Welcome to Our Blog
We’re a San Diego, Calif.-based boutique tax consulting firm focused on personalized tax and financial guidance to individuals and businesses. Here on our blog, you’ll find you’ll find news, insights, and observations from trusted sources in the world of tax planning and and financial guidance.
How to Protect Yourself Against 2022 Tax and Unemployment Scams
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It’s tax filing season — prime time for scum of the earth con artists to crawl out from under their rocks with novel ways to steal identities and scam people out of their hard-earned money.
That means it’s time for us, as one of Southern California’s premier women-owned tax planning and financial strategy firms, to let you know what to watch out for and how to protect yourself. By remaining vigilant and reporting suspicious activity to relevant government agencies and law enforcement, we can start gaining the upper hand over these criminals.
In this post, we call your attention to four primary methods used to steal identities and tax refunds. We’ll also reveal common warning signs and offer guidance on what to do when you notice suspicious activity.
Text Message Scams
Text message scams usually involve someone pretending to be from the Internal Revenue Service (IRS). Over the last couple of years, fraudulent text messages have focused mostly on COVID-19 or “stimulus payments,” and included one or more links claiming to point to IRS websites or relevant online tools.
If you receive an unsolicited text/SMS message that appears to be from either the IRS or a program closely linked to it, take a screenshot of the text message and email it to phishing@irs.gov with the following information: Continue reading… Continue reading… Continue reading…
How Long Should I Retain My Tax Records?
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While one of your more more excitable high school classmates will tell you that purchasing and holding onto your senior yearbook in perpetuity is a graduate’s duty to their fellow classmates, maintaining tax records is actually a real part of your duties as a taxpayer. But unlike hauling around an 8.5” x 11” yearbook, keeping track of and maintaining tax records is time-consuming and a real hassle.
And if you haven’t made the transition yet to electronic documents, your tax records can take up valuable physical storage space. Clearing some of the clutter by destroying old tax records may seem like an attractive option, but in the event of an audit, you could live to regret that decision.
So, what’s the least you can do to maintain your records and minimize storage requirements while protecting yourself in the event of an audit? In this blog post, we review tax record retention requirements and related issues to help you answer these questions for yourself.
Tax Record Retention Requirements
Every taxpayer is required by Internal Revenue Code (IRC) Section 6001 to maintain adequate tax records and to make those records available to the IRS upon request. The Section 6001 regulations also require taxpayers to keep the records for as long as they may be material to tax law administration. In that regard, the IRS Continue reading… Continue reading… Continue reading…
2022 Tax and Employer Rules and Regulations
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If you own or operate a business, you’re no stranger to payroll taxes — the money you withhold from an employee’s pay to remit to government tax collectors on the employee’s behalf. You pay a portion of these taxes, and your employees pay a portion. The money collected is allocated to the following:
- Federal Insurance Contributions Act (FICA) to fund Old Age, Survivors, and Disability Insurance (OASDI), also known as Social Security and Disability, and Medicare (health insurance for senior citizens and the disabled)
- State Disability Insurance (SDI)
- Federal Unemployment Insurance (FUI)
- State Unemployment Insurance (SUI)
- Employment Training Tax (ETT)
In today’s post, we’ll bring you up to speed on what you need to know to plan for, pay, and remain in compliance with these and other withholdings for 2022. We’ll also share information about important changes and reminders that your business needs to be aware of for the year ahead. First up, Social Security.
Social Security Tax
For 2022, the Social Security tax rate is 6.2 percent for employer and employee — unchanged from 2021. The Social Security wage base has increased from $142,800 in 2021 to $147,000 in 2022. In other words, Social Security tax applies only to the first $147,000 an employee earns, so the maximum you would withhold on behalf of the employee is $9,114.
Keep in mind that the employee’s share is only half of the total Social Security tax owed. As an employer, you are responsible for paying the other half. So, if you deduct and remit $9,114 on behalf of your employee, you are required to pay an additional $9,114 as employer.
Self-employed individuals are required to pay both “halves,” so a self-employed individual with a net income of $147,000 would pay $9,114 x 2 = $18,228 in Social Security Tax. To take some of the sting out of paying both halves of FICA, self-employed individuals receive a deduction for self-employment tax on their federal income tax return.
Medicare Tax
The Medicare tax rate is Continue reading… Continue reading… Continue reading…
Freelancers and Contractors Accepting PayPal, Venmo, and Crypto — What You Need to Know
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We all accept the fact that each new year ushers in new or updated tax rules, regulations, deadlines, rates, and thresholds. However, changes for 2022 are most remarkable because of their impact on freelancers, independent contractors, and any business that accepts payment via an e-payment platform such as PayPal or Venmo.
Top among these changes affecting many of the above-mentioned freelancers, independent contractors, or businesses is the use of hard, soft, cold, hot, mobile, or digital wallets to accept payments available through cryptocurrencies, which are now perhaps stable enough for businesses to consider accepting.
In this post, we give you a heads up on what to expect in 2022 so you won’t be blindsided at any point during the year ahead. Below, we offer insights into each of the following changes for 2022:
- New reporting rules for payment apps
- What you need to know about accepting cryptocurrencies
- Upcoming tax deadlines
- Changes to the standard deduction
- Marginal tax rates for 2022
- Increase in the earned income tax credit
To avoid any unpleasant surprises at year’s end, now is the time to get up to speed on the key changes below and adjust your tax and financial planning accordingly.
New Reporting Rules for Payment Apps
To reduce the amount of unreported taxable income flowing through e-payment platforms such as PayPal, Venmo, and Cash App, the Internal Revenue Service (IRS) is requiring such platforms to report each user’s business transactions if they exceed $600 for the year for goods or services.
The prior threshold for reporting was 200 transactions per year or a combined total of at least Continue reading… Continue reading… Continue reading…
The Infrastructure Investment and Jobs Act: What Taxpayers Need to Know
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Lawmakers in Washington, D.C., are interested in many things, including opportunities for creating generation-defining legislation. So it was in November that Congress passed a bipartisan infrastructure deal with implications that included changing the end date of the Employee Retention Credit and establishing reporting requirements for cryptocurrency transactions.
The Infrastructure Investment and Jobs Act (H.R. 3684), which was signed into law on the Nov. 15 by President Biden, was originally introduced in the U.S. House of Representatives as the INVEST in America Act. It began as a $715-billion infrastructure bill to address provisions related to federal-aid highway, transit, highway safety, motor carrier, research, hazardous materials, and rail programs of the Department of Transportation (DOT).
During congressional negotiations, it was expanded to include funding for broadband access, clean water, and electric grid renewal. The revised version, renamed the Infrastructure Investment and Jobs Act, calls for approximately $1.2 trillion in spending.
In this post, we cover several new tax provisions in H.R. 3684 that may impact you as an individual taxpayer, contractor, or business owner.
New Tax Provisions for Individuals
As a result of the passage of H.R. 3684, the following tax provisions now apply to individual taxpayers: Continue reading… Continue reading… Continue reading…
2021 Year-End Tax-planning Tips for Business Owners
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As we covered in “2021 Year-End Tax-Planning Tips for Individuals,” what you do this year can make a big difference in how much you pay in state and federal tax next year. And perhaps more important if you’re a business owner, it can impact your net worth for decades to come.
Because it stands to reason the more you save on taxes, the more money you have to invest in your businesses and your own future.
Paying attention to tax rules and regulations and how they impact your business finances has become especially important in recent years with the flurry of changes in response to the global pandemic and its economic impact, major shifts in government policies (and spending), business slowdowns and shutdowns, and more.
In this environment of disruption and uncertainty, having a well-thought-out tax plan in place enables you to minimize your obligations while using your tax savings to protect and grow your business and personal wealth.
Here at SWC, we encourage business owners to schedule a year-end tax planning and financial strategy session with your CPA. And if you are a business client of ours, you already know that we can help you reassess your business taxes and finances, adjust your plan to optimize outcomes, and take any year-end steps that can save the business money and protect and grow your personal net worth.
In the meantime, whether you’re a client of ours or you work with another firm, here’s a look at some tax issues for business owners to consider as you approach year-end 2021: Continue reading… Continue reading… Continue reading…
2021 Year-End Tax-planning Tips for Individuals
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When it comes to your personal finances, what you do this year will make a big difference in how much state and federal tax you pay next year (on April 15). It could also have an impact on your net worth for decades into the future.
That’s especially true this year when so many factors are likely to have impacted your taxes and finances — the lingering global pandemic, new tax laws, business slowdowns and shutdowns, supply chain disruptions, inflation, major shifts in government policies, and more. In this environment of relative disorder and uncertainty, having a well-thought-out tax plan in place empowers you to successfully meet the challenges, capitalize on new opportunities, and move forward with confidence.
Here at SWC, we encourage you to schedule a year-end tax and financial strategy session with your CPA. And if you are a client of ours, you already know that we can help you reassess your taxes and finances, adjust your plan to optimize outcomes, and take any year-end steps that can save you money and protect and grow your net worth.
In the meantime, whether you’re a client of ours or you work with another firm, here’s a look at some issues to consider as you approach year-end 2021: Continue reading… Continue reading… Continue reading…
Taking Advantage of the Work Opportunity Tax Credit (WOTC)
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Need an incentive to hire a veteran or someone from an underserved demographic? You need to know about the Work Opportunity Tax Credit (WOTC) — a federal tax credit of up to $9,600 for employers who hire people from specific groups facing significant barriers to employment. (Tax-exempt employers can claim the WOTC against their payroll taxes.)
The WOTC creates an incentive for business owners to increase workplace diversity while providing the unemployed and underemployed with access to good jobs. If you’re a business owner or you manage a business for someone else, the WOTC provides you with the opportunity to grow your workforce at a discount as the economy recovers.
Jointly administered by the Internal Revenue Service (IRS) and the Department of Labor (DOL), the Work Opportunity Tax Credit is available for wages paid to certain individuals who begin work on or before Dec. 31, 2025. Under this program, participating companies receive a tax credit of between $2,400 and $9,600 per new qualifying hire.
Best of all, originally scheduled to expire at the end of 2020, the Consolidated Appropriation Act (CAA) extended the WOTC through December of 2025.
Screening Job Applicants
To take advantage of the Work Opportunity Tax Credit, you’ll need to screen applicants to ensure that they qualify. To qualify, employees must meet the following criteria:
- Be a new hire, not an existing employee or previous employee being rehired
- Belong to one of the qualified groups (see list below)
- Perform at least 400 hours of service for the employer (employees who perform at least 120 hours of service may qualify for a partial credit)
Warning: Note that an employee’s wages cannot be used for both the WOTC and the COVID-19 employee retention credit. The same wages cannot be counted twice.
To screen job applicants, create a WOTC questionnaire that they must complete and submit with their application. Your WOTC questionnaire needs to collect details that enable you to determine whether an applicant is a member of one of the qualifying groups: Continue reading… Continue reading… Continue reading…
The Business Benefit to Helping Your Employees Pay Off Their Student Loans
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Thanks to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 21, 2020, employers have a valuable new benefit they can offer to their employees — tax-free employer student loan assistance. And as you’ll see below, this benevolent act has tax advantages for your business.
According to the provision created by Section 2206 of the CARES Act, an employer can pay up to $5,250 in student loan payments for an employee each year, either to the student loan servicer or directly to the employee. Payments are tax-free for the employee, and the employer receives a payroll tax exclusion on that amount.
Originally intended to expire in 2020, the program has been extended through December 2025 under the Consolidated Appropriations Act (CAA), with those of us here at SWC believing it’s likely to be extended beyond 2025.
The Benefits of Helping Employees Pay Their Student Loans
As a business owner, you know that tax-free isn’t free. You pay for every benefit that you offer and that your employees take advantage of. The payroll tax exclusion slightly offsets the cost you incur, but employees benefit most in respect to the student loan relief and the fact that they don’t pay income tax on that compensation.
So, what’s in it for you? Consider the following potential benefits: Continue reading… Continue reading… Continue reading…
For Business Owners and Investors: California AB 150 — Pay More Taxes Now in Order to Pay Less in Taxes Later
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In December 2017, the Tax Cuts and Jobs Act (TCJA) became law, representing the most significant federal tax code overhaul in the United States in more than three decades. In part, the TCJA limited the state and local tax (SALT) deduction on federal tax returns to $10,000. In response, several states have enacted an elective pass-through entity tax as a workaround.
On July 16, 2021, California joined the group when its governor signed into law California Assembly Bill 150 (AB 150).
How California Assembly Bill 150 Works
A pass-through entity (PTE), which is also known as a flow-through entity or fiscally transparent entity, is a legal business structure wherein income flows through to the business entity’s owners and investors, rendering the income of the entity as the income of the owners or investors.
Here’s how California’s elective pass-through entity (PTE) tax works:
- A qualifying elective PTE pays 9.3 percent of qualified net income — the taxpayer’s share of income (including interest, dividends, and capital gains) from the PTE — to the California Franchise Tax Board (FTB).
- At year’s end, the PTE issues a federal K1 showing the taxpayer’s income from the PTE as 9.3 percent less than what the taxpayer received. This lowers the taxpayer’s federally reported income from the PTE by 9.3 percent.
- The taxpayer claims a credit on his or her state tax return equal to the PTE tax paid to the FTB.
Note: The pass-through entity tax reduces only the federally reported income, not state reported income. The PTE files a separate state K1 reporting 100 percent of what it paid the owner.
Here’s an example: Continue reading… Continue reading… Continue reading…