Author: Suzanne Watson

DEDUCTION ERRORS

According to the Treasury Inspector General for Tax Administration, the IRS allowed business owners to claim $57 million in potentially erroneous qualified business income deductions on 2019 tax returns. The way this pass-through deduction is written is very complicated, and it’s part of the reason for the deduction errors.

SLASHED CONTRIBUTIONS

The COVID-19 pandemic caused many businesses to change how they contribute to employees’ 401(k) accounts. It’s estimated that 46,000 401(k) plans were affected because companies paused discretionary funding to employees’ accounts, cutting back on matching contributions or ditching all matching contributions.

ECONOMIC EDUCATION

A new study in the Journal of Children and Poverty revealed that youths with a savings account in their name, regardless of the balance, were approximately six times more likely to attend college than those with no account. Additionally, growing up in a family that manages assets well — such as savings and equity in a home — shows that assets, not income is associated with college success.

MOM FACTS

According to a study by the Pew Research Center, the median age that a woman becomes a mother is 26, up from 24 in 1994. And highly educated women are increasingly becoming moms. Eighty percent of women with a Ph.D. or other professional degree have given birth. And a rising share of births to foreign-born mothers is increasing diversity as nearly one-third of all births in California, New York and New Jersey were to mothers who were born outside the US.

QUESTION:

I recently moved. How do I notify the IRS of my new address?

ANSWER:

You will need to officially notify them of your new address. Changing your address with the post office won’t cut it. You can accomplish this in a few different ways. First, you can complete Form 8822, the change of address form, or write a letter. If your address changes before filing your tax return, you can simply use your new address on your return and the IRS will make the update for you.

QUESTION:

Does providing my customers with an early payment discount make sense for my new business?

ANSWER:

Start with asking yourself do you need to have customers pay faster because you need the cash? If you’re in a pinch to make payroll or pay rent, then it might make sense. But remember that offering a discount cuts into your profit margin. So ensure your business can afford it. And just because you provide an early payment discount to speed up cash flow doesn’t mean your customers will take it. Be sure to have a backup plan to meet any short-term cash flow needs.

QUESTION:

How long should I keep my tax records?

ANSWER:

Generally, three years, but up to seven if you’re self employed or reported losses.

Company culture is defined as the values, goals, practices and attitudes that represent the personality of an organization. Worker satisfaction is highest when employees’ personal views are in sync with a clearly defined company culture.

WHAT DO YOU VALUE?

Start by establishing the beliefs, philosophies and principles that will drive business. Do you value individual effort or collaborative approaches? Do you stick with a traditional hierarchy or prefer something more fluid? Dialing in on these foundational views empowers your employees to make the right choices.

LET IT DEVELOP

After you’ve identified your company values, norms of behavior will naturally develop. If you value employee autonomy, you may allow employees to set their own schedules. Employees will learn that as long as they complete their work on time, it doesn’t matter when they get it done.

SUSTAIN IT

Your business success relies on maintaining your corporate culture. Openly and regularly communicate the company’s values with employees. Celebrate successes and include everyone, not just those who “sealed the deal”. Building a community reminds employees what they’re working towards.

The American Rescue Plan Act, signed into law in March 2021, made significant changes to the child tax credit for 2021 only — unless Congress extends these changes.

OLDER CHILDREN COVERED

The tax credit now includes children who are age 17 as of December 31, 2021.

INCREASED AMOUNT

The credit amount increased from $2,000 to $3,000 per child aged 6 to 17 and $3,600 for children under age six, as of December 31, 2021.

ELIGIBILITY

Calculating the total credit is difficult, because there are two phaseout rules that apply. The credit is reduced—or eliminated—for parents who earn above a certain amount. Your tax professional will be able to calculate how much, if any, tax credit you might receive.

ADVANCE PAYMENTS

The IRS will estimate your child tax credit for 2021 and half of it will be paid to you in monthly installments from July through December 2021.

The remaining amount due to you will be credited when you file your 2021 tax return. However, if you file your 2021 tax return and the advance payments you received exceeded your actual credit, with a few exceptions for low and moderate-income taxpayers, you’ll have to repay the excess.

The Roberts family hired a live-in au pair to help care for their children while the parents work. One of their co-workers mentioned something about a “Nanny Tax,” and the Roberts aren’t sure if it applies to their situation.

In the IRS’s eyes, au pairs and nannies fall into the category of household employees. With a few exceptions, if your au pair is considered an employee because you control when and how they work, you’ll need to withhold and pay Social Security and Medicare taxes if they earn at least $2,300 in 2021. You may also need to pay federal unemployment tax if they earn more than $1,000 in a calendar quarter. This is on top of any state employment taxes you may be required to withhold or pay.

And while you’re not required to withhold federal income tax, your employee may ask you to. You would need to get a Form W-4 from them. If you withhold any taxes from your employees, you’ll need to provide a W-2 each January. Incorrectly classifying your au pair as an independent contractor to avoid paying payroll taxes can have harsh consequences.

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