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November 2021 Client Profile

Tiffany started a t-shirt company and she needs to inventory her remaining stock for the end of the year. How can she determine a value for her remaining shirts?

Tiffany will want an accurate year-end tally so that her inventory and costs are correct for the year. After she has physically counted the shirts she has on hand as of December 31, she has a few methods to choose from to determine their dollar value.

LIFO

Short for “last-in, first-out.” This implies that the remaining shirts are the oldest because the last ones she received were the first ones out the door when a customer made a purchase. Therefore, she assigns the oldest price to each shirt.

FIFO

The opposite of LIFO, “first-in, first-out” means that the inventory is sold in the order it was received. This means the newest shirts remain in stock at the more recent cost.

Specific Identification

This method groups pieces of inventory together based on when they were purchased, how much they cost and any additional costs that are incurred until sold.

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

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The Advance Child Tax Credit

When Congress enacted the American Rescue Plan in early 2021, it increased the child tax credit and required half of it to be paid in advance via monthly payments. While it’s intended to help families with everyday expenses, there are tax considerations to keep in mind.

RECEIVED TOO MUCH?

Advance payments are based on the IRS’ estimate of your 2021 child tax credit using your most recent tax return. Generally, if the total payments received are more than the actual 2021 credit, you’ll need to repay the excess. There are repayment exceptions for some lower-income taxpayers.

Repayment could happen if you have a child you’ve previously claimed but who is now no longer your dependent or if your income increased and it’s now above the limits. The child tax credit begins to phase out for single taxpayers with adjusted gross income above $75,000 ($150,000 for married filing joint).

OPTED OUT?

If you opted out of the advance payments, you’ll still be able to claim the credit on your 2021 tax return as you have in the past.

BREAK EVEN OR NO REFUND?

If you historically break even on your tax return, either owing very little or receiving a small refund, receiving advance payments may cause you to have to pay when you file your 2021 return.

For example, with a 10-year-old child, the credit was worth $2,000 in 2020, which lowered a family’s tax bill by that amount when they filed their return. In 2021, the credit will be $3,000 for the same child, but half was paid in advance. When the family files their 2021 taxes, there will only be $1,500 left of the child tax credit to lower their tax bill. Everything else being equal, they will owe $500 more in 2021 than they did in 2020.

Reach out to your tax professional to discuss how the advance child tax credit will impact your 2021 taxes.

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Understanding Form 1099 For Your Business

In January, your company may need to send 1099s to certain individuals and some businesses. And you might receive a few. Learn about the common Form 1099 that companies send and receive.

TAX ID NUMBERS

All 1099s are called informational returns and require a tax identification number (TIN), which could be a Social Security Number (SSN) or an Employer Identification Number (EIN), depending on how the company is structured. Ask your vendors to complete Form W-9 before making any payments to them. This document provides all the information you’ll need for tax reporting, including company name, address, TIN and tax classification.

NON-EMPLOYEE COMPENSATION

Form 1099-NEC is the most common informational return, and it’s sent to anyone you paid $600 or more for services in 2021. This excludes employees who will receive a Form W-2 for their wages. A 1099-NEC is sent to sole proprietors, partnerships and most limited liability companies who worked for your business. Examples include independent contractors, janitors, attorneys, and anyone you paid who’s not on your payroll.

MISCELLANEOUS PAYMENTS

You may have made other reportable payments during the year that you’ll need to include on Form 1099-MISC. This may include rent, royalties, medical and health care expenditures or funds you paid to an attorney for a settlement agreement. But don’t include the attorney’s fees for the legal service and advice they provided. Those are reported on 1099-NEC.

CREDIT CARD PROCESSING

If your business accepted credit card payments during the year, you might receive a Form 1099-K from your merchant processor. However, if you use a third-party payment network like Paypal, they must provide one to you if you received more than $20,000 and had more than 200 transactions in the year.

CHECK THE CALENDAR

Generally, 1099s must be provided to the recipient by the last day of January with copies sent to the IRS by February 28 if filing paper forms, or March 31 if you submit them electronically. However, there is an exception for the 1099-NEC, which is due to the recipient and the IRS by January 31.

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November 2021 Client Line

Understanding Form 1099 For Your Business – learn about the common Form 1099 that companies send and receive.

The Advance Child Tax Credit – the child tax credit is intended to help families with everyday expenses but there are tax considerations to keep in mind.

November 2021 Client Profile

Nuts and Bolts of Exchange-Traded Funds – an exchange-traded fund can add diversity to your investment portfolio.

Social Media For Your Small Business – keep these tips in mind when promoting your business online.

November 2021 Questions and Answers

November 2021 Short Bits

Form 1099 For Individuals – common 1099s an individual may receive