The end of one season, and the beginning of another…

Tax Specialist

The 2020 individual tax return filing season concluded on October 15 when the extension period ended.  If you haven’t yet filed, I encourage you to give us a call to get that filing completed.

As we turn our attention to 2021, the Internal Revenue Service has issued IR 2021-217 aimed at helping taxpayers prepare for the upcoming filing season.  Taxpayers, including those who received stimulus payments or advance Child Tax Credit payments, should take steps now to make filing their tax returns easier in 2022, according to an IRS News Release. Planning will help taxpayers file an accurate return and avoid processing delays that can hold up refunds, the IRS says.

Gather and organize tax records. The IRS first recommends that taxpayers organize their tax records. Having all the necessary documents and information will help taxpayers to avoid filing errors that lead to processing and refund delays. Important records for individual taxpayers include:

  • Forms W-2 from employer(s),
  • Forms 1099 from banks, issuing agencies, and other payers including unemployment compensation, dividends, interest, distributions from a pension, annuity, or retirement plan,
  • Form 1099-K, 1099-MISC, 1099-NEC, or other income statements for workers in the gig economy, and
  • Other income documents (such as brokerage statements) and records of virtual currency transactions.

For more information about keeping good tax records, see here.

In addition, taxpayers who received an Advance Child Tax Credit (ACTC) and/or Premium Tax Credit (PTC) or who received an Economic Impact Payment and want to determine their eligibility for a Recovery Rebate Credit, should also keep the following documents on hand:

  • Letter 6419, 2021 Total Advance Child Tax Credit Payments, to reconcile advance Child Tax Credit payments,
  • Form 1095-A, Health Insurance Marketplace Statement, to reconcile advance Premium Tax Credits for Marketplace coverage, and
  • Letter 6475, Your 2021 Economic Impact Payment, to determine eligibility to claim the Recovery Rebate Credit.

The IRS will mail Letters 6419, 6475, and Form 1095-A to taxpayers, so taxpayers should be sure to notify the IRS of any change of address. Taxpayers who don’t receive, or can’t find their Letters 6419, 6475, or Form 1095-A, can retrieve the information on these letters using their online account.

Note: properly reporting the stimulus payments was a challenge for many taxpayers this past year.  Many of the refund adjustments and billing notices our clients received were the result of errant stimulus payment amounts in the return.  We encourage your diligence in reporting these amounts accurately in order to avoid correspondence from the IRS. 

Toward that end:

IRS Online Account. IRS suggests that taxpayers sign up for an online account.

Taxpayers with an online account can log into that account to:

  • See the amount of their Economic Impact Payment (EIP) so they can accurately claim a Recovery Rebate Credit.
  • Gain entry to the Child Tax Credit Update Portal to see the payment dates and amounts paid. Taxpayers will use this information to reconcile their ACTC payments with the Child Tax Credit they claim on their 2021 tax returns.

Check tax withholding and/or estimated payments. Finally, the IRS recommends that taxpayers should check their tax withholding to see if they owed taxes or received a large refund last year. If a taxpayer owed taxes last year, they might want to consider having additional amounts withheld or making estimated tax payments to avoid an underpayment penalty.

Note: A withholding check is especially important for taxpayers who got married or divorced, had a child, or took on a second job.

Taxpayers can make withholding changes by completing Form W-4, Employee’s Withholding Certificate, and giving a copy of the form to their employer.

Taxpayers should also consider whether they need to make estimated tax payments. Taxpayers who receive a substantial amount of non-wage income, such as self-employment income (including non-wage gig income), investment income (including capital gains), taxable Social Security benefits or pension and annuity income, should make quarterly estimated tax payments or increase their wage withholding to cover the taxes on this type of income.

The last quarterly estimated tax payment for 2021 is due on January 18, 2022. Taxpayers can make an estimated payment through their online account or through

If you’d like to discuss these or any other tax matters, please feel free to give me a call.


IRS announces tax relief for Hurricane Sally victims in Florida

Article originally posted here.
Updated on 10/8/20 to include Escambia and Santa Rosa counties.
FL-2020-03, October 5, 2020
Florida — Victims of Hurricane Sally that began September 14, 2020 now have until January 15, 2021, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today.
Following the recent disaster declaration for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in certain areas will receive tax relief.
Individuals and households who reside or have a business in Bay, Escambia, Okaloosa, Santa Rosa, and Walton counties qualify for tax relief. Taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief.
The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after September 14, 2020, and before January 15, 2021, are postponed through January 15, 2021. This includes individual and business tax filers that had a valid extension to file their 2019 return due to run out on October 15, 2020. The IRS noted, however, that because tax payments related to these 2019 returns were due on July 15, 2020, those payments are not eligible for this relief.
The January 15, 2021 deadline applies to the third quarter estimated tax payment due on September 15. It also applies to the quarterly payroll and excise tax returns normally due on November 2. In addition, it applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on November 16. In addition, penalties on deposits due on or after September 14 and before September 29, will be abated as long as the deposits are made by September 29, 2020.
If an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date that falls within the postponement period, the taxpayer should call the telephone number on the notice to have the IRS abate the penalty. For information on services currently available, visit the IRS operations and services page at
The IRS automatically identifies taxpayers located in the covered disaster area and applies filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area should call the IRS disaster hotline at 866-562-5227 to request this tax relief.

Covered Disaster Area

The localities listed above constitute a covered disaster area for purposes of Treas. Reg. §301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses (including tax-exempt organizations) whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.
Under section 7508A, the IRS gives affected taxpayers until January 15, 2021 , to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; annual information returns of tax-exempt organizations; and employment and certain excise tax returns), that have either an original or extended due date occurring on or after September 14, 2020, and before January 15, 2021.
Affected taxpayers that have an estimated income tax payment originally due on or after September 14 , 2020, and before January 15, 2021, are postponed through January 15, 2021, will not be subject to penalties for failure to pay estimated tax installments as long as such payments are paid on or before January 15, 2021.
The IRS also gives affected taxpayers until January 15, 2021 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2018-58, 2018-50 IRB 990 (December 10, 2018), that are due to be performed on or after September 14, 2020, and before January 15, 2021, are postponed through January 15, 2021.
This relief also includes the filing of Form 5500 series returns that were required to be filed on or after September 14, 2020, and before January 15, 2021, are postponed through January 15, 2021, in the manner described in section 8 of Rev. Proc. 2018-58. The relief described in section 17 of Rev. Proc. 2018-58, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.
Unless an act is specifically listed in Rev. Proc. 2018-58, the postponement of time to file and pay does not apply to information returns in the W-2, 1094, 1095, 1097, 1098 or 1099 series; to Forms 1042-S, 3921, 3922 or 8027; or to employment and excise tax deposits. However, penalties on deposits due on or after September 14 and before September 29, will be abated as long as the deposits are made by September 29, 2020

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either the year in which the event occurred, or the prior year. See Publication 547 for details.
Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684, Casualties and Thefts PDF and its Instructions PDF.
Affected taxpayers claiming the disaster loss on a 2019 or 2020 return should put the Disaster Designation, “Florida – Hurricane Sally,” in bold letters at the top of the form. Be sure to include the disaster declaration number, FEMA 4564, on any return. See Publication 547 for details.

Other Relief

The IRS will waive the usual fees and requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation “Florida – Hurricane Sally,” in bold letters at the top of Form 4506, Request for Copy of Tax Return PDF, or Form 4506-T, Request for Transcript of Tax Return PDF, as appropriate, and submit it to the IRS.
Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case. Taxpayers may download forms and publications from the official IRS website,

It’s time…

Tax Services Pensacola
As some of you know, and others of you fear, October 15th is just a few weeks away.  In our office, the significance of October 15th is that it is the date that individuals who filed extensions must complete their tax returns.  There are many reasons to file on time, but I’m going to touch briefly on three of them today, since I need some time to complete my own return (kidding, I’m just kidding).

The Late Filing Penalty

The Internal Revenue Code is full of rules that penalize taxpayers for non-compliance.  If you don’t file by October 15th, the IRS will assess a late filing penalty of 5% of the balance due with the return.  For starters.  If you lapse into a second month of delinquency, the penalty doubles to 10% of the balance due.  This penalty continues to increase by 5% per month for the third, fourth, and fifth month of delinquency, after which it’s capped at 25% of the balance due.  There’s also a minimum penalty that kicks in after 60 days if you owe any tax at all.  The minimum penalty is equal to the lesser of 100% of the unpaid tax you owe or $205. Note that interest is also charged on any balance due retroactive to the original due date of the return.

Example 1:  Xavier Ample completes and files his 2016 tax return on November 20, 2016 indicating a balance due of $2,000.  In addition to the tax, he’ll owe a Late Filing Penalty of $200 ($2,000 X 5% X 2 months late).

Example 2:  If Janet Slopayer completes and files her 2016 tax return on December 20, more than 60 days after the extended due date, and has a balance due of only $300, the resulting Late Filing Penalty is $205, the lesser of $205 or 100% of the tax she owed.

The Statute of Limitations

Please don’t conclude from my comments above that there’s no ill effect from filing late if you do not owe tax.  If you don’t owe, there’s no Late Filing Penalty, but there are other consequences.  You may have heard that the IRS only has three years to audit your return.  More specifically, they have three years from the filing date to assess tax.  The problem this creates for late filers is that in delaying, they don’t even start the clock.  The three year period commences when the return is filed for a late-filed return.

If you don’t file, the IRS may file a Substitute For Return (SFR) based on the tax information they receive, and send you a bill for the resulting tax.  While this facilitates the IRS’s assessment of tax, it does not curtail further assessment, and it does not start the running of the Statute of Limitations unless the taxpayer agrees to (by signature) the SFR.

Other Considerations

Tax returns are frequently necessary to achieve other financial goals including educational financial aid, and all manner of bank and mortgage financing.

I know you’re busy, and certainly you have other things you’d rather do than work on your taxes.  I encourage you, however, to contemplate the pitfalls above in hopes they compel you to action.

Give me a call if I can help you meet this deadline, or if other tax-related questions come up.

The Need for Tax Planning

Income Tax Planning Sometimes you get a good result by just showing up, but other times, a little bit of planning goes a long way toward achieving your goal.  We plan our day through the use of a calendar, our meals by making a grocery list, and our spending by the use of a budget.  If one of your goals is to minimize your income tax, why not plan for that as well?

How do we plan for your taxes?  We look at your income and your deductions; and we ask a lot of questions.

  • Do you have any opportunities to shift income into next year?
  • Are you contemplating property sales or purchases?
  • What have you done and what are you thinking about doing that’ll give you a deduction this year?
  • Are you carrying forward tax losses that can offset taxable income this year?

Your answers lead us to a plan aimed at intentionally managing your tax situation rather than just letting tax happen to you.

Sometimes unfortunate life events can have even worse tax consequences.  Did circumstance compel you to take money out of your IRA or 401(K)?  Did you go through foreclosure or short sale?  These can carry with them unexpected tax consequences, and should be discussed with your tax professional.

Good year or not-so-good year, be proactive in managing the tax aspect of your finances.  Let me know if I can help.

Tax Planning for Small Business Owners

Tax Planning for Small Pensacola Business OwnersTax planning is the process of looking at various tax options to determine when, whether, and how to conduct business and personal transactions to reduce or eliminate tax liability.

Many small business owners ignore tax planning. They don’t even think about their taxes until it’s time to meet with their accountants, but tax planning is an ongoing process and good tax advice is a valuable commodity. It is to your benefit to review your income and expenses monthly and meet with your CPA or tax advisor quarterly to analyze how you can take full advantage of the provisions, credits and deductions that are legally available to you.

Although tax avoidance planning is legal, tax evasion – the reduction of tax through deceit, subterfuge, or concealment – is not. Frequently what sets tax evasion apart from tax avoidance is the IRS’s finding that there was fraudulent intent on the part of the business owner. The following are four of the areas the IRS examiners commonly focus on as pointing to possible fraud:

  1. Failure to report substantial amounts of income such as a shareholder’s failure to report dividends or a store owner’s failure to report a portion of the daily business receipts.
  2. Claims for fictitious or improper deductions on a return such as a sales representative’s substantial overstatement of travel expenses or a taxpayer’s claim of a large deduction for charitable contributions when no verification exists.
  3. Accounting irregularities such as a business’s failure to keep adequate records or a discrepancy between amounts reported on a corporation’s return and amounts reported on its financial statements.
  4. Improper allocation of income to a related taxpayer who is in a lower tax bracket such as where a corporation makes distributions to the controlling shareholder’s children.

Tax Planning Strategies

Countless tax planning strategies are available to small business owners. Some are aimed at the owner’s individual tax situation and some at the business itself, but regardless of how simple or how complex a tax strategy is, it will be based on structuring the strategy to accomplish one or more of these often overlapping goals:

  • Reducing the amount of taxable income
  • Lowering your tax rate
  • Controlling the time when the tax must be paid
  • Claiming any available tax credits
  • Controlling the effects of the Alternative Minimum Tax
  • Avoiding the most common tax planning mistakes

In order to plan effectively, you’ll need to estimate your personal and business income for the next few years. This is necessary because many tax planning strategies will save tax dollars at one income level, but will create a larger tax bill at other income levels. You will want to avoid having the “right” tax plan made “wrong” by erroneous income projections. Once you know what your approximate income will be, you can take the next step: estimating your tax bracket.

The effort to come up with crystal-ball estimates may be difficult and by its very nature will be inexact. On the other hand, you should already be projecting your sales revenues, income, and cash flow for general business planning purposes. The better your estimates are, the better the odds that your tax planning efforts will succeed.

Maximizing Business Entertainment Expenses

Entertainment expenses are legitimate deductions that can lower your tax bill and save you money, provided you follow certain guidelines.

In order to qualify as a deduction, business must be discussed before, during, or after the meal and the surroundings must be conducive to a business discussion. For instance, a small, quiet restaurant would be an ideal location for a business dinner. A nightclub would not. Be careful of locations that include ongoing floor shows or other distracting events that inhibit business discussions. Prime distractions are theater locations, ski trips, golf courses, sports events, and hunting trips.

The IRS allows up to a 50 percent deduction on entertainment expenses, but you must keep good records and the business meal must be arranged with the purpose of conducting specific business. Bon appetite!

Important Business Automobile Deductions

If you use your car for business such as visiting clients or going to business meetings away from your regular workplace you may be able to take certain deductions for the cost of operating and maintaining your vehicle. You can deduct car expenses by taking either the standard mileage rate or using actual expenses.

The mileage reimbursement rates for 2015 are 57.5 cents per business mile (56 cents per mile in 2014), 14 cents per charitable mile (unchanged from 2014) and 23 cents for moving and medical miles (down from 23.5 cents per mile in 2014).

If you own two cars, another way to increase deductions is to include both cars in your deductions. This works because business miles driven is determined by business use. To figure business use, divide the business miles driven by the total miles driven. This strategy can result in significant deductions.

Whichever method you decide to use to take the deduction, always be sure to keep accurate records such as a mileage log and receipts. If you need assistance figuring out which method is best for your business, don’t hesitate to contact the office.

Increase Your Bottom Line When You Work At Home

The home office deduction is quite possibly one of the most difficult deductions ever to come around the block. Yet, there are so many tax advantages it becomes worth the navigational trouble. Here are a few common tips for home office deductions that can make tax season significantly less traumatic for those of you with a home office.

Try prominently displaying your home business phone number and address on business cards, have business guests sign a guest log book when they visit your office, deduct long-distance phone charges, keep a time and work activity log, retain receipts and paid invoices. Keeping these receipts makes it so much easier to determine percentages of deductions later on in the year.

Section 179 expensing for tax year 2015 allows you to immediately deduct, rather than depreciate over time, up to $25,000, with a cap of $200,000 (down from $500,000 and $2,000,000, respectively, in 2014) worth of qualified business property that you purchase during the year. The key word is “purchase”. Equipment can be new or used and includes certain software. All home office depreciable equipment meets the qualification.

Some deductions can be taken whether or not you qualify for the home office deduction itself. It’s never too early to meet with a tax professional to learn more about home office deductions. Call today to schedule a consultation.

Changing Jobs? Don’t Forget your 401(k)

Tax Planning PensacolaOne of the most important questions you face when changing job is what to do with the money in your 401(k). Making the wrong move could cost you thousands of dollars or more in taxes and lower returns.

Let’s say you put in five years at your current job. For most of those years, you’ve had the company take a set percentage of your pre-tax salary and put it into your 401(k) plan.

Now that you’re leaving, what should you do? The first rule of thumb is to leave it alone because you have 60 days to decide whether to roll it over or leave it in the account.

Resist the temptation to cash out. The worst thing an employee can do when leaving a job is to withdraw the money from their 401(k) plans and put it in his or her bank account. Here’s why:

If you decide to have your distribution paid to you, the plan administrator will withhold 20 percent of your total for federal income taxes, so if you had $100,000 in your account and you wanted to cash it out, you’re already down to $80,000.

Furthermore, if you’re younger than 59 1/2, you’ll face a 10 percent penalty for early withdrawal come tax time. Now you’re down another 10 percent from the original amount of $100,000 to $70,000.

Also, because distributions are taxed as ordinary income, at the end of the year, you’ll have to pay the difference between your tax bracket and the 20 percent already taken out. For example, if you’re in the 33 percent tax bracket, you’ll still owe 13 percent, or $13,000. This lowers the amount of your cash distribution to $57,000.

But that’s not all. You might also have to pay state and local taxes. Between taxes and penalties, you could end up with little over half of what you had saved up, short-changing your retirement savings significantly.

What are the Alternatives?

If your new job offers a retirement plan, then the easiest course of action is to roll your account into the new plan before the 60-day period ends. Referred to as a “rollover” it is relatively painless to do. The 401(k) plan administrator at your previous job should have all of the forms you need.

A word of caution: Many employers require that you work a minimum period of time (e.g. three months) before you can participate in a 401(k). If that is the case, one solution is to keep your money in your former employer’s 401(k) plan until the new one is available. Then you can roll it over into the new plan. Most plans let former employees leave their assets in the old plan for several months.

The best way to roll funds over from an old 401(k) plan to a new one is to use a direct transfer. With the direct transfer, you never receive a check, and you avoid all of the taxes and penalties mentioned above, and your savings will continue to grow tax-deferred until you retire.

60-Day Rollover Period

If you have your former employer make the distribution check out to you, the Internal Revenue Service considers this a cash distribution. The check you get will have 20 percent taken out automatically from your vested amount for federal income tax.

But don’t panic. You have 60 days to roll over the lump sum (including the 20 percent) to your new employer’s plan or into a rollover individual retirement account (IRA). Then you won’t owe the additional taxes or the 10 percent early withdrawal penalty.

Note: If you’re not happy with the fund choices your new employer offers, you might opt for a rollover IRA instead of your company’s plan. You can then choose from hundreds of funds and have more control over your money. But again, to avoid the withholding hassle, use direct rollovers.

Note: Prior to 2015, the IRS allowed a one-per-year limit on rollovers on an IRA-by-IRA basis; however, starting in 2015, the limit will apply to aggregating all of an individual’s IRAs, effectively treating them as if they were a single IRA for the purposes of applying the limit.

Leave It Alone

If your vested account balance in your 401(k) is more than $5,000, you can usually leave it with your former employer’s retirement plan. Your lump sum will keep growing tax-deferred until you retire.

However, if you can’t leave the money in your former employer’s 401(k) and your new job doesn’t have a 401(k), your best bet is a direct rollover into an IRA. The same applies if you’ve decided to go into business for yourself.

Once you turn 59 1/2, you can begin withdrawals from your 401(k) plan or IRA without penalty and your withdrawals are taxed as ordinary income.

You don’t have to start taking withdrawals from your 401(k) unless you retire after age 70 1/2. With an IRA you must begin a schedule of taxable withdrawals based on your life expectancy when you reach 70 1/2, whether you’re working or not.

Don’t hesitate to call if you have any questions about IRA rollovers.

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Sean K. Quigley, CPA