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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.  

Business concept of tax planning 2022. Businessman turns wooden cube and changes words 'Tax 2021' to 'Tax 2022'. Beautiful grey background, copy space. Business, 2022 tax concept.

{6 minutes to read}  You may agree with me that there have been multiple moving parts with businesses in 2021 — grants, loans, credits, more deductions, and the list goes on.

Coupled with the virus — doing its own thing — we still have a business to operate, even though it may not be business as usual.

Before I get into the meat of the article, here is a note to freelancers/independent contractors — most of which have operated without a formed legal entity. The importance of forming a business under a legal entity, such as a corporation or LLC, is that a legal entity helps us to be considered for funding — especially during a time of crisis — like the one we are currently in. Some entities are easy to form, so consider opening a legal entity along with a bank account that is associated with the entity’s name.

Key Takeaways:

  1. Pandemic grants & credits are still on the table. Some are ongoing, though these are mostly state and local grants. Consider applying for these reliefs. 
  2. Pass-through entities — keep in mind that you are taxed on your share of the business income, and the tax agencies expect estimated taxes on your piece of the pie. Most tax agencies allow taxpayers to pay by Jan 15th of the subsequent year for the previous year’s liabilities.
  3. Bookkeeping (deductions) — keeping your income and expenses orderly can be helpful for your deductions.
  4.  Your mature-years saving contributions can keep more money in your pocket now — so consider setting up a qualified retirement plan.
  5.  SBA Loans, apply for forgiveness — to get off the hook.

Pandemic Benefits:


Funding for small businesses is still open for some states. Just opened this month is the NYC Small Business Resilience Grant (part of the NYC Small Business COVID Recovery Grant Program). Regardless of the company size, the grant is $10,000, and the company must have been in operation since October 1, 2019, and still be in operation at the time of submission of the application. The grant is to be used to offset certain operational expenses incurred between March 3, 2021, and December 23, 2024.

New York State COVID-19 Pandemic Small Business Recovery Grant Program: the grant is $5,000 to $50,000 based on the gross income, click here for more information 

Lendistry is the company that is managing the application process for NYS and NYC — call them directly — they are most helpful. 877-721-0097

Please check with your state of incorporation or operation for other state types of grants — here is the link for California. https://sco.ca.gov/covid19ReliefAndAssistanceSM.html

Credit: If you have payroll reporting, the Employee Retention Credit program is still open through December 31, 2021.

Pass-through entities (this includes self-employed individuals) and Deductions:

Get your books and records updated, so you don’t miss some valuable expenses; home office deduction & payments made to others via platforms like Venmo, PayPal are frequently overlooked. Payments to others total $600 or more — obtain a completed Form W-9 from the receiver. I mentioned that for 2021 qualified meals are 100% deductible.

Child as an employee: What about using the help of those little hands over the holidays — shift the income from parent to child (may lower taxes based on your tax bracket).

Taxes paid: Don’t forget your state estimated taxes are a deduction — so get them paid on time. Keep in mind that taxes are paid on time when paid by Jan 15th of the subsequent year.

Retirement Savings: In a culture that values youthfulness in appearances — it is no wonder the term retirement savings is not well-received, yet it can have an enormous impact from one tax bracket to the next, such as from 32% to 24%. A self-employed individual can contribute up to 20% of net income — up to $58,000 for the tax year 2021. Some plans can be set up for next year — before the returns are filed.

Forgiveness  Sometimes forgiveness must be requested in writing, such as a PPP loan. If you have not yet done so, submit your PPP loan(s) forgiveness applications before the year ends.

In summary, let’s bring together all the moving parts of your business by organizing your books and records. If income is higher in 2021, consider shifting some funds to savings and pulling some deductions into 2021, which would otherwise be for 2022. Take care of those estimated taxes on time to minimize penalties and interest for a late payment. Also, consider getting your freelance/contracting income in the right entity — the one that is right for you.

In closing – The pandemic has impacted us — all — differently. Some businesses ballooned during the pandemic (and needed more hands-on-deck) while others are still trying to find their bearings (alone): “we are in the same storm, but not in the same boat.”

Each business and individual tax reporting is unique, so reach out to schedule a tax consultation that reflects what’s going on in your boat.

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

Tax filing in progress...

{8 minutes to read}  Before getting into the article, I would like to remind readers that enrollment season is now open. It’s this time of the year when you have the opportunity to enroll for your health care insurance and other employer-offered benefits. Now let’s continue.