TAX+BUSINESS ALERT
News for your business and your life. | Hawkins Ash CPAs
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In this Edition
January 19, 2021
All Taxpayers Can Get Identity Protection PIN
Business Bartering is Taxable
PODCAST: Individual Tax Return Extenders
Tax Calendar
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All Taxpayers Can Get Identity Protection PIN |
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For many years, taxpayers have requested Identity Protection Personal Identification Numbers (IP PIN) after they discovered that someone had fraudulently filed a tax return in their name in order to claim a refund. In recent years, with data breaches of various companies, many more taxpayers filed for the IP PIN. Once an IP PIN is acquired, you cannot electronically file your tax return without this unique code. This stops fraudulent returns from being electronically filed. Paper returns that are filed without the correct IP PIN will be scrutinized for fraud. An IP PIN essentially locks your tax account.
Generally, when you are a victim of identity theft or confirmed that your data was released in a hacker breach, you can file Form 14039 Identity Theft Affidavit. After filing this form, the IRS will mail a unique PIN to you every year automatically. This is still a viable method of attaining an IP PIN.
However, new for the 2021 tax year, any individual taxpayer can apply for and obtain an Identity Protection PIN. This new program is valid for one year only and will not automatically generate a new pin the following year. If you want another IP PIN the next year, you would have to apply again.
You may want to consider obtaining an IP PIN if your credit cards are compromised or your wallet is stolen. You may be going through a divorce and want to make sure that your return isn’t filed. Or perhaps, you’d just like some extra peace of mind in knowing you have protected your tax return filing for a given year. For all these reasons or no reason at all, you can now get an IP PIN from the IRS.
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Author: Robin Lutz, MT, CPA
Direct: 608.793.3120
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Business Bartering is Taxable |
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During the COVID-19 pandemic, many cash-challenged businesses have bartered for goods and services instead of paying dollars for them. If your company gets involved in such a transaction, remember that the fair market value of goods that you receive is taxable income. And if you exchange services with another business, the transaction results in taxable income for both parties.
A Couple of Examples
Let’s say a computer consultant agrees to exchange services with an advertising agency. Both parties will be taxed on the fair market value of the services received. This is the amount they’d normally charge for the same services. If the parties agree to the value of the services in advance, that will be considered the fair market value unless contrary evidence exists.
In addition, if services are exchanged for property, income is realized. Say a construction company does work for a retail business in exchange for unsold inventory. The contractor will incur income equal to the inventory’s fair market value.
Barter Exchanges
Many businesses join barter clubs that facilitate these transactions. Generally, these clubs use a system of “credit units” that are awarded to members who provide goods and services. The credits can be redeemed for goods and services from other members.
Bartering is generally taxable in the year it occurs. If you participate in a barter club, however, you may be taxed on the value of credit units at the time they’re added to your account — even if you don’t redeem them for actual goods and services until a later year.
By January 31 of each year, a barter club will send participants a Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions,” which shows the value of cash, property, services, and credits that they received from exchanges during the previous year. The IRS will also receive this information.
If you join a barter club, expect to provide your Social Security number or employer identification number. You’ll also be asked to certify that you aren’t subject to backup withholding. Unless you make this certification, the club will withhold tax from your bartering income.
Potentially Beneficial
So long as you’re aware of the federal and state tax consequences, business bartering transactions can be beneficial. Contact us if you need assistance or would like more information.
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Contact: Jay Kramer, MST, CPA
Phone: 920.337.4551
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PODCAST
Individual Tax Return Extenders
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The tax bill signed in late December included a number of items that will affect individual tax returns. This episode of our Tax Insights podcast provides a look at several of these tax extenders.
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February 1
- File 2020 Forms W-2 (“Wage and Tax Statement”) with the SSA and provide copies to your employees.
- File 2020 Forms 1099-NEC (“Nonemployee Compensation”) reporting nonemployee compensation payments with the IRS and provide copies to recipients, along with a related Form 1096 (“Annual Summary and Transmittal of U.S. Information Returns”) to the IRS.
- Most employers must file Form 941 (“Employer’s Quarterly Federal Tax Return”) to report Medicare, Social Security, and income taxes withheld in the fourth quarter of 2020. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. Employers who have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944 (“Employer’s Annual Federal Tax Return”).
- File Form 940 (“Employer’s Annual Federal Unemployment [FUTA] Tax Return”) for 2020. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.
- File Form 943 (“Employer’s Annual Federal Tax Return for Agricultural Employees”) to report Social Security, Medicare, and withheld income taxes for 2020. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.
- File Form 945 (“Annual Return of Withheld Federal Income Tax”) for 2020 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on pensions, annuities, IRAs, etc. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.
March 1
- File 2020 Form 1099-MISC (“Miscellaneous Income”) reporting certain payments to certain persons and provide copies to recipients, along with a related Form 1096 (“Annual Summary and Transmittal of U.S. Information Returns”) to the IRS.
March 15
- 2020 tax returns must be filed or extended for calendar-year partnerships and S corporations. If the return isn’t extended, this is also the last day for those types of entities to make 2020 contributions to pension and profit-sharing plans.
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More Resources from CPA-HQ |
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Hawkins Ash CPAs Acquires Green Bay Accounting Firm Hermans & Associates
We are pleased to announce that Green Bay accounting firm Hermans & Associates has joined the Green Bay office of Hawkins Ash CPAs.
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Round Two of Stimulus Checks
Learn more about the recent stimulus check provision here.
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COVID-19 Resources
We are committed to uninterrupted service. Please view this page for updates to our COVID-19 policies and resources.
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Part of your business. Part of your life. | www.HawkinsAshCPAs.com |
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