There is Still Time to Make a 2020 IRA Contribution

If you’re getting ready to file your 2020 tax return, and your tax bill is higher than you’d like, there might still be an opportunity to lower it. If you qualify, you can make a deductible contribution to a traditional IRA right up until the April 15, 2021 filing date and benefit from the tax savings on your 2020 return. Who is eligible? You can make a deductible contribution to a traditional IRA if: You (and your spouse) aren’t an active participant in an employer-sponsored retirement plan, or You (or your spouse) are an active participant in an employer plan, but your modified adjusted gross income (AGI) doesn’t exceed certain levels that vary from year-to-year by filing status. For 2020, if you’re a joint tax return filer and...

Fraud Considerations When Making Business Acquisitions

The COVID-19 pandemic has often made the due diligence process for business acquisitions more complex and time-consuming. But if you’re buying a company, it’s critical to dedicate your full attention to this part of the M&A process — not only to confirm that the selling business is as valuable as you believe it to be, but to protect against fraud. Plan early to engage a fraud expert to review financial statements and other documents for signs that you could be dealing with a dishonest seller. Subtle warning signs When reviewing a seller’s financial statements, forensic experts look for subtle warning signs of fraud. These include excess inventory, a large number of write-offs, an unusually high number of voided discounts for returns, insufficient documentation of sales and increased...

Payroll Provisions of the American Rescue Plan Act

The American Rescue Plan, 2021 (ARPA, 2021) was signed by President Biden on March 11, 2021 to address the continuing economic impact on employers and employees the coronavirus (COVID-19) pandemic has posed.  The legislation extends and expands provisions found in the Families First Coronavirus Relief Act (FFCRA), Coronavirus Aid, Relief and Economic Security (CARES) Act, and the Consolidated Appropriations Act, 2021 (CAA, 2021).  This post reviews the payroll provisions of ARPA.   Paid Sick and Family Leave Credits Changes under ARPA apply to amounts paid with respect to calendar quarters beginning after March 31, 2021. ARPA, 2021: Extends the FFCRA paid sick time and paid family leave credits from March 31, 2021 through September 30, 2021.  Provides that paid sick and paid family leave credits may each be...

How to Qualify for Home Office Deductions

During the COVID-19 pandemic, many people are working from home. If you’re self-employed and run your business from your home or perform certain functions there, you might qualify for home office deductions and be able to claim to expenses against your business income. There are two methods for claiming this tax break: the actual expenses method and the simplified method. Who qualifies? In general, you qualify for home office deductions if part of your home is used “regularly and exclusively” as your principal place of business. If your home isn’t your principal place of business, you may still be able to deduct home office expenses if 1) you physically meet with patients, clients or customers on your premises, or 2) you use a storage area in your home...

Fraud Potential When Factoring Receivables

If your business struggles to generate steady cash flow from operations, factoring is a possible solution. With factoring, a business sells the right to collect on customer invoices to a factoring company in exchange for an immediate payment. If you have slow-paying customers, factoring accelerates the collections process. But some companies abuse factoring and use it to commit fraud.  The basics There are two forms of invoice factoring. With recourse factoring, the business selling invoices agrees to repay the factor the advance it received (a percentage of the invoice’s face value, minus a fee) if a customer doesn’t pay the full amount. Non-recourse factoring is less common because it involves more risk for the factor. The business doesn’t have to repay the factor if a customer becomes insolvent during...

How to Reduce Receivables Fraud Risk

One of the most common routes for occupational fraud perpetrators runs through the accounts receivable department. Unless you’re aware of these schemes and take steps to prevent them, your business could face serious financial losses. Creative misappropriation Receivables fraud occurs when dishonest employees divert customer payments for their personal use. The most popular method is known as “lapping.” It involves the application of receipts from one account to cover misappropriations from another. For example, rather than credit Customer A’s account for its payment, a dishonest employee pockets the funds and later posts a payment from Customer B to A’s account, Customer C’s payment to B’s account and so on. Dishonest employees also often abuse discounts and write-offs. Instead of crediting a payment to the customer’s account, fraudsters might...

Tax Implications of Buying or Selling a Business

Merger and acquisition activity in many industries slowed during 2020 due to COVID-19. But analysts expect it to improve in 2021 as the country comes out of the pandemic. If you are considering such a transaction, it's important to understand the tax implications of buying or selling a business. Two ways to arrange a deal Under current tax law, a transaction can basically be structured in two ways: (1)  Stock (or ownership interest) A buyer can directly purchase a seller’s ownership interest if the target business is operated as a C or S corporation, a partnership, or a limited liability company (LLC) that’s treated as a partnership for tax purposes. The current 21% corporate federal income tax rate makes buying the stock of a C corporation somewhat more attractive. Reasons:...

Obtaining Substantiation for 2020 Donations

If you’re like many Americans, letters from your favorite charities may be appearing in your mailbox acknowledging your 2020 donations. But what happens if you haven’t received such a letter — can you still claim a deduction for the gift on your 2020 income tax return? It depends. What is required To support a charitable deduction, you need to comply with IRS substantiation requirements. This generally includes obtaining a contemporaneous written acknowledgment from the charity stating the amount of the donation, whether you received any goods or services in consideration for the donation and the value of any such goods or services. “Contemporaneous” means the earlier of: The date you file your tax return, or The extended due date of your return. So if you made a donation in...

Many Tax-Related Limits Affecting Individuals Have Changed for 2021

Many people are more concerned about their 2020 tax bills right now than they are about their 2021 tax situations. That’s understandable because your 2020 individual tax return is due to be filed in less than two months (unless you file an extension).  However, it’s a good idea to acquaint yourself with tax-related limits affecting individuals that may have changed for 2021. Below are some Q&As about tax amounts for this year. Be aware that not all tax figures are adjusted annually for inflation and even if they are, they may be unchanged or change only slightly due to low inflation. In addition, some amounts only change with new legislation. How much can I contribute to an IRA for 2021? If you’re eligible, you can contribute $6,000 a...