Howard Tax Prep LLC is authorized to represent our clients in front of the IRS, and we are your #1 source for tax reduction & wealth building strategies. Our practice is focused on showing clients how to LEGALLY reduce their taxes, and properly structure their small/medium business in the areas of accounting, bookkeeping, and compliance. You can research our credentials on the IRS.gov directory of CREDENTIALED & QUALIFIED tax preparers under Howard, 60647, and check the box that reads: Annual Filing Season Program Participant. In addition to tax preparation, we also provide tax help for notices received from the IRS. Howard Tax Prep LLC Chicago tax resolution services can help you settle tax debt, negotiate monthly payments, or apply for a tax debt hardship. If you have received an IRS notice CP2000, IRS notice CP504 intent to levy letter, or a notice before collection action letter, please contact us IMMEDIATELY. The longer you wait, the worse the situation becomes.
Per the IRS, “Remember – unemployment compensation is taxable. Millions of Americans received unemployment compensation last year, and it’s fully taxable in 2021. The American Rescue Plan Act of 2021 allowed an exclusion of unemployment compensation of up to $10,200 for 2020 only.”
This means, that if you received unemployment, you will need to provide your 1099-G statement to your tax preparer. Unfortunately, sometimes, these forms aren’t automatically sent to the recipient in the mail, so the recipient has to access their states website to download the form. Below, please find links to all 50 states unemployment websites.
1.) underpay your tax, leaving you open to IRS penalties, or 2.) overpay your tax, meaning you gave a gift to the government.
However, if you made an error on your tax return, don’t worry; there’s good news: you can undo your mistake! Here’s even better news: there are two special ways to fix your incorrect tax return that will save you from paying more to the IRS than you would otherwise. We’ll tell you all about them in this article. —there are two easy ways to fix it:
A superseding return
A qualified amended return
A superseding return is an amended or corrected return filed on or before the original or extended due date. The IRS considers the changes on a superseding return to be part of your original return.
A qualified amended return is an amended return that you file after the due date of the return (including extensions) and before the earliest of several events, but most likely when the IRS contacts you with respect to an examination of the return. If you file a qualified amended return, you avoid the 20 percent accuracy-related penalty on that mistake.
Superseding Return Example
You file a joint Form 1040 tax return electronically on February 21, 2022, for tax year 2021, but you later decide you want to file a separate return. Since the joint-filing election is irrevocable, on or before April 15, 2022 (which is the unextended due date for your 2021 Form 1040), you must file a superseding return to undo the joint election.
IRS electronic filing rules for amended returns do not permit you to file this superseding return electronically, because you are changing your filing status (from married, filing jointly, to married, filing separately). That being said, your only other option is to use “snail mail.” Using a paper return via snail mail, you’ll submit either:
1.) A second original Form 1040 return using the married-filing-separately filing status, or 2.) An amended Form 1040X showing the change from joint to separate filing status. Be sure to write “SUPERSEDING RETURN – IRM 220.127.116.11.10” in red at the top of page 1 of either Form 1040 or Form 1040X.
Qualified Amended Return Example
You realize your return preparer left a $30,000 IRA distribution off your 2019 tax return. Ouch! Let’s assume you are in the 32 percent tax bracket and had no federal income tax withholding on the distribution: you owe an additional $9,600 in federal income tax on your 2019 tax return due to this distribution.
If you file an amended return before the IRS contacts you about the missing income, then it’s a qualified amended return, and you avoid $1,920 (20percent of $9,600) in audit penalties.
If you don’t file the amended return, and if the IRS contacts you about the missing income, the IRS will propose the $1,920 penalty. You may be able to request penalty relief, but you’ll have to make your case, and the facts may or may not be on your side.
In both circumstances, you’ll also pay interest on the $9,600 back to July 15, 2020 (the COVID-19-postponed 2019 Form 1040 due date). Of course, the earlier you pay the tax, the less interest you’ll accrue. You’ll pay less interest with a qualified amended return because you’re paying the tax sooner.
1.) begin the business after February 15, 2020 (you could start today), 2.)have average annual gross receipts of $1 million or less, and 3.) do not meet either of the ERC tests—the suspended operations test or the gross receipts test—in place before ARPA was passed.
Finding the $100,000
When you meet the three requirements above, you qualify as a recovery start-up business and, as such, can claim an ERC of up to $50,000 in both the third and fourth quarters of 2021. It works like this: your recovery start-up business ERC is equal to 70 percent of the qualified wages paid to each employee (up to $10,000 per employee per quarter), with an overall maximum credit of $50,000 per quarter.
Recovery Start-Up Business Example In April 2021, you start a new retail store as a sole proprietorship business. You project your gross receipts to be as follows:
Second quarter—$50,000 Third quarter—$60,000 Fourth quarter—$100,000
In addition, you hire three full-time sales staff whom you pay hourly. Each earns $2,800 in wages each month. For the fourth quarter, you hire an additional part-time salesperson and pay that person a total of $4,000 in November and December 2021. Your proprietorship business qualifies as a recovery start-up business and is eligible for the ERC in the third and fourth quarters of 2021.
For the third quarter of 2021, your total ERC is $17,640: You have three employees who were paid $8,400 each during the quarter. No employee exceeds the $10,000 wage maximum for the quarter. Total qualified wages for the ERC are $25,200 ($8,400 x three employees). Your credit is 70 percent of $25,200, or $17,640.
No employee exceeds the $10,000 wage maximum for the quarter. Total qualified wages for the ERC are $25,200 ($8,400 x three employees). Your credit is 70 percent of $25,200, or $17,640.
For the fourth quarter of 2021, your total ERC is $20,440: You have three employees who were paid $8,400 each during the quarter, and one employee who was paid $4,000 during the quarter. No employee exceeds the $10,000 wage maximum for the quarter. Total qualified wages for the ERC are $29,200 ($8,400 x three employees + $4,000 for the part-time employee). Your credit is 70 percent of $29,200, or $20,440. For tax year 2021, you receive total employee retention tax credits of $38,080.
One Wrinkle But you need one more step to calculate your net benefit. You can’t deduct wages in tax year 2021 equal to the ERC earned during the tax year; therefore, your net business income increases by $38,080 for tax year 2021. If you pay a federal and state income marginal tax rate of 27 percent on that income, you’ll pay extra tax of $15,663: $10,282 in federal and state income taxes,4 and $5,381 in self-employment tax. Net result. You have $22,417 more in your pocket this year from claiming the ERC. That’s a nice leg up for a business that started in April 2021.
But you need one more step to calculate your net benefit. You can’t deduct wages in tax year 2021 equal to the ERC earned during the tax year; therefore, your net business income increases by $38,080 for tax year 2021. If you pay a federal and state income marginal tax rate of 27 percent on that income, you’ll pay extra tax of $15,663: $10,282 in federal and state income taxes,4 and $5,381 in self-employment tax. Net result. You have $22,417 more in your pocket this year from claiming the ERC. That’s a nice leg up for a business that started in April 2021.
ARPA added a big incentive for starting a new business. It works like this: your business can qualify for the ERC on 70 percent of the qualified wages paid to each employee (up to $10,000 per employee for each of the last two quarters of 2021), with an overall maximum credit of $50,000 per quarter.
To qualify for the third- and fourth-quarter ERC incentives, your business had to begin after February 15, 2020. The big deal with the two quarters of 2021 is that your business has to be new, but it does not have to suffer from COVID-19 stresses. In fact, it can’t qualify for the recovery start-up business special deal if it otherwise qualifies under the suspended operations test or the gross receipts test.
Here in our Chicago South Loop Tax Preparation Office, we help clients that have been audited, and we help resolve tax debt. Suppose for a moment that you are one of our clients, and that you’ve just received that lovely letter from the IRS telling you that you are the subject of an IRS audit.
What one record receives special attention? What one record can create a nightmare for you? What one record makes the IRS suspect that you are the keeper of lousy records?
Think of the record people most hate keeping. That’s the one we are talking about. You have probably guessed what that record might be.
Red-Flag Record for the IRS Examiner
Once your audit examination begins, the examiner likes to see this record. If the record is missing or lacking, the IRS examiner knows that your other records probably are lacking, too.
This record—the one you probably hate keeping—is the mileage log on your vehicle or vehicles.
The IRS notes that a taxpayer’s failure to keep a mileage log on vehicles indicates that the activity under examination is not being conducted in a businesslike manner.
Do as the Tax Form Says
As a one-owner or husband-and-wife-owned business, regardless of whether it’s a corporation, a partnership, or a proprietorship, you file a tax form that asks you for the following information about your vehicles:
Do you have evidence to support the business/investment use claimed? (If “yes,” is the evidence written?)
List your total business/investment miles on each vehicle.
List your total commuting miles on each vehicle.
List your total personal miles on each vehicle.
IRS Form 4562 has columns for answers to the above questions for up to six vehicles used by either a sole proprietor or an owner of more than 5 percent of a corporation, a partnership, or another entity.
The mileage log (we strongly recommend MILE IQ) is the record of proof that you need to use for your answers to the tax form questions.
Do What the Audit Would Require
Above, we said to do as the IRS form says. For additional clarification, it is good to know what information the IRS, in a correspondence audit, requires you to provide related to that tax form:
Send copies of repair receipts, inspection slips, and other records showing total mileage for the year.
Send copies of logbooks and other records to support the business mileage claimed.
Provide a copy of your appointment book or calendar of business activities for the year.
If you are claiming actual expenses, provide copies of paid bills, invoices, and canceled checks for automobile expenses. These would include gas, oil, tires, repairs, insurance, interest, tags, taxes, parking fees, and tolls.
Send a copy of the bill of sale or other verification to establish your basis in the vehicle, including the trade-in of another vehicle.
Note that the IRS is looking for
a match of the repair bill odometer reading with the mileage in your logbook;
a match of the inspection slip odometer reading with the mileage in your logbook;
the mileage between repair stops, to see whether that ties in with your claimed mileage; and
a business purpose that ties in with your appointment book or other calendar of business activities.
If you want to avoid big trouble during an IRS audit, keep a good mileage log. This takes just minutes a day.
The mileage log is often one of the first records that an IRS examiner will look at. A good mileage log shows that you know the rules and you respect them. We have seen dozens and dozens of IRS audits end favorably and quickly upon presentation of a good mileage log.
On the other hand, a bad mileage log can turn your IRS examiner into an 800-pound gorilla.
Think of it this way: your mileage log (we strongly recommend MILE IQ) gives you the choice to get in and out of the IRS audit quickly and with your wallet or to spend time with an 800-pound gorilla.
Source: Copied & Pasted Email Received from The Chicago BACP
“The Chicago Microbusiness Recovery Grant Program will provide $5 million in grants to businesses with four or fewer employees in low- and moderate-income areas of the city. Grants of $5,000 will be disbursed via a lottery, with winners equitably distributed across eligible Community Areas based on population. Applications are available now and will be open until Monday, May 4th at 5:00 pm.
BACP will be holding a series of webinars in multiple languages this week to inform prospective applicants about the Recovery Grant program and to answer questions. To register, please visit chicago.gov/businessworkshops.
Grant funds must be used for working capital (rent, payroll, utilities, taxes, insurance, operations)
04/28: Grant application is available
05/04: Grant application closes at 5:00pm CDT
05/11: Grant recipients are chosen via lottery and notified of their acceptance. ACH payments are initiated – funds should be received within 2 business days.
Applications are available in Spanish and questions can be submitted to the Recovery Grant Team via these webforms in English or Spanish.
Please note that funds available through the Recovery Grant Program and the Chicago Small Business Resiliency Loan Fund are intended to complement the federal financing available through the U.S. Small Business Administration (SBA). The SBA resumed accepting Paycheck Protection Program applications from participating lenders on Monday, April 27 at 9:30am CDT. Click here to find an eligible Paycheck Protection Program lender. If you need assistance navigating the funding and resource landscape during the COVID-19 outbreak, please reach out to a Small Business Resource Navigator for individualized 1:1 support.
I want to thank all of you for your persistence and dedication during this incredibly difficult time. Your City government will continue to fight for our small businesses and we will continue providing information and resources to navigate this crisis.