Examining the Delayed Tax Refunds of 2020

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COVID-19 caused a delay in the tax return filing deadline, giving taxpayers extra time during this uncertain economic time. But the IRS still hadn’t processed millions of returns by October.

The IRS responded to the COVID-19 pandemic by extending the deadline for tax filing in 2020. Many welcomed the grace period in a year that caused huge shifts in the economy, including business closures, lay-offs, and an increase in the unemployment rate. However, one downside is that many people were still waiting to receive their tax refunds, even as we approached the end of the year.

So, what’s causing the delays, and what should you expect if you’re still waiting? The answers could also have implications for your 2021 taxes.

2020 IRS delays in refund processing

The IRS delayed the tax deadline in 2020 to July 15 to help American taxpayers struggling through the pandemic. Some taxpayers could have also extended that deadline further—until October 15—if they filed IRS Form 4868 by July 15.

In October, it was reported that the IRS still had not processed 2.5 million income tax returns that came in hard copy by the deadline. Considering that 70% of returns last year resulted in a refund, that’s a lot of taxpayers who still hadn’t received their checks.

Are you waiting on your refund? Taxpayers can check on their tax refund status, but only if they filed electronically. Those hard-copy tax returns that haven’t yet been processed can’t be tracked. However, e-filers also saw delays in receiving their tax refunds, so it’s wise to log onto the “Get Refund Status” tool from the IRS to see where you stand.

One reason for the backlog could be that the IRS is understaffed and underfunded. Even before the pandemic, the organization was struggling. The agency had also sent many late refunds in 2019, had poor customer service performance, and was trying to manage increased workloads with significant funding shortages. 

The IRS’s budget has been cut by around 20% since 2010, and the agency lost 22% of full-time employees. These are major challenges for any year but especially in 2020.

Other reasons for delayed refunds

There are common reasons for refund delays in any typical tax year, some of which taxpayers can help avoid themselves. These include the following:

  • Your tax return is incomplete or inaccurate
  • Tax fraud has occurred, meaning someone else filed in your name illegally in an attempt to get your refund
  • You submitted a return amendment
  • Bank account information for the deposit was inaccurate
  • Certain claimed tax credits have caused the IRS to take a closer look at the return
  • The refund is being used to pay debt

When these issues are compounded with a pandemic’s challenges, even more severe delays are sure to occur.

Tax refund interest

Another interesting development in 2020 that applies to 2019 tax returns is the IRS-paid interest on late tax refunds. Law requires the IRS to pay interest on individuals’ tax refunds who were impacted by a federally declared disaster and filed by July 15. In a typical year, the IRS pays interest when a refund is delayed for over 45 days. However, this rule doesn’t apply to individuals who qualify for disaster relief.

This means that if a taxpayer receives a 2019 tax refund after April 15, 2020, it will include interest. According to the IRS, the average interest payment is $18. The interest rate for the third quarter of 2020 was 3%, down from 5% in the second quarter.

Where to go when you have tax questions

There continue to be many uncertainties facing our country, including whether another round of stimulus will be distributed and whether 2021 will bring the same tax challenges. And it is reasonable to suspect many of the delays seen in 2020 will extend into next year’s returns.

The team at Provident CPA and Business Advisors is here to help you during these ambiguous times. Whether you are an individual taxpayer or running a business, we can help break down tax laws that apply to you. We also help you pay the least amount of tax legally possible by ensuring you claim all applicable deductions and credits. 

Contact Provident CPA and Business Advisors to learn more. 

Tips for Deducting Travel Costs and Meal Expenses on Your Taxes

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Business owners can run into considerable costs when traveling for work, but some of these expenses can provide deductions come tax time.

Travel may have been curtailed during the pandemic, but it remains necessary for many self-employed individuals across the country. 

When you travel multiple times per year to meet with clients or negotiate contracts, the costs can quickly add up and begin to hinder your bottom line. Travel is about more than plane tickets and hotels; meals, ground transportation, and miscellaneous expenses add up.

The good news is that tax deductions are available for many business travel expenses, including transportation costs and meals. 

Here’s a look at the things you can write-off and the documentation you’ll need to keep the IRS happy.

Deducting meal expenses

You’re going to need to eat while on the road, and, luckily, you can deduct some of these expenses. 

According to the IRS, business owners can deduct 50% of their meal costs as long as they’re a legitimate business expense. If the meal is a primary part of your business function, a community event you’re sponsoring, or a charity dinner, you can often deduct 100% of the cost.

Keep in mind that you can’t deduct personal meals while on a business trip. For example, if you meet with a family member for dinner while traveling for business, you can’t write off the bill. 

You must ask for a receipt for meals you plan to deduct from your taxes. While you don’t have to include this receipt with your tax return, you might need to show it if the IRS audits you later. 

Transportation tax deductions

You can deduct transportation costs for business travel, no matter which method you use. 

According to the IRS, you can deduct 57.5 cents per mile when driving your personal vehicle in 2020, plus add the cost of tolls and parking onto the deduction. In theory, this tax-deductible business expense should offset the cost of gas and upkeep on the vehicle when using it for work.

If you choose to take a plane, bus, or train to your destination, you can deduct your ticket’s cost from your taxes. Taxi and other transportation modes between the airport or station and your hotel and your hotel and your work location also count. 

When renting a car in the city where you’re working, you can write-off the expense when using the car entirely for business. If you’re using the vehicle for personal reasons, too, only a portion of the cost is eligible.

Other deductible expenses

Other items are tax-deductible, as well, depending on the nature of your trip and what expenses you incur.

For example, you can write-off your hotel room if you’re unable to return home on the same day. Remember, however, that only essential expenses are eligible. You can’t deduct minibar charges or movie rentals. Make sure you ask for an itemized bill when checking out of your hotel room because the IRS will want to see it if they ever audit you.

There could be situations, like giving a presentation, where an equipment rental is necessary on a business trip. This expense is deductible, assuming that the rental is entirely for business reasons.

Other deductible expenses include conference fees, dry cleaning expenses, telephone and fax charges, and tips you provide to service staff while on a business trip.

Things you can’t deduct!

Before filing your taxes, be aware of specific items you can’t deduct. Failure to follow the rules could lead to an audit, which you surely want to avoid.

You can’t deduct most entertainment costs, for starters, including tickets to sporting events, country club memberships, fishing trips, and nights at a bar. Even if you’re conducting business in these settings, the activity is considered entertainment. 

You also can’t deduct lodging expenses within your home city. While you can write-off meal and vehicle mileage in your home city, the IRS won’t like it if you attempt to deduct a hotel room, even if you’re attending a conference nearby.

It’s perfectly acceptable to bring your family with you on a business trip, but don’t try to deduct their travel costs. The hotel room remains a business expense because you’d need it anyway, but your family’s plane tickets and meals are considered recreational.

Although it’s a somewhat vague term, you aren’t permitted to deduct “unreasonable” expenses on your taxes. The problem is that there is no official definition for these expenses, so don’t go overboard and stick to things that you know qualify to avoid an audit.

Keep a keen eye on your tax situation

If you still aren’t sure about what you can deduct and how to claim these items on your return, working with a professional can help. This assistance ensures that you make the maximum entitled deductions without running afoul of rules that will get you audited.

The team of experts at Provident CPA & Business Advisors is standing by to assist as you make tax deductions related to your travel and meal expenses. Get in touch to learn more.

Tax Planning for Locum Tenens Physicians

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New to a locum tenens assignment? To optimize tax planning and maximize savings, here are important factors to consider.

Being a locum tenens physician gives you a great deal of flexibility, providing new opportunities during a career and a chance to gain further professional experiences and perspectives. You can potentially work in locations you wouldn’t otherwise, including different states and perhaps even countries. 

There’s plenty to consider when you’re taking on these roles, including moving costs, where you’ll live, your new employer, and plans for the future. And there are also unique tax implications from being a locum tenens physician since you will be most likely be working as an independent contractor during your assignment. 

Here’s what you need to know about tax planning for locum tenens positions:

1099s and paying estimated taxes

Up until now, you may have always been a W-2 employee, meaning taxes are taken out of your paycheck each month by your employer, and you simply have to file an annual return. When you start as a locum tenens doctor, you become an independent contractor—meaning you’ll receive a 1099 form from your employer instead of the W-2. This income is still reported to the IRS by a locum tenens employer.

As an independent contractor receiving one or more 1099s, you’ll probably have to pay estimated quarterly taxes. You’ll only receive the 1099 annually, so you have to keep track of your income and calculate how much you owe to the IRS each quarter. When it’s time to file the annual tax return, you’ll report your 1099 income on Schedule C (Form 1040 or 1040-SR).

Depending on the type of business structure, the rules on when and how much you pay will vary. But be prepared to set aside more for taxes, since you’ll be covering your employer’s share of FICA taxes as well as your own, unlike W-2 employees.

Writing off expenses

A benefit of being an independent contractor is that you can write off work-related expenses. If you have to move for your locum tenens assignment, for example, you can usually write off the costs of moving and travel. Other deductions apply to a home office (if applicable), retirement savings, and sometimes your car. Make sure you save all receipts and records and document your business expenses when they occur.

You may qualify for many other deductions, so walk through your expenses with a tax professional. It’s crucial to take advantage of all available tax credits since you’ll be covering more in taxes as an independent contractor.

Creating a tax entity

Some locum tenens physicians decide to create an LLC, PLLC, or corporation to gain more control over their taxes. Sometimes, it might make more sense for you to create one of these business structures if you are earning a lot in your temporary position or paying a significant amount in self-employment tax. However, don’t make the call without first talking through your situation with a CPA.

Filing in the right locations

Just because you’re temporarily working in another state doesn’t necessarily mean you don’t have to file taxes in your home state. You will likely have to file in both locations. And if you’re working in multiple states, you will have to pay taxes to all of them, though you won’t have to pay taxes on the same income more than once. 

If you’re taking on an international locum tenens position, you’ll still be taxed by the IRS on income earned outside the country, in most cases.

Finding the right tax help 

It’s incredibly beneficial to find a qualified tax professional to assist you if you are a locum tenens physician. The aforementioned tax considerations will vary based on your specific situation—where you’re practicing, for how long, the type of business entity you’ve created, and more. A tax professional will help you understand when to pay taxes, what you can deduct, and how much to pay quarterly, if applicable. 

Provident CPA & Business Advisors can provide the peace of mind that you’re filing correctly and taking advantage of each and every deduction available to you. Changing locations or job duties for a locum tenens assignment can already be chaotic, so allow us to help manage your tax burden. 

Contact Provident to learn more.

How to Nail a 90-Day Action Plan

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An action plan helps you reach both short- and long-term goals while developing foresight and flexibility

Creating a 90-day action plan for your business helps set and reach clear and realistic goals. This roadmap can also narrow down your short-term objectives to prioritize focus for a set period. And an action plan will help you apply what you learn during that time to the future.

Whatever you’re using this technique to accomplish—whether increasing revenue, getting more customers, or growing your business—you’ve got to nail it. Here are a few pointers for doing just that:

Set SMART goals

An action plan requires a set of desired outcomes, driven by how you want your business to look after 90 days. But where do you start? Make sure each of your goals, including daily and weekly targets as well as your 90-day goal, are SMART.

SMART goals are: Specific, Measurable, Achievable, Realistic, and Timely. Let’s dive into what these terms mean when you’re prioritizing.

  • Specific. It’s not enough to say that you want to increase revenue. You need to write down a number that you want to reach by day 90.
  • Measurable. How will you track progress? If your goal can’t be measured, it’s not a SMART one.
  • Achievable. Do you have everything you need right now to make it happen? You should have all the necessary resources before beginning.
  • Realistic. Make sure your goals are possible. SMART goals can be bold but not so aggressive that the desired outcome is a giant leap from what your business has accomplished in recent history.
  • Timely. While you have 90 days for your full action plan to come alive, create time-based targets within that period. Check off small steps that lead to the big payoff.

Another tip: It’s not enough to set these business goals on your own. Make sure your team is involved in planning. Emphasize how these goals align with the company’s overall vision so that everyone is aligned.

Determine cash flow requirements

For your 90-day plan to work, you need the right balance of income and expenses. How much money will you need to bring in regularly during this period? What expenses are you certain to have? What unplanned costs could potentially arise? 

Surprises happen, and three months is plenty of time for something to go wrong, even if it’s unrelated to the present goals. Categorize your costs into fixed and variable. For example, rent or space costs will be fixed, while supplies or salaries may be inconsistent.

Be prepared with a realistic cash flow plan. List your obligations and the actual cash you know you’ll receive. 

Identify other sources of income

Once cash flow is figured out, maybe you realize that your goals require a bit more money coming in regularly. Determine other income channels. Get creative. Involve other people who can think of additional sources or provide helpful perspectives.

And don’t underestimate the power of eliminating expenses. Negotiate with a vendor or research other businesses in the area that might be more affordable. If you have high debt payments each month, consider trying to defer payments or restructure your payment plan.

If you don’t have much debt, a business loan can help in a pinch. If the only obstacle to nailing your 90-day plan is more cash, a reasonable loan is not always a bad idea.

Be firm but adaptable

A 90-day action plan requires consistency and commitment. But there are always circumstances that arise to change plans quickly. Your benchmarks and goals may need to be updated within the quarter. 

For example, many small business owners had very different goals before the pandemic. But now, what they consider success to look like and the benchmarks they set are based on post-COVID numbers.

Try to stay flexible and celebrate small wins. This is where incremental steps are helpful as you are on the path to a 90-day desired outcome. 

Need outside help?

Often, an impartial, professional set of eyes can provide the perspective to clarify efficient planning. Provident CPA & Business Advisors can help you create the right strategy, set SMART goals, and track your progress along the way. We assist in planning for successful growth by identifying your critical drivers and creating the right budget. And our cash flow analysis focuses on the now to help you create a better future.

Contact the Provident team to learn more about our business strategy services.