Toph CPA - May 2021

Toph CPA - May 2021

MAY 2021 VOLUME 5, ISSUE 5

TOPH’S TAX RESOLUTION T IMES

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Big changes are coming for taxpayers this year. Thanks in part to the American Rescue Plan Act of 2021, there are some changes to the tax code and what people and businesses can expect. There are several “magic numbers” of which to be aware. For instance, single filers earning less than $75,000 per year and married couples making less than $150,000 per year may have major benefits coming their way — and have likely already seen some of those benefits at the time of this newsletter. One of the first elements of the American Rescue Plan to make it to taxpayers was the $1,400 direct payment, or economic impact payment (also known as the “stimulus check”). The amount of this check is based on either your 2019 or 2020 tax return — whatever the IRS has on file at the time the check is issued. Some taxpayers are concerned that if their income goes over the threshold of $75,000 or $150,000, they will have to pay the money back on their taxes next year. This is not the case. As long as you met the income requirements when it was issued, you don’t have to worry about it. The money is yours and is not subject to tax. Another big thing to watch for is the expanded child tax credit. This is huge for families. If you make under the $75,000/single filer or $150,000/ married couple thresholds — and you have children — you may be eligible. (Keep in mind that those who make over the $75,000/$150,000 thresholds may still be eligible for these credits, just at a lower amount.) What does this look like? For the 2021 tax year, families may receive a $3,000 credit per child (up to age 17) and $3,600 per child under age 6. So, for an eligible family of four, they may end up with $5,600 in economic impact money, plus an additional $6,000 if they have two children — a number that will be higher if one or both children are under age 6. It’s Good News for Taxpayers!

And here’s yet another thing for families with kids under 13 — you may be eligible for a child care tax credit. If you rely on and pay for child care services, you may have relief coming your way. If you have one child, the government will pay you up to $4,000 in the form of a refundable credit. For two or more children, that number doubles (and maxes out) at $8,000. The maximum credit is available to families making under $125,000 per year. For working families, this is big. It’s important to be aware of what you are eligible for so you can take advantage of it. Some parts of the American Rescue Plan will be issued automatically. For example, if you have direct deposit information on file with the IRS, your economic impact payment should be automatically deposited in the associated account. The child tax credit should be paid out in a similar fashion — but it will be paid out in smaller amounts on a monthly basis, with the average monthly payment being around $600 (it may depend on the size of the family and ages of children). However, if you are eligible for these payments and you have yet to receive them, you may need to get in touch with the IRS. An issue may need to be resolved before the payment goes through, or they may not have updated information necessary to make the payment or deposit.

–Toph Sheldon

WHEN THE IRS COMES KNOCKIN’ ... LET US ANSWER THE DOOR!

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If you own an S corporation (even if you and/or your spouse are the only employees), you can take advantage of a few tax strategies in 2021. These new strategies have been developed due to pandemic- related issues affecting businesses and are a continuation of the CARES Act from 2020. Strategy No. 1: Apply for an Employee Retention Credit. If your gross per-quarter sales in 2021 are down by more than 20% compared to the same calendar quarter in 2019, your S corporation may be eligible for a government tax credit equal to 70% of the wages you pay your employees (which in my opinion, includes wages paid to yourself and/ or your spouse), up to $7,000 per employee, per quarter. If you are in business with your spouse, you both may be eligible for the $7,000 refundable credit per quarter. Strategy No. 2: Apply for the updated employee 2020 retention credit. An employee retention credit (ERC) was available in 2020, and it is available once again in 2021. The ERC is a refundable payroll tax credit applicable to qualified wages. The credit can reach up to $5,000 (annual maximum) for each full-time equivalent employee who was retained between March 13, 2020, and Dec. 31, 2020, AND 2 Bonus Tax Strategies for S Corp Owners

CONNECTING YOUR EMPLOYEES TO YOUR MISSION Making Your Passions Their Passions Your business might be doing well, but if your workforce doesn’t feel any sort of personal connection to your business’s mission, that could prevent lasting success. You want to boost employee morale and make them happy about their work. To reinvigorate your employees’ passion for your business’s mission, try a few of these tips. Walk the talk. Patagonia CEO Yvon Chouinard decided to make his products out of organic cotton after he saw how industrially grown cotton was hurting the environment. It cost more to do that, but he stuck to Patagonia’s mission of creating environmentally friendly products. If you’re not willing to sacrifice for your mission, then it’s not your mission — and your employees will know it. Make it clear. Make sure everyone at your company knows exactly what your mission is. Only when employees have a clear understanding of the goal can they actually abide by it. If your mission statement can be interpreted in multiple ways, clarify it throughout all levels of your business. Speak passionately about it. While you want the mission itself to be exciting, even the most intriguing of mission statements will be DOA if your delivery doesn’t convey your excitement. Humans are emotional creatures, so connecting with your employees emotionally in regard to your mission is just as important as the mission itself. Make it personal. While you might think tying your personal story to the company’s mission seems narcissistic, the truth is that your team wants to hear your story. People like stories, and if you can convey yours with honesty and humility, no one will think you’re an egoist. Re-work it. If your mission doesn’t seem to be inspiring passion in your workforce, then maybe it’s time to tweak it a little bit. Whether you’re just starting in business or have had the same mission statement for 10 years, a new mission lived out, made clear, and made personal by you can spark a newfound appreciation for your business among your employees.

up to $7,000 per quarter ($28,000 annual maximum) for each full-time equivalent employee who was retained between Jan. 1, 2021, and Dec. 31, 2021.

If a business was ordered to shut down partially or entirely, or if gross sales were down more than 50% in 2020 compared to the same quarter in 2019, or down more than 20% in 2021 compared to 2019, you may be eligible for this credit. Additionally, if the credit is more than your payroll taxes, you may be eligible for a refund from the IRS, putting these credits to work.

In theory, if your business suffered from pandemic-related loss of income for each quarter of 2021 (compared to each quarter in 2019), you may be able to receive the $7,000 tax credit each quarter for a maximum credit of $28,000 per employee. Even if you and your spouse are the only employees of your S-corp, you could end up with up to $56,000 in refundable tax credits. If your business has not elected to be an S corporation, it may be worth looking into. Or, if you haven’t done any tax planning for 2021 yet, don’t miss out on this incredible tax planning opportunity. If your income stream has taken a hit, you have options.

–Toph Sheldon

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6 +1 Some people say we’re crazy at the Sheldon household. We say we’re crazy at the Sheldon household. We also thought it was time for a tie-breaker. With two boys and two girls, what’s one more to “odd” things out?

We’re Going With the Odds, Adding Baby No. 5

minivan. We can fit five car seats — and that’s it! No more! We’re not going to get another car to fit more kids!

This October we’ll be welcoming baby number five.

Toph has been super excited since I broke the news to him. The news was my Valentine’s Day present to Toph. He has always wanted a

As I work through this pregnancy, it’s become not a big deal at all. I think after you have four kids, everything becomes so much more straightforward. The doctor asks if I have any questions, I can say, “No, I think it’s under control.” It’s certainly been bittersweet these past few months. We’ve decided that, yes, baby number five will be our last. But I’m slightly apprehensive, too. It can be pretty chaotic with four kids 6 and under running around, so adding a fifth is going to only add to that chaos.

lot of kids. He comes from a bigger family and his parents are both from larger families, so it’s something he grew up with and he’s used to. His family gatherings tend to be pretty lively — certainly more lively than my family gatherings. As we look forward to baby number five, there is one thing I’m very grateful for — we’re not having a baby during tax season! We already have two kids who were born during tax season, so a fall baby is the most welcome news!

But, as parents, we know what we’re getting into and that we do want a fifth. We know that despite some of the chaos, it’s worth it.

When we were deciding whether or not to have a fifth, Toph and I joked that we can’t have any more kids than we have seats in the

Take a Break

SHAVED ASPARAGUS SALAD Tangy citrus and salty Parmesan cheese complement earthy, fresh asparagus, a favorite spring vegetable with a short growing season.

Ingredients

• • • •

1 lb asparagus spears 1 tbsp lemon juice 1 tsp Dijon mustard

• • • •

3/4 cup Parmesan cheese, grated

1/2 tsp kosher salt

1/8 tsp red pepper flakes

3 tbsp extra-virgin olive oil

Freshly ground black pepper, to taste

Directions

1. With a vegetable peeler, shave each asparagus spear from tip to base. This is easiest to do if the asparagus is on a flat surface. 2. Place shaved asparagus in a bowl and blot off excess moisture with a paper towel.

3. In a separate bowl, make a

vinaigrette by whisking together lemon juice, Dijon mustard, and olive oil.

4. Pour vinaigrette over shaved asparagus and add Parmesan cheese, salt, red pepper flakes,

Solution on Page 4

and black pepper. Toss to combine. Taste and adjust seasonings.

Inspired by ACoupleCooks.com

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Cincinnati Tax Resolution Powered by Toph Sheldon 9200 Montgomery Rd., Ste. 7B Cincinnati, OH 45242

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INSIDE 1

A Few Big Changes for Taxpayers in 2021

2

Connecting Your Employees to Your Mission

Bonus Tax Strategies for S Corp Owners

3

We’re Going With the Odds

Shaved Asparagus Salad

4

This Former Executive Can Stop Defrauding His Employer — and the IRS

TOPH’S TAX NIGHTMARES

It’s All Gone Flat for This Former Dr. Pepper Executive

Michael Lynch was once a national sales executive for Dr. Pepper/ Seven‑Up, Inc. He had a prominent role within the company. That is, until he was prosecuted for tax fraud and sent to federal prison. The Department of Justice said that Lynch billed his former employer for over $1.7 million in services rendered. There was just one small problem — none of the services were ever rendered. Every invoice Lynch sent to Dr. Pepper — which he was working for at the time — was completely fake. And there were over 200 invoices, to boot.

The invoices were submitted by a “promotions and marketing company” — a company Lynch formed using his wife’s name. According to court documents, the invoices referenced services related to the delivery of sample products to various stores, offering special discounts to stores, and providing promotional materials for those stores. Well, Dr. Pepper determined the invoices were accurate. They trusted one of their executives. Lynch took the money, but in his crime, he committed yet another crime on top of that. When you submit fraudulent invoices and collect revenue from those invoices, you pay taxes on it, right? The law is clear on this — yes, you do have to pay tax on ill-gotten gains. Lynch did not. Had he declared this income on his tax return, he would have owed approximately $386,000. The scheme, which started in 2007, fell apart in 2017. Federal investigators caught up to Lynch and filed charges. The former Dr. Pepper exec pleaded guilty to two offenses — wire fraud and filing a false tax return. He was sentenced to 33 months in federal prison and ordered to pay restitution to Dr. Pepper/Seven-Up. Not only that, but he was also ordered to pay the taxes he initially owed to the IRS — even though he was paying that money back to his former employer.

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WHEN THE IRS COMES KNOCKIN’ ... LET US ANSWER THE DOOR!