As a result of the overall rise in interest rates across the board, the IRS will now charge 8% this tax season on estimated tax underpayments. This rate was only 3% two years ago.
This may become a nasty surprise for many entrepreneurs.
Our current estimated tax rules require taxpayers to deposit anywhere from 90% of the current year’s tax obligation to 110% of the prior year’s in equal quarterly installments depending on your Adjusted Gross Income. These rules are archaic and almost impossible for many to follow given the ups and downs of business.
If our incomes were steady, it would be easier. But when you need to make a healthy quarterly estimated tax deposit, and your sales are down for the current quarter, the ability to come up with that amount can be difficult for some or impossible for many.
And now Uncle Sam is going to charge even more, if you can’t follow this ridiculous rule.
Let me leave you with this.
I’m hearing whispers from multiple, completely unconnected sources, that the New Administration is considering reinstituting the Employee Retention Tax Credit. According to my sources, this would begin with the first quarter of next year, and go through the third quarter of 2024 at least, leading up to the next election.
Supposedly, and this is all supposition at this point, the White House knows that it’s extremely difficult for any sitting President to get re-elected when the economy is in a recession. As such, they plan on bringing back the ERC Program to pump money into the economy. Their hopes are that this would stop the economy from depressing right before the election.
The first thing I said was that Congress would never approve it, given the split in power between the parties and the two Houses. But this wouldn’t need to go to Congress for approval in the first place.
The ERC Program was ended prematurely. Originally, it was supposed to go through the end of 2021, but was ended at the third quarter of that year.
As such, there’s still money left in the program. In order to get it going again, the only thing the President would need to do would be to sign a Presidential Order.
The research I was able to do confirmed that there’s somewhere between $90B and $400B left in the original CARES Act. The ERC Program only sent out around $225B as of the last numbers I was able to find ending in January of 2023.
From a political standpoint, this makes perfect sense. The President only needs to move the needle a few percentage points in the four battlefield states to get to the magic electoral college vote number of 280 to win reelection.
What will actually happen? Only time will tell.
I’m not going to get into the politics of this, nor will I talk about the economic implications. Where you land on those issues is your business and not the purpose of my column.
I’m in the business of helping people.
If they do reopen the ERCs, we’ll again offer our Employee Retention Tax Credit Consulting and Preparation Program. And depending on the quarters involved, if your income tax returns need to be amended, we’ll be able to help with that as well.
It is by far, the most professional way of qualifying for the program, and processing the returns of which I am familiar. Frankly, if there was a better way to do it, I would.
One of the difficulties we’ve had in the past with getting the payments was the length of time it took for the IRS to process the amendments. The easiest way to solve that problem is to include the credit in your original electronically filed 941.
And the easiest way for us to accomplish that is for us to electronically file the return through Salary Solutions, my payroll service. If you’d like to discuss any of this, my number is at the bottom of this communication.
One last thing.
If you’re currently one of my clients, and would like to come into the office for tax planning, we’d love to have you. Also, if you’re one of my readers and plan on being in the neighborhood, we’d love for you to stop by so that we can meet you and get to know your business. We might even be able to do some tax planning.
As is our custom during the Holidays, I’ll have a bottle of homemade wine waiting for you. Just let us know what date and time will work into your calendar. We’d love to receive you.
We’re all going to get through this. Let’s get through it together.
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