Category Archives: Illinois

Education, Illinois, IRS, Tips

First-Quarter “Safe-Harbor” Quarterly IRS Estimated Tax Payments: Why and How to Make Them

Leave a comment

For years, we have stressed the importance to our clients of making quarterly estimated tax payments. And unlike many tax preparers, we also do bookkeeping, accounting, and consulting for our small business owners — so we’ve also encouraged them to have us do a quarter-by-quarter calculation of how much to pay.

There were many reasons for this:
· Making sure the client had their books up-to-date and reconciled for the quarter, so they can be used for real-time managerial decisions;
· Matching the cash flow of a given quarter (or the actual sales and vendor invoices, for accrual-basis clients) to the related tax liability;
· Preventing the common situation of getting to tax-time and having a huge refund or balance due.

However, times have changed. We still want folks to make quarterly payments (see my related IRS & Illinois posts for how to do it online), but for the first quarter, at least, we’re asking everyone to use “safe-harbor” calculations.

Why Use 1Q Safe-Harbor Calculations Instead of Annualizing?

For one, the immense number of changes to our tax code since the Tax Cuts & Jobs Act (TCJA) took effect in 2018 has made tax planning substantially more complex than it used to be. The amount of time it takes to do a “back of the envelope” or “paper napkin” calculation has tripled. (And in case you’re curious — we use tax software and Excel, not used envelopes and paper napkins in our firm. That’s how you know you’re working with a real professional.) Both the effort involved and the cost to the client have increased accordingly.

Relatedly, first-quarter estimated tax payments are due on the same day as personal 1040 and C-Corp 1120 taxes are due. And since our tax-time work is a deeper dive than it used to be, and the estimated tax calculations are more complex as well, there simply isn’t enough time to do a full-on calculation for each and every client that requests it — at least, not if we also want to be well-rested and in good health, so we can do our very best on the remaining annual tax returns.

There’s good news, too, however — the state of Illinois — and many other states, used legislation to create a loophole for getting around a pesky TCJA limitation on the State And Local Tax (SALT) deduction. I won’t explain it all here, but the result is that all of our S-Corp and Partnership (aka “Pass-Through Entity”, or PTE) clients are paying their personal state taxes through the company. This is a very easy and predictable calculation, as Illinois charges a flat tax (not socially progressive, but it certainly is simple) and requires the annual liability to be divided by four and paid evenly across the quarterly deadlines.

(Side note: the deadlines are not actually quarterly. Due to the timing of the federal government’s fiscal year-end and individuals’ calendar year-end, they are skewed such that they’re not even the same number of months per quarter. You would think that of all the government departments that could count properly, it’d be the IRS, but apparently not. The due dates are 4/15, 6/15, 9/15 and 1/15 — though many are better off making the final state tax payment by 12/31.)

As a result, quarterly calculations for the state simply aren’t necessary for the first quarter (possibly even the first three quarters, depending). Given that the states seem to live for assessing penalties and interest for underpayment of estimated taxes (they are wildly aggressive about it), this is the best approach to take.

But it’s not just the states that issue penalties and interest for underpayment of taxes — the IRS does, as well. Much less aggressively, however, and they do still have the notion (that the new Illinois PTE tax law does not) of “annualizing” your quarterly taxes. This means that you presume the amount you made year-to-date is representative of the whole year, and paying quarterly tax based on that projection. It works great for small business owners who have lower income in the first three-quarters of the year and then make most of their profit in the final quarter.

Just to be clear: we still do this for our clients… but we wait until the second or third quarter, and in some unusual cases, we wait until November and then do a thorough analysis of the year thus far. It’s just that there’s little point in running these calculations for the first quarter anymore — it’s almost never representative of the rest of the year, and it places them into a precarious situation where they may end up underpaying by too much and then owing penalties and interest. Or, at the very least, having to pay us at tax-time to fill out the complicated annualization schedule on the tax return. If you want to be more accurate with your calculation, because you expect your income to be substantially higher or lower than last year, then ask to book a May tax-planning session to get squared-up for the 2Q payment, due June 15.

Last, but not least — we’ve decided to have all our clients commit to a monthly bookkeeping and accounting contract with us. Doing annual clean-ups during tax season simply is no longer sustainable (to be honest I’m not sure it ever was, which is one of many reasons so many CPAs are burned out), and isn’t cost-effective. It’s also not fair to our other clients — who are on a monthly schedule — to have to wait in line while we work on those who swing through just once-a-year. And most importantly, we truly believe that all small business owners should be looking at their financial statements regularly to help them make impactful decisions throughout the year — ones that can sometimes be the difference between turning a profit or enduring a loss. And since everyone will be on a monthly schedule, the motivation no longer exists to do quarterly reviews for estimated tax purposes, purely as a way to get clients motivated to catch up on their books.

Where To Find Your Safe-Harbor Amounts and How To Pay Them

If you’re a client of ours, or of pretty much any tax professional out there, calculating safe-harbor quarterly estimates can and should be a part of preparing your annual tax return.

After reviewing and signing your return, your CPA (or EA, JD or non-credentialed preparer) will e-file it, and once it’s accepted by the IRS and state agencies, they will either send over vouchers (which I wouldn’t bother using, because we want to pay taxes online almost every time that’s an option), or a list of required payments — whether that’s in a letter or a little chart form where you can check ’em off. However you get them — put them in your calendar now. Do not rely on your tax preparer to remind you. This is not their job. You are a grown person running your own business, surrounded by technology that is designed for precisely this kind of thing.

While you’re at it, save these links for instructions on how to pay online:
– IRS: How To Pay IRS Quarterly Estimated Taxes Online — Don’t Let Your Checks Get Buried Or Lost In The Mail (msn.com)
– Illinois: How To Make Quarterly Estimated Taxes Online — Illinois IDOR | The Dancing Accountant

And if you’re in a panic and can’t find the amounts, the general rule is that you want to pay 1/4th-ish of your total tax liability for the prior year (a bit higher for some states, such as Illinois). Again, if we do your taxes, you should have already received these totals for 2024, or will be receiving them as soon as your return is finalized.

Frequently Asked Questions

1) What if I have an extension?
Two options here: a) provide your tax preparer all the docs you already have and ask them to do their best to give you an estimate; they can even add that to the amount you’ll need to pay with an extension — which means if your extension payment estimate is short, the 1Q estimate will make up the difference, and either way, you’ll just apply the balance to the current tax year; or, b) go ahead and keep paying the same amount you paid for last year’s quarterly taxes; some payment is better than none.

2) What if I don’t have a tax preparer?
All the DIY tax programs out there can do this, too — they’re not very helpful for the tax planning that we do with our clients for 2Q & 3Q, and certainly not for 4Q — but they do a perfectly fine job with safe-harbor estimates. Alternatively, check out my colleague Hannah Smolinski‘s great YouTube primer on how to calculate estimated taxes.

And since you asked, here’s a fabulous photo of Hannah and me at QuickBooks ConnectFest.


3) What if I can’t afford to pay my quarterly estimates?
Pro tip: Did you know you can break your quarterly payment into smaller chunks? Let’s say you owe $2400 per quarter and you’re worried that you won’t have enough set aside by the time the due date arrives, because it’s so hard not to raid your own savings account when opportunities call. Just go online and pay $800 per month instead. Or $200 per week. It gets tricky with the weird quarterly tax due dates, but you are a smart cookie and can figure out the math. The point is that you don’t have to save it all up and then make the payment. If you have cash on hand, you can go in there now and do it while it’s on your mind, even if it’s a partial payment. Something is better than nothing.

4) What if I forgot to pay for a quarter?
Go in there and make a payment now. The penalties are per day, so the sooner you make up the difference the better.

5) What if I have additional questions about the process?
Throw whatever you can at the quarterly estimates and contact a CPA to help you… after Tax Day. Please be respectful of the plight of tax preparers right now. It will not serve you long-term to try to wedge yourself onto someone’s calendar last-minute: almost all the good ones had a deadline for submitting tax materials weeks ago; we’re all exhausted and likely to make mistakes this time of year if we’re taking on too much and not taking care of ourselves; and you want to start off on a good foot when building a relationship with a trusted advisor. The amount of penalties and interest that will be due if you underpay slightly is not that significant if you’re going to be making up the difference in a month, so just pay what you can and get on-track later.

Now, get yourself online and go make those first-quarter safe-harbor quarterly tax payments, already!

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Illinois, IRS

Tax Season 2023 Is Officially Open! Maybe. Okay, Not So Fast.

Leave a comment

(Many thanks to the AICPA Town Hall for allowing members to leverage their resources, such as the slides included in this article. The opinions shared here are the author’s and not those of AICPA or CPA.com.)

Tax preparers everywhere spent the past two months gearing up for yesterday’s “opening day” of tax season, January 29th. It was an exciting time for us, as it was finally going to be a return to normal. What does that even mean anymore, you might ask? Well, most of the pandemic financial relief programs have wrapped up (save a straggler ERC claim here or there); amendments resulting from that era have almost all been filed; the odd rebates and credits that no one remembered the amounts for were a thing of the past; there were no last-minute tax extenders; and the season end-date actually lands on April 15th for the first time in ages. It felt like we finally had a handle on things and were back to the “normal” amount of seasonal overwork — rather than a Herculean lift, as was the case for the past four years.

Enter Congress. Despite the fact that The American Institute of Certified Public Accountants (AICPA), National Association of Tax Professionals (NATP) and small business advocacy groups have been lobbying for over a year to get an extension of certain popular tax benefits that expired in 2023, our leaders somehow managed to wait until after year-end to introduce legislation to that effect — Tax Relief for American Families and Workers Act — in a spectacular show of bipartisan ignorance. Never mind that the IRS e-file has been offline since November 18th, because it takes over two months to reprogram the systems for new tax laws, updates, and edits to tax forms.

As for January 30th, the legislation has yet to come up for a vote. And yet the IRS is telling taxpayers to go ahead and file when ready, and makes no reference to the pending legislation in today’s Outreach Connection email.

Some of the anticipated changes if the legislation passes as-written include popular business expensing programs that are designed to be leveraged throughout the year. Making them retroactive does nothing to spur the economy, as the decisions to buy equipment, invest in R&D, or take out loans were already made, last year.

To be clear: I’m not saying these aren’t potentially good changes for tax law, business, and the economy. Just that doing it at this late date is misguided in far too many ways.

And the part I really don’t understand is this: IRS Commissioner Werfel told reporters last Friday, “If there’s a change that impacts your return, we will make the change, and we will send you the update — whether it’s an additional refund or otherwise — without you having to take additional steps.” This is simply impossible for most of the business expensing features of the law, which are voluntary elections on the part of the taxpayer. Presumably this is a reference to the child tax credit provisions in the legislation — which have gotten the most press, but have little effect on small business owners, and are a small portion of the actual bill.

The House Ways and Means Committee released a statement recently indicating that the IRS “confirmed its intention to make necessary systems updates by around six weeks after the date of enactment”. Six weeks. Most refunds are issued within three. Six weeks takes us past the S-Corp and Partnership filing deadline. Six weeks?

Speaking of that deadline, many states announced e-filing would begin on the same date as the IRS opened federal tax season, but it turns out that our state (and I’m guessing others) did not release their S-Corp or Partnership forms with enough advance notice for our third-party tax software to program them into their system, so we are unable to e-file any Illinois business tax returns until February 7th. And we were freaking out about that delay. I can’t imagine what six weeks will look like.

To say nothing of the fact that the next government shutdown deadline is scheduled for one week before business tax returns are due. This should make for an even more laid-back season.

And to add to all of this, that the bill is being funded by an early end to the Employee Retention Credit program, as of January 31, 2024. We spent all of last week scrambling to get the remaining claims in, and won’t know whether that sprint was worth the anxiety or not until this bill passes (or doesn’t) — I feel terrible for those who find out in February that their claim’s due date is suddenly in the past.

Again, some of the provisions in this bill are great ideas — well thought-through, balanced, as well as good for business, families, and potentially the economy. Bad players in the world of ERC mills will finally have to deal with some consequences, and the 1099 burden for small vendors and freelancers will be eased as the threshold is finally indexed for inflation. Some good stuff.

So let’s pass this as 2024 legislation, just in time for the new year, as it should be… and get out of the way of tax season, already!

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Education, Illinois, Tips

What Illinois Secure Choice Retirement Means for Your Small Business or Non-Profit

2 Comments
Click the image to watch an excellent 20-minute overview video of the IL Secure Choice Program.

There have been rumblings in the news for quite some time now about small businesses being required to provide retirement plans for their employees — but most owners seem to be turning a deaf ear, presuming that their small size exempts them from the requirement.

Not so! There is a phased-in approach to the State of Illinois’ new plan, and this November (2023) is going to catch a bunch of folks unprepared, as the requirements will extend to any business with five or more employees.

That probably means you — and if this sends you into a panic, no fear… we’re going to outline what the requirements are and will offer a couple of suggestions for getting into compliance.

What Is Illinois Secure Choice?

It’s a combination of legislation that requires most employers to offer a retirement plan to their employees — and a system that fills the gap for employers who do not currently offer retirement savings via payroll deductions.

In the words of the Illinois Department of Revenue, “Secure Choice is a program administered by the Illinois Secure Choice Savings Board for the purpose of providing a retirement savings option to private-sector employees in Illinois who lack access to an employer-sponsored plan.” Check out this excellent 20-minute video for an overview.

Enacted in 2015, the Illinois Secure Choice Savings Program Act has been phased in over many years, starting with companies with many employees, and working its way to those with very few staff by comparison.

Wave One began in 2018, and included employers with 500 or more employees. Wave Two, in 2019, included employers with 100‑499 employees, and another wave later that same year included employers with 25-99 employees. The deadline for wave Four — employers with 16 or more employees — was Nov. 1, 2022. The deadline for wave Five, employers with five or more employees, is Nov. 1, 2023.

Why Is Illinois Making Small Business Owners Do This?

Research has shown that Americans are 15 times more likely to save for retirement when it’s done through a payroll deduction at work. With more than 50% of us unprepared to retire when the time comes — even taking Social Security into account — the state decided that one way to address this problem would be to offer a program that helped the 40% of employers who do not offer a retirement plan a way to auto-enroll its team members into making payroll deductions into a Roth IRA.

Since it is estimated that most of us, when we retire, will need around 70-80% of pre-retirement income, the need to save is essential. The stress that it places on the social safety net when folks do not have sufficient funds to care for themselves after they stop working is enormous, so it’s not surprising that the state decided to facilitate individual savings through their workplaces.

It’s worth mentioning that the gap in retirement savings disproportionately affects workers at small businesses, lower-wage workers, people of color, and women. According to AARP, among businesses with 10-24 employees, nearly 59% of workers are not covered by a workplace retirement plan, and for businesses with fewer than 10 employees, that figure is nearly 73%.

Are Employees Being Forced To Save For Retirement?

No. Although the program starts with auto-enrollment, employees may opt-out (or back in) at any time, just like the majority of 401k plans out there. And as a reminder, the employer is able to offer their own 401k plan instead of IL Secure Choice; there is no obligation to participate in this particular program, as long as another qualified plan exists.

The default option for program participants is to enroll in a target-date Roth IRA with a 5 percent contribution rate. Participants can choose to change their contribution level or fund option at any time. Accounts are owned by individual participants and are portable from job-to-job.

Is The State of Illinois Going To Manage My Retirement Plan?

No. Investments are held in a separate trust outside the Illinois Treasury and are managed by private-sector investment managers. Acensus, a private-sector financial services firm, administers the program, which is overseen by a public board chaired by the Illinois State Treasurer. Each employee gets their own IRA account, which like any other IRA, belongs to them and is not associated with which employer or job they have.

As of January of this year, the program has hit the $100 Million mark in savings.

Does My Small Business Have to Participate?

If your company (or non-profit) has been in business for two or more years, has five or more employees, and does not already offer a qualified retirement plan, then you have two choices:

  • start offering a qualified retirement plan (more on that later); or,
  • participate in the Illinois Secure Choice program.

Supposedly, Illinois Secure Choice was not intended to replace or compete with traditional employer-sponsored qualified retirement plans, like 401(k), 403(b), SEP and SIMPLE programs. So if you’ve been thinking about starting one of those for your company — especially if you are interested in being able to sock away more retirement money for yourself than an IRA allows — this is the time to adopt a plan for your business, rather than signing up for IL Secure Choice.

That said, the fees and employer contributions involved in these types of plans can be prohibitive to many small businesses, which is one of the reasons the IL Secure Choice program was developed. The three “hurdles” that employers deal with that prevent them from having a retirement plan are 1) the administrative burden, 2) fees, and 3) fiduciary liability. The program was designed to reduce and, as much as possible, eliminate these concerns.

What Do Employers Need To Do To Comply?

Employers need to do the following:

  1. Choose whether to establish a qualified retirement plan or facilitate IL Secure Choice.
  2. Register your organization at employer.ilsecurechoice.com by the state-required deadline (or note that you are exempt because you already have a qualifying plan). All employers should receive a “welcome notification” email or letter with an Access Code; use this to register or inform them of your exemption.
  3. If facilitating IL Secure Choice:
    • set up account portal
    • submit and maintain employee roster
    • submit employee contributions every pay period
    • keep employee lists up-to-date
    • reconcile the employee contributions liability account each month and annually (to make sure the correct amounts have been both withheld and submitted)

Why Would We Choose To Sponsor A Qualified Retirement Plan (401k/403b) Instead of Illinois Secure Choice?

Our company, like many others, has chosen to offer a 401(k) plan instead of IL Secure Choice. Why?

  1. We are fans of increasing our own retirement contribution limits well beyond what can be saved with an IRA-based plan like IL Secure Choice (generally $6,500);
  2. The competitive advantage of offering a plan that includes employer contributions (not allowed with IL Secure Choice) is significant in our field of work;
  3. Guideline’s use of Vanguard “Admiral Shares” means we get the lowest expense ratio in the industry;
  4. The SECURE 2.0 Act offers tax credits of up to $15,000 over three years, to offset costs of setting up and contributing to the plan (!!!); and,
  5. We love the ease of not having to maintain employee lists or submit contributions (more on this below).

With Gusto, our preferred payroll provider (my referral link gets you $100 or more when you run your first payroll), and Guideline, our preferred retirement plan, the two systems sync with each other, so there’s no need to maintain employee lists or submit contributions — it all happens automatically. This is a huge administrative burden lifted for us. (Plus, our clients receive the first five months of Guideline fees free of charge, so that’s an added bonus.) This alone certainly isn’t worth it for your company when deciding which path to choose, but if you’re also eager to increase your own retirement contributions as a business owner, and to distinguish yourselves as a desirable employer in a competitive labor market, then in my opinion, it’s a no-brainer.

https://storage.googleapis.com/www.guideline.com/public-assets/outreach/State%20Mandate%20-%20IL%20-%202023.pdf

What Happens If I Missed The Deadline?

This came up in the Q&A in my state rep’s presentation (see the bottom of this post for the link), and the response was that although by statute, penalties can certainly be assessed, the goal is not to punish employers who are trying to do the right thing. Right now they are focused on outreach, education, and trying to ensure they are reaching employers who are required to comply. As long as you register as soon as you discover that you missed the deadline, you should be fine. Otherwise, employers that do not comply could face penalties of $250 per employee for the first year and $500 per employee for each subsequent year.

What Options Do My Employees Have For Investing?

Lots. And they’re good — the board who developed this program really was thoughtful in their design. To learn more, please watch the video I referenced at the beginning of the post, as this is meant to be a guide for employers who are trying to suss out their requirements. If you’ve already decided to go for it and facilitate the IL Secure Choice Plan, then you should definitely watch the video to learn more. It’s only 20 minutes long, you can do it!

How Do I Onboard And Submit Contributions?

Again, this blog post is meant to help employers sort out their requirements and get their bearings. To learn how it all works, please watch the 20-minute video referenced at the beginning of the post. (Honestly, if you can’t even watch a short video, then you’re really not going to like the administrative overhead of facilitating the program, and might want to consider going with the Gusto/Guideline combo I mentioned earlier.)

Where Can I Learn More?

The FAQ on the Illinois Secure Choice website is astounding in its comprehensiveness. Check it out. If you have a question, someone has likely already answered it there.

Additionally, there are these handy downloadable Program Resources:
– Employer Overview
– Eligibility and Rollout
– Communication To Your Employees

As well as an excellent DIY Step-By-Step Guide for Employers.

They also offer these resources:

And if that all wasn’t enough for you, check out the most excellent version of this same presentation that was offered by my state rep’s office in December of 2022. It’s the same presenters of the slideshow portion as above, but there are also other participants that offer more context, and a very long and informative Q&A. They’ve granted me permission to share it here, and you can use passcode Vd*Uqgn2 to view or download the zoom recording.

Click the image above to access a zoom recording of the IL Secure Choice webinar — Passcode: Vd*Uqgn2

They truly did a great job with both the presentation and the Q&A and I encourage you to watch the whole thing while you’re reviewing the program details on the IL Secure Choice website.

Good luck navigating the system (if you are one of our clients — please reach out and we’ll help you), and congratulations on helping your employees save for retirement!

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Education, Illinois

Chicago Minimum Wage Increase Takes Effect July 1, 2023

Leave a comment
Chicago Office Of Labor Standards Minimum Wage Chart

The City of Chicago and Cook County both saw increases to their minimum wage requirements as of July 1, 2023 (they have fiscal years that end June 30, which is why we see their updates at this time each year, rather than January 1, which is when the State of Illinois changes usually go into effect). Since reaching $15 per hour in 2021, the minimum wage for Chicago increases annually per ordinance according to the Consumer Price Index, or 2.5%, whichever is lower.

In Chicago, minimum wage will increase to $15.80/hr for “large” employers (21 or more employees) and domestic workers. The minimum will be $15/hr for “small” employers (4-20 employees). For tipped workers, who tend to earn a large portion of their pay from gratuities, the minimum wage is going up to $9.48/hr for large employers, and $9/hr for small. (Efforts to eliminate this practice are yet again gaining momentum under the new mayor.) As has always been the case, if tips do not bring the worker up to the non-tipped employee minimums, the employer must make up the difference. Most payroll software (including Gusto) will address this discrepancy automatically, but it’s worth checking your system to make sure.

The overtime minimum wage for non-tipped employees is calculated at 1.5 times the minimum wage. The overtime wage for tipped Employees is calculated at 1.5 times the tipped minimum wage, minus no more than the current maximum tip allowance. The maximum tip allowance is calculated by subtracting the tipped minimum wage from the regular minimum wage. Therefore, in Chicago, overtime minimum wages will increase to $23.70 and $22.50, respectively.

Rates for “youth” workers in Chicago — those under age 18, in a subsidized temporary youth employment program, or transitional employment program — are now $13.50/hr for regular pay, $20.25 for overtime, and $8.10 for tipped workers.

In addition, the minimum wage to be paid under City of Chicago contracts or concessionaire agreements is increasing from $16.00 to $16.80 per hour for non-tipped employees and from $8.20 to $8.80 per hour for tipped employees.

Chicago’s Minimum Wage and Paid Sick Leave Ordinance guarantees a minimum wage for employees working more than 2 hours in any 2-week period in Chicago for an employer with four or more workers. Domestic workers are guaranteed Chicago’s “large” employer minimum wage irrespective of the number of workers.

Employers must provide the Minimum Wage and Paid Sick Leave notice to all covered employees with their first paycheck, as well as in communal areas at a workplace. Notices must be provided in English and any language spoken by employees that do not speak English proficiently, if a notice in that language has been provided by the Department of Business Affairs and Consumer Protection on the Office of Labor Standards website. Notices can be provided electronically.

The Chicago Department of Business Affairs and Consumer Protection offers a free webinar with Q&A on the topic of the recent changes on its YouTube channel. They also have a great PDF download of their FAQ. For more information on Chicago Labor laws to pay attention to this year, see our recent summary of reminders for local business owners.

Parts of Cook County that are not in Chicago, and for which the municipality did not “opt out”, allow lower rates than Chicago ($13.70/hr regular pay and $8/hr for tipped workers), but require higher hourly pay than the State of Illinois ($13/hr regular pay and $7.80 tipped workers).

The federal minimum wage, which was last raised in 2009, stands at $7.25 an hour, which when adjusted for inflation is the lowest in 66 years.

Reactions to increased minimum wages by small business owners are understandably mixed. On the one hand, higher wages often help the local economy and boost consumer spending power. On the other, many small businesses owners operate on slim margins and make far less per hour than their employees. An increase in the minimum wage often means that some staff hours are reduced or eliminated in order to stay in the black.

Note when speaking with your employees that phrases like “poverty wage,” “minimum wage,” and “living wage,” while all related, are not the same thing. That said, Chicago consistently ranks as one of the most affordable places to live, when evaluating the relatively low cost of living compared to other big cities, and the relatively high minimum wage.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Illinois, IRS, Tips

What Does A Tax Extension Mean For You?

Leave a comment

It’s that time again… Tax Day is upon us and millions of taxpayers will need to have their returns extended for various reasons. What does this mean? The AICPA has released a “Tax Extension FAQ” for CPA members to share with their clients.

What does filing an “extension” do?

• An extension is a form filed with the IRS to request additional time to file your federal tax return. This extends the due date for submitting your individual return to October 15.
• In some states, filing an extension with the IRS will automatically extend the time to complete a state income tax return. My note: In others, you must file a state extension. In still others, you must make a payment as your extension.
• Filing an extension grants you additional time to submit your complete and accurate return, but you still need to estimate whether you will owe any taxes and pay that estimated balance by the original due date.
• Extending your return allows you and your CPA more time to prepare your tax return to ensure the filing of an accurate tax return. In many cases, you may still be waiting for additional information (e.g., Schedules K-1, corrected Forms 1099, etc.) to complete your return.

Why does my CPA suggest we extend my tax return?

• If your CPA has recommended that you file an extension, it may be due to many reasons, such as:
– The volume of data or complexity of certain transactions (e.g., sale of a rental property) on your return requires additional time.
– The amount of time remaining in filing season is limited for the CPA to complete client returns by the due date* due to late-arriving information.
– My note: Your small business accounting file needs to be tied out to source documents and all adjustments booked before we will finalize a return, and there may be delays in this process due to a variety of issues.
• Many CPAs have a “cutoff” or deadline for clients submitting their tax information so they can plan their workload to ensure all client returns and extensions are completed by the due date.
• Your CPA may suggest filing an extension if there are aspects of your return affected by pending guidance or legislation.

Am I more likely to be audited if I extend?

• Extending will NOT increase your likelihood of being audited by the IRS.
• It is better to file an extension than to file a return that is incomplete or that you have not had time to carefully review before signing.

What are the primary benefits of extending my tax return?

• It provides for additional time to file returns without penalty when you are waiting for missing information or tax documents (such as corrected Forms 1099). Just remember that an extension provides additional time to file, but not additional time to pay. Penalties may be assessed if sufficient payment is not remitted with the extension.
• You may qualify for additional retirement planning opportunities or additional time to fund certain types of retirement plans (e.g., SEP IRA).
• It is often less expensive (and easier) to file an extension rather than rushing and possibly needing to amend your return later.

Should I do anything differently if I am filing an extension or “going on extension?”

• No, you still should give your CPA whatever information you have as early as possible or as soon as it becomes available.
• Expect to pay any anticipated taxes owed by the due date.* You still need to submit all available tax information to your CPA promptly so they can determine if you will have a balance due or if you can expect a refund.
• If you are required to make quarterly estimated tax payments, individual first quarter estimated tax payments are due on the same day as annual taxes. Your CPA may recommend that you pay the balance due for last year and your first quarter estimated tax payment for this year with your extension.
• If you are anticipating a large refund, your CPA will likely try to get your extended return completed as soon as possible once all tax information is available. Your CPA may also want to discuss tax planning opportunities with you so that, in future years, you don’t give the IRS an interest-free loan.

My note: I’d like to add that we take filing extensions for our clients very seriously. We collect as much information as we possibly can about the year’s taxable income and deductions, extrapolate based on information from the prior year, and build a complete tax return — filling in estimates where needed. This way, we get as accurate a picture as we can so as to project how much might be owed to the tax agencies. We do our best, although it’s not perfect, and as a result, much more work is involved in putting together an extension than most folks might think.

More from the IRS on filing extensions here, including a link to file your own for free.

More from the Illinois Department of Revenue here, on making an individual tax extension payment online.

Our blog post step-by-step on how to make quarterly estimated tax payments online.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Illinois, Tips

How To Make Quarterly Estimated Taxes Online — Illinois IDOR

Leave a comment
image.png

Reminder: Due to a new law, Illinois S-Corp and Partnership owners should generally pay quarterly IL state (not federal) taxes through the business. The post below is about how to pay IL taxes personally; click here for how to make IL business tax payments.

There are multiple options for paying personal quarterly estimated taxes. You can: have your tax preparer create vouchers that you then print and mail with a check; prepare your own vouchers for the IRS and IL DoR; or pay online.

Since March 2020, agencies have had so many challenges with paper-mailed checks and vouchers that we are encouraging everyone to make all tax payments online.

The due dates for estimated quarterly taxes are approximately:
1Q: April 15
2Q: June 15
3Q: September 15
4Q: January 15 — however for state taxes, especially for cash-basis filers and those in states with PTE tax, we recommend making the final payment by December 31st.

If you want to know how to make IRS estimated tax payments, see my recent blog post with step-by-step instructions.

For the Illinois Department of Revenue (IDOR), go to the MyTax Illinois site. If you already have an account for sales taxes or another reason — do not log in, unless you are making business tax payments. Then click the “> Make an IL-1040, IL-1040-ES, or IL-505-I payment” link (see screenshot above).

Next, follow the instructions for making a quarterly estimated tax payment; it will make you enter your personal information (SSN, etc.) and ask you what kind of tax payment you wish to make.

It may require you to enter your driver’s license information or your AGI from a past tax return to confirm identity and get your IL-PIN.

Then it will take you to a Payment Information page.

You’ll want to select “IL-1040 Estimated Payment” and enter your tax year. Make sure it’s for the correct year and quarter — this is very important. The example below is for the fourth quarter of 2021.

Then, enter your payment information and click the Submit button.

It will require you to enter and confirm your email address before clicking OK.

Make sure to print the confirmation screen, even though they will send you an email receipt — every once-in-a-while IDOR fails to push the request through, and the amount is not debited or recorded. If you have the print-screen, you can prove you attempted to pay it on-time and that the mistake was theirs.

It will also include a confirmation code, the date/time of the request, the reporting period and amount, and bank withdrawal information. You can click “Printable Confirmation” or just print the webpage to pdf.

Please make sure to note how much you paid to each agency and on which dates — and let your tax preparer know this information as well. Securely uploading copies of the final confirmation screen to your tax preparer or bookkeeper is a great practice, so they can easily store the info in your file.

And if you use QuickBooks or another bookkeeping program, please make sure to enter the quarter, year, and “estimated tax” so that you or your bookkeeper or accountant or tax preparer can make sure it’s applied to the correct year, and for the right type of tax.

For how to make IRS quarterly tax payments online, see my recent blog post on the topic, for step-by-step instructions.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Illinois, IRS, Tips

Today’s The Day! 2022 Tax Filing Season Begins

Leave a comment

January 23, 2023 — Per IRS 2023-11, following a successful opening of its systems today, the IRS is now accepting and processing 2022 tax returns; taxpayers have until April 18 to file their taxes this year.

According to Acting Commissioner Doug O’Donnell, taxpayers can count on IRS delivering improved service this filing season. As part of the August passage of the Inflation Reduction Act, the IRS has more than 5,000 new telephone assistors and added more in-person staff to help taxpayers.

Taxpayers who electronically file a tax return with no issues and choose direct deposit should still receive their refund within 21 days of the date they file – similar to previous years. Due to tax law changes such as the expiration of the Advance Child Tax Credit and Recovery Rebate Credit this year to claim pandemic-related stimulus payments, many taxpayers may find their refunds somewhat lower this year.

The State of Illinois also opened its tax season today. In a press release, the IDOR Director, David Harris, highlighted the improved and enhanced MyTax Illinois system.

In addition to being able to file Form IL-1040 for free through MyTax Illinois, individuals may also use the site to make payments, respond to department inquiries, and check the status of their refunds using the Where’s My Refund? link.

MyTaxIllinois also allows taxpayers to look up Illinois-Personal Identification Numbers (IL-PINs), which are eight-digit numbers assigned by the department and used as signatures when e-filing returns. Amounts of any estimated tax payments can also be viewed and (when necessary), amounts reported on Forms 1099-G and 1098-F can also be found on the site.

Back to the IRS… in today’s news release, they also shared their tips for a smooth filing season:

Fastest refunds by e-filing, avoiding paper returns: To avoid refund delays, IRS encourages taxpayers to file their tax return electronically with direct deposit instead of submitting a paper tax return. Taxpayers may use IRS Free File on IRS.gov, other tax software or a trusted tax professional. Members of the armed forces and qualifying veterans can file their federal tax return and up to three state tax returns for free electronically using MilTax, a Department of Defense program.

Avoid delays; file an accurate tax return: Taxpayers should make sure they’re ready to file an accurate and complete tax return. This can help avoid processing delays, extensive refund delays and later IRS notices.

Earned Income Tax Credit or Additional Child Tax Credit refunds: Taxpayers may file their returns beginning Jan. 23, but the IRS cannot issue refunds involving the Earned Income Tax Credit or Additional Child Tax Credit before mid-February. The law provides the extra time to help the IRS prevent fraudulent refunds. “Where’s My Refund?” on IRS.gov should show an updated status by Feb. 18 for most EITC and ACTC filers. The IRS expects most of these refunds to be available in taxpayer bank accounts or debit cards by Feb. 28 if people chose direct deposit and there are no other issues with their tax return.

Avoid phone delays; online resources best option for help: IRS.gov is the quickest and easiest option for help. IRS assisted phone lines continue to receive a high volume of calls. To avoid delays, check IRS.gov first for refund information and answers to tax questions. Setting up an Online Account on IRS.gov can also help taxpayers get information quickly. IRS Online Account was recently expanded to allow more people to gain access. The Interactive Tax Assistant can also help taxpayers get answers to many tax questions online at any time.

Online options for free help; answers to common questions: Use IRS.gov to get answers to tax questions, check a refund status or pay taxes. No wait time or appointment needed — online tools and resources are available 24 hours a day.

Other free options for help: IRS Free File is available to any person or family who earned $73,000 or less in 2022. For taxpayers who are comfortable completing their own tax forms, Free File Fillable Forms may be a good option. MilTax is a free tax resource available to the military community, and it’s offered through the Department of Defense. Qualified taxpayers can also find free one-on-one tax preparation help nationwide through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs.

2021 tax returns still being processed: Taxpayers can check Where’s My Amended Return? to find out the status of their tax year 2021 Form 1040-X and can still file their 2022 tax returns even if their 2021 tax returns haven’t been processed. Visit the IRS Operations page for more information on what to expect.

April 18 tax deadline: This year, the filing deadline is April 18 for most taxpayers, but automatic six-month extensions of time to file are available for anyone for free. See Extension of Time to File Your Tax Return for instructions. Taxpayers should be aware that filing Form 4868 only extends the time to file tax returns. Those who owe taxes should still pay by April 18 to avoid late payment penalties.

Let the filings begin!

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Education, Illinois, IRS, Tips

Year-End Reminders For Chicago Small Business Owners

Leave a comment
Chicago businesses should take a moment to review upcoming changes before year-end.

The Chicago Department of Business Affairs & Consumer Protection (BACP) was designed to “license businesses and public vehicles, provide business education and access to resources, enforce the Municipal Code, and protect consumers from fraud,” which means that sometimes they have to create and enforce ordinances and regulations that are a bit arduous or challenging for small businesses. But in the public interest, we need to take a moment to review the annual changes and requirements to make sure we have everything in order. (Besides, the penalties for willful ignorance are no fun.)

With that in mind, here are some things you’ll need to make sure to take care of before ringing in the new year.

  1. Illinois Department of Human Rights Sexual Harassment Training
    For the record, this one is state-mandated, not just city-wide. The Illinois Workplace Transparency Act requires all employers to comply with the sexual harassment prevention training by December 31, 2020, and thereafter must provide annual training to all employees.
    As of July 1, 2020, the Illinois Human Rights Act defines “employers” as those having one or more employees (replacing the prior threshold of 15 or more employees in Illinois for most types of discrimination). This means that every employer in Illinois must comply with this sexual harassment training requirement, for all employees working in Illinois, regardless of their status as part-time, intern, or temporary. There is no requirement to train independent contractors, though it is recommended.

    The Illinois Department of Human Rights provides the training for free (registration ends 24-hours before each class), or there are numerous commercial training options (as low as $25). They have an FAQ here, as well as details on minimum training for all employers, versus more comprehensive training for bars and restaurants.
  2. Chicago Minimum Wage
    Back in 2014, the city implemented a gradual increase of the minimum wage. It applies to any employee who works at least two hours in any two-week period. As of July 1, 2022 the minimum wage in Chicago is $14.50 per hour for employers with 4 to 20 workers, and $15.40 per hour for employers with 21 or more workers. Tipped workers have a minimum wage of $8.70 for employers with 4 to 20 workers, and $9.24 for employers with 21 or more workers. If a tipped worker’s wages plus tips do not equal at least the full minimum wage, the employer must make up the difference. BACP offers a one-hour-long free webinar on the ordinance.
  3. Chicago Paid Sick Leave
    This ordinance went into effect on July 1, 2017, and was so poorly-written that folks are still confused. It applies to any business or individual that employs at least one “employee” and has a facility within Chicago’s city limits (though Cook County followed suit a few months later and has a similar requirement). The term “employee” covers anyone who works at least 80 hours within a 120-day period (20 hours a month).
    – For hourly employees, paid sick leave accrues at one-hour for every 40 hours worked. Salaried-exempt employees are presumed to have worked 40 hours/week.
    – Employees are capped at accruing a total of 40 hours of sick leave each year, unless the employer opts to set a higher limit.
    – Employers must permit employees to carry over half of their accrued leave, to a maximum of 20 hours of unused sick leave each year (40 for employers with 50 or more employees).
    – Employers are not required to pay out any accrued but unused sick leave upon employment termination.

    What we’ve generally seen — given the stringent requirements and the way hours accrue — is that many employers with existing PTO policies have to get substantive revisions, as they often do not follow the same rules (even though they are often more generous). Failure to comply is costly, so we recommend having an HR professional experienced with the Chicago rules review your policy.

    BACP offers a one-hour-long free webinar on the ordinance.
  4. Illinois Secure Choice Retirement Savings Plan
    State law now requires every Illinois employer with 16 or more employees to either offer their own retirement program, or to sign up to help staff contribute to personal IRAs via Secure Choice. As of November 1, 2023, this obligation will extend to employers with 5 or more employees.

    Aside from the administrative burden, there are no costs to small businesses owners. The program facilitates saving for retirement — but is still limited to the IRS’s annual $6000 cap ($1k higher for those 50 and up), increasing to $6,500 in 2023. (For those interested in a higher limit, I strongly recommend Guideline 401k plans for small businesses, which use low-cost Vanguard Admiral Shares — my own clients have the first five months of plan fees waived.)

    Our State Representative, Will Guzzardi, co-presented an excellent informational session recently, and his team graciously invited us to share the link and passcode with anyone interested in learning more:
    https://us02web.zoom.us/rec/share/GbU0vqXStnOYNsgxPg-1sUWGWWhWy_G_Wo6dbjjDOUhCdaK8FyNfyv7ySjH3Ggb7.L9WjeYo8OmJ6cQIg
    Passcode: Vd*Uqgn2
    The session is about 40 minutes long — feel free to skip the 5-min introduction if you’re pressed for time.

    (I’ll be providing a breakdown and analysis of the plan and the info-session in an upcoming blog post. Spoiler alert: I’m mostly pretty happy with this legislation! –This doesn’t happen often.– However, most sole proprietors will want to make sure to implement their own savings plan simultaneously, since they won’t be eligible to participate; and many others will prefer the 401k approach due to higher limits.)
  5. State Unemployment Insurance Contribution Determination Rate
    If you have employees, you should normally have received a letter from IDES with your 2023 unemployment rate determination by now, but they are running behind and the letters won’t be posted on mytax.illinois.gov until January 5th, 2023. As soon as they do, you will need to update your payroll company’s records with the new unemployment tax rate, or it can cause expensive problems with reporting and reconciliations in the future. I wrote a blog on how to do this if you’re using Gusto for payroll.


    HAPPY NEW YEAR, CHICAGO SMALL BUSINESSES:
    WE WOULDN’T BE A WORLD-CLASS CITY WITHOUT YOU!

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Education, Illinois, Tips

How To Raise Capital For Your Small Business Start-Up — FREE Webinar 8/10/22

Leave a comment

This excellent series of free webinars designed to help small business owners succeed in a challenging world — offered by the Chicago Department of Business Affairs and Consumer Protection (BACP) — is back with a can’t-miss Business Education Workshop Webinar on Wednesday, August 10th at 3 pm Central. All their webinars are free and open to the public, and many are offered online, which means that anyone can attend — they’re not restricted to Chicago small business owners.

I wanted to highlight this upcoming session in particular; it’s part of the SCORE Chicago Funding Webinar Series. In case you’re unfamiliar with SCORE (the Service Corps Of Retired Executives), it’s an amazing resource funded in part by the U.S. Small Business Administration, offering education, mentorship, and tools to help people start, develop, and grow businesses. The Chicago Chapter is particularly robust and offers many opportunities for training, as well as a free suite of templates — such as business planning and financial projections.

Both SCORE and BACP offer many sessions on raising capital, which you can watch on the Chicago BACP YouTube Channel, or SCORE’s Online Webinar Library.

This webinar should be of special interest to our readers, as it’s an interview with two small business owners who will walk through the experience that they had working with SCORE to access capital through different methods of financing, in different rounds throughout the stages of their business growth. For me, hearing “how we did it” from other small business owners is not only educational, but inspiring, and I hope this upcoming webinar will offer you both angles.

Wednesday, 8/10 Webinar at 3:00 PM
How We Did It: Raising Capital for Your Business
Presented by Score Chicago
(Part of a Score Chicago Funding Webinar Series)

In this webinar, you will learn how two Chicago entrepreneurs, former SCORE Chicago clients, and founders of Tiesta Tea Dan Klein and Patrick Tannous raised 4 rounds of financing totaling over $8 million. Tiesta Tea has also used many different methods of funding including friends/family, factoring, purchase order (PO) financing, SBA loans, Angel Investors, and VC funding. Dan and Patrick will share their experiences raising capital during the different growth stages of their business.

Tiesta Tea is a company that used SCORE Chicago to get started in 2010. Dan and Patrick know first-hand how important mentorship is for aspiring entrepreneurs and established businesses seeking mentoring from SCORE to accelerate the growth and success of their businesses. The founders, Dan Klein and Patrick Tannous, started with nothing but an idea to sell tea, and fast-forward 10 years, they have sold over $54MM of their product. They sell their teas in thousands of retail stores, including Walmart, Jewel, Mariano’s, Amazon, Costco and many more.

Register for the 8/10 Webinar

Please email BACPoutreach@cityofchicago.org with any webinar questions.

Visit BACP’s YouTube for all webinars.

BACP Entrepreneur Certificate Program

The Chicago Department of Business Affairs & Consumer Protection (BACP) Entrepreneur Certificate Program is a free and optional program available to attendees of the free BACP business education workshop and webinar series.

For program details (enrollment, requirements, contact information, etc.) and to enroll go to Entrepreneur Certificate Program.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.