January/February 2021 Tax Tips

What if you can’t pay your taxes on time?

If you’re unable to pay your tax bill by April 15, you have several options, but doing nothing isn’t one of them. At the very least, you should file your return to avoid failure to file penalties of 5% of your tax liability per month, up to a maximum of 25%. You’ll still owe failure to pay penalties, which accrue at 0.5% per month, up to a maximum of 25%, but you may be able to get an “undue hardship” extension of 18 months (or possibly longer). In that case, you’ll avoid penalties, though you’ll have to pay interest.

Another option is to request an installment payment agreement, which includes interest and reduced penalties. Or you could borrow money from a relative or friend. Bank loans may also be a possibility, but often the interest and fees exceed what you’d pay under an installment agreement.

Annual exclusion gifts: Don’t underestimate their power

The federal gift and estate tax exemption is a whopping $11.7 million for 2021, so for many people estate planning may not seem all that important. But consider this: The exemption is scheduled to be cut in half at the end of 2025, and there’s talk in Congress about reducing it even earlier, to as little as $3.5 million. Even if you’re not ready for complex estate planning strategies, annual exclusion gifts can be a simple yet powerful tool for reducing your potential transfer tax liability.

You’re permitted to give up to $15,000 to any number of recipients each year, without using any of your exemption amount. If you split gifts with your spouse, that amount doubles to $30,000 per recipient. Say you and your spouse have three children, all of whom are married. You can make annual exclusion gifts of $30,000 per year to each child and each spouse, for a total of $180,000. In five years, you’ll have transferred $900,000 out of your estate tax-free, while preserving your lifetime exemption.

New guidance on business meals and entertainment

In 2017, the Tax Cuts and Jobs Act eliminated the deduction for business expenses related to entertainment, amusement or recreation (with a few exceptions). Business expenses for food and beverages remain deductible (generally up to 50% of qualifying expenditures). Recently, the IRS finalized regulations that explain the disallowance of entertainment expenses and provide guidance on determining whether an activity is considered entertainment and, if so, whether it falls under one of the exceptions. The regulations also provide guidance on the deduction of expenses for food and beverages, the application of the 50% limit, and the exceptions to that limit.

© 2021

Information provided on this web site “Site” by Thompson Greenspon is intended for reference only. The information contained herein is designed solely to provide guidance to the user, and is not intended to be a substitute for the user seeking personalized professional advice based on specific factual situations. This Site may contain references to certain laws and regulations which may change over time and should be interpreted only in light of particular circumstances. As such, information on this Site does NOT constitute professional accounting, tax or legal advice and should not be interpreted as such.

Although Thompson Greenspon has made every reasonable effort to ensure that the information provided is accurate, Thompson Greenspon, and its shareholders, managers and staff, make no warranties, expressed or implied, on the information provided on this Site, or about any other website which you may access through this Site. The user accepts the information as is and assumes all responsibility for the use of such information. Thompson Greenspon also does not warrant that this Site, various services provided through this Site, and any information, software or other material downloaded from this Site, will be uninterrupted, error-free, omission-free or free of viruses or other harmful components.

Information contained on this Site is protected by copyright and may not be reproduced in any form without the expressed, written consent of Thompson Greenspon. All rights are reserved.

Share:

Leave a Comment





This site uses Akismet to reduce spam. Learn how your comment data is processed.