Tax Update for the Non-Tax Professional
The last several years have been a whirlwind of tax law changes at the Federal and state levels. The following is an update targeting business owners and financial professionals that are not following the day-to-day changes in the tax code.
There are many important dates for tax filings and payments, but luckily, they all seem to be the 15th of a month. The dates below are for calendar year business and individuals. Fiscal year-end businesses could have adjusted timelines.
- March 15th – S-Corporations and Partnerships need to file tax returns or extensions.
- April 15th – C-Corporations and Individuals need to file tax returns or extensions. Q1 tax estimate payments for the current year are due (postmarked or initiated payment online).
- June 15th – Q2 tax estimate payments are due.
- September 15th – Extended due date for S-Corporations and Partnerships. Q3 tax estimate payments are due.
- October 15th – Extended due date for C-Corporations and Individuals.
- December 31st – Last day to pay expenses and get a tax deduction for Cash Basis entities.
- January 15th – Q4 tax estimate payments are due (for the prior year’s income).
If you have a business and pay estimated taxes get these dates in your calendar now, outside of the covid years of 2020 and 2021 these due dates haven’t moved. Your tax accountant will likely send reminders, but it doesn’t hurt to be prepared.
Extending a tax return is a relatively simple task, it is a 1-page form for Federal business and individual extensions. There is no additional tax when extending a tax return, but it is important to note that tax extensions are an extension to file the tax return, not an extension to pay. Amending tax returns is a costly and time-consuming process, extensions are an easy way to get 6 extra months to make sure tax returns are accurate before finalizing.
State Filing Requirements
In the wake of the Wayfair supreme court decision many states have enacted laws to tax businesses located in other states by way of new income sourcing rules. These laws are ever changing, but the core take away is that businesses should be tracking revenue by state closely. This includes service businesses that perform work for companies and individuals located outside of the state where the work is performed. High tax states have enacted laws specifically to target companies in other states and they will find your business one day. Ask your tax accountant about your specific situation.
Pass-Through Entity Taxes
Another change sweeping through the states is Pass-Through Entity (PTE) taxes. PTE taxes allow S-Corps and Partnerships to pay their owners’ state income tax, in specific situations. These laws are in response to the 2018 Federal law that capped state and local tax deductions at $10,000. Under these laws the business entity is allowed to pay state tax and take a deduction for the full amount of the state taxes against their Federal income. In general PTE taxes will lower the overall tax burden due to the Federal deduction, with state taxes being unchanged or only slightly higher.
If your business(es) moves to paying PTE tax for certain states keep in mind that the business will have to pay quarterly tax estimates going forward. That will be a new concept for some pass-through entities.
Importance of Planning
Tax laws are ever changing, and the IRS and state tax authorities are struggling to keep up (see news articles chronicling the millions of pieces of mail the IRS is waiting to process). In these times of rapid change it is important to do regular tax planning and make sure that state filing requirements are addressed, new opportunities pursued (PTE taxes, tax credits, etc.), and that you know what tax payments are coming up. A good tax plan will have estimates for future payments weeks/months in advance vs. tax payments coming out of the blue. Safe estimate payments are another way to make taxes more predictable, but even safe estimate should be adjusted if the year isn’t going well.
If you have a budget for your business that budget can be used to project tax payments as well. Be sure to include capital expenditures (fixed asset additions) in your budget, if appropriate. Tax planning is often done with mid-year financials, but budgets or forecasted information can be used if reliable. There are many approaches to tax planning and the team at Copeland Buhl will find the one that works for you.