Copy
View this email in your browser
We can't believe it's that time of year already...time to send out tax organizers!  Please watch your mailbox for them at the end of December.  Tax appointment postcards will be sent out at the beginning of January.  Please notify us ASAP of address changes or if you prefer a zoom/phone meeting instead of an in-person meeting.

It is also time to start thinking about issuing 1099's and W-2's.  You can order these forms on the IRS website. If you haven't already started collecting W-9's from your vendors, now is the time to start!  Also make sure you (and we) have updated addresses for your employees to receive their W-2's. (Or that all of your 2021 employer(s) have your correct address if you are an employee).
Please note our modified business hours to allow our staff to enjoy
the holidays with their family.  We wish you all very happy holidays!
 
Thursday, December 23rd - 8 am to 1 pm
Friday, December 24th - CLOSED
Thursday, December 30th - 8 am to 1 pm
Friday, December 31st - CLOSED
 

California Tax Payments

We often are asked by clients whether they should make their fourth quarter state estimate payment before year end or in January.  Currently, the IRS limits the deduction for state and local taxes to $10,000.  If you have already reached that limit for 2021, it may not make sense to pay your fourth quarter estimate early.

The Build Back Better bill, if passed, could increase this deduction to as much as $80,000 per year and be retroactive to the 2021 tax year.  This is a controversial portion of the bill which has had many variations proposed so there is no telling if or what will pass.  Not super helpful for making a decision on whether to pay your fourth quarter estimate early for sure.

California Tax Payments

We often are asked by clients whether they should make their fourth quarter state estimate payment before year end or in January.  Currently, the IRS limits the deduction for state and local taxes to $10,000.  If you have already reached that limit for 2021, it may not make sense to pay your fourth quarter estimate early.

The Build Back Better bill, if passed, could increase this deduction to as much as $80,000 per year and be retroactive to the beginning of the 2021 tax year.  This is a controversial portion of the bill which has had many variations proposed so there is no telling if or what will pass.  As usual, Congress has not made it easy for us to do any tax planning but we will send out a flash e-mail if we hear more before the end of the year.

This just in!  California has clarified that all PPP loans approved after March 31, 2021 are not excludable from income regardless of a drop in gross receipts.  Consequently, your estimated tax payments may need to be adjusted accordingly.  

2022 Tax Brackets/Rates

The IRS has released the tax rates and income brackets for 2022.  The income limits have been adjusted for inflation, but the seven tax rates remain unchanged.  (California has different brackets). 

The standard deduction for 2022 was increased as well.

  • Married filing jointly: $25,900
  • Single/Married filing separately: $12,950
  • Head of Household: $19,400

2022 401(k) and IRA contribution limits as well as a few other items have been adjusted for inflation.  The standard mileage rate for 2022 has not yet been announced as of the date of this newsletter.

California Shenanigans


EDD employment verification

The EDD is sending out letters to self-employed/Schedule C filers who received Pandemic Unemployment Assistance (PUA) benefits to verify their employment. The letter asks for documentation that proves that the taxpayer was or planned to be self-employed or employed at some point between January 1, 2019, and March 15, 2020.

Failure to provide documentation could result in having to pay back the benefits the taxpayer received: the PUA benefits plus the additional $600/300 weekly benefit. The EDD may assess a 30% penalty if they determine a taxpayer gave false information to receive benefits.

Taxpayers may submit documentation through their UI Online account by February 11, 2022.

Nonresident withholding

The rules for taxing passthrough entity income and withholding on distributions continue to get more and more complex. Passthrough entities must not forget about their nonresident withholding obligations and the new withholding procedures implemented last year for distributions made to a passthrough entity’s nonresident shareholders, partners, members, or beneficiaries.  If you are making payments to nonresidents, make sure you know these new rules to avoid the severe penalties for compliance failure.  Click here for more info.

California advance Premium Tax Credit issues

Due to a retroactive change in the federal Premium Tax Credit per the American Rescue Plan Act, taxpayers who are purchasing their health insurance through Covered California may see that they owe California some money at tax time.  The good news is that you will likely be receiving a federal subsidy that will offset this amount.  However, be aware of the potential cash flow shortage as the amount due to California may be due before you receive your federal refund.

1099-NEC filing requirements

And finally some good news!! According to the FTB, the IRS will send information reported on the Form 1099-NEC, Nonemployee Compensation, to California beginning with forms filed in 2022 for the 2021 year. As a result, you will not be required to send a copy of the Form 1099-NEC to the state of California as you did last year.

 

Here's an article we received as tax professionals with good advice for our clients.
10 Steps to Consider Taking Before Year End

Cryptocurrency

The world's cryptocurrency is now worth more than $3 trillion.  The IRS is stepping up their compliance on reporting these transactions.  Many people don't realize that cryptocurrency is viewed by the IRS the same as a stock.  This means the sale/redemption/conversion of cryptocurrency could generate taxable income...even if it isn't reported on a 1099.  Here is an article that all cryptocurrency owners should read.

1099-K Reporting Changes

The American Rescue Plan Act (ARPA) takes effect on January 1, 2022 and changes the reporting requirement for third-party providers such as Venmo, PayPal, Uber, Airbnb, and Lyft.  Previously, third-party providers only had to send out 1099-K forms when an account had 200 or more business transactions during the year totaling at least $20,000.  Under ARPA, providers must begin reporting business transactions totaling $600 or more, regardless of the number of transactions during the year. NOTE:  California has adopted this new threshold for all payments made after January 1, 2021. 

The new reporting requirement could lead to some complications.  For example, Venmo may not be able to determine if a transaction is personal or for business.  Were you being reimbursed for dinner with friends or for services rendered?  If they issue a 1099 for a charge in a gray area, it's up to you to prove this isn't a taxable event if the IRS imposes tax.  Additionally, you could receive duplicate 1099's for the same goods or services...one from the third-party provider and a 1099-NEC from the customer.

So what can you do about it?  Expect third-party networks to start asking for more information to clarify the nature of your transactions.  If you are using Venmo or PayPal in your business, we highly encourage you to use separate accounts for business and personal transactions.  

Facebook
Website
Copyright © 2021 Merrell, Irwin & Associates, All rights reserved.


Want to change how you receive these emails?
You can update your preferences or unsubscribe from this list.

Email Marketing Powered by Mailchimp