The Neighborhood Blog

Tax Season Timeline

January 2, 2024

Individual Coronavirus Relief

September 10, 2020

Did you know that because of the Coronavirus Federal CARES Act, individuals will have penalty and tax relief for withdrawing money from eligible retirement accounts in 2020? What exactly does this mean?

Let's break this down: You are Joe Schmoe, who has been negatively financially affected by the COVID-19 pandemic, either by having your hours cut at your job, being laid off by your employer, or as a self-employed small business owner who cannot operate at full capacity.

Regardless of the reasons, many people are now struggling to make ends meet because of the drastic pay cuts happening all across our country as a direct result of this pandemic. Thankfully, there is section 2202 of the Coronavirus CARES Act, which highlights the following in this situation:

distributions can me made before normal retirement age- the CARES Act allows for you to withdraw money from your retirement plan(s) before the normal retirement age of 59 1/2
distributions can be made up to $100,000 - these distributions can be made from any eligible retirement plan(s) combined, but all distributions to individuals must be made by December 31, 2020
determine if you are qualified - the IRS has issued guidelines to determine who is eligible to receive these distributions, as listed here:
1. 1. you, your spouse, or your dependent(s) have been diagnosed with COVID-19
  2. you have experienced negative financial consequences as a result of being unable to work, working reduced hours, or having to close or reduce hours of a business that you own or operate due to COVID-19
  3. you have experienced adverse financial consequences as a result of not having the option of child care due to COVID-19
the typical 10% tax does not apply - normally, there is a 10% tax penalty on early distributions; however, this is waved as long as the distribution is made by December 31, 2020
paying the taxes on the distributions can be spread over three years- this means that whatever is withdrawn from your retirement accounts in 2020 can be reported on the next three years' tax returns - an example is if you receive a $12,000 Coronavirus distribution by December 31, 2020, you will report $4,000 of income on your federal tax return for tax years 2020, 2021, and 2022 (unless you choose to report it all for 2020) - this may aid in preventing you from being pushed into a higher federal tax bracket (saving you money)
you can pay the distribution back- you will have three years to pay any Coronavirus related distributions back to your retirement plans - if you choose to do this, you can then amend your 2020 and 2021 federal tax returns to get a refund issued back to you for only the taxes that you paid on the Coronavirus related distribution

For more information on Section 2202 of the Coronavirus CARES Act, click here: https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers

Small Business Audits

May 1, 2020

Did you know that small businesses are 2.5 times more likely to be audited by the IRS than individuals? What can cause your business to be audited? How can you protect yourself as a small business owner?

It's true! Being a small business owner can raise more flags for the IRS than being Joe Schmoe, the taxpayer.

There are a couple different reasons why this could be an issue. First, just the fact that your business is brand new can spark an audit. The reason is because it is assumed that you (as the new business owner) do not know how to maintain proper financial statements. The way your business expenses are categorized is another reason for auditors to come around. Deductions should be carefully chosen based on your specific industry. Are all meals and gas fill ups trulybusiness expenses? Another red flag is when businesses report losses for multiple years.

There are many ways to protect yourself as a small business owner:

hire a qualified accountant - this will ensure that your business activity is properly reported on all financial statements
deduct expenses properly- make sure that your expenses are ordinary and necessary for your industry
don't report a loss every year - if you repeatedly report a loss year after year, the IRS will assume you are hiding something, or over-deducting business expenses - this is especially true for sole proprietors

Let's talk taxes!

Every year, clients always ask me the same two questions:

When will I receive all of my tax documents?
When do I need to make my appointment to get my taxes done?

To give a better idea of what timeline to follow, I thought it would be best for me to list out the expected receipt dates for tax documents:

W-2s - generally, W-2s can be received in the mail as late as mid-February.
1099s - most 1099s will be received in the mail by mid-February; however some rental and investment 1099s may not be received until as late as mid-April.
K-1s - partners and shareholders may not receive K-1s in the mail until as late as mid-April.
1098s - 1098s are usually available electronically on bank websites anytime during the month of January. If banks mail 1098s to individuals, they can be received as late as mid-February.

Reviewing the above list should tell you when to make your tax appointment, depending on when you are expecting to receive all of your documents. It is always better to wait until all documents arrive so you can drop everything off for processing at the same time, instead of having to keep track of random pieces of paper as they arrive.

It’s important to note that the IRS does not even begin to accept filed tax returns until late January, so don’t worry about rushing to get it done; you have plenty of time!

If you are unsure of what specific tax documents you are even supposed to be waiting for, feel free to call or email me, and I can send you an organizer so you can be sure you have everything.

Contact Tina @ Main Street Accounting today to help with all of your individual and business tax and accounting needs!