Presented by Thomas Gorczynski Partner/CEO/President Gorczynski & Associates, LLC
One of my favorite presenters — Tom Gorczynski — is giving a free webinar in conjunction with RCReports (one of my favorite apps), and CPA Academy (one of my favorite education platforms) this Thursday, January 12 (to repeat on Thursday, February 2), on Section 199A and how it interacts with Reasonable Compensation requirements.
The course description from CPA Academy:
§199A is a key tax deduction available to pass-through entities through tax year 2025. Reasonable compensation determinations have a substantial impact on a taxpayer’s potential §199A deduction and are an important part of tax planning. This course will describe how reasonable compensation intersects with §199A and tax planning with examples.
Learning Objectives
Name factors impacting S corporation’s reasonable compensation determinations
Describe the effects on §199A of paying less than the reasonable compensation amount
Identify the effects on §199A of paying more than the reasonable compensation amount
Thomas A. Gorczynski, EA, USTCP is a nationally recognized speaker and educator on federal tax law matters. He is editor-in-chief of EA Journal, author of the Tom Talks Taxes newsletter, co-author of the PassKey Learning Systems EA Review Series, and co-owner of Compass Tax Educators.
It’s an extremely important topic, and one of the best presenters out there — and it’s free! (No, I’m not being paid to promote this; I simply want to make sure my readers don’t miss out on a golden opportunity.) If you struggle with entity choice calculations due to Section 199A, or if you are unsure how to calculate Reasonable Compensation, you should take this opportunity to learn more.
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.
Speaking with Mark was a truly gratifying experience — he was kind, organized, interested, and sincere, and asked great questions. As a sneak preview of a few good ones:
How did you end up being interested in Music from an education standpoint, and how did you end up moving towards accounting?
At what point did you decide to further your education with the Masters in Financial Analysis and why that particular major? Was it difficult to return to school?
How has your practice evolved over the years? I see you use the DBA The Dancing Accountant. Was that always the case, or did that come later? Is it related to a niche, or more about branding?
You’ve been listed on the 50 Top Women in Accounting list. Congratulations! How does that make you feel? Is it acknowledgement of hard work, even more responsibility, honor…?
What does the future look like for you if it goes exactly how you would like it to go? When you look back on your career & life, what will you want to be able to say you accomplished?
If you could go back in time and give your younger self just one piece of critical advice, what would that be?
We spoke for over half-an-hour and I felt like we could have gone on for days… his conversational style was comfortable and disarming. I enjoyed sharing personal stories, talking about the great folks I’ve studied and worked with, about how hard it was to go back to school while working, how much I love helping small businesses in my neighborhood, how much I hate saying “no”, how a client came up with my business name… and so on. Give it a listen — and raise a glass to our amazing team while you’re at it!
I would love to be remembered as someone who helped keep our communities vibrant by helping small businesses succeed. That’s the whole point of any of this, and my staff is a group of women who feel the same way. Our work really has meaning. ~Nancy McClelland, CPA
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.
Last year we began requiring all clients to submit a copy of their IRS Account Transcript along with their Tax Organizer and other annual tax prep documentation.
The initial issue was that not everyone kept the Form 1444 notices regarding how much stimulus was received. Why would this matter? If a taxpayer did not receive the full amount, then they are entitled to recoup the difference on their annual tax return. (But don’t worry: if you received too much, you don’t have to pay it back — unless it was obtained fraudulently.) Not only does this issue remain for 2021, but the problem is exacerbated, because now we also have child tax credit payments to track — some folks received advances while others decided to opt out (and unlike stimulus payments, any excess child tax credit payments may have to be repaid).
In addition, we’ve also noticed quarterly estimated taxes are often reported incorrectly by clients — especially with additional complexities due to recent state legislation to get around federal limits on deducting state taxes.
We’ve come to the conclusion that the best solution to these concerns is to continue to ask clients to download their annual Account Transcript and provide it to us via secure upload. It’s free, reasonably easy, and reliable.
Instructions for obtaining the Account Transcript for folks who have already registered for an IRS online account follow — if you did this last year, you don’t need to follow all the steps in last year’s post about how to create an account. Just sign in to the system and you should be golden.
(Yes, the IRS will ask you to create a new ID.me account “as soon as possible” and you won’t be able to log in with your existing IRS username and password starting in summer 2022. But for now, no need to create a new account in the new system — the old one works just fine.)
You’ll need to select the reason you need a transcript.
In this case, you would select “Other”.
4. Leave the Customer File Number blank and click “Go”.
5. The screen will display all four types of transcript options and the available years.
6. Select “2021” under “Account Transcript” (the box in the lower-left).
Make sure you are selecting the right kind of transcript — in this case you want an Account Transcript. (Click here for information on what each of the types of transcripts are.)
And like magic, a pdf pops up in a new tab of your browser with a letter from the IRS — and if you scroll down to the bottom, there’s section detailing all the transactions you need.
At this point, print the file to pdf and save somewhere safe, along with the rest of your tax season documents.
What about state information?
To get a list of the estimated tax payments you’ve made to the state of Illinois, go to https://mytax.illinois.gov/?link=1040EPy and enter your SSN, Name, and the year (in this case 2021).
If you also made payments from a corporation or partnership, you’ll need to log into your MyTaxIllinois business account to get those.
Done! Let the tax return preparing 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. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
Note: this is an update to an existing blog post — the instructions below are specific to the Biz2Credit PPP lending platform. If you received your loan through another platform, please see my original post.
For over a year we waited for legislation from Congress as well as guidance from both the SBA and IRS as to the interplay between the Employee Retention Credit (ERC) and the Paycheck Protection Program (PPP). It appears the last of that guidance was issued on August 10, 2021 — so, at this point, as long as you have worked out the interplay between PPP and the Employee Retention Credit (ERC), then you should go ahead and apply. Which means that if you are a sole proprietor and have no employees, you are ready to apply — since ERC is only an issue if you have W-2 employees or are a W-2 employee of your own company.
For PPP draws in 2021, our firm participated in a joint program by AICPA and Biz2Credit called the “CPA Loan Portal”. We’ve prepared the following step-by-step instructions for clients of ours who were funded through this system — however, I believe the instructions are the same for small business owners who applied directly with Biz2Credit. (Let us know in the comments if this is the case or if you had to tweak the approach at all.)
First, a couple general comments for borrowers of $150k or less who are self-employed with no employees:
For self-employed with no employees, it’s an “owner compensation replacement” approach, which means you will have 2.5 months’ worth of your prior-year net profit (or gross profit, for those who applied for PPP funding under the last-minute changes to the rules) automatically forgiven. Your forgiveness amount should exactly equal your loan amount, presuming the original loan was calculated properly.
According to Biz2Credit on their July 1 webinar (from their PPP Forgiveness Required Documents Customer Guidebook), no documentation is required for sole proprietors with loans of $150k or less:
How-To Instructions for PPP Forgiveness – AICPA Biz2Credit Application – Self-Employed with No Employees
First things first, decide whether you’d like to fill out the forgiveness application yourself or whether you’d like your CPA firm to do it for you for a small fee. Once you’ve informed them that you’d like to DIY, they will need to “assign” the forgiveness application to you, which will trigger an email that looks something like this:
Once you log in to your account using the credentials you created when you signed the PPP draw application just before getting funded, you’ll be walked through a series of screens.
Click the “Apply for Loan Forgiveness” button.
Most of the information will be automatically filled in based on the initial loan application information. There is no need to enter information in any of the fields marked “(Optional)”. Click the “Confirm” button.
A pop-up should suggest you use the 3508-S application, the simplest one – click the Continue button to go to the Basic PPP Loan Information screen.
Covered Period Start Date should default to the disbursement date as the start date. The duration of the covered period can be anywhere from 8-to-24 weeks; if the applicant is self-employed with no employees, we suggest a 10-week period. The end-date will auto-fill.
Most of the information will fill in automatically, but you will have to note the number of employees at the time of the forgiveness application – for self-employed with no employees, the answer is 1.
For a self-employed person with no employees, the Amount of Loan Spent on Payroll Costs should be the full amount of the PPP loan.
Click the green “Next” button on the lower-right corner to continue.
A pop-up will come up – read and click “Accept & Continue” if you agree.
You should get a screen confirming the form was completed and letting you know they have sent an email with a link to Docusign the application. Do not click the “Continue” button until you sign the application. Open your email program in a separate tab to find the email from Biz2Credit Contract Support via Docusign, with the subject, “Biz2Credit : PPP Loan Forgiveness Application Form 3508S”. Keep in mind that it may be in the “Promotions” or “Updates” tab, or in Spam.
Click the orange “Review Document” button in the email.
The Docusign document should open in a separate tab – you may need to allow it to access your location.
Checkmark the agreement and click “Continue”.
Click the “Start” button and follow the guidelines to initial twice and then sign the form. Click the “Finish” button when you are done. Save a copy for your own records.
Go back to the Biz2Credit tab and click “Continue” (if you accidentally closed the tab, please go to the Biz2Credit site and log in again). It is essential that you click the “Continue” button to submit the application.
Click “Ok” on the pop-up. This will take you back to the dashboard – at the bottom, instead of the “Apply for Loan Forgiveness” button, you should see two links: View Submission and View Documents. There is no need to click on these at this point, but seeing them is reassurance that your application has in fact been submitted.
(If you did not download the form after Docusigning, then you can do it at this point, by clicking “View Documents”. It will then take you to a screen with a long list of possible documents – the top link (“E-signed 3508”) allows you to download a pdf of the e-signed document for your records.)
You will receive two more emails from Biz2Credit: 1) an email via Docusign allowing you to view or download the completed document (which at this point you’ve already done); and, 2) a confirmation that your loan forgiveness application is being sent to the SBA.
Now sit tight and await a confirmation email from Biz2Credit once the SBA has forgiven the loan – please make sure to forward this to your CPA firm… and congratulations!
Note: Even though no documentation for loans under $150k is required, occasionally there will be a follow-up email from Biz2Credit requesting certain items. Please forward to your CPA firm if this occurs and they will advise (and they’ll inform your Biz2Credit lending rep that this step should not be required).
For self-employed folks with no employees, the PPP Forgiveness process is very straightforward. Please let us know in the comments if you come across challenges, so others can learn from your experiences — especially for those who applied directly with Biz2Credit instead of through your CPA. Best of luck to you all!
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.
This is something we request so often from our clients that I finally asked a client to write up what it looks like on her end so I can post it as a blog entry. This access option is very important to third-parties like bookkeepers and CPAs, because neither we nor our clients want the option for us to authorize transactions, but we need to be able to view banking and credit card activity.
Then — from the eyes of a small business owner who’s done it herself:
1. From the Chase homepage click on Account Management at the top of the page, center.
2. From the drop-down menu that appears click Access & Security Manager.
3. Click Add Authorized User (should be on the right of the screen, under the primary/admin account).
4. You’ll be prompted to receive an activation code on your phone to create the new account.
5. Follow prompts from there to create the new account (It will ask for the new user’s name, email address, phone, username, and temporary password, as well as whether or not to allow mobile access).
6. Once the account is created, there will be an option to the right of that username to manage the account. This is where you can select permissions (they call them “user rights”). Check the desired boxes to grant/limit access for each user.
Chase is constantly changing its user interface, so if these steps have changed since they were written, please let us know so we can update them! Your feedback is sincerely appreciated.
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.
It’s taken me a month to make the announcement, because the award timing was smack-dab in the middle of tax season… but I was recently named one of the Top 50 Women in Accounting by Practice Ignition — one of only 20 women in the United States.
Those included in the list came from all corners of the globe and ranked among the highest on our anonymised scoring system which took into account;
Dedication to promoting inclusivity and diversity in the workplace and beyond
Investment in the next generation and the future leaders of accounting
Advocacy of the accounting industry and support of the wider community
I was honored to be nominated, even more so to be awarded, and excited to have the opportunity to share how our firm lifts up the voices of women in our field. The award is designed to celebrate the women who are driving advocacy, change and creating opportunities in the Accounting and Bookkeeping industry.
As such, they asked us the following questions, and I wanted to share my answers, because I feel that an award is only as good as the reasons for its being given. Thank you to Practice Ignition and the greater accounting and bookkeeping community for this wonderful honor.
1) Provide an example of how you are actively promoting inclusivity and diversity in your workplace?
Our firm is focused on a hyper-local population of small businesses in my Chicago neighborhood, so most inclusivity efforts are focused here in the community. I speak Spanish, which enables me to share vital accounting information with an often-underserved population.
I’ve done significant outreach to Spanish-speaking communities regarding PPP lending. Almost a quarter of Chicagoans are native Spanish speakers, and the pandemic has made the need for professional fiscal guidance for these small business owners more urgent. I spearheaded a pro bono event for our state representative’s office in a largely Latino neighborhood, which was then translated into Spanish, and did a radio interview on a Spanish-langage show to promote it. I also created a blog post with both my interview and the Spanish-translated version of the webinar.
I do this work after-hours, for free: not to court clients or try to be a hero, but because I believe all small businesses deserve access to expert guidance, not just those who can afford it—especially during a massive economic contraction.
I also strive to mentor, coach, and funnel new business towards bookkeepers and accountants of color. I’m privileged to have an amazing network and share with others as much as possible.
2) Explain how you are investing in, and championing, the future of accounting and advocating for the next generation of leaders?
Because I believe in promoting food security, worker fairness and equitable economics, I’m working to mentor the next generation in the specifics of co-op accounting. I give presentations for the NCBA (National Co-op Business Association), NSAC (National Society of Accountants for Cooperatives) and CPG (Co-op Professionals Guild) on the different types of co-ops, demonstrating their sustainability as an economic structure. The pro bono work I do in these groups is an effective way to share knowledge—teaching valuable skills and modeling leadership for the next generation.
I also offer numerous free webinars and consultations to young women accountants through organizations like Bookkeeping Buds (more below). In addition, I employ three outstanding women as my staff—having introduced two of them to this career path and provided their initial training and development. They receive both monthly and annual paid training hours, and we have weekly mentorship meetings—as well as ad hoc training sessions—and I pay for their continuing education classes. This investment benefits my business in the short run, but I do it because I’m committed to their professional development long-term as women in a male-dominated industry. My first hire has even gone on to start her own bookkeeping business.
3) Provide an example of how you are promoting advocacy of the accounting industry and actively supporting the wider community.
I provide regular pro bono continuing education and mentoring for newer industry members through Bookkeeping Buds, a national community that helps women bookkeepers grow stronger practices by sharing support, resources and education. Throughout the pandemic, I’ve shared my expertise in areas such as PPP, ERC, RRF, and local/state/industry grants—as well as the bookkeeping and tax ramifications of those programs—extensively: on a daily basis with members on Slack, and through free targeted webinars. I was honored to be awarded 2020’s “Bud of the Year” for my contributions!
My award-winning blog is the community service I offer of which I am proudest, because I use it to.provide free accounting resources to small businesses who do not have the funds to hire a CPA. I earn no money from ads or commissions.
Finally, I made the decision not to charge my clients for work on COVID-19 relief resources in the first three months of the pandemic. These small businesses were already hard-hit—to ask for money they don’t have during an economic crisis simply didn’t feel right to me. Giving small businesses my time was the best way I could think of to help them—and my beloved Chicago community of Logan Square—survive.
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.
My trusted colleagues over at Wegner CPAs are putting on a two-week series of FREE webinars geared toward small business owners. They will go through each of the following current Federal relief programs designed to help small businesses make it through to a brighter day:
Employee Retention Credit 2021
Employee Retention Credit 2020
Shuttered Venue Operator Grants
Paycheck Protection Program
Restaurant Revitalization Fund
Economic Injury Disaster Loans
All of these programs have been changed over the past month to make them more useful to small business owners — often with the effect that multiple programs are available simultaneously. The resulting complexity is a real challenge, but the amount of financial relief available makes it worth learning what you can (and potentially working with a professional to make it happen).
We have been reaching out directly to clients who we believe qualify for each of these programs — but if you work with us and think you are eligible, yet haven’t been contacted, please let me know.
Employee Retention Credit 2021 Tuesday, March 30, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) ERC in 2021 can result in big dollars for your organization. We will discuss how to determine if you’re eligible and how to be sure you file for the credit timely. Register
Employee Retention Credit 2020 Wednesday, March 31, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) Were you eligible for ERC in 2020? Find out as we take a deeper dive into the credit eligibility requirements and rules for last year. We’ll also review what you need to do to claim the credit for 2020. Register
Shuttered Venue Operator Grants Thursday, April 1, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) The SVOG portal opens on April 8th. Are you eligible and ready to apply? Join us to learn more about the program and what you need to be doing now to prepare. Register
Paycheck Protection Program Tuesday, April 6, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) Updates continue to roll out for PPP. We’ll discuss what the soon to be signed extension means for applicants and tips on getting through the application process. We’ll also review the updated loan calculation for Schedule C filers. Don’t forget about PPP loan forgiveness! Register
Restaurant Revitalization Fund Wednesday, April 7, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) The SBA announced that they hope to have RRF up and running by early April. We will review timely released guidance and how to prepare for applying to the program. Register
Economic Injury Disaster Loans Thursday, April 8, 2021 10:00 am – 10:30 am CDT (8:00 am PT / 11:00 pm ET) The EIDL program has continued to evolve over this last year. There are EIDL loans and EIDL grant advances. Are you eligible for either? Learn more about this program and the changes that have come from the last two stimulus bills. Register
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.
Recent new legislation from Congress and the White House, as well as guidance from the IRS and DOL, has caused sweeping changes for small business owners and individuals, and we tax preparers are still trying to wrap our heads around it — during what was already the most complex and demanding tax season on record.
Specifically, the American Rescue Plan Act (ARPA) included a few provisions that are retroactive to 2020 — and the IRS, various state Departments of Revenue, Department of Labor, and tax software programs are trying to figure out how best to implement these changes as efficiently as possible. (For a breakdown of key provisions in the Act, see this excellent summary.)
These changes include:
1) The first $10,200 per person of 2020 unemployment benefits will no longer be taxable at the federal level, though certain states will continue to tax the full amount (Illinois has asked all taxpayers with unemployment income to hold off on filing returns until the Dept of Revenue has addressed the situation). The IRS will be releasing a worksheet that the tax software companies then need to incorporate into the 1040 returns.
2) A 2020 “Repayment Holiday” for the Marketplace Health Insurance Advance Premium Tax Credit was issued, but implementation questions remain; IRS guidance is expected soon.
3) Another economic impact payment (stimulus check) is on its way. You do not need to file your 2020 tax return right now to claim your check, as the law allows for an additional payment in a few months if your 2020 tax return shows you are entitled to more (vs your 2019 tax return). Conversely, if your income went up in 2020 and you are now ineligible for the full benefit, you’ll want to wait to file your 2020 taxes until after your payment arrives, since you won’t have to pay back the overage on your 2021 tax return.
In addition to the above legislative shifts, the IRS recently released guidance concerning the Employee Retention Credit (ERC) that changed our expectation of how it would be handled on business tax returns for cash-basis business tax filers. Previously we had expected that those who received PPP funds in 2020 and can now (as of the Dec 21 Consolidated Appropriations Act) retroactively claim ERC would adjust for the related deductions on their 2021 tax returns. Not so. These adjustments will have to be made on the 2020 tax returns. As a result, we have had to put approximately 75% of our client business returns on extension.
(Technical note: keep in mind if you are doing tax returns for a client that claimed ERC, not only do you have to reduce deductible wages by the amount of the credit, but also recognize this reduction may impact Section 199A eligible wages for purposes of the 20% qualified business income deduction.)
I’m guessing you see the challenge here: we don’t yet know the rules for claiming the ERC, and yet we have to report related adjustments (as a direct result of the credit calculation) on the 2020 business tax returns. Most of these returns have a flow-through relationship with the business owners’ personal tax returns — so those may have to be placed on extension as well if we do not get guidance soon.
(Related blog post: please call your representatives and ask for all taxes — estimated quarterly as well as corporate — to be extended; not just the Form 1040.)
Yet another example of a forced need to wait on certain returns: using tax filing software, we can e-file a return today, but set the payment direct-debit date to a future date — not later than the return due-date. This date has not yet been updated in most tax prep systems to go beyond April 15th to the new due date of May 17th.
It’s particularly frustrating for us as small business advocates, because filing a tax return is the only way to get a refund if you’re owed one, and many of our clients may be more in need this year than usual. And yet, for a large number of taxpayers right now, holding off on filing is the recommended approach.
The provisions noted above — and others — may affect your return. Tax professionals everywhere need some time and space to learn about these changes, analyze their impact, and develop personalized recommendations to maximize your COVID-19 tax benefits. Please be patient with us during this extremely stressful time.
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.
As I outlined in a recent post, the IRS extended the individual tax date for filing, but not business and estimated tax dates, which are the ones that small business owners and their tax preparers truly need.
You can share this great article from Money Magazine with them, outlining the issues, or just ask them to google “AICPA tax deadline small business” — there are a ton of great articles that explain why the need for them to act is so great.
We in the small business accounting and tax world would immensely appreciate your taking a few moments of your time to help us and our small business clients out — it has been a tax season like no other and we need your assistance to make it to the other side.
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.
– Same as last year, the new date was announced after the March 15 deadline for filing S-Corp and Partnership tax returns; due to a long list of new guidance and still-awaited guidance, this forced us to do extra work to put approximately 75% of our clients in this category on extension. – The extension does not apply to C-Corps and Co-ops, whose returns are still due on the original date of April 15th. This category represents approximately 15% of our struggling small business clients. – The May 17th extension is only for 2020 tax year filings and, quite problematically, does not apply to first-quarter 2021 estimated taxes due on April 15th, which almost all of our clients are required to pay.
Furthermore, when recently questioned about whether or not there was a way the IRS could help small business owners by coordinating the first-quarter payment with the new deadline, Rettig flatly refused: “no”. Pressed regarding the consequences that not extending this due date would have on small business owners, Rettig said that they had to draw a line somewhere to keep wealthy taxpayers from “gaming the system” (for one month, really?); that small business owners challenged by this could just call the IRS if they have a problem (because that’s been going so well this season?); and tried to point out that the penalties aren’t really that high (so suck it up, and never mind that the state penalties are out of control?).
I cannot begin to express the frustration and disappointment with this decision, and I am not alone.
“The announcement is far too selective in who is receiving relief,” Barry Melancon, AICPA’s president and chief executive, said in a statement. “Failure to include estimated payments nullifies any benefit of a postponement since the tax return work has to be done to calculate estimated payments.”
“While this is welcome news for some taxpayers, there are a number of concerns that this limited extension does not address,” writes Frank Washelesky of ORBA. “The IRS extension does not extend the time for paying first quarter estimated income taxes for the 2021 tax year. It is difficult for taxpayers to determine the amount of the estimated tax required without, at least, a reasonable estimate of their 2020 tax situation. Without an extension of these payments, the filing extension to May 17, 2021 has minimal value for many taxpayers.”
Here’s what the problem is: most small business owners need to pay quarterly estimated taxes to the IRS based on either: 1) 100% of the prior-year’s tax liability; or, 2) 90% of the current-year’s tax liability (which we can’t know yet, so we extrapolate based on the actual profit from the quarter).
Based on a somewhat complex set of rules (which are often different at the state level), small business owners and their tax advisers calculate the actual amount to submit. But they generally need to know both these amounts — which is impossible if their tax return for 2020 hasn’t been filed yet. See why this mismatch in dates is a problem?
And to spice things up even further, not all states are going along with the IRS rules. Taxpayers and their advisers need to check with each agency separately (here’s a good running list at-a-glance). Illinois recently decided to comply with the IRS dates, meaning that the quarterly estimated tax problem exists with our Department of Revenue as well.
“This selective decision by the IRS unfortunately creates more bureaucracy and confusion and is out of sync with real world stresses that taxpayers, tax practitioners and small businesses are dealing with,” said Melancon.
We in the accounting profession would be greatly appreciative if you could contact your Congressional Representatives and Senators and ask them to move ALL tax return and payment due dates, including estimated tax payments and corporate taxes.
I know it’s a pain, but AICPA insists that this type of grassroots work really does have an impact… and if you care about the physical and mental health of your tax preparer, and about the anxiety level and financial well-being of millions of small business owners, you’ll hopefully take a moment to make our request go a bit further.
Thank 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.
