The IRS sends millions of letters and notices to taxpayers for a variety of reasons. Many of these letters and notices can be dealt with without calling or visiting an IRS office. Here’s what you need to know about IRS notices and letters:
Continue reading
Individuals with significant assets should take advantage of proven tax strategies such as gifting and direct payments to educational institutions to transfer wealth to heirs tax-free, as well as minimize estate taxes. Additional opportunities are available as well, thanks to low interest rates and a volatile stock market. Let’s take a look at some of them:
Continue reading
Understanding marginal and effective tax rates is important for tax planning purposes; however, many taxpayers don’t fully understand the differences. Let’s take a closer look:
Continue reading
The month of October marks the return of a favorite Wheeler tradition – Shred Day!
Consider stopping by our San Jose or Watsonville office on Friday, October 22nd from 10 AM to 2 PM, and as a courtesy we will shred your unwanted paper (limit 3 boxes per client).
To RSVP, send us an email at email@wheelercpa.com and let us know which office you’ll be visiting. Then just gather those dusty documents that have been taking up space, bring them to the on-site shred attendant in our parking lot, and we’ll take care of the rest.
San Jose:
1475 Saratoga Ave #100, San Jose, CA 95129
Watsonville:
17 Aspen Way, Watsonville, CA 95076
We hope to see you there!
Tax credits and deductions can mean more money in a taxpayer’s pocket. Here are a few facts about credits and deductions that help taxpayers with their year-round tax planning:
To learn more about how you can save money on your 2021 tax return by planning ahead, please call the office today.
San Jose: (408) 252-1800
Watsonville: (831) 726-8500
An Identity Protection PIN is a six-digit number eligible taxpayers get to help prevent their Social Security number or Individual Taxpayer Identification Number from being used to file fraudulent federal income tax returns. This number helps the IRS verify a taxpayer’s identity and accept their tax return. The Get An IP PIN tool enables anyone with an SSN or ITIN to get an IP PIN after verifying their identity through a rigorous authentication process. For security reasons, tax pros cannot get an IP PIN on behalf of clients.
Facts taxpayers should know about the IP PIN:
Currently, taxpayers can get an IP PIN for 2021, which should be used when filing any federal tax returns during the year, including prior year returns. New IP PINs will be available starting in January 2022.
Taxpayers Unable to Validate Identity Online
Taxpayers who are unable to validate their identity online and have income of $72,000 or less, can file Form 15227 (EN-SP), Application for an Identity Protection Personal Identification Number. The IRS will call the phone number the taxpayer provided on Form 15227 to validate the taxpayer’s identity. However, for security reasons, the IRS will assign an IP PIN for the next filing season, and the taxpayer cannot use the IP PIN for the current filing season.
Taxpayers who cannot validate their identity online, or by the phone, or who are ineligible to file a Form 15227 can make an appointment at a Taxpayer Assistance Center. Please call the office if you need assistance locating a center. Before arriving at their appointment, taxpayers will need to bring one current government-issued picture ID and another identification document to prove their identity. Once verified, the taxpayer will receive an IP PIN in the mail, usually within three weeks.
San Jose: (408) 252-1800
Watsonville: (831) 726-8500
Time is running short for taxpayers who requested an extra six months to file their 2020 tax return. As a reminder, Friday, October 15, 2021, is the extension deadline for most taxpayers. Taxpayers who owe tax – even those who did not request an extension – and have yet to file a 2020 tax return can generally avoid additional penalties and interest by filing the return as soon as possible and paying any balance due.
Taxpayers with relatively simple returns should keep the following items in mind regarding the extension deadline and taxes:
1. Taxpayers can still e-file returns. Filing electronically is the easiest, safest, and most accurate way to file taxes.
2. For taxpayers owed a refund, the fastest way to get it is to combine direct deposit and e-file.
3. Taxpayers who owe taxes should consider using IRS Direct Pay, a simple, quick, and free way to pay from a checking or savings account using a computer or mobile device. There are also other online payment options. Please call the office if you need details about other payment options.
4. Members of the military and those serving in a combat zone generally get more time to file. Military members typically have until at least 180 days after leaving a combat zone to both file returns and pay any tax due.
5. Taxpayers should always keep a copy of tax returns for their records. Keeping copies of tax returns can help taxpayers prepare future tax returns or assist with amending a prior year’s return.
Taxpayers with complicated tax returns should contact the office immediately for assistance. Many tax preparers and accounting professionals are extremely busy due to the complexity of tax regulations brought about by the COVID-19 pandemic.
San Jose: (408) 252-1800
Watsonville: (831) 726-8500
Many 401(k) plans allow taxpayers to make Roth contributions as long as the plan has a designated Roth account. Your plan may also allow you to transfer amounts to the designated Roth account in the plan or borrow money.
Check with your employer to find out if your 401(k), 403(b) or 457 governmental plan has a designated Roth account and whether it allows in-plan Roth rollovers or loans.
A designated Roth account allows you to:
Unlike pre-tax salary deferrals, which are not taxed when you contribute them to the plan, you have to pay taxes on any contribution you make to a designated Roth account. Any pre-tax salary deferrals and related earnings are taxable when you withdraw them from the plan.
Your gross income for the year in which you make designated Roth contributions will be higher than if you had made only pre-tax salary deferrals.
Roth contributions, however, are not taxed when you withdraw them from the plan. Earnings on Roth contributions are also not taxed when they are withdrawn from the plan if your withdrawal is a qualified distribution. A qualified distribution is a distribution that is made:
Roth IRA. In 2021, the maximum contribution to a regular Roth IRA account is $6,000 ($7,000 if age 50 or older). Furthermore, contributions are limited by tax filing status and adjusted gross income.
Designated Roth Account. In contrast, in 2021, the maximum contribution to a designated Roth account is $19,500 ($26,000 if age 50 or older), and contribution limits are not impacted by filing status or adjusted gross income.
Depending on your particular tax situation, contributing to a designated Roth account could be a smart move. To learn more about whether you should take advantage of a designated Roth account, please call.
San Jose: (408) 252-1800
Watsonville: (831) 726-8500
Starting your own business is an exciting prospect, but there is more to it than simply writing a business plan. Understanding the tax responsibilities of starting a business venture can save taxpayers money and help set them up for success. That’s where a tax professional can help. Here is what you need to know before you start a new business:
The first decision you need to make is determining which business entity you will use because the type of business structure you choose determines what taxes you need to pay and how to pay them, as well as which income tax return you file. The most common types of business entities are:
Securing an Employer Identification Number (also known as a Federal Tax Identification Number) is the first thing you must do since many other forms require it. The IRS issues EINs to employers, sole proprietors, corporations, partnerships, nonprofit associations, trusts, estates, government agencies, certain individuals, and other business entities for tax filing and reporting purposes.
An EIN is used to identify a business. Most businesses need one of these numbers. A business with an EIN needs to keep the business mailing address, location, and responsible party up to date. IRS regulations require EIN holders to report changes in the responsible party within 60 days. They do this by completing Form 8822-B, Change of Address or Responsible Party, and mailing it to the address on the form.
Even if you already have an EIN as a sole proprietor, for example, if you start a new business with a different business entity, you will need to apply for a new EIN.
The fastest way to apply for an EIN is online through the IRS website or telephone. Applying by fax and mail generally takes one to two weeks, and you can apply for one EIN per day. There is no cost to apply.
A tax year is defined as an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either calendar year or fiscal year defined as follows:
Calendar year. 12 consecutive months beginning January 1 and ending December 31.
Fiscal year. 12 consecutive months ending on the last day of any month except December.
Once you have your EIN, you need to fill out forms to establish an account with the state for payroll tax withholding, Unemployment Insurance Registration, and sales tax collections (if applicable). Business taxes include income tax, self-employment tax, employment tax, and excise tax. Generally, the type of tax your business pays depends on the type of business structure. Keep in mind that you may also need to make estimated tax payments.
Payroll reporting and recordkeeping can be time-consuming and costly. Also, keep in mind that almost all employers are required to transmit federal payroll tax deposits electronically. Personnel files should be kept for each employee and include an employee’s employment application as well as the following:
As an employer with employees, you may have certain healthcare requirements you need to comply with as well. If so, you should know about the Small Business Health Care Tax Credit, which helps small businesses (fewer than 25 employees who work full-time or a combination of full-time and part-time) pay for health care coverage they offer their employees. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent for small tax-exempt employers, such as charities. It is available to eligible employers for two consecutive taxable years.
If you have any questions or need help setting up a payroll and accounting system for your new business, don’t hesitate to call.
San Jose: (408) 252-1800
Watsonville: (831) 726-8500
Divorce is a painful reality for many people, both emotionally and financially. Quite often, the last thing on anyone’s mind is the effect a divorce or separation will have on their tax situation. To make matters worse, most court decisions do not consider the effects divorce or separation has on your tax situation, which is why it’s always a good idea to speak to an accounting professional before anything is finalized.
Furthermore, tax rules regarding divorce and separation can and do change – as they recently did under tax reform. Divorced and separated individuals should be aware of tax law changes that took effect in 2019.
The new rules relate to alimony or separate maintenance payments under a divorce or separation agreement and includes all taxpayers with:
Tax reform did not change the tax treatment of child support payments which are not taxable to the recipient or deductible by the payor.
Agreements executed beginning January 1, 2019 or later. Alimony or separate maintenance payments are not deductible from the income of the payor spouse, nor are they includable in the income of the receiving spouse if made under a divorce or separation agreement executed after December 31, 2018.
Agreements executed on or before December 31, 2018 and then modified. The new law applies if the modification does these two things:
Agreements executed on or before December 31, 2018. Before tax reform, a taxpayer who made payments to a spouse or former spouse could deduct it on their tax return. The taxpayer who receives the payments is required to include it in their income. If an agreement was modified after that date, the agreement still follows the previous law as long as the modifications do not:
Tax reform made an already complicated situation even more so. Don’t hesitate to call if you have any questions about the tax rules surrounding divorce and separation.
San Jose: (408) 252-1800
Watsonville: (831) 726-8500
