Small Business Audits to Increase by 50% in 2021
Jan 26, 2021
As many small businesses are already preparing for complex accounting issues as a result of COVID-19 relief funds from the 2020 CARES Act, the IRS announced their intent to increase audits by 50%.
These audits and their repercussions could be targeted at businesses that have historically been overlooked including family-owned operations, online businesses created as a result of the pandemic, and investment funds.
De Lon Harris, the IRS deputy commissioner of examination for small businesses, recently noted, “[we] are focusing our efforts to increase compliance activity in this area of not only partnerships but also investor returns related to pass-throughs.”
The IRS can audit returns up to 3 years old, and if significant problems are found, are able to look further into past filings. With new audit procedures passed by Congress in 2015, the IRS is able to collect any underpaid taxes directly from the partnership instead of tracking down each investor. The agency is placing 50 new specialized auditors on these cases beginning in February in order to meet the projected increase.
Here are a few tips to prepare you and your business for the possibility of an audit:
- Maintain clear records – Accurate and adequate documentation makes an auditor’s job easier and may reduce the chance of further inquiry.
- Make estimated tax payments – Businesses expecting to owe more than $500 should be making quarterly payments. Failure to do so can increase your chance of being audited.
- Impact of the Bipartisan Budget Act of 2015 (BBA) – Review of businesses’ formation documents, elections, and governing documents will help to determine if you will be subject to the Centralized Partnership Audit Regime and how it will impact your business.
- Enlist the experts – Seek guidance from a CPA to ensure your returns are filed timely and accurately, to help you determine if estimated payments are needed, and to resolve possible red flags due to questionable reporting.
Should you have questions about your specific situation, please contact your William Vaughan Company advisor or reach out to our contributor, Juli Seiwert in our firm’s audit department.
Connect With Us.
Juli Seiwert, CPA
Audit Senior Manager, William Vaughan Company
juli.seiwert@wvco.com | 419.891.1040
Categories: Audit & Accounting, COVID-19
Americans Begin to Receive Second Round of COVID-19 Stimulus Checks
Dec 30, 2020
Tuesday afternoon, U.S Treasury Secretary Steven Mnuchin took to social media announcing the disbursement timeline for the second round of stimulus checks. He noted the following:
- Direct Deposit – Individuals who have direct deposit set up with the IRS can start looking for their second stimulus payments as early as last evening (12/29) and continue into next week.
- Paper Checks – The IRS will begin sending out paper checks today, Wednesday (12/30/20), which means people should begin receiving those checks within the next two weeks.*
- Status of Payment – Mnuchin also stated later this week, you can check the status of your payment here
*To speed up delivery, a limited number of people will receive their second stimulus payment by debit card. But the form of payment for your second stimulus check may be different than your first payment. Some people who received a paper check last time might receive a debit card this time, and some people who received a debit card last time could receive a paper check. The pre-paid cards will come in white envelopes that “prominently displays the U.S. Department of the Treasury seal,” the IRS said. The card will bear the Visa name on the front and the name of the issuing bank, MetaBank, will be on the card’s back. The information included with the card will explain that this is your Economic Impact Payment. There’s more information on the pre-paid cards here.
While Congress remains in discussion about an increase to a $2,000 stimulus amount, what we know for now is:
- As it currently stands, the checks will be for $600 for eligible adults, and $600 per dependent, meaning a family of four could receive $2,400.
- Individuals who earned less than $75,000 and those married filing jointly who earned less than $150,000 in 2019 are eligible for the full amount.
- Those who made more are eligible for reduced stimulus checks at a rate of $5 per $100 of additional income.
- The checks phase out completely for individuals that earned $87,000 and couples that made $174,000 in 2019.
If you have questions regarding your stimulus check, please contact your William Vaughan Company advisor or contact us at 419.891.1040. We’d be happy to help!
Categories: COVID-19
New Guidance Released on Deductibility of Expenses Paid with PPP Funds
Nov 19, 2020
Yesterday, the U.S. Treasury Department and Internal Revenue Service (IRS) released guidance clarifying the deductibility of expenses paid with paycheck protection program (PPP) loan funds.
The two significant rulings can be found here: Revenue Ruling 2020-27 and Revenue Procedure 2020-51. Both address issues related to the deductibility of expenses paid with PPP funds.
What is the significance of the new guidance?
Previously, it was unclear what would happen if a taxpayer incurred the expenses in one year (2020), but received forgiveness in the next year (2021).
Rev. Rul. 2020-27 states if a business reasonably believes a PPP loan will be forgiven in the future, expenses related to the loan are not deductible, whether the business has filed for forgiveness or not. Meaning, if you used all of your PPP funds in 2020 and expect to receive full forgiveness, those expenses are not deductible, regardless of whether or not you have applied for or have received forgiveness notification as of the end of 2020.
What happens if loan forgiveness is partially or fully denied in 2021 after one has filed their 2020 return?
Revenue Procedure 2020-51 establishes a safe harbor for taxpayers whose loan forgiveness applications are partially or fully denied, or who decide not to apply for forgiveness after filing their 2020 tax return.
While these expenses may ultimately become deductible with a future act of Congress, we encourage you to connect with your William Vaughan Company advisor to assist you in determining the best path forward for you and your business.
Need further PPP guidance? Check out our COVID-19 Resource Center.
Categories: COVID-19, Other Resources, Tax Planning
IRS Modifies 1099 Forms & (Re) Introduces 1099-NEC
Sep 01, 2020
The IRS is making some significant changes to the 1099 process. Beginning with the 2020 tax year, a new 1099-NEC form will be used for reporting non employee compensation (NEC) payments. Previously NEC was reported in Box 7 of the 1099-MISC form. These payments will now be reported in Box 1 of the new 1099-NEC form. The 1099-NEC made an appearance in the 1980’s and is now making a comeback to alleviate deadline confusion caused by separate deadlines for Form 1099-MISC that report NEC in box 7 and all other Form 1099-MISC for paper filers and electronic filers. Companies will start reporting on the new Form 1099-NEC in January 2021.
There are several parts of the new 1099-NEC form worth noting:
- Box 1 is where you key in the dollar amount of non employee compensation.
- Box 4 is used for any amount you held back to comply with backup withholding requirements.
- Boxes 5-7 are used to report any state withholding.
In addition, the removal of NEC payments on the 1099-MISC form has resulted in a reordering of information and corresponding boxes. These changes are listed below:
- Box 7 is where you will now key in payer-made direct sales of $5000 or more
- Box 9 is where you will report crop insurance proceeds
- Box 10 is used for gross proceeds to an attorney
- Box 12 is for Section 409A deferrals
- Box 14 is for reporting non qualified deferred compensation income
- Boxes 15, 16, and 17 is where you will report state taxes withheld, the state identification number, and the amount of income earned in the state.
The deadline for both paper and electronic filing of the 1099-NEC form for 2020 is February 1 for both the recipient and the IRS. The 1099-MISC is due to recipients by February 1 while they are due to the IRS by March 1 for paper filing and March 31st for electronic filing.
For up-to-date information on these changes, you can visit the IRS website or connect with us at 419.891.1040.
By: Aaron Gray, Accountant
Categories: Tax Compliance
Interest Payments For On-Time Tax Filers
Aug 19, 2020
Nearly 14 million Americans will receive an interest payment check from the IRS sometime this week. Here’s what you need to know:
What happened?
Due to the recent pandemic, this year’s tax filing deadline was pushed back to July 15 which is considered “disaster-related postponement.” As a result, the IRS, by law, must pay interest calculated from the original April 15 filing deadline to anyone who filed their individual return by the postponed deadline. Please note, businesses do not qualify for an interest payment.
What does this mean for me?
If you met the July 15 tax deadline and either received a refund in the past three months or anticipate receiving a refund, you will be receiving an interest payment! Funds will be directly deposited into the same bank account your tax refund was deposited otherwise you will be receiving a check in the mail. The amount of Interest is paid at rates set by law with the average payment being $18.
What is the taxability of these payments?
You must report the interest as taxable income on your 2020 federal income tax return you will file next year. In January 2021, the IRS will send a Form 1099-INT to anyone who receives interest totaling at least $10.
Next steps?
If you have questions regarding your interest payment check, please contact your William Vaughan Company advisor or contact us at 419.891.1040. We’d be happy to help!
Categories: COVID-19, Tax Planning