This year is causing particular problems from an estimated tax deposit standpoint for many of us. Remembering that estimated tax payments are based on last year’s income tax return, how do we know what to pay? Let’s explain this using an example.
Joe Entrepreneur earned $200K in 2019 and paid $40K in income tax. Since he was over $150K in income, he was required to make estimates based upon 110% of his tax.
So in 2020 he made a total of $44K in estimates, but his income went down to 75K because of the pandemic. He received a huge refund of over $30K.
Because he received a refund, he isn’t required to make any estimates in 2021, but his income goes back up to the pre-pandemic level of $200K. Joe is going to owe a bunch of tax this year, but how do we plan for this?
The computer isn’t going to automatically spit out the 1040 – ES forms that Joe is accustomed to seeing, because technically he’s not required to make estimates. But I think we’d all agree that he certainly should. Either that or he needs to save his dollars and be ready to write at least a $40K check.
Even that could be wrong, because none of us have any idea what’s going to happen to the tax code this year, once the new administration is done changing laws. It could be more, or it could be less. It’s a crap shoot.
My point it that, just like last year, we need to plan.
If the situation I just described is yours, then contact our offices today. Let’s do some planning and figure out how to handle this monster. If you feel comfortable saving for this yourself, then fine. Just don’t come crying when you need to write a big check.
If the opposite is happening, for whatever reason, we need to adjust your deposits so that you aren’t over depositing. Either way, the time to plan for these eventualities is now, not later. Let’s get to work.
Please remember that the hallmark of our firm is legally reducing your tax loads. We wait for your call.
Let me leave you with this.
It’s September 15th, and only one of our clients has called today about the S-Corp and Partnership deadline. In case you forgot, it’s today. If your return isn’t completed and submitted by the end of the day, you’ll face additional penalties.
The fact that only one of our clients has called today is impressive. It means that we’re doing an excellent job, if I do say so myself, of keeping you updated and informed. Other practices that I’ve worked at have had the phone ringing off the hook on days like this.
The waiting rooms were like the third circle of Dante’s Inferno, complete with wailing and gnashing of teeth. My office is it’s usual quiet self, except for a printer spitting something out or the usual tapping on computer keys.
But isn’t that the way it’s supposed to be.
Have you ever noticed that when you walk into my office and spend any amount of time, the phone doesn’t ring. Think about it. This is because people only call us when there’s a problem.
I have a mid-sized practice servicing the needs of over 250 corporations, partnerships, estates, and trusts. No one is calling me today because they don’t have any problems.
We work hard every day to make sure that no one has a reason to call in the first place. And isn’t that what you want in an accounting firm?
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protection you, your family, and your business. Whether you need Employee Retention Credits, PPP Loan Forgiveness, Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Accounting Solutions Ltd.
Note that the only professional services provided by Accounting Solutions Ltd. are those specified in a written communication from our office detailing the scope of services to be rendered and the terms and conditions applicable to the engagement.