Author: Ketel Thorstenson, LLP

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Still Waiting for Your Refund?

When you filed your 2020 tax return did it show a refund? Are you still waiting on that refund? If you answered yes to both questions, you are not alone. There are many taxpayers across the country still waiting for their tax refund.

The Stats…

The IRS is experiencing more backlog and congested phone lines than it has ever experienced in the past. They currently have a backlog of 35 million unprocessed individual and business returns that require manual processing – 35 million – paper tax returns! This is more than 5 times as many returns than were manually processed in 2019. As for phone calls, the IRS received more calls during the 2021 tax filing season alone than it has ever received in a full fiscal year. This is roughly 4 times as many calls as in the 2019 tax season. These statistics help bring to light the struggle the IRS is facing.

The Factors…

In addition to the stats above, it was reported that some 3.7 million returns were flagged as suspicious as of May 2021, compared to just 1.3 million in 2019. Of the 3.7 million returns, less than half are paper returns and the rest consists of returns that were suspended during processing and require further review. The main reasons for a return to be flagged include 1) discrepancies between the recovery rebate credit (stimulus) claimed by the taxpayer and what the IRS records indicate the taxpayer received and 2) the IRS is double checking returns where the taxpayer elected the option to use their 2019 earnings amount instead of their 2020 earnings to claim a larger earned income tax credit or additional child tax credit. The CARES Act made this election to quickly provide refunds where needed, but it is now causing these taxpayers to have the opposite effect and have delayed refunds.

The Results…

Unfortunately, at this point, the best suggestion we have is patience. All you can do is wait for the backlog to clear. Calling the IRS will not help the situation or speed up your refund. Currently the IRS is experiencing an overload of phone calls. If you decide to give them a call it will result in either getting the “sorry we do not have time for your call” automated response, hold times for over 2 hours, or if you do reach a representative your call may be dropped.  There is no information that the agent can provide you that you cannot look up yourself using the “Where’s My Refund” page at https://www.irs.gov/refunds.

The 2020 tax return filing season has been hard on the IRS and on the taxpayers. Ketel Thorstenson, LLP has been here through it all and we are here to help.

July 15, 2021
| Ketel Thorstenson, LLP
KT Insights
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Possible Estate Tax Changes

President Biden proposed a new tax plan called the American Families Plan. It includes many provisions and tax consequences. Below outlines the provisions of the plan relating specifically to estate returns. Be sure to catch Carrie Christensen’s article covering the other provisions in the tax plan that may cost you money.

Currently when someone passes on, they do not have a taxable estate unless their estate is over $11,700,000. In addition, the beneficiaries receive a step-up in basis, which means each beneficiary’s cost basis in an asset is the fair market value at the date of death. For example, if the decedent owned a home that was purchased for $500,000 and includes $100,000 in improvements, then the basis is $600,000 to the decedent. Once the decedent passed on, the home would receive a step-up in basis to current fair market value. Let’s assume the house is now worth $900,000. The beneficiary can turn around and sell the house after inheriting for $900,000 and not pay a single penny in tax.

The American Families Plan is going to change this. The plan now calls for all inherited property to be treated as a sale and the tax will be due upon the decedent’s passing if the decedent has capital gains in excess of $1 million ($2 million per couple). There would also be a $250,000 ($500,000 per couple) exclusion of gain on personal residence. There would be no more step-up in basis, but the new basis would still be the fair market value of the asset because the beneficiary had to pay tax on the gain on the transfer or “sale” of the asset.

The farmers and ranchers are our biggest group of clients that this will affect, due to the land and assets they hold. The proposal does include an exemption for family-owned businesses. The proposal states that if the decedent was active in the business for five out of the last ten years and the beneficiary will be an active participant, then the tax will be “deferred.” The reason the tax is deferred is because there will be no step-up in basis. That means, whatever the basis in the asset was with the decedent, that is the basis for the beneficiary. If the decedent was not active in the business five out of the last ten years, the business would be subject to the same taxation as everyone else. Note that cash rent does not qualify as an active participant. What is not clear at this time is what happens if down the road the beneficiary is no longer active, is the tax due at that time or is there an “active” period that would be implemented for the exempted assets.

The new plan will treat every transfer of property and assets as a taxable event, a pseudo sale if you will. This will potentially cause a lot of problems for asset rich and cash poor families. This law would cause families to have to sell assets to pay the tax due. At the proposed top tax bracket, all inherited assets have the potential to be taxed at 43.4%. At present, it is not known if or when the proposed tax bill will be passed. Income tax brackets are also unclear at this time. In addition, there may be changes to current gifting rules. There are a lot of “ifs” at this point, but the KTLLP Estate Team wanted to provide awareness. KTLLP can put together a plan that will best suit you, your family, and the livelihood of your business.

June 28, 2021
| Ketel Thorstenson, LLP
KT Insights
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Monthly Close Best Practices

Closing the books on a monthly basis can reduce work at year-end, and allow accurate financial statements to be reviewed throughout the year to identify any potential issues timely.  Additionally, management and boards can monitor benchmarks and budget activity.  Depending on different software, the closing process may range from an actual “close” function to checking items from a list for a “soft” close each month.

A checklist can be very helpful in this process.  The checklist could be created as the monthly close process is occurring to ensure completeness.  Then, test the checklist the following month and modify accordingly.  After a couple months of monitoring and modification, a streamlined closing process will have been created.

Who should be involved in the monthly closing process?  Knowing what processes need done will assist in ensuring the proper team is involved.

The accounts included in the monthly close process will vary based on the entity’s basis of accounting – accrual, cash basis, income tax basis, etc.  The following are some highlights of accrual-basis accounts to adjust on a monthly basis, including cash, accounts receivable and corresponding revenue, inventory, other assets, accounts payable, and various other accruals.  Additional accruals may exist based on operations.

After month-end, ensure all sales/revenue transactions have been recorded.  If the process to record sales transactions is done manually by the accountant, have they been recorded in the proper period?  For any revenue transactions completed where payment has not been received, accounts receivable should be recorded.  After the accounts receivable listing has been generated, it should be reviewed by management to determine if there are any collection concerns on slow-paying customers.  Ensuring the receivables listing agrees to the general ledger total is imperative.  Subsidiaries do not serve their purpose when the balances do not match the general ledger.

Depending on industry, consider counting inventory and making any necessary adjustments on the last day of the month.

Most likely, a business will not have received all of their bills needing paid within the first few days of the following month.  Management will determine how much time to leave the books open to record bills pertaining to the prior month and requiring payment in the current month.  When considering whether all bills have been entered, do not forget credit card transactions as well.  Be sure to have proper documentation to support all credit card transactions on the bill. 

Another important piece of the monthly close process pertains to journal entries.  Entries to consider include adjusting depreciation expense and prepaid insurance, if applicable.  As the amounts will likely not change, consider automating the entries, if software allows, which would help simplify the monthly closing process.

After all transactions have been entered, reconcile the bank statement.  The completed bank reconciliation should be reviewed by someone other than the preparer, to include verifying that figures per the reconciliation (bank statement balance and general ledger balance) agree to both the bank statement and the cash total in the general ledger.  Additionally, outstanding checks should be reviewed for age and consider re-generating the check if necessary or turning them over to the State as unclaimed property.  Deposits in transit should be reviewed for propriety to determine if they seem reasonable.  Additionally, changes to the cash account should not be made after the bank reconciliation has been performed.  This will cause the reconciliation to no longer agree to the general ledger.

After the above-described processes have been completed, consider any other entity-specific items needing tied out before the month can be closed.  Then, if software allows, close the month, or consider password-protecting the month in the software so accidental changes cannot be made.

Lastly, backups of data should be performed regularly to prevent data loss.

If you have any additional questions contact the Non-Profit Team at Ketel Thorstenson.

June 7, 2021
| Ketel Thorstenson, LLP
KT Insights
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Develop a High-Performing Culture (Part 2)

Welcome back. This is the second part of a two part blog on analyzing high performance cultures and why your organization needs it. As you may remember in Part 1 we identified that high-performance cultures feature two-way feedback mechanisms, training that promotes idea generation, and leadership that encourages employees to take ownership in the everyday performance of their roles. These features drive performance, cultivate teamwork, and nurture belonging. If you missed Part 1 click here to read it first.

Below are the additional three characteristics of high-performing organizations to strive for and tips to get you there.

  1. The board has a recruitment plan that identifies the gap in board competencies, like leadership, strategic thinker, change agent, etc.
    • Identify people who fit those descriptions and create a plan for relationship building with them. Outline strategic touches and assign them for accountability. Understand that this is done over time. It does not produce immediate results, and because of that should be on an ongoing, proactive basis.
  2. The organization regularly assesses the performance of each other’s strengths as well as identifies potential improvements to further sustain the mission.
    • Schedule regular meeting times for the board, for staff meetings, and for the director one-on-one with each staff. Make it known that this will be a regular agenda item.
    • Offer giving and receiving feedback training for all.
  3. The organization rewards and recognizes the high-performing contributions of staff, board, volunteers, and donors to celebrate the hard work of everyone involved.
    • Everyone is different in how they like to receive recognition. So ask people their preferences prior to doling out kudos.
    • Consider adding a “kudos” and/or “star volunteer” section or photo gallery to the organizations website. Include these sections in emails and newsletters to donors/members. Add them to the social media content calendar.

A high-performance culture is not hard work. Hard work helps of course but putting in consistently long hours and sacrificing family or leisure time is not high-performance. It is unsustainable and leads to turnover. Provide an environment that values individuals, their time, and interests. Encourage results-driven achievement.

May 19, 2021
| Ketel Thorstenson, LLP
KT Insights
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Develop a High-Performing Culture (Part 1)

What is a high performance culture and why does my organization need it?
High-performing nonprofit organizations have a culture of continuous improvement and strong leadership that believes the mission is best served when the organization promotes continuous learning. They are constantly open to learning new ideas and inquiring from others on the best practices and leadership competencies necessary to sustain their mission and achieve their vision. High-performance cultures feature two-way feedback mechanisms, training that promotes idea generation, and leadership that encourages employees to take ownership in the everyday performance of their roles. These features drive performance, cultivate teamwork, and nurture belonging.

The benefits of a high-performance culture are well documented. Gallup reports that organizations that have made a strategic investment in staff development report 11% greater profitability and are twice as likely to retain their employees. High achieving people (the ones who can grow your organization) seek development. Having a sense of purpose makes people feel great about what they do at work and helps them enrich and deepen their relationships outside of it.

Below are three characteristics of high-performing organizations to strive for and tips to get you there.

  1. Create an inspiring strategic vision in collaboration with the board, director, staff, and volunteers that encourages commitment and provides real measures of success. 
    • Schedule time to do a SWOT analysis (a simple but useful framework for analyzing your organization’s strengths, weaknesses, opportunities, and threats). Click here for an example. Encourage all input and promote full engagement to get buy-in, and authentic thoughts. Review for common themes and takeaways. Pick top responses to formalize direction for vision, goals that align with the vision, and define what success looks like/feels like.
  2. Encourage board members so they develop a strong sense of ownership and partnership, and continually ask the right questions to refresh and renew the organization. 
    • As the director set up check-in calls with each board member outside of board meetings. Ask them for honest feedback about what is working and what isn’t. Ask them about a goal they would like to see the organization accomplish, and outline possible strategies together to make that happen. Listen to all feedback.
  3. Establish a positive and unique brand identity and communicate the achievements and positive results of the organization to internal and external stakeholders. 
    • Use comments and themes from the strengths and opportunities identified in the SWOT analysis above to provide direction for brand messaging and placement. Consider what makes your organization stand out, and talk about that.
    • Consider a variety of delivery options: press releases, pitch story or request media interviews, email blasts, newsletters, website blogs, and social media. Create a communications committee to drive those efforts if need idea generation and execution assistance.

Watch for Part 2 of this blog, Develop a High-Performing Culture coming soon. We will share three more characteristics of high-performing organizations.

In the meantime, don’t hesitate to reach out to the Ketel Thorstenson Team with any questions on this blog or to review best practices to consider for your nonprofit organization. To sign up for the KTLLP Nonprofit newsletter click here.  

May 12, 2021
| Ketel Thorstenson, LLP
KT Insights
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ERTC Credits for Dental Offices

Attention Dentists:

There is an opportunity for your office to explore claiming the Employee Retention Tax Credit (ERTC).
Click Here to see an article for more information on the credit.  As noted, there are two ways to qualify for the ERTC:

1.   You had a 50% decline in revenues in a 2020 calendar quarter vs. 2019.  Or you had a 20% decline in revenues in a 2021 quarter vs. 2019.  This is not likely an avenue for you to qualify. 
OR
2.  You were partially or totally shut down by a government order.  The law is clear that you only qualify for the credit if a government entity mandated a shut down or partial shut-down. Dentists received a decree from Governor Noem that you “should” shut down. It was clearly not a mandate.  The good news is executive order 2020-12 changed the “should” to a “SHALL” on April 6th 2020.  The Board of Dentistry was following the direction of the Governor who, with the verbiage change mandated the closure of dental offices.  The Board took no action until April 7th, the day after Governor Noem’s mandate.

The good news is we have three years to amend forms 941 to take this credit.  There is not a rush.  You will qualify for the credit for wages paid on the dates you were shut down.  Example – ABC Dental, LLC, an S Corporation paid, was closed by Government Order from April 7, 2020 to May 11, 2020—when the order was lifted.  During this period the following wages were paid that were not used for PPP Forgiveness:
1.      Owner $20,000 – Credit $5,000

2.      Employee 1 $4,000 – Credit $2,000

3.      Employee 2 $5,000 – Credit $2,500

4.      Employee 3 $3,000 – Credit $1,500

5.      Total qualifying wages $22,000 – Total Credit $11,000

Feel free to review the article and reach out to the KTLLP ERTC Team if you would like us to perform an analysis. 

May 4, 2021
| Ketel Thorstenson, LLP
KT Insights
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Tax Tip: Qualified Charitable Distribution

With the standard deduction for individuals at $12,550 and for married filing joint at 25,100 for 2021, many taxpayers are no longer itemizing.  If you are over the age of 70 1/2, you are eligible to make a qualified charitable distribution.  This is a direct transfer of funds from your IRA custodian to a qualified charity and the distribution is not taxable to you.  It is recommended to take the distributions out of your traditional IRA and not a Roth IRA.  The Secure Act did not change the age requirement for QCDs.  The Secure Act did raise the age for required minimum distributions from 70 ½ to 72, so if you are age 72 or older, the distribution counts towards satisfying your required minimum distribution for the year.

Consult with your tax professional at Ketel Thorstenson about this or other tax matters because each situation is different. Don’t navigate the difficult and ever changing tax codes and legislation on your own.  Ketel Thorstenson CPAs and tax professionals receive advanced training and continuing education all year long to keep our service on the forefront of the tax industry. Call us today for guidance on tax planning, tax return preparation, and tax legislation affects or questions.

April 6, 2021
| Ketel Thorstenson, LLP