Special Tax Breaks and Benefits in Our April E-Newsletter!

APRIL 2021 E-NEWSLETTER

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TAX BENEFITS FOR EDUCATION

The IRS provides numerous tax breaks for higher education expenses. Tax credits and tax-deferred savings plans take some of the sting out of paying for college.

REMINDER OF SPECIAL TAX BREAKS

The December 2020 stimulus package provided a few noteworthy tax breaks for companies. Learn more!

UNDERSTANDING INTEREST RATES

From a mortgage to credit cards, interest rates affect nearly everyone’s budget.

Understanding how interest rates are set and how your credit score affects the rate you receive can show you ways to potentially pay less.

KIDS, MONEY, AND TAXES

Unfortunately, personal finance is rarely taught in schools, so unless kids learn about money at home, they often learn hard lessons as adults. That’s why it is so important for parents to put this task on the list of things to teach their children, starting at a very young age

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DISREGARDED ENTITIES

There are three types of disregarded entities, but the single-member limited liability company (SMLLC) is the most common.

APRIL 2021

CLIENT PROFILE

Barbara operates a floral shop and her CPA recently suggested she switch from the cash method of accounting to the accrual method and she doesn’t understand the difference between the two methods.

April 2021 Q & A

Q: I bought a fundraising ticket to support a non-profit and I won the main prize, a new car. Will I be taxed on winning the car?

A: Raffles are considered a form of lottery. Although cash winnings of more than $5,000 are subject to a 25% withholding tax, non-cash prizes are treated differently.

With no cash to withhold, the winner of a non-cash non-profit raffle must pay the organization 25% of the prize’s fair market value, minus the amount of the wager. However, in some instances, the organization may pay the tax for the winner.

If the value of the car is at least 300 times the value of your wager, you’ll receive a Form W2-G from the non-profit showing the car’s value and the tax withheld. Since the IRS considers this prize to be income, you’ll need to report the vehicle on Form 1040. Keep in mind you may also owe state taxes.

Q: My business was approached by a professional employer organization (PEO). What does a PEO do for businesses?

A: A PEO offers outsourced solutions for things like human resources, payroll, and benefits. Often it can decrease benefit costs due to its purchasing power and keep your company up-to-date with employment regulations. Using a PEO means that employees technically work for the PEO under a co-employment model. This means the PEO assumes some of the risks associated with being an employer.

SHORT BITS

PRESIDENTIAL SALARIES

U.S. Presidents earn $400,000 per year as the commander in chief. On top of that, they receive a $50,000 expense account annually for things like dry cleaning and food. After leaving office, former Presidents receive an annual pension for life along with permanent Secret Service protection.

DECLINE AND RECOVERY

Recovering from the economic impacts from the COVID-19 pandemic will take some time. According to the Brookings Institute, it will take until 2023 for the average American to spend the same amount as they did in 2019. While the off-premise food and beverage (i.e. grocery stores) sector saw an increase of $84 billion in consumer spending in 2020, health care spending dropped by $148 billion as many Americans delayed or skipped visits to health care professionals.

401(k) CONTRIBUTIONS

According to a recent study, for the 12-month period ending in September 2020, the average 401(k) participant saved $7,270 while earning another $4,010 in employer contributions. Based on participants’ average income, this amounts to a 13.5% combined contribution, which is slightly less than the financial expert’s recommended savings rate of 15%.

IRS BACKLOG

Some taxpayers have waited six months or longer to have their 2019 federal tax returns processed. As of December 31, 2020, the IRS website indicated there were still 7.1 million unprocessed 2019 individual returns. Office closings due to COVID-19 and 20% fewer employees since 2010 levels are to blame. With approximately 26% of its employees eligible to retire in 2021, the IRS is asking for more funding to hire customer service representatives.