Pavel Kleynerman - Accounting & Tax Preparation

What business owners need to do when closing their doors for good

There are a few things business owners need to do before they close their business. Of course, they need to fulfill their federal tax responsibilities. It’s also important to notify the IRS of their plans.

Business owners must take these steps when closing a business:

File a final tax return and related forms. The type of return to file and related forms depends on the type of business.

Take care of employees. Business owners with one or more employees must pay any final wages or compensation, make final federal tax deposits and report employment taxes.

Pay taxes owed. Even if the business closes now, tax payments may be due next filing season.

Report payments to contract workers. Businesses that pay contractors at least $600 for services including parts and materials during the calendar year in which they go out of business, must report those payments.

Cancel EIN and close IRS business account. Business owners should notify the IRS so they can close the IRS business account.

Keep business records. How long a business needs to keep records depends on what's recorded in each document.

Some things to know about crowdfunding and taxes

Crowdfunding is a popular way to raise money online. People often use crowdfunding to fundraise for a business, for charity, or for gifts. It’s important to know that money raised through crowdfunding may be taxable.

Some money raised through crowdfunding may be considered a gift.
Under federal tax law, gross income includes all income from any source, unless it’s excluded from gross income by law. In most cases, gifts aren’t included in the gross income of the person receiving the gift. Here’s what people involved in crowdfunding should know:

If a crowdfunding organizer is raising money on behalf of others, the money may not be included in the organizer's gross income, as long as the organizer gives the money to the person for whom they organized the crowdfunding campaign.

If people donate to a crowdfunding campaign out of generosity and without expecting anything in return, the donations are gifts. Therefore, they will not be included in the gross income of the person for whom the campaign was organized.

However, not all contributions to crowdfunding campaigns are gifts and may be taxable.

When employers give to crowdfunding campaigns for an employee, those contributions are generally included in the employee's gross income.
Taxpayers may want to consult a trusted tax pro for information and advice regarding how to treat amounts received from crowdfunding campaigns.

People may receive Form 1099-K for money raised through crowdfunding.
The crowdfunding website or its payment processor must file Form 1099-K, Payment Card and Third Party Network Transactions with the IRS if:

The amount raised is more than $600
Contributors to the crowdfunding campaign receive goods or services for their contributions.
If a Form 1099-K is filed, the crowdfunding organizer or the beneficiary of the fundraiser will receive a copy, depending on who received the funding directly from the crowdfunding website.

Receiving a Form 1099-K doesn’t automatically mean the amount shown is taxable. However, if the taxpayer doesn’t include the distributions from the form on their tax return, the IRS may contact the recipient for more information. The recipient may need to explain why the crowdfunding distributions weren’t reported.

Recordkeeping for money raised through crowdfunding.
People who run crowdfunding campaigns or receive money from one should keep careful records about the campaign and the disposition of funds for at least three years.

Wedding planning checklist: cake, rings, flowers … tax forms?

The summer wedding season is fast approaching. Wedding planning is often overwhelming but figuring out how marriage will affect a couple’s tax situation doesn’t have to be. Here are a few things couples should think about as they prepare for the big day.

Name and address changes
People who change their name after marriage should report it to the Social Security Administration as soon as possible. The name on a person's tax return must match what is on file at the SSA. If it doesn't, it could delay any tax refund. To update information, taxpayers should file Form SS-5, Application for a Social Security Card. It is available on SSA.gov, by calling 800-772-1213 or at a local SSA office.

If marriage means a change of address, the IRS and U.S. Postal Service need to know. To do that, people should send the IRS Form 8822, Change of Address. Taxpayers should also notify the postal service to forward their mail by going online at USPS.com or their local post office.

Double-check withholding
After getting married, couples should consider changing their withholding. Newly married couples must give their employers a new Form W-4, Employee's Withholding Allowance within 10 days. If both spouses work, they may move into a higher tax bracket or be affected by the additional Medicare tax. They can use the Tax Withholding Estimator on IRS.gov to help complete a new Form W-4. Taxpayers should review Publication 505, Tax Withholding and Estimated Tax for more information.

Filing status
Married people can choose to file their federal income taxes jointly or separately each year. For most couples, filing jointly makes the most sense, but each couple should review their own situation. If a couple is married as of December 31, the law says they're married for the whole year for tax purposes.

Tax filing step 1: Gather all year-end income documents

As taxpayers are getting ready to file their taxes, the first thing they should do is gather their records. To avoid processing delays that may slow their refund, taxpayers should gather all year-end income documents before filing a 2021 tax return.

It's important for people to have all the necessary documents before starting to prepare their return. This helps them file a complete and accurate tax return. Here are some things taxpayers need to have before they begin doing their taxes.

• Social Security numbers of everyone listed on the tax return. Many taxpayers have these numbers memorized. Still, it's a good idea to have them on hand to double check that the numbers on the tax return are correct. An SSN with one number wrong or two numbers switched will cause processing delays.

• Bank account and routing numbers. People will need these for direct deposit refunds. Direct deposit is the fastest way for taxpayers to get their money and avoids a check getting lost, stolen or returned to IRS as undeliverable.

• Don't have a bank account? Learn how to open an account at an FDIC-Insured bank or through the National Credit Union Locator Tool. Veterans can access the Veterans Benefits Banking Program.

• Forms W-2 from employer(s).

• Forms 1099 from banks, issuing agencies and other payers including unemployment compensation, dividends, distributions from a pension, annuity or retirement plan.

• Form 1099-K, 1099-MISC, W-2 or other income statement for workers in the gig economy.

• Form 1099-INT for interest received.

• Other income documents and records of virtual currency transactions.

• Forms 1095-A, Health Insurance Marketplace Statement. Taxpayers will need this form to reconcile advance payments or claim the premium tax credit.

• Letter 6419, 2021 Total Advance Child Tax Credit Payments, to reconcile advance child tax credit payments.

• Letter 6475, Your 2021 Economic Impact Payment, to determine eligibility to claim the recovery rebate credit.

Forms usually start arriving by mail or are available online from employers and financial institutions in January. Taxpayers should review them carefully. If any information shown on the forms is inaccurate, the taxpayer should contact the payer ASAP for a correction.

IRS sending information letters to recipients of advance child tax credit payments and third Economic Impact Payments

The IRS started issuing information letters to advance child tax credit recipients in December. Recipients of the third round of the Economic Impact Payments will begin receiving information letters at the end of January. Using the information in these letters when preparing a tax return can reduce errors and delays in processing.

People receiving these letters should keep them. Do not throw them away. These letters can help taxpayers, or their tax professional prepare their 2021 federal tax return.

Advance child tax credit payments letter can help people get remainder of 2021 credit
To help taxpayers reconcile and receive all the 2021 child tax credits to which they are entitled, the IRS started sending Letter 6419, 2021 advance CTC, in late December 2021 and will continue into January. This letter includes the total amount of advance child tax credit payments taxpayers received in 2021 and the number of qualifying children used to calculate the advance payments. People should keep this and any other IRS letters about advance child tax credit payments with their tax records.

Families who received advance payments need to file a 2021 tax return and compare the advance payments they received in 2021 with the amount of the child tax credit they can properly claim on their 2021 tax return.

The letter contains important information that can make preparing their tax returns easier. People who received the advance payments can also check the amount of their payments by using the CTC Update Portal available on IRS.gov.

Eligible families who did not receive any advance child tax credit payments can claim the full amount of the child tax credit on their 2021 federal tax return. This includes families who don't normally need to file a tax return.

Economic Impact Payment letter can help people claim the 2021 recovery rebate credit
The IRS will begin issuing Letter 6475, Your Third Economic Impact Payment, to EIP recipients in late January. This letter will help Economic Impact Payment recipients determine if they are entitled to and should claim the recovery rebate credit on their 2021 tax returns when they file in 2022.

Letter 6475 only applies to the third round of Economic Impact Payments, which were issued in March through December of 2021. The third round of Economic Impact Payments, including "plus-up" payments, were advance payments of the 2021 recovery rebate credit that would be claimed on a 2021 tax return. Plus-up payments were additional payments the IRS sent to people who received a third Economic Impact Payment based on a 2019 tax return or information received from the Social Security Administration, Railroad Retirement Board or Veterans Affairs. Plus-up payments were also sent to people who were eligible for a larger amount based on their 2020 tax return.

Most eligible people already received the payments. However, people who are missing stimulus payments should review information on IRS.gov to determine their eligibility and whether they need to claim a recovery rebate credit for 2020 or 2021. This includes people who don't normally need to file a tax return.

The Economic Impact Payment letters include important information that can help people quickly and accurately file their tax return.

Some important things all taxpayers should do before the tax year ends

The IRS reminds taxpayers there are things they should do before the current tax year ends on Dec.31.

Donate to charity
Taxpayers may be able to deduct donations to tax-exempt organizations on their tax return. As people are deciding where to make their donations, the IRS has a tool that may help. Tax Exempt Organization Search on IRS.gov allows users to search for charities. It provides information about an organization’s federal tax status and filings.

The law now permits taxpayers to claim a limited deduction on their 2021 federal income tax returns for cash contributions they made to certain qualifying charitable organizations even if they don't itemize their deductions. Taxpayers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021. The maximum deduction is $600 for married individuals filing joint returns.

Most cash donations made to charity qualify for the deduction. However, there are some exceptions. Cash contributions include those made by check, credit card or debit card as well as unreimbursed out-of-pocket expenses in connection with volunteer services to a qualifying charitable organization.

Check Individual Taxpayer Identification Number
An ITIN only needs to be renewed if it has expired and is needed on a U.S. federal tax return.

If an Individual Taxpayer Identification Number was not included on a U.S. federal tax return at least once for tax years 2018, 2019 and 2020, the ITIN will expire on Dec. 31, 2021.

As a reminder, ITINs with middle digits 70 through 88 have expired. In addition, ITINs with middle digits 90 through 99, if assigned before 2013, have expired. Individuals who previously submitted a renewal application that was approved, do not need to renew again.

Find information about retirement plans
IRS.gov has end-of-year tax information about retirement plans. This includes resources for individuals about retirement planning, contributions and withdrawals.

Contribute salary deferral
Taxpayers can make a salary deferral to a retirement plan. This helps maximize the tax credit available for eligible contributions. Taxpayers should make sure their total salary deferral contributions do not exceed the
$19,500 limit for 2021.

Get banked and set up direct deposit
Direct deposit gives taxpayers access to their refund faster than a paper check. Those without a bank account can learn how to open an account at an FDIC-Insured bank or through the National Credit Union Locator Tool.

It claims that starting in January 2022, if you receive more than $600 per year through third-party apps like Cash App, Venmo or Zelle, you will be taxed. ... Typically, with third-party apps you sign up for what's called a merchant account and so if you were bringing in more than $600 aggregate, or in total

Here’s how a taxpayer’s custody situation may affect their advance child tax credit payments

Parents who share custody of their children should be aware of how the advance child tax credit payments are distributed. It is important to remember that these are advance payments of a tax credit that taxpayers expect to claim on their 2021 tax return. Understanding how the payments work will parents to unenroll, if they choose, and possibly avoid a possible tax bill when they file next year.

Here are some of the most common questions about shared custody and the advance child tax credit payments.

If two parents share custody, how will the IRS decide which one receives the advance child tax credit payments?
Who receives 2021 advance child tax credit payments is based on the information on the taxpayer’s 2020 tax return, or their 2019 return if their 2020 tax return has not been processed. The parent who claimed the child tax credit on their 2020 return will receive the 2021 advance child tax credit payments.

If a parent is receiving 2021 advance child tax credit payments and they shouldn’t be, what should they do?
Parents who will not be eligible to claim the child tax credit when they file their 2021 tax return should go to IRS.gov and unenroll to stop receiving monthly payments. They can do this by using the Child Tax Credit Update Portal. Receiving monthly payments now could mean they have to return those payments when they file their tax return next year. If their custody situation changes and they are entitled to the child tax credit for 2021, they can claim the full amount when they file their tax return next year.

If parents alternate years claiming their child on their tax return, will the IRS send the 2021 advance child tax credit payments to the parent who claimed the child on their 2020 tax return even though they will not claim them on their 2021 tax return?
Yes. Because the taxpayer claimed their child on their 2020 tax return, the IRS will automatically issue the advance payments to them. When they file their 2021 tax return, they may have to pay back the payments over the amount of the credit they’re entitled to claim. Some taxpayers may be excused from repaying some or all of the excess amount if they qualify for repayment protection. If a taxpayer won't be claiming the child tax credit on their 2021 return, they should unenroll from receiving monthly payments using the Child Tax Credit Update Portal.

If one parent is receiving the advance child tax credit payments even though the other parent will be claiming the child tax credit on their 2021 tax return, will the parent claiming the qualifying child still be able to claim the full credit amount?
Yes. Taxpayers will be able to claim the full amount of the child tax credit on their 2021 tax return even if the other parent is receiving the advance child tax credit payments. The parent receiving the payments should unenroll, but their decision will not affect the other parent’s ability to claim the child tax credit.

All taxpayers have the right to challenge the IRS’s position and be heard

Taxpayers have the right to challenge the IRS's position and be heard. This is part of the Taxpayer Bill of Rights, which clearly outlines the fundamental rights every taxpayer has when working with the IRS.

Taxpayers have the right to:

• Raise objections.
• Provide additional documentation in response to formal or proposed IRS actions.
• Expect the IRS to consider their timely objections.
• Have the IRS consider any supporting documentation promptly and fairly.
• Receive a response if the IRS does not agree with their position.

Here are some specific things this right affords taxpayers.

• In some cases, the IRS will notify a taxpayer that their tax return has a math or clerical error. If this happens, the taxpayer:

o Has 60 days to tell the IRS that they disagree.
o Should provide copies of any records that may help correct the error.
o May call the number listed on the letter or bill for assistance.
o Can expect the agency to make the necessary adjustment to their account and send a correction if the IRS upholds the taxpayer's position.

• Here's what will happen if the IRS does not agree with the taxpayer's position:

o The agency will issue a notice proposing a tax adjustment. This is a letter that comes in the mail.
o This notice provides the taxpayer with a right to challenge the proposed adjustment.
o The taxpayer makes this challenge by filing a petition in U.S. Tax Court. The taxpayer must generally file the petition within 90 days of the date of the notice, or 150 days if it is addressed outside the United States.

• Taxpayers can submit documentation and raise objections during an audit. If the IRS does not agree with the taxpayer's position, the agency issues a notice explaining why it is increasing the tax. Prior to paying the tax, the taxpayer has the right to petition the U.S. Tax Court and challenge the agency's decision.

• In some circumstances, the IRS must provide a taxpayer with an opportunity for a hearing before an independent Office of Appeals. The agency must do this:

o Before taking enforcement actions to collect a tax debt. These actions include levying the taxpayer's bank account. Immediately after filing a notice of federal tax lien in the appropriate state filing location. If the taxpayer disagrees with the decision of the Appeals Office, they can petition the U.S. Tax Court.

IRS readies nearly 4 million refunds for unemployment compensation overpayments
The IRS will issue another round of refunds this week to nearly 4 million taxpayers who overpaid their taxes on unemployment compensation received last year. Refunds by direct deposit began July 14 and refunds by paper check will begin July 16.

The Child Tax Credit Update Portal allows families to update direct deposit information or unenroll

The IRS recently upgraded the Child Tax Credit Update Portal to enable families to update their bank account information so they can receive their monthly Child Tax Credit payment. The tool also allows families to unenroll from the advance payments if they don’t want to receive them. The Update Portal is available only on IRS.gov.

Any updates made by August 2 will apply to the August 13 payment and all subsequent monthly payments for the rest of 2021. Families will receive their July 15 payment by direct deposit in the bank account currently on file with the IRS.

People without current bank account information can use the online tool to update their information so they can get the payments sooner by direct deposit. Those who are not enrolled for direct deposit will receive a check.

How to update direct deposit information
First, families should use the Child Tax Credit Update Portal to confirm their eligibility for payments. If eligible, the tool will also indicate whether they are enrolled to receive their payments by direct deposit.

If so, it will list the full bank routing number and the last four digits of their account number. This is the account that will receive their July 15 payment.

If they choose, they can change the bank account receiving the payment starting with the August 13 payment.

If the Update Portal shows a family is eligible to receive payments but not enrolled to receive them by direct deposit, they will receive a mailed check each month. If they want to receive their payments by direct deposit, they can use the Update Portal to add their bank account information. Couples who are married and file jointly must both update their bank account information the same day to the same account to continue getting joint payments.

Any family receiving checks should consider switching to direct deposit to access their money quicker. Direct deposit removes the time, worry and expense of cashing a check, and eliminates the chance of a lost, stolen or undelivered check. People who don’t have a bank account can visit the Federal Deposit Insurance Corporation website for details on opening an account online or use the FDIC's BankFind tool to locate an FDIC-insured bank. BankOn, American Bankers Association, Independent Community Bankers of America, and the National Credit Union Administration have lists of banks and credit unions that can open an account online.

Families can stop payments anytime
Even after payments begin, families can stop all future monthly payments by using the unenroll feature in the Child Tax Credit Update Portal. Eligible families who make this choice will still receive the rest of their child tax credit as a lump sum when they file their 2021 federal income tax return next year. To stop all payments starting in August and the rest of 2021, they must unenroll by August 2, 2021.

Who should unenroll?
Some families may prefer to receive the entire credit as a refund when they file their 2021 return. The portal’s unenroll feature can also be helpful to any family that no longer qualifies for the child tax credit or believes they will not qualify when they file their 2021 return. Married filing joint taxpayers both need to unenroll. If one spouse does not unenroll, they will get half of the joint payment they were supposed to receive with their spouse.

For more information about the unenrollment process, including deadlines, see Topic J of the Child Tax Credit FAQs on IRS.gov.

The IRS will add more features to the Child Tax Credit Update Portal through the summer and fall. Soon people will be able update their mailing address. By fall, people will be able to use the tool to update changes to family status and income. More information is on the Advance Child Tax Credit Payments in 2021 page of IRS.gov

The IRS announced today that the third round of Economic Impact Payments will begin reaching Americans over the next week. Following approval of the American Rescue Plan Act, the first batch of payments will be sent by direct deposit, which some recipients will start receiving as early as this weekend, and with more receiving this coming week. Additional batches of payments will be sent in the coming weeks by direct deposit and through the mail as a check or debit card. The vast majority of these payments will be by direct deposit.

No action is needed by most taxpayers; the payments will be automatic and, in many cases, similar to how people received the first and second round of Economic Impact Payments in 2020. People can check the Get My Payment tool on IRS.gov on Monday to see the payment status of the third stimulus payment.

"Even though the tax season is in full swing, IRS employees again worked around the clock to quickly deliver help to millions of Americans struggling to cope with this historic pandemic," said IRS Commissioner Chuck Rettig. "The payments will be delivered automatically to taxpayers even as the IRS continues delivering regular tax refunds. We urge people to visit IRS.gov for the latest details on the stimulus payments, other new tax law provisions and tax season updates."

For additional information, review Fact Sheet 2021