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2021 Q1 tax calendar: Key deadlines for businesses and other employers

Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2021. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

January 15

  • Pay the final installment of 2020 estimated tax.
  • Farmers and fishermen: Pay estimated tax for 2020.

February 1 (The usual deadline of January 31 is a Sunday)

  • File 2020 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
  • Provide copies of 2020 Forms 1099-MISC, “Miscellaneous Information,” and 1099-NEC, “Nonemployee Compensation” to recipients of income from your business where required.
  • File 2020 Forms 1099-NEC reporting nonemployee compensation payments in Box 1 with the IRS.
  • File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2020. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.
  • File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2020. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944, “Employer’s Annual Federal Tax Return.”)
  • File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2020 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.

March 1 (The usual deadline of February 28 is a Sunday)

  • File 2020 Forms 1099-MISC with the IRS if: 1) they’re not required to be filed earlier and 2) you’re filing paper copies. (Otherwise, the filing deadline is March 31.)

March 16

  • If a calendar-year partnership or S corporation, file or extend your 2020 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2020 contributions to pension and profit-sharing plans.

© 2020

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Red flags of deadbeat debtors

Unfortunately, many businesses have experienced problems with collections during the COVID-19 pandemic. Accounts receivable are a major item on most companies’ balance sheets. Slow-paying — or even nonpaying — customers or clients adversely affect cash flow. Proactive measures can help identify collections issues early and remedy them before they spiral out of control.

Recognize the warning signs

To stay on top of collections, be aware of the following red flags:

Anonymous clients. Some prospective customers don’t seem to exist anywhere other than, say, a vague email address. This is a sign to move cautiously. It’s not too much to expect that even start-up businesses have some sort of online presence, a physical address, and a working email address and phone number.

Empty assurances. One warning sign is clients who ask that work on their product or service start immediately, but without providing assurances that payment will be forthcoming. In some industries, it might be common practice for suppliers to provide goods or services, and follow up with invoices later. When that’s not the case, however, consider the lack of credible assurances to be a warning sign. That’s especially true if a prospective customer is vague on the budget for a project.

Future earnings as payment. Customers who promise some portion of future earnings as payment may be legitimate. But, before you begin work, nail down the terms and decide if the potential reward compensates for the risk.

Perpetual nitpicking. A client who regularly finds fault with minor details of a project may keep it from ever getting off the ground. While clients have a right to expect the level of quality promised at the outset of a project, those who seem to continually search for reasons to criticize products or services may be using their purported dissatisfaction to avoid paying for their purchase.

Take precautionary measures

If you’re skeptical you’ll be able to collect from a customer, it’s wise to ask for a retainer or deposit up front before starting a project. You can also request progress payments while the project is in process. Additional steps that can help expedite collections include:

  • Following up with a firm, but tactful, email when an invoice is overdue.
  • Moving to a phone call if follow-up emails aren’t generating a response.
  • Trying to contact the customer’s accounts payable staff or business manager, if previous follow-up efforts aren’t working.

If you have clients that continue to withhold payment after these steps, it may be time to take legal action. When it’s necessary to pursue missing payments, persistence pays off.

Need help?

Delinquent payments and write-offs can damage your company’s operations and profitability. Contact us if your business is experiencing collections issues. We can help you sort out your options.

© 2020

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January 2021 Short Bits

MORE DEDUCTIONS

According to the IRS, nearly 88% of taxpayers claimed the standard deduction in 2018. This is up from 68% in 2017. The increase is likely attributed to the increase in the standard deduction in 2018, thanks to the Tax Cuts and Jobs Act, which increased the standard deduction from $6,350 in 2017 to $12,000. Fewer taxpayers found enough itemizable deductions to overcome the hefty standard deduction.

WORK TENURE

The Bureau of Labor Statistics announced that employee tenure at January 2020 was 4.1 years and has barely changed from January 2018 when it was 4.2 years. Manufacturing employees remained with an employer the longest at 5.1 years and by contrast, employees in the hospitality sector had the shortest tenure at just 2.3 years.

HOUSING BOOM

The first half of 2020 saw a near record amount of mortgage lending thanks to record low interest rates. A total of $1.8 trillion was lent in the first six months of 2020, just off the record of $1.82 trillion, set in the first half of 2003, according to Black Knight, a mortgage data company. The average mortgage loan size has also increased. But due to the current economic situation, lenders are requiring more information and real-time employment verification making applying and qualifying for a mortgage tougher.

CREDIT JUMP

According to Experian, the average FICO credit score in 2019 was up 2 points to 703. And 1.2% of Americans held a perfect 850 FICO score. This is a result of Americans making better credit decisions and actively monitoring their credit for accuracy. By state, Minnesota consumers come in with the highest average rate of 733 in 2019 while Boulder, Colorado’s consumers hold the highest score for a city at 743.

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January 2021 Questions and Answers

Question:

I worked as a ride share driver for the first time in 2020. What will I have to pay tax on?

Answer:

Ride share drivers have to pay tax on the total income they receive from the ride share service, less all applicable deductions. You’ll be able to deduct your ride share mileage at the IRS (2020) rate of $0.575 per mile. And if you incurred parking fees or tolls while driving, you can deduct those too.

If you made more than $600 in 2020, you will receive a 1099-NEC form from the company. This form will tell you how much income you made that you need to report.

Question:

We sold our home last year. Will we have to pay taxes on the sale?

Answer:

If the home you sold is your primary residence and you lived in it for two of the last five years, up to $500,000 of the gain is excluded from your federal income tax, if your tax filing status is married filing jointly.

But if you sold a primary residence within the last two years, you can’t claim another exclusion for two years. There are some exceptions for events such as divorce or death of a spouse. Consult your tax professional if your situation is not straightforward.

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Building Lasting Relationships with a Loyalty Program

Do you know that it costs five times more to attract a new customer, than it does to retain an existing one?* That is just one reason why companies focus their efforts on customer retention.

THE VALUE OF CUSTOMERS

According to research conducted by Bain and Company, current customers are 50% more likely to try a new product of yours as well as spend 31% more than new customers. The study also revealed that increasing customer retention rates by 5% increases profits by 25% to 95%. Happy customers also send referrals your way and advertise your brand.

CUSTOMER LOYALTY PROGRAMS

A loyalty program does more than reward customer loyalty. It attracts new buyers and enables you to collect data about who is buying your products. This insight helps you to make informed decisions about marketing strategies that reach your target audience. The statistics also provide details about what products are preferred, which can assist when buying inventory.

LOYAL RELATIONSHIPS

Customer retention and referrals bring continued business while keeping costs to a minimum. There are many types of loyalty programs from which to choose. It all impacts your bottom line.

*Research by Fred Reichheld. Fellow at Bain and Company

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January 2021 Client Profile

Josh is starting a new landscape business. He’s heard bits of information about various business structures, including sole proprietor, LLC and an S-Corp. Which of these forms of business would offer him the most tax advantages?

Entity selection can be confusing. For tax purposes, limited liability companies with only one member are considered disregarded entities and are viewed the same as a sole proprietor. Although these two provide different legal protections, for tax purposes, there is no difference.

Regardless of whether Josh legally forms his business as a sole proprietor or a single member LLC, he can choose to be taxed as an S-Corp which would enable Josh’s business to take certain tax breaks not available to sole proprietors. Josh will be an employee of the the S Corp. and he’ll avoid paying self-employment tax by paying himself a reasonable salary. If he does that, he’ll be able to take distributions of the company’s profits tax-free since the IRS considers this a distribution of equity. Many factors, including industry and size of the company, will determine what is considered to be a reasonable salary.

Client Profile is based on a hypothetical situation. The solutions we discuss may or may not be appropriate for you.

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Estate Planning Checklist

Estate planning is the process that allows you to designate what happens to your assets when you become incapacitated or die. Using a checklist can help you get started.

1. TAKE INVENTORY

Make a complete list of all your assets. While you’ll want to include the obvious ones like your home and bank accounts, don’t forget about other valuables like jewelry and artwork. And if you have any recent appraisals for your home or jewelry, use those to estimate the value of your assets.

2. REVIEW YOUR NEEDS

Do you have children that you need to provide for and are they young enough that you need to name a guardian for them? Do you have enough life insurance to support your family, if needed? Take a careful look at what your family will need and talk with your financial professional to initiate a plan.

3. CREATE DIRECTIONS

You’ll want to ensure that all your directives are current, in writing and in compliance with your state’s laws. A trust can help you bypass the probate process and provide control of how your assets are distributed. A medical directive, also called a living will, lays out your medical wishes in the event you are unable to make decisions for yourself. And a durable power of attorney allows you to appoint someone to handle your financial affairs if you’re unable to do so for yourself.

4. REVIEW DESIGNATED BENEFICIARIES

It’s good to review your beneficiaries regularly and certainly after major life events, like having a baby or getting married. Ensure the beneficiary information on life insurance and retirement accounts align with your will. If there are differing beneficiaries, your state’s laws may dictate that designated account beneficiaries trump what your will says.

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Get Prepared

Now’s the time to get your company’s books ready for tax time.

Your tax preparer may have a checklist to help you get organized. Start by reconciling your accounts as of December 31.

If you owe any 1099s to independent contractors, you have until the end of January to get those out and don’t forget you’ll need to send copies to the IRS.

Pull out receipts for depreciable assets purchased in 2020. Your tax preparer will need these to update your records and calculate depreciation for your tax return.

Once you have all your tax documents ready, call your tax professional to schedule your appointment early so you can file your taxes on time.

A word to the wise: Do not underestimate the importance of accounting for the survival and growth of your business. Work with your accountant throughout the year–not just at tax time–to monitor cash flow and profits.

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Home Ownership Comes With Tax Breaks

Your house can provide you with more than just shelter. It can provide you with some significant tax breaks if you itemize deductions. Learn more about the most common tax deductions your home can deliver.

MORTGAGE INTEREST

To be deductible, mortgage interest can be for your first and second home. However, only interest on $750,000 of indebtedness is deductible if your mortgage was taken out after December 15, 2017. There are similar limitations on older debt and if you rent your home out, there are use requirements that you must meet in order to deduct the interest.

MORTGAGE POINTS

You can pay “points” to lower your monthly mortgage payments. However, points are complicated, affect your taxes and too often, homeowners do not recoup their upfront investment. If you refinance, pay off or sell your home before you reach the break-even point, you will not regain your money. A good lender can help guide your decision.

MORTGAGE INSURANCE

For borrowers who pay mortgage insurance as part of their mortgage, the good news is that it can be deductible if the mortgage was obtained after 2006. And this deduction begins to phase out for adjusted gross incomes above $50,000 for single filers.

PROPERTY TAXES

Most homeowners who itemize deductions will be able to deduct property taxes paid to their state and local governments. But the maximum amount of property taxes that are deductible is $10,000. The taxes must have been due and paid by the end of the year to be deductible. So, unfortunately, any prepaid taxes will be deductible in the year it was due, not paid.