Thompson Accounting

This isn’t really new its just a reminder. You can not provide services within your S-Corporation and avoid paying payroll taxes on amounts that are easily identifiable as wages. The proper way to avoid this trap is to take a reasonable amount for the services you provide for your S-Corporation then if you have excess profit you can occasionally pull some money without charging it through payroll. Failure to follow this advice could end up costing you a bundle.

Stimulus check for 2020 were issued by the IRS during 2020 based on 2019 income tax returns. They are reconciling the stimulus checks on the 2020 tax return which is currently being filed. I am finding that many people with children between 17 and 24 that have earned income actually benefit from allowing their children to claim themselves as dependents. Everyone may not benefit from this strategy and the best way to know is to look at it both ways. I can do this for you if you’ll come see me.

The standard mileage rates for 2020 are as follows:
Business – .575 per mile
Medical / Moving .16 per mile
Charity – .14 per mile.

Of course you need to keep a good mileage log.

If you received unemployment in 2020 and filed your return prior to 03/16/2021 you probably need to amend your return. That is because the Stimulus package that was passed by Congress last week made up to $10,200 of unemployment not taxable. If you need to amend your return we can help you with that.

For individuals who filed a 2019 tax return and had direct deposit to a checking account you don’t have to do anything. If you have not filed a 2019 the IRS will use information for your 2018 tax return if you provided your banking information for payment or a refund. For those who were not required to file they will have a portal you can complete and submit to get your stimulus money quicker. They will also have a simple return that can be submitted. At the moment neither of those options are ready. Here is a link for individuals to get the most current information.

Business information is available here.

With the COVID-19 virus and preferred social separation going on I would like to inform you that we are very capable of preparing your return through electronic communication methods. I have some exciting videos planned but I feel I need to get this message out faster. If you can use a smart phone and email we can prepare your return and you never have to leave your home. You will need a pdf distiller on your phone (I use and recommend Genius Scan) so you can scan documents such as W-2s and 1099’s and email them to me. Please encrypt anything you send and call us with the password. I recommend you call and get a planner from us, complete the planner and then send the documents using your smart phone. Once we have the documents we will call you on the phone to ask question or give you the opportunity to ask questions. It really is that simple and we can schedule phone calls to meet your schedule. We have more coming and I am excited about helping you electronically. Call me and lets get started.

Finally a tax break to help small business.  This will include anyone getting pass through income such as a sole proprietor, Sub S income, LLC, or LLP.  Individuals who earn income through pass-through businesses may qualify to deduct from their income tax an amount equal to up to 20% of their “qualified business income” (“QBI”) from each pass-through business they own.  QBI is the net income (profit) your pass-through business earns during the year.  It is essentially net income from your pass through businesses. QBI includes rental income so long as your rental activity qualifies as a business it will qualify too.

20% Deduction for Taxable Income Below $315,000 ($157,500 for Singles)

Now here is what I see as a planning point.  In the past it has always been beneficial to be an employee as opposed to a 1099 contractor.  With this 20% deduction most people would benefit from being a 1099 contractor.  Certainly worth taking a look at the total picture.  I’ll have more on this later.

Long Term Capital Gains Tax Rates

	Single	Joint	Head of household
0% tax bracket	$0-38,600	$0-$77,200	$0-$51,700
beginning of 15% tax bracket	$38,601	$77,201	$51,701
beginning of 20% tax bracket	$425,801	$479,001	$452,401

Don’t forget that Net investment tax of 3.8% will apply at certain modified adjusted gross incomes.

As many of you know the federal income tax laws have so dramatically changed that many of you that have previously itemized deductions on schedule A will no longer benefit from doing that on your federal return. This is due to the tremendous increase in the standard deduction and most folks simply will not benefit from itemizing on their federal returns any longer. Most of the returns that we saw this year will pay lower income tax bills many are $2K or more in tax savings. However, for State of Alabama return nothing major has changed so if you have been itemizing you should continue to gather and submit the same information that you are accustomed to gathering. Don’t get lazy or you’ll end up losing a large portion of your federal tax saving to the state.

A Qualified Charitable Distribution (QCD) permits annual direct transfers to a qualified charity totaling up to $100,000 of tax-deferred IRA savings. An owner cannot receive a distribution from the IRA to then contribute to charity and qualify. QCDs offer advantages over taking a taxable IRA distribution and then contributing the proceeds of that distribution to a charity. That’s because taxable IRA distributions must be included in adjusted gross income. This can cause:

Income taxes on Social Security benefits can increase,
Adjusted gross income (AGI) limitations on annual charitable deductions can defeat current deduction of the charitable contribution of IRA distribution proceeds (carryovers to a limited number of future tax years is available),
AGI limitations trimming itemized deductions can apply, and
Medicare insurance premiums can increase.