Employers: The Social Security Wage Base is Increasing in 2022 | accountant in bel air md | WCS

Employers: The Social Security Wage Base is Increasing in 2022

The Social Security Administration recently announced that the wage base for computing Social Security tax will increase to $147,000 for 2022 (up from $142,800 for 2021). Wages and self-employment income above this threshold aren’t subject to Social Security tax.

Background Information

The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees and self-employed workers — one for Old Age, Survivors and Disability Insurance, which is commonly known as the Social Security tax, and the other for Hospital Insurance, which is commonly known as the Medicare tax.

There’s a maximum amount of compensation subject to the Social Security tax, but no maximum for Medicare tax. For 2022, the FICA tax rate for employers is 7.65% — 6.2% for Social Security and 1.45% for Medicare (the same as in 2021).

2022 Updates

For 2022, an employee will pay:

  • 6.2% Social Security tax on the first $147,000 of wages (6.2% of $147,000 makes the maximum tax $9,114), plus
  • 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus
  • 2.35% Medicare tax (regular 1.45% Medicare tax plus 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return).

For 2022, the self-employment tax imposed on self-employed people is:

  • 12.4% OASDI on the first $147,000 of self-employment income, for a maximum tax of $18,228 (12.4% of $147,000); plus
  • 2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a return of a married individual filing separately), plus
  • 3.8% (2.90% regular Medicare tax plus 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return).

More than One Employer

What happens if an employee works for your business and has a second job? That employee would have taxes withheld from two different employers. Can the employee ask you to stop withholding Social Security tax once he or she reaches the wage base threshold? Unfortunately, no. Each employer must withhold Social Security taxes from the individual’s wages, even if the combined withholding exceeds the maximum amount that can be imposed for the year. Fortunately, the employee will get a credit on his or her tax return for any excess withheld.

We Can Help 

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

 

© 2021

 

Opportunities and Challenges: Valuation in the Age of COVID-19 | accounting firms in baltimore | WCS

Opportunities and Challenges: Valuation in the Age of COVID-19

Valuation and estate planning go hand in hand. After all, the tax implications of various estate planning strategies depend on the value of your assets at the time they’re transferred.

The COVID-19 pandemic has had a significant impact on the value of many business interests and other assets, which may create some attractive estate planning opportunities. It also presents unique challenges for valuation professionals. As a result, it’s more important than ever to involve experienced valuation experts in the estate planning process.

What are the Opportunities?

With the value of many assets depressed (in many or most cases temporarily), now may be an ideal time to gift them, either directly to family members or to irrevocable trusts and other estate planning vehicles. Transferring assets while values are low also allows you to use as little of your gift and estate tax exemption as possible, maximizing the amount available for future gifts or bequests. As the economy fully recovers and assuming your asset values rebound, your beneficiaries should enjoy substantial growth outside your taxable estate.

What are the Challenges?

The pandemic has created a situation that’s truly uncharted territory for the valuation profession. Unlike other economic crises in recent years, most of the damage to the economy resulted from business closures and restrictions and other measures designed to help contain the virus.

For business valuations, the current environment presents several challenges, including:

Known or knowable. A fair market valuation generally doesn’t consider “subsequent events” — that is, events that occur after, and weren’t “known or knowable” on the valuation date. Experts generally agree that the COVID-19 pandemic wasn’t known or knowable as of December 31, 2019. Yet for valuation dates after that, determining whether the pandemic was known or knowable and should be considered in valuing a business or other asset can be a formidable task.

Valuation approaches. Generally, valuators consider all three of the major valuation approaches: the income, market and asset approaches. The pandemic may affect the relative appropriateness of each approach and the amount of weight they should be assigned.

For example, market-based methods, which rely on data about actual transactions involving comparable businesses, may be less relevant today if the underlying transactions predate COVID-19 (although it may be possible to adjust to reflect the pandemic’s impact).

Many valuators are emphasizing income-based methods, such as the discounted cash flow (DCF) method, which involves projecting a business’s future cash flows over a defined period (such as five years) and discounting them to present value. The advantage of DCF is that it provides a great deal of flexibility to model a business’s expected financial performance based on current conditions as well as assumptions about its eventual return to “normal” over the next several years.

Regardless of the method or methods used, it’s important for valuators to consider a business’s available cash and expected cash needs to assess its viability as a going concern. These considerations will be critical in evaluating a business’s risk and the impact of that risk on value.

What’s it Worth?

Depressed asset values can create attractive estate planning opportunities. While the pandemic has dropped the value of some assets, others haven’t been affected or have even increased in value. Contact us with questions regarding the valuation of your assets.

 

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

 

© 2021

 

4 Ways to Refine your Cash Flow Forecasting | accountant in baltimore county md | WCS

4 Ways to Refine your Cash Flow Forecasting

Run a business for any length of time and the importance of cash flow becomes abundantly clear. When payroll is due, bills are piling up and funds aren’t available, blood pressure tends to rise. For this reason, being able to accurately forecast cash flow is critical. Here are four ways to refine your approach:

1. Know when you peak. Many businesses are cyclical, and their cash flow needs vary by month or season. Trouble can arise when an annual budget doesn’t reflect, for example, three months of peak production in the summer to fill holiday orders followed by a return to normal production in the fall.

For seasonal operations — such as homebuilders, farms, landscaping companies and recreational facilities — using a one-size-fits-all approach can throw budgets off, sometimes dramatically. To forecast your company’s cash flow needs and plan accordingly, track your peak sales and production times over as long a period as possible.

2. Engage in careful accounting. Effective cash flow management requires anticipating and capturing every expense and incoming payment, as well as — to the extent possible — the exact timing of each payable and receivable. But pinpointing exact costs and expenditures for every day of the week can be challenging.

Businesses can face an array of additional costs, overruns and payment delays. Although inventorying every possible expense can be tedious and time-consuming, doing so can help avoid problems down the road.

3. Keep an eye on additional funding sources. As your business expands or contracts, a dedicated line of credit with a bank can help you meet cash flow needs, including any periodic shortages. Interest rates on these credit lines, however, can be high compared to other types of loans. So, lines of credit typically are used to cover only short-term operational costs, such as payroll and supplies. They also may require significant collateral and personal guarantees from the company’s owners.

Of course, a line of credit isn’t your only outside funding option. Federally funded small business loans have been widely offered during the COVID-19 pandemic and may still be available to you. Look into these and other options suitable to the size and needs of your company.

4. Invoice diligently, run leaner. For many businesses, the biggest cash flow obstacle is slow collections. Be sure you’re invoicing in a timely manner and offering easy, convenient ways for customers to pay (such as online). For new customers, perform a thorough credit check to avoid delayed payments and bad debts.

Another common obstacle is poor resource management. Redundant machinery, misguided investments and oversized offices are just a few examples of poorly managed expenses and overhead that can negatively affect cash flow.

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

 

 

© 2021

 

Is a Health Savings Account Right for You? | accountants in DC | Weyrich, Cronin & Sorra

Is a Health Savings Account Right for You?

Given the escalating cost of health care, there may be a more cost-effective way to pay for it. For eligible individuals, a Health Savings Account (HSA) offers a tax-favorable way to set aside funds (or have an employer do so) to meet future medical needs. Here are the main tax benefits:

  • Contributions made to an HSA are deductible, within limits,
  • Earnings on the funds in the HSA aren’t taxed,
  • Contributions your employer makes aren’t taxed to you, and
  • Distributions from the HSA to cover qualified medical expenses aren’t taxed.

Who’s Eligible?

To be eligible for an HSA, you must be covered by a “high deductible health plan.” For 2021, a high deductible health plan is one with an annual deductible of at least $1,400 for self-only coverage, or at least $2,800 for family coverage. For self-only coverage, the 2021 limit on deductible contributions is $3,600. For family coverage, the 2021 limit on deductible contributions is $7,200. Additionally, annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits can’t exceed $7,000 for self-only coverage or $14,000 for family coverage.

An individual (and the individual’s covered spouse) who has reached age 55 before the close of the year (and is an eligible HSA contributor) may make additional “catch-up” contributions for 2021 of up to $1,000.

HSAs may be established by, or on behalf of, any eligible individual.

Deduction Limits

You can deduct contributions to an HSA for the year up to the total of your monthly limitations for the months you were eligible. For 2021, the monthly limitation on deductible contributions for a person with self-only coverage is 1/12 of $3,600. For an individual with family coverage, the monthly limitation on deductible contributions is 1/12 of $7,200. Thus, deductible contributions aren’t limited by the amount of the annual deductible under the high deductible health plan.

Also, taxpayers who are eligible individuals during the last month of the tax year are treated as having been eligible individuals for the entire year for purposes of computing the annual HSA contribution.

However, if an individual is enrolled in Medicare, he or she is no longer eligible under the HSA rules and contributions to an HSA can no longer be made.

On a once-only basis, taxpayers can withdraw funds from an IRA, and transfer them tax-free to an HSA. The amount transferred can be up to the maximum deductible HSA contribution for the type of coverage (individual or family) in effect at the transfer time. The amount transferred is excluded from gross income and isn’t subject to the 10% early withdrawal penalty.

Distributions

HSA Distributions to cover an eligible individual’s qualified medical expenses, or those of his spouse or dependents, aren’t taxed. Qualified medical expenses for these purposes generally mean those that would qualify for the medical expense itemized deduction. If funds are withdrawn from the HSA for other reasons, the withdrawal is taxable. Additionally, an extra 20% tax will apply to the withdrawal, unless it’s made after reaching age 65 or in the event of death or disability.

As you can see, HSAs offer a very flexible option for providing health care coverage, but the rules are somewhat complex.

 

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

 

 

© 2021

 

Think like a Lender before Applying for a Business Loan | tax preparation in harford county | Weyrich, Cronin & Sorra

Think like a Lender before Applying for a Business Loan

Commercial loans, particularly small business loans, have been in the news over the past year or so. The federal government’s Paycheck Protection Program has been helpful to many companies, though fraught with administrative challenges.

As your business pushes forward, you may find yourself in need of cash in the months ahead. If so, more traditional commercial loan options are still out there. Before you apply, however, think like a lender to be as prepared as possible and know for sure that the loan is a good idea.

4 basic questions

At the most basic level, a lender has four questions in mind:

  1. How much money do you want?
  2. How do you plan to use it?
  3. When do you need it?
  4. How soon can you repay the loan?

Pose these questions to yourself and your leadership team. Be sure you’re crystal clear on the answers. You’ll need to explain your business objectives in detail and provide a history of previous lender financing as well as other capital contributions.

Lenders will also look at your company’s track record with creditors. This includes business credit reports and your company’s credit score.

Consider the three C’s

Lenders want to minimize risk. So, while you’re role-playing as one, consider the three C’s of your company:

1. Character. The strength of the management team — its skills, reputation, training and experience — is a key indicator of whether a business loan will be repaid. Strive to work through natural biases that can arise when reviewing your own performance. What areas of your business could be viewed as weaknesses, and how can you assure a lender that you’re improving them?

2. Capacity. Lenders want to know how you’ll use the loan proceeds to increase cash flow enough to make payments by the maturity date. Work up reasonable cash flow and profitability projections that demonstrate the feasibility of your strategic objectives. Convince yourself before you try to convince the bank!

3. Collateral. These are the assets pledged if you don’t generate enough incremental cash flow to repay the loan. Collateral is a lender’s backup plan in case your financial projections fall short. Examples include real estate, savings, stock, inventory and equipment.

As part of your effort to think like a lender, use your financial statements to create a thorough inventory of assets that could end up as collateral. Doing so will help you clearly see what’s at stake with the loan. You may need to put personal assets on the line as well.

Gain some insight

Applying for a business loan can be a stressful and even frustrating experience. By taking on the lender’s mindset, you’ll be better prepared for the process. What’s more, you could gain insights into how to better develop strategic initiatives.

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

 

© 2021

 

Providing Optimal IT Support for Remote Employees | Tax Accountants in Harford County | Weyrich, Cronin & Sorra

Providing Optimal IT Support for Remote Employees

If you were to ask your IT staff about how tech support for remote employees is going, they might say something along the lines of, “Fantastic! Never better!” However, if you asked remote workers the same question, their response could be far less enthusiastic.

This was among the findings of a report by IT solutions provider 1E entitled “2021: Assessing IT’s readiness for the year of flexible working,” which surveyed 150 IT workers and 150 IT managers in large U.S. organizations. The report strikingly found that, while 100% of IT managers said they believed their internal clients were satisfied with tech support, only 44% of remote employees agreed.

Bottom line impact

By now, over a year into the COVID-19 pandemic, remote work has become common practice. Some businesses may begin reopening their offices and facilities as employees get vaccinated and, one hopes, virus metrics fall to manageable levels. However, that doesn’t mean everyone will be heading back to a communal working environment.

Flexible work arrangements, which include the option to telecommute, are expected to remain a valued employment feature. Remote work is also generally less expensive for employers, so many will likely continue offering or mandating it after the pandemic fades.

For business owners, this means that providing optimal IT support to remote employees will remain a mission-critical task. Failing to do so will likely hinder productivity, lower morale, and may lead to reduced employee retention and longer times to hire — all costly detriments to the bottom line.

Commonsense tips

So, how can you ensure your remote employees are well-supported? Here are some commonsense tips:

Ask them about their experiences

  • In many cases, business owners are simply unaware of the troubles and frustrations of remote workers when it comes to technology. Develop a relatively short, concisely worded survey and gather their input.

Invest in ongoing training for IT staff.

  • If you have IT staffers who, for years, provided mostly in-person desktop support to on-site employees, they might not serve remote workers as effectively. Having them take one or more training courses may trigger some “ah ha!” moments that improve their interactions and response times.

Review and, if necessary, upgrade IT systems and software

  • Your IT support may be falling short because it’s not fully equipped to deal with so many remote employees — a common problem during the pandemic. Assess whether:
    • Your VPN system and licensing suit your needs,
    • Additional or better cloud solutions could help, and
    • Your remote access software is helping or hampering support.

Ensure employees know how to work safely

  • Naturally, the remote workers themselves play a role in the stability and security of their devices and network connections. Require employees to undergo basic IT training and demonstrate understanding and compliance with your security and usage policies.

Your IT future

The pandemic has been not only a tragic crisis, but also a marked accelerator of the business trend toward remote work. We can help you evaluate your technology costs, measure productivity and determine whether upgrades are likely to be cost-effective. Contact us today to see how we can help you.

 

© 2021

 

digital sales tax | CPAs in Baltimore County | Weyrich, Cronin & Sorra

Maryland Sales and Use Tax on Digital Products

The Maryland legislation recently overrode Governor Hogan’s veto of House bill 932. The bill expands the current 6% sales and use tax to include the sale of digital products. Maryland recently published Business Tax Tip #29 Sales of Digital Products and Digital Code which gives a nonexclusive lists of possible digital products such as but not limited to:

  • A sale, subscription or license to access content online
  • A sale, subscription or license to use a software application
  • Photographs, artwork, illustrations, graphics and similar products

The release points out that the sales and use tax does not apply to the sale of a non-taxable service performed electronically unless the service results in a digital product. To view the Comptroller’s release click here.

For more details on the recent change to the sales and use tax rules please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

A reminder that the Comptrollers Office Of Maryland recently extended the Sales and Use tax deadline for sales taking place in March, April, and May of 2021 to July 15, 2021.

 

bFile System Ready for RELIEF Act Sales & Use Tax Credit | CPA in Harford County | Weyrich, Cronin & Sorra

Governor Hogan Announces Emergency Stimulus & Relief Package

Governor Larry Hogan recently proposed an emergency legislative package that will provide more than $1 billion in direct stimulus and tax relief for Maryland families, small businesses, and those who have lost their jobs as a result of the COVID-19 pandemic. If signed into law as drafted the legislation would
  1. Repeal all state and local income taxes on unemployment benefits
  2. Support small businesses with sales tax credits of up to $3,000 per month for four months— for a total of up to $12,000
  3. Extend unemployment tax relief for small businesses. This provision codifies an emergency order the governor issued last month.
  4. Safeguards Maryland businesses against any tax increase triggered by the use of state loan or grant funds.
  5. For families that filed for the states earned income tax credit, provides payments for low-to-moderate income Marylanders, with benefits of up to $750 for families and $450 for individuals. This relief begins with immediate payments of $500 for families and $300 for individuals who filed for the Earned Income Tax Credit (EITC), followed by a second-round stimulus for EITC filers that would provide an additional $250 for eligible families and $150 for individuals. Similar to federal stimulus payments, no application for relief is necessary.
The Governor’s full announcement can be viewed here.
Employee Retention Credit changed for 2020 & 2021
As part of the recently passed 2021 Consolidated Appropriations Act Congress made a retroactive amendment and extension of the Employee Retention Credit (ERC) which was originally created and made available to businesses as part of the CARES Act of 2020. The extension applies to qualifying wages paid before July 1, 2021.
Previously, a business that received a PPP loan was not eligible to also claim the ERC. However under the new law, PPP borrowers can also apply for the credit, retroactive for 2020. Wages used to satisfy the PPP forgiveness eligibility cannot be used to claim the ERC. Employers that took PPP loans and had excess qualifying payroll should review their eligibility for any ERC available for 2020.
To be eligible for the ERC an employer must have experienced either : (A) Partial or full suspension of operations arising from a governmental order or (B) A significant decrease in gross receipts . The employer must also have continued to pay their employees during this period. A significant decrease in gross receipts is defined as:
  • 2020 year- 2020 Gross receipts were less than 50% of gross receipts for the same quarter in 2019
  • 2021 year- 2021 Gross receipts less than 80% of gross receipts for the same quarter in 2019
The credit computation depends on eligible payroll costs, the maximum eligible credit per employee is $5,000 for 2020 and $7,000 per quarter for Q1 & Q2 2021 (max $14,000).
For employers that have already filed and received their PPP loan forgiveness, additional guidance will be forthcoming as to claiming the 2020 ERC. For employers who received a PPP loan and have yet to apply for forgiveness they may want to consider holding their applications until additional guidance is released by the IRS and SBA.
For 2021 ERC, eligible employers will claim the ERC similar to how the 2020 ERC was claimed, that is by Form 941. In anticipation of receiving the ERC, eligible employers can fund qualified wages by: (1) Accessing federal employment taxes, including withheld taxes that are required to be deposited with the IRS, and (2) Requesting an advance of the credit from the IRS for the amount of the credit that is not funded by accessing the federal employment tax deposits, by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.
While the IRS has not yet updated their website for the new law, we anticipate updates shortly. Information can be obtained here.
The above is a summary of the ERC, additional eligibility requirements and exemptions apply. Employers with over 100 employees in 2020 or 500 employees in 2021 have additional restrictions.


Please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.
Get smart when tackling estate planning for intellectual property | Estate Planning | WCS | Baltimore, MD

Get smart when tackling estate planning for intellectual property

If you’ve invented something during your lifetime and had it patented, your estate includes intellectual property (IP). The same goes for any copyrighted works. These assets can hold substantial value, and, thus, must be addressed by your estate plan. However, bear in mind that these assets are generally treated differently than other types of property.

4 categories of IP

IP generally falls into one of four categories: patents, copyrights, trademarks and trade secrets. Let’s focus on only patents and copyrights, which are protected by federal law in order to promote scientific and creative endeavors by providing inventors and artists with exclusive rights to benefit economically from their work for a certain period.

In a nutshell, patents protect inventions, and the two most common are utility and design patents. Under current law, utility patents protect an invention for 20 years from the patent application filing date. Design patents last 15 years from the patent issue date. For utility patents, it typically takes at least a year to a year and a half from the date of filing to the date of issue.

When it comes to copyrights, they protect the original expression of ideas that are fixed in a “tangible medium of expression,” typically in the form of written works, music, paintings, film and photographs. Unlike patents, which must be approved by the U.S. Patent and Trademark Office, copyright protection kicks in as soon as a work is fixed in a tangible medium.

Valuing and transferring IP

Valuing IP is a complex process. So, it’s best to obtain an appraisal from a professional with experience valuing this commodity.

After you know the IP’s value, it’s time to decide whether to transfer the IP to family members, colleagues, charities or others through lifetime gifts or through bequests after your death. The gift and estate tax consequences will affect your decision. But you also should consider your income needs, as well as who’s in the best position to monitor your IP rights and take advantage of their benefits.

If you’ll continue to depend on the IP for your livelihood, for example, hold on to it at least until you’re ready to retire or you no longer need the income. You also might want to retain ownership of the IP if you feel that your children or other transferees lack the desire or wherewithal to take advantage of its economic potential and monitor and protect it against infringers.

Whichever strategy you choose, it’s important to plan the transaction carefully to ensure your objectives are achieved. There’s a common misconception that, when you transfer ownership of the tangible medium on which IP is recorded, you also transfer the IP rights. But IP rights are separate from the work itself and are retained by the creator.

Revise your plan accordingly

If you own patents or copyrights, you probably have great interest in who’ll take possession of your work after you’re gone. Contact us with any questions on how to incorporate IP in your estate plan.

© 2020

 

ERM: A systemic approach to reducing your nonprofit’s risks | risk management plan for nonprofit organization | WCS | Baltimore, MD

ERM: A systemic approach to reducing your nonprofit’s risks

Do you associate enterprise risk management (ERM) with for-profit businesses? This systemic approach to risk reduction can be just as effective when adopted by nonprofit organizations. Even organizations with limited resources can — and should — use an ERM process to combat threats.

Weighing risks

ERM is a comprehensive program that considers an organization’s entire portfolio of risks. Rather than attacking every risk equally, ERM compares risks and strategically deploys resources depending on their likelihood and potential impact.

You might also have different tolerances for different kinds of threats — for example, be mildly cautious about reputational risks and very averse to financial risks. With ERM, you can contain those risks with the greatest potential impact and respond nimbly to others.

Using it effectively

Experienced financial advisors and risk-management consultants can help you set up an ERM program. Generally, you’ll want to start by establishing a risk management governance structure with assigned roles and responsibilities. Your nonprofit’s executives and board should define the organization’s risk tolerance and make clear its commitment to the program.

Next, your organization will want to:

Assemble a cross-departmental committee to develop the program. Different departments may have different perspectives on certain risks. For example, a finance manager might think inaccurate reporting of program information is less consequential because it’s unlikely to affect revenues or expenses. Your public relations manager may disagree, arguing that such errors could affect how donors and other supporters view your nonprofit.

Conduct a risk assessment. The committee’s first task is to identify risks. It shouldn’t rely on its own knowledge, but should conduct interviews with management and staff and, possibly, clients. Then, the committee will be ready to rank risks based on your organization’s tolerance and their potential impact. Which are most likely to occur? Which could cause the most harm? The bottom line: Which threats are most likely to prevent you from accomplishing your mission?

Create and implement a plan. Once risks are identified and prioritized, the committee can devise a plan to mitigate them appropriately. For each risk, it should determine whether to accept, reduce or avoid it. And it should implement controls, processes and procedures accordingly. The committee is then charged with rolling out the plan. This should include communicating it throughout the organization.

Review and revise. ERM is an ongoing process, with continual monitoring of key risks and key performance indicators to ensure appropriate adjustments. Be sure to update your initial risk assessment to reflect organizational changes (for example, new staff or services), as well as changes in the legal and regulatory environment.

Cost-effective method

Once it’s established, you should be able to manage an ERM program with internal staff and board input. So, it’s a fairly cost-effective method of containing threats. Talk to us about adopting ERM.

© 2020