The IRS Again Eases Schedules K-2 and K-3 Filing Requirements for 2021

The IRS has announced additional relief for pass-through entities required to file two new tax forms — Schedules K-2 and K-3 — for the 2021 tax year. Certain domestic partnerships and S corporations won’t be required to file the schedules, which are intended to make it easier for partners and shareholders to find information related to “items of international tax relevance” that they need to file their own returns.

In 2021, the IRS released guidance providing penalty relief for filers who made “good faith efforts” to adopt the new schedules. The IRS has indicated that its latest, more sweeping move comes in response to continued concern and feedback from the tax community and other stakeholders.

A tough tax season for the IRS

The announcement of additional relief comes as IRS Commissioner Charles Rettig has acknowledged that the agency faces “enormous challenges” this tax season. For example, millions of taxpayers are still waiting for prior years’ returns to be processed.

To address such issues, he says, the IRS has taken “extraordinary measures,” including mandatory overtime for IRS employees, the creation and assignment of “surge teams,” and the temporary suspension of the mailing of certain automated compliance notices to taxpayers. In addition, the partial suspension of the Schedules K-2 and K-3 filing requirements might ease the burden for both affected taxpayers and the IRS.

K-2 and K-3 filing requirements

Provisions of the Tax Cuts and Jobs Act, which was enacted in 2017, require taxpayers to provide significantly more information to calculate their U.S. tax liability for items of international tax relevance. The Schedule K-2 reports such items, and the Schedule K-3 reports a partner’s distributive share of those items. These schedules replace portions of Schedule K and numerous unformatted statements attached to earlier versions of Schedule K-1.

Schedules K-2 and K-3 generally must be filed with a partnership’s Form 1065, “U.S. Return of Partnership Income,” or an S corporation’s Form 1120-S, “U.S. Income Tax Return for an S Corporation.” Previously, partners and S corporation shareholders could obtain the information that’s included on the schedules through various statements or schedules the respective entity opted to provide, if any. The new schedules require more detailed and complete reporting than the entities may have provided in the past.

In January of 2022, the IRS surprised many in the tax community when it posted changes to the instructions for the schedules. Under the revised instructions, an entity may need to report information on the schedules even if it had no foreign partners, foreign source income, assets generating such income, or foreign taxes paid or accrued.

For example, if a partner claims a credit for foreign taxes paid, the partner might need certain information from the partnership to file his or her own tax return. Although some narrow exceptions apply, this change substantially expanded the pool of taxpayers required to file the schedules.

Good faith exception

IRS Notice 2021-39 exempted affected taxpayers from penalties for the 2021 tax year if they made a good faith effort to comply with the filing requirements for Schedules K-2 and K-3. When determining whether a filer has established such an effort, the IRS considers, among other things:

The extent to which the filer has made changes to its systems, processes and procedures for collecting and processing the information required to file the schedules,
The extent the filer has obtained information from partners, shareholders or a controlled foreign partnership or, if not obtained, applied reasonable assumptions, and
The steps taken by the filer to modify the partnership or S corporation agreement or governing instrument to facilitate the sharing of information with partners and shareholders that’s relevant to determining whether and how to file the schedules.

The IRS won’t impose the relevant penalties for any incorrect or incomplete reporting on the schedules if it determines the taxpayer exercised the requisite good faith efforts.

Latest exception

Under the latest guidance, announced in early February, partnerships and S corporations need not file the schedules if they satisfy all of the following requirements:

For the 2021 tax year:
- The direct partners in the domestic partnership aren’t foreign partnerships, corporations, individuals, estates or trusts, and
- The domestic partnership or S corporation has no foreign activity, including 1) foreign taxes paid or accrued, or 2) ownership of assets that generate, have generated or may reasonably be expected to generate foreign-source income.
For the 2020 tax year, the domestic partnership or S corporation didn’t provide its partners or shareholders — nor did they request — information regarding any foreign transactions.
The domestic partnership or S corporation has no knowledge that partners or shareholders are requesting such information for the 2021 tax year.

Entities that meet these criteria generally aren’t required to file Schedules K-2 and K-3. But there’s an important caveat. If such a partnership or S corporation is notified by a partner or shareholder that it needs all or part of the information included on Schedule K-3 to complete its tax return, the entity must provide that information.

Moreover, if the partner or shareholder notifies the entity of this need before the entity files its own return, the entity no longer satisfies the criteria for the exception. As a result, it must provide Schedule K-3 to the partner or shareholder and file the schedules with the IRS.

Temporary reprieves

The IRS guidance on the exceptions to the Schedules K-2 and K-3 filing requirement explicitly refers to 2021 tax year filings. In the absence of additional or updated guidance, partnerships and S corporations should expect and prepare to file the schedules for current and future tax years. We can help ensure you have the necessary information on hand.

If you’re getting ready to file your 2021 tax return, and your tax bill is more than you’d like, there might still be a way to lower it. If you’re eligible, you can make a deductible contribution to a traditional IRA right up until the April 18, 2022, filing date and benefit from the tax savings on your 2021 return.

Do you qualify?

You can make a deductible contribution to a traditional IRA if:

You (and your spouse) aren’t an active participant in an employer-sponsored retirement plan, or
You (or your spouse) are an active participant in an employer plan, but your modified adjusted gross income (AGI) doesn’t exceed certain levels that vary from year-to-year by filing status.

For 2021, if you’re a joint tax return filer and you are covered by an employer plan, your deductible IRA contribution phases out over $105,000 to $125,000 of modified AGI. If you’re single or a head of household, the phaseout range is $66,000 to $76,000 for 2021. For married filing separately, the phaseout range is $0 to $10,000. For 2021, if you’re not an active participant in an employer-sponsored retirement plan, but your spouse is, your deductible IRA contribution phases out with modified AGI of between $198,000 and $208,000.

Deductible IRA contributions reduce your current tax bill, and earnings within the IRA are tax deferred. However, every dollar you take out is taxed in full (and subject to a 10% penalty before age 59½, unless one of several exceptions apply).

IRAs often are referred to as “traditional IRAs” to differentiate them from Roth IRAs. You also have until April 18 to make a Roth IRA contribution. But while contributions to a traditional IRA are deductible, contributions to a Roth IRA aren’t. However, withdrawals from a Roth IRA are tax-free as long as the account has been open at least five years and you’re age 59½ or older. (There are also income limits to contribute to a Roth IRA.)

Another IRA strategy that may help you save tax is to make a deductible IRA contribution, even if you don’t work. In general, you can’t make a deductible traditional IRA contribution unless you have wages or other earned income. However, an exception applies if your spouse is the breadwinner and you’re a homemaker. In this case, you may be able to take advantage of a spousal IRA.

How much can you contribute?

For 2021, if you’re eligible, you can make a deductible traditional IRA contribution of up to $6,000 ($7,000 if you’re 50 or over).

In addition, small business owners can set up and contribute to a Simplified Employee Pension (SEP) plan up until the due date for their returns, including extensions. For 2021, the maximum contribution you can make to a SEP is $58,000.

Contact us if you want more information about IRAs or SEPs. Or ask about them when we’re preparing your return. We can help you save the maximum tax-advantaged amount for retirement.

The credit for increasing research activities, often referred to as the research and development (R&D) credit, is a valuable tax break available to eligible businesses. Claiming the credit involves complex calculations, which we can take care of for you. But in addition to the credit itself, be aware that the credit also has two features that are especially favorable to small businesses:

Eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax (AMT) liability.
The credit can be used by certain even smaller startup businesses against the employer’s Social Security payroll tax liability.

Let’s take a look at the second feature. Subject to limits, you can elect to apply all or some of any research tax credit that you earn against your payroll taxes instead of your income tax. This payroll tax election may influence you to undertake or increase your research activities. On the other hand, if you’re engaged in — or are planning to undertake — research activities without regard to tax consequences, be aware that you could receive some tax relief.

Why the election is important

Many new businesses, even if they have some cash flow, or even net positive cash flow and/or a book profit, pay no income taxes and won’t for some time. Thus, there’s no amount against which business credits, including the research credit, can be applied. On the other hand, any wage-paying business, even a new one, has payroll tax liabilities. Therefore, the payroll tax election is an opportunity to get immediate use out of the research credits that you earn. Because every dollar of credit-eligible expenditure can result in as much as a 10-cent tax credit, that’s a big help in the start-up phase of a business — the time when help is most needed.

Eligible businesses

To qualify for the election a taxpayer must:

Have gross receipts for the election year of less than $5 million and
Be no more than five years past the period for which it had no receipts (the start-up period).

In making these determinations, the only gross receipts that an individual taxpayer takes into account are from the individual’s businesses. An individual’s salary, investment income or other income aren’t taken into account. Also, note that an entity or individual can’t make the election for more than six years in a row.

Limits on the election

The research credit for which the taxpayer makes the payroll tax election can be applied only against the Social Security portion of FICA taxes. It can’t be used to lower the employer’s lability for the “Medicare” portion of FICA taxes or any FICA taxes that the employer withholds and remits to the government on behalf of employees.

The amount of research credit for which the election can be made can’t annually exceed $250,000. Note, too, that an individual or C corporation can make the election only for those research credits which, in the absence of an election, would have to be carried forward. In other words, a C corporation can’t make the election for the research credit that the taxpayer can use to reduce current or past income tax liabilities.

The above are just the basics of the payroll tax election. Keep in mind that identifying and substantiating expenses eligible for the research credit itself is a complex area. Contact us about whether you can benefit from the payroll tax election and the research tax credit.

We proudly granted over $108,000 to 62 organizations last year! The generosity of our people surpassed our expectations and gave us the opportunity to give even more to those in need.

The Yeo & Yeo Foundation was imagined in 2018 by two long-time Yeo & Yeo principals, Mike Tribble and Dave Schaeffer (now semi-retired). Because of their passion and determination, we have a stronger conduit for the firm to live out our core value of giving back and have a more substantial impact on our communities.

Today, the Yeo & Yeo Foundation is governed by a Board of Directors comprised of equally passionate Yeo & Yeo employees throughout the firm. Our Foundation is 100% employee driven. The funds we raise to give back to our communities are all generated internally from the generosity of our people and our leadership group. And, the organizations we support are all nominated by our employees. We are proud of the accomplishments and impacts the Foundation, through our people, has made in the communities in which we live, work and play throughout Michigan.

Our people and the firm have given their talents, gifts, and services to many inspiring charity organizations in our local communities. This work has been particularly important to us this year as many more organizations in our communities and around the world are in need.

Learn more about the Yeo & Yeo Foundation at https://www.yeoandyeo.com/about-us/giving-back and read our 2021 Annual Report.

Under just about any circumstances, the word “leakage” has negative connotations. And so it follows that this indeed holds true for retirement planning as well.

In this context, leakage refers to early, pre-retirement withdrawals from an account. Now, as a business owner who sponsors a qualified retirement plan, you might say, “Well, that’s my participants’ business, not mine.”

However, there are valid reasons to care about the issue and perhaps address it with employees who participate in your plan.

Why it matters

For starters, leakage can lead to higher plan expenses. Fees are often determined on a per-account or per-participant basis. When a plan loses funds to leakage, total assets and individual account sizes shrink, which tends to hurt administrative efficiency and raise costs.

More broadly, if your employees are taking pre-retirement withdrawals, it could indicate they’re facing unusual financial challenges. These usually have a negative impact on productivity and work quality. What’s more, workers who raid their accounts may be unable to retire when they reach retirement age.

Of course, the COVID-19 pandemic has put many people in difficult financial positions that have led them to consider withdrawing some funds from their retirement accounts. More recently, “the Great Resignation” might have some account holders pondering whether they should quit their jobs and pull out some retirement funds to live on temporarily or use to start a gig or business of their own.

What you might do

Perhaps the most important thing business owners can do to limit leakage is educate and remind employees about how pre-retirement withdrawals can diminish their accounts and delay their anticipated retirement dates. While you’re at it, provide broader financial education to help workers better manage their money, amass savings, and minimize or avoid the need for an early withdrawal.

Some companies offer emergency loans that are repayable through payroll deductions, thus providing an avenue around the use of retirement funds. Others have revised their plan designs to reduce the number of situations under which plan participants can take out hardship withdrawals or loans.

Minimize the impact

“Roughly 22% of net contributions made by those 50 or younger leaks out of the retirement savings system in a given year,” according to a 2021 report released by the Joint Committee on Taxation.

Some percentage of retirement plan leakage will probably always occur to some extent. Nonetheless, being aware of the problem and taking steps to minimize it are worthy measures for any business that sponsors a qualified plan. We can answer any questions you might have about leakage or other aspects of plan administration and compliance.

If you made large gifts to your children, grandchildren or other heirs last year, it’s important to determine whether you’re required to file a 2021 gift tax return. And in some cases, even if it’s not required to file one, it may be beneficial to do so anyway.

Who must file?

The annual gift tax exclusion has increased in 2022 to $16,000 but was $15,000 for 2021. Generally, you must file a gift tax return for 2021 if, during the tax year, you made gifts:

That exceeded the $15,000-per-recipient gift tax annual exclusion for 2021 (other than to your U.S. citizen spouse),
That you wish to split with your spouse to take advantage of your combined $30,000 annual exclusion for 2021,
That exceeded the $159,000 annual exclusion in 2021 for gifts to a noncitizen spouse,
To a Section 529 college savings plan and wish to accelerate up to five years’ worth of annual exclusions ($75,000) into 2021,
Of future interests — such as remainder interests in a trust — regardless of the amount, or
Of jointly held or community property.

Keep in mind that you’ll owe gift tax only to the extent that an exclusion doesn’t apply and you’ve used up your lifetime gift and estate tax exemption ($11.7 million for 2021). As you can see, some transfers require a return even if you don’t owe tax.

Why you might want to file

No gift tax return is required if your gifts for 2021 consisted solely of gifts that are tax-free because they qualify as:

Annual exclusion gifts,
Present interest gifts to a U.S. citizen spouse,
Educational or medical expenses paid directly to a school or health care provider, or
Political or charitable contributions.

But if you transferred hard-to-value property, such as artwork or interests in a family-owned business, you should consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

The deadline is April 18

The gift tax return deadline is the same as the income tax filing deadline. For 2021 returns, it’s April 18, 2022 — or October 17, 2022, if you file for an extension. But keep in mind that, if you owe gift tax, the payment deadline is April 18, regardless of whether you file for an extension. If you’re not sure whether you must (or should) file a 2021 gift tax return, contact us.

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.

Spring is the time of year that calendar-year-end businesses issue financial statements and prepare tax returns. This year, take your financial data beyond compliance. Here’s how financial statements can be used to be proactive, not reactive, to changes in the marketplace.

Perform a benchmarking study

Financial statements can be used to evaluate the company’s current performance vs. past performance or against industry norms. A comprehensive benchmarking study includes the following elements:

Size. This is usually in terms of annual revenue, total assets or market share.

Growth. How much the company’s size has changed from previous periods.

Profitability. This section evaluates whether the business is making money from operations — before considering changes in working capital accounts, investments in capital expenditures and financing activities.

Liquidity. Working capital ratios help assess how easily assets can be converted into cash and whether current assets are sufficient to cover current liabilities.

Asset management. Such ratios as total asset turnover (revenue divided by total assets) or inventory turnover (cost of sales divided by inventory) show how well the company manages its assets.

Leverage. This identifies how the company finances its operations — through debt or equity. There are pros and cons of both.

No universal benchmarks apply to all types of businesses. It’s important to seek data sorted by industry, size and geographic location, if possible.

Forecast the future

Financial statements also may be used to plan for the future. Historical results are often the starting point for forecasted balance sheets, income statements and statements of cash flows.

For example, variable expenses and working capital accounts are often assumed to grow in tandem with revenue. Other items, such as rent and management salaries, are fixed over the short run. These items may need to increase in steps over the long run. For instance, your company may eventually need to expand its factory or purchase equipment to grow if it’s currently at (or near) full capacity.

By tracking sources and uses of cash on the forecasted statement of cash flows, you can identify when cash shortfalls are likely to happen and plan how to make up the difference. For example, you might need to draw on the company’s line of credit, request additional capital contributions, lay off workers, reduce inventory levels or improve collections. In turn, these changes will flow through to the company’s forecasted balance sheet.

We can help

When your year-end financial statements are delivered, consider asking for guidance on how to put them to work for you. We can help you benchmark your results over time or against industry norms and plan for the future. Contact us for more information.

If you’re married, you may wonder whether you should file joint or separate tax returns. The answer depends on your individual tax situation.

In general, it depends on which filing status results in the lowest tax. But keep in mind that, if you and your spouse file a joint return, each of you is “jointly and severally” liable for the tax on your combined income. And you’re both equally liable for any additional tax the IRS assesses, plus interest and most penalties. That means that the IRS can come after either of you to collect the full amount.

Although there are “innocent spouse” provisions in the law that may offer relief, they have limitations. Therefore, even if a joint return results in less tax, you may want to file separately if you want to only be responsible for your own tax.

In most cases, filing jointly offers the most tax savings, especially when the spouses have different income levels. Combining two incomes can bring some of it out of a higher tax bracket. For example, if one spouse has $75,000 of taxable income and the other has just $15,000, filing jointly instead of separately can save $2,499 on their 2021 taxes, when they file this year.

Filing separately doesn’t mean you go back to using the “single” rates that applied before you were married. Instead, each spouse must use “married filing separately” rates. They’re less favorable than the single rates.

However, there are cases when people save tax by filing separately. For example:

One spouse has significant medical expenses. Medical expenses are deductible only to the extent they exceed 7.5% of adjusted gross income (AGI). If a medical expense deduction is claimed on a spouse’s separate return, that spouse’s lower separate AGI, as compared to the higher joint AGI, can result in larger total deductions.

Some tax breaks are only available on a joint return. The child and dependent care credit, adoption expense credit, American Opportunity tax credit and Lifetime Learning credit are only available to married couples on joint returns. And you can’t take the credit for the elderly or the disabled if you file separately unless you and your spouse lived apart for the entire year. You also may not be able to deduct IRA contributions if you or your spouse were covered by an employer retirement plan and you file separate returns. And you can’t exclude adoption assistance payments or interest income from series EE or Series I savings bonds used for higher education expenses.

Social Security benefits may be taxed more. Benefits are tax-free if your “provisional income” (AGI with certain modifications plus half of your Social Security benefits) doesn’t exceed a “base amount.” The base amount is $32,000 on a joint return, but zero on separate returns (or $25,000 if the spouses didn’t live together for the whole year).

Circumstances matter

The decision you make on filing your federal tax return may affect your state or local income tax bill, so the total tax impact should be compared. There’s often no simple answer to whether a couple should file separate returns. A number of factors must be examined. We can look at your tax bill jointly and separately. Contact us to prepare your return or if you have any questions.

Background

For taxable years beginning after December 31, 2017, the Bipartisan Budget Act of 2015 (BBA) created a new centralized partnership audit regime (CPAR) and repealed the Tax Equity and Fiscal Responsibility Act (TEFRA) partnership audit procedures enacted in 1982. Unless the partnership makes a valid “opt out” election, the CPAR procedures will apply. If the partnership makes a valid “opt out” election, procedures historically known as Non-TEFRA procedures will apply to any audits of partnership entity returns or investors. Partnerships subject to the CPAR are often referred to as BBA partnerships.

A partnership may elect out if:

the partnership issues 100 or fewer K-1 statements to partners for the tax year, and
each K-1 statement the partnership is required to furnish is furnished to a partner that is an individual, a C corporation, a foreign entity that would be treated as a C corporation if it were a domestic entity, an S corporation, or an estate of a deceased partner.

Note that when an eligible partner is an S Corporation, the number of statements issued to S Corporation shareholders counts towards the total 100 statements. The regulations provide an example of a partnership with 50 individual members and one S Corporation member with 50 shareholders. Since the partnership would be required to issue 51 statements and the S Corporation 50, the total of 101 statements would cause the partnership to be ineligible to elect out.

The partnership must elect out of CPAR each year. Failing to do so in a particular year will subject that year to the CPAR procedures.

Why One Should Consider Electing Out

CPAR provides the IRS with the broad ability to assess tax at the partnership level for any perceived deficiency in tax paid by a partner on a partnership item (called an imputed underpayment or IU). Partnerships may request to modify the IU and may elect to push out the adjustments underlying the IU instead of paying. If the partnership instead elects to pay the tax, the tax will be assessed at the highest rate in effect for the reviewed year under section 1 or 11 of the Internal Revenue Code.

Partnerships should also consider electing out if ownership changes have occurred or are anticipated. Failing to elect out could lead to a current partner bearing the tax liability on an item properly allocable to a former partner.

BBA partnerships are generally prohibited from filing amended returns, absent specific administrative grace from the IRS for certain changes in legislation. Should a BBA partnership need to make a change to a prior year filing, it must file an Administrative Adjustment Request (AAR). In certain circumstances, an AAR can yield a disastrous inability to utilize otherwise available tax deductions.

Finally, first-time penalty abatement is not available to a partnership that is subject to the CPAR. Many partnerships are eligible to use the first-time penalty abatement to erase a penalty owed to the IRS, which can often be significant.

Summary

In summary, partnerships should carefully consider electing out of the CPAR whenever possible. Let us help determine if electing out is right for your business.

Do you want to withdraw cash from your closely held corporation at a minimum tax cost? The simplest way is to distribute cash as a dividend. However, a dividend distribution isn’t tax-efficient since it’s taxable to you to the extent of your corporation’s “earnings and profits.” It’s also not deductible by the corporation.

Five alternatives

Fortunately, there are several alternative methods that may allow you to withdraw cash from a corporation while avoiding dividend treatment. Here are five areas where you may want to take action:

1. Capital repayments. To the extent that you’ve capitalized the corporation with debt, including amounts you’ve advanced to the business, the corporation can repay the debt without the repayment being treated as a dividend. Additionally, interest paid on the debt can be deducted by the corporation. This assumes that the debt has been properly documented with terms that characterize debt and that the corporation doesn’t have an excessively high debt-to-equity ratio. If not, the debt repayment may be taxed as a dividend. If you make future cash contributions to the corporation, consider structuring them as debt to facilitate later withdrawals on a tax-advantaged basis.

2. Salary. Reasonable compensation that you (or family members) receive for services rendered to the corporation is deductible by the business. However, it’s also taxable to the recipient. The same rule applies to any compensation in the form of rent that you receive from the corporation for the use of property. In both cases, the amount of compensation must be reasonable in relation to the services rendered or the value of the property provided. If it’s excessive, the excess will be nondeductible and treated as a corporate distribution.

3. Loans. You may withdraw cash from the corporation tax-free by borrowing from it. However, to avoid having the loan characterized as a corporate distribution, it should be properly documented in a loan agreement or a note and be made on terms that are comparable to those on which an unrelated third party would lend money to you. This should include a provision for interest and principal. All interest and principal payments should be made when required under the loan terms. Also, consider the effect of the corporation’s receipt of interest income.

4. Fringe benefits. Consider obtaining the equivalent of a cash withdrawal in fringe benefits that are deductible by the corporation and not taxable to you. Examples are life insurance, certain medical benefits, disability insurance and dependent care. Most of these benefits are tax-free only if provided on a nondiscriminatory basis to other employees of the corporation. You can also establish a salary reduction plan that allows you (and other employees) to take a portion of your compensation as nontaxable benefits, rather than as taxable compensation.

5. Property sales. Another way to withdraw cash from the corporation is to sell property to it. However, certain sales should be avoided. For example, you shouldn’t sell property to a more than 50% owned corporation at a loss, since the loss will be disallowed. And you shouldn’t sell depreciable property to a more than 50% owned corporation at a gain, since the gain will be treated as ordinary income, rather than capital gain. A sale should be on terms that are comparable to those on which an unrelated third party would purchase the property. You may need to obtain an independent appraisal to establish the property’s value.

Keep taxes low

If you’re interested in discussing any of these approaches, contact us. We’ll help you get the most out of your corporation at the minimum tax cost.

Special Needs Trusts

A Special Needs Trust (SNT) is a type of trust set up for a person (beneficiary) with a mental or physical disability or limitation. SNTs are designed to supplement any public benefits they receive, such as Medicaid, without disqualifying them for those benefits. A trusted individual, usually a family member, serves as a trustee and has discretion over the use of the funds for the individual. The trust can be either a self-settled first-party or a third-party-funded trust.

A third-party-funded SNT is created with assets that do not belong to the beneficiary. The beneficiary may be disabled, vulnerable, incarcerated, or just unable to manage money. There are no age restrictions to this type of trust or payback provisions, which will be discussed later. The assets in this type of trust are not countable assets for “needs-based” public benefits and pass to successor beneficiaries when the original beneficiary passes away. This type of trust is an ideal way to provide assets to improve the quality of life of a qualified individual as it has fewer restrictions and more discretion than a self-settled first-party SNT. This type of trust is often created as part of a parent or grandparent’s estate plan for their disabled child.

A self-settled first-party SNT is created with assets that belong to or are payable to the beneficiary of the trust. This type of trust requires the beneficiary to be under age 65 and disabled as defined by the Social Security Act (SSA). The trust is usually established by a parent, grandparent, guardian, or Court for the sole benefit of the disabled individual. A Medicaid payback provision must be present in the trust stating that the State will receive all remaining assets in the trust at the beneficiary’s death up to the total amount of assistance paid under the State Medicaid plan. This type of trust must be discretionary and irrevocable.

Achieving a Better Life Experience (ABLE)

ABLE accounts are another option. These accounts are modeled after Section 529 education plans and allow beneficiaries to open their own account. The balance of the investment account, up to $100,000, is not a countable resource for “needs-based” public benefits. These accounts are less complicated to implement than a SNT, but also have greater restrictions.

Beneficiaries must be disabled as defined by the SSA before age 26, and each beneficiary may have only one ABLE account.
Contributions to the account are limited to the annual gift exclusion, currently $15,000, from all sources plus beneficiary earnings up to the federal poverty level, currently $12,060.
Supplemental Security Income is lost if the account exceeds $100,000, so care must be taken to monitor the current balance.

Like section 529 education plans, contributors in Michigan can receive a $5,000 deduction on their state taxable income for contributing to a MiABLE account, which can save a Michigan taxpayer more than $200 in taxes. ABLE accounts must be used for “qualified disability expenses” and are subject to the same payback provision that self-settled first-party SNTs are.

Which Option is Best?

The options listed above each have pros and cons that fit different situations and should be considered carefully. If a beneficiary already has funds available, they should consider either a self-settled first-party SNT or an ABLE account, depending on how much money they have. If a family member is looking to gift or bequeath an amount of money to a beneficiary, it would be a good idea to gift or bequeath it directly to a third-party-funded SNT rather than to the individual. A beneficiary who works and would like to save for a house or car without disqualifying for their “needs-based” public benefits could use an ABLE account to put away over $12,000 a year.

Yeo & Yeo’s Trust and Estate Services Group can help you evaluate the options to best serve your situation. Please reach out to us at 800.968.0010.

Jennifer Tobias, CPA, along with Marisa Ahrens, CPA, Michael Evrard, CPA, and Jessica Rolfe, CPA, was promoted to principal effective January 1, 2022.

Jennifer Tobias leads the firm’s Construction Services Group, is co-leader of the Death Care Services Group and is a member of the Agribusiness Services Group. She joined Yeo & Yeo in 2006 and is based in the firm’s Kalamazoo office. Her areas of expertise include construction and agribusiness taxation and credits, as well as preparing Prepaid Funeral and Cemetery Sales Act annual reports. In the community, Jennifer serves as the Barry County Small Animal Sale Committee treasurer and 4-H Advisory Council co-treasurer. She is a graduate of the Upstream Academy’s three-year leadership development program, the Emerging Leaders Academy.

Let’s learn more about Jen and the path that has shaped her rewarding career.

When did you know you wanted to be a CPA, and why did you gravitate toward this profession?

I am very fortunate that I found my calling in high school. As we learned debits and credits and worked through t-charts and problems, I could clearly see the answers and solve the puzzles, and I enjoyed every minute of it.

I began college at Central Michigan University determined to graduate with an accounting and finance degree. In college, I learned more about the CPA path and how I could make accounting my career. While most people who hear you’re a CPA say, “You must be good with numbers,” that is such a small fraction of what we do. Yes, the numbers have to tell a story that we can understand and interpret, but you have to enjoy problem-solving, hard work and research to be a CPA too.

You have been active in 4-H. What have you taken away from that experience, and how has it helped develop your ability to serve clients?

My 4-H experience started at the age of 10 when my parents asked if I would be interested in showing lambs. My first year was a whirlwind of learning about the program and interacting with people and animals. I learned many lifelong lessons from the 4-H program and spent 10 years showing a variety of animals and crafts.

I served several volunteer roles in my clubs and county as a teen volunteer. I was able to work alongside countless volunteers in every role. Each taught me valuable lessons, and I think 4-H is one of the best programs that kids can join. I learned all about responsibility, hard work, leadership, organization, competition, confidence and how to juggle a million things in a short time the week before a fair. I’ve used all these skills throughout my career. Coming into a tax deadline is not that different from preparing for a fair. You have to juggle several moving parts to ensure that everything gets completed timely.

What do you enjoy most about your career?

People! I enjoy my clients and co-workers. I love all the opportunities to help clients – being a resource for them to rely on when they have an issue that needs to be addressed or watching the understanding come to them as you train them on something. Being a part of that is truly rewarding. Having discussions on their goals and learning how their business works are some of the best days. Being a part of a team is rewarding and, in this career, you always need a team! Late nights during tax season are some of the best times at the office. There is a general sense of teamwork moving toward the goal and a lot of silliness and jokes!

Technology is shifting and evolving in the accounting profession. How do you think technology has changed or improved your interactions?

When I started with Yeo & Yeo, we were in the initial stages of going paperless. Now, we have client documents and information a few clicks away to help us answer questions on the phone versus going through file cabinets to find information. We also have the ability to remote onto a client’s computer during a phone call so we can quickly walk through a process and help solve issues. This has helped us to rapidly provide answers and solutions to clients.

Michael Evrard, CPA, along with Marisa Ahrens, CPA, Jessica Rolfe, CPA, and Jennifer Tobias, CPA, was promoted to principal effective January 1, 2022.

Michael Evrard is a member of the firm’s Nonprofit Services Group, the Audit Services Group and the Education Services Group. He joined Yeo & Yeo in 2010 and is based in the firm’s Kalamazoo office. He assisted in developing the firm’s award-winning YeoLEAN audit process and provides audit services for school districts, construction companies and nonprofit organizations. Michael is a frequent contributor to Yeo & Yeo’s blog and the firm’s Nonprofit Advisor eNewsletter. He holds the AICPA Advanced Single Audit Certification and is a Leadership Genesee graduate.

Let’s learn more about Mike and his insights on a career in accounting.

You have been a key member of our Audit, Nonprofit, and Education Services Groups. How has this experience shaped your career?

I learned very early on that I would rather be a master of few than satisfactory at several. Being part of Yeo & Yeo’s niche service groups allows for a specific, drilled-down exchange of knowledge and ideas to ensure we are serving our clients in the best possible way. Focusing on just a few key industries has allowed me to develop superior technical skills in these areas and use them to directly benefit our clients.

What do you enjoy most about your career?

The people! I am fortunate to work with a fantastic group of clients. I have worked with some clients for my entire career and look forward to seeing them for the annual audit. I’m also fortunate to work with a great group of individuals at Yeo & Yeo, both in my local office and across the firm. We are truly a team that works together to serve our clients and help each other. Coworkers can make or break your work experience wherever your career takes you, so I am lucky to be around such a great group of professionals. This has been one of the contributing factors to working with the firm for my entire post-college life.

How do you define success?

Success, to me, is happiness. If you are happy with where you are, personally and professionally, you are successful. Success should be measured according to your desires, rather than against expectations or ideals from someone else.

What is the most exciting thing in accounting right now?

One change brought about by the pandemic has been the need to do many things remotely. In the past couple of years, we’ve had to reevaluate how to accomplish our work. Some changes we have seen include remote board meetings, fewer days of on-site audit work, improvements in the functioning of file exchange portals, and remote screen-sharing collaboration among both internal employees and clients. Many of these changes have been quite positive, and it seems the business environment realizes efficiencies from them. It’ll be interesting to see which changes are here to stay.

What is your most significant contribution to the Yeo & Yeo team?

I take pride in working directly with other auditors during their first couple of years at the firm and helping them to be successful. I have been fortunate that I mainly work in small teams of the same individuals, which allows me to direct their development substantially. It is fulfilling to do what I can to help others grow into high-performing professionals.

Do you have hobbies or a passion for something unique?

I love to take trips up north to experience all the great things northern Michigan offers. I enjoy competition and love almost all games – sports, cards, board games and trivia, to name a few. I have a passion for animals and their well-being. I am also a huge music and Detroit Lions fan, and I love trying different foods, cocktails and craft beer!

Marisa Ahrens, CPA, along with Michael Evrard, CPA, Jessica Rolfe, CPA, and Jennifer Tobias, CPA, was promoted to principal effective January 1, 2022.

Marisa Ahrens leads the firm’s Employee Benefit Plan Audit Services Group. She specializes in employee benefit plan audits and advisory services, including 401(k) and 403(b) plan audits, defined benefit plan audits, employee stock ownership plan (ESOP) audits, internal controls, and efficiency consulting. She is based in the firm’s Saginaw office. Marisa has more than 13 years of experience providing audits for nonprofits, healthcare organizations and for-profit companies.

In the community, she serves as treasurer of the Mid-Michigan Children’s Museum and assistant treasurer of St. Lorenz Church. She is also board secretary for the Yeo & Yeo Foundation.

Let’s learn more about Marisa’s career path and strengths.

When did you know you wanted to be a CPA, and why did you gravitate toward this profession?

My dad inspired me to major in accounting as the experience and education could open up a lot of opportunities in business. Shortly after college, I was offered a career at Yeo & Yeo. I was excited to see the successful work-life balance that employees were provided and the upward growth opportunity for those who pursued their CPA license. Within a few short years, I earned my CPA and began my growth journey with the firm. Now, 13 years later, I am very thankful for my dad’s advice. I have been made a partner at my firm, and I am grateful for the work-life balance I experience.

You have been a board member for the Mid-Michigan Children’s Museum and the Saginaw County Business & Education Partnership. What have you taken away from those experiences, and how have they helped develop your ability to serve clients?

Being a treasurer on a board for several years has opened my perspective, particularly on the client’s end. I understand the important roles that board members play in organizations. I can also understand the audit process from the other side, which helps me better serve my audit clients.

What do you enjoy most about your career?

The flexibility that I have within my career surprised me. I can achieve success within my career and at home with my family. I rarely miss a school function, and I am often on the sidelines as a coach for one of the many activities that my kids are in. Also, working with such a great group of people is amazing. The people here are so intelligent. It’s great to bounce ideas off them and talk things through. Plus, it’s nice to work with people you consider your friends – it makes my career much more enjoyable!

How do you define success?

I define success as being happy. A successful career is one where you generally enjoy going to work each day. It is also one that provides flexibility and a positive work-life balance. Being successful here at Yeo & Yeo has helped me provide an amazing life for my family.

What is your most significant contribution to the Yeo & Yeo team?

I believe my concern and compassion for others is my biggest contribution. I truly care about everyone I work with and the clients that I serve. I can be a great role model to other working moms and parents. My coworkers and clients understand the importance of family to me, yet they can see my career doesn’t take a back seat, and their needs are met. I make being a great employee and a great mom work.

Jessica Rolfe, CPA, along with Marisa Ahrens, CPA, Michael Evrard, CPA, and Jennifer Tobias, CPA, was promoted to principal effective January 1, 2022.

Jessica Rolfe leads the firm’s Nonprofit Services Group and is a member of the Audit Services Group and Education Services Group. She specializes in audits for government entities, school districts, nonprofits and healthcare organizations. She joined the firm in 2009 and is based in the firm’s Saginaw office. In the community, Jessica serves as treasurer of the Tri-County Community Adjudication Program and volunteers as an allocation panel member for the United Way of Midland County. She is a frequent contributor to Yeo & Yeo’s blog and a presenter for Yeo & Yeo’s nonprofit board trainings.

Let’s learn more about Jessica and what makes her career meaningful and enjoyable.

You have been active in Tri-CAP and United Way. What have you taken away from those experiences, and how have they helped develop your ability to serve clients?

I have served as treasurer for Tri-CAP for many years now. It has helped me understand the importance of giving back to our community and how impactful many of our local organizations are. I have volunteered for the allocation panels of the United Way of Midland County for numerous years. Again, seeing these organizations’ impact in the community is so humbling. It motivates me to help my clients rather than go through the motions performing services.

The last few years have highlighted the need for trusted advisory services. Can you share how you have been able to help your clients navigate the changes?

The world has been a crazy place the last few years. Clients have needed us more than ever. Turnover, COVID, large new grant funding, PPP loans and employee retention credits are all new challenges many organizations have faced. Yeo & Yeo has really stepped up trying to navigate these issues with our clients. They aren’t just new to them, but they are new to us too! By listening and being proactive, we have eased the pain for our clients and given them helpful business advice.

What do you enjoy most about your career?

The people – clients and coworkers. The number one reason I have stayed at Yeo & Yeo is because of the amazing people I get to work with every day. I’ve met some of my best friends here. Working with people you like and care about makes for an incredible work environment.

How do you define success?

A sense of feeling whole. Everyone’s goals and priorities are different. I think success is a feeling, not a measurement. Feeling you are at the right place in life and living the life that makes you happy.

What is your most significant contribution to the Yeo & Yeo team?

I enjoy the technical aspects of my job and making things as efficient as possible. Many of my contributions to the firm involve using these strengths for projects such as the audit software conversion and regularly developing new work papers for templates and clients. I also have a passion for training and have spent a lot of time educating new staff over the years.

Do you have hobbies or a passion for something unique?

My father passed away in summer 2021, and I inherited a large vinyl record collection (around 400 records). I have always had a passion for music. As a result, I have become more knowledgeable about vinyl, and we are adding to the collection each month with new purchases in his honor.

Many small and mid-sized companies use Intuit’s QuickBooks program. One of the program’s features is sending customers invoices via email. The payee can click on a “Review and pay” button in the email to pay the invoice.

Unfortunately, phishing criminals use QuickBooks’ popularity to send business email compromise (BEC) scams. The emails appear to be coming from a legitimate vendor using QuickBooks, but if the potential victim takes the bait, the invoice they pay will be to the scammer. Worse, the payment request can require that the payee use ACH (automated clearing house) method, which requires the payee to input their bank account details. So, if the victim falls for the scam, the criminal now has their bank account information. Not good.

The fake QuickBooks’ payment emails look very similar to legitimate emails. Here are some red flags you can look for to determine if the email is from a legitimate sender:

Do you recognize the company sending the email? If not, it could be a scam.
Do the links in the email take you to the same site the email content says it will? If not, the email could be malicious.
Does the email tell you to click a link or open an attachment? Not every attachment or link is malicious. However, this can be another clue that the email is fraudulent.
Does the email create a sense of urgency? If so, it could have been sent from a cybercriminal. Be sure to slow down, evaluate what the email is asking and always think before you click.

Keep in mind that email invoices sent from QuickBooks arrive from intuit.com. The scam ones usually do not.

Other QuickBooks Scams

Fraudulent calls pretending to be QuickBooks support agents asking you to renew the license
Fraudulent emails claiming to be QuickBooks’ emergency security updates
Emails about supposed pricing discounts

Intuit has a list of known phishing scams here.

Protect Your Organization

Millions of people and businesses use QuickBooks to run their business with tons of customers used to receiving and paying QuickBooks-generated email invoices. If it is an unexpected QuickBooks-generated email invoice, check the email header to see if it originated from intuit.com or not. Or contact the involved vendor using a trusted alternate method to verify before paying.

Yeo & Yeo Technology offers email protection solutions with features like email filtering, cloud backup and incident response technology. We can also help train your employees to identify malicious emails with our security awareness training and testing. Contact us to learn more.

Information in this article was provided by our partners at KnowBe4.

Economic changes wrought by the COVID-19 pandemic, along with other factors, drove historic global mergers and acquisitions (M&A) activity in 2021. Professionals expect 2022 to be another busy year for dealmaking.

In many cases, M&A opportunities arise when a business adversely affected by economic circumstances decides that getting acquired by another company is the optimal — or only — way to remain viable. If you get the chance to acquire a distressed business, you might indeed be able to expand your company’s operational scope and grow its bottom line. But you’ll need to take due care before closing the deal.

Looking at the long term

Although so-called “turnaround acquisitions” can yield substantial long-term rewards, acquiring a troubled target can also pose greater risks than buying a financially sound business. The keys are choosing a company with fixable problems and having a detailed plan to address them.

Look for a business with hidden value, such as untapped market opportunities, poor leadership or excessive costs. Also consider cost-saving or revenue-building synergies with other companies that you already own. Assess whether the return on investment will likely exceed the acquisition’s immediate costs and ongoing risks.

Doing your homework

Successful turnaround acquisitions start by understanding the target company’s core business — specifically, its profit drivers and roadblocks.

If you rush into the acquisition, or let emotions cloud your judgment, you could misread the company’s financial statements, misjudge its financial condition and, ultimately, devise an ineffective course of rehabilitative action. This is why so many successful turnarounds are conducted by buyers in the same industry as the sellers or by investors, such as private equity funds, that specialize in a particular sector.

During the due diligence phase, pinpoint the source(s) of your target’s distress. Common examples include:

Excessive fixed costs,
Lack of skilled labor,
Decreased demand for its products or services, and
Overwhelming debt.

Then determine what, if any, corrective measures can be taken. Don’t be surprised to find hidden liabilities — such as pending legal actions or deferred tax liabilities — beyond those you already know about.

You also might find potential sources of value, such as tax breaks or proprietary technologies. Benchmarking the company’s performance against that of its industry peers can help reveal where the potential for profit lies.

Identifying cash flows

Another critical step in due diligence is identifying cash flows, both in and out. Determine what products or services drive revenue and which costs hinder profitability. Does it make sense to divest the business of unprofitable products, services, subsidiaries, divisions or real estate?

Implementing a long-term cash-management plan and developing a forecast based on receipts and disbursements is also critical. Revenue-generating and cost-cutting measures — such as eliminating excessive overtime pay, lowering utility bills, and collecting unbilled or overdue accounts receivable — can often be achieved following a thorough evaluation of accounting controls and procedures.

Reliable due diligence hinges on whether the target company’s accounting and financial reporting systems can produce the appropriate data. If these systems don’t accurately capture transactions, and fully list assets and liabilities, you’ll likely encounter some unpleasant surprises and struggle to turn around the business.

Structuring the deal

Parties to a business acquisition generally structure the deal as a sale of either assets or stock. Buyers generally prefer asset deals, which allow them to select the most desirable items from the target company’s balance sheet. In addition, the buyer receives a step-up in basis on the acquired assets, which lowers future tax obligations. And the buyer gets to negotiate new contracts, licenses, titles and permits.

On the other hand, sellers typically prefer to sell stock, not assets. Selling stock simplifies the deal, and tax obligations are usually lower for the seller. However, stock sales may be riskier for buyers because the business continues to operate uninterrupted, and the buyer takes on all debts and legal obligations. The buyer also inherits the seller’s existing depreciation schedules and tax basis in the company’s assets.

Developing a plan

Current market conditions will likely continue to generate turnaround acquisition opportunities in many industries. We can help you conduct data-driven due diligence and develop a strategic M&A plan that minimizes potential risks and maximizes long-term value.

To help you make sure you don’t miss any important 2022 deadlines, we’ve provided this summary of when various tax-related forms, payments and other actions are due. Please review the calendar and let us know if you have any questions about the deadlines or would like assistance in meeting them.

Date	Deadline for
January 31	Individuals: Filing a 2021 income tax return (Form 1040 or Form 1040-SR) and paying tax due, to avoid penalties for underpaying the January 18 installment of estimated taxes. Businesses: Providing Form 1098, Form 1099-MISC (except for those that have a February 15 deadline), Form 1099-NEC and Form W-2G to recipients. Employers: Providing 2021 Form W-2 to employees; reporting income tax withholding and FICA taxes for fourth quarter 2021 (Form 941); and filing an annual return of federal unemployment taxes (Form 940) and paying any tax due. Employers: Filing 2021 Form W-2 (Copy A) and transmittal Form W-3 with the Social Security Administration.
February 10	Individuals: Reporting January tip income of $20 or more to employers (Form 4070). Employers: Reporting income tax withholding and FICA taxes for fourth quarter 2021 (Form 941) and filing a 2021 return for federal unemployment taxes (Form 940), if you deposited on time and in full all of the associated taxes due.
February 15	Businesses: Providing Form 1099-B, 1099-S and certain Forms 1099-MISC (those in which payments in Box 8 or Box 10 are being reported) to recipients. Individuals: Filing a new Form W-4 to continue exemption for another year, if you claimed exemption from federal income tax withholding in 2021.
February 28	Businesses: Filing Form 1098, Form 1099 (other than those with a January 31 deadline) and Form W-2G and transmittal Form 1096 for interest, dividends and miscellaneous payments made during 2021. (Electronic filers can defer filing to March 31.)
March 10	Individuals: Reporting February tip income of $20 or more to employers (Form 4070).
March 15	Calendar-year S corporations: Filing a 2021 income tax return (Form 1120S) or filing for an automatic six-month extension (Form 7004) and paying any tax due. Calendar-year partnerships: Filing a 2021 income tax return (Form 1065 or Form 1065-B) or requesting an automatic six-month extension (Form 7004).
March 31	Employers: Electronically filing 2021 Form 1097, Form 1098, Form 1099 (other than those with an earlier deadline) and Form W-2G.
April 11	Individuals: Reporting March tip income of $20 or more to employers (Form 4070).
April 18	Individuals: Filing a 2021 income tax return (Form 1040 or Form 1040-SR) or filing for an automatic six-month extension (Form 4868) and paying any tax due. (See June 15 for an exception for certain taxpayers.) Individuals: Paying the first installment of 2022 estimated taxes, if not paying income tax through withholding (Form 1040-ES). Individuals: Making 2021 contributions to a traditional IRA or Roth IRA (even if a 2021 income tax return extension is filed). Individuals: Making 2021 contributions to a SEP or certain other retirement plans (unless a 2021 income tax return extension is filed). Individuals: Filing a 2021 gift tax return (Form 709) or filing for an automatic six-month extension (Form 8892) and paying any gift tax due. Filing for an automatic six-month extension (Form 4868) to extend both Form 1040 and, if no gift tax is due, Form 709. Household employers: Filing Schedule H, if wages paid equal $2,300 or more in 2021 and Form 1040 isn’t required to be filed. For those filing Form 1040, Schedule H is to be submitted with the return and is thus extended to the due date of the return. Trusts and estates: Filing an income tax return for the 2021 calendar year (Form 1041) or filing for an automatic five-and-a-half-month extension to September 30 (Form 7004) and paying any income tax due. Calendar-year corporations: Filing a 2021 income tax return (Form 1120) or filing for an automatic six-month extension (Form 7004) and paying any tax due. Calendar-year corporations: Paying the first installment of 2022 estimated income taxes.
May 2	Employers: Reporting income tax withholding and FICA taxes for first quarter 2022 (Form 941) and paying any tax due.
May 10	Individuals: Reporting April tip income of $20 or more to employers (Form 4070). Employers: Reporting income tax withholding and FICA taxes for first quarter 2022 (Form 941), if you deposited on time and in full all of the associated taxes due.
May 16	Exempt organizations: Filing a 2021 calendar-year information return (Form 990, Form 990-EZ or Form 990-PF) or filing for an automatic six-month extension (Form 8868) and paying any tax due. Small exempt organizations (with gross receipts normally of $50,000 or less): Filing a 2021 e-Postcard (Form 990-N), if not filing Form 990 or Form 990-EZ.
June 10	Individuals: Reporting May tip income of $20 or more to employers (Form 4070).
June 15	Individuals: Filing a 2021 individual income tax return (Form 1040 or Form 1040-SR) or filing for a four-month extension (Form 4868), and paying any tax and interest due, if you live outside the United States. Individuals: Paying the second installment of 2022 estimated taxes, if not paying income tax through withholding (Form 1040-ES). Calendar-year corporations: Paying the second installment of 2022 estimated income taxes.
July 11	Individuals: Reporting June tip income of $20 or more to employers (Form 4070).
August 1	Employers: Reporting income tax withholding and FICA taxes for second quarter 2022 (Form 941) and paying any tax due. Employers: Filing a 2021 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or requesting an extension.
August 10	Individuals: Reporting July tip income of $20 or more to employers (Form 4070). Employers: Reporting income tax withholding and FICA taxes for second quarter 2022 (Form 941), if you deposited on time and in full all of the associated taxes due.
September 12	Individuals: Reporting August tip income of $20 or more to employers (Form 4070).
September 15	Individuals: Paying the third installment of 2022 estimated taxes, if not paying income tax through withholding (Form 1040-ES). Calendar-year corporations: Paying the third installment of 2022 estimated income taxes. Calendar-year S corporations: Filing a 2021 income tax return (Form 1120-S) and paying any tax, interest and penalties due, if an automatic six-month extension was filed. Calendar-year S corporations: Making contributions for 2021 to certain employer-sponsored retirement plans, if an automatic six-month extension was filed. Calendar-year partnerships: Filing a 2021 income tax return (Form 1065 or Form 1065-B), if an automatic six-month extension was filed.
September 30	Trusts and estates: Filing an income tax return for the 2021 calendar year (Form 1041) and paying any tax, interest and penalties due, if an automatic five-and-a-half-month extension was filed. Employers: Establishing a SIMPLE or a Safe-Harbor 401(k) plan for 2021, except in certain circumstances.
October 11	Individuals: Reporting September tip income of $20 or more to employers (Form 4070).
October 17	Individuals: Filing a 2021 income tax return (Form 1040 or Form 1040-SR) and paying any tax, interest and penalties due, if an automatic six-month extension was filed (or if an automatic four-month extension was filed by a taxpayer living outside the United States). Individuals: Making contributions for 2021 to certain existing retirement plans or establishing and contributing to a SEP for 2021, if an automatic six-month extension was filed. Individuals: Filing a 2021 gift tax return (Form 709) and paying any tax, interest and penalties due, if an automatic six-month extension was filed. Calendar-year C corporations: Filing a 2021 income tax return (Form 1120) and paying any tax, interest and penalties due, if an automatic six-month extension was filed. Calendar-year C corporations: Making contributions for 2021 to certain employer-sponsored retirement plans, if an automatic six-month extension was filed.
October 31	Employers: Reporting income tax withholding and FICA taxes for third quarter 2022 (Form 941) and paying any tax due.
November 10	Individuals: Reporting October tip income of $20 or more to employers (Form 4070). Employers: Reporting income tax withholding and FICA taxes for third quarter 2022 (Form 941), if you deposited on time and in full all of the associated taxes due.
November 16	Exempt organizations: Filing a 2021 calendar-year information return (Form 990, Form 990-EZ or Form 990-PF) and paying any tax, interest and penalties due, if a six-month extension was previously filed.
December 12	Individuals: Reporting November tip income of $20 or more to employers (Form 4070).
December 15	Calendar-year corporations: Paying the fourth installment of 2022 estimated income taxes.

If you donated to charity last year, letters from the charities may have appeared in your mailbox recently acknowledging the donations. But what happens if you haven’t received such a letter — can you still claim a deduction for the gift on your 2021 income tax return? It depends.

The requirements

To prove a charitable donation for which you claim a tax deduction, you need to comply with IRS substantiation requirements. For a donation of $250 or more, this includes obtaining a contemporaneous written acknowledgment from the charity stating the amount of the donation, whether you received any goods or services in consideration for the donation and the value of any such goods or services.

“Contemporaneous” means the earlier of:

The date you file your tax return, or
The extended due date of your return.

Therefore, if you made a donation in 2021 but haven’t yet received substantiation from the charity, it’s not too late — as long as you haven’t filed your 2021 return. Contact the charity now and request a written acknowledgment.

Keep in mind that, if you made a cash gift of under $250 with a check or credit card, generally a canceled check, bank statement or credit card statement is sufficient. However, if you received something in return for the donation, you generally must reduce your deduction by its value — and the charity is required to provide you a written acknowledgment as described earlier.

Temporary deduction for nonitemizers is gone

In general, taxpayers who don’t itemize their deductions (and instead claim the standard deduction) can’t claim a charitable deduction. Under the COVID-19 relief laws, individuals who don’t itemize deductions can claim a federal income tax write-off for up to $300 of cash contributions to IRS-approved charities for the 2021 tax year. This deduction is $600 for married joint filers for cash contributions made in 2021. Unfortunately, the deduction for nonitemizers isn’t available for 2022 unless Congress acts to extend it.

Additional requirements

Additional substantiation requirements apply to some types of donations. For example, if you donate property valued at more than $500, a completed Form 8283 (Noncash Charitable Contributions) must be attached to your return or the deduction isn’t allowed.

And for donated property with a value of more than $5,000, you’re generally required to obtain a qualified appraisal and to attach an appraisal summary to your tax return.

We can help you determine whether you have sufficient substantiation for the donations you hope to deduct on your 2021 income tax return — and guide you on the substantiation you’ll need for gifts you’re planning this year to ensure you can enjoy the desired deductions on your 2022 return.