In this Edition
October 19, 2021

Don't Get Blown Away by a Windfall

PODCAST: Worldwide Income

Tax Calendar

State Taxes Impact Business Sales, Too

New per Diem Business Travel Rates Became Effective on October 1
Don't Get Blown Away by a Windfall
Receiving a sudden and sizable influx of cash may seem like a dream come true. It can be, but many people get blown away by a windfall and end up in worse financial shape.

Risky Conditions

Perhaps the most obvious example is you may be tempted to immediately buy an expensive new car or home. Or fraudulent charities may come knocking. You can avoid these potential pitfalls by stashing your windfall in a bank or money market account as soon as you receive it. Let it sit there until you identify a few specific, reasonable goals — such as funding your retirement or a child or grandchild’s education. Waiting at least a month before you touch the money can help prevent impulse buys and other mistakes.
Also, you may owe taxes. Some windfalls, such as lottery winnings and certain legal settlements, are subject to federal tax — as much as 37% federal tax if your windfall pushes you into the top income tax bracket. State and local taxes may apply as well. A tax professional can help you determine what you owe.

Shelter From the Storm

What you eventually decide to do with your windfall depends on many factors. If you have certain types of debt, you’ll probably want to pay it off ― especially if it carries a high interest rate and the interest isn’t deductible. Also, establishing or boosting your emergency savings can minimize the need to incur future debt.
Next, consider where you’d like to be five, 10 or 20 years into the future. Develop a budget that will help you move toward your goals — whether that means retiring early, starting a business or something else. You probably shouldn’t quit your job. Few windfalls are large enough to see anyone all the way through retirement.

Long-Term Plan

A final word of warning: Be careful when asked for money. Friends and family members may expect to share in your bounty or may pitch “sure-fire” investment opportunities. We can help you formulate a long-term plan to put a windfall to optimal use.

Judy Haven, CPA
D 262.243.9610
PODCAST
Podcast: Worldwide Income

This week we talk about reporting foreign income and values to the IRS. A taxpayer is taxed on their worldwide income. It's important to know that the IRS looks at all of your income, but not all income is taxed in the same way.
Tax Calendar
November 1

  • The third quarter Form 941 (“Employer’s Quarterly Federal Tax Return”) is due today, and any undeposited tax must be deposited. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until November 10 to file the return.

  • If you have employees, a federal unemployment tax (FUTA) deposit is due if the FUTA liability through September exceeds $500.

November 15

  • If the monthly deposit rule applies, employers must deposit the tax for payments in October for Social Security, Medicare, withheld income tax and nonpayroll withholding.

  • If an extension was obtained, calendar-year tax-exempt organizations should file their 2020 returns by this date.

December 15 

  • Calendar-year corporations must deposit the fourth installment of estimated income tax for 2021.

  • If the monthly deposit rule applies, employers must deposit the tax for payments in November for Social Security, Medicare, withheld income tax and nonpayroll withholding.
State Taxes Impact Business Sales, Too
For various reasons, business owners sometimes decide to put their companies on the market. To successfully negotiate the sale of a business, it’s critical to understand the tax implications. Armed with this knowledge, you can assess the impact of various transaction structures and sales price allocations on your net proceeds from the sale and potentially adjust the sales price accordingly.

Business owners tend to focus on the federal tax implications of a sale, but don’t ignore state taxes. Now that federal tax rates are lower than they’ve been in the past, state taxes may take on added significance. If you’re contemplating relocating or retiring to another state, it may make sense to consider moving before you sell the business ― especially if the new state has low, or even no, income tax.

Before you attempt this strategy, however, be sure to consult a qualified tax advisor. Changing your domicile and residence for tax purposes isn’t like flipping a switch. You’ll need to take several specific actions to demonstrate your intent to establish a permanent place of abode in the new state, such as obtaining a driver’s license, registering to vote, and becoming involved with local organizations and activities.

Keep in mind, too, that there may be rules about the number of days spent in the state. So, you may have to do more than take the steps above to show that you’re a resident of your new state. For instance, if you live in your “old” state most of the year and spend only a couple months in your new state, you could find that, at least for tax purposes, you’re deemed a resident of both states. We can help you prepare for the state tax implications of a business sale.

Curt Bach, CPA
D 715.748.1351
New per Diem Business Travel Rates Became Effective on October 1
Are employees at your business traveling again after months of virtual meetings? In Notice 2021-52, the IRS announced the fiscal 2022 “per diem” rates that became effective October 1, 2021. Taxpayers can use these rates to substantiate the amount of expenses for lodging, meals and incidental expenses when traveling away from home. (Taxpayers in the transportation industry can use a special transportation industry rate.)

Background Information

A simplified alternative to tracking actual business travel expenses is to use the high-low per diem method. This method provides fixed travel per diems. The amounts are based on rates set by the IRS that vary from locality to locality.

Under the high-low method, the IRS establishes an annual flat rate for certain areas with higher costs of living. All locations within the continental United States that aren’t listed as “high-cost” are automatically considered “low-cost.” The high-low method may be used in lieu of the specific per diem rates for business destinations. Examples of high-cost areas include Boston, San Francisco and Seattle.

Under some circumstances — for example, if an employer provides lodging or pays the hotel directly — employees may receive a per diem reimbursement only for their meals and incidental expenses. There’s also a $5 incidental-expenses-only rate for employees who don’t pay or incur meal expenses for a calendar day (or partial day) of travel.

Less Recordkeeping

If your company uses per diem rates, employees don’t have to meet the usual recordkeeping rules required by the IRS. Receipts of expenses generally aren’t required under the per diem method. But employees still must substantiate the time, place and business purpose of the travel. Per diem reimbursements generally aren’t subject to income or payroll tax withholding or reported on an employee’s Form W-2.

The FY2022 Rates

For travel after September 30, 2021, the per diem rate for all high-cost areas within the continental United States is $296. This consists of $222 for lodging and $74 for meals and incidental expenses. For all other areas within the continental United States, the per diem rate is $202 for travel after September 30, 2021 ($138 for lodging and $64 for meals and incidental expenses). Compared to the FY2021 per diems, both the high and low-cost area per diems increased $4.

Important: This method is subject to various rules and restrictions. For example, companies that use the high-low method for an employee must continue using it for all reimbursement of business travel expenses within the continental United States during the calendar year. However, the company may use any permissible method to reimburse that employee for any travel outside the continental United States.

For travel during the last three months of a calendar year, employers must continue to use the same method (per diem or high-low method) for an employee as they used during the first nine months of the calendar year. Also, note that per diem rates can’t be paid to individuals who own 10% or more of the business.

If your employees are traveling, it may be a good time to review the rates and consider switching to the high-low method. It can reduce the time and frustration associated with traditional travel reimbursement. Contact us for more information.

Jay Kramer, CPA, MST
D 262.404.2109
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