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Summer is just around the corner and we are excited for things to slow down a little bit.  This is a great time to do a tax withholding check in or update your projection if things have changed significantly.  Perhaps COVID impacted your income and now things are getting back to normal.  We are happy to assist you with this or you can use the IRS withholding estimator.

Temporary deduction of 100% of business meals

Beginning January 1, 2021, through December 31, 2022, businesses can claim 100 percent of their food or beverage expenses paid to restaurants as long as the business owner (or an employee of the business) is present when food or beverages are provided and the expense is not lavish or extravagant under the circumstances.  The key requirement is that it is from a restaurant, not prepackaged food from a grocery store or convenience store. Read more here.

We suggest that you create a new expense account in your accounting software to differentiate between the meals that are only 50% vs. 100% deductible for ease of reporting at tax time. 

Summer Office Hours:
Beginning June 4th our office will close
at 1 pm on Fridays.

Monday - Thursday - 8 am to 5 pm
Friday - 8 am to 1 pm

Deducting Investment Fees

Investment management and financial planning fees were tax deductible through tax year 2017. They fell into the category of miscellaneous itemized deductions, and these deductions were eliminated from the tax code by the Tax Cuts and Jobs Act (TCJA) effective tax year 2018.  These fees are still deductible for California purposes to the extent that they exceed 2% of your adjusted gross income.

You can pay investment management fees or financial planning fees that are structured as a percentage of assets directly out of the account that's being managed. It’s not considered to be a withdrawal from an IRA account when fees are paid this way. It's an investment expense, so you’re paying the fees with pre-tax dollars and therefore they are not deductible for federal or state purposes.   However, if you pay these fees by personal check from an account other than your IRA, you can claim them as a miscellaneous itemized deduction for California purposes, but may not see much tax benefit.  Therefore, it makes sense to pay fees directly out of traditional IRAs when possible because the funds held in a traditional IRA will be taxed one day. You’re avoiding paying income tax on that portion if you pay fees out of this type of account.

Don't forget your second quarter estimates
are due June 15, 2021.  If you are unsure what you should pay, please contact our office.

Tax Compliance Landscape

We recently came across this interesting article regarding an increase in compliance efforts by the taxing authorities.  Starting in 2017, the IRS identified a list of issues to target for potential noncompliance.  One area that is receiving increased scrutiny is partnerships, with the IRS feeling they do not audit enough of them.  Also the IRS is focusing on very wealthy individuals and other countries around the world are following suit.  The increased use of data analytics is assisting the IRS in recouping lost tax revenue.  For example, the information you report on a bank loan application can now be matched up to information the IRS received on your tax return, causing red flags to be raised.  With the tax revenue lost due to COVID, it's reasonable to think this may be one way to recoup some of that.

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

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