July 2019 SMALL BUSINESS TIPS Quarterly: Oct 17 Deducting the Business Use of Your Vehicle If you operate a small business and you drive regularly for that business you have two choices: you can either drive your personal vehicle and reimburse yourself for the business portion of the associated costs, or you can transfer the vehicle to the business and pay all of the associated costs directly from the business. Which of these options you choose depends on the vehicle and how you use it within the business. There are no inherent tax benefits to titling your vehicle into your business, in fact doing so limits your options in how you deduct the cost of that vehicle. However, when your vehicle is 100% business use then titling it to your company can simplify your record-keeping requirements and allow you to pay for your vehicle costs directly out of your business account. The first step to decide where you should place ownership of your vehicle is to determine which vehicle cost deduction method is more beneficial in your situation. Standard Mileage Rate vs Actual Expenses There are two primary methods for deducting the cost of using a vehicle for business purposes: The standard mileage rate method and the actual costs method. Standard Mileage With the standard mileage rate you can deduct a specific dollar amount for each business mile you drive during the year (for 2022 the standard rate is 58.5 cents per mile). The standard mileage rate is used more often since it only requires you to keep track of the miles you drive throughout the year and does not require records of any other expenses. However, the standard mileage rate can only be used for a vehicle that is in your personal name. If your vehicle is titled to your business, you are required to use the actual expense method.. Actual Expense With the actual expense method you can deduct your out of pocket costs for fuel, insurance, repairs, etc. You can also deduct the cost of the vehicle by depreciating it over its asset life (typically 5 years). The actual expense method requires much more thorough record-keeping. You need to keep track of each vehicle related expense throughout the year, and if you use the vehicle for both personal and business use then you also need to keep track of the total business and total personal miles for the year Choosing the Right Method If your vehicle title is in the name of your business you are required to use the actual expense method. However, if the title is in your personal name you can choose which method to use in the first year. You can switch methods in the following years, but there are additional restrictions to do so. It is in your best interest to take the time in the first year to determine which method will be more beneficial. The standard mileage rate method is intended to simplify record-keeping requirements while still providing for an accurate deduction for the cost of using your vehicle in your business. To that end, in many cases the standard mileage rate method should provide the same or greater tax benefits as the actual expense method. However, there are specific factors that can make the actual expense method more beneficial: Price of Car: Since you can deduct the cost of a car over several years with the actual expense method, a more expensive car increases the probability that the actual expense method will be more beneficial Fuel Efficiency: With the standard mileage rate you get the same deduction no matter how many miles you get per gallon, so a less efficient vehicle will eat away at a greater portion of your allowed deduction. Highway vs City: If you are driving primarily in a large city you are likely putting much fewer miles on your vehicle while still spending the same amount on car payments, insurance, etc. If any of these factors apply to your situation then you may receive a greater benefit through the actual expense method. It is also worth noting that under the actual expense method you will receive a greater tax benefit in the first few years while you are depreciating the cost of the vehicle. Once the vehicle is fully depreciated your deduction will drop significantly. Under the standard mileage method your deduction will be relatively consistent subject only to small changes in the standard rate each year. Summary If 100% of the use of your vehicle is for your business and you have large vehicle costs either from buying a newer car or driving mostly in the city, putting your vehicle title into your business can simplify your record-keeping requirements without sacrificing the benefits of the standard mileage rate method. If you use your vehicle for both personal and business needs or you drive an older vehicle with a low market value, you may want to keep it in your personal name to preserve the option to use the standard mileage rate. Previous Article Next Article

November 2019 SMALL BUSINESS TIPS Quarterly: Oct 17 Five Year-End Business Deductions As we approach the end of the year, your business may be slowing down as you prepare for the upcoming holidays. If that is the case, now is a good time to analyze your business’ performance in 2019 and consider pushing some additional expenses into the last month of the year to minimize your 2019 tax burden. We have identified five strategies you can use to minimize your 2019 tax bill. Please note that the year-end strategies we are discussing involve pulling expenses from 2020 into the end of 2019 to reduce your current year tax bill. This will increase your tax liability in the future. This strategy will make sense for you if 2019 was a particularly high-income year and you are expecting lower income in 2020 or if you are expecting other significant business deductions in 2020 to make up for the deduction pushed into 2019. Prepay Business Expenses If you operate your business on a cash basis then you have the option of prepaying certain expenses up to 12 months in advance and capturing the tax deduction immediately. These qualifying expenses include lease payments on business vehicles, rent on office space or machinery and insurance premiums. For example: If your rent for your office is $1500 per month you can send your landlord a check for $18,000 in December to cover all of your 2020 rent. If you send the check on December 31st but your landlord does not receive it till January 3 then you can deduct the expense in 2019 when the check was sent, but your landlord does not need to report the income until 2020 when it was received. Stop Billing Customers Your customers are unlikely to pay you until they are billed. If you have a successful December you can wait to bill some of your customers until January in order to push some of your December revenues into 2020. Buy Office Equipment The tax law currently allows you to fully write off the purchase of eligible business equipment in the year that you purchase it, instead of being required to depreciate it over a number of years. If you are in need of a new computer, office furniture or specialized equipment for your business, you can take advantage of this 100% depreciation to reduce your 2019 taxes. Use Your Credit Cards If you make a purchase with your credit card before the end of the year you can expense that purchase in 2019 even if the credit card bill is not paid until 2020. This allows you to move up expenses that you otherwise may not have purchased until January. If your business is a single-member LLC or a sole proprietorship then you can deduct the expense whether the credit card is in your personal name or the name of the business. If you operate your business as a corporation and the credit card is in your personal name you will need to reimburse yourself before the end of the year. If the credit card is in the name of the corporation you do not need to reimburse yourself. Save For Retirement As a small-business owner, you have the potential to put up to $56,000 away for retirement each year depending on the type of retirement account you have set up and the income of your business. If you do not have a retirement plan set up for your business you can still set up a SEP IRA or a 401k before December 31st and make pretax contributions to reduce your 2019 tax bill. Summary Each of the strategies we have outlined will help you reduce your 2019 tax bill at the cost of paying more taxes in future years. Depending on your specific situation it may make more sense to defer taxes today and pay them in a future year. For guidance on if you should be moving taxes into later years or paying them now, reach out to us to set up a tax-planning call. Schedule Your Tax-Planning Call Previous Article

PRIVACY POLICY This Privacy Policy governs the manner in which Monotelo Advisors collects, uses, maintains and discloses information collected from users (each, a “User”) of the monotelo.com website (“Site”). This privacy policy applies to the Site and all services offered by Monotelo Advisors. PERSONAL IDENTIFICATION INFORMATION We may collect personal identification information from Users in a variety of ways, including, but not limited to, when Users visit our site, register on the site, subscribe to the newsletter and in connection with other activities, services, features or resources we make available on our Site. Users may be asked for, as appropriate, name, email address, mailing address, phone number, etc. Users may, however, visit our Site anonymously. We will collect personal identification information from Users only if they voluntarily submit such information to us. Users can always refuse to supply personal identification information, except that it may prevent them from engaging in certain Site related activities. NON-PERSONAL IDENTIFICATION INFORMATION We may collect non-personal identification information about Users whenever they interact with our Site. Non-personal identification information may include the browser name, the type of computer and technical information about Users means of connection to our Site, such as the operating system and the Internet service provider’s utilized and other similar information. WEB BROWSER COOKIES Our Site may use “cookies” to enhance User experience. User’s web browser places cookies on their hard drive for record-keeping purposes and sometimes to track information about them. User may choose to set their web browser to refuse cookies, or to alert you when cookies are being sent. If they do so, note that some parts of the Site may not function properly. HOW WE USE COLLECTED INFORMATION Monotelo Advisors collects and uses Users personal information for the following purposes: To improve customer service. Your information helps us to more effectively respond to your customer service requests and support needs. To improve our Site. We continually strive to improve our website offerings based on the information and feedback we receive from you. To administer a content, promotion, survey or other Site feature. To send Users information they agreed to receive about topics we think will be of interest to them. To send periodic emails The email address Users provide may be used to respond to their inquiries, and/or other requests or questions. If User decides to opt-in to our mailing list, they will receive emails that may include company news, updates, related service information, etc. If at any time the User would like to unsubscribe from receiving future emails, we include detailed unsubscribe instructions at the bottom of each email or User may contact us via our Site. HOW WE PROTECT YOUR INFORMATION We adopt appropriate data collection, storage and processing practices and security measures to protect against unauthorized access, alteration, disclosure or destruction of your personal information, username, password, transaction information and data stored on our Site. Sensitive and private data exchange between the Site and its Users happens over a SSL secured communication channel and is encrypted and protected with digital signatures. SHARING YOUR PERSONAL INFORMATION We do not sell, trade, or rent Users personal identification information to others. We may share generic aggregated demographic information not linked to any personal identification information regarding visitors and users with our business partners, trusted affiliates and advertisers for the purposes outlined above. We may use third party service providers to help us operate our business and the Site or administer activities on our behalf, such as sending out newsletters or surveys. We may share your information with these third parties for those limited purposes provided that you have given us your permission. CHANGES TO THIS PRIVACY POLICY Monotelo Advisors has the discretion to update this privacy policy at any time. When we do, the revised date will be added at the bottom of this page. We encourage Users to frequently check this page for any changes to stay informed about how we are helping to protect the personal information we collect. You acknowledge and agree that it is your responsibility to review this privacy policy periodically and become aware of modifications. YOUR ACCEPTANCE OF THESE TERMS By using this Site, you signify your acceptance of this policy and terms of service. If you do not agree to this policy, please do not use our Site. Your continued use of the Site following the posting of changes to this policy will be deemed your acceptance of those changes. CONTACTING US If you have any questions about this Privacy Policy, the practices of this site, or your dealings with this site, please contact us at: Monotelo Advisors www.monotelo.com info@monotelo.com

Audit triggers to be aware of on your 2018 tax return. 1 2 How likely are you to be selected for an audit? In 2017, the IRS audited just 0.60% of individual tax returns. Most of these returns were filed by mail as opposed to electronically, thus lowering the risk for a typical return to be reviewed for an audit. With that said, there are specific factors that increase the likelihood that your tax return falls into the small percent that receives additional attention from the IRS. One factor that the IRS looks at when deciding who to audit is income. As your income increases so does the chance that the IRS will select your return for further examination. You are also at greater risk of an audit if you operate a small business and report your income on Schedule C. In 2017 taxpayers who filed a Schedule C were twice as likely to be audited than those who did not. We have identified 10 factors that can lead to unwanted attention from the IRS on your 2018 tax return. Some of these red flags can be avoided by filing a complete and accurate return, while others simply require proper record keeping to quickly shutdown any IRS inquiries. 1. Failing to report all taxable income. The IRS receives a copy of all of your W2's and 1099's each year. One of the quickest ways to get their attention is to fail to report some of this income. 2. Deducting "hobby" losses. The IRS is wary of taxpayers who take up a hobby and then report it as a business to deduct their expenses. If your business shows losses multiple years in a row the IRS will begin to question if you are actually operating a business or merely deducting your hobby expenses. 3. Large charitable donations. The IRS knows how much the average taxpayer with your income gives to charity. If you make large charitable donations every year it is important to keep records of those donations. 4. Claiming rental property losses. It is not uncommon for a rental property to show a loss on your tax return. In order to deduct these losses on your return you need to "actively participate" in the rental activity. This is not a difficult threshold to meet, it simply requires that you are involved in making management decisions for the property. But if you show large losses, or if you have significant income from other sources the IRS may question if you are actively involved in the rental property. Keeping records of any meetings for, or trips to, the property can help demonstrate your participation. 5. Taking an Alimony Deduction. Alimony payments can be a significant financial burden, so you want to make sure you are able to offset that cost by deducting your payments from your taxable income. Large deductions for alimony payments can catch the IRS' attention, particularly when the payer claims a deduction but the recipient does not report the income. Before taking a deduction for alimony, be sure that your divorce agreement clearly identifies the payments as alimony or spousal maintenance. Child support payments are not deductible. 6. Failing to report your Health Premium Credit. If your health insurance is provided through the marketplace, you may be receiving subsidies from the government to lower your monthly premium payments. If this is the case you are required to reconcile those subsidies at the end of the year on your tax return by reporting the amounts listed on your form 1095-A. If you do not report the credits received the IRS will reject your return and request that you correct the omission. 7. Taking an early withdrawal from an IRA or 401(k). When you take a withdrawal from an IRA or 401(k) before age 59 1/2 you typically pay a 10% penalty for taking those funds early. There are a number of exceptions that allow you to avoid paying that penalty, such as when using the funds for medical or education expenses. A large number of taxpayers incorrectly claim one of these exceptions when they do not actually qualify. As a result of this taxpayers who claim one of these exceptions on their returns face extra scrutiny from the IRS. If you claim one of these exceptions be sure to keep documentation showing that the funds were used for a qualified purpose. 8. Claiming large gambling losses. If you win the lottery or have a good day at the casino you are required to report your winnings on your tax return. The IRS allows you to offset some of the tax liability of that income by deducting your gambling losses, up to the amount of your winnings. If those losses are too high the IRS may challenge the amount you claim on your return. To prevent the loss of your deduction be sure to get a statement from the casino showing your total losses or keep track of your lottery ticket purchases. 9. Deducting business meals or travel. If you operate a small business and file a Schedule C then the IRS will pay special attention to your deductions for business meals or travel. If these expenses seem large relative to your industry or revenue, the IRS could mark your return for an audit. The key to protecting your deductions is to properly document the business purpose of each meeting or trip, and keep receipts for any expenses over $75. 10. Claiming 100% business use of a vehicle. If you deduct the full purchase price of your vehicle as a business expense and you do not have a second vehicle available for personal use you are putting yourself at extra risk for an audit. To secure your deduction you should keep accurate mileage logs to demonstrate the business use of your vehicle. Summary The chances of an IRS audit are small, but various factors can increase the likelihood that your return is selected for review. While you can eliminate some of these factors by filing a complete and accurate return, you can never be sure that your return will not be audited. Understanding the necessary record keeping requirements can make a large difference in the outcome of an audit should you face one. Read more articles WHAT TRIGGERS THE IRS 10 Red Flags that Could Signal an Audit Failing to order your affairs to minimize your tax burden could cost you significant money - so don't wait to take action. If you have additional questions or need some planning help, please reach out to us.

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When planning your vacation be sure to familiarize yourself with the business travel rules to see if you can qualify some of your costs as business expenses. October 2018 MONOTELO QUARTERLY Quarterly: Oct 17 HOW TO DEDUCT YOUR VACATION TRAVEL AS A BUSINESS EXPENSE Taking a vacation can be expensive, so naturally the idea of deducting your vacation expenses on your tax return is an appealing idea. However, before you get carried away planning a lavish vacation with the hopes of writing off the entire cost, make sure to familiarize yourself with the requirements to qualify your expenses as business travel. To qualify for a tax deduction the trip needs to serve a legitimate business purpose. Handing out business cards on the beach does not count. There are 5 criteria your trip must meet to be a qualified business expense: Profit motive. The trip must serve a legitimate profit motive. This means that you can reasonably expect the trip to create profit either now or at some point in the future. Stay overnight . You can only deduct meal and lodging expenses when you are away from home overnight. “Rational Businessperson” test. Your trip will only qualify as a business expense if the business motive is strong enough that a rational businessperson would make the trip if business was the only motive. Primary purpose test. You can only deduct your travel expenses when your trip is primarily for business. This is determined by calculating the number of business days vs personal days of the trip. This may sound like a deal breaker, but it is easier to meet this requirement than you think. Maintain good records. If you do not properly document the business purpose of your trip, your travel expenses, or your actual business activities on the trip you will risk losing your entire deduction. Your trip expenses can be broken down into two general categories with different requirements to be deductible: Transportation Expenses Transportation costs include airfare, train tickets, or the cost of a rental car to get to your destination. These expenses are all-or-nothing, if the majority of your trip days are business days you can deduct all of your transportation costs. If the majority of your trip days are personal you cannot deduct any of these costs. Life Expenses Life expenses include your daily meals and lodging. Unlike transportation expenses you do not need to meet the majority of business days threshold to take life expenses. Instead you simply take the life expenses for each business day of the trip. What Counts as a Business Day? It may be easier than you think to qualify most of your trip as business days. Each day of the trip only needs to meet one of these criteria to qualify as a business day: Work more than four hours. You have a workday when you spend more than half of normal work hours pursuing business. Since a normal workday is eight hours you only need to work for more than four. Presence-required day. If you are required to be at a destination on a specific day for a legitimate business purpose. For example, if you have a meeting with a client in another city on Tuesday, then Tuesday qualifies as a business day even if that is your only business activity for that day. Travel day. Days you spend traveling to or from your business destination count as business days as long as you are traveling in a reasonably direct route. Weekends and holidays. If a weekend or holiday falls in between two business days you can count those days as business days as long as it would not be practical to return home in between the two business days. If you live in California and have meetings in New York on Friday and Monday, it would not be practical to return to California for the weekend. Therefore, all four days count as business days. Saved-money-on-travel days. If you arrive at a destination a day early or leave a day late in order to save on your travel expenses you can count the extra day as a business expense as it served a legitimate business purpose of reducing your travel costs. Summary The rules governing business travel allow for some freedom to deduct vacation time as business expenses, but do not provide a blank check to write off an entire vacation simply because you spent a few minutes discussing business. You need to find the right balance between work and relaxation, properly document your work activities, and maintain records of all your expenses. Previous Article

Going to an office is no longer a requirement of conducting business in the age of the internet, cell phones, Skype and GoTo meetings. UNLOCKING the Missed Deductions of a Home Office Small-business owners should not miss the benefit of a home office deduction out of fear of a tax audit. Going to an office is no longer a requirement of conducting business in the age of the internet, cell phones, Skype and GoTo meetings. This means an increasing number of small-business owners are working from home, and eligible to claim a home office deduction. When Properly implemented, this deduction can make a significant difference in your tax liability. WHAT CONSTITUTES A HOME OFFICE? In order to claim a deduction for a home office the IRS requires that a designated space be used exclusively and regularly for business. Going to an office is no longer a requirement of conducting business in the age of the internet, cell phones, Skype and GoTo meetings. Exclusively used for business means it cannot ever be used for personal reasons during the tax year, this includes any type of storage for personal items. Although the office is to be used only for business, the tax code does not mandate that it be a separate room, it can be part of a room - walls are not a requirement. The office must also be used on a regular basis for business. HOW TO DEDUCT EXPENSES FOR THE HOME OFFICE There are two different methods you can use to claim a home office deduction, the actual expense method and the simplified method. ACTUAL EXPENSE METHOD The actual expense method allows you to deduct all direct expenses and a portion of any indirect expenses. Direct expenses are any expenses incurred specifically for the home office, such as painting the office or putting in new carpet. Indirect expenses include any expenses incurred for the home such as mortgage interest, property taxes and utilities. To claim these indirect expenses you need to determine the portion of the expenses that relate to the home office. This can be calculated by dividing the square footage of the office by the square footage of the house. You can also claim depreciation or a rent deduction for the part of the home used for business purposes. On the downside, when you sell the home any depreciation taken needs to be recaptured. This can be an unpleasant surprise come tax time. When using the actual expense method, detailed records and supporting documentation must be kept for all expenses. SIMPLIFIED METHOD If you prefer not to maintain records of these expenses, you can still take a home office deduction using the simplified method. The simplified method is calculated by simply multiplying the square footage of the office by $5 per square foot (up to 300 sq. ft.). The advantage to this method is the IRS does not require you to keep any records that are required by the actual expense method. The main drawback of the simplified method is that you will not be able to deduct your actual expenses if they exceed the allowance of the simplified method. The best solution is to keep track of all of your expenses and then determine at the end of the year which method will provide the greater deduction. MILEAGE Regular commuting to and from work is not a deductible expense, however travel between your primary office located in your home to your second office is classified as business miles that are deductible. This does not mean that you can set up a "home office" to deduct your regular commuting miles. It means that if your home office is where you conduct the majority of your business, you can deduct any mileage to a secondary location. Setting up a home office can potentially create several thousands of dollars in deductible mileage each year. TAKE AWAY Even the smallest home office can unlock significant deductions if the expenses are properly accounted for using either the actual or simplified method. It is very important that the space be used exclusively for business purposes.

Quarterly: Oct 17 Patientia, The Not-So-Secret Sauce ”Repetitio est mater studiorum” is a Latin proverb that says “Repetition is the mother of learning.” We are going to repeat a theme from the past because one of the biggest mistakes made by investors has the simplest of fixes. If one were to study the traits that John Templeton, Warren Buffet, Benjamin Graham or Ray Dalio shared (or continue to share) in common, they would find that each of them employed (or continue to employ) a disciplined process for identifying market opportunities. Each of them put their capital to work in areas where they believed they had an edge or in areas where they had a reasonable level of conviction that the market was mispricing assets. And each of them were patient with their capital, knowing that the monetization of market mispricing can take time (see Three Marks of Great Investors ). Warren Buffet’s comment that “the stock market is a device for transferring money from the impatient to the patient” sums up his perspective on the value of being disciplined when seeking to harvest superior returns. The challenge with patient investing is that it’s easier said than done. That’s because it’s a perfectly normal response for people to avoid pain. If you have a headache, you take an aspirin, or drink some water. You respond with an action to reduce the pain. The simplest way for investors to avoid short-term pain is to exit the investment strategies that are underperforming, but that is the type of behavior that ultimately leads to underperformance. In looking at Callan’s Periodic Table of Investment Returns, we can observe the bottom to top movements of both low-risk and high-risk asset classes from 1998 to 2017. Click Here for a full-scale view of Callan’s Periodic Table of Investment Returns from 1998 to 2017 In 1998 and 1999 the Russell 2000 Value Index (the light blue box in the bottom left corner) was at the bottom of the pack for two years in a row and then moved to the top of the pack in 2000 and 2001. But how many investors had the discipline to stay in small-cap-value-land when it underperformed the S&P 500 by a cumulative 63% in 1998 and 1999? Or which investors had the discipline to remain in "low-risk" bonds (green boxes at the bottom, left of center) from 2003 to 2007 (when they were the worst performing asset class in four of those five years) to hold onto the only asset class that had a positive return in 2008? Which investors pulled out of "high-risk" emerging market equities (orange boxes) after any one of the six bottom-of-the-pack years, causing them to miss out any one of the nine years that EM was the top performing asset class? (see How Intelligent Investors Use Fear To Their Advantage ) We are not saying that the Barclay’s Aggregate, or the Russell 2000 Value or Emerging Markets are the path to outperformance. We are simply saying that the only investors who benefited from exposure to these asset classes were the ones who had the conviction to remain after periods of significant underperformance. Investment strategies that deliver superior long-term returns require investors to be incredibly patient, disciplined, and indifferent to short-term performance. That’s because the seasons of underperformance drive away demand by pushing away the impatient investors, making things more attractive on a relative basis, and act as the build-up to the seasons of outperformance. While this is easy to comprehend, it is much more challenging to execute. Without strict discipline, and a deep understanding of how and why alpha-producing strategies generate their returns, even seasoned investors will want to pull out of a strategy after two or three years of under-performance. It is these seasons of under-performance however, that effectively create the risk premium that patient investors capture when they keep their eyes fixed long-term. As long as investors continue to chase short-term performance, there will be opportunities for disciplined, process-driven investors to harvest superior long-term returns. If you are still wondering about the title, "Patienta" is Latin for "Patience!"

THE AMERICAN RESCUE PLAN ACT We apologize in advance for the tax speak in this update. Sometimes it’s hard to remove the tax language and maintain accuracy. Please stay with us for the next three minutes and reach out if there are any points that need additional clarity. This is part one of a series we are writing to keep you informed on the American Rescue Plan Act of 2021 (ARPA), the legislation that President Biden signed into law on March 11, 2021. While we are planning to provide more insight over the next few months on how this legislation impacts you, in today’s article we will attempt to summarize the most important components of the new legislation. The Quick Summary: The American Rescue Plan Act of 2021 (ARPA) is an extensive relief bill that includes changes to income and payroll taxes, expansion of unemployment benefits, and another round of stimulus payments. Like the two relief bills that preceded it, this new law is extensive, with significant implications on businesses and tax payers. Partial Exclusion of 2020 Unemployment Compensation – The ARPA provides an exclusion from income on the first $10,200 of unemployment compensation received per taxpayer if the taxpayer’s adjusted gross income (“AGI” – remember this term for today’s update!) is less than $150,000. Once AGI reaches $150,000, all unemployment compensation will be taxable. This cutoff at AGI of $150,000 applies to all taxpayers, regardless of filing status. Recovery Rebates and Stimulus Payments - One of the most important provisions of the ARPA relates to additional stimulus payments that will be sent to individuals. These payments are $1,400 ($2,800 for joint filers) plus $1,400 for each dependent on the taxpayer’s return. Unlike the prior stimulus payments, all dependents claimed on a return will be included, regardless of age. Just like the prior recovery rebate checks, there is a phase-out range based on AGI. The AGI phase-out ranges are: Joint filers: $150,000 to $160,000 Head-of-household filers: $112,500 to $120,000 All other filers (single, married-filing-separately): $75,000 to $80,000 Checks will be issued based on the latest tax return that has been filed and processed. This rebate check will be reconciled on your 2021 individual income tax return in the form of a credit . In other words, if you do not receive the third stimulus check and you qualify to receive it, you will receive it through your 2021 tax return. Individual Changes - Some of the more significant tax law changes from the ARPA relate to the child tax credit. For 2021 the credit has been increased to $3,000 per child ($3,600 for a child under the age of six) and is now fully refundable. The new law also increased the age of qualifying children from 16 to 17. As with many other provisions, there is a phase-out based on AGI in excess of threshold amounts. It is important to note that half of this credit will be paid out in the form of an advance starting on July 15, 2021 and will be made monthly through the second half of the year. If the advanced payments you receive exceed the amount you qualify for on your 2021 tax return you will need to repay any excess amount. We will have more details on this later in the year once the IRS puts the system in place to handle these advanced payments. Other provisions in ARPA that also impact individual filers include: Expanded Child Dependent Care Credit – For 2021 only, the credit was made fully refundable and it was increased to 50% of qualified expenses. The credit will be reduced gradually down to 20% of qualified expenses as your AGI exceeds $125,000 and gradually phased out completely after your AGI reaches $400,000. The amount of eligible expenses qualifying for the credit have been increased to $8,000 for one individual and $16,000 for two or more individuals. Premium Tax Credit – The change in ARPA applies to 2021 and 2022 for the premium tax credit for health insurance. The credit is now available to individuals with higher incomes and increases the credit amount for those already qualified. For 2021 only, advance premium tax credits will be available for individuals receiving unemployment compensation. If you have any questions about how these changes will impact you please reach out to us. Failing to order your affairs to minimize your tax burden could cost you significant money - so don't wait to take action. If you have additional questions or need some planning help, please reach out to us.

SMALL BUSINESS TIPS NEW PROVISIONS FOR THE PAYCHECK PROTECTION PROGRAM After months of negotiations Congress has come to an agreement on another stimulus package which was signed into law on December 27th. Included in the many provisions in the bill is some welcome relief for small-business owners through enhancements to the Paycheck Protection Program. Deduction for Expenses Paid with Loan Funds When the first round of Paycheck Protection loans were approved by Congress earlier this year it was the intent of Congress that forgiveness of the loans would not create taxable income for the recipients. The IRS, however, had their own interpretation of the law and in May issued a notice stating that any expenses paid using funds from a forgiven PPP loan could not be used as deductions on the recipients tax returns. By disallowing the associated expenses, the IRS in effect made the forgiven loans taxable against the wishes of Congress. This disparity between Congress’ intentions and the IRS’ interpretation of the law was corrected with this new bill which clearly states that no deductions will be denied due to the forgiveness of the PPP loans. By reinstating the deductions for expenses covered with PPP loans Congress has finally made the PPP forgiveness tax-free as originally intended. Second Round of PPP Loans The bill also provides for another round of PPP loans which means small-business owners who either didn’t receive a loan in the first round or have exhausted the funds from their first loan can now apply to receive another. The criteria to qualify for this second round are stricter than they were for the first: Only businesses with 300 or fewer employees are eligible Businesses who received a previous PPP loan must either have already used the full loan or demonstrate that they will use the full loan To be eligible a business must have experienced a drop in revenue of at least 25% in any one quarter of 2020 when compared to that same quarter in 2019. You only need to demonstrate a 25% drop for a single quarter to qualify, but it must be compared to the same quarter of 2019. You cannot compare your third quarter of 2020 to your second quarter of 2019. As with the first round of PPP loans a business must have been in operation as of February 15th 2020 to be eligible for a loan. The deadline to apply for the second round of loans is March 31, 2021. Summary If you received a PPP loan during the first round earlier this year you can now rest assured that your forgiven loan will be fully tax-free. If your business experienced a decline of at least 25% in any quarter in 2020 relative to that same quarter in 2019 you have until March 31st to apply for another PPP loan to cover your expenses.

SMALL BUSINESS TIPS DEDUCT YOUR MEDICAL EXPENSES BY HIRING YOUR SPOUSE What Business Types Qualify? This option is available to you if you operate your business as one of the following: A sole proprietorship A partnership (provided your spouse is not a partner in the business) An LLC taxed as a sole proprietorship or partnership A real estate rental business A farm business If your business is organized as an S-Corporation than this option will not be available to you. While insurance premiums and out-of-pocket medical expenses can be deducted as itemized deductions , the limitations placed on those deductions make it difficult to realize any actual benefit. However, if you operate your own business, you may be able to get around these limitations by hiring your spouse and paying them through tax-free fringe benefits, including reimbursing them for medical expenses and insurance premiums. How Does This Work? Hire Your Spouse: Your spouse needs to be operating as a real employee for the business, performing services at your direction that benefit the business. Your spouse should not be a co-owner of the business and should not have any title in the business assets or control over the business bank account. To substantiate their role as an employee your spouse should keep a timesheet to document the hours that they worked and the tasks that they completed. Don’t Pay Cash Wages: If you pay your spouse cash wages for working in your business you are simply moving money around without creating any tax savings. In fact, you are likely increasing your tax burden by converting qualified business income to non-qualified wage income. Instead of paying them cash wages you can compensate them through tax-free employee benefits which can provide you with a sizeable tax break and avoid the need to file payroll tax returns. Establish a Medical Reimbursement Arrangement: A medical reimbursement arrangement allows you to compensate your spouse for their work by reimbursing out-of-pocket medical expenses and health insurance premiums. This provides the business with tax-deductible compensation expenses and tax-free income to your spouse. If your spouse is your only employee, you can easily establish a 105-HRA plan to reimburse them for their medical expenses by signing an agreement between yourself and your spouse. If you have additional employees you will need to establish an ICHRA plan, which has additional requirements. If you have multiple employees and want to establish a medical reimbursement arrangement, please reach out to us for more guidance. To qualify the insurance premiums for reimbursement your spouse should purchase a health insurance plan in their name that covers the entire family (including you). Then you, as the employer, reimburse your spouse for the premiums. The reimbursement arrangement can also be used to reimburse your spouse for any out-of-pocket expenses that the insurance doesn’t cover, including deductibles, copays, and prescriptions for your entire family. Pay a Reasonable Amount: To make sure the employee benefits you pay your spouse can withstand IRS scrutiny, make sure that the amount they are compensated is reasonable for the work that they are performing. A good rule of thumb is not to compensate your spouse more than you would compensate someone else for those same services. Consider Other Fringe Benefits: While health insurance and medical expenses are typically the largest items you can provide to your spouse as employee benefits, there are other benefits that you may also be able to provide: Education. You can reimburse your spouse for job-related education expenses Life Insurance. You can provide your employees with up to $50,000 in group term life insurance coverage Working Condition Fringe Benefits. You can reimburse your spouse employee for expenses that help them do their job. For example, you can reimburse the cost of a cell phone they use for work and they are not required to track how much of their phone use is for business. Summary Hiring your spouse to work for your business can provide some meaningful tax benefits by allowing you to deduct personal expenses that otherwise would not be deductible. To qualify for these deductions, you need to follow some simple guidelines: make sure your spouse is operating as your bona fide employee establish a formal medical reimbursement arrangement compensate fairly for the services provided If you would like assistance establishing a medical reimbursement plan for your spouse or other employees, please give us a call.

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