Accounting Firms vs. Accounting Software For Law Firms

Accounting Firms vs. Accounting Software For Law Firms

As the owner of a small or solo law firm, you’ve got plenty on your to-do list. Between handling cases and clients and managing your employees, the days fill up quickly. As with any small business, prioritizing and delegating is always necessary. But when it comes to your law firm’s financial management, the inevitable question arises— ‘Do I handle this myself using accounting software or do I hire an accounting firm?’

This is an important question to answer, and the sooner you make a decision about your law firm’s accounting needs, the better. It’s probably not hard to imagine how messy tax season can be if you delay organizing your law firm’s finances and budget. Knowing when the use of accounting software will cut it, and when it won’t, is key. Below you’ll find some essential points to consider when trying to choose between a professional accounting firm that specializes in small and solo law firms, and accounting software programs you can use to manage accounting tasks on your own. 

When to Use Accounting Software

If you’re going to handle your firm’s accounting with just the use of accounting software, most experts recommend having previous experience in accounting.

When exactly is it appropriate to simply use accounting software for your small or solo law firm? If you’re going to handle your firm’s accounting with just the use of accounting software, most experts recommend having previous experience in accounting. For instance, if you have a strong background in law firm accounting, you’re well-versed in tax laws, and you’re considered an expert in money management, then accounting software may be a solid option for you. Accounting software can help you budget, stay organized, and it can offer a glimpse into the financial future of your law firm. 

Accounting software may also be appropriate if you’ve just launched your own law firm and you’re in the building phase of your business. Purchasing accounting software programs with integrated budgeting tools can help you throughout these initial stages and create some structure for your finances, such as knowing how much you can spend each quarter and what you’ll likely spend annually. 

To summarize, accounting software programs are suitable for small law firms when they’re in the early building stages and when lawyers have strong backgrounds in accounting, tax laws, budgeting, payroll, and bookkeeping. However, if you don’t necessarily qualify as an accounting expert and managing your finances is distracting you from other daily tasks, like practicing law, you may need to consider the alternative — hiring a professional accounting firm that specializes in small and solo law firms. 

Benefits of Accounting Firms

First, it’s important to note that even if you have a strong background in accounting and you’re in the building stages of your private law firm business, it’s still beneficial to work with an accounting firm. While using accounting software may be sufficient, it isn’t necessarily the best option. The best option will always be working with an accounting firm. Even lawyers who consider themselves accounting mavens are still taking time away from their law practice to handle accounting tasks. And for those who are just building their practice, an accountant can act as a financial advisor and help you set goals for growth, which accounting software can’t do. In other words, while accounting software may be convenient, it can’t provide the human touch that an accounting firm offers. That is it, pretty simple! Do not over complicate it, just do one of the options mentioned and move on making sure you have everything documented.

  • Time Management
    • We can’t stress enough the importance of having a professional handle your accounting needs so you can handle everything else. Developing a tax strategy, managing your bookkeeping, handling payroll, and setting a budget aren’t small feats. In fact, these actions create the financial backbone of your small or solo law firm. They’re not only important tasks, but they’re also time-consuming. Hiring an accounting firm allows you to dedicate your valuable time to your clients and your cases. 

  • Tax Management
    • If you find yourself sleeping less and stressing more during tax season, you’re not alone. Preparing and filing taxes is an infamous chore for a reason. It’s often described as time-consuming, complicated, and risky to complete independently. We already know that hiring an accounting firm for your small or solo law practice saves you time, but it also helps you avoid errors on your tax forms. Utilizing the help of a professional accountant can help you discover tax deductions and credits, avoid overpaying in taxes, and complete all of your necessary tax forms accurately. 

  • Ultimately Saves You Money
    • One reason why some law firm owners will choose accounting software over an accounting firm is that they believe it will save them money. This can be an expensive mistake. Yes, it may initially be cheaper to register for accounting software, but on average, small and solo law firms end up saving more money by working with professional accountants. While your Quickbooks program might help you keep your budget organized, it’s not going to do the heavy lifting for you. An accounting firm is going to dedicate time and energy to researching the best possible paths for your law firm to thrive, maintain a healthy budget, and discover significant tax credits and deductions. 

  • Growth Plans and Financial Guidance
    • When you’re running your own private law firm, words like growth, development, building clientele, increasing profits may be constantly running through your head. Growth is something that often remains on the back burner because you either don’t have the time to address it or you lack a concrete path to achieve it. Developing a plan to help your law firm grow is both necessary and challenging. This is when a trustworthy accounting firm comes into play. An experienced accountant can help you visualize where you see your law firm going in the future and help you design the necessary steps to bring this dream to fruition. 

When asking yourself if accounting software or an accounting firm is right for you, the answer is clear. The benefits of working with professional accountants who specialize in small or solo law firms overwhelmingly outweigh the benefits of accounting software. 

For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

I Accidentally Paid For Business Expenses Using Personal Funds, Now What?

I Accidentally Paid For Business Expenses Using Personal Funds, Now What?

If you have been around here for awhile you will know I am always preaching, always have a separate business bank account. That should always be the case. Whether you run your business as a sole proprietor, LLC, partnership, S Corp, C Corp, if you have a business you should have a separate business bank account.

With that being said, one question we see asked more and more on our Free Facebook Group is what you should do if you accidentally put business expenses on your personal accounts, so that is what we will discuss here.

Why Should I Separate Business and Personal Expenses?

Because otherwise you will go to jail…. just kidding!

  • The last thing you want to do is commingle business and personal items together because…
    • It is easier to miss legitimate tax deductions. When you have everything commingled together it is easy to forget whether certain expenses were business or personal.
    • You may take a business deduction on an item that is personal related which if found in an audit could potentially create uncertainty for all expenses claimed.
    • It is harder to prove business purpose in the event of an audit.
    • Simply put, do not commingle, regardless of how big or small your business is.
  • Need a modern, virtual business bank account? Email us or submit the form below with your business name and email and I will invite you to a modern digital bank designed specifically for small businesses. It is actually one we use internally here too!

Okay, I Accidentally Paid For A Business Expense On My Personal Account. Now What? 

I get it. Sometimes you can be as careful as possible but certain situations arise where you have no option but to pay for something personally or you accidentally use the wrong card. The good thing is, you can still get the deduction.

  • Option 1: Simply Reimburse Yourself
    • Write a check or transfer money from your business account to your personal account for the items you paid for personally. It is as simple as that.
    • In our discussion about accountable plans we discuss items that are business and personal mixed and how we treat those. This would be handled the same way.
  • Option 2: Do A Manual Journal Entry
    • This option may be a little more difficult if you are not experienced in accounting/bookkeeping.
    • Basically you would create a manual journal in your accounting software to report the expense and offset the expense with either an owners contribution or offset to your owner draws that you may have already took.
    • This is a great option if you don’t need the actual funds personally, where you can still get the deduction without using business cash.
    • If you don’t know how to do this, ask your accountant or bookkeeper and they should know how to take care of this for you.
  • Things To Do To Ensure The Business Deduction:
    • As always, keep a receipt for all business related items especially the ones you paid for personally.
    • Document on the receipt the business purpose and details of the deduction (ex: who, what, where, when, how, etc.) – Be as detailed as possible so if it is ever questioned down the road, there is no questions asked.

That is it, pretty simple! Do not over complicate it, just do one of the options mentioned and move on making sure you have everything documented.

For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

Why Should I Hire My Kids In My Business?

Why Should I Hire My Kids In My Business?

Hiring your kids is one of the top kept tax saving secrets.

Now when we start this conversation with clients a lot of people cringe and think this is something that the IRS surely would not allow. However, that is not the case. This is actually discussed directly in the tax code. However, it must be done correctly in order for it to be legal.

We have actually had some lengthy conversations on this in our Free Facebook Group so thought it would be a great topic to write on!

What Do I Need To Know About Hiring My Kids In My Business?

Get a business deduction and your kids potentially pay no tax on that income.

  • IRS Website
    • “Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child.”
    • Pay your child through a sole prop or partnership, no need to withhold social security, medicare, FUTA, etc if your child is under 18.
  • Benefits
    • You get a business deduction for items you are typically paying personally anyways.
    • You child can claim the standard deduction (up to $12,550) in 2021, so the first $12,550 would be tax fee and then any income above that would be taxed starting in the lowest tax bracket.
    • You are likely paying for your child’s basketball camps, entertainment, technology, etc so why not get a business deduction for these items you are going to pay for anyway?

Great, Now How Do I Do It? 

In order for this to be legal and stand up against the IRS, it must be done correctly! You cannot just pay your kids a set amount out of your business without any backup.

  • The Details
    • Must be age 7+ – This is an age that has been proven in tax court.
    • Must pay a reasonable wage for the type of work they are doing.
    • Track time to record the actual work they are doing to support the deduction.
    • Pay to an account in the child’s name.
    • Prepare a W2 at year-end
    • Have required documentation: job description, employment agreement, hour/task tracking, payment proof, W2, etc. In our Tax Minimization Program we have a full implementation guide with all of these documents. Check that out here!
  • Potential Issues or Planning Opportunities
    • S Corp – If you operate as an S Corp you are not considered a sole prop or partnership so you WOULD need to be withholding social security, medicare, etc from the payments. This would all of course still be considered a business expense, just some additional tax. In our Tax Minimization Program we do have some work arounds for this “problem”.
    • Non Child Family Members – Think grandchildren, nieces, nephews, etc. If you wanted to hire family members in this area they would not be your direct children so the social security and medicare avoidance would not be applicable. Here too there are some potential work arounds that we walk through in our Tax Minimization Program.

As mentioned, this is a tax strategy you do not want to miss out on. What a great opportunity to get a business deduction and have your children potentially pay no taxes on that income.

Now of course you need to make sure you are doing things correctly to cover you in an IRS audit but that is something that can easily be done as we discussed here.

For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

What Do I Need To Know About Meal Expenses For 2021?

Why Should I Hire My Kids In My Business?

After such a long time with the meals and entertainment expense not being touched, the past few years it sure has gotten some attention.

With the passing of a COVID relief bill there was a great change made that will impact business owners.

We have been getting questions on this change in our Free Facebook Group so I wanted to take the time out to touch on it so everyone knows!

How Does The Meal Deduction Typically Work? 

Before we get into the exciting new change, lets just discuss in general how meals and entertainment are typically treated. 

  • Entertainment – NOT DEDUCTIBLE! The Tax Cuts and Jobs Act removed any deduction for entertainment expenses.
    • Note: The meal portion of an entertainment event IS deductible assuming it can be broken out. If you have a situation where it’s all included in one price you will want an itemized breakout so you can ensure a partial deduction.
  • Meals Expense
    • Dining w/ a Prospect, Client, Vendor, etc: 50% Deductible
    • Dining When Traveling: 50% Deductible
      • Must be outside of your normal commute
    • Dining w/ Staff: 50% Deductible
    • Office Meals / Food: 50% Deductible
    • Company Parties / Presentations / COGS: 100% Deductible
  • Receipts / Providing Proof
    • As always you still need to provide business purpose for all of these expenses. Be sure to keep a receipt and record the: who, what, where, when, why, etc.

Great, Now What Changed For 2021? 

This is the exciting part…

  • As we discussed, meals for the most part are traditionally limited to a 50% deduction.
  • However with a recent COVID relief bill, there has been a temporary exception to the limitation.
  • You can deduct 100% of food and beverage expenses from restaurants.
  • This is for tax years 2021 AND 2022.

That is it! So get out to restaurants and get a 100% business deduction while at the same time taking care of these local businesses that got hit hard by COVID.

For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

How Do You Get Profits Out Of Your Business?

How Do You Get Profits Out Of Your Business?

This is a question that I get all of the time (and one we just saw in our Free Facebook Group). How do I get money out of my business to use personally? Another one that relates to this is, my business bank account as no money in it, how am I showing a profit?

We are going to discuss exactly that today!

What Is An Owner’s Draw vs Salary? How Do I Take Money Out Of My Company?

We need to first look at your entity type and then discuss the options.

  • Payroll / Salary – This is one possible option to get money out of your business.
    • If you are organized as an S Corp you are required to take a reasonable salary as an owner. You are a W2 employee of your company.
    • However, if you are a sole proprietor, Single Member LLC, or a member of a partnership you are not allowed to take a salary as the owner.
    • Payroll involves calculating and withholding taxes and then making those tax payments and tax form filings to the respective agencies.
    • Payroll is considered a business expense and will reduce your businesses income/profit.
  • Owner Draw / Distribution / Etc – This is another way to get money out of your business.
    • This is simply transferring money from your business account to your personal account. Or writing a check to your personally.
    • That is it, it is as simple as that. There is no tax withholding on a draw but keep in mind this next item:
    • An owner draw or distribution is NOT considered a business expenses and therefore does NOT reduce your business income/profit.
  • Guaranteed Payments – These are available to partnerships only.
    • Essentially it is similar to a salary but they are compensation to members in a partnership for time or services they provide. Remember,  partners are technically not able to be on technical payroll.
    • They are made whether or not the business is successful (note “guaranteed”) and are usually decided upon directly in the operating agreement.
    • This is a business expenses and would reduce business income/profit but the partner receiving it will report all of that income received on their return.

My Business Bank Account Is Empty, Why Am I Still Showing A Profit?

Lets look back at the items and options above.

  • In this discussion we are assuming cash basis accounting. Items get recorded as they occur (incoming cash is a sale when it comes in and an expense is recorded when it is spent).
  • First need to understand the difference between an income statement and balance sheet. Check out our series from last year here.
  • As discussed above, owner draws are not expenses so you transfer money to your personal account via owner draw, the money leaves the business but does not reduce income.
  • Example
    • Facts
      • Business Sales: $200,000
      • Business Expenses (Pre-Payroll): $60,000
      • Payroll Expenses (including payments to S Corp Owners): $45,000
      • Owner Draw: $80,000
    • Business Profit: $95,000 (Business Sales – Business Expenses – Payroll Expenses) – Note: owner draw did not reduce profit
    • Bank Balance: $15,000 (Sales – Expenses – Payroll – Draw) – Note: This is assuming the only activity in the business account was the items in the facts with no beginning balance.
    • So in this example the business has profit of $95,000 but a business bank balance of only $15,000 because $80,000 of that was related to owner draws which is a balance sheet item, not an income statement item!
  • Other Reasons:
    • Loan Payments: Only the interest piece of a loan payment is deductible, the principal is not (this is just a balance sheet item).
    • Credit Card Payments: Get the tax deduction when transaction occurs not when paid. Could cause a timing issue with a CC balance in prior year that wasn’t paid until this year.

That is it! So the next time you are wondering how you get money out of your business account you know the options available to you.

For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

What If I Cannot Afford To Pay My Taxes When Due?

What If I Cannot Afford To Pay My Taxes When Due?

First off, if you cannot afford to pay your tax bill, do not panic. There are options available but there are some key things you want to ensure you are doing. 

What Do I Need To Know If I Cannot Afford To Pay My Tax Bill? 

Make sure at a minimum you complete a few important items.

  • Ensure you still file your tax return (or request an extension) by the deadline.
    • The worst thing you can do is avoid filing a tax return all together as this will just make the penalties and interest that much worse. You would now have Failure To File AND Failure to Pay penalties with interest.
  • Pay as much as you can with the tax return (or extension) filing to avoid penalties and interest as much as possible.
  • Understand you are not alone, this can be common especially with small business owners. 
  • Do NOT just avoid the situation. It can be stressful but do not allow yourself to simply ignore the situation.
  • If you extend your return be sure to file your return by the final deadline, regardless of ability to pay. Failure to file penalties can be brutal!

What Happens If I Do Not Pay My Taxes On Time?

Lets talk penalties and interest…

  • Failure to Pay Penalty
    • 0.5% per Month (Maximum 25%) of the tax owed after the due date
    • If IRS issues a notice of intent to levy or seize property, the rate increases to 1% per Month.
  • Interest
    • Federal Short-Term Rate Plus 3% – Compounded Daily
    • The interest is also on any penalties.

What Options Are Available To Pay My Taxes?

Borrow, payment plan, etc.

  • Borrow the Funds
    • Consider borrowing the funds needed to pay your taxes. Often times you can get a better rate on borrowing than what the IRS will charge.
    • Be careful with this and make sure you are making a good decision based on the interest rate comparison.
  • Short-Term Payment Plan or Installment Agreement
    • Agreement with the IRS to pay your taxes over time.
    • You can apply for an Installment Agreement using Form 9465 or
    • Apply Online 
    • If you get approved for a payment plan ensure that you stick to the payments and do NOT miss them!
  • Offer In Compromise (OIC)
    • Agreement between taxpayer and IRS that resolves a taxpayer’s tax liability based upon a lower agreed upon amount.
    • Note this may sound easy but it is a lengthy process and nothing that is for sure. The IRS will dig into everything (your income, your assets, etc) and determine whether you can afford the tax bill or a payment plan.
    • The IRS has a pre-qualifier tool to see if it would even be worth your time exploring this.

If you are faced with a big tax bill you can always reach out to our team to discuss options and see what may be the best route for you.

For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

Is It Fine To File An Extension And What Do I Need To Know About Tax Extensions?

Is It Fine To File An Extension And What Do I Need To Know About Tax Extensions?

It is that time of the year where we start to get a lot of questions around extensions and there are a lot of mis information out there so we want to try and clear all those up in this article.

Is It Fine To File An Extension?

We hear from so many business owners that they were told not to file an extension because it will increase their risk for an audit. That could not be further from the truth.

  • Filing an extension has nothing to do with your risk of an audit.
    • In fact sometimes it can avoid an IRS audit because you may have some tax documents that take longer to get delivered (or never get formally delivered) and by extending it buys more time.
    • You also have the ability with an extension to request a transcript to get a listing of every form the IRS received related to your social security number so you can ensure they are all included with your filing.
  • Few Key Items:
    • You must file your extension before the deadline.
    • An extension is an extension of time to file your taxes but NOT pay your taxes. Your taxes are still due on the normal due date.
    • If you successfully filed an extension on-time be sure to file your return by the extended deadline.

What Are The Extension Deadlines For Tax Year 2020 And What Form Do I Use?

Note for 2021 tax season (tax year 2020), this has changed slightly from a typical year.

  • Business Returns
    • S Corporation: Extension Requests Due By March 15, 2021 – File Using Form 7004
      • Final Due Date (w/ Successful Extension): September 15, 2021
    • Partnership: Extension Requests Due By March 15, 2021 – File Using Form 7004
      • Final Due Date (w/ Successful Extension): September 15, 2021
    • C-Corporation: Extension Requests Due By April 15, 2021 – File Using Form 7004
      • Final Due Date (w/ Successful Extension): October 15, 2021
  • Personal Returns (Including Schedule C Businesses)
    • New Filing Deadline: May 17th (Typically April 15th)
      • The move from April 15th to May 17th is an automatic 1 month extension for personal returns this year. This also includes a delay of payments.
      • You can also then request the usual extension which would be due by May 17, 2021 and you file using Form 4868.
        • Final Due Date (w/ Successful Extension): October 15, 2021
    • Note: This extension by the IRS does not extend your Q1 estimated tax payment due date, those remain due on April 15. It is also for personal only and does not include C Corporations.

What Happens If I Do Not File An Extension?

Lets talk penalties…

  • If you missed an extension deadline or for whatever even chose not to file an extension but still did not file your return you will be facing penalties.
    • S Corporation: $210 Per Month Per Shareholder
    • Partnership: $210 Per Month Per Partner
    • C Corporation: 5% of the unpaid tax for each month, up to 25% of the unpaid tax. The minimum penalty for a return that is more than 60 days late is $435 or 100% of the unpaid tax, whichever is less. 
    • Personal: 5% of the unpaid tax for each month, up to 25% of the unpaid tax. The minimum penalty for a return that is more than 60 days late is $435 or 100% of the unpaid tax, whichever is less. 
  • Note: Some penalties you can request relief from so if you are facing a large penalty, reach out to us to see what we can do to potentially get that reduced.

Important Items / Recap

Just for good measure, here is a recap and some important things to know.

  • Filing an extension does NOT increase your risk for an audit.
  • Be sure to file your extension on time by the extension deadline.
  • If you successfully filed an extension, be sure you make the final filing before the due date.
  • An extension is simply extending your time to FILE, any taxes OWED are still due on the regular due date and you could face interest or penalties if those are paid after the due date. 

Next week we will discuss what you need to know if you cannot afford to pay the tax when due.

For more details on this along with additional training and tax strategies to ensure you are paying the least amount in taxes as legally possible, check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

Can I Have A Home Office If I Have Another Office?

Can I Have A Home Office If I Have Another Office?

COVID brought along this new way of working for so many businesses that in the past may have said they are never going virtual. One question that we have seen a lot is around if a business owner can take a home office deduction even if they have another office away from home.

That is exactly what we are going to discuss in this article. Note that what we discuss here is specific to business owners.

What Qualifies As A Home Office?

In order for a home to qualify for a home office deduction it must be two main tests.

  • Home Office Qualification Test – In order for your home office to qualify as your principal place of business you must meet BOTH of these requirements:
    • You use it exclusively and regularly for administrative or management activities of your trade or business.
    • You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.
  • Another key thing the IRS says next is that you can have more than one business location, including your home, for a single trade or business. This is directly from the IRS.
  • Lets look at a few key notes from the definition:
    • Exclusively: You cannot consider your living room that you also watch TV and play with your kids in as your home office. 
    • Regularly: Simply put you have to use it a regular basis. If you walk into it once a quarter it will not qualify. 
    • Administrative: This really opens the door up for the deduction. Lets say you are a veterinarian you may do all your normal work at you doctors office but if you come home an answer emails, complete bookkeeping, etc then it qualifies for administrative activities.
    • Substantial: The key here is that if you use your home office for administrative duties you have to do the majority of those administrative duties at your home office and not another office. This meets the second part of the test.

How Do I Calculate The Home Office Deduction?

You have two ways to calculate your home office deduction.

  • Simplified Option
    • $5 per Square Foot of Qualifying Office Space
    • This method allows you to still claim property taxes and mortgage interest on your personal return should you qualify.
    • If you sell your house with this method you also do not need to recapture any depreciation you may have taken.
  • Actual Method
    • First you need to find your business use percentage (BUP) which is:
      • Home Office Square Footage / Total Square Footage
    • Take your BUP and multiple it by:
      • Mortgage Interest, Property Taxes, Rent, Home Insurance, Utilities, HOA/Condo Dues, Repairs, Maintenance, Depreciation, etc.
      • Note: If you take itemized deductions this will pull from those and if you sell your house down the road you will need to recapture any depreciation you took.

What Else Do I Need To Know About The Home Office?

Some other important things to consider…

  • If you are an S Corporation, take the home office deduction using your Accountable Plan.
  • You can create an office in your home as an administrative office. You can have an office outside of your home that you do business activities other than administrative activities. This is true even if you spend more hours at your other office as long as the home is where you do the administrative work.
  • A home office is NOT an audit risk if you are doing it right. If an accountant tells you that, they are wrong. Just do not get greedy and make sure you document the necessary items to support your deduction.
  • Create a home office enhances your potential automobile expenses and business miles. It takes the non-deductible commute out of the picture.

For more details on this along with documents to help with backing up this deduction check out our Tax Minimization Program!

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

American Rescue Plan Act – What Do I Need To Know?

American Rescue Plan Act - What Do I Need To Know?

There has now been around $6 trillion in economic relief during the pandemic thus far. Yes, $6 trillion. That number includes the recently passed American Rescue Plan Act (ARP) which account for $1.9 trillion.

Our goal here is to breakdown the important pieces of the Act that you need to know about. 

American Rescue Plan Act – Stimulus Payments

More stimulus payments are coming for some Americans!

  • Single: $1,400
  • Married: $2,800
  • Each Dependent: $1,400
  • Phase Outs:
    • Start to phase out at $75k for Single and $150k for Married
    • Completely phase out at $80k for Single and $160k for Married
  • Note: This will be calculated based on your most recent tax return on file.

American Rescue Plan Act – Unemployment Benefits

More news for those on unemployment and those who received unemployment!

  • Federal Supplement: Will remain at current level of $300 a week for weeks beginning after March 14, 2021 and before September 6, 2021.
  • Unemployment Benefits Taxability: First $10,200 of unemployment benefits received in 2020 will be exempt from income taxes. This is a retroactive change and only applies to individuals with income below $150k.
    • If you already filed your return, you will be able to file an amendment and if you have not filed yet, wait for your tax preparer’s software to be updated.

American Rescue Plan Act – Child Tax Credit

Have Kids? The Child Tax Credit has been expanded for tax year 2021!

  • Under 6 Years Old: $3,600
  • Ages 6-17: $3,000
  • Note: Starts to phase out for those with income over $150k (Married) or $75k (Single)
  • For July 20201 through December 2021 they will be making advance tax payments of  $300 per Month (Under 6 years old) or $250 per Month (Ages 6-17). 

American Rescue Plan Act – Other Items To Note

Here are a few other key items that we noted.

  • Establishes the Restaurant Revitalization Fund which will be administered by the SBA. This program will allow eligible entities access to grants.
  • Additional Funding to the PPP 2.0 Program – Note the 3/31/21 Deadline has NOT been extended via this bill.
  • No student loan forgiveness items were included however the government may be laying the groundwork as they put in this bill that any student loan forgiveness passed between 12/30/20 thru 1/1/26 will be tax free.
  • and so much more but this is what we found to be the most relevant to our audience.

As always we will continue to keep you up to date as more details emerge and as potentially more relief packages and worked on here in 2021.

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.

Do I Need To File A Tax Return (Personal or Business)?

Do I Need To File A Tax Return (Personal or Business)?

This is a question we get a done, especially from new business owners, do I even need to file a tax return? In this article we are going to break that down exactly so you know when you need to file a return, whether that be for you personally or your business.

Do I Need To File A Personal Tax Return?

We will talk about the various scenarios but just note that even if you do not NEED to file a return, you still may want to.

  • In 2020 you do NOT need to file a tax return if ALL of the following are true:
    1. 1) Under Age 65
    2. 2) Don’t have any special circumstances (ex: self-employment income).
    3. 3) Single earning less than $12,400 or married filing jointly (MFJ) earning less than $24,800
  • If you are 65 and older those numbers for item #3 move to $14,050 (Single) and $26,100 (MFJ) or $27,400 (MFJ w/ both 65 or older)
  • Note: If you are a dependent of someone the rules change slightly.
  • Now, just because you are not required to file a tax return does not mean you should not. 
  • If you do not file a return you will not be able to take advantage of any credits or possible refunds coming to you.

Do I Need To File A Business Tax Return?

The first thing you need to determine is what TYPE of business tax return needs to be filed.

  • Single Member LLC – If you own it an LLC all by yourself and have no other tax elections you would file your business return on a Schedule C on your personal tax return. If you have any income or expenses you will want to include a Schedule C on your personal tax return.
  • Multi-Member LLC – If you have an LLC with more than one owner you will need to file a partnership tax return (Form 1065). Even if you have no activity during the year you will need to still file the Form 1065. All owners will get a K1 from the business activity to report on their respective returns.
  • S Corporation – If you have a company that you elected S Corp status for you will need to file a S Corp tax return (Form 1120S). Even if you have no activity during the year you will need to still file the Form 1120S. All owners will get a K1 from the business activity to report on their respective returns.
  • C Corporation – If you are organized as a C Corp you will need to file a Corporation tax return (Form 1120). Even if you have no activity during the year you will need to still file the Form 1120. 
  • Due Dates:
    • Multi Member LLC – Partnership (1065): March 15
    • S Corporation (1120S): March 15
    • Single Member LLC (Schedule C): April 15
    • C Corporation (1120): April 15

If you are required to file a tax return for yourself or your business but you FAIL to do so you will face penalties that will continue to grow the longer you go without filing. It is important that if you have a filing requirement that you do get that return completed.

If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.