tax Payment System System allows employer to set up schedule payment for taxes through online
Form 941 (Quarterly ) to IRS Report Employee earnings, employer and employee Social Security and Medicare taxes, and Employee federal income taxes
Worker’s Compensation-L&I (Quarterly) Workers’ compensation insurance for medical costs and wage replacement if injured on the j
WA State Unemployment Tax Report Unemployment benefits for employees who lose their job
Paid Family and Medical Leave Paid leave for employee to care for themselves or their family.
Form 940 (Annually) Pays for administration of the federal unemployment insurance program
Form W-2 and W-3 (Annually) Security Administration need for recordkeeping. IRS needs for reconciliation with Forms 940 & 941

Quarterly report schedules:
1st Quarter – April 30
2nd Quarter – July 31
3rd Quarter – October 31
4th Quarter – January 31 the following year

12.30 2020

Standard Mileage Rates for 2021

The Internal Revenue Service (IRS) issued the standard mileage rate for 2021 to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purpose.

 

 

Standard Mileage Rates for the beginning on January 1, 2021 for the uses of car, vans, pickups or panel truck will be:

Period Business Charity Medical Moving
2021 56 14 16
2020 57.5 14 17

 

  • 56 cents per mile driven for business use, down 1.5 cents from the rate for 2020
  • 14 cents per mile driven in service of charitable organizations, the rate is set by statute and remains unchanged from 2020
  • 16 cents per mile driven for medical or moving purposes for qualified active duty members of the Armed Forces, down 1 cent from the rate for 2020

 

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

 

 

Important Note:

  • Under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses.
  • Taxpayers also cannot claim a deduction for moving expenses, unless they are members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details see Moving Expenses for Members of the Armed Forces.
12.29 2020

Form 1099-MISC

What is Form 1099-MISC?

Form 1099-MISC is to report payments made in course of a trade or business to non-employee. Although the 1099MISC is still in use, contractor payments made in 2020 and beyond will be reported on the new form 1099-NEC.

Form 1099-Misc and Instructions

 

 

 

  • Rents (Box 1)

Enter amounts of $600 or more for all types of rents

 

  • Other Income (Box 3)

Enter other income of $600 or more required to be reported on Form 1099-MISC that is not reportable in one of the other boxes on the for

 

  • Gross Proceeds Paid to an Attorney (Box 10)

Enter gross proceeds of $600 or more paid to an attorney in connection with legal services (regardless of whether the services are performed for the payer)

 

  • Fishing Boat Proceeds (Box 5)

Enter the individual’s share of all proceeds from the sale of a catch or the FMV of a distribution in kind to each crew member of fishing boats with normally fewer than 10 crew members. A fishing boat has normally fewer than 10 crew members if the average size of the operating crew was fewer than 10

 

  • Medical Payments (Box 6)

Enter payments of $600 or more made in the course of your trade or business to each physician or other vendor or provider of medical or health care services. Include payments made by medical and health care insurers under health, accident, and sickness insurance programs. If payment is made to a corporation, list the corporation as the recipient rather than the individual providing the services. Payments to persons providing health care services often include charges for injections, drugs, dentures, and similar items. In these cases, the entire payment is subject to information reporting. You are not required to report payments to pharmacies for prescription drugs

 

  • Direct Sales (Box 7)

Enter an “X” in the checkbox for sales by you of $5,000 or more of consumer products to a person on a buy-sell, deposit-commission, or other commission basis for resale (by the buyer or any other person) anywhere other than in a permanent retail establishment. Do not enter a dollar amount in this box. The report you must give to the recipient for these direct sales need not be made on the official form. It may be in the form of a letter showing this information along with commissions, prizes, awards, etc.

 

  • Substitute Payments in lieu of dividends or interest (Box 8)

Enter aggregate payments of at least $10 of substitute payments received by a broker for a customer in lieu of dividends or tax-exempt interest as a result of a loan of a customer’s securities. Substitute payment means a payment in lieu of (a) a dividend, or (b) tax-exempt interest to the extent that interest (including original issue discount) has accrued while the securities were on loan. For this purpose, a customer includes an individual, trust, estate, partnership, association, company, or corporation.

 

  • Crop Insurance Proceeds (Box 9)

Enter crop insurance proceeds of $600 or more paid to farmers by insurance companies unless the farmer has informed the insurance company that expenses have been capitalized under section 278, 263A, or 447 of Instructions for Forms 1099-MISC and 1099-NEC.

 

  • Excess Golden Parachute (Box 13)

Enter any excess golden parachute payments. An excess parachute payment is the amount over the base amount (the average annual compensation for services includible in the individual’s gross income over the most recent 5 tax years). Find additional detail on page 11 of the Instructions for Forms 1099-MISC and 1099-NEC.

 

  • Federal tax withheld (Box 4)

Enter backup withholding. For example, persons who have not furnished their TINs to you are subject to withholding on payments required to be reported in box 1. For more information on backup withholding, including the rate, see Instructions for Forms 1099-MISC and 1099-NEC

 

12.23 2020

Financial Relief Before Year is Over

 

 

This year is end in a week. A spike in COVID-29 cases and related restrictions and shutdown, more people have been laid off and millions of people have received jobless help and benefit.

 

 

Don’t miss out!!!

Before 2020 is over, we still have time to gain some financial relief to help reduce the effects of the pandemic.

Paid sick leave

Fully refundable tax credits are available, as part of the Families First Coronavirus Response Act.

  • Up to $511 per day, or
  • $200 per day if caring for a family member or children if school is closed.

 

Paid family leave

One provision of FFCRA is fully refundable tax credits equal to two-thirds of the employee’s regular pay.

  •  Up to $200 per day, for an employee to care for a child due to school or place of care closure.

 

 

Employee Retention Credit

As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, provides a fully refundable credit that is 50% of qualified wages.

  • $10,000, for a maximum credit per employee of $5,000 paid from March 13 – Dec. 31, 2020.

 

Important notes about COVID-19 tax credits:

  • For businesses to receive the credits, wages paid must occur by Dec. 31, 2020 or earlier.
  • If a Paycheck Protection Program loan was taken, the employer would not be eligible for the Employee Retention Credit.
  • Employers who choose to file one or more Forms 7200 to request an advance payment of the tax credits, the last day to file is either Feb.1, 2021, or the date employer’s Forms 941 are filed for forth quarter 2020, whichever is earlier. Any Forms 7200 received after that date will be rejected by the IRS

 

 

05.10 2016

IRS Workshops for Non-profits

In an effort to provide better access to popular workshops, the Internal Revenue Service (IRS) has posted virtual versions of workshops on their website. The most recent installment focuses on tax compliance for exempt organizations including small to medium-sized 501(c)3 organizations.

Lessons include topics such as how to apply for 501(c)3 status, 990 overview course, and hiring employees. They are designed to help both new and pre-existing organizations. The IRS also offers certificates of attendance to encourage comprehensive education around a variety of topics.

01.25 2016

2016 Tax Season

January starts a new year and a new tax season. In the next month, you’ll receive an array of IRS forms reminding you that it’s time to file. The deadline this year is Monday, April 18, 2016, but once you’ve received all your forms it’s never too early to file. For standard filers, here’s what you might expect to get in the mail:

  • Form W-2 from your current or past employers.
  • Form 1099-INT or 1099-DIV from any financial institutions from whom you earn interest.
  • Contractors will receive form 1099-MISC with total miscellaneous income earned.
  • Homeowners will receive form 1098 with total mortgage interest payments.
  • Students will receive form 1098-T with total tuition paid; students with loans will receive form 1098-E with total interest paid on student loans.

If you’re a small business owner, you’ll need to provide your tax preparer with a profit and loss statement so that they can complete a Schedule C.

Give us a call or talk to your preparer for a complete list of forms needed to complete your return.

10.25 2015

Talk to the IRS

Responding to a notice from the IRS can be a daunting task. Sometimes it’s hard to figure out why you’re being contacted, how to respond, what information the IRS needs, and/or whether or not we can refute any charges. Often times we are provided with a lot of information about what will happen if we don’t respond properly, but very little guidance on how our response should be presented. Here are some tips to ensure that your communication with the IRS is well received, and your issue can be resolved quickly.

Understand Your Notice
Read your notice and read it again. Make sure you fully understand what the IRS is telling you before you respond. If you are still unsure, you have options. Contact an accounting or tax professional to help you understand your notice, or call the IRS to clarify.

Call or Write?
Getting through to the IRS via phone can take time, but is helpful if you have questions about your notice. Calling can expedite your response process, as you can confirm with a representative exactly what the IRS is looking for, how you should respond, and if you have options. Have your identification information and questions ready before you call. Make sure you get off the phone knowing exactly what the next steps are.

Remember Who You’re Talking To
When you contact the IRS remember that you are talking to a regular person, not an entire government agency. Always be professional and respectful, but don’t be afraid to ask questions. They also want to resolve your issue as quickly and efficiently as possible.

Provide Relevant Information
When you’re ready to send your formal response, in writing, make sure you provide the following information to ensure your response is easily identifiable:

  1. Your name and/or business name (as written on your original notice) and tax ID.
  2. Reference number as written on the IRS notice you are responding to.
  3. Identify the issue and period the notice refers to. For example: Quarter 4 2014 Payroll Tax Deposits, or 2013 Form 940, or 2014 Form 1040, etc.
  4. Correct contact information. Include the individual’s name as written on the notice and correct phone and email. A Power of Attorney form must be completed for any other individual to communicate with the IRS on your behalf.
  5. A copy of the original notice.
  6. Enclose any relevant or requested documentation.
08.06 2015

Non-profit Audit Tips

Audits are never fun, but being prepared can help relieve a ton of pressure. Start prepping early so you can be ready when the auditor arrives. Talk to your accounting and administrative staff and get them working on the items below. Being prepared can help save you time and money!

Get prepared

  • Ask your auditor for a list of documents to gather. This is the best place to start. Review the list, see what you need to gather, and estimate how much time you need to do so. Wait to pick an audit date until you have an idea of how long it will take you to gather items and work on the additional items below.
  • Review a detail of income and expense transactions. Take a quick look at the prior years’ transactions to catch any miscoded or mis-classed items.
  • Gather donor information. Donors who gave $5,000 or more during the year will be reported on the 990. Make sure you have donor names and addresses to provide to the auditor.
  • Double check what’s sitting in grants receivable. Gather information regarding multi-year loans, and confirm any grants received from the prior closed year properly offset the grants receivable account.
  • Double check all liabilities. Confirm that ending balances for loans, accrued PTO, and other payroll liabilities are correct.
  • Make sure prior year ending balances match prior year return. Double check that account beginning balances match the ending balances for the prior year’s 990.

If you need help preparing for your audit, contact our office today!