Year-End Tax Planning

Tax planning - do it BEFORE 12-31-21

 Hello again clients & friends!

 This is 2021's main tax planning blog...

 Most taxpayers file on a "cash basis" & any tax planning must be done prior to year-end, typically before December 31st. Making changes next January won't affect most 2021 tax issues. 

 please note: some of the following tax planning ideas assume (require) that you can itemize deductions! Many taxpayers (me included!) cannot itemize this year due to the new(er) 2018 tax law... and if so, those planning ideas will have NO effect - please see my (IF) footnote throughout this blog. (ie. the planning idea works only IF you can itemize deductions)

 (a few also may have no effect, if you are high-income & subject to the alternative minimum tax, AMT)     

 * Review the – “2021 Tax Pocket Guide” provided to you (in last years blue tax file or provided at our initial meeting)

 * Review all "blogs" regarding tax issues - archived at www.garlandtaylor.com

Here are 2 basic tax planning questions

  1) "will your income in 2022 be the same or higher?"

   2) "do you believe tax rates will increase in 2022?"

 * Most taxpayers want to reduce taxes in the current year. If this is your goal, that can be accomplished by deferring taxable income - examples: waiting until 2022 to bill clients & sell stocks with gains or by accelerating expenses - example: making donations (IF), paying taxes (IF), or buying supplies/equip now

 * However, if you believe tax rates or your income will be higher in 2022 – then you may want to do the reverse - and accelerate taxable income into 2021 & defer deductible expenses until 2022.

 The 2018 tax law included changes that could remove your ability to itemize deductions (if less than $25,100 if married filing jointly… you will just take a “standard deduction”).

 Even if you can itemize, some deductions may now be limited – mortgage interest, state taxes, miscellaneous, etc. Required distributions, AMT tax & Estate tax laws have been changed too. Tax rates are different & may be reduced for flow-through entities (some s corporations & LLC's) and corporations. Some tax regulations are still not final as of this date, but be sure to consider such possibilities when you tax plan...

 Here’s a link to a summary of recent IRS changes in the “new tax law”. see also prior blog articles  https://www.irs.gov/tax-reform

 Here's a list of things the IRS suggests "to get a jump on 2021 taxes"

  * adjust withholding; make estimated or additional tax payments

 * gather documents and organize tax records

 https://www.irs.gov/individuals/steps-to-take-now-to-get-a-jump-on-next-...

 * Here's a link to online tax planning topics & tools from the AICPA, of which I am a member. American Institute of Certified Public Accountants (AICPA) is the national organization.

 just click on "life stages", topics, tax reform, or calculators

  Topics include - managing your 2021 taxes. Am i having enough withheld? Calculators include – 2021 tax calculator & self-employment tax calculator  https://www.360financialliteracy.org 

 Here are other links of interest…

 * IRS 2021 Tax Tips https://www.irs.gov/uac/Tax-Tip-Archive

 * IRS Affordable Care Act provisions 

  https://www.irs.gov/Affordable-Care-Act/Affordable-Care-Act-Tax-Provisions

 * Recent IRS news->  https://www.irs.gov/newsroom

 * 2021 Tax Law changes -> https://www.irs.gov/tax-reform

https://www.journalofaccountancy.com/news/2020/dec/tax-provisions-in-cov...

 * IRS CARES Act -> things like advanced child care credits, employer payroll tax credits, latest updates on covid tax relief, etc… https://www.irs.gov/coronavirus-tax-relief-and-economic-impact-payments

 * IRS SECURE Act - “Setting Every Community Up for Retirement Enhancement Act of 2019” (changes to required minimum distributions, etc) Retirement Plans FAQs regarding Required Minimum Distributions | Internal Revenue Service (irs.gov)

 * Federal Energy Tax Credits -> https://www.energystar.gov

  * Oregon Residential Energy Credits -> http://www.oregon.gov/ENERGY/

(remember that some energy tax credits need to be applied for NOW, to obtain a certificate in the mail, before you can file your 2021 taxes)

A g a i n -  d o   i t   b e f o r e   1 2 - 3 1 - 2 1

(IF) footnote - note: these planning ideas may still work for Oregon (as Oregon has much lower "standard deduction" levels), but not for federal - only IF you have itemized deductions (over $25,100 MFJ or $12,550 MFS/single $18,800 HOH).

 * determine if you need to adjust your payroll tax withholding (see “new law” link above for a calculator) or if you need to make estimated tax payments to avoid/stop underpayment penalties.

 * Pay any Oregon state taxes that you know will be owed (using Form 40-V). (IF) + you haven’t reached the $10,000 limitation (new).

 * Pay all real estate taxes (that are due soon, by 11-15-21), if only a partial payment was made. (IF) + you haven’t reached the $10k limit.

 * Pay your mortgage payment before 12/31, if it is due early in January 2022. (IF)

 * Talk with your pension advisor regarding retirement planning and contributions.

 * Talk to your investment advisor regarding benefits in selling and/or keeping investments.

 * Talk with your attorney regarding modifications in personal wills & business agreements. (Please note that I am not licensed for & do not provide ANY investment, pension, or legal advice)

 * Go through your closets & garage & consider contributing items to a qualified charity. Be sure to keep a detail of values (cost & used value) & take pictures. AND, you must get a receipt from the charity. (You can find Goodwill & St Vincents valuation guides online or document the value yourself). The usual (IF)

 * Make charitable contributions by check or credit card & get written letters of acknowledgement. (IF)

 NEW for 2021 - a possible $600 deduction for cash/check donations, even if you don’t itemize! Please see the rules at this link…

https://www.irs.gov/newsroom/expanded-tax-benefits-help-individuals-and-...

 * Defer income to 2022 & accelerate expenses into 2021, if that makes sense (see above comments & tax planner) But, if you believe your 2022 taxable income will be higher or tax rates will increase next year - just reverse that basic tax plan)

 * Paying college tuition now might increase the tax credits for higher ed (see planner & articles. Note - there are income & other limitations)

 * Bunch deductions - There are "floor" limits for medical (still 7.5% of adjusted gross income/AGI) so, either pay expenses now in 2021 or later in 2021 - to "bunch" & exceed limits. (IF)

 * Take any required distributions – note, major changes to requirements were made last year, in the IRS SECURE Act for 2020. See link above & below for details. Please note that my firms’ standard income tax services do not include calculating these required minimums for you. Retirement Plans FAQs regarding Required Minimum Distributions | Internal Revenue Service (irs.gov)

 * Use annual gift tax exclusion. No gift tax on gifts up to $15,000 per recipient

 * Use your credit card to pay tax deductible expenses, but only if you need to

 * if you have a rental property, determine if the activity is a "trade or business" under the recent IRS cs199 (possible 20% deduction). There is a new safe harbor rule.

 https://www.irs.gov/pub/irs-drop/n-19-07.pdf

 * BIZ - Buy equipment, IF you need it (must be received & placed into service by 12/31. (careful - see the luxury auto & SUV rules... Which may limit the amount deductible)

 * BIZ - C corporations - pay bonus? or pay dividends? (fyi, some complex tax issues)

 * BIZ - S & C corporations - make sure you have paid reasonable wages for your services during the year & have written support for that. 

 * BIZ - If you sell inventoriable items, you must physically count at year-end (at your cost). You must do this every year!

 * BIZ - S corporations. Make sure you have sufficient stock basis to claim any losses.

 * BIZ - If officers have incurred/paid expenses personally - reimburse officers from the corporation under an accountable plan (mileage rates are 56 cents per mile, for 2021)... or you can’t deduct them!

 * BIZ - If there are officer loans on the books, get rid of them if possible (to reduce audit risk).

OK - Here's also a few things to do AFTER the year ends...

  * BIZ - File 2021 Forms 1096/1099's by 1/31/22 (order them NOW at 1-800-829-3676. (for rent, dividends, interest, services, etc that you paid in 2021.

 Order free forms by phone or online NOW at https://www.irs.gov/Forms-&-Pubs It will take a few weeks to get them!

 Note: there is a NEW form for the 2021 payments to contractors, Form 1099-NEC (same as 2020). About Form 1099-NEC, Nonemployee Compensation | Internal Revenue Service (irs.gov)

Remember to properly classify workers as employees or contractors (do that before you hire them). Use these tests & then document the facts + your reasoning (in writing) for each person/entity. Please note that there are severe penalties to you for misclassifying workers.

https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation

https://www.oregon.gov/oda/shared/Documents/Publications/NaturalResource...

* BIZ - File Personal Property Tax Reports with County assessors office by 3/15/22 (every Oregon business must file this report - check with your assessors office for forms) If you filed last year, you should receive a 2022 form in the mail. Or call your Assessors office.

(Here's a link to information & the online form, when it becomes available) https://multco.us/assessment-taxation/business-personal-property-informa...  just click on "confidential personal property return"

 Foreign bank & financial accounts - you may be required to file with the FBAR by APRIL 15, 2022. This is a new change (years prior to 2018 were due June 30th).

https://www.irs.gov/businesses/small-businesses-self-employed/report-of-... 

Here's a summary of what I am doing for year-end tax planning before December 31st

P E R S O N A L

 * Itemized deductions – I’m not doing too much… since my mortgage interest is small & state taxes are limited to $10,000 – I’m not able to itemize this year for federal tax purposes at all. ie. My total deductions don't exceed $25,100. But I AM able to itemize for Oregon, since that standard deduction (MFJ) is much smaller, only $4,700 MFJ ($3780 HOH, $2350 single). Not a huge tax offset, since Oregon tax rates are typically only ~9%, but something at least! (IF) Ugh…

 * Doing a 2021 income tax projection – to see if my payroll tax withholding is adequate. I’ll make additional estimated tax payments if it is not (or pay penalties!)

 * Setting up a bright red folder marked "TAXES" and will place all 2021 tax documents there as they come in. Form W-2's, 1099's & Form 1098, pension data

B U S I N E S S

 * Locate and copy purchase invoices & support for any tax credit items (1099-T, for tuition, etc)

 * Order new Quickbooks software & download the software by 12/31. Decide to buy a new laptop or other business equipment. If the equipment cost is less than $2500ea, I'll expense it this year (using the IRS "deminimis" election), reducing my taxable income.

 Be sure to categorize any/all 2021 equipment or software purchases under $2,500ea as EXPENSES (not fixed assets) in your accounting/bookkeeping software, to achieve that "deminimis" expensing tax election. Do not classify any items under $2500 as fixed assets on the Balance Sheet, or you can't make this election. Make a written accounting principle declaration to that effect, in your files on or before January 1st each year.

https://www.irs.gov/businesses/small-businesses-self-employed/tangible-p...

 * Reimbursing myself (from my s corp) for all 2021 biz mileage & business expenses purchased on a personal card. note: sole proprietors & single member LLC's don't need to reimburse, just keep good detailed records & provide those to your CPA

 * Purchasing business supplies, paper, and postage. Reviewing equipment & software needs

 * Paying my corporate payroll taxes due 1-15-22, early & by Dec 31st (I am a cash basis biz).

 * Paying my office rent that is due January 1st (I'd pay business insurance too, if due Jan/Feb)

 * Entering all my accounting data into Quickbooks and reconciling my bank balance now. 12/31 statement can be gotten online so I don't have to wait for bank. I know my data in QB is accurate.

 * Order tax forms NOW (1099's, 1096, W-2, etc) from the IRS. This will take several weeks, so do it now.

 * Complete my personal property tax report (County Assessor should mail those out, later in December. If you filed last year)

 * round up my Goodwill receipts and calculate fair market values & list purchase prices so that i can deduct those as itemized deductions for Oregon.

 Again - the standard deduction for Oregon is much lower than federal, so you may still be able to take itemized deductions for Oregon!

 And if you don’t itemize, remember that potential $600 deduction for cash/check donations (again, please see above for specific rules).

Tax Records - how long to keep?

 Keep forever - all tax returns, real estate basis & improvement records. stock records too

 Keep for 7+ years - all evidence to support taxable income & deductions - (W-2's, 1099's, receipts, cancelled checks, logs, retirement plans, donations, etc.)

 How long should I keep records? | Internal Revenue Service (irs.gov) 

2021 Individual changes? If so, just ask…

 If your 2021 taxable income, deductions, withholding, or estimates paid have changed significantly, it is recommended that you engage my firms services to perform a formal 2021 income tax projection. (to anticipate taxes due, make changes in payroll withholding & determine if additional estimates are required to avoid or stop penalties)

For my individual income tax clients... I look forward to working with you again!

2021 Business changes? If so, just ask...

For my corporate & LLC tax clients - If you haven't asked me to look at your 2021 Quickbooks or other accounting data yet - that's also strongly recommended & now's the time, so I can still be able to peruse the file & comment before 2022. If you are cash basis - NO changes can be made after 12/31/21. 

 If you need help with filing form 1099's, sales or personal property tax reports, or reporting foreign accounts - please request that in writing (as these are not part of the income tax services provided. please see your engagement letter, if you're a tax client).

Tax Season, interviews, organizer…

Your Tax Organizer & appointment will be mailed to you in late December or early January (or I can email you a pdf copy instead, please just ask!). If you have a request for a specific time range or day of the week, let me know soon.

 At this point, with effective vaccines & the covid 19 virus rate decreasing a bit – it is anticipated that 2021 tax interviews can be either in-person (but a bit quicker!) or by phone, or on Zoom. But like last year, most tax data can simply be mailed, faxed, emailed, or even just dropped off at my front desk reception. Please note that the possibility of “in-person” meetings may change, depending on virus conditions during tax season.

Please email if you have any questions.   

Thanks again for your business!

Stay safe & have a great Holiday season!

GARLAND
Garland Taylor CPA, Pres.
Garland R Taylor CPA, PC
205 SE Spokane St Ste 300
Portland, Oregon 97202

(503) 287-5584 telephone
(503) 287-6370 facsimile
cpa@garlandtaylor.com
www.garlandtaylor.com