2021 tax year will be tough, CPA tells Hoover Small Business Alliance

Filing season for the 2021 tax year is going to be tough for individuals and businesses as the IRS is still behind in processing 2020 tax returns, a tax expert shared with the Hoover Small Business Alliance on Wednesday. .

The IRS is understaffed and underfunded right now and still behind in processing 6 million returns as of 2020, said Diana Knight, Sovereign CPA Group partner at Riverchase who has more than 39 years of experience in the tax and accounting sector.

It takes the IRS 5 to 15 months to simply open all returns filed in paper form over the past 15 to 18 months, let alone process those returns, Knight said.

“Even before the pandemic, the IRS was an ass with three lame legs and a heavy basket on its back, and when COVID happened, they dropped a rock in that basket,” she said. .

Even though the agency was understaffed and underfunded, lawmakers instructed the IRS to roll out stimulus payments and tax credits based on tax information, bank account information, and addresses that are more than a year old, Knight said.

“That’s why the dead got checks. That’s why the checks were going to the ex’s bank account or old addresses,” she said. “They did their best and had to start over. … They can’t even do their own work, and they have more on them. I don’t see that changing overnight.

And the IRS doesn’t have the manpower to answer people’s questions about why their refunds are late, Knight said. The number of phone calls received by the IRS rose from 100.5 million in 2020 to 275 million in 2021, and only 11% of those calls were actually answered, she said.

Even tax professionals, who have hotlines to call to get faster service, can’t get through, or if they do, they often get the “courtesy hang-up,” which is a quick response they can’t. not speak yet and encouragement. try again later, Knight said.

In light of these issues, Knight offered several tips for small business owners when dealing with the IRS.

First, file electronically, as paper returns take much longer to process, Knight said.

Second, be as specific as possible, especially when reporting the amount of stimulus payments or child advance tax credits received, Knight said.

“A lot of people just don’t know what they really have,” she said. “If you state on your statement what you think you received and it’s not correct, it doesn’t match, and guess what? Your return is in limbo. It’s delayed. It must be examined by a natural person. … If there’s a mistake, you might as well take a number and wait. You will wait for your refund. You’re going to wait for anything, and you won’t be able to reach anyone to do anything about it.

People can go to irs.gov to see amounts recorded by the IRS for the amount of stimulus payments or advance tax credits the agency thinks they gave you, Knight said.

Third, if you have any doubts about the accuracy of the information you are filing, file a request for an extension of time to file instead of filing inaccurate information and filing an amendment later, Knight said.

“They’re so slow trying to process special declarations, including amendments,” she said.

Knight also encouraged small business owners to take advantage of depreciation deductions and opportunities.

Deductions for business-related food and beverage expenses were previously limited to 50% of the cost, but are now 100% deductible for the 2021 and 2022 tax years if the expenses are paid or incurred within the restaurants and not lavish or extravagant, she said. Food and beverage expenses for a corporate team building event, such as a corporate trip to Top Golf, are also deductible, she said.

Business travel, excluding travel to and from home, is deductible. The IRS allows a deduction of 56 cents per mile for business travel in 2021 and 58.5 cents per mile in 2022, Knight said. “Just keep track of your miles.”

Rather than using the standard mileage rate, taxpayers may choose to deduct automobile expenses based on actual costs. For example, if a vehicle is 80% used for work and costs $10,000, you can write off $8,000 of that cost over a period of years (or maybe faster), depending on the type and weight. of the vehicle, Knight said. And, based on 80% business use, 80% of the cost of vehicle insurance, gas, tires and repairs are deductible, she said.

Bonus depreciation rules allow businesses to deduct 100% of the cost of qualifying commercial property (purchased before January 1, 2023), such as computers, furniture and office equipment, in the year of purchase , rather than amortizing them over a period of years, she says.

Knight also gave advice to small business owners on ways to manage risk. She advised them to consider short-term and long-term disability insurance that can help people support their families if they are the main source of income for their family and something happens to them. prevents you from continuing to work.

Many small business owners may think they can’t afford such insurance, but many trade associations, such as real estate groups or grocery store groups, have group policies that small businesses can use and get reasonable rates, Knight said.

She also advised people to have a will drawn up if they have children or a family.

“I’m just shocked sometimes when I talk to very educated people who have young children and they don’t even have a will saying what happens to their children when they’re both suddenly gone,” Knight said. “You don’t want a judge or guardian ad litem to make decisions about your children. Same thing with your money. You can go to legalzoom.com and do that tonight until you have time to see a lawyer.

About 50 people attended Wednesday’s meeting of the Hoover Small Business Alliance, which was held at 8 a.m. at the Alabama Baptist Children’s Homes and Family Ministries office on Rocky Ridge Lane.

Hoover Police Sgt. Austin Tubb and Detective Jennifer Stewart of the police department’s Financial Crimes Unit also gave business owners advice on cybersecurity.

The biggest problem for small businesses when it comes to cybersecurity is complacency, Stewart said. Small business owners often feel like they don’t have much to steal, so they won’t invest time and money in protecting their electronic data systems, he said. she declared.

But 62% of cybersecurity attacks happen with small businesses, and one in 40 small businesses say they’ve been the victim of a cyberattack, she said. That’s because thieves and muggers know the mentality exists, she says.

“They know you’re not going to spend money on IT security, that you’re probably not going to update your software when updates come out,” Stewart said. “They’re going to attack you instead of attacking a big company because they know they’ll have easier access.”

Defensive measures may involve investment, but it can pay off in the long run, she said.

Small businesses should also train their employees to spot fraudulent emails, Stewart and Tubb said. Thieves will create email accounts and signatures that appear genuine, but the email address or domain name may be slightly off by a letter or number. They can impersonate the business owner or a supervisor and ask the employee to share a forgotten password or ask the employee to wire money to a supposed supplier.

A thorough check to verify an email address or a quick phone call to verify a sender’s identity can save a lot of money and hassle, Stewart said.

Stewart also advised small business owners to create strong (not simple) passwords and different passwords for different systems, invest in an external hard drive that can act as a backup for the main server, and encrypt files. so that they cannot be read. by an outside source.

The next meeting of the Hoover Small Business Alliance is set to take place in March, founder Traci Fox said. An exact date, time and location had not been set Wednesday. Follow the Hoover Small Business Alliance on Facebook for updates.