Date: August 26, 2021
It’s not news that this has been a crazy year. Businesses of all sizes have had to adjust to the pandemic, and some have even thrived in spite of it! Millions of business owners were given government loans for survival during these tough times- with tax credits and payroll taxes deferred until later. Many employees wound up on unemployment for the first time and for unexpected, extended periods of time, adding financial pressure to an already taxing situation. Many individuals and businesses filed extensions for their taxes which are coming up in the next 60 days.
As you well know, taxes, while required, are no fun. We all pay a great deal in taxes for our business and personal life (most often more than necessary). You may wonder if you should talk to your accountant about how you can minimize your tax liability for 2021. If you don’t want to get a surprise tax bill in a couple of months, then yes, you definitely should!
What are some questions you should ask your accountant? Here are the top five:
1) Are my estimated tax payments correct? Throw your previous year’s income out the window. You can’t really predict what will happen this tax season because it is unprecedented for many people, some making a lot less and others who have been very lucky with their finances and made more than they could’ve ever imagined! In the end, it’s important to pay what is owed so that there are no surprises come tax season and so you don’t pay penalties unnecessarily. Ask your accountant what your “safe-harbor payment requirements” are.
2) What’s the impact of the government stimulus on my taxes? Did you take advantage of the PPP (Paycheck Protection Program) loans? If your loans are forgiven, then you won’t be taxed on the forgiven loans as income. You can also deduct your expenses that facilitated the forgiveness of your PPP loans. There are other government stimulus programs that will have an impact on your tax situation as well if you pay employees for time off under the Family First Coronavirus Relief Act (FFCRA) or if you took advantage of the Employee Retention Tax Credit (ERC). If payroll taxes were deferred, they still need to be paid next year and all these factors must be considered with your accountant before filing federal income taxes for this year. Ask your accountant how the covid relief programs will help or hinder your taxes due this year.
3) Should I put more away for retirement? Did you know that you could literally be penalized for saving too much? The tax code spells out specific ceilings on how much you are able to contribute each year for a tax deduction. Some business owners (and unfortunately some CPAs) see this as a go-to strategy even when the total effect is net cash outflow (meaning you’re spending more money than you would have just paying the tax due). There is definitely a strategy component when it comes to saving for retirement, ask your accountant what the ideal amount to contribute should be and how much you should be contributing throughout the year.
4) Should I buy capital equipment? This is your chance to invest in your business at an affordable price. With the economy hovering around recession levels, many people are using spare cash or taking advantage of low-interest rates and investing it into needed items such as vehicles, technology, equipment, etc. A great way to take full advantage of this opportunity would be by exploring the bonus Section 179 deductions – which allow you to deduct 100% on qualified capital purchases made within one year without having to make any adjustments for depreciation calculations that may reduce taxable income down the line! However, if you received an Economic Injury Disaster Loan (EIDL) loan you are limited in how you can use those funds for capital asset purchases. Ask your accountant which capital assets qualify for the bonus depreciation and how depreciation recapture in the future will impact future earnings.
5) What strategies are you suggesting for my situation this year to save me money in taxes? You may be able to deduct more for your home office. But then again, you may owe more payroll taxes for employees who are working out of state. It’s a confusing environment right now and, depending on the specific makeup of your company and employees, you’ll need to make sure before filing anything that you understand if any potential liabilities or benefits could arise- this year has been hugely disruptive with major changes being made even as we speak! Now is the best time to ask your accountant what proactive strategies they suggest you implement and exactly how much they are saving you in taxes.
If your accountant can’t answer any of these questions confidently and with clarity, we’d be happy to help ensure you don’t overpay in taxes unnecessarily. It’s what we do every day. Click HERE to find out how our clients save an average of $18,479/year in overpaid taxes.