Face this Fall with a Personalized Tax Plan
As fall begins, I want to remind you that I am always available to discuss your tax situation and case with you. Please do not hesitate to schedule a time to speak with me.
Our hearts are with the people, businesses, animals, and environment affected by the California wildfires this season. If you have been affected by the fires, please let us know, we may be able to help tax-wise. We have also made a donation to the American Red Cross towards wildfire relief.
My best to you,
Please call if you would like to discuss how this information could impact your situation. If you know someone who could benefit from this newsletter, feel free to send it to them.
- Filing deadline for 2020 calendar-year S corporation and partnership tax returns on extension.
- 3rd quarter installment of 2021 estimated income tax is due for individuals, calendar-year corporations and calendar-year trusts & estates.
- Filing deadline for extended 2020 individual and C corporation tax returns
In This Issue
- Upcoming Webinar: Estate Planning for Owners of Closely Held Businesses.
- Tax Planning: With a little over four months remaining until you can begin filing your 2021 tax return, now’s the time to kick your tax planning into high gear.
- Small Business News Update: Get up to date with a summary of top of mind business tax news.
- Paycheck Check Up: make sure you have the right amount of tax withheld.
- Did You Know?: Even Non-Income Tax States Have Taxes.
- Steve’s Recent Podcasts and Webinars.
Upcoming Webinar: Estate Planning for Owners of Closely Held Businesses Wednesday September 22, at 12pm PST
Did you know that small, family-owned, or ‘closely-held’ businesses have special estate planning opportunities?
Estate planning for owners of closely-held businesses is designed to avoid unintended consequences. The death of an owner can have significant estate and gift tax consequences that can be mitigated with lifetime and post-mortem estate planning techniques.
We will discuss estate and tax planning strategies for owners of closely-held businesses under current tax law and in light of proposed tax law changes.
Time to Schedule Your Tax Planning Session
Now is the time to schedule a tax planning appointment. If you are on the fence, here are some things to consider:
Tax Planning can make a difference.
This is especially true if you have a major event that occurs during the year. Even in uneventful years, external forces like new tax laws can be managed if planned for in advance.
- Selling a house? You can avoid taxes if primary residence requirements are met.
- Starting a business? Choosing the correct entity can lower your taxes every year!
- Getting ready to retire? Properly balancing the different revenue streams (part-time wages, Social Security benefits, IRA distributions and more) has a huge impact on your tax liability.
Put yourself in control.
Timing is important when it comes to minimizing taxes, and the timing is often in your control. For instance, bundling multiple years of charitable contributions into one year can create an opportunity to itemize deductions. Plus holding investments for longer than one year to get a lower tax rate, and making efficient retirement withdrawals are other examples of prudent tax strategies that you control.
There are tax planning opportunities for every level of income.
There are tax strategies to be implemented at all income levels, not just those at the top of the tax bracket. Tax deductions are available for student loan interest, IRA contributions and others even if you claim the standard deduction. Certain tax credits (called refundable credits) will increase your refund even if you don’t owe taxes. Missing any of these tax breaks can unnecessarily increase your taxes.
There may still be COVID tax breaks.
While it’s true that many one-time tax breaks were offered for only the 2020 tax year, there are still plenty of COVID tax breaks available in 2021. Some of these tax breaks include an expanded child tax credit, an increased child and dependent care credit, the ability to roll forward unused funds in your Flexible Spending Account and charitable deductions that are available to all taxpayers, even if you don’t itemize your deductions.
Moskowitz tax software is easier than ever.
Using our tax software has never been easier:
- You can now upload tax documents ALL AT ONCE, and our software will automatically identify and sort the tax form type by form number.
- You can now connect securely to each of their banks and brokerages without sharing their passwords with us. When the banks and brokerages release new tax documents, they will automatically appear in our document drawer ready for review and import into the tax return.
- You can now utilize forecasting software through our partnership with Jirav.
- Utilize Quickbooks Online. We will help you set up your accounts for online bookkeeping.
California SALT Workaround.
The budget deal reached by the Governor and lawmakers contains a mixture of tax relief measures, ranging from another round of Golden State Stimulus Payments, a workaround for the federal $10,000 SALT limitation for certain passthrough entity owners, as well as extensions and expansions of various tax incentives and grants.
For the 2021 through 2025 taxable years, qualified S-corporations, partnerships, and LLCs doing business in California that are required to file a California return can make an election to pay a passthrough entity tax equal to 9.3% on qualified net income.
The advantage of making this election is that it allows these passthrough entities to pay 100% of the tax at the entity level and reduce the amount of net income passed through to the owners, without the tax on the passthrough income being subject to the $10,000 state and local tax limitation on the owner’s federal return. This type of SALT workaround has been approved by the IRS.
Thankfully, it’s not too late to get on track for 2021. If you haven’t scheduled a tax planning session, now is a great time to do so. Remember, we do not charge for analysis.
Small Business News Updates
If you are a small business owner, it is in your best interest to stay up-to-date with changes in both local and federal regulation as well as market trends.
Here are some recent news items to help make sure you are ahead of the game:
The Senate passed a $1.2T Infrastructure package & Reconciliation legislation
The INVEST in America act is the largest upgrade to the country’s roads, bridges, and broadband in decades. The House voted to approve the Senate -passed fiscal year 2022 budget resolution that provides for instructions for this spending that would be offset in part by corporate and individual tax increases.
People are Quitting Their Jobs at a Higher Rate
Approximately two million more people than expected have ‘retired’ over the last year and a half. The economy is changing, and business owners should be aware of how the hiring pool is changing.
PPP Forgiveness – New Portal for Businesses
The government developed a new portal through which small businesses that borrowed up to $150,000 can apply to have their loans forgiven. The portal can be accessed through SBA.GOV.
Prop. 22 /AB5 UPDATE
AB5, effective January 2000, aims at recognizing independent contractors as employees, codified into state law by a previous California Supreme Court decision setting forth an “ABC” test to determine if a worker is an employee or an independent contractor. That test says a worker is an employee, unless it can be certified that:
- A: the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and;
- B:the worker performs work that is outside the usual course of the hiring entity’s business; and
- C: the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
The California Trucking Association challenged AB5, and appears to be headed to the Supreme Court.
Prop22, as approved by voters in November 2020, still classifies some workers, notably app-based workers, as independent contractors. However, an Alameda superior court has struck down Proposition 22 as unconstitutional because it:
- Limited the Legislature’s ability to enact future legislation concerning the app-based drivers’ workers’ compensation in violation of the California Constitution
- Violated the single subject rule because it dealt with both the drivers’ worker classification and the Legislature’s ability to legislate concerning the workers’ collective bargaining rights.
Uber and Lyft have stated they will appeal the ruling. The lower court’s ruling will likely be stayed throughout the entire appeal process.
STEP Grant program for website globalization
The STEP grant program has helped thousands of small businesses obtain grants and find customers in the international marketplace since 2011. Through awards to U.S. states and territories, STEP helps small businesses overcome obstacles to exporting by providing grants to cover costs associated with entering and expanding into international markets.
STEP financial support helps U.S. small businesses:
- Learn to export
- Participate in foreign trade missions
- Design international marketing products and campaigns
- Support website globalization and e-commerce capabilities
- Pay for subscriptions to services provided by the U.S. Department of Commerce and other federal agencies
- Participate in export trade show exhibits and training workshops.
Contact us for ideas on how your business may qualify for these government grants.
For more ways to save on your businesses year-end tax bill, check out our recent blog post:
7 Things You Should Do Before Year-End To Reduce Your 2021 Tax Bill
Moskowitz LLP encourages everyone to use the Tax Withholding Estimator below to perform a “paycheck checkup” at least once a year.
This will help you make sure you have the right amount of tax withheld from your paycheck, and therefore avoid penalties and interest. Use your results from the Tax Withholding Estimator to help you complete a new Form W-4, Employee’s Withholding Certificate, and submit the completed Form W-4 to your employer as soon as possible.
Clients with more complex income and tax situations should schedule a tax planning meeting with Moskowitz LLP as soon as possible.
With the increased popularity of working-from-home, you may consider moving to one of the nine states that don’t impose an individual income tax. Before doing so, you should understand how each of these states raises it’s revenue. Then consider how you can reduce your tax obligation in your home state.
According to Kiplinger and the Tax Foundation, here is how the nine states that collect no individual income tax, collect money from their residents.
- Alaska is one of five states with no sales tax, but local jurisdictions may impose sales taxes, with rates reaching 7.5%. The average is 1.76%.
- The median property tax rate is $1,182 per $100,000 of assessed home value, slightly above the national average.
- The statewide sales tax is 6%, but local jurisdictions can add up to 2.5%, with an average combined rate of 7.08%.
- The median property tax rate is $830 per $100,000 of assessed home value, a middle-of-the-road figure nationally.
- The state sales tax rate is 6.85% while local jurisdictions can add up to 1.53%. The average combined rate is a lofty 8.23%.
- The median property tax rate is $533 per $100,000 of assessed home value, one of the lowest in the country.
- Besides no state income tax, this tax haven has no state or local sales taxes.
- Property tax is the main revenue source. The median property tax rate is $2,050 per $100,000 of assessed home value, the third-highest rate in the U.S.
- The 4.5% state tax may increase to an average combined rate of 6.4%, below the national average.
- The median property tax rate is $1,219 per $100,000 of assessed home value, above the national average.
- Tennessee previously had an income tax on dividends and interest, but it disappeared after 2020. The current 7% state sales tax rate may be combined with a 2.75% on sales of single items for an overall maximum rate of 9.55%, the highest in the U.S.
- The median property tax rate is $636 per $100,000 of assessed home value, below the national average.
- The sales tax in the Lone Star state is 6.25%, plus local jurisdictions can add up to 2%, with an average combined rate of 8.19%, which is well above the national average.
- The median property tax rate is $1,692 per $100,000 of assessed home value, which is a tie for the seventh-highest rate in the country.
- Municipalities can increase the 6.5% state levy by 4% for an average combined rate of 9.23%, the fourth-highest in the nation.
- The median property tax rate is $929 per $100,000 of assessed home value. This is middle of the pack.
- Unlike the other eight states, Washington has an estate tax, with a $2.193 million exemption (indexed for inflation). Tax rates range from 10% to 20%.
- The 4% sales tax may be increased by municipalities for a combined rate of 5.33%. This is the eighth-lowest in the U.S.
- The median property tax rate is $575 per $100,000 of assessed home value, tied for the tenth-lowest in the nation.
Here are some ideas to lower your property and sales tax bills:
- Appeal your property’s valuation assessment.
You may be able to lower your property tax bill by providing evidence that your home’s assessed value should be lower. Start your appeals process by contacting your county assessor’s office. Some appeals can be done online, while others may require a visit to your assessor’s local office. Moskowitz LLP has a robust property tax appeals practice group. Contact us for help.
- Shop during tax-free weekends.
Many states feature one or two weekends each year where sales taxes are suspended. These sales tax holidays sometimes correspond to high volume shopping periods, such as back-to-school sales in late summer.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.
Listen: Steve’s Recent Podcasts
- Wealth Formula Podcast: Is the IRS Going to Audit You?
- Your First $100K Show – Life Coaching, Digital Marketing, & Business Growth
- KGO Radio: Small Business Benefits in the American Rescue Plan
- Little Known Tax Strategies That Could Save you a Fortune – Bacon-Wrapped Business with Brad Constanzo Podcast
Watch: Steve’s Recent Webinars
- IRS Cryptocurrency Enforcement policies of ‘Operation Hidden Treasure’
- Restaurant Relief- How You Can Receive Benefits
- Employee Retention Tax Credit
- California Tax Exit Planning: Key State Tax Issues and Shifting Residency to Maximize Tax Benefits
- CARES Act, Cost Segregation, & Property Owners