The tax filing deadline for 2021 tax returns is April 18 this year. After your 2021 tax return has been successfully filed with the IRS, there may still be some issues to bear in mind.
Here are three considerations:
1. You can throw some tax records away now You should hang onto tax records related to your return for as long as the IRS can audit your return or assess additional taxes. The statute of limitations is generally three years after you file your return. So you can generally get rid of most records related to tax returns for 2018 and earlier years. (If you filed an extension for your 2018 return, hold on to your records until at least three years from when you filed the extended return.)
However, the statute of limitations extends to six years for taxpayers who understate their gross income by more than 25%. You should keep certain tax-related records longer. For example, keep the actual tax returns indefinitely, so you can prove to the IRS that you filed a legitimate return. (There’s no statute of limitations for an audit if you didn’t file a return or you filed a fraudulent one.)
What about your retirement account paperwork? Keep records associated with a retirement account until you’ve depleted the account and reported the last withdrawal on your tax return, plus three (or six) years. And retain records related to real estate or investments for as long as you own the asset, plus at least three years after you sell it and report the sale on your tax return. (You can keep these records for six years if you want to be extra safe.)
2. Waiting for your refund? You can check on it The IRS has an online tool that can tell you the status of your refund. Go to irs.gov and click on “Get Your Refund Status” to find out about yours. You’ll need your Social Security number, filing status and the exact refund amount.
3. If you forgot to report something, you can file an amended return In general, you can file an amended tax return and claim a refund within three years after the date you filed your original return or within two years of the date you paid the tax, whichever is later. So for a 2021 tax return that you file on April 15, 2022, you can generally file an amended return until April 15, 2025.
However, there are a few opportunities when you have longer to file an amended return. For example, the statute of limitations for bad debts is longer than the usual three-year time limit for most items on your tax return. In general, you can amend your tax return to claim a bad debt for seven years from the due date of the tax return for the year that the debt became worthless.
We’re here year round If you have questions about tax record retention, your refund or filing an amended return, contact us. We’re not just available at tax filing time — we’re here all year!
Contact us if you have questions about this or other tax-related topics. © 2022 https://ata.net/contact-us
Here are some of the key tax-related deadlines that apply to businesses and other employers during the second quarter of 2022. Keep in mind that this list isn’t all-inclusive, so there may not be additional deadlines that apply to you.
The IRS announced tax relief for Tennessee severe storms, straight-line winds and tornadoes that may affect taxpayers’ deadlines. Read below for more information.
Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.
April 18
If you’re a calendar-year corporation, file a 2021 income tax return (Form 1120) or file for an automatic six-month extension (Form 7004) and pay any tax due. Corporations pay the first installment of 2022 estimated income taxes.
For individuals, file a 2021 income tax return (Form 1040 or Form 1040-SR) or file for an automatic six-month extension (Form 4868) and paying any tax due. (See June 15 for an exception for certain taxpayers.) For individuals, pay the first installment of 2022 estimated taxes, if you don’t pay income tax through withholding (Form 1040-ES).
May 2
Employers report income tax withholding and FICA taxes for the first quarter of 2022 (Form 941) and pay any tax due.
May 10
Employers report income tax withholding and FICA taxes for the first quarter of 2022 (Form 941), if you deposited on time and fully paid all of the associated taxes due.
June 15
Corporations pay the second installment of 2022 estimated income taxes. The second estimated tax installment for individual taxpayers is due June 15 as well.
Our 2022 tax calendar gives you a quick reference to the most common forms and 2022 tax due dates for individuals, businesses, and tax-exempt organizations. Communicate any questions you may have with your ATA representative. © 2022
However, there is tax relief for Tennessee victims of severe storms, straight-line winds and tornadoes beginning December 10, 2021 now have until May 16, 2022, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today.
Following the recent disaster declaration issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in certain areas will receive tax relief.
Individuals and households affected by severe storms, straight-line winds and tornadoes that reside or have a business in Cheatham, Davidson, Decatur, Dickson, Dyer, Gibson, Henderson, Henry, Lake, Obion, Stewart, Sumner, Weakley, and Wilson counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after December 10, 2021, and before May 16, 2022, are postponed through May 16, 2022.
Read the full details in this IRS update.
Time’s nearly up for some retirees to take a required minimum distribution (RMD) from certain retirement accounts, to avoid harsh penalties. For those who turned 72 in the last half of 2021, your first year RMD must be taken by April 1, 2022, so act fast. This applies to those with IRAs, 401(k)s and similar workplace plans.
For all RMDs after the first year, the deadline is Dec. 31. This also means that if you must take your first RMD (for 2021) by April 1, 2022, you’ll still need to take another one for 2022, by Dec. 31, 2022. Exceptions to the RMD rules exist for some.
Here’s more information: https://bit.ly/3qKfJ9M.
Businesses that invest in research and development, particularly those in the technology industry, should be aware of a major change to the tax treatment of research and experimental (R&E) expenses. Under the 2017 Tax Cuts and Jobs Act (TCJA), R&E expenditures incurred or paid for tax years beginning after December 31, 2021, will no longer be immediately deductible for tax purposes. Instead, businesses are now required to capitalize and amortize R&E expenditures over a period of five years for research conducted within the U.S. or 15 years for research conducted in a foreign jurisdiction. The new mandatory capitalization rules also apply to software development costs, regardless of whether the software is developed for sale or license to customers or for internal use.
Tax Implications of Mandatory Capitalization Rules
Under the new mandatory capitalization rules, amortization of R&E expenditures begins from the midpoint of the taxable year in which the expenses are paid or incurred, resulting in a negative year 1 tax and cash flow impact when compared to the previous rules that allowed an immediate deduction.
For example, assume a calendar-year taxpayer incurs $50 million of U.S. R&E expenditures in 2022. Prior to the TCJA amendment, the taxpayer would have immediately deducted all $50 million on its 2022 tax return. Under the new rules, however, the taxpayer will be entitled to deduct amortization expense of $5,000,000 in 2022, calculated by dividing $50 million by five years, and then applying the midpoint convention. The example’s $45 million decrease in year 1 deductions emphasizes the magnitude of the new rules for companies that invest heavily in technology and/or software development.
The new rules present additional considerations for businesses that invest in R&E, which are discussed below.
Cost/Benefit of Offshoring R&E Activities
As noted above, R&E expenditures incurred for activities performed overseas are subject to an amortization period of 15 years, as opposed to a five-year amortization period for R&E activities carried out in the U.S. Given the prevalence of outsourcing R&E and software development activities to foreign jurisdictions, taxpayers that currently incur these costs outside the U.S. are likely to experience an even more significant impact from the new rules than their counterparts that conduct R&E activities domestically. Businesses should carefully consider the tax impacts of the longer 15-year recovery period when weighing the cost savings from shifting R&E activities overseas. Further complexities may arise if the entity that is incurring the foreign R&E expenditures is a foreign corporation owned by a U.S. taxpayer, as the new mandatory capitalization rules may also increase the U.S. taxpayer’s Global Intangible Low-taxed Income (GILTI) inclusion.
Identifying and Documenting R&E Expenditures
Unless repealed or delayed by Congress (see below), the new mandatory amortization rules apply for tax years beginning after December 31, 2021. Taxpayers with R&E activities should begin assessing what actions are necessary to identify qualifying expenditures and to ensure compliance with the new rules. Some taxpayers may be able to leverage from existing financial reporting systems or tracking procedures to identify R&E; for instance, companies may already be identifying certain types of research costs for financial reporting under ASC 730 or calculating qualifying research expenditures for purposes of the research tax credit. Companies that are not currently identifying R&E costs for other purposes may have to undertake a more robust analysis, including performing interviews with operations and financial accounting personnel and developing reasonable allocation methodologies to the extent that a particular expense (e.g., rent) relates to both R&E and non-R&E activities.
Importantly, all taxpayers with R&E expenditures, regardless of industry or size, should gather and retain contemporaneous documentation necessary for the identification and calculation of costs amortized on their tax return. This documentation can play a critical role in sustaining a more favorable tax treatment upon examination by the IRS as well as demonstrating compliance with the tax law during a future M&A due diligence process.
Impact on Financial Reporting under ASC 740
Taxpayers also need to consider the impact of the mandatory capitalization rules on their tax provisions. In general, the addback of R&E expenditures in situations where the amounts are deducted currently for financial reporting purposes will create a new deferred tax asset. Although the book/tax disparity in the treatment of R&E expenditures is viewed as a temporary difference (the R&E amounts will eventually be deducted for tax purposes), the ancillary effects of the new rules could have other tax impacts, such as on the calculation of GILTI inclusions and Foreign-Derived Intangible Income (FDII) deductions, which ordinarily give rise to permanent differences that increase or decrease a company’s effective tax rate. The U.S. valuation allowance assessment for deferred tax assets could also be impacted due to an increase in taxable income. Further, changes to both GILTI and FDII amounts should be considered in valuation allowance assessments, as such amounts are factors in forecasts of future profitability.
Insights
The new mandatory capitalization rules for R&E expenditures and resulting increase in taxable income will likely impact the computation of quarterly estimated tax payments and extension payments owed for the 2022 tax year. Even taxpayers with net operating loss carryforwards should be aware of the tax implications of the new rules, as they may find themselves utilizing more net operating losses (NOLs) than expected in 2022 and future years, or ending up in a taxable position if the deferral of the R&E expenditures is material (or if NOLs are limited under Section 382 or the TCJA). In such instances, companies may find it prudent to examine other tax planning opportunities, such as performing an R&D tax credit study or assessing their eligibility for the FDII deduction, which may help lower their overall tax liability.
Will the new rules be delayed?
The version of the Build Back Better Act that was passed by the U.S. House of Representatives in November 2021 would have delayed the effective date of the TCJA’s mandatory capitalization rules for R&E expenditures until tax years beginning after December 31, 2025. While this specific provision of the House bill enjoyed broad bipartisan support, the BBBA bill did not make it out of the Senate, and recent comments by some members of the Senate have indicated that the BBB bill is unlikely to become law in its latest form. Accordingly, as of the date of this publication, the original effective date contained in the TCJA (i.e., taxable years beginning after December 31, 2021) for the mandatory capitalization of R&E expenditures remains in place.
How We Can Help
The changes to the tax treatment of R&E expenditures can be complex. While taxpayers and tax practitioners alike remain hopeful that Congress will agree on a bill that allows for uninterrupted immediate deductibility of these expenditures, at least for now, companies must start considering the implications of the new rules as currently enacted.
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With the prospects of a comprehensive U.S. tax legislative package unlikely, one possible path for Congress is the consideration of smaller, more targeted pieces of legislation. One possibility of such targeted tax legislation might be passing tax extenders. Another possible package of tax legislation might include provisions aimed at providing relief from the recent COVID-19 Omicron variant.
Throughout the COVID-19 pandemic and as the country has tackled the many variants, the impact of the virus has been tough on smaller businesses, particularly those that provide services to people, such as restaurants, entertainment venues, hotels and fitness centers/sports clubs.
While no formal legislation has been introduced specifically related to the Omicron variant, if a bill picks up steam, we might see provisions such as employment tax credits, travel incentives or temporary changes to the meal and entertainment cap.
With the Build Back Better bill now a recent memory, members of both parties in the House and Senate may find additional targeted COVID-19 tax relief more appealing. Members of Congress hear from constituents daily regarding their struggles with the impact COVID-19 has had on their lives and on their livelihoods. Pressing ahead with a package of targeted tax relief might be just what many taxpayers need. It may also be just what Congress needs to show it can respond to the needs of Americans in a bipartisan, bicameral basis.
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Among the many consequences of Russia’s invasion of Ukraine are higher energy prices and fears about oil and gas shortages. But recently, Senate Finance Committee Chairman, Ron Wyden (D-OR) argued that Congress can kill two birds with one stone by passing clean energy tax incentives.
Tax breaks could help reduce the country’s dependence on foreign oil and “prevent the most catastrophic effects of the climate crisis.” Wyden emphasized that the package he proposed in last year’s Clean Energy for America Act, “would lower emissions by the power sector by more than 70%.” Besides containing tax breaks for businesses, it would offer refundable tax credits for consumers who buy electric vehicles.
If you own your own company and travel for business, you may wonder whether you can deduct the costs of having your spouse accompany you on trips. The rules for deducting a spouse’s travel costs are very restrictive. First of all, to qualify, your spouse must be your employee. This means you can’t deduct the travel costs of a spouse, even if his or her presence has a bona fide business purpose, unless the spouse is a bona fide employee of your business. This requirement prevents tax deductibility in most cases.
A spouse-employee
If your spouse is your employee, then you can deduct his or her travel costs if his or her presence on the trip serves a bona fide business purpose. Merely having your spouse perform some incidental business service, such as typing up notes from a meeting, isn’t enough to establish a business purpose. In general, it isn’t sufficient for his or her presence to be “helpful” to your business pursuits — it must be necessary. In most cases, a spouse’s participation in social functions, for example as a host or hostess, isn’t enough to establish a business purpose. That is, if his or her purpose is to establish general goodwill for customers or associates, this is usually insufficient.
Further, if there’s a vacation element to the trip (for example, if your spouse spends time sightseeing), it will be more difficult to establish a business purpose for his or her presence on the trip. On the other hand, a bona fide business purpose exists if your spouse’s presence is necessary to care for a serious medical condition that you have. If your spouse’s travel satisfies these tests, the normal deductions for business travel away from home can be claimed. These include the costs of transportation, meals, lodging, and incidental costs such as dry cleaning, phone calls, etc.
A non-employee spouse
Even if your spouse’s travel doesn’t satisfy the requirements, however, you may still be able to deduct a substantial portion of the trip’s costs. This is because the rules don’t require you to allocate 50% of your travel costs to your spouse. You need only allocate any additional costs you incur for him or her. For example, in many hotels the cost of a single room isn’t that much lower than the cost of a double. If a single would cost you $150 a night and a double would cost you and your spouse $200, the disallowed portion of the cost allocable to your spouse would only be $50.
In other words, you can write off the cost of what you would have paid traveling alone. To prove your deduction, ask the hotel for a room rate schedule showing single rates for the days you’re staying. And if you drive your own car or rent one, the whole cost will be fully deductible even if your spouse is along. Of course, if public transportation is used, and for meals, any separate costs incurred by your spouse wouldn’t be deductible.
Contact us if you have questions about this or other tax-related topics. © 2022
In response to pressure from Congress, 1,200 IRS employees have been dispatched to sort and process millions of outstanding 2020 amended paper tax returns. IRS Commissioner Chuck Rettig says a separate team will tackle 2021 paper returns as they come in. The backlog has been caused, in part, because the IRS suspended approximately 35 million returns due to errors. But will the IRS’s action plan satisfy legislators? The National Taxpayer Advocate, Erin M. Collins, testified before the Senate Finance Committee that the agency also needs to provide temporary penalty relief to taxpayers, suspend collections and improve communications. In addition, she said the IRS needs sufficient funding to upgrade IT systems.
She told members of the Senate Finance Committee on 2/16/22 during a hearing on IRS customer service challenges, “In releasing my Annual Report to Congress, I said that paper is the IRS’s kryptonite and that the IRS is still buried in it.” She said that taxpayers have been experiencing significant delays in receiving their tax refunds because of unprecedented IRS backlogs in the processing of original and amended tax returns. Paper processing remains the agency’s biggest challenge, and that will continue throughout 2022. As of late December 2021, the IRS still had backlogs of 6 million unprocessed original individual returns (Form 1040 series) and 2.3 million unprocessed amended individual returns (Form 1040-X. E-filed original returns have mostly worked through the backlog. A written copy of her remarks can be found at this website.
Have questions about your 2021 taxes? Schedule an appointment with one of our tax professionals today.
On Thursday, January 13, the U.S. Supreme Court blocked efforts by the Biden Administration to put a vaccine-or-testing mandate in place for large employers in a 6-3 vote. The mandate would have required proof of vaccination or weekly COVID testing for businesses that employ at least 100 individuals.
While a vaccine-or-testing mandate will not go into effect for general employers, employees of healthcare facilities that receive money through the Medicare and Medicaid programs must be vaccinated against COVID-19 by the end of February 2022, as decided in a 5-4 ruling.
For more details about the Supreme Court’s ruling on the vaccine-or-testing mandate, visit https://www.reuters.com/world/us/us-supreme-court-blocks-biden-vaccine-or-test-policy-large-businesses-2022-01-13/.