Tag: Tax

This article provides an overview of the estimated tax payments which must be paid by a corporation. It also outlines the IRS safe harbor estimates and alternative methods that a corporation may use to minimize and accurately reflect its estimated tax payments. It is important to timely pay the correct amount of estimated tax in order to avoid penalties and interest related to underpayment.

General Rule

Estimated tax payments for corporations are normally made in four installments on the 15th day of the 4th, 6th, 9th, and 12th months of the tax year. For calendar-year corporations, those dates are April 15, June 15, September 15, and December 15.

Each required installment is 25% of the “required annual payment” The term “required annual payment” means the lesser of:

100% of the tax on the return for the tax year, or

100% of the tax shown on the return of the corporation for the preceding tax year.

It should be noted that large corporations cannot use 100% of the preceding year’s tax to compute estimated tax payments. A large corporation is any corporation having taxable income of $1 million or more during any of the three immediately preceding tax years.

Alternative Methods to Determine Estimated Taxes – Exceptions to the General Rule

A corporation may also compute its required quarterly installments using one of two alternative methods: (1) the annualized income method or (2) the adjusted seasonal income method. Normally, a corporation will benefit from one of these methods if it earns most of its taxable income during part of the tax year. If the required quarterly installment determined under one of these methods is less than 25% of the required annual payment under the general rule noted above, the corporation can pay the lesser amount for that quarter.

How to Pay Corporate Estimated Taxes

Corporations can use form 1120-W to calculate their estimated tax payment, however, all payments must be made electronically to the IRS.

State and Local Taxes

Lastly, it should be noted that state and local jurisdictions that impose income taxes generally require the payment of estimated taxes. Many states follow the guidelines issued by the IRS. Each state must be separately researched to conform to that state’s rule.

How RVG and Company Can Help

If you need advice or assistance to determine whether, and/or how much-estimated tax should be paid, please contact RVG & Company today.

The Social Security Administration recently announced that COLA (Cost-of-Living Adjustment) will increase by 5.9% in January 2022. This is the largest increase since July 1982. But what is COLA?

Social Security Benefits
Receive 5.9% Cost of Living Adjustment

COLA is an adjustment to the Social Security and Supplemental Security Income (SSI) benefits that are being paid out to approximately 70 million Americans. We will take a closer look at COLA and its significance, and what effect does the change in COLA have on you as a taxpayer.

In 1972 the law was changed to provide for automatic annual cost-of-living allowances based on the annual increase in consumer prices. Beneficiaries of the SSI had to wait on the action from Congress to receive a benefit increase before the 1972 legislation. This change simplifies the adjustment and does not allow the effect of inflation to take hold on the benefit payments.

The automatic annual cost-of-living allowance is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). If there is no increase in the CPI-W, there can be no COLA increases.

The significance of COLA is that it ensures that the purchasing power of the SSI benefits is not being reduced by inflation. While a 5.9% benefit increase looks good on paper, it is important to note that it is not additional income. It is the minimum amount needed to maintain the purchasing power the beneficiaries had all along.

The beneficiaries also have to account for Medicare Part B premiums and taxes that reduce the value of the COLA increase for many. The Medicare Part B premiums increase on a yearly basis that seniors pay for physician and outpatient services. The premium paid depends largely on the beneficiary’s income. The adjustment for inflation is consequently being eroded by the increase in Medicare premiums and cannot keep up fast enough with the inflation. If you are on Medicare, you will not get your 2022 Social Security benefit amount until the official Medicare premiums are announced. You can check in December if you have an online social security account.

The social security tax funds the social security program in the United States. Working taxpayers are funding the benefits of the existing beneficiaries. Ideally, those working taxpayers will eventually retire and qualify for SSI benefits that are funded by current workers.
The tax has two parts. The first is the payroll tax (FICA) and the self-employment tax (SECA). The Medicare tax makes up the second part. Payroll taxes are based on an employee’s net wages, salaries and tips that are typically withheld by an employer and forwarded to the government. In 2022, the social security tax is 6.2% for the employer and 6.2% for the employee.

Self-employed taxpayers pay Social Security taxes as part of the quarterly estimated taxes to the Internal Revenue Service (IRS). These taxpayers pay the full 12.4% since they are considered both the employee and employer. Fortunately, the IRS allows self-employed individuals to deduct the employer portion of self-employment taxes from their taxable income.

The social security tax rate rarely changes – employees have been paying 6.2% since 1990. However, unlike the tax rate, the Social Security tax limit is adjusted annually due to COLA to keep Social Security benefits on track with current inflation. The maximum amount of earnings subject to Social Security Tax will rise 2.9% from $142,800 in 2021 to $147,000 in 2022. Any income earned beyond the wage cap is not subject to a 6.2% social security payroll tax. However, there is no wage base limit for Medicare tax. The cost of adjusting COLA falls mainly on about 12 million high-earning workers.

If you have any questions regarding the Social Security benefits or taxes related to it, please contact RVG & Company to discuss this issue at 954.233.1767.

Taxpayers who elected to itemize their deductions may have reduced their federal income tax liability by claiming a full deduction, also known as the “SALT deduction,” for certain State and Local Taxes (SALT) paid before the Tax Cuts and Jobs Act (“TCJA”) was enacted in 2017. The taxes paid to a state were subsidized by the federal government and reduced the taxpayers’ cost of living in a state.

Under the TCJA, the previously unlimited SALT deduction was limited to $10,000, this is also known as the “SALT Cap”. The TCJA SALT Cap applies for tax years 2018 through 2025. The reason for this is that it was considered to be unfair to the federal government to subsidize bad fiscal policy in high-tax states, such as New York and California.

We will explore the impact the SALT cap has had on taxpayers and the states, the workarounds the states have made to lighten the load on taxpayers, and explore possible future changes to the SALT deduction.

The changes enacted in the TCJA have considerably affected the SALT deduction in the last several years. The SALT deduction reduced the cost of state and local government taxes to taxpayers because a slice of the taxes deducted is paid for by the federal government. The SALT cap increases the cost to the taxpayer and state and local taxes by decreasing the deduction’s value.

State and local tax payments and liabilities tend to increase with a taxpayer’s income. In addition, sales and property tax payments increase as a result of higher income and increased consumption. Thus, the SALT cap mostly affects taxpayers with higher income as this group would report more state and local taxes.

The $10,000 cap on the SALT deduction has produced a migration from high tax states to low/zero-tax states. Florida and Texas, two states with zero income taxes, gained the largest number of tax-filers from 2016-2017, amounting to 56,000 and 35,000 tax-filers, respectively. New York, one of the highest income tax states in the US, lost the largest number of taxpayers between tax years 2016 and 2017, amounting to 77,000 tax-filers. The loss of high-income taxpayers causes deficiencies in state budgets and incentivizes state governments to develop state tax legislation to retain their residents.

The SALT cap does not limit the deductibility of state taxes imposed on business entities. As a result, several states have proposed or passed legislation on Pass-through Entities (“PTEs”) designed to allow the PTEs to deduct state income taxes that the individual owners would have otherwise been unable to deduct under the SALT cap. This in known as a SALT Cap Workaround. The work-around legislation varies from state to state, but they share a similar goal of reducing the SALT cap’s effect on taxpayers without reducing their state or local tax obligations. As of October 27th, 2021, 19 states have enacted a form of a SALT Cap workaround to provide relief to state and local taxpayers within their states.

On November 9th, 2020, The IRS released Notice 2020-75 that effectively permits PTEs to fully deduct entity-level state and local income taxes that would otherwise have been paid by the owners of a PTE. This adds a layer of reassurance to states and individuals on working around the SALT cap.

Under recently proposed tax legislation, the House, currently held by the Democrats, has proposed to raise the annual SALT deduction cap to $72,500 from $10,000 through 2031. It was also proposed that the higher deduction cap would apply retroactively beginning in 2021. The proposed bill will eventually move to the Senate where the SALT deduction cap may be adjusted or removed as the proposal has received criticism from top Senate Democrats.

Despite the TCJA reducing the SALT cap deduction to $10,000 on federal income taxes, numerous states have found a workaround to the SALT cap deduction to maintain their budgets and retain high-income taxpayers within their states. Additionally, the proposed tax bill by the House provides that the SALT cap ceiling may be higher in the future.

If you have any questions regarding the SALT Cap Deductions or taxes related to it, please contact RVG & Company, today! (954) 233-1767.

IRS Form 1099 reports a taxpayer’s income that does not come from wages, salaries, or tips from a main employer. It is an informational return and does not need to be attached to an individual’s tax return. However, it is recommended to keep a copy of the form for a taxpayer’s personal records. There are two dozen versions of Form 1099, and each lists a different type of income. Form 1099 is used to determine how much income a taxpayer received during the tax year and what kind of income it was. A taxpayer will have to report that income in various places within the tax return, depending on the type of income that is reported.

To be eligible to receive Form 1099, a taxpayer’s income needs to be above a certain amount depending on the type of Form 1099. For the 1099-INT, 1099-DIV, and 1099-R, a taxpayer should receive a form if there was at least $10 or more of income to report. Whereas for Form 1099-MISC, a taxpayer should receive a form if there was at least $600 or more of income to report. Again, it all depends on the type of Form 1099. A taxpayer will not receive a Form 1099 if the income is below the threshold, however, the income should still be included in the tax return.

It should be noted that receiving a 1099 form does not necessarily mean that taxes are owed on that income. A taxpayer may have deductions that offset the income or some or all of it might not be subject to tax based on characteristics of the asset that generated it.

Companies and institutions are required to send most 1099 forms by January 31st following the tax year. Income earned, for example, in 2021 would be reported in a Form 1099 that a taxpayer should receive by January 31st, 2022, from the payor. If a taxpayer has opted to receive forms digitally, the digital version should be shown on your account on January 31st, or first thing on February 1st.

If a taxpayer receives physical copies of their tax forms, the taxpayer’s forms need to be postmarked in the mail by January 31st. If that date falls on a weekend or holiday, it should be available on the next business day. There are, however, a few exceptions: Form 1099-B, 1099-S, and some 1099-MISC forms must be postmarked by February 16, 2021.

The payor may send a consolidated Form 1099 if sending multiple versions of Form 1099, to a taxpayer that has distinct categories of income with the payor. A Consolidated Form 1099 is common for people who have investment income, capital gains, and brokerage accounts containing investments in either mutual funds or Real Estate Investment Trusts (REITs). A taxpayer should receive a consolidated Form 1099 Form by February 16th following the tax year.

If a taxpayer does not receive their Form 1099, the payor responsible for sending the form must be contacted. If a taxpayer needs to file a previous year’s tax return and is missing their old Form 1099, a free copy can be provided by the IRS by requesting a wage and income transcript. It should be noted that the IRS receives copies of Form 1099 that are sent to taxpayers. As a result, the IRS will cross-reference the Forms provided by payors to the income reported on individual tax returns. A taxpayer’s failure to accurately report Form 1099 income can be easily detected and adjusted by the IRS.

If a taxpayer does not receive their 1099 forms in time to file their tax return, a request for a penalty-free six-month tax extension is available by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. To receive the extension, the taxpayer must estimate their tax liability on this form and should also pay any amount due.

If you have any questions regarding 1099 Requirements or other obligations, please contact RVG & Company, today! (954) 233-1767.

In late December, Senator Joe Manchin (D. West Virginia) indicated that he would not support President Biden’s Build Back Better (BBB) legislation.

As a result, the legislation did not have enough votes in the Senate to be enacted. The BBB had been previously approved by the House of Representatives where the Democrats hold a slim majority. However, the Senate is evenly divided between Democrats and Republicans. Therefore, Senator Manchin’s decision not to endorse the current version of BBB meant that it would not become law.

Senator Manchin’s key disagreements with BBB are that its projected cost of $2 trillion would contribute to the current escalating inflation and that several of the social programs in the legislation did not have a means test to determine if an individual would qualify for the program. In addition, the bill’s proposal to increase the state and local tax deduction generally benefit taxpayers that have high incomes of $400,000 or more. Moreover, Senator Manchin maintained that the full cost of the BBB would approach $4 trillion, which is more than double that the bill’s supporters claimed.

While BBB is currently on hold, negotiations continue to potentially enact some form of the legislation. We will provide updates on any developments. The significant social programs included in the bill related to climate initiatives, healthcare subsidies, universal prekindergarten, childcare, eldercare, paid leave, prescription drug pricing, and affordable housing.

Under the bill, the cost of these programs was to be offset by various tax increases to corporations and high-income individuals. For example, a 15% corporate minimum tax was proposed on corporations that have $1 billion of book income. Taxable income for large corporations can be reduced by net operating losses, tax credits, and interest deductions that result in no income tax liability for the year. The minimum tax was designed to address this issue.

In addition, the BBB bill was going to impose the 3.8% investment income tax on individuals that had an income of $400,000 or more from a trade or business. As a result, active trade or business income allocated to a limited partner of a limited partnership or a shareholder of a subchapter S corporation would have been subject to the net investment income tax. Under current law, the tax applies only to certain portfolios and passive income.
Also, the bill was set to limit the gain exemption under IRC § 1202 for “qualified small business stock”. The exemption would have been reduced from 100% to 50% for taxpayers earning more than $400,000 in a year.

We will monitor any further developments regarding this legislation. It should be noted that Senator Manchin’s dispute with BBB was its cost and potential inflationary impact upon the economy, and not the tax increases. Therefore, if the cost or amount of programs in BBB are reduced it is likely that a variation of the law could be passed – which may include the tax increases described above.

If you have any questions regarding the information in today’s blog post, contact your trusted advisor at RVG & Company, today! (954) 233-1767.

IR-2022-16, January 20, 2022 WASHINGTON — With filing season beginning January 24, the Internal Revenue Service reminded taxpayers about several key items to keep in mind when filing their federal income tax returns this year.

Given the unprecedented circumstances around the pandemic and unique challenges for this tax season, the IRS offers a 5-point checklist that can help many people speed tax return processing and refund delivery while avoiding delays.

1. File an accurate return and use e-file and direct deposit to avoid delays. Taxpayers should electronically file and choose direct deposit as soon as they have everything they need to file an accurate return. Taxpayers have many choices, including using a trusted tax professional. For those using e-file, the software helps individuals avoid mistakes by doing the math. It guides people through each section of their tax return using a question-and-answer format.

2. For an accurate return, collect all documents before preparing a tax return; make sure stimulus payment and advance Child Tax Credit information is accurate. In addition to collecting W-2s, Form 1099s and other income-related statements, it is important people have their advance Child Tax Credit and Economic Impact Payment information on hand when filing.

• Advance CTC letter 6419: In late December 2021, and continuing into January, the IRS started sending letters to people who received advance CTC payments. The letter says, “2021 Total Advance Child Tax Credit (AdvCTC) Payments” near the top and, “Letter 6419” on the bottom righthand side of the page. Here’s what people need to know:
• The letter contains important information that can help ensure the tax return is accurate.
• People who received advance CTC payments can also check the amount of the payments they received by using the CTC Update Portal available on IRS.gov.
• Eligible taxpayers who received advance Child Tax Credit payments should file a 2021 tax return to receive the second half of the credit. Eligible taxpayers who did not receive advance Child Tax Credit payments can claim the full credit by filing a tax return.
• Third Economic Impact Payment letter 6475: In late January 2022, the IRS will begin issuing letters to people who received a third payment in late January 2021. The letter says, “Your Third Economic Impact Payment” near the top and, “Letter 6475” on the bottom righthand side of the page. Here’s what people need to know:
• Most eligible people already received their stimulus payments. This letter will help individuals determine if they are eligible to claim the Recovery Rebate Credit (RRC) for missing stimulus payments.
• People who are eligible for RRC must file a 2021 tax return to claim their remaining stimulus amount.
• People can also use IRS online account to view their Economic Impact Payment amounts.

Both letters – 6419 and 6475 – include important information that can help people file an accurate 2021 tax return. If a return includes errors or is incomplete, it may require further review while the IRS corrects the error, which may slow the tax refund. Using this information when preparing a tax return electronically can reduce errors and avoid delays in processing.

3. Avoid lengthy phone delays; use online resources before calling the IRS. Phone demand on IRS assistance lines remains at record highs. To avoid lengthy delays, the IRS urges people to use IRS.gov to get answers to tax questions, check a refund status or pay taxes. There’s no wait time or appointment needed — online tools and resources are available 24 hours a day.

Additionally, the IRS has several ways for taxpayers to stay up to date on important tax information:

• Follow the IRS’ official social media accounts and email subscription lists to stay current on the latest tax topics and alerts.
• Download the IRS2Go mobile app, watch IRS YouTube videos, or follow the IRS on Twitter, Facebook, LinkedIn and Instagram for the latest updates on tax changes, scam alerts, initiatives, products and services.
• Taxpayers can also get information in their preferred language. The IRS translates tax resources into several languages and currently has basic tax information in 20 languages. People can also file Schedule LEP, Request for Change in Language Preference, to receive written communications from the IRS in their preferred language.

4. Waiting on a 2020 tax return to be processed? Special tip to help with e-filing a 2021 tax return: In order to validate and successfully submit an electronically filed tax return to the IRS, taxpayers need their Adjusted Gross Income, or AGI, from their most recent tax return. For those waiting on their 2020 tax return to be processed, here’s a special tip to ensure the tax return is accepted by the IRS for processing. Make sure to enter $0 (zero dollars) for last year’s AGI on the 2021 tax return. For those who used a Non-Filer tool in 2021 to register for an advance Child Tax Credit or third Economic Impact Payment in 2021, they should enter $1 as their prior year AGI. Everyone else should enter their prior year’s AGI from last year’s return. Remember, if using the same tax preparation software as last year, this field will auto-populate.

5. Free resources are available to help taxpayers file. During this challenging year, the IRS reminds taxpayers there are many options for free help, including many resources on IRS.gov. For those looking to avoid the delays with a paper tax return, IRS Free File is an option. With Free File, leading tax software providers make their online products available for free as part of a 20-year partnership with the Internal Revenue Service. This year, there are eight products in English and two in Spanish. IRS Free File is available to any person or family who earned $73,000 or less in 2021. Qualified taxpayers can also find free one-on-one tax preparation help around the nation through the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs.

While the 2021 tax season presented challenges for the Internal Revenue Service and taxpayers, filing tax returns early can significantly reduce and minimize issues faced by both the IRS and individuals.

IRS Challenges

In a recent report issued by the National Taxpayer Advocate (NTA) to Congress, the NTA recognized the challenges faced by the IRS during 2021 and indicated that the IRS performed well under the circumstances. Similar to all organizations, the IRS was faced with a reduced workforce and closed offices resulting from COVID-19. Nevertheless, Congress charged the IRS with administering several COVID-19 pandemic relief programs during the filing season, These programs include: 1) the third round of stimulus payment in March of 2021 (also known as Economic Impact Payments); 2) monthly payments of the Advance Child Tax Credit; 3) implementing the provision to reduce of the taxability of unemployment compensation; 4) process tax returns and claims related to the Employee Retention Credit (ERC), and 5) assist the Small Business Administration is developing forms and guidelines for the Paycheck Protection Program loans.

This increased responsibility for the IRS led to significant delays in processing tax returns and refunds for taxpayers. During this period of time, corporate and individual taxpayers filed refund claims related to an expansion of the Net Operating Loss rules, Earned Income Tax Credits, ERC, and stimulus payments. As a result, there IRS saw a significant increase in tax returns to be processed.

In addition to the IRS encountering delays in processing tax returns and refunds, it was difficult for taxpayers to contact the IRS through their customer service lines. According to the NTA’s report, only 11% of calls made to the IRS customer representatives were answered. Also, during this time the IRS online tool titled “Where’s My Fund?” was often nonfunctional and unable to provide guidance for taxpayers.

Taxpayer Solutions – File as Early as Possible

In general, the IRS will process tax returns in the order that they are received. Moreover, tax returns that are filed electronically do not require processing by hand and their related refunds will be expedited. In addition, to efficient processing and turn-around time by the IRS, filing as early as possible does have several benefits that we will discuss below.

Stimulus Credits – As noted above, a significant reason to file early is to receive whatever is due back to you faster. This year, that not only includes refunds, but also any money from the third economic stimulus payment in March 2021 and the Child Tax Credit. While most of the payments were sent out correctly, some taxpayers’ circumstances changed during 2021 or they did not get the entire amount for which they qualified.

Avoid Tax Scammers – Filing your tax return as soon as possible is one of the best ways to guard against tax-related identity theft. In these instances, a criminal files a fraudulent return and collects a refund in your name before you file your return. If you file your legitimate return before a scammer attempts to file one for you, the fraudulent return is rejected. To protect yourself, remember that the IRS will not initiate requests for personal or financial information by email, text, or social media.

Obtain Tax Documents – 1099s, W-2s, and K-1s – Proactively ask financial institutions, employers, and charities for the appropriated documentation. Receiving these items early allows taxpayers to review their information to correct mistakes or any misunderstandings.

In sum, the challenges faced by the IRS during the 2021 tax season are expected to continue. While the IRS is taking steps to ensure a more efficient tax filing season, there are measures that taxpayers can take to minimize these issues.

If you have any questions regarding the information in today’s blog post, contact your trusted advisor at RVG & Company, today! (954) 233-1767.

Inflation, the rise in prices for goods and services, has many effects on one’s financial situation. The primary effect of inflation is that it reduces the purchasing power of consumers and businesses. On the other hand, inflation can encourage spending and investing activities as well as reduce unemployment. However, inflation also impacts an individual’s taxes. This article will highlight some of these instances.

Inflation, the rise in prices for goods and services, has many effects on one’s financial situation. The primary effect of inflation is that it reduces the purchasing power of consumers and businesses. On the other hand, inflation can encourage spending and investing activities as well as reduce unemployment. However, inflation also impacts an individual’s taxes. This article will highlight some of these instances.

In November 2021, inflation rose 6.8% from the same month in 2020. This was the fastest increase since 1982. The price for new cars has risen 11% and prices at restaurants have risen by 7.9%. With the rise of prices for various goods and services comes the adjustments for inflation for wage earners, retirement savers, social security recipients.

While the income of taxpayers in the 1970s had risen with inflation to account for the cost of living, tax brackets have remained static. Thus, during the 1970s, taxpayers were owing more taxes on additional income, which also caused a decrease in purchasing power. Inflation indexing, or the automatic cost-of-living adjustments built into tax provisions to keep pace with inflation, was enacted in 1981, after several years of inflation and rising prices. Congress indexed the income-tax brackets and a handful of other tax provisions for inflation. However, not all tax provisions have been indexed.

Two key provisions that have not been indexed for inflation for home buyers and sellers are the $750,000 cap on total mortgage debt where interest is tax-deductible, and an exemption of up to $250,000 of profit for single filers and $500,000 for married couples on the sale of a home.

If the gain exemptions on the sale of a home were adjusted for inflation, it would significantly increase to $411,000 for single filers and $822,000 for joint filers. A taxpayer that has significant taxable gain from the sale of an appreciated home will owe higher taxes due to inflation. The home-sellers exemption was enacted in 1997 and is in dire need of an adjustment for inflation in the current economic environment and the escalation of housing prices in recent years.

Wage-earners will see their net income (take-home pay) increase in 2022. This is due to the inflation factor used to adjust the federal tax withholding tables has increased by 3% for 2022. The inflation factor increased because of the adjustment of the inflation indexing. This increase lowers the amount of taxes deducted from paychecks and results in more money in taxpayers’ pockets.

Additionally, people who are saving for retirement will benefit from the change in the inflation factor because the inflation factor for a retirement plan uses a different inflation index than for wages and is more beneficial. The top tax-deductible contribution to a 401(k) for savers under age 50 will rise to $20,500 from $19,500 in 2021. However, Traditional and Roth IRAs will not see an increase in the contribution limit. However, people over age 50 can make an additional $1,000 contribution to a Roth or Traditional IRA.

Lastly, higher inflation will also increase Social Security benefits for 2022 by 5.9%, the most since 1982. The increase in the benefits will also result in increased taxes for recipients. The income thresholds where 85% of Social Security payments become taxable have not been adjusted for inflation since 1994. The income threshold for joint-filing couples is $44,000 whereas for single filers it is $34,000.

If the thresholds were adjusted for inflation, they would be about $80,400 for couples and $62,200 for singles in 2022. See our previous article on the Cost-of-Living Adjustment (COLA) for social security recipients for a more detailed explanation.

In sum, while several provisions of the tax code take inflation into account, other provisions remain unaffected.

If you have any questions regarding the information in today’s blog post, contact your trusted advisor at RVG & Company, today! (954) 233-1767.

Inflation, the rise in prices for goods and services, has many effects on one’s financial situation. The primary effect of inflation is that it reduces the purchasing power of consumers and businesses. On the other hand, inflation can encourage spending and investing activities as well as reduce unemployment. However, inflation also impacts an individual’s taxes. This article will highlight some of these instances.

Even though tax filing season is well underway, there’s still time to make a regular IRA contribution for 2021. You have until your tax return due date (not including extensions) to contribute up to $6,000 for 2021 ($7,000 if you were age 50 or older on or before December 31, 2021). For most taxpayers, the contribution deadline for 2021 is Monday, April 18, 2022.

You can contribute to a traditional IRA, a Roth IRA, or both, as long as your total contributions don’t exceed the annual limit (or, if less, 100% of your earned income). You may also be able to contribute to an IRA for your spouse for 2021, even if your spouse didn’t have any 2021 income.

Traditional IRA

You can contribute to a traditional IRA for 2021 if you had taxable compensation. However, if you or your spouse were covered by an employer-sponsored retirement plan in 2021, then your ability to deduct your contributions may be limited or eliminated, depending on your filing status and modified adjusted gross income (MAGI). (See table below.) Even if you can’t make a deductible contribution to a traditional IRA, you can always make a nondeductible (after-tax) contribution, regardless of your income level. However, if you’re eligible to contribute to a Roth IRA, in most cases you’ll be better off making nondeductible contributions to a Roth, rather than making them to a traditional IRA.

Making a last-minute contribution to an IRA may help you reduce your 2021 tax bill. If you qualify, your traditional IRA contribution may be tax-deductible. And if you had low to moderate-income and meet eligibility requirements, you may also be able to claim the Saver’s Credit for 2021 based on your contributions to a traditional or Roth IRA.

You have until your tax return due date (not including extensions) to contribute up to $6,000 for 2021 ($7,000 if you were age 50 or older on December 31, 2021) to all IRAs combined. For most taxpayers, the contribution deadline for 2021 is April 18, 2022. Claiming this nonrefundable tax credit may help reduce your tax bill and give you an incentive to save for retirement. For more information, visit irs.gov.

Roth IRA

You can contribute to a Roth IRA if your MAGI is within certain limits. For 2021, if you file your federal tax return as single or head of household, you can make a full Roth contribution if your income is $125,000 or less. Your maximum contribution is phased out if your income is between $125,000 and $140,000, and you can’t contribute at all if your income is $140,000 or more. Similarly, if you’re married and file a joint federal tax return, you can make a full Roth contribution if your income is $198,000 or less. Your contribution is phased out if your income is between $198,000 and $208,000, and you can’t contribute at all if your income is $208,000 or more. If you’re married filing separately, your contribution phases out with any income over$0, and you can’t contribute at all if your income is $10,000 or more.

Even if you can’t make an annual contribution to a Roth IRA because of the income limits, there’s an easy workaround. You can make a nondeductible contribution to a traditional IRA and then immediately convert that traditional IRA to a Roth IRA. Keep in mind, however, that you’ll need to aggregate all traditional IRAs and SEP/SIMPLE IRAs you own — other than IRAs you’ve inherited — when you calculate the taxable portion of your conversion. (This is sometimes called a “back-door” Roth IRA.)

If you make a contribution — no matter how small — to a Roth IRA for 2021 by your tax return due date and it is your first Roth IRA contribution, your five-year holding period for taking qualified tax-free distributions from all your Roth IRAs (other than inherited accounts) will start on January 1, 2021.

If you have any questions regarding the information in today’s blog post, contact your trusted advisor at RVG & Company, today! (954) 233-1767.

This article will focus on the developing issue related to the imposition of income taxes by cities and local governments.

Businesses that operate in the city of San Francisco must register in the city and pay a license fee. Moreover, businesses may be subjected to three additional taxes: the San Francisco Gross Receipts tax, the Homeless Gross Receipts Tax, and the Commercial Rent Tax. While these types of taxes are common in several large cities, such as New York City and Philadelphia, smaller cities in Ohio, Colorado, and Michigan impose similar income and gross receipts taxes. Additionally, local municipalities and towns are reviewing their charters to determine if they can enact income, gross receipts, and license taxes to raise revenue.

In San Francisco, the nexus standards include maintaining a fixed place of business within the city; performing any work, including solicitation, within the city for all or part of any seven days during the calendar year; or generating more than $500,000 in San Francisco-sourced gross receipts during the calendar year. Except in certain limited circumstances, tax filing must be made online.

With the recent increase in the sale of goods and services provided through the online-virtual economy, businesses will have to consider the potential consequences of city taxes. For example, a taxpayer may be subject to the New York City corporate income tax based upon sales to customers located in the city. New York City takes a market-based approach to sourcing sales in its jurisdiction. As a result, a service provider located outside New York City may be subject to the City’s corporate income tax because it has a customer located in New York City that receives a benefit from the out-of-state service provider.

The city of Philadelphia imposes the Business Income and Receipts Tax (BIRT). Every individual, partnership, limited liability company, and corporation is subject to tax. The tax has two components comprised of an income tax and gross receipts base. The tax is generally imposed on businesses that have a location in Philadelphia, however, the seller of software and SaaS may be subject to the BIRT if they have customers that receive a benefit in Philadelphia.

It should also be noted that Ohio has over 600 city and municipal jurisdictions that impose income taxes. Moreover, Michigan has almost 20 cities that impose an income tax and Colorado has five cities that impose similar taxes.

Based upon state and local jurisdictions increasing need for tax revenue, local income taxes and fees will be an emerging issue for businesses.

If you need assistance in determining if your business’s expansion is potentially liable for local taxes, please contact an advisor in our tax practice.

If you have any questions regarding the information in today’s blog post, contact your trusted advisor at RVG & Company, today! (954) 233-1767.