Author Archives: nadineriley

More Government Monetary Relief — for Individuals and Companies

1040 tax form with calculator and note lying on wooden desk with place for text

{6 minutes to read} The act of forgiveness is becoming more popular within certain branches of government. One of the most recent acts of forgiveness was extended by the Biden–Harris Administration, however, forgiveness may not be extended to all.

In this article, you will find information related to the following:

  • Penalty abatement for individuals and companies (not much time left)
  • Student Debt Relief Plan
  • Energy Efficiency Credits (Residential Clean Energy Credit)
  • Energy Efficient Home Improvement Credit (previously known as Residential Energy Efficient Property Credit)

The last two are generally available to homeowners.

Penalty Relief for Certain Taxpayers (Individuals and Companies)

As you may already know, the IRS continues to be behind in processing tax returns. One reason is the effect of the pandemic on its operation and personnel. As a result, penalties for late filing of certain tax returns continue to mount. The IRS is extending a penalty waiver if you filed your returns late — that is, failure to timely file a tax return. Tax years 2019 and 2020 are eligible.

What tax forms are eligible for the penalty waiver?

1. For individuals – Forms 1040, 1040NR, etc.

2. For businesses – Forms 1120, 1120-H, 1065, and 1120-S. (The latter two forms are for pass-through entities.)

3. Foreign reporting such as information returns.

The above are some of the returns that are eligible to receive this penalty waiver. 

To be able to take advantage of the waiver, the returns are to be filed by September 30, 2022. (It is important to note that the penalty waiver does not apply to the failure to pay tax liability due, but only to the failure to timely file penalty). This means if the taxes owed are not paid in full, late payment penalties & interest will accumulate until the balance is fully paid. There is no grace extended by the IRS for such a penalty.

Student Debt Relief Plan

On August 24, 2022, President Biden announced the Student Debt Relief Plan for qualified individuals with existing federal student loans with the U.S. Department of Education. This is a one-time debt relief. The relief amount is up to $20,000 in student loans for Pell Grants and $10,000 in relief for those who did not receive Pell Grants.

•Who qualifies for this debt relief?

According to the Federal Student Aid, an office of the US Dept. of Education (DoE):

 “… you’re eligible for student loan debt relief if your annual federal income was below $125,000 (single individual or married filing separately) or $250,000 (married, filing jointly or head of household) in 2021 or 2020.”

As with most federal government types of debt relief or credit, your tax returns are a required document in the application process. If you feel you meet the income threshold and have not yet filed your 2020 or 2021 tax returns, I encourage you to file them if you would like to take advantage of this benefit.

•I may qualify, when may I submit my application?

The DoE website notes that “applications will be available online by early October 2022.” Please click here to see the details.

 Energy Efficiency Credits for Homeowners

A cause worth acting upon. With the continued increase in environmental sensitivity, there is a greater awareness of its impact on communities and the world at large. Local, federal & global governments have been encouraging us to do our part. They, too, are doing their part to help people. 

In the final topic of this article, I will be discussing two ways the federal government is reimbursing (“tax credit towards your tax liability”) a portion of the cost spent on certain energy-efficient improvements to your home. The credits are the Energy Efficient Home Improvement Credit & the Residential Clean Energy Credit (previously known as the Residential Energy Efficient Property Credit). Some credits have been resuscitated under the Inflation Reduction Act signed by President Biden on August 16, 2022. Most of these credits were set to expire in 2023, however, under the Act, they are now extended through 2034.

Residential Clean Energy Credit (previously known as the Residential Energy Efficient Property Credit)

This credit is not necessarily new, however, the credit amount varies from year to year. This year the amount for installing clean household energy such as solar, wind, or geothermal has been raised from 26% to 30% through 2032, however, for 2033 & 2034 the credit drops back to 26%. 

Visit the IRS website for FAQs related to the Residential Clean Energy Credit.

*At the time this article was sent, the dates had not yet been updated on the IRS website * 

Energy Efficient Home Improvement Credit (previously known as the Nonbusiness Energy Property Credit)

Under this credit, homeowners could claim a lifetime credit of 10% of the costs (not to exceed $500) of qualified improvements such as energy-efficient installation of windows, doors, etc.

Under the Act, the credit is 30% of the cost of qualified improvements and now includes new items such as biomass stoves and boilers, electric panels, etc.  For the tax year 2022, the present credit of 10% remains. The new 30% credit begins in 2023, so if you are planning to make any of the above improvements, waiting until 2023 may be more lucrative. 

Rocky Mengle, an editor at Kiplinger did a great article on these credits – read more here

Energy efficiency is more than simply finding ways to lower our bills. According to the U.S. Environmental Protection Agency (EPA), it offers various benefits such as lower greenhouse gas (GHG) emissions and other pollutants, and decreased water use, among others.

In closing – while we are on the topic of the environment, multiple states in the US have experienced natural disasters that are uncommon in such regions. Just one year ago, the remnants of Hurricane Ida caused massive flooding through the tri-states. In some areas, the flooding was partially due to the lack of maintenance of the local storm drains. This is a call to action on our part. September is National Preparedness Month. Consider calling your local government office and requesting that they come out and clean the drains. Here in NYC, you can call 311. The agency is the NYC Department of Environmental Protection. 

Thank you for reading, I hope you find this information useful.

With gratitude,

Nadine

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

The Masterpiece Accounting Group web, blogs, and articles are not rendering legal, accounting, or other professional advice. Tax strategies and techniques depend on your specific facts and circumstances. You should implement the information in this newsletter only with the advice of your tax and legal advisors.   

The Lost Years — Part 2: Business

Text PPP LOAN on tablet display in businessman hands on the white bakcground. Business concept

{14 minutes to read}  This is the second of two newsletters, with a look-back on the “Lost Years.” The first newsletter was individual-focused, and in that article, I discussed topics such as primary home sales, retirement withdrawals, pandemic residency audits, and the necessity of a written will, among others — in case you missed it, you can see the entire article here

Before I get into the article, if you are self-employed (that is you are a Schedule C filer) and you received Pandemic Unemployment Assistance (PUA) during the pandemic, the state’s departments of labor have begun sending notices requesting more information to substantiate your claim eligibility. Less commonly, these notices were also sent to a few W-2 employees. Schedule C filers have an extra hurdle to cross, signed affidavits from a person(s) verifying your self-employment. The letter may feel threatening, nonetheless, it is important to respond and provide what you have, to prevent the department of labor from requesting that you repay the funds received. Click Here for the landing page for the PUA Documentation request by NYS. Do not hesitate to reach out if you should need my service.

As I proceed in this article, I will be focused on entrepreneurs (including independent contractors) and small-business. Below are the topics of focus:

1. Pass-Through Entity Tax (PTET).

2. Qualified Business Income Deduction (QBID).

3. Paycheck Protection Program (PPP) Loan, even if forgiven, is not taxable for most states – but not for all.

1. Pass-Through Entity Tax (PTET)

A buzzword among NYS business entities in the last few months is PTET. If you are an S-Corp or a partnership, you may also have received a notice from NYS about this tax.

So, what is it? In its simplest form, it is having certain companies which are pass-through entities (PTE) pay the personal taxes for their partners, members, or shareholders. In appearance, it is shifting the state taxes from the individual to the business. Ultimately, these individuals may be able to take a credit on their returns for the taxes paid by the company. Eligible business entities are partnerships (this includes LLCs that are treated as partnerships for tax purposes) and S-corporations.

Why was it implemented? For the states — it is getting the tax revenue upfront by having the company pay the taxes earlier, and it creates a form of reserve revenue. For the individual (which is the focus here), it is to mitigate the loss of the state and local deduction, often referred to as a workaround. You may recall under the past administration with the enactment of the TCJA (in effect from January 1, 2018 — December 31, 2025) — individual taxpayers are not able to deduct more than $10,000 of state and local taxes (SALT) paid during the year. This resulted in a large portion of state and local taxes paid by individuals via payroll and real estate property taxes not being deductible. For states like NY, CA, CT, and NJ, just to name a few — a large deduction has been lost, thus increasing their tax bills.

Note: Though the PTET is the term used by some states (such as NYS) — other states have a similar benefit. See a list of the states here

Is this an automatic process? For a few states (CT for example) it is mandatory. For some others (like NYS), an election is required. First, you may want to assess if the PTE has a state tax return filing obligation based on income sources, or one or more resident partners, members, or shareholders.

For NYS, an annual election is to be made on March 15th to pay the estimated taxes on time each quarter. The first quarter estimate is generally due on March 15th of each year. The election made for a given taxable year is irrevocable.  For NYS, the base tax is 6.85% for taxable income up to $2M and the highest tax rate is 10.9% for taxable income over $25M.

Very important Recent Updates:

  • NYS — In a recent update for the tax year 2022 only — NYS extended the deadline for making the election, the new date is September 15, 2022.`
  • NYC is also coming with a PTET — effective January 1, 2023, for eligible entities.

If the company pays the taxes, isn’t the federal going to limit the SALT deduction to $10,000?

The general rule is that the amount of the state taxes paid by the PTET is not required to be reported as a federal itemized deduction under SALT. It is reported as a dollar-for-dollar credit toward your state tax bill.

There are other benefits as well — one of which is on the federal side — the pass-through income is lowered. Self-employed income is also often lowered — thus less self-employed taxes.

To learn more about the NYS — PTET — here is a link to the frequently asked questions.

So, what’s my take on this — should a company go for it?

Yes, it can be a great tax benefit for some companies that have the cash resource to pay the tax liability for their partners, members, or shareholders. Once you are in — you are locked in for that tax year. 

For federal tax purposes, one advantage of the PTET is the company can take the PTET as a regular deduction like other tax deductions. Doing so will result in a lower net pass-through income to partners, members, or shareholders; which ultimately lowers their federal tax liability. 

Notwithstanding this advantage, there are some concerns to note, below are a few.  

•Some businesses may have inconsistency of cash flow during the year — which sometimes creates a shortage of funds issues; so, a company may enter a tax obligation (with the state) that it cannot fulfill. Underpayment penalties can the states require the company to keep its part of the deal. 

•Properly prepared periodic financial statements are necessary to assess the quarterly net income, on which the taxes are generally estimated. It’s important to have a close estimate of what the periodic (i.e., quarterly) net income will be. 

•Non-residents’ concern — not exactly an equal opportunity for all partners, members, or shareholders

•The PTET paid is taken as a credit on the personal tax return — some states may not allow you to take the credit — this is more common with non-resident partners, members, or shareholders. Take-away: do thorough due diligence. 

•Not an individual — if you are a partner, a member, or a shareholder but are not an individual, you are not eligible to take the credit under the current rules.

As you might imagine, this is not a clean-cut tax credit and one size does not fit all. Each company may need to assess the value of this benefit in its entirety for its partners, members, or shareholders as a whole.

Unfortunately, this is not currently available in some states to a single member LLC who files a Schedule C — often referred to as a disregarded entity  no pun intended; disregarded entity is a legitimate IRS tax definition for such an entity. 

2. Qualified Business Income Deduction (QBID).

This deduction is available to qualified PTE, including sole practitioners, and independent contractors. It may be worth your while to review the areas on Qualified Business Income Deduction (QBID) provides an additional 20% deduction of the Qualifying Business Income (QBI). This article was written in 2018 see the — note: The thresholds have been adjusted in subsequent years for inflation.

As noted in the article the deduction has a lifespan of eight years (2018 – 2025), as of the 2021 tax year four (4) years have now passed. Under the current tax laws, we have four more years left before this deduction expires. Most qualified businesses have received the deduction — my intent here is to share ways we can strategically manage this short-lived benefit. Below is a short list of ways to consider. 

•Invest and/or save the annual tax benefit on deduction. Here is an example, if the QBID is $20G, and you are in a federal 25% tax bracket – your tax benefit is $5G. 

•Payoff high-interest loans on credit card debts with the tax benefit of the deduction. 

•Contribute to education costs for the child – the beneficiary does not need to be your child or dependent — maybe it is a child you admire and want to invest in. This child could be a child of a friend, a family, a step-child, a grandchild, or a neighbor. The child need not live in the same state. Additionally, some contributors may also get a state tax deduction for contributions up to a certain amount – if they have a filing requirement in that state (resident or non-residents) and the state offers the deduction. Lastly, there may be some limitations if the beneficiary has multiple contributors. NYS you can get more information at this link for all states —  Alicia Hahn, an editor, wrote an excellent article on Forbes.com https://www.forbes.com/advisor/student-loans/compare-529-plans-by-state

3. PPP Loan, even if forgiven, is not taxable for most states – but not for all.

First, for those among us who received the PPP loan(s), there is an assumption that the PPP loan(s) received have been forgiven – ensure you have written documentation evidence from the financial institution which generated the loan(s). If you have not yet applied for forgiveness, you can still do so, however, you may be on the hook to repay a part of the loan, I encourage you to submit the forgiveness application(s) at your earliest.   

Next, the general rule is that the PPP loan(s) is not taxable, however, some states may impose an income tax on a PPP loan. It does not matter if the loan is forgiven or not. So which states are imposing a tax – Katherine Lougheed wrote a detailed article for the Tax Foundation, among the states are FL, NV, VA, and UT, see the others in the article here — https://taxfoundation.org/state-tax-forgiven-ppp-loans

Before I close, there are still pandemic funds on the table for eligible employers – this is the Employee Retention Credit (ERC) – this is a payroll tax credit for an employer with at least one employee (that employee could be only you, the owner – this is generally an S-Corp shareholder) and have payroll reporting to qualify. To learn more about the eligibility, speak directly with your payroll provider.

In closing, my intent is not to undermine the devasting impact of the pandemic on businesses & self-employed as a whole. Some, even with the extra help from the government, were not able to be resuscitated, while others are still trying to survive. Nonetheless, through the lens of a tax professional for entrepreneurs & small businesses, and an entrepreneur myself, in recent years the changes enacted by the US government have been more tax-savings and loan distribution friendly. Since the TJCA was enacted – beginning 2018, a large number of entrepreneurs (including sole practitioners/independent contractors) and small businesses, have been paying much less in taxes. In response to the financial devastation of the pandemic on businesses – under the CARES Act, the U.S. Small Business Administration (SBA) extended several loans to entrepreneurs & small businesses, which would not have qualified under “normal circumstances.” One such loan is the PPP loan – which may be fully forgiven if certain required steps were taken. 

Let’s resolve to be more strategic by using this short-lived benefit in more worthwhile ways. We have 4 years left to capitalize on the (QBID).

Thank you for reading – I hope you find all or some part of this information useful to you. If you should require my service, please don’t hesitate to reach out. 

With gratitude,

Nadine

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

The Masterpiece Accounting Group web, blogs, and articles are not rendering legal, accounting, or other professional advice. Tax strategies and techniques depend on your specific facts and circumstances. You should implement the information in this newsletter only with the advice of your tax and legal advisors.   

What Have You Gained in the “Lost Years?”

Text Think about tomorrow today on notebook

This is the first of two articles – this first one is more individual-focused; the next will be focused on entrepreneurs (including sole practitioners/independent contractors) and small-business. In that article, I will discuss Pass-Through Entity Tax (PTET) and ways to manage the generous but short-lived Qualified Business Income Deductions (QBID).

But first, let’s look back before we look forward. 

In most of my recent interactions with others, the term “lost years” is becoming a part of our conversation. I must say, the first time I heard it, I was a little taken aback. Why would we define them as lost years?

Despite the added responsibilities, I must say that in the past two years I’ve learned more about the beauty and fragility of our being, i.e., human beings, than all my years combined. I have learned that we need each other more than we can ever fathom. We also need a space for solitude, yet as Amanda Gorman expressed in her poem, The Hill We Climb: “… we’ve learned that quiet isn’t always peace.” Learning to wisely balance/manage time with others and time with self can be enriching to our overall well-being.

The years 2020 and 2021 are not lost years. Sadly, we have lost so many of our loved ones during these years and have seen the health of others deteriorate from the lingering side effects of COVID-19. Yet, even in the chaos, some among us have been transformed. Time did an article titled, “Even if You Feel Like This Was a Lost Year, That Might Not Be True.” In the article, the writer looked back at 2020 and wrote how some survivors of trauma, “found that after time, a significant portion of them report feeling renewed. They have a sense of fresh possibilities in life, an openness to following new pathways.” (You can read the entire article here.)

Moving Along to Taxes

You may have heard this echoed from other tax practitioners — this was one of the longest tax seasons! Most of us, including myself, felt like tax season started in January 2020 and didn’t end until the end of April 2022. Think about it — the IRS was given the task of administering most of the pandemic monetary distributions, and as we all know, whatever sits on the IRS’s shoulders falls into the laps of tax practitioners.

In this article, I will share some big moves made by individuals and their impact:

1. Primary Home Sales: One of my indirect mentors noted that of his 40+ years in business, he saw the most home sales in 2021. For primary home sales – under Code §121, the IRS allows an individual taxpayer to exclude up to $250,000 of profit/gain on a home sale (and up to $500,000 if jointly owned) when certain rules are met. While there are multiple complexities to these rules and some decisions may lead to losing all or part of the exemption, in its simple form these rules are:

a. They must have owned the home for at least two of the last five years;

b. They must have used the home as their principal residence for two of the last five years; and

c. They must have not excluded a gain on a home sale in the last two years.

2. Retirement Withdrawal and its Future Tax Effect: In 2020, a large number of individuals took money from their retirement savings and chose to have the taxes due on the withdrawal taxed over a 3-year period. While the tax impact was minimal for most in 2020 – the impact on the portion allocated for 2021 has propelled some individuals into a higher tax bracket. If you would like to cushion the tax impact for the 2022 allocation, consider replenishing your retirement savings by making tax-deferred contributions.

3. Residency Audits: People who moved during the pandemic appear to be returning “home.” If you are one of the many individuals who claimed to have moved from a state (which was your primary residence before the pandemic) with a personal income tax obligation to a state with no personal income tax obligation, and are considering moving back home, be mindful that this will likely trigger a residency audit. Residency audits are quite complex, and the burden of proof often lies with the taxpayer, which means you are guilty until proven innocent. Having adequate documentation can be crucial to defending your case. Each case is unique, and one size doesn’t fit all in a residency audit. Don’t go it alone.

4. Growth of Personal Savings During the Pandemic: Though most among us have lost a sizeable portion of our income in the last two years, many of us have saved more than in previous years. One notable factor was we spent much less on the “nice to haves,” since we were isolated and had no one to impress. Sincerely, I say this — most of our spending is often to impress others. Another factor that impacted our savings positively was that we eliminated many of those valueless subscriptions that are automatically billed and paid.

5. Amateur/Rookie Investors (Stepping Into the Role of Investment Manager):  Many among us used the time at home testing the various waters as investors and have profited from these trades/sales. However, a vast number of individuals did not set aside money to pay the tax liability on those gains. I have received 1099-B brokerage statements this year with over 200 pages. These statements entail short-term gains and “wash” sales. (A wash sale is triggered when an investor sells or trades a security at a loss, and within 30 days buys another similar security.) Short-term gains do not get favorable capital gain treatment, and wash sale losses are not allowable. 

6. The Will: Yes, you read correctly. At the time I drafted this article, I asked Google’s search engine — What is a Will? Over 14 million responses were generated, telling me that a Will matters. A Will is simply a legal document that states how you want your belongings to be handled and cared for after you pass away. A common misunderstanding about a Will is that if one does not have “heirs” then it is not necessary, but this is not true. If this is your thinking, consider this — many of us have resorted to animals for companionship and friendship and may have placed a higher value on our relationships with them than those with human beings. In our Will, we can choose who and how our companions are to be cared for after we have passed. 

Another reason I believe a Will is a necessary document is that it is a written document that expresses how you would like your remains to be handled. This is a selfless act of kindness. The grieving process is overwhelming to our loved ones, but when we make certain preparations in advance, we demonstrate how much we care for them. While a Will may not protect us from family grievances and bickering, in a Will we can state how we would like our ‘remains’ to be handled and who among our heirs should receive what.

If you would like to work with someone sensitive and caring in these matters, please reach out to me.

In closing, as I looked back at the past two years — for me, they were years of gains. Through 2020 and 2021, I have certainly attended the most wakes/funerals when compared to the last 10 years, yet I feel I have grown more within — more unmasked — less inhibited — more vulnerable and am much freer. I’m sincerely grateful for the meaningful and genuine conversations that were part of this experience. I’m equally grateful for the opportunity to serve others in this privileged capacity, and humbled when I reminisce on the ebbs and flows of this role.

Thank you for allowing me access to you – at times that access may only be a peephole. Other times it could be a window, while still others it is an open door.  Whatever level of access you provide, I am equally grateful for each. I am reminded of a scripture that depicts the loving nature of our Creator as he stands at our doors and knocks, saying:

Here I am — I stand at the door and knock. If anyone hears my voice and opens the door, I will come in and eat with that person, and they with me.” 

May we resolve to let him in and allow him access to our lives. We can start with a small peephole. Only God knows how He will use this access to transform us for His goodness, but He will.

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

The Masterpiece Accounting Group web, blogs, and articles are not rendering legal, accounting, or other professional advice. Tax strategies and techniques depend on your specific facts and circumstances. You should implement the information in this newsletter only with the advice of your tax and legal advisors.  

2021 Year-End Tax Planning

Time for Taxes Money Financial Accounting Taxation Concept

{6 minutes to read}  Let’s look – strategically and intentionally.

As we look back, consider the wise words from two individuals who share the same first name:

Warren W. Wiersbe, an American clergyman/biblical teacher wrote, “you do not move ahead by constantly looking in a rear-view mirror. The past is a rudder to guide you, not an anchor to drag you. We must learn from the past but not live in the past.” 

Warren Buffet, any thoughts on when to look back? “In the business world, the rearview mirror is always clearer than the windshield.”

While we wait for the legislators to meet on common ground considering the tax implications for next year, there are some decisions we can make now that could impact our 2021 tax liabilities.

Key Takeaways:

  • Pandemic relief: One that could impact us in 2021 is retirement withdrawals.
  • Larger deduction on meals and cash donations.
  • Pre-tax payroll deductions – update selections.
  • Life-changes decisions, update beneficiaries, consider starting a “will.”
  • Roth conversion – if income is low – considering the proposed increase in taxes. 

First, let’s look back at the 2020 tax year and review some of the items that may impact us in the current year under the Coronavirus Aid, Relief, and Economic Security Act (CARES). The CARES Act offered numerous reliefs to taxpayers. They benefited us for the 2020 tax year, but some have expired. Nonetheless, some of these income types of relief spillover (or change) in 2021 and could create a costly tax impact. Here are a few:

  1. Retirement distribution allocation: Did you withdraw money from your retirement savings in 2020 – and choose to allocate your withdrawal(s) over the 3 years? If yes, there are tax implications on the amount allocated for 2021.
  2. Early withdrawal penalty: In 2020, the early withdrawal penalty was waived, however, if you withdraw retirement funds in 2021, you may be faced with a 10% penalty on the amount – in addition to your other tax liabilities.
  3. Required Minimum Distribution (RMD): This is an age-required distribution that was also waived for 2020, however in 2021 there’s a requirement to take the RMD which is a taxable event. If you feel a little charitable, you can reduce the tax impact by donating directly to an organization –see below.
  4. Unemployment income – If you collect unemployment income in 2021, it is taxable under the federal government and some states. 

Second, let’s look at some temporary deduction benefits that are still available to us:

  • The Consolidated Appropriations Act (2021), known as CAA, was passed by Congress on December 21, 2020, and signed into law on December 27, 2020. The act includes some items that can help reduce our tax liabilities, one of which is the meals deduction.
    • Meals – under the CAA, food, and beverages will be 100% deductible if purchased from a restaurant in 2021 and 2022. In the past, only a 50% deduction was allowed on most meal expenses. Note: It is important to keep itemized receipts in case you are called upon to present them to any of the tax agencies.
  • Tis the season for giving: Under the CARES Act, individuals can deduct up to 100% of their AGI (in the past, only up to 60% was allowed) of cash donations made in 2021. Corporations can deduct up to 25% (in the past only 10% was allowed).

Third, here is a shortlist of moves you can still make in 2021 that could reduce your tax liabilities.

  • Deferred tax on retirement contributions: if your employer plan allows it, consider contributing the maximum to your savings. The IRS limit is $19,500; if you are fifty and over, the max is $26,000.
  • Retirement savings for self-employed: if you have not yet done so, you can set up a retirement plan in 2021 and delay contributing until 2022. Some plans allow this privilege; discuss your options with your financial advisor.
  • Investment loss: Do you have a large amount in harvested (accumulated) capital losses? Consider speaking with your financial advisor about capital gains types of investment strategies.
  • Savings for education: make your state-affiliated 529 Plan contributions before the end of the year.

On a related note, considering the proposed tax increases, if your income is low in 2021, consider a Roth conversion.

Lastly, don’t forget to make some of these life-changes updates:

  • To employees — update your payroll-related withholdings — such as W-4, insurance, 401K, dependent care, HSA/FSA, etc.
  • To all — update your beneficiary information with your financial institutions — with the fickleness of human nature — God only knows the unforeseen events that could impact us, financially.
  • To all — the “will” — consider consulting an attorney to begin the preparation of a will. You may agree with me, that the current pandemic reminds us how fragile we are – and how little control we have over our own lives. You are welcome to reach out to me for a referral. Choose an attorney who is willing to walk you gently through this process.

As I close, let us choose to look back with intent. If you would like to schedule a tax planning consultation, please don’t hesitate to reach out.

Continue to stay well and safe,

Nadine 

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

The Masterpiece Accounting Group web, blogs, and articles are not rendering legal, accounting, or other professional advice. Tax strategies and techniques depend on your specific facts and circumstances. You should implement the information in this newsletter only with the advice of your tax and legal advisors.  

At the Mid-Year Mark

calculator with taxes text lying on wooden desk with place for text

{6 minutes to read} We had another wet holiday weekend on July 4th this year. Wet days like these bring back some good vibes from my homeland — the Caribbean. On the zinc top roofing — the raindrops dance to a different and sweeter rhythm.

In spite of the wet days across the Tri-states, I hope you made the best of the holiday — Independence Day. Webster’s dictionary defines this holiday as “a holiday celebrating the anniversary of a country’s independence from another country that ruled it in the past-” As for the United States of America, this holiday was born on July 4, 1776, as a day that represents the Declaration of Independence and our independent nation.

While we are on the matter of independence — for a limited time, the IRS gives us more independence — to deduct food and drinks purchased from a restaurant. Let’s be strategic in taking advantage of this expansion to reduce our tax liability. After all, we create and develop most of our business relationships over meals.

We are officially at the mid-year mark – 

This gives us the opportunity to assess the past six months of actions and plan more intently for the next six months. 

The intent of this article is to share a few of the changes that will impact the 2021 tax year. One of these changes is related to families (with dependent – children or adults) and another is the larger deduction for certain meal expenses. However, before we begin, let’s note two of the areas for which I get the most inquiries from individuals. These happened in the 2020 tax year but will impact 2021 tax-year filers as well.

•2020 Retirement distribution – if you withdrew money from your retirement funds in 2020 and selected to allocate the withdrawal evenly over 3 years – you are required to add/include the portion that belongs to 2021 as part of your income.

•Unused flexible spending for health and dependent care – there can be carry-over from 2020 to 2021 – so please manage your 2021 contributions.

So, what’s new for 2021?

Business meals are now 100% deductible (limited time). Under the lock-down of the pandemic, most among us were not able to break bread with our work colleagues and business acquaintances, resulting in huge losses for the restaurant industry. In an effort to assist that industry, the lawmakers temporarily increased the deductible amount for business meals. This is a win-win for restaurant owners and their patrons.

Under the Consolidated Appropriations Act, 2021, a temporary exception was enacted to the previous 50% limitation. Per the IRS, “beginning January 1, 2021, through December 31, 2022, businesses can claim 100% of their food or beverage expenses paid to restaurants as long as the business owner (or an employee of the business) is present when food or beverages are provided and the expense is not lavish or extravagant under the circumstances.

Below are new credits only available in 2021

1. Child Tax Credit – Earlier this year, Congress passed the American Rescue Plan Act (ARPA) which increases the credit for dependent children and allows partial payment of the credit this year — before you file your 2021 tax returns.

Here is how the credit works: 

a. Income and Age Limitations: 

On the last day of the year, ARPA allows individual tax returns to qualify to take a child credit of $3,000 for children under the age of 18.  To qualify, the child must have a social security number and be claimed as a dependent on the 2021 return. The full amount is refundable, if income is $150,000 or less for joint filers (i.e., MFJ), and for HOH and +Single, the amount is $112,500 and $75,000 respectively. If or when the income exceeds $400,000 for MFJ, If income exceeds the above, the amount of the credit decreases until it is fully phased out.

Read here to see if you qualify for this credit.

2. Child & Dependent Care Credit – Under ARPA, the child & dependent care increases/expands for 2021 only. These are expenses we pay to take care of a child or a qualified dependent while we work. Individual taxpayers qualify for a refundable credit at a rate of up to 50% for the first $8,000 of expenses for one (1) dependent and up to $16,000 in expenses for more than one dependent. There is no advance for this credit. Prior to 2021, the maximum credit was 20% of $3,000 for one dependent/child and up to $6,000 for two or more. 

3. So, how has the credit expanded or changed in 2021? 

a. The maximum credit amount refundable is $4,000 for a child or dependent.

b. Income limitations – The credit amount starts to reduce when income is $125,000, and phases out fully at $438,000.

c. Residency limitations – you must live in the United States for at least ½ of the year.

During a time of crisis (e.g. the current pandemic), more developed countries like the USA extend financial help to the people. In 2020, such help showed up in the form of stimulus checks, unemployment income, etc. At the same time, scammers, referred to by the IRS as “the Dirty Dozen,” began to crop up. In a notice (alert) dated June 28, 2021, the IRS posted a notice with the subject lineAmericans urged to watch out for tax scams during the pandemic. For your protection, please read the details from the IRS website.

In closing, in spite of the necessary boundaries that are still required due to the current pandemic, my hope is that we freely celebrate our independence. Scripture reminds us that we have free will. Let us resolve to use our free will to express light and love – as a way of being. 

One last thought before you go, if you have not filed your 2019 or 2020 tax returns you may not be able to receive some of these credits. As always, you can freely contact us if you need assistance to file your returns. 

With gratitude, 

Nadine.

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

The Masterpiece Accounting Group web, blogs, and articles are not rendering legal, accounting, or other professional advice. Tax strategies and techniques depend on your specific facts and circumstances. You should implement the information in this newsletter only with the advice of your tax and legal advisors

Let’s Turn Over the Last Stone Before 2020 Ends!

Hand lettering 'Happy New Year' for greeting card or poster

Three – Two – One 

Happy New Year!

{5 minutes to read}  In just a few hours America will be joining many other nations as we welcome 2021 and echo the words above. Twenty-twenty — what a year! A year that will forever remain in plain view many years after it has passed. May you and I choose to glean from the lessons learned — and use them as a contribution to a better good for all.

Moving along — The long-awaited Coronavirus Relief Bill was passed on December 21, 2020. There is a plethora of provisions for individuals and businesses. Some individuals could see another $600 check, while businesses could get more money to pay their employees (including Schedule C earners) from the second funding of a PPP loan. The Tax Foundation provided a list of various provisions that are part of the $900 Billion Coronavirus Relief Bill.

IMPLICATIONS OF UNDER-PAYMENT OF TAXES (Mitigate the effect by acting before January 15, 2021)

In recent years, both the IRS and the state taxing agencies have been more rigid in their enforcement of penalties related to underpayment of taxes. According to the IRS, the United States income tax system is a pay-as-you-go tax system — taxes must be paid as you earn or receive income during the year, either through withholding or estimated tax payments. If the amount of income tax withheld from your salary or pension is not enough, or if you receive income such as interest, dividends, alimony, self-employment income, capital gains, and/or prizes and awards, you may have to make estimated tax payments.

Generally, for most tax agencies, taxpayers may avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller, is paid through withholding and estimated tax.

While most of us are already familiar with this requirement, the pandemic and remote working could create a greater concern with state tax liabilities. Keep in mind that most states collect tax on money that is earned within their borders. Though there is some semblance of unity among some states, each state wants a piece of the tax pie. Multi-states reporting could be triggered by remote working that was and continues to be, necessary due to the pandemic. 

For an employee — the state or tax jurisdiction is handled by your employer and is reflected on your pay-stub and W-2. Please check directly with your employer regarding your taxing jurisdiction. If there are permanent changes in address, it is the employee’s responsibility to inform their employer. 

Word of caution to individuals who have “temporarily” moved to a different state for working remotely due to the pandemic: These individuals may still have tax obligations to their state of primary residence (home state); some states are taking a closer look at individuals who temporarily moved from their primary home.

However, Johnny is an NYS resident, and during the pandemic (as of April 1st) he moved to Florida and has not returned to NYS, so it would be fair to say that Johnny is a resident of FL from April – Dec 2020 where there is no state tax. NYS, however, would see this differently and will consider Johnny a resident for all 12 months. As such, Johnny would have a tax obligation to NYS for the full year.

Other areas where underpayment of taxes may show up – A vast majority of us received income from multiple sources other than our regular earned income source in 2020; here are two (2) income sources that seem to be more common in 2020:

  • Unemployment income — Most states withhold 10% of the income for federal taxes. This is often not enough since an individual may not be in a 10% tax bracket when all income is combined. 
  • Withdrawal of retirement savings — including those related to CARES Act. The early withdrawal penalty may be waived, but the tax is still due.

So considering we are exiting 2020 — is there still time to mitigate the penalty on the 2020 tax liability?

Yes. The taxing authorities allow most taxpayers to pay their final 2020 estimated tax by January 15, 2021 (must be received by this date).

Please reach out if you would like to schedule an estimated tax consultation next week.

In closing, as I listen to babblings with words like “I can’t wait to say goodbye to 2020,” I trust that we will remember the words of Walt Disney, “…the past can hurt. But the way I see it, you can either run from it or learn from it.

Which one will serve you (and me) better, running from it or learning from it? Let’s choose wisely.

With gratitude, 

Nadine.

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

The Masterpiece Accounting Group web, blogs, and articles are not rendering legal, accounting, or other professional advice. Tax strategies and techniques depend on your specific facts and circumstances. You should implement the information in this newsletter only with the advice of your tax and legal advisors.

Is a Roth Conversion the Right Move for You?

Cropped view of senior woman writing in notebook with roth ira and traditional ira words

Let’s Welcome the Season of Hope!

Many believe that Thanksgiving Day opens the doors to welcome the “Season of Hope.” There is often a sense of vibrancy in the atmosphere between this day and the end of the year.

Maybe this is partially due to the Christmas lights and the flames from the menorah at Hanukkah. Regardless of your faith or lack thereof, I think you may agree with me that there is some joy from the brightness at this time of year.

Moving along — There’s much we can do before the year ends; I hope to shed some light on what you may already know. 

As a result of the 2020 pandemic — a vast number of taxpayers in 2020 are faced with lower taxable income and low tax liability.

This is one of two (2) pandemic-specific articles; in this article, I will discuss tax planning surrounding Roth retirement conversion. In the next article, I will discuss the implications of under-paying taxes.

RETIREMENT SAVINGS: ROTH CONVERSION

A Roth IRA (“Roth”) is a type of retirement savings that allows individuals to withdraw their savings tax-free; it is widely used and often recommended by financial advisors. Roth allows our retirement savings to grow tax-free since contributions are made with after-tax dollars, unlike the traditional IRA retirement savings option that defers the taxes — ie, the tax is due in the future. In summary, with Roth, we pay the taxes now and with Traditional, we pay the taxes later. Before I continue, each option has its benefits from a tax-planning viewpoint; and can be uniquely beneficial to the saver.

Roth conversion in its simplest form consists of moving money from the tax-deferred savings bucket to the taxable savings bucket (in so doing we tell the government to tax us now using the current tax rate and allow our savings to grow tax-free).

Roth conversion can be a great tax-planning strategy in a period of low income and low taxes. For most taxpayers, 2020 is a lower-income year. 

So, who are the individuals who are most likely to benefit? 

The individuals who are most likely to benefit are taxpayers in a low tax bracket in 2020, and those who may foresee earning much more income in future years.

I discussed conversion from traditional IRA to Roth IRA; that is switching your past contribution from one bucket to the next. New contributions to a Roth may also benefit in a year with low income and a low tax rate.  

For self-employed and/or pass-through income earners, consider making a Roth IRA contribution rather than a traditional IRA for 2020 — this may be possible if you generally make your contributions later in the year or before you file your tax returns (note, the account must be set up or open in 2020 in order to delay contribution) — this is common with SEP retirement savers. Please check with your financial advisor to discuss your Roth savings options.

401K Retirement savers – Please check with your employer’s selected administrator to find out if your plan offers you the ability to convert or contribute to a Roth IRA.

Tax implications of Roth Conversions — work with your financial advisor:

•Once you convert, you can’t undo – Roth conversion is permanent.

•Once you convert, the tax bill is due.

•You must leave the traditional IRA account by December 30, 2020, to qualify for the tax conversion.

On a related topic — RMD taxpayers who are generally required to take a distribution each year (i.e. RMD) can also benefit if one is in a lower tax bracket than in previous years. Consider a withdrawal from your RMD in 2020. Yes, you read that correctly — It is true that, under the CARES Act, no RMD is required in 2020. However, this does not mean you are not allowed to withdraw. If your 2020 income is very low and you are likely to fall in a much lower tax bracket (after the withdrawal), why not consider a withdrawal of the 2020 RMD and pay a lower tax on it, rather than paying a higher tax debt in the future? 

 So how do I get started? 

First, you would need to have a close estimate of your total income for 2020. If your income is from multiple sources you may want to consider using the service of a financial advisor and tax professional to prepare a tax liability projection.

Next, in order to assess your tax rate — you can use the 2020 tax brackets table enclosed to see which tax bracket your income may apply to you — there are still four (4) tax brackets from 10% to 25% with relatively low tax rates. For example, if your taxable income is approx. $40K and $80K (single and MFJ, respectively) your tax rate is as low as 12%.

Please see all tax brackets and status in the enclosed link from Kiplinger, here.

If you want to consider at least one of these options, act on it now. The great King Solomon reminds us that timing is important — In the Good Book, he penned (Proverbs 6:4), “Don’t put it off; do it now! Don’t rest until you do.”

In closing, I hope I was able to shed some light that will allow you to choose the savings option that is better for you. As always, the ultimate decision is yours.

Thank you for reading.

With gratitude,

Nadine.

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

The Masterpiece Accounting Group web, blogs, and articles are not rendering legal, accounting, or other professional advice. Tax strategies and techniques depend on your specific facts and circumstances. You should implement the information in this newsletter only with the advice of your tax and legal advisors

 

Remembering Ruth Bader Ginsburg

September 25, 2020 Drawing portrait of United States Supreme Court Justice, Ruth Bader Ginsburg, vector illustration.

Remembering Ruth Bader Ginsburg

“Don’t be distracted by emotions like anger, envy, resentment. 

These just zap energy and waste time.

(5 Minutes to Read)  On Friday, September 18th our fellow Jewish Citizens commenced another new year, Rosh Hashanah. This sacred time is marked with prayer and other ceremonial events. On the said day they also lost one of their (and our) own. Supreme Court Judge Ruth Bader Ginsburg (aka “Notorious RBG”), a woman whose shoulders many of us stand on, fought relentlessly for gender equality. 

In all honesty, I didn’t know much about her, but after I learned of her passing I spent a few days watching some of her interviews to learn more about her. Through perseverance and a steadfast commitment from women like Ruth, we have come a long way, haven’t we?

As I reflect on Ruth Bader Ginsburg’s life and legacy, and this sacred time period — I envision a society (a world) of shared responsibility; in which each individual’s sole responsibility is to make a contribution to the better good of mankind as a whole, not just self… Can you visualize that? I can.

Moving along — Taxes

 All extensions due to the Covid-19th impact have expired. 

In this article, I will discuss the CARES act relief for Coronavirus-related distributions (CRDs).

The next income tax filing due date for C-Corporations and Individuals who filed an extension is October 15, 2020. Please remember to file on time to avoid unnecessary penalties and fines; this penalty is an additional penalty and separates from the failure to pay imposed by the federal and states.

As I continue, I would like to address one of the most frequent inquiries that were made during the pandemic; retirement withdrawals (RMD withdrawals are not required for 2020). Unfortunately, many among us have been furloughed, lost our jobs, or have seen our compensation drastically reduced, so the need to tap into retirement savings may be inevitable.

The coronavirus-related distributions (CRDs) allow for a significant amount to be withdrawn from certain qualified retirement savings, during the calendar year 2020 (i.e. between January 1 and December 31, 2020). 

How can this be done wisely?

1.Take advantage of the waiver of the 10% penalty for early withdrawal of up to $100,000 under the CARES Act if you experienced hardship during the pandemic. (Generally, if a withdrawal is made from certain retirement savings before an individual reaches age 59½, a 10% early withdrawal penalty is imposed.)

2. Consider withdrawals for basic necessities only. Withdraw just for what you need; forget the nice-to-haves. There is no waiver of taxes — federal and state taxes will be due on the money taken from retirement.  

3. Consider withdrawals from gains that have accumulated over time. While this may not be possible for some individuals, consider withdrawing from the amounts that exceed your contribution. By doing so, withdrawals are made from gains only. This is most likely doable for individuals who have been saving for a long time.

4. No required 20% federal tax withholding is necessary, but consider withholding if you don’t plan to repay or replenish the retirement savings account.

5. Consider taking advantage of the three-year payback period. The CARES act offers an option to pay back funds withdrawn from a qualified retirement plan over a three-year period, and without having the amount recognized as income for tax purposes. This option may be possible if there is a certainty in one’s ability to repay. Furthermore, the full financial impact of COVID-19 still remains a mystery. 

6. Other options are available to 401(k) participants (savers). The CARES Act also allows qualified individuals to take a loan from the participant’s vested account balance. You will not owe income tax on the amount borrowed from the 401(k). Please discuss this option directly with your fund administrator.

In closing, a $100,000 withdrawal from savings is a rather hefty amount. Before you act, consider this wise quote penned by Saint Luke as he recapped the words from his Teacher — “don’t begin until you count the cost. For who would begin construction of a building without first calculating the cost to see if there is enough money to finish it?” We are still in a relatively high tax era; and the tax impact will be a factor of your overall income. 

As you and I reflect, let’s contemplate our next best move; then resolve to choose wisely. Let’s remember our shared responsibility to each other and contribute to the better good of another. Envision that!

Stay hope-filled and healthy,

Nadine 

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

It’s All About Hope

Child on a beach with hands cupped holding stone pebble with the word hope engraved concept for faith, love, spirituality and religion

{3 minutes to read}  Hope … Such a simple and yet powerful word. Wikipedia defines it like this:

Hope is an optimistic state of mind that is based on an expectation of positive outcomes with respect to events and circumstances in one’s life or the world at large. As a verb, its definitions include: “to expect with confidence” and “to cherish a desire with anticipation.” 

The Oxford dictionary gives us three definitions of Hope:

  1. A feeling of expectation and desire for a certain thing to happen.
  2. Grounds for believing that something good may happen.
  3. A feeling of trust.

Saint Paul summarizes hope like this, “Hope that is seen is no hope at all. Who hopes for what they already have? But if we hope for what we do not yet have, we wait for it patiently.” (Romans 8:24-25)

The 2020 celebrations/gatherings are different in light of the uncertainties and losses due to COVID-19. Many among us may be searching for answers. Whether you are affiliated with or subscribe to any faith-based groups, my guess is that you, too, are hoping this unwelcome interruption from COVID-19 will end sooner rather than later. Though difficult to believe right now, something good may yet come out of this pandemic.    

I hope you continue to be well in light of the coronavirus. My sincere condolences to those among us who have lost loved ones and may have been robbed of the opportunity to hear the last words of those loved ones, or were not able to see the last breath those loved ones took.

Though we cannot see the end, may we find new strength and practice self-care as we wait patiently for our hopes to come true. Let’s be gentle with ourselves — and manage our intake of the news we digest across all the various information platforms.

Before I close, I want to acknowledge that there is another side of hope, not yet discussed, yet we often experience it. That is hope deferred. In the good book, the wise King Solomon penned it like this in Proverbs 13:12, “hope deferred makes the heart sick, but a desire fulfilled is a tree of life.” Many of us are feeling sick in our hearts and our consciences ache due to cruelty we sometimes imposed on another; one is the death of George Floyd. Let us take comfort knowing God sees. Let’s remain hopeful, trusting that there is an aspirational good that will manifest out of this intense cruelty. 

In closing, though certain life-changing experiences are better understood in retrospect, yet, 

Hope is being able to see that there is light despite all of the darkness.” – Desmond Tutu. 

Here is how  Martin Luther King, Jr. envisioned it: “We must accept finite disappointment, but never lose infinite hope.”  

Remember…hope is still a good thing, maybe the best of things.

I remain hope-filled and I hope you do, also. 

Be encouraged,

Nadine 

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com