As we head into the summer months, we would like to take the opportunity to thank you for the trust you have placed with us. All of the professionals at Lopata, Flegel & Company are proud that independent CPA’s are once again considered a “most trusted business advisor” for individuals and businesses. At Lopata, we do not sell products and we collect no fees from anyone other than our clients. Accordingly, if you could use independent advice on any financial matter, particularly during these rocky financial times, we would be happy to speak with you to help you arrive at comfortable decisions. The summer is the ideal time for us to talk to you about retirement planning, college planning, charitable giving, family giving and estate planning, succession planning, and of course tax planning.
With inflation rates over 8%, we are encouraging all of our business clients to strongly consider raising their prices to customers by amounts that will cover increased costs and maintain historical profit margins. From governmental data and firsthand analyses with some clients, we know that inflation can be significantly more than the 8%, particularly with food, energy, and transportation costs which may affect your business. We can assist in stress testing business models from the impact of increased costs, including rising interest rates.
Erroneous Tax Notices
We are keenly aware of the high number of IRS and Missouri tax notices taxpayers are receiving. A large percentage of these notices involve tax payments, and in many cases the taxing authorities are incorrect. Last week, Missouri announced that they had sent out thousands of notices for balances due on 2021 tax returns prior to completion of entering the April 17th payments. Between post office delays and the IRS processing issues, many payments have not been posted correctly. We advise all of our clients, whenever possible, to make tax payments (estimates or balance due) electronically to the IRS and applicable states to avoid these delays and mispostings. Please contact us if you would like guidance on how to do this or you receive a tax notice. For your convenience, direct links to make electronic payments to the IRS and Missouri Department of Revenue are listed below:
Changes Coming to Filing Due Dates?
With the due dates for brokerage 1099s being pushed to the end of February and in some cases March 15th, and K-1s being delayed due to new schedules and informational reporting required, the AICPA has asked the IRS and Congress to consider moving the tax deadline back to May 15th for individual tax filings. From what we hear, that is unlikely to change for the 2022 tax filing year due to the amount of programming changes required. It is possible that the taxing authorities may develop a far simpler extension process for the 2022 returns, which includes basing extensions on a percentage of the prior year tax with notable exceptions. Presently, we have no insight into whether this will garner enough support to move the tax deadlines permanently.
Employee Retention Credit (ERC)
Members of our team are available to discuss the Employee Retention Credit (ERC) which could provide credits or refunds to businesses for up to $5,000 per eligible employee in calendar year 2020 and $7,000 per eligible employee per quarter for each of the first three quarters of 2021. The quantifiable rule to qualify is for quarterly revenue in 2020 to be down by 50% to the comparable quarter in 2019. In 2021, the decrease needs to be 20% in 2021 to the comparable quarter in 2019. There are other ways to qualify, including being under a full or partial governmental shut-down orders. We would like you to be aware of a new industry that has popped up that the AICPA has referred to Employee Retention Tax Credit mills. These businesses will suggest that a business qualifies for the ERC under a vague application of a “partial shut-down” and assist with the application for 15-20% of the businesses’ credits. If you meet the quantitative requirements of the ERC or were under a direct governmental shut-down order, we can help you with your application for our standard hourly fees, which tend to be closer to 1% to 3% of the credit. The AICPA also reported that the IRS is in the process of establishing a task force to audit the eligibility of the tax credits. We will keep you informed as we learn more about this process.
State and Local Tax(SALT) Parity Act
For some really good news, for years ending on or after December 31, 2022, Missouri passed legislation (SALT Parity Act) allowing flow-through businesses to pay and deduct state taxes at the entity level for both S-Corporations and partnerships and allow taxpayers to claim credit for taxes paid by the entity on the shareholders’ and partners’ individual tax returns. Governor Parsons has until July 14th to sign or veto the bill. The bill passed with overwhelming legislative support, so a veto is not expected. This deduction negates the $10,000 itemized deduction limit for taxes and puts flow-through owners on a more even playing field with owners of taxable corporations. For many of our clients this will reduce overall tax rates by approximately 2%. Many states other than Missouri passed similar laws in years beginning 2020, 2021, or 2022. We will be contacting our flow-through entity clients on the impact during 2022, but please feel free to reach out to us sooner to understand the effect to you and if you may be able to take advantage of this change sooner, particularly if the flow-through entity files returns in states in addition to Missouri.
Protect Yourself and Your Business from Cyber Criminals
We would like to remind everyone to be aware of the increase of cyber criminals. Please do not give out any personal information to any unsolicited call or email, even if it appears to be from a trusted source. The IRS will never call unless you called them and left a message for a call back. The same applies to credit card companies, your Apple account, a lottery, or a Nigerian prince. We encourage you to set up dual authentication on all of your personal online accounts. We encourage our business clients to utilize the control features offered by your bank and to never change a vendor mailing or electronic payment address without telephone verification from a reliable source. The same guidance applies to accepting and shipping to new customers or new locations. We also recommend our business clients to purchase cyber insurance and to speak with your IT professionals on how to avoid being the victim of a ransomware attack. We can help you understand your risks and evaluate controls best suited for you.
We want to congratulate Michael Durkin on his well-deserved promotion as our newest tax partner to our firm effective January 2022.
Finally, if you know of any high quality individuals considering a career in public accounting, whether in college or already working, we would greatly appreciate if you could send them our way or share their contact information with us.
We truly appreciate the confidence you place in us. Please reach out to us if any of the matters above apply to you and you believe we may be able to assist you.
Have a wonderful summer!